HomeMy WebLinkAboutAuditor,Baker TillyTruckee Donner Public Utility District
Proposal to provide audit services for the year ended December 31, 2011
September 12, 2011
EtLet's talk about an opportunity.
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BAKER TILLY
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BAKER TILLY
Baker Tilly Virchow Krause, LLP
Ten Terrace Ct, PO Box 7398
Madison, WI53707-7398
tel 608 249 6622
fax 608 249 8532
bakertilly.com
September 12, 2011
Board of Directors
Truckee Donner Public Utility District
11570 Donner Pass Road
Truckee, CA 96161
Dear Ladies and Gentlemen:
Thank you very much for this opportunity. Baker Tilly Virchow Krause, LLP ("Baker Tilly," "we," "us," "our") — a
leading certified public accounting firm with strong roots in serving public power, water utilities, and wastewater
utilities — is pleased to submit this proposal to provide financial auditing and other services for Truckee Donner
Public Utility District ("the District," "you," "your") and the two Mello -Roos Community Facilities Districts that are
component units of the District. We understand these services are for a one-year period with the option of
extending the contract for each of the two subsequent fiscal years.
You know the expertise and service quality that Baker Tilly brings to this engagement, as we have served as
your auditors for the past six years and will continue to be diligent with meeting and exceeding your
expectations. Baker Tilly's audit service approach is designed to have us always take a fresh look to identify
opportunities to improve operational efficiencies and internal control. While we have proposed the leadership
team and staff that have been assigned to your engagement recently, we have the capability to rotate new staff
and partners from our Energy and Utilities Group if the Board so desires.
Selecting a firm with solid expertise in utility audits and a team of utility industry specialists who also thoroughly
understand your operating environment brings the most benefit to your organization. There are compelling
reasons for you to select the Baker Tilly team once again for your annual independent financial audit and other
accounting consultation services. These reasons include:
You are a valued Baker Tilly client: The District is an important client at Baker Tilly. We have served you
diligently with outstanding service for six years, meeting your financial audit and other accounting needs. You
know from your experience with us that we are knowledgeable about your business and provide responsive,
timely services from the highest quality technical resources in our firm. We are committed to exceeding your
expectations over the next three years.
Unsurpassed public power specialization: We recognize the complexity of your operating business
environment. For that reason, we have organized our Baker Tilly partners and staff along industry lines to
provide you with an audit team that not only has the necessary knowledge and skills you desire to identify the
strength of internal controls and processes, but also with the specialization of your industry to identify key
indicators that are critical to you. Baker Tilly's Energy and Utilities Group has a substantial history of public
power and energy industry auditing and accounting consulting services. Our Energy and Utilities Group
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Board of Directors
Truckee Donner Public Utility District
September 12, 2011
Page 2
currently provides services to more than 300 utilities, including the District. As the 16t" largest CPA firm in the
nation according to Accounting Today's "Top 100 Firms" list, we can call upon the strengths of specialists in
consulting, internal audit, finance and accounting, and other business service areas to provide the District with
financial auditing and related services and advice.
We provide value to the District with a knowledgeable service team: The Baker Tilly leadership team for
the District has varied little during our period of service to you. At the same time, we have introduced new team
members throughout the term of our engagement, however, they have been individuals with similar knowledge
and utility industry expertise, and we believe the changes have been seamless in terms of our service delivery.
Our intent is to provide you with a consistent point of contact, incorporate rotation of auditors and audit
approach, and minimize the time and effort spent by your staff in explaining District operations and processes
on an annual basis. This balance within our team is vital in allowing the focus to be on performing a quality
audit and providing value —rather than the District's accounting and finance team taking time to retrain audit
staff for the particular nuances of your business and the utility industry in general.
The pedigree of our team is an important element of this proposal and our ability to serve your organization in
an effective and valued manner. Our audit approach is extensive, yet non -intrusive to your staff. Along with our
industry knowledge and experienced staff, our cutting -edge audit techniques are designed to minimize your
staff's audit preparation and support time. Our approach marries intensive analysis and in-depth expertise,
providing outstanding value. The involvement of new field auditors on a periodic basis provides a fresh
perspective and new insights to the audit process and to the District.
With Baker Tilly, you know you receive thoughtful, strategic guidance from a partner who sees the "big picture"
and will work with you to enhance and strengthen your utility over the long term.
