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12-032 Professional Services Agreement, Maze and Associates Accountancy CorporationAGREEMENT f)92 ?? BETWEEN CITY OF CUPERTINO 1/ AND MAZE AND ASSOCIATES ACCOUNTANCY CORPORATION FOR PROFESSIONAL SERVICES THIS IS AN AGREEMENT MADE AS OF APRIL 3, 2012 BETWEEN CITY OF CUPERTINO (hereinafter referred to as "City"), and MAZE AND ASSOCIATES ACCOUNTANCY CORPORATION (hereinafter referred to as "Consultant"). WITNESSETH: WHEREAS, CITY intends to prepare audited financial statements and reports hereinafter referred to as "Project"); and WHEREAS, CITY requires certain professional services in connection with Project hereinafter referred as "Services"); and WHEREAS, Consultant is qualified and prepared to provide such Services. NOW, THEREFORE, in consideration of the promises contained herein, the parties agree as follows: ARTICLE 1 - SERVICES TO BE PERFORMED BY CONSULTANT 1.1 Consultant hereby agrees to provide the specific services and the associated scope of services, payment, schedule, term and personnel as defined in that certain Proposal to Provide Annual Audit Services" dated February 27, 2012 (attached hereto and incorporated herein as Exhibit A), along with the "Amended Total Maximum Price and Total Estimated Hours per Fiscal Year", received March 9, 2012 (attached hereto and incorporated herein as Exhibit B) (collectively referred to as the "Proposal"). ARTICLE 2 - COMPENSATION 2.1 Compensation for Consulting services performed under this Agreement shall be compensated as described in the Proposal. c:\documents and settings\kareng\local settings\temporary internet files\content.outlook\dV7X62Zn\maZe audit agreement 2012 april 3 approved by council.docx ARTICLE 3 - TERM 3.1 Consultant's services will be performed and the specified services rendered and deliverables submitted within the time period or by the date stipulated in the Proposal. The term of this contract is from April 3, 2012 until completion of the audit for fiscal year 2016 audit, unless terminated earlier pursuant to Article 1 . 3.2 Consultant's services under this Agreement for each fiscal year will be considered complete when the services are rendered and all deliverables are submitted and accepted by the City for that fiscal year. 3.3 If any time period within or date by which any of the Consultant's services are to be completed is exceeded through no fault of Consultant, all amounts of compensation and the time for completion of performance shall be subject to equitable adjustment. ARTICLE 4 - CITY'S RESPONSIBILITIES. City will do the following in a timely manner so as not to delay the services of Consultant: 4.1 Provide all criteria and full information as to City's requirements for the services assignment and designate in writing a person with authority to act on City's behalf on all matters concerning the Consultant's services. 4.2 Furnish to Consultant all existing reports and other available data pertinent to the Consultant's services which Consultant shall be entitled to use and rely upon in performing Consultant's services under this Agreement. 4.3 Arrange for access to and make all provisions for Consultant to enter upon public and private property as required for Consultant to perform services hereunder. 4.4 Perform such other functions as are indicated in the Proposal as duties of City. 4.5 Bear all costs incident to compliance with the requirements of this Section. ARTICLE 5 - STANDARD OF CARE 5.1 Consultant shall exercise the same degree of care, skill, and diligence in the performance of the Services as is ordinarily provided by a professional Consultant under similar circumstance and Consultant shall, at no cost to City, re-perform services which fail to satisfy the foregoing standard of care. ARTICLE 6 - SUBCONTRACTING PC/CITY/FRMS/A92502 2 6.1 No subcontract shall be awarded by Consultant until prior written approval is obtained from the City. ARTICLE 7—CONSULTANT-ASSIGNED PERSONNEL 7.1 Consultant shall designate in writing an individual to have immediate responsibility for the performance of the services and for all matters relating to performance under this Agreement. Key personnel to be assigned by Consultant and substitution of assigned persons shall be stipulated in Proposal. ARTICLE 8 - OWNERSHIP OF DOCUMENTS 8.1 Disclosure of work products, data, reports, files, estimates and other such information and materials as may be accumulated by Consultant to complete services under this Agreement shall be stipulated in the Proposal. 