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Item 1.8 - Contract for Professional Auditing Services; Davis Farr, LLPCity of PowayE)COUNCIL AGEN®A REPORT DATE: April 16, 2019 TO: Honorable Mayor and Members of the City Council FROM: Tina White, City Manager CONTACT: Donna Goldsmith, Director of Finance 858) 668-4411 or dgoldsmith( )oway.org APPROVED APPROVED AS AMENDED SEE MINUTES) DENIED REMOVED CONTINUED RESOLUTION NO. Debra Weatherington, Senior Accountant 858) 668-4429 or dweatherington gnpoway.org SUBJECT: Award of Contract to Davis Farr, LLP for Professional Auditing Services Summary: Based upon a recent Request for Proposals (RFP) process, staff is seeking approval to enter into an agreement with Davis Farr, LLP to provide professional auditing services to the City of Poway for three (3) fiscal years beginning with the fiscal year ending June 30, 2019, with the option to extend the agreement for two additional one-year terms. Recommended Action: It is recommended that the City Council award a contract to Davis Farr, LLP for professional auditing services and authorize the City Manager to execute all necessary documents associated with the agreement. The initial term of the contract is three years with the option to extend for two additional one-year terms. Discussion: The City of Poway's (City) current contract with Rogers, Anderson, Malody & Scott, LLP for auditing services has expired. In January 2019, the City conducted an RFP process, soliciting proposals from auditing firms to provide annual independent auditing services to the City. The requested services include audits of the City of Poway, the Poway Housing Authority, and the Public Financing Authority. Additionally, services include preparation of the Financial Statements in the Comprehensive Annual Financial Report (CAFR), Agreed-upon Procedures Applied to the Appropriations Limit Schedule (Gann Limit), and the Single Audit, if required. Optional services include preparation of the annual State Controller's Report and Franchise Fee, Operating Lease and Transient Occupancy audits. The RFP was posted on the California Society of Municipal Officer's website, as well as the City's online a -bid board. Seven (7) firms submitted proposals. Based upon review of each firm's pricing, qualifications, and responsiveness to the RFP requirements, staff conducted interviews with the three (3) highest rated firms. Following the interviews, staff conducted reference checks on the top two finalists. 1 of 40 April 16, 2019, Item #1.8 Findings: After a thorough evaluation of submitted proposals, Davis Farr, LLP was selected as the firm best suited to meet the City's current and future needs. Davis Farr, LLP has extensive experience working with the public sector, including the audit of other local cities such as Carlsbad and Santee. Staff recommends the City enter into an agreement with Davis Farr, LLP for a period of three years, with the option to extend for two additional one-year terms. Environmental Review: None. Fiscal Impact: There is currently $60,000 available for these services in the fiscal year 2018-19 Adopted Budget. These funds are split between the Director of Finance's operating budget ($51,000; 110010- 17030) and the Development Services Housing Authority Division's operating budget ($9,000; 309030-17030). Public Notification: None. Attachment: A. Professional Services Agreement with Davis Farr, LLP Reviewed/Approved By: Wendy Kaserman Assistant City Manager 2 of 40 Reviewed By: Approved By: ' A t" Alan Fenstermacher Tina M. White City Attorney City Manager April 16, 2019, Item #1.8 City of Poway STANDARD AGREEMENT FOR SERVICES This Agreement, entered into this 17 day of April, 2019, by and between the CITY OF POWAY (hereinafter referred to as "City") and DAVIS FARR, LLP (hereinafter referred to as "Consultant'). RECITALS WHEREAS, City desires to obtain the services of a private consultant to perform professional auditing services; and WHEREAS, Consultant is a certified public accounting firm and has represented that Consultant possesses the necessary qualifications to provide such services; and WHEREAS, City has authorized the preparation of an agreement to retain the services of Consultant as hereinafter set forth. NOW, THEREFORE, IT IS MUTUALLY AGREED THAT CITY DOES HEREBY RETAIN CONSULTANT ON THE FOLLOWING TERMS AND CONDITIONS: Scope of Services. Consultant shall provide services as described in Exhibit "A" entitled "Special Provisions" attached hereto and made a part hereof. 2. Compensation and Reimbursement. City shall compensate and reimburse Consultant as provided in Exhibit "A" entitled Special Provisions" attached hereto and made a part hereof. 3. Term of Aareement. The term of this Agreement shall be as described on Exhibit "A" entitled "Special Provisions" attached hereto and made a part hereof. 4. Termination. This Agreement may be terminated with or without cause by City. Termination without cause shall be effective only upon 60 -day written notice to Consultant. During said 60 - day period Consultant shall perform all consulting services in accordance with this Agreement. This Agreement may be terminated by City for cause in the event of a material breach of this Agreement, misrepresentation by Consultant in connection with the formation of this Agreement or the performance of services, or the failure to perform services as directed by City. Termination for cause shall be effected by delivery of written notice of termination to Consultant. Such termination shall be effective upon delivery of said notice. 3 of 40 ATTACHMENT A April 16, 2019, Item #1.8 5. Confidential Relationship. City may from time to time communicate to Consultant certain information to enable Consultant to effectively perform the services. Consultant shall treat all such information as confidential, whether or not so identified, and shall not disclose any part thereof without the prior written consent of the City. Consultant shall limit the use and circulation of such information, even within its own organization, to the extent necessary to perform the services. The foregoing obligation of this Paragraph 5, however, shall not apply to any part of the information that (i) has been disclosed in publicly available sources of information; (ii) is, through no fault of Consultant, hereafter disclosed in publicly available sources of information; (iii) is now in the possession of Consultant without any obligation of confidentiality; or (iv) has been or is hereafter rightfully disclosed to Consultant by a third party, but only to the extent that the use or disclosure thereof has been or is rightfully authorized by that third party. Consultant shall not disclose any reports, recommendations, conclusions or other results of the services or the existence of the subject matter of this contract without the prior written consent of the City. In its performance hereunder, Consultant shall comply with all legal obligations it may now or hereafter have respecting the information or other property of any other person, firm or corporation. 6. Office Space and Clerical Support. Consultant shall provide its own office space and clerical support at its sole cost and expense. 7. Covenant Against Contingent Fees. Consultant declares that it has not employed or retained any company or person, other than a bona fide employee working for Consultant, to solicit or secure this Agreement, that it has not paid or agreed to pay any company or person, other than a bona fide employee, any fee, commission, percentage, brokerage fee, gift or any other consideration, contingent upon or resulting from the award or making of the Agreement. For breach of violation of this warranty, City shall have the right to annul this Agreement without liability, or, at its sole discretion, to deduct from the Agreement price or consideration, or otherwise recover the full amount of such fee, commission, percentage, brokerage fee, gift or contingent fee. B. Ownership of Documents. All memoranda, reports, plans, specifications, maps and other documents prepared or obtained under the terms of this Agreement shall be the property of City and shall be delivered to City by Consultant upon demand. S. Conflict of Interest and Political Reform Act Obligations. During the term of this Agreement Consultant shall not act as consultant or perform services of any kind for any person or entity whose interests conflict in any way with those of the City of Poway. Consultant shall at all times comply with the terms of the Political Reform Act and the local conflict of interest code. Consultant shall immediately disqualify itself and shall not use its official position to influence in any way any matter coming before the City in which the Consultant has a financial interest as defined in Government Code Section 87103. Consultant represents that it has no