Relationships: Baker Tilly's philosophy and desire is to build long-term relationships with our clients. We will
take the time to learn and understand your organization and needs. Our goal is to provide valuable service and
contribute to your success by serving as your most valued advisor. We hope that our client service philosophy,
expertise, and reputation will be major factors you consider when evaluating our firm.
Our proposal details our approach to partnering with you to continue to help you accomplish your objectives.
Please contact me at 608 240 2394 or tom.unke(d)bakertilly.com. We recognize the trust you place in us as a
service provider and look forward to continuing our successful partnership.
Sincerely,
BAKER TILLY VIRCHOW KRAUSE, LLP
Z" f. W,
Tom Unke, CPA, Partner
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Firm qualifications and experience...................................................................4
About Baker Tilly Virchow Krause, LLP............................................................. 4
Utilitystaff expertise.......................................................................................... 4
Public power industry recognition..................................................................... 5
Qualitycontrol................................................................................................... 5
Peer review letter.............................................................................................. 7
Services to be provided......................................................................................8
Qualifications of key personnel ...............................
Audit services engagement team......
Quality of staff ....................................
Team organization .............................
Resumes ...........................................
Similar engagements — public electric and water util
Auditapproach..............................................................
Segmentation of the engagement
Communicating with the District —
Industry and market leadership....
Paperless audit software ..............
Data archiving and imaging..........
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Firm qualifications and experience
About Baker Tilly Virchow Krause, LLP
Baker Tilly Virchow Krause, LLP was founded in 1931 with one core objective: to use our
expertise to help our clients improve their businesses. The firm has grown steadily over
the years, broadening our service offerings and expanding our geographic presence to
meet the evolving needs of our clients. As an independent member of Baker Tilly
International, the world's 8th largest network of accounting firms, we bring you access to
market -specific knowledge in 120 countries.
In 2011, Baker Tilly achieved the ranking of 16th largest accounting and advisory firm in
the United States according to Accounting Today's list of "Top 100 Firms."
Baker Tilly balances such dynamic growth with a deep commitment to operating with
absolute integrity and a belief in the value of trusted relationships. The down-to-earth
style that built the firm remains evident today in a collaborative, client -focused approach.
As you know from our existing relationship with the District, our commitment to you
extends across your entire business. We will adopt an integrated team approach to the
District's engagement, blending our utility -focused professionals with experienced
specialists in the areas most important to you. This combination of financial, business,
and industry -specific expertise ensures you will be working with knowledgeable
professionals who understand your business and the challenges you face — and can
create innovative solutions to help you overcome them. And, because the District will be
working with the same engagement partner that has served you on previous audits, you
can expect to receive the same consistent, efficient, and exceptional service that you
have come to rely on from Baker Tilly professionals.
For more than 80 years, Baker Tilly has understood that our business demands absolute
integrity. We value our client relationships and believe in the power of collaboration —
working with each client to address business needs and goals. We will continue to
deepen and enhance our partnership with the District as we work together to help you
realize your vision.
Utility staff expertise
Baker Tilly has a substantial history of public utility auditing and accounting. The team
that serves the District is part of Baker Tilly's Energy and Utilities Group, which consists
of more than thirty professionals dedicated entirely to serving only users and providers of
utility services. Our Energy and Utilities Group currently provides services to more than
300 public utilities and joint action electric agencies. Energy and Utilities Group members
have extensive prior utility experience, with an average public utility experience level
approaching fifteen years. Our Energy and Utilities Group may be the nation's largest
fully dedicated team serving the public power community. With this level of industry
experience and specialization, you can be assured of valuable, on -target advice. This
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provides the District with the opportunity for fresh perspectives from new engagement
team members who still have the depth of knowledge of the utility industry.
Public power industry recognition
Baker Tilly is committed to the public power sector and has nationally recognized public
utility and governmental expertise, providing services to utilities in thirty-eight states,
Canada, and Guam. Our largest public power client has twelve billion dollars of assets
and serves more than one million customers.
Many of our clients are members of the Large Public Power Council, including
Sacramento Municipal Utility District, Snohomish County Public Utility District, Long
Island Power Authority, Orlando Utilities Commission, Lower Colorado River Authority,
CPS Energy (San Antonio), Colorado Springs Utilities, and Seattle City Light.
These utilities have searched us out for service due to our commitment to the industry
and depth of utility expertise. Every one of these utilities has needed a nationally
recognized firm to help promote high bond ratings, provide comfort to stakeholders and
serve as an industry advisor while providing external audit services.
