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Home My WebLink About03/08/1993 BAKERS.FIELD Kevin McDermott, Chair Patri¢ia J. DeMond Daniel Kane; Staff: John W. Stinson AGENDA BUDGET AND FINANCE COMMIT-FEE Monday, March 8, 1993 12:00 noon City Manager's Conference Room 1. Draft Report on Defibrillation Program 2. Gleaners' Housing Project at 231 Quantico 3. City Auditor 4. Set Next Meeting M E M O R A N D U M. FEBRUARY 12, 1993 TO: HONORABLE MAYOR & CITY COUNCIL FROM: GREGORY J. KLIMKO, FINANCE DIRECTOR// SUBJECT: CITY RESPONSE TO MANAGEMENT LETTER As part of the City's annual audit, the audit firm of Brown Waits & Armstrong submits to the Council a Management Letter which offers recommendations for improvement in City operations. Please find attached a staff response which restates the 1991-92 Management Letter's current year findings and recommendations and lists management's response to those recommendations. krc MGR.20 cc: Ed Schulz, Public Works Director Attachment CITY OF BAKERSFIELD · 1991-92 MANAGEMENT RESPONSES TO EXTERNAL AUDITOR MANAGEMENT LETTER Claims for Reimbursement - Federal Bridge Replacement ® Finding While reviewing a sample of claims for reimbursement; it was noted that indirect and fringe benefit costs associated with City engineers salaries and wages applicable to the Gordon's Ferry Bridge Project are being included on the claim without proper approval of a cost allocation plan for indirect costs consistent with Circular A-87. · Recommendation We recommend that the reimbursement received by the City for unallowable costs be remitted to thc grantor agency. An indirect cost plan consistent with Circular A-87 should be developed and submitted to the City Council for approval of an indirect costs rate or the City should exclude these costs from future claims for reimbursements. · Management Response We agree with recommendation and we wili implement. CommunitY, Improvement Fund - Accounts Receivable · Finding While reviewing accounts receivable, it was noted that a receivable from Santa Fe Railway for the railroad's share of "H~ Street underpass project cost is 18 months pas3 due. · Recommendation We recommend that the City implement routine procedures for collection of past due receivables within the Community Improvement Fund. · Management Response The Public Works Director and the Finance Dh'ector have agreed that Public Works' staff will provide follow up on past due receivables with government agencies or developers on capital projects. GIL? Peter C. Brown, CPA Brown Waits and Armstrong ~) Burton H. Armstrong, CPA Jetw E. l~andall, CPA A c c o u n t a n c ¥ C o r p o r a t 'i o n BenjaminP. Rexes, CPA G.P. Trent, CNE Janet C. Smith Cathy J. Brown, CPA An&ew J. Paul&n, CPA Andrea Rutherford-Hill, CPA Grant C. Cornell, CPA Lynn R. Ktat~e, CPA Leon E. Elwell, CPA John N. O'Connell, CPA Richard A. Poe, CPA To the HOnorable Mayor, Budget and Finance Committee and Member of the City Council City of Bakersfield, California In planning and performing our. audit of the general purpose financial statements of the City of Bakersfield, California for the year ended June 30, 1992, we considered its internal control structure in order to determine our auditing procedures for the purpose of expressing our opinion on the general purpose financial statements and not to provide assurance on the internal control structure. Reportable conditions involve matters coming to our attention relating to significant deficiencies in the design or operation of the internal control structure that, in our judgement, could adversely affect the City's' ability to record, process, summarize, and report financial data consistent with the assertions of management in the general purpose financial statements. Certain items came to our attention, that while not material or i'eportable for Federal and State compliance purposes, offer an opportunity for improvement or efficiencies in the areas of compliance, operations and internal controls. All finding have been discussed with the appropriate level of management. This letter details those findings for your information and also addresses the status of the recommendations made for the year ended June 30, 1992. STATUS OF PRIOR YEAR RECOMMENDATIONS Claims for Reimbursement - Federal Aid Urban Recommendation Ail claims for reimbursement should be reviewed by the Business Manager prior to submission for payment for allowability of expenses and mathematical accuracy. In addition, more training may be required for the billing clerk position regarding participating costs and allowable expenses. · Status Recommendation Implemented. 