knowledge of any financial interests which would require it to disqualify itself from any matter on which it might perform services for the City. 4 of 40 April 16, 2019, Item #1.8 Consultant" means an individual who, pursuant to a contract with a state or local agency: A) Makes a governmental decision whether to: 1. Approve a rate, rule or regulation; 2. Adopt or enforce a law; 3. Issue, deny, suspend, or revoke any permit, license, application, certificate, approval, order, or similar authorization or entitlement; 4. Authorize the City to enter into, modify, or renew a contract provided it is the type of contract that requires City approval; 5. Grant City approval to a contract that requires City approval and to which the City is a party, or to the specifications for such a contract; 6. Grant City approval to a plan, design, report, study, or similar item; 7. Adopt, or grant City approval of, policies, standards, or guidelines for the City, or for any subdivision thereof; or B) Serves in a staff capacity with the City and in that capacity participates in making a governmental decision as defined in the Political Reform Act and/or implementing regulations promulgated by the Fair Political Practices Commission, or performs the same or substantially all the same duties for the City that would otherwise be performed by an individual holding a position specified in the City's Conflict of Interest Code. DISCLOSURE DETERMINATION: 1. Consultant/Contractor will not be "making a government decision" or serving in a staff capacity" as defined in Sections A and B above. No disclosure required. 2. Consultant/Contractor will be "making a government decision" or "serving in a staff capacity" as defined in Sections A and B above. As a result, Consultant/Contractor shall be required to file a Statement of Economic Interest with the City Clerk of the City of Poway in a timely manner as required by law. Department Director 10. No Assignments. Neither any part nor all of this Agreement may be assigned or subcontracted, except as otherwise specifically provided herein, or to which City, in its sole discretion, consents to in advance thereof in writing. Any assignment or subcontracting in violation of this provision shall be void. 11. Maintenance of Records. Consultant shall maintain all books, documents, papers, employee time sheets, accounting records, and other evidence pertaining to costs incurred and shall make such materials available at its office at all reasonable times during the contract period and for three (3) 5of40 April 16, 2019, Item #1.8 years from the date of final payment under this Agreement, for inspection by City and copies thereof shall be furnished, if requested. 12. Independent Contractor. At all times during the term of this Agreement, Consultant shall be an independent contractor and shall not be an employee of the City of Poway. City shall have the right to control Consultant only insofar as the results of Consultant's services rendered pursuant to this Agreement; however, City shall not have the right to control the means by which Consultant accomplishes such services. 13. Licenses, Permits, Etc. Consultant represents and declares to City that it has all licenses, permits, qualifications, and approvals of whatever nature that are legally required to practice its profession. Consultant represents and warrants to City that Consultant shall, at its sole cost and expense, keep in effect at all times during the term of this Agreement, any license, permit, or approval which is legally required for Consultant to practice its profession. 14. Consultant's Insurance. Consultant shall provide insurance as set forth in Exhibit "A" entitled "Special Provisions" attached hereto and made a part hereof. 15. Indemnification. a) For Claims (as defined herein) other than those alleged to arise from Consultant's negligent performance of professional services, City and its respective elected and appointed boards, officials, officers, agents, employees and volunteers (individually and collectively, Indemnitees") shall have no liability to Consultant or any other person for, and Consultant shall indemnify, protect and hold harmless Indemnitees from and against, any and all liabilities, claims, actions, causes of action, proceedings, suits, damages, judgments, liens, levies, costs and expenses, including reasonable attorneys' fees and disbursements (collectively "Claims"), which Indemnitees may suffer or incur or to which Indemnitees may become subject by reason of or arising out of any injury to or death of any person(s), damage to property, loss of use of property, economic loss or otherwise occurring as a result of Consultant's negligent performance under this Agreement, or by the negligent or willful acts or omissions of Consultant, its agents, officers, directors, sub -consultants or employees. b) For Claims alleged to arise from Consultant's negligent performance of professional services, Indemnitees shall have no liability to Consultant or any other person for, and Consultant shall indemnify and hold harmless Indemnitees from and against, any and all Claims that Indemnitees may suffer or incur or to which Indemnitees may become subject by reason of or arising out of any injury to or death of any person(s), damage to property, loss of use of property, economic loss or otherwise to the extent occurring as a result of Consultant's negligent performance of any professional services under this Agreement, or by the negligent or willful acts or omissions of Consultant, its agents, officers, directors, sub -consultants or employees, committed in performing any of professional services under this Agreement. For Claims alleged to arise from Consultant's professional services, Consultant's defense obligation to Indemnitees shall include only the reimbursement of reasonable defense costs and attorneys' fees to the extent caused by Consultant's negligence. 6 of 40 4 April 16, 2019, Item #1.8 c) The foregoing obligations of Consultant shall not apply to the extent that the Claims arise from the sole negligence or willful misconduct of City or its elected and appointed boards, officials, officers, agents, employees and volunteers. d) In any and all Claims against City by any employees of the Consultant, anyone directly or indirectly employed by it or anyone for whose acts it may be liable, the indemnification obligation under this Section 15 shall not be limited in any way by any limitation on the amount or type of damages, compensation or benefits payable by or for the Consultant under worker's compensation acts, disability benefit acts or other employee benefit acts. e) Consultant shall, upon receipt of written notice of any Claim, promptly take all action necessary to make a claim under any applicable insurance policy or policies Consultant is carrying and maintaining; however, if Consultant fails to take such action as is necessary to make a claim under any such insurance policy, Consultant shall reimburse City for any and all costs, charges, expenses, damages and liabilities incurred by City in making any claim on behalf of Consultant under any insurance policy or policies required pursuant to this Agreement. f) The obligations described in Section 15(a) through (e) above shall not be construed to negate, abridge or otherwise reduce any other right or obligation of indemnity which would otherwise exist as to any party or person indemnified pursuant to this Section 15. g) The rights and obligations of the parties described in this Section 15 shall survive the termination of this Agreement. 16. Assumption of Risk. Except for injuries to persons caused by the willful misconduct of any Indemnitee and not covered by insurance maintained, or required by this Agreement to be maintained, by Consultant: a) Consultant hereby assumes the risk of any and all injury and damage to the personnel including death) and property of Consultant that occurs in the course of, or in connection with, the performance of Consultant's obligations under this Agreement, including but not limited to Consultant's Scope of Services; and (b) it is hereby agreed that the Indemnitees are not to be liable for injury or damage which may be sustained by the person, goods or property of Consultant or its employees in connection with Consultant's performance its obligations under this Agreement, including but not limited to Consultant's Scope of Services. 17. Consultant Not an Agent. Except as City may specify in writing, Consultant shall have no authority, expressed or implied, to act on behalf of City in any capacity whatsoever as an agent. Consultant shall have no authority, expressed or implied, pursuant to this Agreement to bind City to any obligation whatsoever. 