We are also sought out by organizations such as the American Public Power Association
(APPA) to speak, teach courses and represent the industry. This year we presented at
the Society of Corporate Compliance and Ethics Utility Conference and presented a half -
day workshop on "Protecting Customer Confidence in Today's Digital World" at the APPA
National Conference.
Quality control
As members of the American Institute of Certified Public Accountants (AICPA), we are
required to develop and maintain a quality control document. This document outlines
major areas of quality control as follows:
Independence, Integrity, and Objectivity
Personnel Management
Hiring
- Assigning of Personnel
Professional Development
Advancement
Acceptance and Continuance of Clients and Engagements
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Engagement Performance
Performance
Consultation
Monitoring
Our quality control document and our adherence to its provisions are subject to periodic
peer review. Our substantial governmental service practice requires that significant
portions of our external quality control review be directed to governmental engagements.
We have received a "clean" opinion, the highest level of assurance obtainable with
respect to our audit practices, in all of our peer reviews. A copy of our most recent peer
review report is presented on the following page.
In addition to the external peer review, we perform internal office inspections annually.
This ensures that we are maintaining our audit quality at the highest possible standards.
Our firm also performs external peer reviews for numerous CPA firms throughout the
United States.
Our audit reports are subject to review by many state departments, as well as the
Committee on Governmental Standards of the State Institute of CPAs. There were no
significant findings for any such reviews.
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Peer review letter
System Review Report
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To the Partners of
Baker Tilly Virchow Krause, LLP
and the National Peer Review Committee
We have reviewed the system of quality control for the accounting and auditing practice
of Baker Tilly Virchow Krause, LLP (formally known as Virchow, Krause & Company, LLP)
(the firm) applicable to non -SEC issuers in effect for the year ended March 31, 2009. Our
peer review was conducted in accordance with the Standards for Performing and
Reporting on Peer Reviews established by the Peer Review Board of the American
Institute of Certified Public Accountants. The firm is responsible for designing a system of
quality control and complying with it to provide the firm with reasonable assurance of
performing and reporting in conformity with applicable professional standards in all
material respects. Our responsibility is to express an opinion on the design of the system
of quality control and the firm's compliance therewith based on our review. The nature,
objectives, scope, limitations of, and the procedures performed in a System Review are
described in the standards at www.aicpa.org/prsummary.
As required by the standards, engagements selected for review included engagements
performed under the Government Auditing Standards, audits of employee benefit plans,
and audits performed under FDICIA.
In our opinion, the system of quality control for the accounting and auditing practice of
Baker Tilly Virchow Krause, LLP applicable to the non -SEC issuers in effect for the year
ended March 31, 2009, has been suitably designed and complied with to provide the firm
with reasonable assurance of performing and reporting in conformity with applicable
professional standards in all material respects. Firms can receive a rating of pass, pass
with deficiency(ies) or fail. Baker Tilly Virchow Krause, LLP has received a peer review
rating of pass.
Cherry, Bekaert & Holland, L.L.P.
October 13, 2009
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Services to be provided
Based on our review of the request for proposals (RFP) dated August 17, 2011, as well
as our prior work with the District, we understand the scope of services as follows:
Perform an audit of the year-end financial statements in accordance with auditing
standards generally accepted in the United States of America
Issue opinions on the presentation of both the District's combined financial
statements and primary government only financial statements in conformity with
generally accepted accounting principles
Issue a management letter to include recommendations, industry updates, and
required communications
Be available to answer questions from the District on new standards or transactions
during the year
The following timeline demonstrates our commitment to meeting the deadlines
established in the RFP.
KJ
qj
i`J .. Nc..Q. Dec. Apr. Apr. May June
Our detailed audit approach is outlined on pages 22-29.
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Qualifications of key personnel
Audit services engagement team
The engagement team for the District is familiar with the needs of your organization from
our six -year history of providing you with auditing and consulting services. Each team
member possesses strengths that have provided benefit to the District and complements
your work environment. The individuals comprising our team routinely deal with complex
client situations. They have the knowledge and professionalism to develop solid
recommendations by bringing to the District the necessary balance of technical discipline,
creativity, and common sense. As a team, they will provide you with highly coordinated
and responsive service.