4200 Truxtun Avenue, Suite 300, Bakersfield, California 93309 * (805) 3244971 * FAX (805) 3244997 MEMBER of SEC Practice Section of The American Institute of Certified Public Accountants Claims for Reimbursement - Federal Bridge Replacement · Recommendation All requests for reimbursement should be submitted in a timely manner to ensure responsible cash management. · Status Recommendation Implemented. Agricultural Water Banking - Inventory · Recommendation City should establish an inventory account to record the costs of the water banked at the spreading facility in accordance with the Accounting Principles Board statement #22 and the Accounting Research Board statement #43. Use of inventory accounting will result in a more accurate measure of the results of the banking operations. Expenses related to spreading facility activity should be identified as such. · Status Recommendation not Implemented. The City determined that it was not feasible to inventory the costs of water banked at the spreading facility which are immaterial in amount. The City will maintain records to determine materiality of costs. Internal Controls over Cash - Recreation Recommendation Controls over cash should be strengthened. The bank deposit should be reviewed 'for accuracy by an individual other than the preparer of the deposit. Status Recommendation Implemented. CURRENT YEAR FINDINGS AND RECOMMENDATIONS Claims for Reimbursement - Federal Bridge Replacement Finding While reviewing a sample of claims for reimbursement, it was noted that indirect and fringe benefit costs associated with City engineers salaries'and wages applicable to the Gordon's Ferry Bridge Project are being included on the claim without proper approval of a cost allocation plan for indirect costs consistent with Circular A-87. · Recommendation We recommend that the reimbursement received by the City for unallowable costs be remitted to the grantor agency. An indirect cost plan consistent with Circular A-87 should be developed and submitted to the City Council for approval of an indirect costs rate or the City should exclude these costs from future claims for reimbursements. Community Improvement Fund - Accounts Receivable · . Finding While reviewing accounts receivable, it was noted that a receivable from Santa Fe Railway for the railroad's share of the "H" Street underpass project cost is 18 months past due. · Recommendation We recommend that the City implement routine ·procedures for collection of past due receivables within the Community Improvement Fund. This report is intended solely for the information and use of the audit committee, City Council, management, and the California State Controller. · BROWN,WAITS & ARMSTRONG ACCOUNTANCY CORPORATION. Bakersfield, California October 23, 1992 CITY OF BAKERSFIELD AUDIT FEE SUMMARY 1989-90 TO 1992-93 In Relation To Audit Full Scope Financial Statement 1992-93 1991-92 1990-91 1989-90 City. - Comprehensive Annual Financial Report $31,000 $30,000 $30,000 $28,700 Redevelopment- Annual Financial Report 4,500 4,200 4,200 4,000 Southeast Bakersfield Wastewater Treat Facilities Consolidation Corporation-Annual Financial Report 2,000 1,600 1,600 1,500 Public Facilities Corporation - Annual Financial Report 1,600 1,500 1,500 1,200 Compliance Reports Single Audit 4:090 3,090 3,090 3,000 Redevelopment Agency 1,600 1,500 1,500 1,200 Wastewater Management Plan 1,600 1;500 1,500 1,000 Transportation Development Act N/A N[A N/A 1,500 Subtotal 46,390 43.390 43,390 42,100 Appropriation limit 500 500 500 N[A Total $46~890 $43~890 $43~890 $42~100 krc GR.6 AGREEMENT NO. AMENDMENT TO AGREEMENT NO. 90-165~ THIS AMENDMENT TO AGREEMENT NO. , is made and entered into on , by and between the CITY OF BAKERSFIELD, a municipal corporation, referred to as the ("CITY") and BROWN, WAITS & ARMSTRONG, Accountancy Corporation, referred to as the ("ACCOUNTANT"). RECITALS WHEREAS, CITY and ACCOUNTANT entered into Agreement No. 90-165 and an Amendment Agreements No. 91-49, and 92-6, on July 11, 1990, March 13, 1991 and April 8, 1992 respectively. NOW, THEREFORE, CITY and ACCOUNTANT mutually agree to amend Agreement No. 90-165, as amended by Agreements No. 91-49 and 92-6 as follows: 1. The first "Whereas" clause under recitals is hereby amended in its entirety to read as follows: WHEREAS, the CITY OF BAKERSFIELD issued a Request for Proposals and ACCOUNTANT has completed three years of a five- year commitment and has submitted a proposal concerning an annual audit for the fourth year; and 2. Paragraph 1 of the