Proposal - Diehl, Evans and Co. - 2006-03-10 I
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COSTA MESA SANITARY DISTRICT
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AUDIT PROPOSAL
' FOR THE THREE YEARS ENDING JUNE 30, 2007
I (WITH AN OPTION FOR THE TWO YEARS
ENDING JUNE 30, 2009)
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TITLE PAGE
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RFP Subject: Certified Audit on Costa Mesa Sanitary District
1 For the Three Years Ending June 30, 2007
(With an Option for the Two Years Ending June 30, 2009)
1 Name of Proposer Diehl, Evans & Company LLP
Certified Public Accountants and Consultants
1 Local Address: 2121 Alton Parkway Suite 100
Irvine, CA 92606-4906
1 Telephone: (949) 399-0600
Fax: (949) 399-0610
1 Website: www.diehlevans.com
1 Email. nitinp @diehlevans.com
1 Contact Persons: Nitin P Patel, CPA
Engagement Partner
1 Robert J Callanan, CPA
Concurring Review Partner
Date: March 10, 2006
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COSTA MESA SANITARY DISTRICT
' TABLE OF CONTENTS
' March 10, 2006
I Page
Number
ILetter of Transmittal 1 2
' Firm Profile and Qualifications.
Licensing and Independence 3
Size and Location of Firm 3
IRange of Activities 3
Participation in 'Quality Review Programs 4
Education Programs 4
IParticipation in Professional Organizations 5
GFOA and CSMFO Award Programs 6
IComputer Auditing Capabilities 6
Firm Experience with Governmental Entities.
I Similar Engagements with Other Governmental Entities 7
Client References 7
Water Districts and Other Special Districts 7
I Enterprise Fund Experience 8
Nonprofit Corporations and Joint Power Authorities 9
I Partner, Supervisory and Staff Qualifications and Experience:
Audit Team 10
Commitment Related To Personnel 10
I Nondiscrimination Policy 10
Resumes of Audit Team Personnel 11 14
I Scope of Work, Timing and Audit Approach:
Entity to Be Included In Audit 15
Reports To Be Issued and Due Dates 15
I Audit Timing 15
Commitment to Deliver Reports on a Timely Basis 15
Audits To Be In Accordance With GAAS and Other Requirements 16
I Audit Approach 16 17
Determining Laws and Regulations Subject to Audit 17
Method of Sampling 18
IAnalytical Procedures 18
Management Letters 18
Retention Of and Access to Audit Workpapers 18
IOther Professional Services 18
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COSTA MESA SANITARY DISTRICT
TABLE OF CONTENTS
(CONTINUED)
March 10, 2006
Page
Number
1 Discussion of Relevant Accounting Issues:
GASB Statement No. 44 19
' GASB Statement No. 45 19
GASB Statement No. 46 19
GASB Statement No. 47 19
Work Required by District Staff 20
' Fees and Hourly Rates.
Maximum Fees 21
' Hourly Rates For Special Services 22
Consulting Services Department:
' Overview of Services Provided 23
Attachment I Client References
Special District References
City Client References
' Attachment II Results of Outside Quality Review
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' D, DIEHL, EVANS & COMPANY, LLP
CERTIFIED PUBLIC ACCOUNTANTS & CONSULTANTS
MICHAEL LUDIN CPA
' A PARTNERSHIP INCLUDING ACCOUNTANCY CORPORATIONS CRAIG W.SPRAKI.k.CPA
NITIN P PATCI. CPA
ROBERT I CALL ANAN.CPA
2121 ALTON PARKWAY SUITE 1)10 "PHILIP H.HOLTRAMP.CPA
IRVINE,CALIFORNIA 92606-49% "HARVEY M CEROEDERI CPA
' 949)399-0600 FAX(949)399-06111 'KENNE l .AMES.DER.CPA
t KENNETH R AMES.CPA
\1RµIIICFIIC\df11 own IROITS (RATION
March 10, 2006
1 Ms. Wendy Davis
District Treasurer
Costa Mesa Sanitary District
' 628 West 19th Street
Costa Mesa, CA 92627
eDear Ms. Davis:
' We are pleased to present our proposal to serve as independent auditors for the Costa Mesa Sanitary
District. We have prepared this information in accordance with the guidelines set forth in your request
' for proposal.
Whv We Are The Best Qualified Firm
' We consider ourselves to be the best-qualified firm to perform auditing services for the Costa Mesa
Sanitary District. Please consider these qualifications.
' • Diehl, Evans and Company LLP has been providing auditing services to governmental agencies
since 1950 A significant part of our practice is devoted to providing professional services to your
' specialized industry and over the past year, our firm audited sixteen special districts, twenty-six
cities of which may operate their own municipal water and sewer operations, and many other
governmental agencies.
' • Our firm has devoted a substantial amount of time and resources in order to provide governmental
agencies with quality audits. Our knowledge of the industry is best demonstrated by the fact that
I our clients who apply for the `Outstanding Award in Financial Reporting issued by the California
Society of Municipal Finance Officers (CSMFO) and the `Certificate of Achievement in Financial
Reporting issued by the Government Finance Officers Association (GFOA) consistently receive
these awards. A list of these clients is presented on page 6 of this proposal.
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OTHER OFFICES AT 2965 ROOSEVELT STREET 613 W VALLEY PARKWAY SU17E 1311
' CARLSBAD.CALIFORNIA 92008-^389 ESCONDIDO CALIFORNIA 92025-^598
(760)729°341 FAX(760)729- 134 17601741-3141 FAX 1760)741-9390
Why We Are The Best Qualified Firm (Continued)
' • We understand that we provide a service to the District. Our audit approach is tailored to meet
all technical requirements while maintaining professional skepticism without forgetting that we
' provide a service. We are able to achieve this by partner involvement in all phases of the audit
and assigning experienced governmental audit staff to the engagement. Partner involvement
will result in decisions being made on a timely basis and experienced staff will minimize
' disruption to your staff.