Of particular importance is the specialized knowledge and experience of our firm and
individuals on our project team in a number of areas including:
Working knowledge of all aspects of your operations, including organizational,
operational, and work order system issues
Experience in industry topics, including regulatory asset treatment under ASC 980,
accounting and financial reporting for derivative instruments under GASB 53, and
recording of future plant removal costs under ASC 410
Providing assistance in the implementation of new governmental accounting
standards such as GASB 45 for post -employment benefits, GASB 49 for pollution
remediation, and GASB 51 for intangible assets
Conducting organizational and operational analyses designed to improve financial
system effectiveness and efficiency
Analyzing complex integrated financial systems and reviewing implementation
Performing financial and compliance audits of electric, water, and wastewater
utilities and joint action electric agencies
Developing performance measures and benchmarking
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Quality of staff
Our unique corporate culture has attracted the best and the brightest professionals from
universities, industry, and national accounting firms. They come to Baker Tilly to serve
clients in an environment which emphasizes quality over quantity, and where long-term
relationships trump short-term profits.
Our firm invests significantly in our employees, because we know that happy employees
create and sustain satisfied clients. To attract people who are at the top of their
profession, we offer a variety of benefits to our employees, including flexible scheduling,
attractive benefit plans, and other special perks. To retain our employees, we insist upon
an organizational culture that encourages creativity, continuous learning, respect,
employee appreciation, and above all —a positive attitude. We keep turnover low by
striving to be an employer of choice for talented, committed individuals.
Based on our six -year relationship with the District, you know that balancing individuals
with an in-depth knowledge of your operations with professionals that provide a fresh
perspective is essential in allowing us to maximize the service we provide to the District
while minimizing your efforts in explaining your operations.
As such, our team is a combination of members who have worked with you for several
years as well as onsite staff who are new to the District.
As we have several partners with extensive energy and utility experience, we have the
ability to rotate the partner on the engagement if the District so desires.
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Team organization
The Baker Tilly audit team is shown in the following chart. Resumes follow on the next
page.
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Resumes
-1)
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Thomas E. Unke, CPA
Partner
608 240 2394
thomas.unke@bakertiIly.com
Tom Unke, Partner, Team Leader for the Energy and Utilities Group, has
been with Baker Tilly Virchow Krause, LLP since 1991. He specializes in
serving the financial and operational needs of the utility industry. Specific
focus areas include renewable energy development, financial due
diligence, litigation support, audit and accounting, strategic planning, and
joint -costing analyses.
Specific experience
Involved with emerging market issues relative to contract or litigation
support.
Involved with the electric energy markets including MISO, NYISO,
ERCOT, and others.
Develops cost sharing methodologies for cities, townships, and villages in
order to price joint services including wastewater treatment and water
distribution services.
Develops cost -of -service models and rate design concepts used to attract
and retain large industrial customers and send proper price signals
necessary to enhance the customer's effectiveness
and efficiency.
Prepares econometric forecasts of sales, revenues, expenses, and other
operational components necessary to predict the timing of rate
adjustments, project financing, and cash flow.
Completes financial evaluations to determine effect upon utility and city
earnings, cash flow, and levy needed when assessing options to
construct, retire, replace, or abandon utility infrastructure.
Develops activity based models used to price utility services including
marginal, embedded, incremental, and fully loaded recovery of costs
pricing strategies.
BAKER TILLY
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Thomas E. Unke, page 2
Specific experience (cont.)
Facilitates focus group discussions regarding strategic and operational
initiatives including new business ventures and process change or
development.
Provides expert testimony before state regulatory agencies on electric,
water, and wastewater utility revenue requirements; cost of service; and
rate design issues.
Industry involvement
American Institute of Certified Public Accountants
Wisconsin Institute of Certified Public Accountants
American Public Power Association (APPA)
Various state utility organizations.
Frequent speaker both regionally and nationally on pricing of utility
services, financial planning for utilities, creative and innovative financial
reporting tools, rate unbundling, budgeting, and various accounting topics.
Authors various articles on topics related to the utility industry.
Education
University of Wisconsin - Eau Claire
Bachelor of Business Administration in Accounting and Business Finance
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Aaron W. Worthman, CPA
Partner
608 240 2412
aaron.worthman@bakertiIly.com
Aaron Worthman, Partner on the Energy and Utilities team, has been with
Baker Tilly Virchow Krause, LLP since 1998. He specializes in serving
municipal utilities and joint action agencies. His experience includes
performing financial audits and agreed -upon procedure reviews as well as
preparing rate studies, cost of service studies, rate designs, and financial
forecasts.
Specific experience
Manages financial audits of numerous municipal electric, water, sewer,
and stormwater utilities, as well as joint action agencies.