Agreement is hereby amended in its entirety to read as follows: 1. SCOPE OF WORK. The scope of work is generally described as an audit of the combined and combining financial statements of the City of Bakersfield as of and for the year ended June 30, 1993, as set forth in Exhibit "A," attached hereto and incorporated as though fully set forth. The ACCOUNTANT will express an opinion on the general Purpose financial statements as well as an "in relation to" opinion on all combining and individual fund and account group financial statements and schedules. The Accountant will also express an opinion and issue compliance reports on the following component unit financial statements: Central District Development Agency, Southeast Bakersfield Wastewater Treatment Facilities, Public Facilities Corporation. In addition, financial statements and compliance reports will be issued for the Wastewater Management Plan. A compliance report will also be issued that is in accordance with Proposition 111 requiring the annual appropriation limit calculation be reviewed. The audit will be a single Audit made in accordance with generally accepted auditing standards; the standards for .financial and compliance audits contained in Standards for Audit of Governmental Organizations, Programs, Activities and Functions, issued by th~ U. S.~General Accounting Office; the Single Audit Act of 1984; and the provisions of OMB Circular A-128, Audits of State and Local Governments, and will include tests of the accounting records of the City of Bakersfield and other procedures the ACCOUNTANT considers necessary to enable the ACCOUNTANT to express an unqualified opinion that the financial statements are fairly presented in conformity with generally accepted accounting principles consistently applied and to report on the City of Bakersfield's compliance with laws and regulations and its internal accounting controls as required for a Single Audit. If the opinion is other than unqualified, the ACCOUNTANT will fully discuss the reasons with the CITY in advance. 4. Paragraph 3 of the Agreement is hereby amended in its' entirety to read as follows: 3. COMPENSATION. Compensation for services under paragraph one shall consist of a total payment not to exceed FORTY-SIX THOUSAND EIGHT HUNDRED NINETY DOLLARS ($46,890) paid in such increments, and upon completion to the satisfaction of the CITY, of those items contained in ACCOUNTANT's Proposal. At the completion of each of the items, all documents shall have been completed by ACCOUNTANT, and shall~ be submitted to CITY by ACCOUNTANT. Three copies of each document shall be included in the compensation set forth herein. Upon the review and approval of CITY staff of the ACCOUNTANT's work and submission of an invoice as set forth herein, the sums stated above shall be paid. The compensation .set forth in this paragraph shall be the total compensation for the services provided by ACCOUNTANT including all out-of-pocket cost incurred by the ACCOUNTANT. CITY shall pay no fee other than the compensation listed in this paragraph unless otherwise agreed to in writing by the CITY and ACCOUNTANT. 5. Paragraph 7 of the Agreement is hereby amended in its entirety to read as follows: 7. BEST EFFORTS. ACCOUNTANT is preparing a work product at the request of the CITY. All work done under this Agreement will be on a best efforts basis. ACCOUNTANT agrees to dedicate the necesSary personnel and time to carry out the work as proposed. - 2 - In the event that litigation is commenced involving the work product of ACCOUNTANT, ACCOUNTANT will, at the request of the CITY, assist the CITY in that litigation at contracted compensation rates for hours of assistance. Such compensation would be in excess of the $46,890 cited in paragraph 3. Should such litigation demonstrate that ACCOUNTANT was negligent or committed misfeasance or malfeasance in preparation of the audit, or used patented, copyrighted or proprietary information without full legal authority to do so, no added compensation shall be due for providing such assistance. 