18. Personnel. Consultant shall assign qualified and certified personnel to perform requested services. The City shall have the right to review and disapprove personnel for assignment to Poway projects. City shall have the unrestricted right to order the removal of any person(s) assigned by Consultant by giving oral or written notice to Consultant to such effect. 7 of 40 April 16, 2019, Item #1.8 Consultant's personnel shall at all times comply with City's drug and alcohol policies then in effect. 19. Notices. Notices shall be given as described on Exhibit "A" entitled "Special Provisions" attached hereto and made a part hereof. 20. Governing Law, Forum Selection and Attorneys' Fees. This Agreement shall be governed by, and construed in accordance with, the laws of the State of California. Each party to this Agreement consents to personal jurisdiction in San Diego County, California, and hereby authorizes and accepts service of process sufficient for personal jurisdiction by first class mail, registered or certified, postage prepaid, to its address for giving notice as set forth in Exhibit "A" hereto. Any action to enforce or interpret the terms or conditions of this Agreement shall be brought in the Superior Court in San Diego County, Central Division, unless the parties mutually agree to submit their dispute to arbitration. Consultant hereby waives any right to remove any such action from San Diego County as is otherwise permitted by California Code of Civil Procedure section 394. The prevailing party in any such action or proceeding shall be entitled to recover all of its reasonable litigation expenses, including its expert fees, attorneys' fees, courts costs, arbitration costs, and any other fees. Notwithstanding the foregoing, in the event that the subject of such an action is compensation claimed by Consultant in the event of termination, Consultant's damages shall be limited to compensation for the 60 -day period for which Consultant would have been entitled to receive compensation if terminated without cause, and neither party shall be entitled to recover their litigation expenses. 21. Gender. Whether referred to in the masculine, feminine, or as "it," "Consultant" shall mean the individual or corporate consultant and any and all employees of consultant providing services hereunder. 22. Counterparts. This Agreement (and any amendments) may be executed in multiple counterparts, each of which shall be deemed an original, but all of which, together, shall constitute one and the same instrument. Documents delivered by telephonic facsimile transmission shall be valid and binding. 23. Entire Agreement. This Agreement shall constitute the entire understanding between Consultant and City relating to the terms and conditions of the services to be performed by Consultant. No agreements, representations or promises made by either party, whether oral or in writing, shall be of any force or effect unless it is in writing and executed by the party to be bound thereby. 24. Contractor hereby certifies that all persons providing services to City by Contractor are not current members of the California Public Employees' Retirement System (CalPERS) and shall not become members of CalPERS while providing services to City. 8 of 40 6 April 16, 2019, Item #1.8 Contractor further provides that in the event Contractor assigns a retired annuitant receiving a pension benefit from CalPERS to perform services for City, the retired annuitant is in full compliance with Government Code section 7522.56. A copy of Government Code section 7522.56 is attached hereto as Exhibit "B." Further, Contractor hereby fully and unconditionally indemnifies City from all penalties, fees, employer and employee contributions, or any other assessments imposed by CalPERS in the event CalPERS determines the person assigned by Contractor to provide services to City has been misclassified. 25. Severability. If any provision of this Agreement is determined by any court of competent jurisdiction or arbitrator to be invalid, illegal, or unenforceable to any extent, that provision shall, if possible, be construed as though more narrowly drawn, if a narrower construction would avoid such invalidity, illegality, or unenforceability or, if that is not possible, such provision shall, to the extent of such invalidity, illegality, or unenforceability, be severed, and the remaining provisions of this Agreement shall remain in effect. Remainder of page intentionally left blank) 9 of 40 April 16, 2019, Item #1.8 IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement on the date first above written. CITY OF POWAY CONSULTANT By: By: Tina White, City Manager Date: ATTEST: Faviola Medina, City Clerk APPROVED AS TO FORM: By: Alan Fenstermacher, City Attorney 10 of 40 Shannon Ayala, CPA, Partner Date: April 16, 2019, Item #1.8 SPECIAL PROVISIONS" W3:11-3l11dV_1W A. Scope of Services. Consultant agrees to perform consulting services as required by City, which shall consist of the professional auditing services further described in the Scope of Services submitted with the proposals dated February 22, 2019, which is included in this document as Attachment A, and incorporated by reference, as if its contents were fully set forth herein. Consultant shall provide the necessary qualified personnel to perform the services. B. Compensation and Reimbursement. City shall pay Consultant a fee in accordance with the Fee Proposals submitted with the proposals dated February 22, 2019, which are included in this document as Attachment B. Total fee is not to exceed $332,065, which is inclusive of expenses and includes the two optional one-year extensions as well as additional optional services. Consultant's fee shall include and Consultant shall be responsible for the payment of all federal, state, and local taxes of any kind which are attributable to the compensation received. C. Term of Agreement. This Agreement shall be effective from the period commencing April 17, 2019, and ending April 16, 2022 unless sooner terminated by City as provided in the section of this Agreement entitled "Termination." This Agreement may be extended for up to two additional one- year periods upon approval in writing of the City Manager and Consultant. Upon expiration or termination of this Agreement, Consultant shall return to City any and all equipment, documents or materials and all copies made thereof which Consultant received from City or produced for City for the purposes of this Agreement. D. Consultant's Insurance. Coverages: Consultant shall obtain and maintain during the life of this Agreement all of the following insurance coverages: a) Comprehensive General Liability, including premises -operations, products/completed, broad form property damage, and blanket contractual liability with the following coverages: General Liability $1,000,000 Bodily Injury and Property Damage combined each occurrence and $2,000,000 aggregate. b) Automobile Liability, including owned, hired, and non -owned vehicles: $1,000,000 combined single limit. c) Consultant shall obtain and maintain, during the life of the Agreement, a policy of Professional Errors and Omissions Liability Insurance with policy limits of not less than $1,000,000 combined single limits, per claim and annual aggregate. 11 of 40 April 16, 2019, Item #1.8 d) Workers' Compensation insurance in statutory amount. All of the endorsements which are required above shall be obtained for the policy of Workers' Compensation insurance. 2. Endorsements: Endorsements shall be obtained so that each policy contains the following three provisions: a) Additional Insured. (Not required for Professional Errors and Omissions Liability Insurance or Workers' Compensation.) City of Poway and its elected and appointed boards, officers, agents, and employees are additional insureds with respect to this subject project and contract with City." b) Notice. Said policy shall not terminate, nor shall it be canceled, until thirty (30) days after written notice is given to City." c) Primary Coverage. The policy provides primary coverage to City and its elected and appointed boards, officers, agents, and employees. It is not secondary or in any way subordinate to any other insurance or coverage maintained by City." 3. Insurance Certificates: Consultant shall provide City certificates of insurance showing the insurance coverages described in the paragraphs above, in a form and content approved by City, prior to beginning work under this Agreement. E. Notices. All notices, billings and payments hereunder shall be in writing and sent to the following addresses: To City: City of Poway P.O. Box 789 Poway, CA 92074 To Consultant: Davis Farr, LLP 5927 Priestly Drive, Suite 201 Carlsbad, CA 92008 12 of 40 2 April 16, 2019, Item #1.8 EXHIBIT "B" Cal Gov Code 6 7522.56 Deering's California Codes are current through all 1016 chapters of the 2018 Regular Session and the November 6, 2018 Ballot Measures. Deering's California Codes Annotated > GOVERNMENT