8.2 Consultant shall return documents obtained from the City before the end of the Services, unless otherwise stated by the City. 8.3 All deliverables prepared by Consultant pursuant to this Agreement are instruments of service in respect to this project. They will be a matter of public record after presentation to the City Council or its respective subcommittees. ARTICLE 9 - RECORDS OF LABOR AND COSTS 9.1 Consultant shall maintain records of labor and costs used in claims for compensation under this Agreement. Records shall mean a contemporaneous record of time for personnel; a methodology and calculation of the billing rate; and invoices, time sheets, or other factors used as a basis for billable expenses. These records must be made available to the City upon reasonable notice of no more than 48 hours during the period of the performance of this Agreement. 9.2 After delivery of each year of Services under this Agreement, Consultant's records of all costs used in claims for compensation under this Agreement shall be available to the City for inspection and verification. These records will be maintained by Consultant and made reasonably accessible to the City for a period of three (3) years after completion of each year of the Proposal under this Agreement. 9.3 Consultant agrees to cooperate and provide any and all information concerning the Project costs which are a factor in determining compensation under this Agreement as requested by the City or any public agency which has any part in providing financing for, or authority over, the Services which are provided under the Agreement. PC/CITY/FRMS/A92502 3 9.4 Failure to provide documentation or substantiation of all Project costs used as a factor in compensation paid under Article 2 hereof will be grounds for City to refuse payment of any statement submitted by the Consultant and for a back charge for any City funds, including interest from payment or grant, matching or other funds from agencies assisting City in financing the Services specified in this Agreement. ARTICLE 10 - INSURANCE Consultant shall provide and maintain at all times during the performance of the Agreement the following insurances: 10.1 Workers' Compensation and Employer's Liability Insurance for protection of Consultant's employees as required by law and as will protect Consultant from loss or damage because of personal injuries, including death, to any of his employees. 10.2 Comprehensive Automobile Liability Insurance. Consultant agrees to carry a Comprehensive Automobile Liability Policy providing bodily injury liability. This policy shall protect Consultant against all liability arising out of the use of owned or leased automobiles both passenger and commercial. Automobiles, trucks, and other vehicles and equipment (owned, not owned, or hired, licensed or unlicensed for road use) shall be covered under this policy. Limits of liability for Comprehensive Automobile Liability Insurance shall not be less than $1,000,000 Combined Single Limit. 10.3 Comprehensive General Liability. Insurance as will protect Consultant and City from any and all claims for damages or personal injuries, including death, which may be suffered by persons, or for damages to or destruction to the property of others, which may arise from the Consultant's operations under this Agreement, which insurance shall name the City as additional insured. Said insurance shall provide a minimum of$1,000,000 Combined Single Limit coverage for personal injury, bodily injury, and property damage for each occurrence arid aggregate. Such insurance will insure Consultant and City from any and all claims arising from the following: 1.Personal injury; 2.Bodily injury; 3.Property damage; 4.Broad form property damage; 5.Independent contractors; 6.Blanket contractual liability. 10.4 Consultant shall maintain a policy of professional liability insurance, protecting it PC/CITY/FRMS/A92502 4 against claims arising out of negligent acts, errors, or omissions of Consultant pursuant to this Agreement, in an amount of not less than $1,000,000. The said policy shall cover the indemnity provisions under this Agreement. 10.5 Consultant agrees to maintain such insurance at Consultant's expense in full force and effect in a company or companies satisfactory to the City. All coverage shall remain in effect until completion of the Project. 