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HomeMy WebLinkAbout10 Reconstruction Donner Lake Water System ender I+em ►o TRUCKEE DONNER Public Utility District Memorandum To: Board of Directors From: Mary Chapman, Administrative Services Manager Date: June 29, 2005 SUBJECT: Proposal from KPMG to perform the District's 2004 A-133 audit as a requirement of having received loan funds from the State Revolving Fund for the reconstruction of the Donner Lake water system One of the requirements of borrowing money from the State Revolving Fund is that the District must have an independent compliance audit as outlined in OMB Circular A-133. Since the loan funds are provided by the federal government to the state of California who passes them onto the District, the compliance audit requirement is also passed onto the District. This audit requirement applies to the District for each year that we draw more than $500,000 in loan funds. This requirement will apply to 2004 and 2005 only, provided that we draw down the rest of the loan funds by the end of this year. The balance of loan funds available is $909,521.05. The deadline for completion of this audit is 9 months following the fiscal year end which would be September 30, 2005. This first year will be the most difficult and will be the most costly. Sara Owens has been managing the paper trail on this loan. She has kept very detailed and organized records relating to the loan reimbursement requests. She has worked very closely with the Department of Water Resources and the Department of Health Services to make sure the submittals are in compliance. We believe that our records are in good order. The federal government, however, has very onerous requirements. We may discover that we have not met all of them. The audit will identify the areas of non- compliance. Attached is a letter of engagement from KPMG to perform the 2004 A-133 audit for $150 per hour. They estimate the cost will be approximately $23,800 plus out-of-pocket expenses. The field work portion of the audit would be performed by someone at KPMG who has done many A-133 audits. The cost of the audit will be paid for with assessment district funds through the annual levy. Should the Board authorize KPMG to perform the 2004 A-133 audit, this letter of engagement would be executed by the board president. Also attached is an excerpt from the contract with the State of California Department of Water Resources requiring the A-133 audit. RECOMMENDATION: Authorize the board president to execute the engagement letter from KPMG hiring them to perform the 2004 A-133 audit. Ix,A Min�.J KPMG LLP Telephone 503 22 i 6500 Suite 3800 Fax 503 820 6565 1300 South West Fith Avenue 'nternet Www.us kpmg_com Portland, OR 97201 PRIVATE& CONFIDENTIAL Mr. Ron Hemig President, Board of Directors Truckee Donner Public Utility District 11570 Donner Pass Road "Truckee,CA 96161 June 2, 2005 Dear Mr. Hemig: This letter will confirm our understanding of our engagement to provide professional services to Truckee Donner Public Utility District. Objectives and limitations of services OMB Circular A-133 Audit Services We will perform audit procedures with respect to Truckee Donner Public Utility District's (the District) major federal programs in accordance with the provisions of OMB Circular A-133 Audits of States, Local Governments, and Non-Profit Organizations (OMB Circular A-133). OMB Circular A- 133 includes specific audit requirements, mainly in the areas of internal control and compliance with laws,regulations, contracts and grants that exceed those required by Government Auditing Standards. As part of our audit procedures performed in accordance with the provisions of OMB Circular A-133, we will perform tests to evaluate the effectiveness of the design and operation of internal controls that we consider relevant to preventing or detecting material noncompliance with laws, regulations, contracts and grants applicable to each of the District's major programs. The tests of internal control performed in accordance with OMB Circular A-133 are less in scope than would be necessary to render an opinion on internal control. Compliance with laws, regulations, contracts and grants applicable to federal programs is the responsibility of management. We will perform tests of the District's compliance with certain provisions of laws, regulations, contracts and grants we determine to be necessary based on the OMB Circular A-133 Compliance Supplement (Compliance Supplement). The procedures outlined in the Compliance Supplement are those suggested by each federal agency and do not cover all areas of regulations governing each program. Program reviews by federal agencies may identify additional instances of noncompliance. As required by OMB Circular A-133, we will prepare a written report which (1)provides our opinion on the schedule of expenditures of federal awards in relation to the District's financial statements, (2) n,.,ea ,,"s r ,- I i MG In r „ ,: R f;_; Mr. Ron Hemig Truckee Donner Public Utility District June 2, 2005 Page 2 provides our opinion on compliance with laws, regulations, contracts and grant that could have a