Resolution No. 85331
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RESOLUTION NO. 8533
A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF
VERNON APPROVING AND RATIFYING THE EXECUTION OF AN
ENGAGEMENT LETTER AGREEMENT FOR SERVICES BY AND
BETWEEN THE CITY OF VERNON MACIAS GINI & COMPANY
LLP
WHEREAS, the City of Vernon ("City") desires to retain the
services of an auditing service to perform the audit for the fiscal
year ending June 30, 2004 for both the City and the Redevelopment
Agency of the City of Vernon; and
WHEREAS, Macias Gini & Company LLP ("Macias") has performed
financial auditing services for the City in the past and therefore can
provide the financial auditing services required by the City in a more
efficient and effective manner; and
WHEREAS, in order to meet the urgent need to commence the
auditing services on September 13, 2004 and in order to expedite the
development of the financial statements, the City Administrator
executed an engagement letter agreement (the "Agreement") with Macias
on September 1, 2004, subject to ratification by the City Council; and
WHEREAS, if no unexpected circumstances are encountered
during the audit, the total cost of the auditing services plus out-of-
pocket costs shall not exceed One Hundred Ten Thousand Dollars and No
Cents ($110,000.00); and
WHEREAS, on September 15, 2004, the Finance Committee
considered the recommendation of Bruce V. Malkenhorst, the Director of
Finance, dated September 7, 2004, that the actions of the City
Administrator in executing the Agreement with Macias be ratified; and
WHEREAS, the City Council desires to approve and ratify the
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Agreement, as executed by the City Administrator; and
WHEREAS, the City Council of the City of Vernon has
determined that, pursuant to the provisions of subsection (a) of
Section 2.27 of the Vernon City Code, it is in the public interest and
necessity to ratify entering into the Agreement with Macias.
NOW, THEREFORE, BE IT RESOLVED BY THE CITY COUNCIL OF THE
CITY OF VERNON AS FOLLOWS:
SECTION 1: The City Council of the City of Vernon hereby
Ifinds and determines that the recitals contained hereinabove are true
land correct.
SECTION 2: The City Council of the City of Vernon hereby
ratifies the execution of the Engagement Letter Agreement with Macias
Gini & Company LLP, a copy of which is attached hereto as Exhibit A
and incorporated by reference.
SECTION 3: The City Council of the City of Vernon hereby
authorizes the City Administrator, or his designee, to execute any and
all documents necessary for the purpose of securing the auditing
services and to implement and carry out the purposes specified in the
Agreement, for, and on behalf of, the City of Vernon.
SECTION 4: The City Clerk of the City of Vernon shall
certify to the passage of this resolution, and thereupon and
thereafter the same shall be in full force and effect.
APPROVED AND ADOPTED this 15th day of September, 2004.
ATTEST:
BRUCE V. MALKENHORST, City Clerk
111-7 LEONIS C. MAL URG, M yor
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STATE OF CALIFORNIA )
) ss
COUNTY OF LOS ANGELES )
I, BRUCE V. MALKENHORST, City Clerk of the City of Vernon, do
hereby certify that the foregoing Resolution, being Resolution No.
8533, was duly adopted by the City Council of the City of Vernon at a
regular meeting of the City Council duly held on Wednesday,
September 15, 2004, and thereafter was duly signed by the Mayor of the
City of Vernon.
(SEAL)
BRUCE V. MALKENHORST, City Clerk
- 3 -
EXHIBIT
0
MACIAS GINI & COMPANYLLP
S IS S. Figueroa Street. Ste. 325
Los Angeles. California 90071
213.612.0200 /HONE
213.286.6426 FAx
July 30, 2004
City of Vernon
4305 S. Santa Fe Avenue
Vernon, CA 90058
We are pleased to confirm our understanding of the services we are to provide the City of Vernon
(City) for the year ended June 30, 2004. We will audit the financial statements of the
governmental activities, the business -type activities, each major fund, and the aggregate
remaining fund information, which collectively comprise the basic financial statements, of the
City, as of and for the year ended June 30, 2004. Included will be management's discussion and
analysis, which will be subjected to the auditing procedures applied in our audit of the financial
statements.
We will audit the financial statements of the governmental activities and the Capital Projects
Redevelopment Fund of the Vernon Redevelopment Agency (Agency), a component unit of the
City, which collectively comprise the Agency's basic financial statements, as of and for the year
ended June 30, 2004. Included will be management's discussion and analysis, which will be
subjected to the auditing procedures applied in our audit of the financial statements.