Provides A-133 compliance audits of federally funded programs.
Reviews/tests internal controls of the administration of grant programs.
Analyzes the financial impact of construction projects on utility customer
rates, borrowing needs, and operational results.
Prepares electric, water, sewer, and stormwater rate filings; cost of
service studies; and rate design.
Testifies as an expert witness before regulating agencies and local
governing bodies to support utility rate adjustments.
Prepares annual budgets and long-range financial forecasts for municipal
utilities.
Assists with retail utility service agreement negotiations related to large
industrial developments and intergovernmental agreements.
Industry involvement
American Institute of Certified Public Accountants (AICPA)
Wisconsin Institute of Certified Public Accountants (WICPA)
Instructor forAPPA's Utility Education courses.
Speaks on accounting and financial reporting topics at national and
regional conferences as well as at Baker Tilly sponsored seminars.
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Aaron Worthman, page 2
Industry involvement (cont.)
Authors nationally and regionally published articles on utility regulation
and accounting issues.
Contributing author in the APPA Advanced Accounting Manual.
Education
University of Wisconsin — Eau Claire
Bachelor of Business Administration
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Jodi L. Dobson, CPA
Senior Manager
608 240 2469
jodi.dobson@bakertilly.com
Jodi Dobson, Manager for the Energy and Utilities Group, has been with
Baker Tilly Virchow Krause, LLP since 1998. She specializes in serving
municipal utilities, joint action agencies, and not -for -profit organizations.
Her experience includes performing financial audits, agreed -upon
procedure reviews, and fraud investigations as well as preparing rate
studies, cost of service studies, rate designs, and financial forecasts.
Specific experience
Manages audits for municipal utilities, joint action agencies, and not -for -
profit organizations.
Performs agreed -upon procedure reviews of jointly owned facilities
contractual billings for joint action agencies.
Prepares utility rate studies including cost of service studies and rate
design options.
Conducts electric unbundling studies for public utilities and utility districts.
Helps governmental units interpret and implement Governmental
Accounting Standards.
Analyzes the financial impact of construction projects on utility customer
rates, borrowing needs, and operational results.
Prepares annual operating budgets and long-range financial forecasts for
electric, water, and wastewater utilities.
Provides support to municipal utilities contesting wholesale rate increases
from power providers.
Leads special projects including chart of account separations, specific
rate designs, departmental cost analysis, development of connection fees
and impact fees, operational benchmarking, and basis of accounting
conversions.
Compiles municipal utility financial statements and annual reports to
regulatory agencies.
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Jodi L. Dobson, page 2
Specific experience (cont.)
Performs compliance audits of state funded programs.
Conducts fraud investigations for municipalities and counties
Industry involvement
Municipal Electric Utilities of Wisconsin
Wisconsin Waterworks Association
Wisconsin Rural Water Association
GFOA CAFR reviewer
American Institute of Certified Public Accountants
Wisconsin Institute of Certified Public Accountants
Speaks on internal controls, fraud prevention, budgeting, and other
industry topics at management conferences.
Authors articles on utility regulation and accounting issues published
nationwide.
Contributing author in the APPA Advanced Accounting Manual.
Education
Carthage College
Bachelor of Business Administration in Accounting and International
Business
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Tania A. Ibarra
Senior Accountant
608 240 2380
tania.ibarra@bakertilly.com
Tania Ibarra, Senior Accountant in the Energy and Utilities team with Baker
Tilly Virchow Krause, LLP, has worked in the utilities industry since 2006.
She has experience assisting with forecasts and budgets of large electrical
capital projects, cost monitoring and controlling, contract management,
and electric margin analysis. She has also led implementation of new
software and business processes through utilization of Lean Six Sigma
methodology.
Specific experience
Provides financial audits of electric, water, and sewer utilities.
Assists in the preparation of reports for federal and state regulatory
agencies.
Compiles municipal utility financial statements and annual reports to
regulatory agencies.
Provides consulting services to public utilities.
Provides various accounting services.