direct and material effect on a major federal program and (3) communicates our consideration of internal control over major federal programs. It will indicate that it is intended solely for the information and use of the board of directors and management of the District and federal awarding agencies and pass-through entities and that it is not intended to be and should not be used by anyone other than these specified parties. Our responsibility to communicate with the Board of Directors We will report to you, in writing, the following matters: ■ Audit adjustments arising from the audit that could, in our judgment, either individually or in aggregate, have a significant effect on the District's financial reporting process. In this context, audit adjustments, whether or not recorded by the entity, are proposed corrections of the financial statements that, in our judgment, may not have been detected except through the auditing procedures performed. ■ Uncorrected misstatements aggregated during the current engagement and pertaining to the latest period presented that were determined by management to be immaterial, both individually and in aggregate. ■ Any disagreements with management or other serious difficulties encountered in performance of our audit. ■ Other matters required to be communicated by generally accepted auditing standards in the United States of America We will also read minutes, if any, of board of director meetings for consistency with our understanding of the communications made to you and determine that you have received copies of all material written communications between ourselves and management. We will also determine that you have been informed of i) the initial selection of, or the reasons for any change in, significant accounting policies or their application during the period under audit, ii) the methods used by management to account for significant unusual transactions and in) the effect of significant accounting policies in controversial or emerging areas for which there is a lack of authoritative guidance or consensus. If, in performance of our audit procedures,circumstances arise which make it necessary to modify our report or withdraw from the engagement, we will communicate to you our reasons for modification or withdrawal. M Mr. Ron Hemig Truckee Donner Public Utility District June 2, 2005 Page 3 Management responsibilities The management of the District is responsible for the fair presentation, in accordance with accounting principles generally accepted in the United States of America, of the financial statements and all representations contained therein. Management also is responsible for identifying and ensuring that Client complies with laws, regulations, contracts and grants applicable to its activities, and for informing us of any known material violations of such laws and regulations. Management also is responsible for preventing and detecting fraud, including the design and implementation of programs and controls to prevent and detect fraud, for adopting sound accounting policies, and for establishing and maintaining effective internal controls and procedures for financial reporting to maintain the reliability of the financial statements and to provide reasonable assurance against the possibility of misstatements that are material to the financial statements. Management is also responsible for informing us, of which it has knowledge, of all reportable conditions in the design or operation of such controls. Management of the District also agrees that all records, documentation, and information we request in connection with our audit will be made available to us, that all material information will be disclosed to us, and that we will have the full cooperation of the District's personnel. As required by the auditing standards generally accepted in the United States of America, we will make specific inquiries of management about the representations embodied in the financial statements and the effectiveness of internal control, and obtain a representation letter from management about these matters. The responses to our inquiries, the written representations, and the results of audit tests, among other things, comprise the evidential matter we will rely upon in forming an opinion on the financial statements. In addition to the OMB Circular A-133 requirements to maintain internal control and comply with provisions of laws, regulations, contracts and grants applicable to federal programs as discussed above,OMB Circular A-133 also requires the District to prepare a: ■ Schedule of expenditures of federal awards; ■ Summary schedule of prior audit findings; ■ Corrective action plan;and ■ Data collection form(Part 1). While we may be separately engaged to assist you in the preparation of these items,preparation is the responsibility of the District. Certain provisions of OMB Circular A-133 allow a granting agency to request that a specific program be selected as a major program provided that the federal granting agency is willing to pay the incremental audit cost arising from such selection. The District agrees to notify KPMG of any such 1191 I'm Mr. Ron Hemig