The scope of our services for the three years ending June 30, 2007 would be as follows:
' • A financial audit of the basic financial statements of the Costa Mesa Sanitary District in
accordance with auditing standards generally accepted in the United States of America and the
' Government Auditing Standards issued by the Comptroller of the United States. The financial
statements will comply with GASB Statement No. 34
• An agreed-upon procedures review of the District s Appropriations Limit Worksheet No. 6
(GANN) as required by Section 1.5 of Article > IR of the California Constitution.
' • A management letter containing any comments or recommendations resulting from our review
of the systems of internal controls in connection with the financial and compliance audits.
' We make a commitment to deliver all necessary reports based on the timetable presented herein on
page 15 Also, a more detailed discussion of our understanding of the work to be performed is set
forth on pages 15 through 20.
Our goal is to provide the District with the highest quality of service, including basic financial
' statements which meet all required reporting standards and a comprehensive management letter which
is practical and helpful to management in improving operations. We are confident that our service and
experience will be of benefit to the District and will provide added value over and above the
performance of the audit itself. Throughout the year, you should feel comfortable in calling us for
advice, as we are never too busy to meet the needs of our clients. We encourage you to verify our
level of service by contacting the references provided in this proposal.
We thank the District for the opportunity to present our proposal. Please feel free to contact me, or
Mr. Robert Callanan, at (949) 399-0600 if you have any questions. This proposal constitutes a firm and
' irrevocable offer for 60 days from the date of this letter. Mr. Callanan and I are authorized to represent
our firm, and bind the firm to a contract.
' Very truly yours,
DIEHL, EVANS & COMPANY, LLP
By 1p Pea-c.12-
Nitin P Patel, CPA
Engagement Partner
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FIRM PROFILE AND QUALIFICATIONS
LICENSING AND INDEPENDENCE
Our firm, and all of our certified personnel, are properly licensed to practice public accounting in
California.
' Also, we meet the independence requirements of 'Governmental Auditing Standards (2003 Edition),
as published by the U.S General Accounting Office. We will provide written notice to the District of
any professional relationships entered into during our term as auditors for the District. We have not
provided auditing or any other services to the District during the past five years.
SIZE AND LOCATION OF THE FIRM
Diehl, Evans & Company LLP is a Southern California accounting firm with offices in Irvine,
Carlsbad and Escondido. We are one of the oldest CPA firms in Southern California. with over 75 years
' of public practice experience.
Diehl, Evans & Company, LLP has extensive experience in providing auditing, accounting and
' consulting services in the governmental sector. Over twenty thousand hours per year are devoted to
this area of our practice for nearly 100 governmental units including cities, redevelopment agencies,
water districts, special districts, nonprofit corporations and joint power authorities.
Our firm has 45 employees which includes 40 professional staff members. Your District would be
served from our Irvine office, which has 20 professional staff members.
RANGE OF ACTIVITIES
Diehl, Evans & Company LLP is a full service CPA firm. We offer a broad range of services,
including:
Certified Audits Tax Planning
' Compilations and Reviews Income Tax Preparation
Agreed-Upon Procedure Reviews Consulting Services
' Financial Services
Our specific services available to governmental agencies are more fully set forth in this proposal.
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PARTICIPATION IN `QUALITY REVIEW' PROGRAMS
In 1986, our firm began an annual internal quality review program, whereby all three offices are
' reviewed for compliance with all current accounting and auditing requirements. Formal reports of
these reviews are presented to the partners, and adjustments in our auditing and reporting procedures
are made as necessary
1 In January 2003 our firm underwent a quality review by an independent CPA firm, under provisions of
the AICPA Quality Review Program. These reviews are required every three years and covered our
' audits of governmental agencies. On January 31 2003 we received a final report with an unqualified
opinion on our systems and procedures. A copy of the independent CPA firm s report is included herein
at Attachment H. Accordingly we are confident that our current auditing standards and techniques
' meet all existing requirements.
No regulatory action has ever been taken against any office of our firm due to substandard work. We
had no significant deficiencies noted in any federal or state desk reviews over the past three years.
' EDUCATION PROGRAMS
' Diehl, Evans & Company LLP has a formal continuing education program. All firm auditors are
required to obtain 80 hours of continuing education every two years in the accounting and auditing
area as required by Government Auditing Standards, and at least 24 hours of government related
' continuing education courses. Our staff is continually expanding their knowledge of the governmental
industry through our in-house training programs, programs offered by the AICPA, the California
Society of Certified Public Accountants and other professional organizations, and through on-the-job
' training. We also publish an Auditing Manual For Governmental Entities for internal use by our staff.
The manual is updated at least annually
' Noted below is a description of certain in-house education courses taken by our partners and staff to
meet the governmental continuing education requirements. All personnel involved with governmental
auditing are required to attend these courses.
• Implementation of GASB Statement No. 34 Basic Financial Statements and Management's
Discussion and Analysis for State and Local Governments
' • Understanding, and Auditing, Deposits and Investments of California Governmental Units
• Reviews of Internal Controls in Accordance With Statements on Auditing Standards 55 and 78
• Assessing Audit Risk and Materiality in Conducting An Audit
' • Understanding Statement on Auditing Standards No. 99 Consideration of Fraud in a Financial
Statement Audit
• Computer Auditing in the Governmental Environment
' • The Single Audit New Provisions under OMB Circular A 133
• Laws and Regulations in the Government Sector
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PARTICIPATION IN PROFESSIONAL ORGANIZATIONS
Our partners and staff are actively involved in professional organizations in the governmental
' accounting field. Noted below is a summary of our participation in various national and California
governmental organizations.