Industry involvement
Lean Six Sigma Green Belt Certification
Education
Clarke College - Dubuque, IA
Bachelor of Arts in Accounting and Business Administration Finance
m
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Lisa M. Herfel
Senior Accountant
608 240 6708
1isa.herfeI@bakertiIly.com
Lisa Herfel, Accountant with Baker Tilly Virchow Krause, LLP, has been
with the firm since 2009. She specializes in
and consulting services to the firm's energy
Specific experience
Provides financial audits of electric, water
Compiles annual reports for the Public Se
Analyzes and conducts utility rate and iml
Compiles financial statements for utility cl
Education
University of Wisconsin — La Crosse
Bachelor of Science in Accounting and FinE
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Similar engagements — public electric and water utilities
Below are current references for Baker Tilly's similar engagements. This is just a
representative sampling of our clients. We urge you to contact any of these clients to get
their feedback and impressions regarding our services to them. That these clients return
to us again and again for service attests to their satisfaction.
Contact: Ms. Jennifer Restivo, Assistant Controller
0L---- 0�1 6 732 5193
nancial Audit — Electric and water services; Single audit
)u Hampel, Assistant General Manager, Finance
19 526 7436
nancial Audit — Electric and Water Services, Complianc
edit of Renewable Programs, Employee Benefit Plan
edit
illiam Stuart, Controller
10 257 4174
nancial Audit
s. Laura Kapustka, Chief Finance Officer
12 475 4211
nancial Audit
.rnando G. Estudillo, CPA, Manager, General
:counting
16 684 3832
nancial audit — Electric services
fir)
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'gan Antonio Electric (CPS Energy), TX
IShannon Albert, Senior Director and Controller
Contact:
Phone:
210 353 2940
Scope of work:
Financial Audit — Electric Services, Prepaid Gas Supply
Entity, and Bond Comfort Work
Contact:
Craig Sloan, Controller
Phone:
512 473 3320, ext. 2330
Scope of work:
Financial Audit — Electric and Water Services
Contact: IJacqueline Torres, Director of Finance
Phone: 1312 751 6500
Scope of work: Financial audit, A-133 compliance audit, and financial
audit for OPEB trust
Contact:
Kenneth Kane, Controller
Phone:
516 719 9880
Agreed -upon Procedures Contract Compliance Reviews,
Benchmark Reviews, Agreed -upon Procedures
Scope of work:
Engagement for Analysis of Work Order Asset
Management Business Processes and Construction Work
in Progress and Plant in Service Account Balances
We would be pleased to provide additional references upon request.
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Audit approach
Baker Tilly is committed to delivering audit services that provide clients the assurance of
having financial statements that fairly state their financial condition. We actively
communicate our findings and provide knowledge -based insights throughout the audit
process. We prepare final reports that go beyond routine detail to arrive at our opinion.
Our audit will be made in accordance with Generally Accepted Auditing Standards
(GAAS) as promulgated by the AICPA, the AICPA audit guide, Audits of State and Local
Governmental Units, and Government Auditing Standards issued by the U.S. General
Accounting Office.
Baker Tilly understands that your audit process should be a year-round effort. To best
serve you, we will use a team approach that puts our technical and industry specialists at
the disposal of the people who know your organization best —you and your employees.
Knowing utilities, we understand the critical details embedded in your financial
statements and will focus considerable time and energy on these risk areas, while paying
additional attention to items of the most concern to you.
Our techniques include:
Identifying key risk areas allowing us to properly concentrate our efforts
Designing predictive tests that define our financial expectations prior to
starting fieldwork
Leveraging industry -specific knowledge to create tests for your operations
Deploying a dedicated team, already familiar with your policies, procedures, and
operations, to maximize our knowledge of your utility
The District can expect to receive a high -quality financial audit without unnecessary
procedures or work papers. Before completing internal planning, we will discuss our
approach with you and modify our plans, as appropriate.
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Steps in the Audit Cycle
Eval u ate Your
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Our service teams use the latest in audit technology and software to identify exceptions
and perform high -end analytics. These tests form the basis for the opinions we provide
on financial statements. They also give us valuable perspectives we apply to helping our
clients manage their business better.
By maintaining an open dialogue, we will be better able to provide timely insight and
advice, while at the same time building our file for your year-end compliance work.
What can the District continue to expect from Baker Tilly's audit services?