CODE > Title 1 General > Division i Miscellaneous > Chapter 21 Public Pension and Retirement Plans > Article 4 California Public Employees' Pension Reform Act of 2013 7522.56. Provisions applicable to person receiving pension benefit from public retirement system; Section supersedes conflicting provisions a)This section shall apply to any person who is receiving a pension benefit from a public retirement system and shall supersede any other provision in conflict with this section. b) A retired person shall not serve, be employed by, or be employed through a contract directly by, a public employer in the same public retirement system from which the retiree receives the benefit without reinstatement from retirement, except as permitted by this section. c) A person who retires from a public employer may serve without reinstatement from retirement or loss or interruption of benefits provided by the retirement system upon appointment by the appointing power of a public employer either during an emergency to prevent stoppage of public business or because the retired person has skills needed to perform work of limited duration. d)Appointments of the person authorized under this section shall not exceed a total for all employers in that public retirement system of 960 hours or other equivalent limit, in a calendar or fiscal year, depending on the administrator of the system. The rate of pay for the employment shall not be less than the minimum, nor exceed the maximum, paid by the employer to other employees performing comparable duties, divided by 173.333 to equal an hourly rate. A retired person whose employment without reinstatement is authorized by this section shall acquire no service credit or retirement rights under this section with respect to the employment unless he or she reinstates from retirement. e) 1)Notwithstanding subdivision (c), any retired person shall not be eligible to serve or be employed by a public employer if, during the 12 -month period prior to an appointment described in this section, the retired person received any unemployment insurance compensation arising out of prior employment subject to this section with 13 of 40 April 16, 2019, Item #1.8 Cal Gov Code § 7522.56 a public employer. A retiree shall certify in writing to the employer upon accepting an offer of employment that he or she is in compliance with this requirement. 2)A retired person who accepts an appointment after receiving unemployment insurance compensation as described in this subdivision shall terminate that employment on the last day of the current pay period and shall not be eligible for reappointment subject to this section for a period of 12 months following the last day of employment. OA retired person shall not be eligible to be employed pursuant to this section for a period of 180 days following the date of retirement unless he or she meets one of the following conditions: 1)The employer certifies the nature of the employment and that the appointment is necessary to fill a critically needed position before 180 days have passed and the appointment has been approved by the governing body of the employer in a public meeting. The appointment may not be placed on a consent calendar. 2) A)Except as otherwise provided in this paragraph, for state employees, the state employer certifies the nature of the employment and that the appointment is necessary to fill a critically needed state employment position before 180 days have passed and the appointment has been approved by the Department of Human Resources. The department may establish a process to delegate appointing authority to individual state agencies, but shall audit the process to determine if abuses of the system occur. If necessary, the department may assume an agency's appointing authority for retired workers and may charge the department an appropriate amount for administering that authority. B)For legislative employees, the Senate Committee on Rules or the Assembly Rules Committee certifies the nature of the employment and that the appointment is necessary to fill a critically needed position before 180 days have passed and approves the appointment in a public meeting. The appointment may not be placed on a consent calendar. C)For employees of the California State University, the Trustees of the California State University certifies the nature of the employment and that the appointment is necessary to fill a critically needed position before 180 days have passed and approves the appointment in a public meeting. The appointment may not be placed on a consent calendar. 3)The retiree is eligible to participate in the Faculty Early Retirement Program pursuant to a collective bargaining agreement with the California State University that existed prior to January 1, 2013, or has been included in subsequent agreements. 4)The retiree is a public safety officer or firefighter hired to perform a function or functions regularly performed by a public safety officer or firefighter. 14 of 40 April 16, 2019, Item #1.8 Cal Gov Code § 7522.56 g)A retired person who accepted a retirement incentive upon retirement shall not be eligible to be employed pursuant to this section for a period of 180 days following the date of retirement and subdivision (f) shall not apply. h)This section shall not apply to a person who is retired from the State Teachers' Retirement System, and who is subject to Section 24214 24214.5 or 26812 of the Education Code. i)This section shall not apply to (1) a subordinate judicial officer whose position, upon retirement, is converted to ajudgeship pursuant to Section 69615, and he or she returns to work in the converted position, and the employer is a trial court, or (2) a retiree of the Judges' Retirement System or the Judges' Retirement System 11 who is assigned to serve in a court pursuant to Section 68543.5. History Added Stats 2012 ch 296 S 15 (AB 340) effective January 1, 2013. Amended Stats 2013 ch 528 11 (SB 13), effective October 4, 2013 (ch 528 prevails); ch 76 § 75 (AB 383), effective January 1, 2013; Stats 2014 ch 238 61 (AB 2476), effective January 1, 2015. Annotations Notes Amendments: Note— Amendments: 2013 Amendment: Substituted (1) "have passed" for "has passed" in the first sentence of subds (1)(1) and (f)(2); (2) or firefighter hired to perform a function or functions regularly performed by a public safety officer or firefighter" for "of firefighter" in subd (f)(4); and (3) "Judges' Retirement System" for Judges' Retirement System 1" in subd (i). 16 of 40 April 16, 2019, Item #1.8 ATTACHMENT A p• DavisFarr CERTIFIED PUBLIC ACCOUNTANTS CITY OF POWAY PROPOSALFOR PROFESSIONAL AUDITING SERVICES Prepared By: Davis Farr LLP 5927 Priestly Drive, Suite 201 Carlsbad, CA 92008 February 22, 2019 Contact Person: Shannon Ayala, CPA I Partner Main: 760.536.5140 1 Direct: 760.298.5872 Email: sayala@davisfarr.com 16 of 40 April 16, 2019, Item #1.8 City of Poway PROPOSAL FOR PROFESSIONAL AUDITING SERVICES Table of Contents Transmittal Letter Section A - About Davis Farr LLP............................................................................................................ 1 Section B - Our Prior Experience Auditing Government Agencies...................................................... 2 Section C - Client References................................................................................................................... 4 Section D - Partner, Supervisory and Staff Qualifications and Experience ........................................ 5 Section E -Audit Approach 11 Section F - Implementation of New GASB Pronouncements............................................................. 16 SectionG - Scope of Work..................................................................................................................... 17 SectionH - Proposed Timing................................................................................................................. 18 Section I - Segmentation of the Audit.................................................................................................. 