10.6 Consultant will furnish the City with certificates of insurance issued by Consultant's insurance carrier and countersigned by an authorized agent or representative of the insurance company. The certificates shall show that the insurance will not be cancelled, altered, or reduced without at least thirty (30) days' prior written notice to the City. The certificates for liability insurance will show that liability assumed under this Agreement is included. ARTICLE 11 - LIABILITY AND INDEMNIFICATION 11.1 Having considered the risks and potential liabilities that may exist during the performance of the Services and in consideration of the promises included herein, City and Consultant agree to allocate such liabilities in accordance with this Article 11. Words and phrases used in this Article shall be interpreted in accordance with customary insurance industry usage and practice. 11.2 Where the law establishes a standard of care for Consultant's professional services, and to the extent the Consultant breaches or fails to meet such established standard of care, or is alleged to have breached or failed to meet such standard of care, Consultant shall, to the fullest extent allowed by law, with respect to all services performed in connection with the Agreement, indemnify, defend, and hold harmless the City and its officers, officials, agents, employees and volunteers from and against any and all liability, claims, actions, causes of action or demands whatsoever against any of them, including any injury to or death of any person or damage to property or other liability of any nature, that arise out of, pertain to, or relate to the negligence, recklessness, or willful misconduct of Consultant or Consultant's employees, officers, officials, agents or independent contractors. Such costs and expenses shall include reasonable attorneys' fees of counsel of City's choice, expert fees and all other costs and fees of litigation. Consultant shall not be obligated under this Agreement to indemnify City to the extent that the damage is caused by the sole or active negligence or willful misconduct of City, its agents or employees. 11.3 Consultant shall, to the fullest extent allowed by law, with respect to all services performed in connection with the Agreement indemnify, defend, and hold harmless the City and its officers, officials, agents, employees and volunteers from and against any and all liability, c[aims, actions, causes of action or demands whatsoever against any of them, including any injury to or death of any person or damage to property or other liability of any nature, that arise out of, pertain to, or PC/CITY/FRMS/A92502 5 relate to the performance of this Agreement by Consultant or Consultant's employees, officers, officials, agents or independent contractors. Such costs and expenses shall include reasonable attorneys' fees of counsel of City's choice, expert fees and all other costs and fees of litigation. 11.4 Consultant shall indemnify City against legal liability for damages arising out of claims by Consultant's employees. City shall indemnify Consultant against legal liability for damages arising out of claims by City's employees. 11.5 Indemnity provisions will be incorporated into all Project contractual arrangements entered into by City and will protect City and Consultant to the same extent. 11.6 Upon completion of all services, obligations and duties provided for in the Agreement, or in the event of termination of this Agreement for any reason, the terms and conditions of this Article shall survive. ARTICLE 12 - INDEPENDENT CONTRACTOR Consultant undertakes performance of the Services as an independent contractor and shall be wholly responsible for the methods of performance. City will have no right to supervise the methods used, but City will have right to observe such performance. Consultant shall work closely with City in performing Services under this Agreement. ARTICLE 13 - COMPLIANCE WITH LAWS In performance of the Services, Consultant will comply with applicable regulatory requirements including federal, state, and local laws, rules, regulations, orders, codes, criteria and standards. Consultant shall procure the permits, certificates, and licenses necessary to allow Consultant to perform the Services. ARTICLE 14 - NONDISCLOSURE OF PROPRIETARY INFORMATION Consultant shall consider all information provided by City and all reports, studies, and other documents resulting from the Consultant's performance of the Services to be proprietary unless such information is available from public sources. Consultant shall not publish or disclose proprietary information for any purpose other than the performance of the Services without the prior written authorization of City or in response to legal process. ARTICLE 15 - TERMINATION OF CONTRACT 15.1 The obligation to continue Services under this Agreement may be terminated by either party upon seven days written notice