GFOA, GASB and FASB
' Our firm is an associate member of the Government Finance Officers Association of the United States
and Canada (GFOA).
' Also, we maintain subscriptions with the Governmental Accounting Standards Board (GASB) and the
Financial Accounting Standard Board (FASB). We receive all GASB and FASB Statements,
1 Interpretations, Technical Pronouncements and Newsletters. We regularly analyze these
pronouncements and advise our governmental clients of changes in accounting rules.
' CSMFO
' Three of our Irvine office partners (Mr. Michael Ludin, Mr. Nitin Patel and Mr. Robert Callanan) and
our Director of Consulting Services (Mr. William S. Morgan) are associate members of the California
Society of Municipal Finance Officers (GSMFO). Our personnel regularly attend local CSMFO
chapter meetings throughout Southern California, and the annual statewide conference. We often
provide public speakers for these meetings.
CSCPA
' All partners, Mr. Morgan and several of our managers are all members of the Governmental
Accounting and Auditing (GAA) Committee of the Orange County Chapter, California Society of
Certified Public Accountants (CSCPA). Mr. Patel, Mr. Ludin and Mr. Morgan have each served as
chairman of this committee. Mr. Ludin and Mr. Morgan have been involved over the years in
preparing position papers issued on governmental accounting matters. Mr. Patel is a member of the
State Governmental Accounting and Auditing Committee.
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GFOA AND CSMFO AWARD PROGRAMS
The partner and manager will be involved in all phases of report preparation or review including the
' drafting of footnotes. Reporting checklists will be used to assure compliance with all reporting
requirements. Based on the high quality of our review process, we have been able to assist various
districts and cities in obtaining the GFOA 'Certificate of Achievement for Excellence in Financial
Reporting and the `Outstanding Award' for financial reporting from CSMFO During the past five
years. the following clients received awards:
' Special Districts:
Cucamonga County Water District
' Mesa Consolidated Water District
Rancho California Water District
Cities.
' Alhambra Fullerton Lake Elsinore San Juan Capistrano
Cerritos Garden Grove Lakewood Santa Clarita
' Chino Healdsburg Mission Viejo Signal Hill
Commerce Hesperia Montebello Simi Valley
Coronado Huntington Beach Norwalk Temecula
' Del Mar Indian Wells Palm Desert Thousand Oaks
' Diamond Bar Irvine Pico Rivera Tustin
Westminster
COMPUTER AUDITING CAPABILITIES
tEach of our audit staff members is equipped with portable computers that are used to assist in
workpaper preparation and preparation of financial statements. Utilizing Microsoft Excel or other
' spreadsheet programs, we will transfer the trial balance data through direct input or through
downloading from the client s accounting system. This will allow us to perform analytical reviews of
accounts and preparation of financial statements. This process will reduce the time included in
tpreparation of lead schedules and the financial statements.
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FIRM EXPERIENCE WITH GOVERNMENTAL ENTITIES
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SIMILAR ENGAGEMENTS WITH OTHER GOVERNMENTAL ENTITIES
Your request for proposal called for a maximum of five similar engagements (three special districts and
two municipal clients), ranked by total staff hours. These are set forth below
' Engagement Total Staff
District Partner Hours
City of Fullerton Patel 500
City of San Juan Capistrano Patel 500
Rancho California Water District Patel 350
Walnut Valley Water District Patel 300
' Laguna Beach County Water District Patel 200
Certified audits were performed on the financial statements of all of these special districts, cities and
their component units for the year ended June 30, 2005
' CLIENT REFERENCES
One means of judging the high quality of our auditing services would be contact with some of our
' clients over the past year. We are including the names and phone numbers of the special district clients
and municipal clients served by the Irvine offices as presented in Attachment I of this proposal. We
encourage you to contact any of these individuals and verify our level of service.
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WATER DISTRICTS AND OTHER SPECIAL DISTRICTS
Noted below is a listing of water and special districts audited by our firm over the past year.
' Water Districts
Borrego Water District Leucadia County Water District
' Cucamonga Valley Water District Pomona-Walnut-Rowland Joint
Jurupa Community Services District Water Line Commission
La Habra Heights County Water District Puente Basin Water Agency
' La Puente Valley County Water District Rancho California Water District
Laguna Beach County Water District Santa Fe Irrigation District
' Walnut Valley Water District
Other Special Districts
' Coachella Valley Association Sunset Beach Sanitary District
of Governments Valley Wide Recreation and Park District
Downey Cemetery District
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ENTERPRISE FUND EXPERIENCE
Most cities audited by our firm have a water and sewer utility enterprise funds. Noted below is a partial
listing of other enterprise funds audited by our firm over the past five years:
City Enterprise
' Alhambra Water, Sewer, Storm Drain, Sanitation, Golf Course
Buena Park Water
Cerritos Reclaimed Water
Chino Water, Sewer, Sanitation System
Coronado Golf Course, Sewer
Del Mar Sewer
' Downey Golf Course, Transit System
Fullerton Water, Refuse
Garden Grove Water, Sanitation, Mobile Home Parks
Healdsburg Electric, Water, Sewer, Transit
Huntington Beach Water, Golf, Housing, Refuse
' Lakewood Water
Mission Viejo Animal Services, Television
Montebello Water, Golf, Transit
' Norwalk Transit
Palm Desert Golf, Building
Pico Rivera Water
' San Juan Capistrano Water, Sewer
Santa Clarita Transit
Signal Hill Water
' Simi Valley
Thousand Oaks Water, Sanitation, Transit
Water, Sewer, Golf
Tustin Water
Westminster Water
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NONPROFIT CORPORATIONS AND JOINT POWER AUTHORITIES
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Noted below is a partial listing of nonprofit corporations and joint power authorities audited by our
' firm over the past year. A substantial number of these entities are component units which are
combined into the basic financial statements of governmental organizations which exercise oversight
responsibility
Buena Park Foundation Lake Elsinore Financing Authority
Cal State L.A. Metrolink Authority Lake Elsinore Recreation Authority
Conejo Open Space Conservation Agency Norwalk Financing Authority
' Coronado Financing Authority Pico Rivera Water Authority
' Coronado Improvement Corporation Public Cable Television Authority
' Cove Community Public Safety Commission Redwood Empire Financing Authority
Del Mar Public Facilities Corporation San Juan Capistrano Housing Corporation
' Downey Civic Center Corporation Santa Clarita Watershed Recreation
and Conservation Authority
Downey Recreational Area Authority South County Senior Services
Downey Water Facilities Corporation Southeast Area Animal Control Authority
El Toro Reuse Planning Authority Walnut Valley Building Corporation
Healdsburg Public Improvement Corporation
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PARTNER, SUPERVISORY AND STAFF QUALIFICATIONS AND EXPERIENCE
AUDIT TEAM
The audit team assembled consists of individuals who have extensive experience auditing
governmental agencies and are familiar with municipal accounting. In addition, each team member s
' skill and experience developed working in other industries our firm serves can be applied to the
individual requirements of the Costa Mesa Sanitary District.