18 APPENDIX Peer Review Documentation 17 of 40 April 16, 2019, Item #1.8 Oj ®avisFarr CERTIFIED PUBLIC ACCOUNTANTS February 22, 2019 City of Poway Attn: Donna Goldsmith, Finance Director 13325 Civic Center Drive Poway, CA 92064 Dear Ms. Goldsmith: Davis Farr LLP 2301 Dupont Drive I Suite 200 1 Irvine, CA 92612 Main: 949.474.20201 Fax: 949.263.5520 We are pleased to provide our proposal to perform audit services to the City of Poway (the "City') for the fiscal years ending June 30, 2019 through 2021, with options to extend for two additional years. Our service philosophy is one of open and constant communication, a proactive approach and responsive, value-added services. We will listen to your ideas and concerns and will bring creative solutions to you in both financial and other operational areas. We are aware that while the City has solicited numerous proposals, Davis Farr LLP would be your best selection for the following reasons which are set forth in greater detail in our proposal: We take a proactive leadership role in local government accounting and auditing issues. We serve on the Government Accounting and Audit Committee of the Cal CPA Society and are frequent speakers on technical topics at conferences and training events throughout California. In addition to providing extensive audit and information technology training for our staff, Davis Farr LLP provides an annual Governmental Accounting Standards Board (GASB) Technical Update each spring for our clients. Our commitment to training our clients benefits you by ensuring you receive accurate and timely information that impact budgeting and financial reporting. We extensively utilize IDEA data mining software to evaluate anomalies in your accounting data. This helps focus our auditors' attention on potential errors in the accounting records and transactions that could be more susceptible to fraud. We appreciate the opportunity to share our credentials and look forward to developing our professional relationship. Our proposal for fiscal years 2019- 2023 remain a firm and irrevocable offer for the 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 (760) 298-5872. Very truly yours, ' "_/ n'nIlIiNLF'IAh uM' Shannon Ayala, /CPA Partner 18 of 40 April 16, 2019, Item #1.8 City of Poway PROPOSAL FOR PROFESSIONAL AUDITING SERVICES Section A — About Davis Farr LLP Background Information — Davis Farr LLP is a full-service accounting firm that specializes in providing attest and advisory services to federal, state, and local governments as well as non- profit entities out of our Carlsbad and Irvine offices. Our personnel have served governmental and non-profit entities for over 40 years. A breakdown of our government audit personnel by classification is as follows: License to Practice in California — Davis Farr LLP and all key personnel are licensed with the California State Board of Accountancy to practice as independent certified public accountants. There has been no disciplinary action taken or pending against the firm during the past three years with state regulatory bodies or professional organizations. Independence — Davis Farr LLP is independent with respect to the City of Poway as defined by U.S. General Accounting Office's Government Auditing Standards and Generally Accepted Auditing Standards. Quality Control — Davis Farr LLP and its Partners are members of the American Institute of Certified Public Accountants (AICPA) and is a member of the AIPCA's Government Audit Quality Center. Our firm is a voluntary participant in the AICPA Peer Review Program. Included in the appendix is our most recent Peer Review report where our firm received a Pass. A Pass demonstrates the highest level of quality control in a Peer Review. Davis Farr LLP has not had any federal or state desk reviews or field reviews during the past three years with the exception of a review performed by the Department of Transportation (DOT). The report concluded that our audit work complied with the requirements of the single audit act, the uniform guidance, and DOT's major programs and included a recommendation related to documentation. There has been no disciplinary action taken or pending against the firm during the past three years with state regulatory bodies or professional organizations. 10 19 of 40 April 16, 2019, Item #1.8 City of Poway PROPOSAL FOR PROFESSIONAL AUDITING SERVICES Section A — About Davis Farr LLP, (Continued) Training — Every professional of the firm must enroll in continuing professional education courses. Each person is required to take at least 80 hours of training over a two-year period including 24 hours a year specific to government accounting and audit topics. 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. Section B — Our Prior Experience Auditing Government Agencies Davis Farr LLP is a leader in the local government sector throughout the Southern California Area. Currently, we service approximately 60 local, state, and federal government entities. Davis Farr LLP services routinely provided to our clients include, but are not limited to: Financial statement audits prepared in accordance with generally accepted auditing standards (GAAS) and Government Auditing Standards. Financial statement reviews & compilations prepared in accordance with Statements on Standards for Accounting and Audit Services (SSARS), issued by the AICPA Accounting and Audit Services Committee (ARSC). Attestation engagements involving internal control related to the financial statements and compliance with laws, regulations, and the provisions of contracts or grant agreements, noncompliance with which could have a material effect on the financial statements in accordance with Government Auditing Standards. Compliance audits of federally -funded assistance agreements and negotiated contracts as well as all engagements involving internal control related to major programs and an opinion (or disclaimer of opinion) on compliance with laws, regulation, and the provisions of contracts or grant agreements that could have a direct and material effect on each major program in accordance with the new Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards. Agreed upon procedures audits for special projects. We perform a number of agreed upon procedure audits to help our clients evaluate contract and law compliance for Transient Occupancy Taxes, Franchise Taxes, Utility User Taxes, Management Agreements to operate golf courses and other government owned facilities, and cost or revenue sharing agreements between government agencies. Additionally, we regularly perform agreed upon procedures for special internal projects such as evaluating compliance with purchasing policies, testing credit card transactions, performing petty cash counts, and other procedures. We typically supplement these services by providing management with sound recommendations to strengthen internal controls and/or improve operating efficiencies. 20 20 of 40 April 16, 2019, Item #1.8 City of Poway PROPOSAL FOR PROFESSIONAL AUDITING SERVICES Section B — Our Prior Experience Auditing Government Agencies, (Continued) Our government expertise includes Cities, Special Districts, and other Governmental entities. Among the government agencies that the professionals of Davis Farr LLP have served recently are the following: Bighorn Desert View Water Agency City of Avalon City of Carlsbad City of Commerce City of Coronado City of Dana Point City of Delano City of EI Segundo City of Fontana City of Fresno Housing Authority City of Garden Grove City of Huntington Beach City of Mission Viejo City of Jurupa Valley City of San Bernardino Water Department City of Santee City of Torrance City of Upland City of Victorville City of Villa Park City of Woodland Coachella Valley Conservation Authority Coachella Valley Enterprise Zone 21 of 40 County of Fresno Housing Authority County of San Diego Eastern Municipal Water District Irvine Ranch Water District Leucadia Wastewater District Municipal Water District of Southern California Oxnard Housing Authority Placer County Water Agency Rancho California Water District Salton Sea Authority San Diego Association of Governments San Diego County Water Authority San Diego Local Agency Formation Commission San Diego Pooled Insurance Authority San Gabriel Basin Water Quality Authority South Coast Water District South Montebello Irrigation District Sweetwater Authority Tahoe Regional Planning Agency Tahoe Transportation District Ventura Housing Authority Walnut Valley Water District West Basin Municipal Water District 30 April 16, 2019, Item #1.8 City of Poway PROPOSAL FOR PROFESSIONAL AUDITING SERVICES Section C — Client References For your convenience, we have listed below references for audit work currently being performed by Davis Farr LLP personnel for several Cities throughout Southern California. For each of the references, we currently serve as independent auditors and have served these clients for a number of years. Each of the clients noted above had an audit prepared with GAAP and Government Auditing Standards and the financial statements received the GFOA award. 22 of 40 40 City of Santee 450 Tim 619.258.4200 ext. 143 10601 Magnolia Avenue McDermott, tmcdermott@cityofsanteeca.gov Santee, CA 92071 Finance Director City of Garden Grove 1,000 Ellis Chang, 714.741.5066 1122 Acacia Parkway Finance ellisc@ggcity.org Garden Grove, CA 92840 Manager City of Carlsbad 750 Aaron Beanan, 760.602.2414 1635 Faraday Avenue Finance aaron.beanan@carlsbadca.gov Carlsbad, CA 92008 Manager Sweetwater Authority 250 Rich Stevenson, 619.409.6711 505 Garrett Avenue Finance rstevenson@sweetwater.org Chula Vista, CA 92910 Director City of Mission Viejo 400 Cheryl Dyas, 949.470.3059 200 Civic Center Director of cdyas@cityofmissionviejo.org Mission Viejo, CA 92691 Administrative Services Each of the clients noted above had an audit prepared with GAAP and Government Auditing Standards and the financial statements received the GFOA award. 