in the event of substantial failure by the other party to perform in accordance with the terms hereof through no fault of the terminating party. PC/CITY/FRMS/A92502 6 15.2 City shall have the right to terminate this Agreement or suspend performance thereof for City's convenience upon written notice to Consultant, and Consultant shall terminate or suspend performance of Services on a schedule acceptable to City. In the event of termination of suspension for City's convenience, City will pay Consultant for all services performed and costs incurred including termination or suspension expenses. Upon restart of a suspended project, equitable adjustment shall be made to Consultant's compensation. ARTICLE 16 - UNCONTROLLABLE FORCES 16.1 Neither City nor Consultant shall be considered to be in default of this Agreement if delays in or failure of performance shall be due to uncontrollable forces, the effect of which, by the exercise of reasonable diligence, the nonperforming party could not avoid. The term "uncontrollable forces" shall mean any event which results in the prevention or delay of performance by a party of its obligations under this Agreement and which is beyond the control of the nonperforming party. It includes, but is not limited to, fire, flood, earthquake, storms, lightening, epidemic, war, riot, civil disturbance, sabotage, inability to procure permits, licenses, or authorizations from any state, local, or federal agency or person for any of the supplies, materials, accesses, or services required to be provided by either City or Consultant under this Agreement, strikes, work slowdowns or other labor disturbances, and judicial restraint. 16.2 Neither party shall, however, be excused from performance if nonperformance is due to uncontrollable forces which are removable or remediable, and which the nonperforming party could have, with the exercise of reasonable diligence, removed or remedied with reasonable dispatch. The provisions of this Article shall not be interpreted or construed to require Consultant or City to prevent, settle, or otherwise avoid a strike, work slowdown, or other labor action. The nonperforming party shall, within a reasonable time of being prevented or delayed from performance by an uncontrollable force, give written notice to the other party describing the circumstances and uncontrollable forces preventing continued performance of the obligations of this Agreement. The Consultant will be allowed reasonable negotiated extension of time or adjustments for City initiated temporary stoppage of services. ARTICLE 17 - MISCELLANEOUS 17.1 A waiver by either City or Consultant of any breach of this Agreement shall not be binding upon the waiving party unless such waiver is in writing. In the event of a written waiver, such a waiver shall not affect the waiving party's rights with respect to any other or further breach. 17.2 The invalidity, illegality, or unenforceability of any provision of this Agreement, PC/CITY/FRMS/A92502 7 or the occurrence of any event rendering any portion or provision of this Agreement void, shall in no way effect the validity or enforceability of any other portion or provision of the Agreement. Any void provision shall be deemed severed from the Agreement and the balance of the Agreement shall be construed and enforced as if the Agreement did not contain the particular portion or provision held to be void. ARTICLE 18 - INTEGRATION AND MODIFICATION 18.1 This Agreement(consisting of pages 1 to 9), together with the Proposal is adopted by City and Consultant as a complete and exclusive statement of the terms of the Agreement between City and Consultant. This Agreement supersedes all prior agreements, contracts, proposals, representations, negotiations, letters, or other communications between the City and Consultant pertaining to the Services, whether written or oral. 18.2 The Agreement may not be modified unless such modifications are evidenced in writing signed by both City and Consultant. ARTICLE 19-SUCCESSORS AND ASSIGNS 19.1 City and Consultant each binds itself and its directors, officers, partners, successors, executors, administrators; assigns and legal representatives to the other party to this Agreement and to the partners, successors, executors, administrators, assigns, and legal representatives of such other party, in respect to all covenants, agreements, and obligations ofthis Agreement. 