Truckee Donner Public Utility District June 2, 2005 Page 4 request by a granting agency and to work with KPMG to modify the terms of this letter as necessary to accommodate such a request. In accordance with Government Auditing Standards, as part of our planning of the audit we will consider the results of previous audits and follow up on known significant findings and recommendations that directly relate to the objectives of the audit. To assist us, management agrees to identify previous financial audits, attestation engagements, performance audits, or other studies related to the objectives of the audit being undertaken and to identify corrective actions taken to address significant findings and recommendations prior to the start of our fieldwork. Management is responsible for adjusting the financial statements to correct material misstatements and for affirming 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 being reported upon. Because of the importance of management's representations to the effective performance of our services, the District will release KPMG LLP and its personnel from any claims, liabilities, costs and expenses relating to our services under this letter attributable to any misrepresentations in the representation letter referred to above. Management is also responsible for providing us with written responses in accordance with Government Auditing Standards to the findings included in the GAS report within 5 days of being provided with draft findings. Management is responsible for the distribution of the reports issued by KPMG. In accordance with Government Auditing Standards, the reports issued citing Government Auditing Standards are to be made available for public inspection. Dispute Resolution Any dispute or claim arising out of or relating to the engagement letter between the parties, the services provided thereunder, or any other services provided by or on behalf of KPMG or any of its subcontractors or agents to the District or at its request (including any dispute or claim involving any person or entity for whose benefit the services in question are or were provided) shall be resolved in accordance with the dispute resolution procedures set forth in Appendix I, which constitute the sole methodologies for the resolution of all such disputes. By operation of this provision, the parties agree to forego litigation over such disputes in any court of competent jurisdiction. Mediation, if selected, may take place at a place to be designated by the parties. Arbitration shall take place in New York, New York. Either party may seek to enforce any written agreement reached by the parties during mediation, or to confirm and enforce any final award entered in arbitration, in any court of competent jurisdiction. Mr. Ron Hemig Truckee Donner Public Utility District June 2, 2005 Page 5 Notwithstanding the agreement to such procedures, either party may seek injunctive relief to enforce its rights with respect to the use or protection of (i) its confidential or proprietary information or material or (ii) its names, trademarks, service marks or logos, solely in the courts of the State of New York or in the courts of the United States located in the State of New York. The parties consent to the personal jurisdiction thereof and to sole venue therein only for such purposes. Other matters This letter shall serve as the District's authorization for the use of e-mail and other electronic methods to transmit and receive information, including confidential information, between KPMG LLP (KPMG) and the District and between KPMG and outside specialists or other entities engaged by either KPMG or the District. The District acknowledges that e-mail travels over the public Internet, which is not a secure means of communication and, thus, confidentiality of the transmitted information could be compromised through no fault of KPMG. KPMG will employ commercially reasonable efforts and take appropriate precautions to protect the privacy and confidentiality of transmitted information. Further, for purposes of the services described in this letter only, the District hereby grants to KPMG a limited,revocable, non-exclusive,non-transferable, paid up and royalty-free license, without right of sublicense, to use all names, logos, trademarks and service marks of the District solely for presentations or reports to the District or for internal KPMG presentations and intranet sites. KPMG is a limited liability partnership comprising both certified public accountants and certain principals who are not licensed as certified public accountants. Such principals may participate in the engagements to provide the services described in this letter. The work papers for this engagement are the property of KPMG. Pursuant to Government Auditing Standards, we are required to make certain work papers available in a full and timely manner to regulatory agencies upon request for their reviews of audit quality and for use by their auditors. In addition, we may be requested to make certain work papers available to other regulatory agencies pursuant to authority given to then by law or regulation. Access to the requested