22 of 40 40 April 16, 2019, Item #1.8 City of Poway PROPOSAL FOR PROFESSIONAL AUDITING SERVICES Section D — 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 Poway have served together as a team of professionals on numerous financial audit examinations of local government entities. While not anticipated, any personnel substitutions will be of equally qualified personnel. We believe that efficient administrative management and supervision of the audits is an extremely critical factor in achieving the desired results for City of Poway. In that regard, our proposal organizational structure for providing independent auditing services is as follows: 50 23 of 40 April 16, 2019, Item #1.8 City of Poway PROPOSAL FOR PROFESSIONAL AUDITING SERVICES Shannon Ayala, CPA PARTNER California CPA Certificate No. 88126, January 2004 Ms. Ayala will serve as the Partner on this audit. She 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. Ms. Ayala is a Certified Public Accountant with seventeen years of audit experience, spending most of that time on audits for local governments in San Diego County. Ms. Ayala has performed financial statement audits of cities and special districts; grant specific audits of funds awarded by Federal, state, and county governments; Single Audits in accordance with Uniform Guidance, and compliance audits. EMPLOYMENT HISTORY Davis Farr LLP: June 2015 -current Ten years at a National CPA firm Two years at Lennar Homes EDUCATION Bachelor of Science —Accounting, San Diego State University GOVERNMENT AGENCY AUDIT EXPERIENCE City of Carlsbad City of Del Mar City of San Marcos Imperial County Local Agency Formation Commission Leucadia Wastewater District San Diego Association of Governments San Dieguito River Park Joint Powers Authority Sweetwater Authority 24 of 40 City of Coronado City of Escondido City of Santee San Diego Local Agency Formation Commission Rancho California Water District San Diego County Water Authority Salton Sea Authority Vallecitos Water District April 16, 2019, Item #1.8 City of Poway PROPOSAL FOR PROFESSIONAL AUDITING SERVICES JENIFER FARR, CPA, MBA PARTNER California CPA Certificate No. 76292, October 1998 Ms. Farr will serve as the Quality Control Reviewer on the engagement. As a second reviewer, Ms. Farr will be involved in approving the audit plan, reviewing key audit workpapers, reviewing all reports, and acting as a second technical resource to the City. Ms. Farr is a Certified Public Accountant with over 20 years of experience in local government auditing. Ms. Farr is a frequent speaker on matters pertaining to technical issues and new GASB pronouncements. Ms. Farr is also responsible for training in the area of local governmental accounting and auditing. EDUCATION PROFESSIONAL AFFILIATIONS & AWARDS California Society of Certified Public Accountants o Government Accounting & Auditing Committee California Society of Municipal Finance Officers American Institute of Certified Public Accountants GFOA CAFR Reviewer Recipient of the Cal CPA 2015 Women to Watch award in the Experienced Leader category 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 Avalon City of Highland City of Benicia City of Indian Wells City of Burbank City of La Quinta City of Carlsbad City of Mission Viejo City of Commerce City of National City City of Campbell City of Orange City of Coronado City of Palm Springs City of Costa Mesa City of Rosemead City of Culver City City of San Bruno City of Dana Point City of Santee City of Delano City of Upland City of Fontana City of Victorville City of Fountain Valley City of Villa Park City of Garden Grove City of Walnut Creek City of Half Moon Bay City of Whittier City of Hayward City of Woodland 7¢ 25 of 40 April 16, 2019, Item #1.8 City of Poway PROPOSAL FOR PROFESSIONAL AUDITING SERVICES ERICK MARTIN, CPA MANAGER CA CPA Certificate No. 121760, December 2013 Mr. Martin has over seven years of audit experience, spending the majority of that time on audits for local governments. Mr. Martin has performed financial statement audits of cities and special districts; grant specific audits of funds awarded by Federal, state, and county governments; Single Audits, and compliance audits. Mr. Martin will be responsible for managing the audit engagement and will supervise the staff assigned. Davis Farr LLP: June 2015 -current National CPA firm: January 2011 -June 2015 EDUCATION Bachelor of Business Administration — Accounting California State University, Fullerton AUDITS OF CALIFORNIA CITIES City of Costa Mesa City of Villa Park City of San Marcos City of Upland City of Moreno Valley City of Garden Grove City of EI Segundo AUDITS OF SPECIAL PURPOSE GOVERNMENTS Palm Springs Desert Resorts Conventions and Visitors Authority Walnut Valley Water District Mesa Consolidated Water District Irvine Ranch Water District Puente Basin Water Agency Orange County Sanitation District Coachella Valley Mosquito District West Basin Municipal Water District San Bernardino Municipal Water Department 2E 26 of 40 April 16, 2019, Item #1.8 City of Poway PROPOSAL FOR PROFESSIONAL AUDITING SERVICES JEFFREY OLINAREZ SENIOR AUDITOR ROLE ON PROJECT Jeffrey will serve as the in -charge on this audit. He will conduct the day to day fieldwork, supervise staff auditors on the engagement, and will prepare all financial statements and reports. His experience has encompassed financial and compliance audits of governmental and non-profit engagements, which have been performed in accordance with "Government Auditing Standards" which have all included a review of the entity's internal control and financial management system. EMPLOYMENT HISTORY Davis Farr LLP, Senior Auditor—January 2018 through present Davis Farr LLP, Staff Auditor — July 2016 through December 2017 EDUCATION Bachelor of Science in Accounting Azusa Pacific University, Azusa, CA RELEVANT EXPERIENCE AUDITS OF CALIFORNIA CITIES (including Single Audits) City of Fontana City of Victorville City of Mission Viejo City of Santee AUDITS OF SPECIAL PURPOSE GOVERNMENTS (includino Single Audits) Beach Cities Health District Eastern Municipal Water District Irvine Ranch Water District Sweetwater Authority South Bay Irrigation District Rancho Cucamonga Water District INTERNAL CONTROL AND GRANT SPECIFIC AUDITS FOR US FEDERAL AGENCIES Centers for Medicare & Medicaid Services Special Inspector General for Afghanistan Reconstruction U 27 of 40 April 16, 2019, Item #1.8 City of Poway PROPOSAL FOR PROFESSIONAL AUDITING SERVICES DIEGO VANEGAS, CPA, CISA, CITP PARTNER INTRODUCTION Mr. Vanegas, CPA, CISA, CITP has over 10 years of progressive governmental accounting and audit experience, including extensive compliance audit experience for governmental and non-profit agencies. He has been involved in financial/compliance audits, internal control audits and assessments, operational/performance audits, and cost proposal analysis/price reviews for various governmental agencies. Mr. Vanegas has served in many capacities depending on the size and requirements of the engagements. He has participated in audits of federal agencies such as NSF, CMS, and CNCS, among others. Additionally, Mr. Vanegas has been involved in agreed -upon - procedures and audit engagements of state/local agencies. These engagements have often combined both financial and compliance aspects of the audit as well as Information Technology IT). Furthermore, he has strong internal control audit experience through the performance of SSAE 16 Service Organization Controls (formerly known as SAS 70) audits of the internal controls of service organizations, as well as knowledge of Government Auditing Standards, Office of Management and Budget (OMB) Circular A-87 and the Federal Acquisition Regulations (FAR). EMPLOYMENT HISTORY Davis Farr LLP: June 2015 through present Top 10 National CPA Firm: Manager, Senior Associate, Associate — May 2005 to June 2015 EDUCATION Bachelor of Science in Business Administration, with an emphasis in Accounting California State University - Los Angeles Bachelor of Science in Computer Information Systems, with an emphasis in Business Systems California State University - Los Angeles Certified Public Accountant, State of California, No. 113040 Certified Information Technology Professional, No. 3298 Certified Information Systems Auditor 10 28 of 40 April 16, 2019, Item #1.8 City of Poway PROPOSAL FOR PROFESSIONAL AUDITING SERVICES Section E —Audit Approach Davis Farr plans and conducts our engagements in the most efficient manner possible, and our audit approach 