6. Except as amended above, all terms and conditions of Agreement No. 90-165, as amended by Agreements No. 91-49 and 92-6, shall continue in full force and effect. -o0o - 3 - IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed, the day and year first-above written. "CITY" CITY OF BAKERSFIELD By BOB PRICE Mayor .APPROVED AS TO FORM: LAWRENCE M. LUNARDINI City Attorney By COUNTERSIGNED: By GREGORY J. KLIMKO Finance Director "ACCOUNTANT" BROWN, WAITS & ARMSTRONG Accountancy Corporation By Title LCM/krc D:BROWN 02/09/93' Attachment: Exhibit "A" - 4 - EXHIBIT "A" Page 1 of 4 Peter C. Brown, CPA Brown Waits and Armstrong anitaM. Waits, CPA ~} Burton H. Armstrong, CPA ' Jerry E. Randall, CPA A c c o u n t a n c y C o r p o r a t i o n Benjamin P. Reyes, CPA G.R Trent, CNE Janet C. Smith Cathy J. Brown, CPA Andrew J. Paulden, CPA Andrea Rutherford-Hill, CPA Grant C. Comell, CPA Lynn R. Krausse, CPA Leon E. Elwell, CPA John N. O'Connell, CPA Richard A. Poe, CPA January 29, 1993 To the Honorable Mayor and Members of the City Council City of Bakersfield, California We appreciate the opportunity of providing audit services to the City of Bakersfield, Central District Development Agency and other component units of the City for the fiscal year ended June 30, 1992. Assuming you found our services to be workmanlike and professional, we are taking this opportunity to propose on "in relation to" type audit services for the ensuing year ending June 30, 1993, as requested by the City Budget and Finance Committee. Our estimate assumes that your Finance Department will be able to provide tis with the audit support commensurate with efforts of this past year. Financial Statements City of Bakersfield - Comprehensive Annual Financial Report and Management Letter $31,000 Bakersfield Redevelopment Agency - Annual Financial Report 4,500 Southeast Bakersfield Wastewater Treatment Facilities Consolidated Corporation - Annual Financial Report 2,000 Public Facilities Corporation - Annual Financial Report 1,600 4200 Truxtun Avenue, Suite 300, Bakersfield, California 93309 · (805) 3244971 * FAX (805) 324-4997 MEMBER of SEC Practice Section of The American Institute of Certified Public Accountants Page 2 of 4 Page Two January 29, 1993 Compliance Reports Single Audit 4,090 Redevelopment Agency 1,600 Wastewater Management Plan 1,600 Out-of-Pocket Expenses Total MaximUm Fee $46,390 Please indicate your acceptance by signing below and returning this letter to us. A duplicate copy is enclosed for your records. If you have any questions, please contact me. Very truly yours, BROWN, WAITS & ARMSTRONG ACCOUNTANCY CORPORATION By: Burton H. Armstrong · 'x~ ! BHA:lmh Enclosure Audit Scope Approved By Date Date Date Date EXHIBIT "A" Page 3 of 4 Peter C. Brown, CPA · ~ ~ Anita M. Waits, CPA Brown,. Waits and Armstrong Jerry E. Randall, CPA ~ A c 'c o u n t a n c y C o r p o r a t i o n Benjamin P. Reyes, CPA i.; G.R Trent, CNE Janet C. Smith Cathy J. Brown, CPA Andrew J. Paul&n, CPA Andrea Rutherford-Hill, CPA Grant C. Comell, CPA January 29,1993 Lynn R. Krausse, CPA Leon E. Elwell, CPA John N. O'Connell, CPA Richard A. Poe, CPA Honorable City Council City of Bakersfield c/o Mr. Gil Rojas, Assistant Finance Director 1501 Truxtun Avenue Bakersfield, CA 93301 Gentlemen: Proposition 111 (Section 1.5 of Article XIIIB) requires that the annual appropriations limit calculation be reviewed as part of the annual financial audit. We are therefore, proposing our services for the following agreed-upon procedures. · We will review the computation of the Article XIIIB appropriation limit, as prepared by the City's internal auditor from the worksheets contained in the League of California Cities "Uniform Guidelines: issued March, 1991. · We will perform the review procedures recommended in the League of California Cities "Uniform Guidelines". · We will issue an "agreed-upon procedures" report to the City. An agreed-upon procedures engagement is substantially less in scope than an audit, the objective of which is the expression of an opinion regarding the statements taken as a whole. Accordingly, we will' not express such an opinion. The review will be made for the purpose of expressing limited assurance that nothing came to our attention that caused us to believe that the appropriations limit was not computed in accordance with Article XIIIB of the California Constitution. Our fee for these agreed-upon procedures is estimated to be $500. If you agree with the foregoing, please indicate your acceptance by signing below and returning a copy of this agreement ~to us. If you have any questions regarding this proposal, please contact Burt Armstrong. 4200 Truxtun Avenue, Suite 300, Bakersfield, California 93309 · (805) 3244971 · FAX (805) 3244997 MEMBER of SEC Practice Section of The American Institute of Certifl~:l Public Accountants Page City of Bakersfield Page Two January 29, 1993 Thank you for considering the services of Brown, Waits and Armstrong. Very truly yours, BROWN, WAITS & ARMSTRONG ACCOUNTANCY CORPORATION 'II. By: Burton H. Arms BHA:lh Enclosure Approved By Date Date Date Date