We will perform certain agreed upon procedures which were agreed to by the City, solely to
assist City management in evaluating the City's compliance with section 6.02 of the Indenture of
Trust between the City and BNY Western Trust Company, dated April 1, 2003, and with sections
6.8 and 6.10 of the Reimbursement Agreement between the City and JP Morgan Chase Bank,
dated April 1, 2003, during the year ended June 30, 2004.
Audit Objectives
The objective of our audit is the expression of an opinion as to whether your financial statements
are fairly presented, in all material respects, in conformity with U.S. generally accepted
accounting principles and to report on the fairness of the additional information referred to in the
first paragraph when considered in relation to the financial statements taken as a whole.
Our audit will be conducted in accordance with U.S. generally accepted auditing standards and
the standards for financial audits contained in Government Auditing Standards, issued by the
Comptroller General of the United States, and will include tests of the accounting records of the
City and other procedures we consider necessary to enable us to express such an opinion. If our
opinion on the financial statements is other than unqualified, we will fully discuss the reasons
with you in advance. If, for any reason, we are unable to complete the audit or are unable to form
or have not formed an opinion, we may decline to express an opinion or to issue a report as a
result of this engagement.
www--aciafg1n1.com CERTIFIED PUBLIC ACCOUNTANTS 6 MANAGEMENT CONSULTANTS
We will also provide a report (that does not include an opinion) on 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 as required by Government Auditing Standards. This report will include a statement
that the report is intended solely for the information and use of the City management, and specific
legislative or regulatory bodies and is not intended to be and should not be used by anyone other
than these specified parties.
Management Responsibilities
Management is responsible for establishing and maintaining internal control and for compliance
with laws, regulations, contracts, and agreements. In fulfilling this responsibility, estimates and
judgments by management are required to assess the expected benefits and related costs of the
controls. The objectives of internal control are to provide management with reasonable, but not
absolute, assurance that assets are safeguarded against loss from unauthorized use or disposition,
that transactions are executed in accordance with management's authorizations and recorded
properly to permit the preparation of financial statements in accordance with generally accepted
accounting principles.
Management is responsible for making all financial records and related information available to
us. We understand that you will provide us with such information required for our audit and that
you are responsible for the accuracy and completeness of that information. We will advise you
about appropriate accounting principles and their application and will advise you in the
preparation of your financial statements, but the responsibility for the financial statements
remains with you. As part of our engagement, we may propose standard, adjusting, or correcting
journal entries to your financial statements. You are responsible for reviewing the entries and
understanding the nature of any proposed entries and the impact they have on the financial
statements. That responsibility includes the establishment and maintenance of adequate records
and effective internal control over financial reporting, the selection and application of accounting
principles, and the safeguarding of assets.
Management is responsible for adjusting the financial statements to correct material
misstatements and for confirming to us in the representation letter that the effects of any
uncorrected misstatements aggregated by us during the current engagement and pertaining to the
latest period presented are immaterial, both individually and in the aggregate, to the financial
statements taken as a whole.
You are responsible for the design and implementation of programs and controls to prevent and
detect fraud, and for informing us about all known or suspected fraud affecting the government
involving (a) management, (b) employees who have significant roles in internal control, and (c)
others where the fraud could have a material effect on the financial statements. You are also
responsible for informing us of your knowledge of any allegations of fraud or suspected fraud
affecting the government received in communications from employees, former employees,
grantors, regulators, or others. In addition, you are responsible for identifying and ensuring that
the entity complies with applicable laws and regulations.
Audit Procedures ---General
An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements; therefore, our audit will involve judgment about the number of
transactions to be examined and the areas to be tested. We will plan and perform the audit to
We will also provide a report (that does not include an opinion) on 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 as required by Government Auditing Standards. This report will include a statement
that the report is intended solely for the information and use of the City management, and specific
legislative or regulatory bodies and is not intended to be and should not be used by anyone other,
than these specified parties.
Management Responsibilities
Management is responsible for establishing and maintaining internal control and for compliance
with laws, regulations, contracts, and agreements. In fulfilling this responsibility, estimates and
judgments by management are required to assess the expected benefits and related costs of the
controls. The objectives of internal control are to provide management with reasonable, but not
absolute, assurance that assets are safeguarded against loss from unauthorized use or disposition,
that transactions are executed in accordance with management's authorizations and recorded
properly to permit the preparation of financial statements in accordance with generally accepted
accounting principles.