The personnel assigned to the engagement team are as follows.
The engagement partner will be Mr. Nitin P Patel, CPA. He will be the primary contact for all matters
' involving the District audit and will he responsible for assuring that all work for the District is
performed in a complete and timely manner.
Mr. Robert J Callanan, CPA, will be the Concurring Review Partner and will perform a quality review
of all reports issued in connection with the audit. He will also consult in the accounting treatment of
' unusual transactions or audit issues.
Ms. Lori Nicoson, CPA, will serve as the audit manager. She will schedule the fieldwork, supervise
' the staff accountants, review the workpapers and assist in the audit of any complex or unusual audit
areas.
' The audit senior will be Ms. Teri Washle. She will be onsite performing the fieldwork including
performing tests of internal controls, substantive tests of balances, analytical tests and prepare financial
statements.
' Resumes for the above partners and personnel are included at pages 11 14
COMMITMENT RELATED TO PERSONNEL
' We make a commitment to retain the same personnel on the District from year to year, except where
such personnel leave the firm, or where the change is approved by the District. If a staff member is
replaced, we make a commitment to replace that person with staff of at least equal experience.
NONDISCRIMINATION POLICY
' Our firm has a policy to provide equal employment opportunities to all qualified persons without
regard to race, color, age, sex, religion, national origin or handicap.
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NITIN P. PATEL. CPA
Position Engagement Partner
Education University of California at Irvine
Bachelor of Arts in Economics
California State University at Long Beach
Masters of Accounting Program
' Licensing Certified Public Accountant in California since 1988
Professional
Organizations American Institute of Certified Public Accountants
California Society of Certified Public Accountants
' California Society of Municipal Finance Officers (CSMFO)
Associate Member
' CSMFO Professional and Technical Standards Review Committee
Report Reviewer for Award Program
Governmental Accounting and Auditing Committee of Orange
County Committee Chairman (2001 2002)
California Accounting and Auditing Committee Member
Range of
' Experience Has been with Diehl, Evans & Company LLP since 1986 with emphasis in
governmental accounting and financial reporting.
' Responsible for firm s in-house governmental accounting and auditing training
programs.
' Experience includes supervision of over one hundred audits of governmental
agencies including cities, redevelopment agencies, non-profit corporations,joint
powers authorities and special districts.
' Other experience includes providing consulting services for governmental
agencies including special internal control reviews, cost allocation plans, cable
' television rate reviews, reviews of City Treasurer operations and transient
occupancy tax reviews of city hotels/motels.
Continuing
Professional
' Education For the period of January 1 2001 through December 31 2005
Total Government Hours. 142.00
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ROBERT J. CALLANAN, CPA
Position Concurring Review Partner
' Education Aquinas College, Grand Rapids, Michigan
Bachelor of Arts. Business Administration, 1988
' Bachelor of Science,Accounting, 1988
Licensing Certified Public Accountant in California since 1991
Professional
Organizations American Institute of Certified Public Accountants Member
California Society of Certified Public Accountants Member
California Society of Municipal Finance Officers (CSMFO)
Associate Member
CSMFO Professional and Technical Standards Committee
Report Reviewer for Award Program
' Range of
Experience Fifteen years of experience as Certified Public Accountant with Diehl, Evans &
' Company, LLP
Two years of experience as Chief Financial Officer of a mortgage lending
' corporation
Overall Experience includes.
' • Extensive supervision of audits of governmental agencies including cities,
redevelopment agencies, water districts, special districts, non-profit
corporations and joint power authorities.
• Numerous presentations of accounting, auditing, tax and personnel topics at
1 in-house training programs
• Conversion of an accounting system
' • Review and development of accounting control procedures, chart of
accounts and internal accounting reports
' • Several operational reviews of internal control systems, such as cash
management, business licensing and grant accounting
' Continuing
Professional
' Education For the period of January 1 2001 through December 31 2005
' Total Government Hours. 158.50
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LORI NICOSON, CPA
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Position Audit Manager
' Education Illinois State University Normal, Illinois
Bachelor of Science in Accounting, with Honors, 1992
Licensing Certified Public Accountant since 1992,
Licensed Certified Public Accountant in California since 2000
1 Professional
Organizations Member, American Institute of Certified Public Accountants
Range of
Experience More than ten years of experience as a Certified Public Accountant. Two years
of experience as an Accounting Manager for a non-profit hospital.