work papers will be provided under supervision of KPMG personnel. Furthermore, upon request, we may provide photocopies of selected work papers to regulatory agencies. These regulatory agencies may intend,or decide, to distribute the photocopies or information contained therein to others, including other government agencies. In the event KPMG is requested pursuant to subpoena or other legal process to produce its documents relating to this engagement for Client in judicial or administrative proceedings to which KPMG is not a party, the District shall reimburse KPMG at standard billing rates for its professional time and expenses, including reasonable attorney's fees, incurred in responding to such requests. Mr. Ron Hemig Truckee Donner Public Utility District June 2, 2005 Page 6 Other Government Auditing Standards Matters As required by Government Auditing Standards,we have attached a copy of KPMG's most recent peer review report and letter of comments. We will also assist management in drafting the financial statements and notes. In accordance with Government Auditing Standards, we are required to confirm that management accepts responsibility for the financial statements and notes and, therefore, has a responsibility to be in a position in fact and appearance to make an informed judgment about them and that management will: ■ Designate a qualified management-level individual to be responsible and accountable for overseeing the drafting of the financial statements. ■ Establish and monitor the performance of the engagement to ensure that it meets management's objectives. ■ Make any decisions that involve management functions related to the engagement and accept full responsibility for such decisions. ■ Evaluate the adequacy of the financial statements and notes. Pursuant to our arrangement as reflected in this letter we will issue reports issued in connection with OMB Circular A-133. Based upon our discussions with and representations of Mary Chapman, our fees for services we will perform will be billed at$150 an hour and are estimated to total$23,700. The above estimates are based on the level of experience of the individuals who will perform the services. In addition,expenses are billed for reimbursement as incurred. Circumstances encountered during the performance of these services that warrant additional time or expense could cause us to be unable to deliver them within the above estimates. We will endeavor to notify you of any such circumstances as they are assessed. Where KPMG is reimbursed for expenses, it is KPMG's policy to bill clients the amount incurred at the time the good or service is purchased. If KPMG subsequently receives a volume rebate or other incentive payment from a vendor relating to such expenses, KPMG does not credit such payment to the client. Instead, KPMG applies such payments to reduce its overhead costs,which costs are taken into account in determining KPMG's standard billing rates and certain transaction charges which may be charged to clients. �.. bad: ... Mr. Ron Hemig Truckee Donner Public Utility District June 2, 2005 Page 7 We shall be pleased to discuss this letter with you at any time. For your convenience in confirming these arrangements, we enclose a copy of this letter. Please sign and return it to us. Very truly urs, KPMG Timoth McCann Partne TEM.jk S 12W5\TTRUPKEE MO ER\CO"EW,rm ke Wnne Aol Eg LU F2-05 Gil doe Mr. Ron Hemig Truckee Donner Public Utility District June 2, 2005 Page S ACCEPTED: TRUCKEE DONNER PUBLIC UTILITY DISTRICT Mr. Ron Hemig President,Board of Directors Date Appendix I Dispute Resolution Procedures The following procedures are the sole methodologies to be used to resolve any controversy or claim ("dispute"). If any of these provisions are determined to be invalid or unenforceable, the remaining provisions shall remain in effect and binding on the parties to the fullest extent permitted by law. Mediation Any party may request mediation of a dispute by providing a written Request for Mediation to the other party or parties. The mediator,as well as the time and place of the mediation, shall be selected by agreement of the parties. Absent any other agreement to the contrary, the parties agree to proceed in mediation using the CPR Mediation Procedures (effective April 1, 1998) issued by the Center for Public Resources, with the exception of paragraph 2 which shall not apply to any mediation conducted pursuant to this agreement. As provided in the CPR Mediation Procedures, the mediation shall be conducted as specified by the mediator and as agreed upon by the parties. The parties agree to discuss their differences in good faith and to attempt, with facilitation by the mediator, to reach a consensual resolution of the dispute. The mediation shall be treated as a settlement discussion and shall be confidential. The mediator may not testify for any party in any later proceeding related to the dispute. No recording or transcript shall be made of the mediation proceeding Each party shall bear its own costs in the mediation. Absent an agreement to the contrary, the fees and expenses of the mediator shall be shared equally by the parties. Arbitration