Management is responsible for making all financial records and related information available to
us. We understand that you will provide us with such information required for our audit and that
you are responsible for the accuracy and completeness of that information. We will advise you
about appropriate accounting principles and their application and will advise you in the
preparation of your financial statements, but the responsibility for the financial statements
remains with you. As part of our engagement, we may propose standard, adjusting, or correcting
journal entries to your financial statements. You are responsible for reviewing the entries and
understanding the nature of any proposed entries and the impact they have on the financial
statements. That responsibility includes the establishment and maintenance of adequate records
and effective internal control over financial reporting, the selection and application of accounting
principles, and the safeguarding of assets.
Management is responsible for adjusting the financial statements to correct material
misstatements and for confirming to us in the representation letter that the effects of any
uncorrected misstatements aggregated by us during the current engagement and pertaining to the
latest period presented are immaterial, both individually and in the aggregate, to the financial
statements taken as a whole.
You are responsible for the design and implementation of programs and controls to prevent and
detect fraud, and for informing us about all known or suspected fraud affecting the government
involving (a) management, (b) employees who have significant roles in internal control, and (c)
others where the fraud could have a material effect on the financial statements. You are also
responsible for informing us of your knowledge.of any allegations of fraud or suspected fraud
affecting the government received in communications from employees, former employees,
grantors, regulators, or others. In addition, you are responsible for identifying and ensuring that
the entity complies with applicable laws and regulations.
Audit Procedures --General
An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements; therefore, our audit will involve judgment about the number of
transactions to be examined and the areas to be tested. We will plan and perform the audit to
obtain reasonable rather than absolute assurance about whether the financial statements are free
of material misstatement, whether from errors, fraudulent financial reporting, misappropriation of
assets, or violations of laws or governmental regulations that are attributable to the entity or to
acts by management or employees acting on behalf of the entity. Because an audit is designed to
provide reasonable, but not absolute assurance and because we will not perform a detailed
examination of all transactions, there is a risk that material misstatements may exist and not be
detected by us. In addition, an audit is not designed to detect immaterial misstatements or
violations of laws or governmental regulations that do not have a direct and material effect on the
financial statements. However, we will inform you of any material errors that come to our
attention, and we will inform you of any fraudulent financial reporting or misappropriation of
assets that comes to our attention. We will also inform you of any violations of laws or
governmental regulations that come to our attention, unless clearly inconsequential.
Our responsibility as auditors is limited to the period covered by our audit and does not extend to
matters that might arise during any later periods for which we are not engaged as auditors. Our
procedures will include tests of documentary evidence supporting the transactions recorded in the
accounts, and may include tests of the physical existence of inventories, and direct confirmation
of receivables and certain other assets and liabilities by correspondence with selected individuals,
creditors, and financial institutions. We will request written representations from your attorneys
as part of the engagement. At the conclusion of our audit, we will also require certain written
representations from you about the financial statements and related matters.
Identifying and ensuring that the City complies with laws, regulations, contracts, and agreements
is the responsibility of management. As part of obtaining reasonable assurance about whether the
financial statements are free of material misstatement, we will perform tests of the City's
compliance with applicable laws and regulations and the provisions of contracts and agreements.
However, the objective of our audit will not be to provide an opinion on overall compliance and
we will not express such an opinion.
Audit Procedures —Internal Controls
In planning and performing our audit, we will consider the internal control sufficient to plan the
audit in order to determine the nature, timing, and extent of our auditing procedures for the
purpose of expressing our opinion on the City's financial statements.
We will obtain an understanding of the design of the relevant controls and whether they have
been placed in operation, and we will assess control risk. Tests of controls may be performed to
test the effectiveness of certain controls that we consider relevant to preventing and detecting
errors and fraud that are material to the financial statements and to preventing and detecting
misstatements resulting from illegal acts and other noncompliance matters that have a direct and
material effect on the financial statements. Tests of controls are required only if control risk is
assessed below the maximum level. Our tests, if performed, will be less in scope than would be
necessary to render an opinion on internal control and, accordingly, no opinion will be expressed
in our report on internal control issued pursuant to Government Auditing Standards.
An audit is not designed to provide assurance on internal control or to identify reportable
conditions. However, we will inform the governing body or audit committee of any matters
involving internal control and its operation that we consider to be reportable conditions under
standards established by the American Institute of Certified Public Accountants. Reportable
conditions involve matters coming to our attention relating to significant deficiencies in the
design or operation of the internal control that, in our judgment, could adversely affect the
entity's ability to record, process, summarize, and report financial data consistent with the
assertions of management in the financial statements. We will also inform you of any
nonreportable conditions or other matters involving internal control, if any, as required by
Government Auditing Standards.