Experienced audit teams with an industry focus
Open communication in all phases of audit from planning to wrap-up
Effective data analysis using efficient technology tools
Candid professional advice in addition to assurance on the basic
financial statements
Pro -active response to issues that emerge; includes identifying solutions and
formulating new pronouncements
Risk -based focus that includes process and control review
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Segmentation of the engagement
We have a proven audit approach, which is tailored to utilities of your size and includes
sixteen segments of the audit. Those segments, along with the anticipated audit
procedures for each segment, have been taken one step further and customized for the
District as follows:
1. Control environment
Review policies and procedures associated with implementing internal control
enhancements within the District's operations
Meet with senior management and board representatives to determine the tone at
the top relative to adherence to establish control procedures
Document and assess the communication process in place from management to
staff relative to control activities
Document major systems and processes supporting the financial reporting process
for future use and control assessments
Visit with process owners to determine adequacy and completeness of
control documentation
2. Control activities
Review internal control documentation relative to key systems and processes
in place
Perform test of controls relative to key aspects of the financial reporting and
accounting process
Select sampling methods and assess control inherent in detection risk
3. IT infrastructure and systems
Conduct cursory review of information technology infrastructure relative to financial
reporting risks
Perform high level review of application and systems controls aimed at protecting
transactional integrity
Complete IT infrastructure analysis by providing risk assessment of existing
systems in place
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4. Cash and investments segment
Review ledger account entries, compare cash account balances
Confirm year-end account balances with depositories and reconcile to amounts on
the financial records
Obtain bank reconciliations and substantiate reconciling items
Substantiate cash cut offs in all departments, inter -bank transfers and petty
cash balances
Test investment transactions, test interest earned and trace to receipts and ledger
accounts: confirm investment balances
Test proper recording of other instruments that are marked to market
Test transactions recording unrealized gains and losses
Test compliance with funding requirements of bond resolutions and Mello -Roos
Districts
Test compliance in use of accounts in repayment of outstanding debt
5. Plant in service and inventories
Obtain capitalization policy for capital assets and infrastructure
Obtain summary schedules of capital assets including additions, retirements, and
accumulated depreciation
Test capital asset additions and retirements by project
Perform test counts of inventory balances
Test capital asset depreciation calculations
Review work order processes and controls
6. Revenue and accounts receivable segment
Compare revenues to prior year actual and current budget
Perform validation procedures
Confirm Mello -Roos revenues and receivables to third -party reports
Reconcile other revenues to invoices filed
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7. Other assets (prepaids, deferrals, etc.)
Determine the nature and extent of other existing assets within the organization
Perform substantive tests relative to year-end balances
Conduct assessment of proper financial reporting disclosure
Determine existence/occurrence in evaluation of other assets reported within the
financial statements
8. Current payables
Determine the extent of other payables currently reported within the District's
financial statements
Conduct substantive testing on account balances and determine adequacy of
disclosure within the financial statements
9. Financing segment
Verify bond and note balances owed, information on new issues, if any, trace
transactions to general ledger and recompute interest paid
Test compliance with bond ordinances regarding earnings coverage
10. Net assets
Test proper classification of net assets within the financial statements
11. Laws and regulation compliance
Meet with utility management to identify all significant compliance rules required as
part of the financial reporting process
Enquire as to additional environmental regulations being placed upon the District
relative to account funding
Enquire to management relative to proper disclosure on their financial statements
for compliance to disclosure of commitments and other contingencies within the
financial statements
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12. Payroll
Conduct substantive tests associated with total payroll for the audit year
Perform reconciliations of reported payroll costs to total labor reported in
federal reports
Verify vested vacation and sick pay liabilities
Verify other employee retirement obligations
Determine appropriateness of other liability accounts including accrued payrolls and
related withholdings
13. Operations and maintenance expense segment
Compare expenses to prior years and budgeted amounts
Account analysis of significant variations
Review vouchers payable listings as of year-end, determine proper cut offs and
review for unrecorded liabilities
Perform test of transaction sample and walkthrough of selected transactions to
determine effectiveness of controls
14. Contracts and derivatives
Annually, we will discuss new or revised contracts with management to determine if
they have been properly evaluated for potential treatment as derivatives for financial
reporting
15. Financial reporting segment
Ascertain that all items of audit significance contained in the minutes have been
considered and cross referenced to the working papers
Propose any adjusting entries and obtain adjusted trial balance
Review client prepared financial statements
Review management discussion and analysis (MD&A)
Perform subsequent events review to date of completion of fieldwork
Obtain management and attorney representation letters
Review any past adjustments with financial management
Verify commitments and contingencies
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16. Engagement planning and administration segment
Prepare client information forms, obtain signed engagement letters, complete
company independence procedures
Review of previous audit reports and reports on internal control
Prepare memorandum regarding overall operations for permanent file records
Complete staffing and scheduling summary
Hold planning conference among engagement partner and in -charge auditors
Hold entrance and progress conferences with client
Obtain all documents and information required for permanent file
Read minutes of board meetings
Complete necessary audit analysis of related party transactions and subsequent
events disclosures
Review and evaluate internal controls (includes completion of internal control
questionnaires, flowcharts and other documentation and statistical testing of
revenue, expenditure and payroll systems, as necessary)
Interview selected staff and oversight board members in accordance with the
requirements of SAS 99
Develop and approve audit programs (modification of existing utility specific
programs)
Accumulate all points to be included in management letter, draft letter, and discuss
with management
Review internal contract compliance reports to determine any impact on audit
procedures and financial reporting
Review workpapers for completeness
Undergo partner level workpaper reviews and independent reviews
Hold exit conference with key personnel
Make presentation to the District Board
Ensure that all necessary standards are completed and complied with relative to
professional auditing standards and also those standards required by the AICPA
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Communicating with the District
We will maintain an open line of communication with the District, jointly addressing any
issues requiring resolution during your audit and throughout the year:
Pre -audit meeting:
We will meet with the District prior to beginning our fieldwork to review our audit
plan and address any questions or concerns.