Arbitration shall be used to settle the following disputes: (1) any dispute not resolved by mediation 90 days after the issuance by one of the parties of a written Request for Mediation (or, if the parties have agreed to enter or extend the mediation, for such longer period as the parties may agree) or (2) any dispute in which a party declares, more than 30 days after receipt of a written Request for Mediation, mediation to be inappropriate to resolve that dispute and initiates a Request for Arbitration. Once commenced, the arbitration will be conducted either (1) in accordance with the procedures in this document and the Rules for Non-Administered Arbitration of the CPR Institute for Dispute Resolution ("CPR Arbitration Rules") as in effect on the date of the engagement letter or contract between the parties, or (2) in accordance with other rules and procedures as the parties may designate by mutual agreement. In the event of a conflict, the provisions of this document and the CPR Arbitration Rules will control. �,. . Mr. Ron Hemig Truckee Donner Public Utility District June 2, 2005 Page 10 The arbitration will be conducted before a panel of three arbitrators, two of whom may be designated by the parties using either the CPR Panels of Distinguished Neutrals or the Arbitration Rosters maintained by any United States office of the Judicial Arbitration and Mediation Service (JAMS). If the parties are unable to agree on the composition of the arbitration panel, the parties shall follow the screened selection process provided in Section B, Rules 5, 6, 7, and 8 of the CPR Arbitration Rules. Any issue concerning the extent to which any dispute is subject to arbitration, or any dispute concerning the applicability, interpretation, or enforceability of these procedures, including any contention that all or part of these procedures are invalid or unenforceable, shall be governed by the Federal Arbitration Act and resolved by the arbitrators. No potential arbitrator shall be appointed unless he or she has agreed in writing to abide and be bound by these procedures. The arbitration panel shall issue its final award in writing. The panel shall have no power to award non-monetary or equitable relief of any sort. Damages that are inconsistent with any applicable agreement between the parties, that are punitive in nature, or that are not measured by the prevailing parry's actual damages, shall be unavailable in arbitration or any other forum. In no event, even if any other portion of these provisions is held to be invalid or unenforceable, shall the arbitration panel have power to make an award or impose a remedy that could not be made or imposed by a court deciding the matter in the same jurisdiction. Discovery shall be permitted in connection with the arbitration only to the extent, if any, expressly authorized by the arbitration panel upon a showing of substantial need by the parry seeking discovery. All aspects of the arbitration shall he treated as confidential. The parties and the arbitration panel may disclose the existence, content or results of the arbitration only as provided in the CPR Arbitration Rules. Before making any such disclosure, a party shall give written notice to all other parties and shall afford such parties a reasonable opportunity to protect their interests. The award reached as a result of the arbitration will be binding on the parties, and confirmation of the arbitration award may be sought in any court having jurisdiction. Contract No.SRFOICX128 ARTICLE A-30. ADDITIONAL INSURED Supplier agrees that for any policy of general liability insurance concerning the construction of the Project, it will cause, and will require its contractors and subcontractors to cause, a certificate of insurance to be issued showing the State, its officers, agents, employees, and servants as additional insured; and shall provide the State with a copy of all such certificates prior to the commencement of construction of the Project. ARTICLE A-31. PROHIBITED USE OF STATE FUNDS FOR SOFTWARE Contractor (Supplier) certifies that it has appropriate systems and controls in place to ensure that state funds will not be used in the performance of this contract for the acquisition, operation or maintenance of computer software in violation of copyright laws. ARTICLE A-32. LOBBYING DISCLOSURE If pursuant to the terms of this Contract, Supplier is to receive loan proceeds in excess of $150,000 and/or grant proceeds in excess of$100,000, Supplier shall comply with the certification and disclosure requirements of the Lobbying Disclosure Act, Public Law 101-121, 103 Stat 750 (1989), 31 U.S.C. 1352 (1998). Such certification and disclosure shall be completed prior to the disbursement of any funds. E ARTICLE A-33. SINGLE AUDIT ACT If Supplier receives $300,000 or more in federal awards in a year from any source, including funds disbursed under this Contract, Supplier agrees to comply with all requirements of the Office of Management and Budget Circular A-133 issued pursuant to the Single Audit Act of 1984. The threshold is increased to $500,000 per year for fiscal years beginning after December 31, 2003. 24