Experience includes: Supervision of audits of governmental entities, hospitals,
non-profit and for-profit corporations, development of in-house training and
audit programs, development of policies and procedures manual for accounting
department and training as an Internal Control Specialist.
Continuing
' Professional
Education For the period of January 1 2003 through December 31 2005•
Total Government Hours: 111.50
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TERI WASHLE
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Position Audit Senior
1 Education California State University at Long Beach
Bachelor of Science, 1994
1 Additional Accounting courses in 2002
1 Range of
Experience Has been with Diehl, Evans & Company, LLP since 2004 She has audited and
prepared financial statements on cities, redevelopment agencies and nonprofit
' corporations. Prior to coming to Diehl, Evans and Company LLP Ms. Washle
was an Accounting Manager for a nonprofit organization. Experience includes
auditing for the following clients:
1 Cities: Nonprofit Corporations.
1 City of Irvine AIDS Services Foundation Orange
City of Norwalk County
City of Thousand Oaks Casa Teresa, Inc.
1 Family Assistance Ministries
Water Districts. Irvine Child Development Center
Laguna Beach County Water Temple Beth El of South Orange
1 District County
United Cerebral Palsy Association
Westview Services, Inc.
1 Continuing
Professional
Education For the period of February 2004 through December 31 2005
Total Government Hours: 48.00
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SCOPE OF WORK, TIMING AND AUDIT APPROACH
ENTITY TO BE INCLUDED IN AUDIT
Costa Mesa Sanitary District
REPORTS TO BE ISSUED AND DUE DATES
' Due Dates
Costa Mesa Sanitary District:
Financial Statement (1)
GANN Report (1)
Management Letter (1)
(1) For the June 30, 2005 audit, the dates will be determined based on mutual agreement with the
District and Audit Firm.
AUDIT TIMING
' Assuming that the District's books are closed and ready for examination and that all necessary
schedules and documents are available for our use by August 31st each year, the suggested time
schedule for the various phases of the audit would be approximately as follows.
Entrance conference with key District staff. Discussion of
' any prior audit concerns and the performance of interim
work. Completed by May 31
Interim audit fieldwork and management review Completed by May 31
Final audit fieldwork and management review Completed by November 30
' Deliver Final Reports Completed by January 31
COMMITMENT TO DELIVER REPORTS ON A TIMELY BASIS
If all books and records, schedules and documents are made available to us by August 31st, we make a
commitment to have audit team members available and to provide all reports by the due dates specified
above.
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AUDITS TO BE IN ACCORDANCE WITH GAAS AND OTHER REQUIREMENTS
We will audit the financial statements of the District. The financial statements of all entities where the
' District exercises oversight will be combined with the District s financial statements, in accordance
with GASB Statement 14 Our audit will be in accordance with auditing standards generally accepted
in the United States of America as set forth by the AICPA, and will include such auditing procedures as
' we consider necessary under the circumstances. We will apply certain limited procedures, which
consist principally of inquiries of management regarding methods of measurement and presentation of
required supplementary information. However, we do not audit such information and do not express
' an opinion on it. Any supplemental financial statements will be subjected to auditing procedures as we
consider necessary in relation to the financial statements taken as a whole. The scope of our audit will
not include any statistical information, and we will not express an opinion concerning it.
' Our audits will conform with the guidelines set forth in the AICPA s Industry Audit Guide, Audits of
State and Local Governmental Units. Also, each examination will comply with the standards for
financial and compliance audits contained in the Government Auditing Standards (2003 Edition),
issued by the U.S General Accounting Office, and the requirements of OMB Circular A 133
' AUDIT APPROACH
Our firm uses a standardized governmental audit program which we will modify to the Costa Mesa
Sanitary District s operations. The audit programs are modified to accommodate specific client
circumstances such as providing services directly or through contracts, specific statutes and other
unique characteristics. Our audit programs are organized using a combination of review and testing of
' internal controls, substantive tests of the balance sheet and analytical review of revenues and
expenditures. The phases of the audit are as follows:
1 Planning and Initial Work.
In the preaudit conference, an important objective will be to establish a process of communication
between our audit team and District staff to minimize disruption to District staff. At this meeting
we will discuss the scope and timing of the audits, documents needed for our permanent files and
the list of schedules that the District normally prepares in conjunction with the year end closing.
' We will schedule about one week of interim audit work during May each year. During our initial
audit, we will prepare narratives or other documentation of the major internal accounting control
systems, such as revenue and cash receipts, cash disbursements, purchasing and accounts payable,
payroll, inventory, property and equipment, grant administration and the budget process. These are
used to evaluate the systems of internal control and to revise our standard audit programs as
needed. As part of our planning and interim work, we will also gather information necessary to
identify risks of material misstatements due to fraud by (a) inquiring of management and others
' within the District about the risks of fraud, (b) considering the results of analytical procedures,
(c) considering fraud risk factors and (d) other information. During the audit work in subsequent
years. we will note changes in the systems, if any Each year we will select a random sample of
transactions from throughout the year to determine that the systems are functioning as described to
us. We will identify the strengths of the systems upon which we can rely in planning our
substantive tests and in setting materiality limits. Our internal control review will meet all the
' requirements of AICPA Statement on Auditing Standards No. 55 `Consideration of the Internal
Control Structure in a Financial Statement Audit' as amended by Statements on Auditing
Standards No. 78 and 94
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AUDIT APPROACH (CONTINUED)
2. Final Audit Work:
During the final audit work, we will concentrate on auditing the final amounts that appear in the
District s Financial Statements. Our work may include:
' • Confirmation of cash and investments balances and testing of bank reconciliations.
' • Confirm significant receivable balances or review subsequent cash receipts to verify
receivable balance.
• Search for unrecorded liabilities.