Post -audit meeting:
Upon completing the District's audit report and management letter, we will review
these items with District personnel. We will also address other relevant matters that
may have come to our attention. These may include areas in which management
judgments or estimates are involved; errors, irregularities and illegal acts; changes
in accounting policies; significant and unusual transactions; significant audit
adjustments; waived audit adjustments; and any other issues that require
discussion or resolution.
Throughout the year:
If any issues arise during our audit, or throughout the year, that we believe warrant
the District's attention, we will contact appropriate parties for resolution.
We will regularly communicate any new developments in the auditing and accounting
area throughout the year, not just at the time of the audit. In the past year, Russell
Hissom has researched and published articles and whitepapers on Department of Energy
Smart Grid Grant Management, NERC Compliance Audit Readiness, Fair Value
Accounting, Work Order and Asset Management Business Processes (WOAM), and
Enterprise Risk Management. He also teaches Advanced Accounting courses for APPA
on topics such as "GASB 53 — Derivative Accounting" and "Application of FAS 71 (ASC
980) — Regulatory Accounting for Utilities."
Information needed to address your technical matters will be addressed promptly,
typically at the time any new accounting pronouncement rules are adopted, providing you
with prompt responses to any matters affecting you.
Industry and market leadership
Our firm is very active in both the AICPA and GASB. Members of the Baker Tilly team
have served on AICPA Governmental Accounting and Auditing Committees, various
technical issues committees, and Private Company Practice Sections. In addition, Baker
Tilly performs many peer reviews for CPA firms, the largest being BDO Seidman, one of
the top twenty largest accounting firms in the United States. This service requires our firm
to be at the forefront of current industry topics and issues.
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To help you respond to and prepare for change, we are also actively involved in local and
national associations, keeping us at the forefront of what's happening in the industry. Our
memberships in the following organizations, and our involvement as authors, speakers,
trainers, and promoters of public power accounting and auditing mean we can better
assist you with implementing new regulations or adopting new standards. Associations
we participate in include:
American Public Power Association (APPA)
Edison Electric Institute (EEI)
American Water Works Association (AWWA)
American Wind Energy Association (AWEA)
Many state electric and water industry associations
We are sought out by organizations such as the APPA, the Society for Corporate
Compliance and Ethics, and state utility associations to speak, teach courses, and
represent the industry. We are instructors for the APPA Work Order Asset Management
and Advanced Utility Accounting courses, teaching these courses quarterly at various
locations across the United States. Aaron Worthman, Consulting Partner on your
engagement team, teaches regularly at APPA National and Business and Financial
conferences on financial issues in the energy industry and their impact on public power
Paperless audit software
Our audit tool is a server -based comprehensive software product with a web -based
interface that combines all financial audit tasks into an electronic paperless format,
including work programs, trial balances, spreadsheets, workpapers, and the
financial statements.
This "paperless" technique results in savings of both time and resources. Because we
are able to obtain the majority of our information electronically, your staff will spend less
time printing and copying information for the audit.
Our approach to auditing computer systems will include documentation of controls,
system interfaces, hardware, security, and cross -training. Based on our understanding of
your IT system, we will design tests specific to those systems. We will use our IT
specialists as a part of this process.
Data archiving and imaging
We retain the audit support and documentation for seven years. Currently this
information is not available through web -based browser access.
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