19.2 Neither City nor Consultant shall assign, sublet, or transfer any rights under or interest in (including, but without limitation, monies that may become due or monies that are due) this Agreement without the written consent of the other, except to the extent that the effect of this limitation may be restricted by law. Unless specifically stated to the contrary in any written consent to an assignment, no assignment will release or discharge the assignor from any duty or responsibility under this Agreement. Nothing contained in this paragraph shall prevent Consultant from employing such independent consultants, associates, and subcontractors as he may deem appropriate to assist him/her in the performance of the Services hereunder and in accordance with Article 6. 19.3 Nothing herein shall be construed to give any rights or benefits to anyone other than City and-Consultant. ARTICLE 20-GENERAL PROVISIONS 20.1 Notices. All written notices and demands of any kind which either party may be required or may desire to serve upon the other party in connection with this PC/CITY/FRMS/A92502 8 Agreement may be served (as an alternative to personal service) by registered or certified mail, overnight courier service or facsimile (followed promptly by hard copy) at the addresses set forth below: As to City: City of Cupertino 10300 Torre Avenue Cupertino, CA 95014 Attn: Finance Director As to Consultant: Maze and Associates Accountancy Corp. 3478 Buskirk Avenue, Suite 215 Pleasant Hill, CA 94523 Attn: Cory Biggs Any such notice or demand so served by registered or certified mail or overnight courier shall be sent with postage or charges thereon fully prepaid and addressed to the party to be served at the addresses set forth above. 20.2 Validity. If any of the provisions of this Agreement or the application thereof to any persons or circumstances shall, to any extent, be invalid or unenforceable, the remainder of this Agreement by the application of such provision or provisions to persons or circumstances other than those as to whom or which it is held invalid or unenforceable shall not be affected thereby, and every provision of this Agreement shall be valid and enforceable to the fullest extent permitted by law. 20.3 Attorneys' Fees. In the event of any litigation between the parties hereto to enforce any of the provisions of this Agreement or any right of either party hereto, the unsuccessful party to such litigation agrees to pay to the successful party all costs and expenses, including reasonable attorneys' fees, whether or not incurred in trial or on appeal, incurred therein by the successful party, all of which may be included in and as a part of the judgment rendered in such litigation. Any indemnity provisions herein shall include indemnification for reasonable attorneys' fees and costs, whether or not suit be brought and including fees and costs on appeal. 20.4 Time of Essence. Time shall be of the essence hereof 20.5 Governing Law. This Agreement shall be governed by the laws of California and the parties hereto agree that any litigation between the parties hereto relating to this Agreement shall take place (unless otherwise required by law) in a court located in Santa Clara County, State of California. Each party waives its right to jurisdiction or venue in any other location. IN WITNESS THEREOF, the parties hereto have made and executed this Agreement as of the day and year first above written. PC/CITY/FRMS/A92502 9 CITY OF CUPERTINO MAZE AND ASSOCIATES ACCOUNTANCY CORPORATION By By: L., David W. Knapp Cory j..s Title: City Manager Title: Chief Executive Officer Date: l • 30. I Z Date: 3 G ' APPROVED AS TO FORM: 0 , , By: f . . ,L Carol Korade City Attorney PC/CITY/FRMS/A92502 10 X/67-6-?3,5-7C/ G CITY OF CUPERTINO TOTAL MAXIMUM PRICE AND TOTAL ESTIMATED HOURS PER FISCAL YEAR(1) i 12011/12 1, 1 . 2012/13 2013/14 2014/15 2015/16 FiveYear Max al Max Total Max Total Max Total Max Total Max Total Price Hours Price Hours Price Hours Price Hours Price Hours Price Hours City S52,945 447.00 S54,004 447.00 $55,084 447.0D $56,186 447.00 557,310 447.00 5275,529 2,235.00 2 t-13,'4 _ ,)0/ 1-. i Redevelopment Agency 4,585 42.00 . 4,677, 42.00 4,771 42.00 4,866 42.00 4,963 42.00 23,862 210.00 TDA 2,420 22.00 2,468 22.00 2,517 22.0) 2,567 22.00 2,618 22.00 12,590 110.00 CityInvestment Policy 4,405 42.00 4,493 42.00 4,583 42.00 4,675 42.00 4,769 42.00 22,925 210.00 Proposition 111 825 7.00 842 7.00 859 7.00 876 7.00 894 7.00 4,295 35.00 Subtotal 65,180 560.00 66,484 560.00 67,814 560.00 69,170 560.00 70,553 560.00 339,201 2,800.00 Single Audit Act Report(Per Tested Program) 4,985 48.00 5,085 48.00 5,187 48.00 5,291 48.00 5,397 48.00 25,945 240.00 City State Controller Report 2,965 25.00 2,965 25.00 2,965 25.00 2,965 25.00 2,965 25.00 14,825 125.00 PPt- 4l(4-- 'lot 4 Grand Total 573,130 633.00 574,534 633.00 $75,966 633.00 577,426 633.00 $78,915 633.00 $379,971 3,165.00 NOTES: 1) All inclusive total for services,out-of-pocket expenses,meals,lodging,transportation,mileage,printing and other costs. 