• Test capital asset additions and depreciation expense.
• Test support for other significant assets or liabilities.
' • Analytical procedures on balance sheet and revenue and expenditure accounts, to evaluate
and explain unusual fluctuations from prior year balances or current year budgeted
amounts.
• Review of attorney letters for significant legal matters affecting the District s financial
' position.
The audit workpapers will be reviewed by our management team in the field so that at the
' conclusion of the fieldwork we are able to report any adjustments or findings. An exit conference
will be held at the end of the fieldwork to review any significant adjustments or findings.
DE IERMINING LAWS AND REGULATIONS SUBJECT TO AUDIT
' Under provisions of AICPA Statement on Auditing Procedures No. 74 Management of the District is
responsible for identifying to its outside auditors any laws and regulations which would have a
significant effect on the audit. This would include federal laws (such as federal grant regulations),
1 State laws (such as permitted investments under the California Government Code) and local laws (such
as restrictions on special revenues levied by the District). After our selection as auditors, we will
consult with District officials regarding these matters, to determine what laws and regulations need to
' be evaluated in connection with our audit. If a District is not able to identify specific laws and
regulations that effect it, we have references (California Government Code) to the more common laws,
rules and regulations in our standard audit programs for the usual activities of a Special District which
will assist us in identifying laws and regulations to review in the audit.
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METHOD OF SAMPLING
Our approach is to utilize random sampling based in our testing of the internal control systems related
to cash receipts, cash disbursements, payroll and utility billings. Based on a statistical conclusion used
by the firm our sample sizes can range from 25 to 60 transactions. A random sample selection allows
each item in the population of an equal chance of being selected. in addition, for disbursements, we
Imay select a stratified sample of all transactions over a specified dollar amount for review
ANALYTICAL PROCEDURES
' Analytical procedures are used in the planning and final stages of the audit. In the planning phase, we
use analytical procedures to identify unusual financial transactions and comparing relationships to
expected results. We compare current year information to the prior years for balance sheet items,
revenues and expenditures. In addition, revenues and expenditures are compared to budgets to identify
unexpected results. In the final stages of the audit, the financial statements are reviewed to identify
' expected relationships such as comparing debt paid to expenditures recorded on governmental funds,
transfers between funds, depreciation expense, etc. For all significant relationships identified,
explanations are obtained as to why the situation occurred and additional audit procedures are applied
to resolve any concerns.
1 MANAGEMENT LETTERS
In connection with each audit, a complete review of internal controls will be made of all significant
1 accounting procedures. Our firm uses an internal control questionnaire and a computer systems
questionnaire to develop information for the management letter. Upon the completion of each audit
and discussion with appropriate District staff, our firm will submit a management letter which shall
identify weaknesses observed during these reviews and throughout the audit, assess their effects on
financial management and recommend steps toward eliminating the weaknesses.
' RETENTION OF AND ACCESS TO AUDIT WORKPAPERS
In accordance with provisions of OMB Circular A 133, GAO requirements, and the California Board
' of Accountancy, our audit workpapers will be maintained for at least seven years after the date of the
report. These workpapers will be made available as necessary to your cognizant audit agency (or its
designee), to GAO representatives, or to any other federal or state agency needing access to the
1 workpapers. Also, our firm will respond to any reasonable inquiries of successor auditors and we will
allow any successor auditors to review our workpapers.
' OTHER PROFESSIONAL SERVICES
We will be available for any other professional assistance you require to research and answer
' accounting and reporting problems raised by the District, regardless of the time of year. Such
assistance may include, but is not limited to, tax questions, the review of bond documents, cost
allocation programs and employee benefit programs. We also will keep the District informed of new
' developments affecting municipal finance and reporting, changes in grant rules and regulations, etc.
We will be available for training sessions on any accounting matters, and we will be available to attend
District Board of Directors meetings as needed.
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DISCUSSION OF RELEVANT ACCOUNTING ISSUES
GASB STATEMENT NO. 44
' GASB Statement No. 44 on Economic Condition Reporting: The Statistical Section an amendment of
NCGA Statement 1 is effective for statistical sections prepared for periods beginning after
' June 15 2005 This Statement improves the understanding and usefulness of statistical information by
addressing the comparability problems that have developed in practice and by adding information from
the new financial reporting model for state and local governments required by GASB Statement
' No. 34
' GASB STATEMENT NO. 45
GASB Statement No. 45 on Accounting and Financial Reporting by Employers for Postemployment
' Benefits Other Than Pensions is effective based on a government s total annual revenues in the first
fiscal year ending after June 15 1999 For governments with total annual revenues of$100 million or
' more, the Statement is effective for periods beginning after December 16, 2006. This Statement
improves the relevance and usefulness of financial reporting by (a) requiring systematic, accrual-basis
measurement and recognition of OPEB cost (expense) over a period of time that approximates
employees years of service and (bl providing information about accrued liabilities associated with
OPEB and whether and to what extent progress is being made in funding the plan.
GASB STATEMENT NO. 46
' GASB Statement No. 46 on Net Assets Restricted by Enabling Legislation is effective for periods
beginning after June 15 2005 This Statement will help governments determine when net assets have
been restricted to a particular use by passage of enabling legislation and to specify how those net assets
' should be reported in financial statements when there are changes in the circumstances surrounding
such legislation.
GASB STATEMENT NO. 47
GASB Statement No. 47 on Accounting for Termination Benefits is effective in two parts. For
termination benefits provided through an existing defined benefit OPEB plan, the provisions should be
implemented simultaneously with the requirements of GASB Statement No. 45 For all other
' termination benefits, the Statement is effective for periods beginning after June 15 2005 This
Statement improves financial reporting by adopting uniform recognition requirements for all voluntary
termination benefits, establishing guidance for accrual basis accounting and reporting of termination
' benefits in the period in which the employer becomes obligated to provide benefits to terminated
employees, and elaborating on measurement issues associated with all forms of termination benefits.