Audit Administration, Fees, and Other
The City is responsible for preparing the City's basic financial statements and the Redevelopment
Agency's basic financial statements, as well as all related footnote disclosures. Macias will
provide the City with a template for the basic financial statements and disclosures.
City employees will provide all items shown on the prepared by client (PBC) schedule as well as
supporting documents selected by us for testing, in a timely manner. We expect that all items on
the PBC will be ready and available for us to review on September 13, 2004.
The City will provide Macias with a final draft of the basic financial statements, related footnote
disclosures and MD&A, for both the City and Redevelopment Agency, no later than September
24, 2004.
The audit documentation for this engagement is the property of Macias Gini & Company LLP
and constitutes confidential :information. However, pursuant to authority given by law or
regulation, we may be requested to make certain audit documentation available to a federal
agency providing direct or indirect funding, or the U.S. General Accounting Office for purposes
of a quality review of the audit, to resolve audit findings, or to carry out oversight responsibilities.
We will notify you of any such request.
We expect to begin our audit on September 13, 2004 and to issue our reports no later than
October 31, 2004. The report issuance dates are contingent upon the City meeting its obligation
to provide Macias with the financial statements noted above and with information requested on
the PBC, by the stated due dates, as well as any and all other requests for information, in a timely
manner.
We estimate our fees for these services including plus out-of-pocket costs (such as report
reproduction, word processing, postage, travel, copies, telephone, etc.) will approximate
$110,000. Our invoices for these fees will be rendered each month as work progresses and are
payable on presentation. The above fee is based on anticipated cooperation from your personnel
and the assumption that unexpected circumstances will not be encountered during the audit. If
significant additional time is necessary, we will discuss it with you and arrive at a new fee
estimate before we incur the additional costs.
Government Auditing Standards require that we provide you with a copy of our most recent
external peer review report and any letter of comment, and any subsequent peer review reports
and letters of comment received during the period of the contract. Our 2003 peer review report
accompanies this letter.
We appreciate the opportunity to be of service to the City of Vernon and believe this letter
accurately summarizes the significant terms of our engagement. If you have any questions, please
let us know. If you agree with the terms of our engagement as described in this Ietter, please sign
the enclosed copy and return it to us.
Very truly yours,
Macias Gini & Company LLP
9 V
James V. Godsey, CPA
Partner
RESPONSE:
This letter correctly sets forth the understanding of the City of Vernon.
By:
Bruce V. Malkenhorst
Title: City Administrator/City Clerk
Date:_ September 1, 2004
APPROVED AS TO FORM:
w �
ERIC T. FRESCH, City Attorney
Appendix A
WI LL4LM V. A LEN, Jr.
CeJWrmdPubficAccoun antr
PEER REVIEW REPORT
June 13, 2003
To the Partners
Macias, Gini & Company I.i.P
We have reviewed the system of quality control for the accounting
& Company 1,CP (the firm) in effect for the car ended rch and auditing practice of Macias, t control
Encompasses the firm's or y March 3 t, 2003. A system of quality oo�ol
Provide it with reasonable assurance Of re and the policies adopted and procedures established to
conforming with professional standards. The elements of quality
col are described in the Statements ). Quality Control Standards issued by the American Institute of
Certified Public Accountants (AICPA). The design of the system and complia= with it arc the
responsibility of the firm. our responsibility is to express an opinion on the design of the system, and the
fian% compliance with the system based on our review.
Our review Was conducted ia• accordance with standards established by the Peer Review Board of the
AICP a In Performing Our mew' we obtained an understanding of the system of quality control for the
policies�ing and auditing practice, In addition, we tested compliance with the firm, quality control
firin's Policies and es to the extent we considered appropriate. These tests covered the application of the
Po 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
cempliance with it.
Because there are inherent limitations in the effectiveness of any system of quality control, deparfiues
from the system may occur and not be detected, Also, projection of arty Evaluation of a
.from
to future periods is subject to the risk that the system of system o quality
because of changes in conditions, or because the ' control may become inadequate
maydcteriorate. degree of cOmPlianco with the policies or procedures
In our opinion, the system of quality control for the -
Company [,LP in effect for the accounting aced auditing practice of Macias, Gini &� � March 31, 2003, has been designed to meet the requirements of
the quality control standards for an accounting and auditing PA and was
Practice establi
complied with during the year then ended to provide the fain with reasonable assurance shed by the AICconforming
with professional standards.of
v, A&n �r
Peer Rewicw Without Par
2148 Margarita Ikive •the Villasea, F, 32159 • (352) 750-9636 • bill0bi Wien.opta
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