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 of City staff and to complete the audit in a timely manner. Whenever possible, we use accounting support already prepared by the City staff to avoid duplication or unnecessary requests for audit supporting schedules. Our firm's expertise is in governmental auditing. Our auditors are GASB experts and skilled at addressing audit issues that are specific to local governments. You will not spend time training our personnel. When formulating internal control recommendations, we obtain a thorough understanding of the specific circumstances at your City 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. Audit Software - We utilize CaseWare audit software for the electronic City 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 (i.e., analytical review comparison schedules). This limits the amount of time finance staff spends creating audit schedules. Our software automatically generates analytical review reports by account numberfor ease of analyzing significant fluctuations between fiscal years. We can link the financial statement schedules directly to the CaseWare trial balances. As a result, we can provide the City with financial statements almost immediately after receiving the trial balance from the City. Additionally, journal entries are easy to post to the financial statement schedules and the risk of data entry error is minimized. 29 of 40 April 16, 2019, Item #1.8 City of Poway PROPOSAL FOR PROFESSIONAL AUDITING SERVICES Section E —Audit Approach, (Continued) We can provide the City with reports showing the coding of the financial statement schedules for ease of review by City staff. These reports show each account coded to a specific financial statement line item as well as journal entries that are posted during the audit. Creating color PDF's of final reports is a seamless process for our audit staff. Data Mining Software We have a dedicated team of personnel trained to use special data mining software, IDEA. Our software uses source data from your accounting system to search for anomalies, such as duplicate or voided checks, cross-referencing vendor addresses with employee addresses, detecting accounting transactions recorded on the weekend, reviewing journal entry postings for unauthorized individuals. The IDEA software identifies specific transactions for the auditors to review for potential fraud or error. Internal Control Evaluation Our approach to evaluating internal controls involves observation and inquiry. We spend time with the personnel responsible for the accounting cycles to gain an understanding of the processes. We also carefully evaluate your policies and procedures. After our initial evaluation, we identify key controls in your processes and design test to evaluate the effectiveness of those processes. In the initial year of the audit, we will focus on the following accounting cycles: Billing and cash receipting Capital assets Purchase and disbursements Payroll Investment and cash controls Information systems In future years, we will review the accounting cycles noted above but also look at other processes such as credit card transactions, petty cash, inventory controls, offsite cash receipting, employee reimbursements, contract compliance, and other areas. Our goal is to modify our audit approach every year to further evaluate your internal controls. 120 30 of 40 April 16, 2019, Item #1.8 City of Poway PROPOSAL FOR PROFESSIONAL AUDITING SERVICES During the planning phase of the audit, we plan to perform the following procedures: Meet with finance personnel to obtain an understanding of significant transactions during the year. Communicate with the City Council regarding fraud, compliance with laws, and any concerns they have regarding the finances of the City. Perform internal control evaluations as noted on the previous page. Determine materiality levels that will be used in selecting audit transactions. Perform a risk assessment to develop the audit plan for the year. Review minutes of City Council meetings. Review important new contracts, bond documents, and agreements. Evaluate compliance with investments. Test purchase orders and contract management. Test a sample of cash disbursements to determine adherence to policies and internal controls. Perform a review of the organization's information systems and controls. Perform compliance testing of federal grants, as necessary. Review the prior audited financial statements and provide feedback to City staff regarding best practices for financial reporting. Provide a GASB Update and templates for implementing new accounting standards. After the books are closed and ready for audit, we will perform our year-end procedures which include the following: We will confirm 100% of all cash and investment balances and test market values provided by your investment custodians. We will test for proper cutoffs of accounts receivable and grants receivable. We will confirm and test material notes and loans receivable. We will test additions and deletions to capital assets. We will review depreciation expense for reasonableness. 130 31 of 40 April 16, 2019, Item #1.8 City of Poway PROPOSAL FOR PROFESSIONAL AUDITING SERVICES We will test interfund transactions including due to/due from other funds, advances, and transfers. We will review legal documents supporting loans and test the allowability of transfers out of restricted funds. We will test current liabilities and perform a search for unrecorded liabilities. We will review unearned revenue balances for proper cutoffs. We will test the balances of accrued payroll and employee related liabilities. Testing of actuarial valuations and calculations related to OPEB obligations. Testing of actuarial valuations and calculations related to pension obligations and new disclosures under GASB 68. Evaluation of claims andjudgments payable. Testing of restrictions and classifications of net position. Analyze grant revenues and expenses to ensure proper matching within the fiscal year. Test the reasonableness of interest income, realized, and unrealized gains/losses on investments. Analytically and substantively test revenues and expenses reported in the financial statements. We will incorporate an element of unpredictability every year that will focus on an audit area that is not typically considered a high or significant risk area such as petty cash, credit card purchases, new vendors, travel expenses, etc. 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. During the final stage of the audit we will meet with Finance staff to review our audit findings and any adiustinci iournal entries. As part of our Single Audit for the years in which the City expends granter than 750,000, we will perform the following procedures in accordance with the Uniform Guidance: Perform an evaluation of the major programs required to be tested Review OMB guidance and the OMB Compliance Supplement for the grant program audited. Review internal controls for each of the applicable 14 compliance areas for each program audited. 14 32 of 40 April 16, 2019, Item #1.8 City of Poway PROPOSAL FOR PROFESSIONAL AUDITING SERVICES Using AICPA sampling guidance, we will select a sample for each of the applicable 14 compliance areas for each program audited. We will test the sample for compliance with those 14 areas. Test the indirect cost rate, if applicable Review monitoring reports for noncompliance and follow up on the resolution of past noncompliance, if applicable. Issue a single audit report of federal expenditures. File the data collection form within the specified deadline. The nature and extent of the work required is dependent on our assessment of the likelihood of misstatements in the financial statements together with our conclusions from the planning and testing stages of the audit. All of the audit information is then used to reach a conclusion on whether the financial statements taken as a whole conform with generally accepted accounting principles. We will review significant events after year end We will review attorney letters for significant legal matters We will prepare the Comprehensive Annual Financial Report (CAFR) We will ensure accurate and complete disclosures in the notes to the financial statements. As requested, we will meet with the City Council to present the results of the audit. 