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WORK REQUIRED BY DISTRICT STAFF
Our fixed annual fees contemplate that conditions satisfactory to the normal progress and completion
of the examination will be encountered and that District accounting personnel will furnish the
agreed-upon assistance in connection with the audit. However, if unusual circumstances are
encountered which make it necessary for us to do additional work, we shall report such conditions to
the responsible District officials and provide the District with an estimate of the additional accounting
fees involved.
tNoted below is a listing of work required by District staff to assist in the audit.
1 Technical assistance in familiarizing our staff with.
' • The flow of information through the various departments and accounting systems.
' • Reports generated by your accounting system.
• The system of internal controls.
• Controls established to monitor compliance with federal grants.
2. Preparation of trial balances for all funds, after posting of all year end journal entries.
3 Preparation of schedules supporting all major balance sheet accounts, and selected revenue and
expenditure accounts.
' 4 Typing of all confirmation requests.
5 Pulling and refiling of all supporting documents required for audit verification.
6. Assistance with the preparation of the financial statements.
7 Preparation of the management s discussion and analysis.
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FEES AND HOURLY RATES
MAXIMUM FEES
Our maximum fees for the five years ending June 30, 2009 will be as follows.
Not to Exceed Amount
Estimated Years Ended June 30,
Hours 2005 _ 2006 2007 2008 2009
' Audit of District and
' management letter 120.00 $ 8,900 $ 9 167 $ 9 442 $ 9 725 $ 10,017
GANN limit review 4.00 250 258 265 273 281
' Not to Exceed Maximum
Fee (Including Expenses) $ 9 150 $ 9425 $ 9707 $ 9,998 $ 10,298
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HOURLY RAIItS FOR SPECIAL SERVICES
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I If the District wishes us to perform consulting or other services outside the scope of the services
described herein, a separate written request form the District will be required. Our hourly rates
for these services during each year under the basic contract will be as follows:
1 2005 2006 2007 2008 2009
I Nitin Patel, CPA
Engagement Partner $ 205 $ 211 $ 217 $ 224 $ 231
1 Robert Callanan, CPA
Concurring Review Partner 205 211 217 224 231
IWilliam S Morgan, CPA
Director of Consulting Services 205 211 217 224 231
IManagers 120 124 127 131 135
ISupervisory Staff 85 88 90 91 96
Staff 65 67 69 71 71
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CONSULTING SERVICES DEPARTMENT
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OVERVIEW OF SERVICES PROVIDED
' Diehl, Evans & Company, LLP offers a wide range of consulting services to governmental agencies.
This section of our proposal summarizes the primary types of services provided by the firm.
The firm s Director of Consulting Services is Mr. William S Morgan, CPA. Mr. Morgan has over
thirty years of experience in providing accounting, auditing and consulting services to California cities,
counties, redevelopment agencies, water districts, special districts, joint power authorities and
nonprofit corporations. Many of the firm s consulting projects are planned, supervised and reviewed by
Mr. Morgan.
' Our firm provides the following types of services:
' • Governmental Tax Consulting
• Performance and Operational Studies
' • Redevelopment Consulting Services
' • Reviews of City Treasurer Operations
• Cable Television and Broadband Consulting Services
• Reviews of Solid Waste Haulers and
' Assistance With Trash Rate Negotiations
• Litigation Support and Dispute Resolution Services
' • Fraud Investigations
' • Hotel/Motel Transient Occupancy Tax Reviews
• Business License Operation Reviews
With regard to these engagements, we intend to perform limited procedures reviews in connection with
each assignment, in accordance with the A1CPA s attestation standards. Under the provisions of the
' attestation standards, the District will designate what specific procedures it wishes to have performed.
We will then perform those procedures and report on our findings. This type of engagement will not
constitute a certified audit in accordance with auditing standards generally accepted in the United
States of America. Such special services are not part of our standard fee arrangements and would be
subject to a separate fee quotation.
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IATTACHMENT I
' CLIENT REFERENCES
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SPECIAL DISTRICT REFERENCES
Noted below are special district references, served by the Irvine office. All were audit clients for the
year ended June 30, 2005
Mr. Todd Corbin Mr. Robert Westphal
Cucamonga Valley Water District Laguna Beach County Water District
Post Office Box 638 306 Third Street
Cucamonga, CA 91730 Laguna Beach, CA 92652
909-987 2591 949-494-1041
Mr. Sean Henry
Mr. Ken Waring Pomona-Walnut-Rowland Joint
Jurupa Community Services District Water Line Commission
11201 Harrell Street 3021 South Fullerton
Mira Loma, CA 92509 Rowland Heights, CA 91748
951 727 3515 909-595-1268
Ms. Tammy Wagstaff Mr. Phillip Forbes
La Habra Heights County Water District Rancho California Water District
' 1271 North Hacienda Boulevard 42135 Winchester Road
La Habra Heights, CA 90631 Temecula, CA 92589
562-697-6769 951 296-6900
' Ms. Rosa Ruehiman Ms. Shawna Whallon
La Puente Valley County Water District Walnut Valley Water District
' 112 North First Street
La Puente, CA 91744 271 South Brea Canyon Road
Walnut, CA 91789
626-330-2126 909-595-1268
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' CITY CLIENT REFERENCES
' One means of judging the high quality of our auditing and accounting services would be contact with
some of our existing clients served by the Irvine Office. We are including the names and phone
Inumbers of our city clients over the past year. We encourage you to contact any of these individuals.
City of Alhambra City of Healdsburo City of Pico Rivera
I Mr. Dean Johnson Ms. Tames Haas Mr. Robert S Ridley
Financial Services Manager Finance Director Deputy Director of Finance
(626) 570-5017 (707) 431 3311 (562) 801-4395
' City of Buena Park City of Indian Wells City of San Juan Capistrano
Ms. Sung Hyun Mr. Kevin McCarty Ms. Cindy Russell
Director of Finance Director of Finance Director of
I (714) 562 3713 (760) 346-2489 Administrative Services
(949) 443-6301
I City of Cerritos
City of Irvine City of Santa Clarity
Ms. Becky Lingad Mr. Paul Boyer Mr. Darren Hernandez
Finance Manager Finance Administrator Director of Administrative
(562) 860-0311 (949) 724-6031 Services
I (661) 255-4920
City of Chino City of Lake Elsinore City of Signal Hill
I Mr. David D Cain
Director of Finance Mr. Matt Presley Mr. Dennis MacArthur
Director of Director of Finance
(909) 627 7577 Administrative Services (562) 989-7319
I (951) 674-3124
City of Commerce City of Lakewood City of Temecula
Mr. Vilko Domic Mr. Larry Schroeder Ms. Genie Roberts
I Director of Finance Director of Finance Director of Finance
(323) 722-4805 (562) 866-9771 (951) 694-6430
I City of Diamond Bar City of Mission Viejo City of Thousand Oaks
Ms. Linda Magnuson Mr. Mr. Bob Barry Ms. Candis L. Hong
Finance Director Accounting Manager Director of Administrative
(909) 839-7051 (949) 470-3004 Services
I (805) 449-2200
City of Downey City of Montebello City of Westminster
I Mr. John Michicoff Mr. Chickwan Michael Tam Ms. Sherry Johnson
Finance Director Director of Finance Accounting Manager
(562) 904-7262 (323) 887 1419 (714) 898-3311
' City of Fullerton City of Norwalk
Mr. Glenn Steinbrink Mr. R. Pat Phyakul
Director of Financial Services Manager
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Administrative Services (562) 929-5748
(714) 738-6523
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IATTACHMENT II
' RESULTS OF OUTSIDE QUALITY REVIEW
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HEIDENREICH & HEIDENREICH
CERTIFIED PUBLIC ACCOUNTANTS
12020 5.Warner Elliot Loop#121 15545 Bear Valley Rd.#6
' Phoenix,AZ 85044 Hesperia,CA 92345
(480)704-6301 fax 785-4619 (760)948-2899 fax 948-7712
s h e i d e n rei c h @wort d net.att.net
' January 31 2003
To the Owners
Diehl, Evans and Company LLP
We have reviewed the system of quality control for the accounting and auditing practice of
' Diehl, Evans and Company LLP in effect for the year ended September 30, 2002. A system of
quality control encompasses the firms organizational structure and the policies adopted and
procedures established to provide it with reasonable assurance of complying with professional
' standards. The elements of quality control are described in the Statements of Quality Control
Standards issued by the American Institute of Certified Public Accountants (AICPA). The design
of the system and compliance with it are the responsibility of the firm. Our responsibility is to
' express an opinion on the design of the system, and the firm's compliance with the system
based on our review
' Our review was conducted in accordance with standards established by the Peer Review Board
of the AICPA. In performing our review we obtained an understanding of the system of quality
control for the firm's accounting and auditing practice. In addition, we tested compliance with
the firm's quality control policies and procedures to the extent we considered appropriate.
These tests covered the application of the firm's policies and procedures on selected
engagements. Because our review was based on selective tests, it would not necessarily
disclose all weaknesses in the system of quality control or all instances of lack of compliance
' with it.
Because there are inherent limitations in the effectiveness of any system of quality control,
' departures from the system may occur and not be detected. Also, projection of any evaluation
of a system of quality control to future periods is subject to the risk that the system of quality
control may become inadequate because of changes in conditions, or because the degree of
' compliance with the policies or procedures may deteriorate.
In our opinion, the system of quality control for the accounting and auditing practice of Diehl,
' Evans and Company LLP in effect for the year ended September 30 2002, has been designed
to meet the requirements of the quality control standards for an accounting and auditing
practice established by the AICPA and was complied with during the year then ended to provide
the firm with reasonable assurance of conforming with professional standards.
Ate
eidenreich & Heidenreich
Certified Public Accountants
' HEIDENREICH & HEIDENREICH
CERTIFIED PUBLIC ACCOUNTANTS
12020 S.Warner Elliot Loop#121 15545 Bear Valley Rd.#B
' Phoenix,AZ 85044 Hesperia,CA 92345
(480)704-6301 fax 785-4619 (760)948-2699 fax 948-7712
sheidenretch@worldnetatt.net
January 31 2003
' To the Owners
Diehl, Evans and Company LLP
We have reviewed the system of quality control for the accounting and auditing practice of
Diehl, Evans and Company LLP in effect for the year ended September 30 2002, and have
issued our report thereon dated January 31 2003. That report should be read in conjunction
with the comments in this letter which were considered in determining our opinion.
' ENGAGEMENT PERFORMANCE
Finding The firm s policies and procedures require the engagement owner to review the
' accountant's or auditor's reports, accompanying financial statements and the workpapers
before issuance. However the firm does not consistently use other quality control materials as
an aid in reviewing. During our review we noted instances where reports, engagement letters
and management letters did not contain all current, applicable wording and where cash flows
' were not appropriately presented on a financial statement. None of these deficiencies resulted
in misleading information.
' Recommendation The firm should emphasize the importance of thoroughly reviewing
accountant's or auditor's reports, accompanying financial statements and workpapers before
issuance, utilizing the quality control materials available in the firm's library
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Heidenreich & Heidenreich
Certified Public Accountants
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