15 33 of 40 April 16, 2019, Item #1.8 City of Poway PROPOSAL FOR PROFESSIONAL AUDITING SERVICES Section F — Implementation of New GASB Pronouncements The City will be required to implement the following accounting standards during the upcoming fiscal years. Part of our service to you includes consulting on these new auditing standards. A sampling of significant new GASB pronouncements planned or proposed for local governments that will impact the City of Poway are listed below: This statement addresses accounting and financial reporting for certain asset retirement obligations. We will meet with you each year to determine if you have any obligations subject to this standard. The standard will be effective for the fiscal year ending June 30, 2019. This statement establishes criteria for identifying fiduciary activities of all state and local governments. The statement describes four fiduciary funds that should be reported, if applicable: (1) pension trust funds, (2) investment trust funds, (3) private -purpose trust funds, and (4) custodial funds. We will work with the City to identify the activities required to be reported in these four fund types and provide transition guidance for the fiscal year ending June 30, 2020. Effective for the June 30, 2019 financial statements, the objective of this statement is to improve consistency in accounting and financial reporting for in -substance defeasance of debt. We will evaluate the applicability of the standard for the City. The objective of this statement is to better meet the information needs of the financial statement users by improving accounting and financial reporting for leases by governments. The standard will be effective for the fiscal year ending June 30, 2021. The primary objective of this Statement is to improve the information that is disclosed in notes to government financial statements related to debt, including direct borrowings and direct placements. The standard will be effective for the fiscal year ending June 30, 2019. This Statement requires that interest cost incurred before the end of a construction period be recognized as an expense in the period in which the cost is incurred for financial statements. The standard will be effective for the fiscal year ending June 30, 2021. The primary objectives of this Statement are to improve the consistency and comparability of reporting a government's majority equity interest in a legally separate organization. The standard will be effective for the fiscal year ending June 30, 2020. 160 34 of 40 April 16, 2019, Item #1.8 City of Poway PROPOSAL FOR PROFESSIONAL AUDITING SERVICES Section G — Scope of Work Our understanding of the objectives and scope of the work to be performed is as follows: We will perform an audit examination of the financial statements of the City of Poway for the fiscal years ending June 30, 2019 through 2021. Our examination will be conducted in accordance with generally accepted auditing standards, the AICPA Audit and Accounting Guide, Audits of State and Local Government Units, and the Government Auditing Standards issued by the Comptroller General of the United States. We will prepare the Comprehensive Annual Financial Report (CAFR). We will ensure that the report is prepared in conformity with the most recent edition of the GAAFR, the GAAFR Update, and subsequent GASB pronouncements. Davis Farr LLP does not have experience with MUNIS CAFR Builder or any other CAFR software. We will perform a compliance audit of federal expenditures in accordance with the Uniform Administrative Requirements, Cost Principles and Audit Requirements for Federal Awards in any year the City has federal expenditures of more than $750,000. We will perform a compliance audit of the City's Housing Successor Agency in accordance with the requirements of the California Health and Safety Code. We will perform an audit examination of the Poway Public Financing Authority and prepare the basic financial statements. We will perform agreed -upon -procedures over the City's Gann Appropriations Limit. We will prepare a letter to the City Council reporting matters dealing with internal control that meet the threshold of being a significant deficiency or material weakness, as defined by SAS No. 115. We will immediately report any irregularities or illegal acts that come to our attention to management and/or those charged with governance. As requested, we will meet with the City Council to discuss the results of the audit. Finally, we perceive the scope of our work as being advisors to the City regarding generally accepted accounting principles. Throughout the year, the management and other finance personnel of the City will have access to us to seek advice in the application of generally accepted accounting principles, advice regarding debt issuance, financial statement preparation and content, and any other matters relating to the City. Identification ofAnticipate Potential Audit Problems — We do not anticipate any potential audit problems. 17 36 of 40 April 16, 2019, Item #1.8 City of Poway PROPOSAL FOR PROFESSIONAL AUDITING SERVICES Section H — Proposed Timing of the Audit for FY 18/19 The following proposed timing is subject to the City's revision and approval: Section I — Segmentation of the Audit The following is our estimate of the hours by professional classification required to perform the audit: 36 of 40 April 16, 2019, Item #1.8 City of Poway PROPOSAL FOR PROFESSIONAL AUDITING SERVICES APPENDIX 37 of 40 April 16, 2019, Item #1.8 F®RUM LLKW Certified Public Accountants:. Business Consultants System Review Report DAVIS FARR LLP Irvine, California; and the Peer Review Committee of the California Society of CPAs Jot w Duns, CPA Sm,i iiN C. Wiuiws, CPA Josue 0. Rof tmo, CPA We have reviewed the system of quality control for the accounting and auditing practice of Davis Farr LLP (the firm) in effect for the year ended May 31, 2016. Our peer review was conducted in accordance with the Standards for Performing and Reporting on Peer Reviews established by the Peer Review Board of the American Institute of Certified Public Accountants. As part of our peer review, we considered reviews by regulatory entities, if applicable, in determining the nature and extent of our procedures. The firm is responsible for designing a system of quality control and complying with it to provide the firm with reasonable assurance of performing and reporting in conformity with applicable professional standards in all material respects. Our responsibility is to express an opinion on the design of the system of quality control and the firm's compliance therewith based on our review. The nature, objectives, scope, limitations of, and the procedures performed in a System Review are described in the standards at www.aicPa.orCz/Prsummarv. As required by the standards, engagements selected for review included engagements performed under Government Auditing Standards and an examination of a service organization control (SOC) 1 Type 2. In our opinion, the system of quality control for the accounting and auditing practice of Davis Farr LLP in effect for the year ended May 31, 2016, has been suitably designed and complied with to provide the firm with reasonable assurance of performing and reporting in conformity with applicable professional standards in all material respects. Firms can receive a rating of pass, pass with defrciency(tes) or fail. Davis Farr LLP has received a peer review rating of pass. Ontario, California June 29, 2016 CPAMERICA INTERNATIONAL A Crowe Ho vnh lntemational April 16, 2019, Item #1.8 I ATTACHMENT B CITY OF POWAY 7zU7.y 1Y.P.]:z]y XY[UJ/II I ge[Y r1C 9 AUDIT FEES Our fixed fees to perform the audit services are as follows: The fee is reduced in subsequent years based on the City preparing the CAFR. Includes 40 hours of assistance. The single audit fee is for one major program. In the unlikely event that the City is required to have more than one major program tested as defined by the Uniform Guidance, additional programs can be audited at an additional fee of $2,500 per program. 39 of 40 AUDIT FEE iCRIPTION FY 18/ 19 FY 19/ 20 FY 20/21 FY 21/22 FY 22/23 lit and CAFR*MMMMM urtation e** e** MMMMMc lousing 11 y ®®®®® 1 1 1 blic iAu 11 g Authority 1 1 1 irnit Reports, if 11 edit***and ®®®®® 1 Audit Fees r r 1 AL SERVICES ----- e Controller's e Fee AUP lg Lease AUP 11 11 11 1 / 11 mrator AUP ', 11 11 11 11 11 1 -inclusive rn Price The fee is reduced in subsequent years based on the City preparing the CAFR. Includes 40 hours of assistance. The single audit fee is for one major program. In the unlikely event that the City is required to have more than one major program tested as defined by the Uniform Guidance, additional programs can be audited at an additional fee of $2,500 per program. 39 of 40 April 16, 2019, Item #1.8 I CITY OF POWAY PROPOSAL FOR PROFESSIONAL AUDITING SERVICES For additional work performed outside the engagement, our rates are as follows by personnel. Manner of Payment We will bill the City on the basis of pro -rated audit work completed during the course of the engagement as follows: 25 percent due at completion of interim audit, 25 percent due at completion of final audit, 25 percent due after submission to City of first draft of financial statements and 25 percent balance due after final issuance of financial statements. 40 of 40 20 April 16, 2019, Item #1.8