2)Our policy Is to attempt to keep our client's fees constant after Inflation. Therefore,the fees for years subsequent to 2012 have been adjusted for the 2011 CPI increase of 2.0%for the Services Sector of the U.S.Department of Labor,Bureau of Labor Statistics for the San Francisco-Oakland Area. I am In veered to submit this bid,and am authorized to sign a contract with the City of Cupertino. Vice President Signs Title Maze&Associates Firm CITY OF CUPERTINO SCHEDULE OF PROFESSIONAL FEES AND EXPENSES FOR THE AUDIT OF FISCAL YEAR 2011/2012 Hourly Hours Rates Price Partners 69.00 300 20,700 Manager 6.00 160 960 Supervisor 144.00 120 17,280 Associates 431.00 85 36,635 Administrative Staff 8.00 65 520 Total Maximum Price 658.00 76,095 37 CITY OF CUPERTINO SCHEDULE OF PROFESSIONAL FEES AND EXPENSES FOR THE AUDIT OF FISCAL YEAR 2012/2013 Hourly Hours Rates Price Partners 69.00 306 21,114 Manager 6.00 163 979 Supervisor 144.00 122 17,626 Associates 431.00 87 37,368 Administrative Staff 8.00 66 530 Total Maximum Price 658.00 77,618 38 CITY OF CUPERTINO SCHEDULE OF PROFESSIONAL FEES AND EXPENSES FOR THE AUDIT OF FISCAL YEAR 2013/2014 Hourly Hours Rates Price Partners 69.00 312 21,537 Manager 6.00 167 999 Supervisor 144.00 125 17,979 Associates 431.00 88 38,116 Administrative Staff 8.00 68 541 Total Maximum Price 658.00 79,171 39 CITY OF CUPERTINO SCHEDULE OF PROFESSIONAL FEES AND EXPENSES FOR THE AUDIT OF FISCAL YEAR 2014/2015 Hourly Hours Rates Price Partners 69.00 318 21,967 Manager 6.00 170 1,019 Supervisor 144.00 127 18,338 Associates 431.00 90 38,878 Administrative Staff 8.00 69 553 Total Maximum Price 658.00 80,754 40 CITY OF CUPERTINO SCHEDULE OF PROFESSIONAL FEES AND EXPENSES FOR THE AUDIT OF FISCAL YEAR 2015/2016 Hourly Hours Rates Price Partners 69.00 325 22,407 Manager 6.00 173 1,039 Supervisor 144.00 130 18,705 Associates 431.00 92 39,656 Administrative Staff 8.00 70 563 Total Maximum Price 658.00 82,369 41 MAZE&-1 OP ID:CR AC°R°' CERTIFICATE OF LIABILITY INSURANCE DATE 01/ 05D/ YYYY) 01105/12 PRODUCER 925-284-3911 THIS CERTIFICATE IS ISSUED AS A MATTER OF INFORMATION Kosich&Callahan ONLY AND CONFERS NO RIGHTS UPON THE CERTIFICATE 3435 Mt Diablo Blvd.Ste.300 HOLDER. THIS CERTIFICATE DOES NOT AMEND, EXTEND OR Lafayette,CA 94549 ALTER THE COVERAGE AFFORDED BY THE POLICIES BELOW.Kosich Insurance Agency,Inc. INSURERS AFFORDING COVERAGE NAIC# INSURED Maze&Associates INSURER A:Travelers Casualty Ins Co3478BuskirkAve. Suite 215 INSURER B:Republic IndemnityHill,CA 94523 P ty Insurance INSURER C: INSURER D: INSURER E: COVERAGES THE POLICIES OF INSURANCE LISTED BELOW HAVE BEEN ISSUED TO THE INSURED NAMED ABOVE FOR THE POLICY PERIOD INDICATED.NOTWITHSTANDING ANY REQUIREMENT,TERM OR CONDITION OF ANY CONTRACT OR OTHER DOCUMENT WITH RESPECT TO WHICH THIS CERTIFICATE MAY BE ISSUED OR MAY PERTAIN,THE INSURANCE AFFORDED BY THE POLICIES DESCRIBED HEREIN IS SUBJECT TO ALL THE TERMS,EXCLUSIONS AND CONDITIONS OF SUCH POLICIES.AGGREGATE LIMITS SHOWN MAY HAVE BEEN REDUCED BY PAID CLAIMS. INSR ADD'L POLICY EFFECTIVE POLICY EXPIRATION LTR INSRD TYPE OF INSURANCE POLICYNUMBER DATE IMMIDD/YYYY1 DATE IMMIDD/YYYYI LIMITS GENERALLIABILITY EACH OCCURRENCE S 2,000,000 A X COMMERCIAL GENERAL LIABILITY 6805529R288 08/11/11 08111/12 DAMAGETORENTED 300,000PREMISES(Ea occurerACe) $ CLAIMSMADE X OCCUR MED EXP(Anyone person) _ $ 10,000 PERSONAL&ADV INJURY _ $ 2,000,000 GENERAL AGGREGATE S 4,000,000 GEN'L AGGREGATE LIMIT APPLIES PER: PRODUCTS-COMP/OP AGG $ 4,000,000 7 POLICY PST n LOC Emp Ben.2,000,000 AUTOMOBILE LIABILITY COMBINED SINGLE LIMIT S INCLUDED A ANY AUTO 6805529R288 08/11/11 08111/12 (Ea accident) ALL OWNED AUTOS BODILY INJURY SCHEDULED AUTOS Perperson) X HIRED AUTOS BODILY INJURY X NON-0WNEDAUTOS Peraccident) PROPERTY DAMAGE Peraccident) GARAGE LIABILITY AUTO ONLY-EA ACCIDENT $ ANY AUTO OTHER THAN EA ACC $ AUTO ONLY:AGG I$ EXCESS/UMBRELLA LIABILITY EACH OCCURRENCE S OCCUR CLAIMS MADE AGGREGATE S S DEDUCTIBLE S RETENTION S S WORKERS COMPENSATION x WCSTATII- OTH- AND EMPLOYERS LIABWTY TORY LIMITS ER B ANYPROPRIETOR/N 15076612 01/01/12 01/01/13 EL EACH ACCIDENT S 1,000,000 OFFICER/MEMBEREXCLUDED? Mandatoryin NH) E.L.DISEASE-EA EMPLOYEE S 1,000,000 If yes,describe under SPECIAL PROVISIONS below E.L.DISEASE-POLICY LIMIT S 1,000,000 OTHER DESCRIPTION OF OPERATIONS/LOCATIONS IVEHICLES/EXCLUSIONS ADDED BYENDORSEMENT/SPECIAL PROVISIONS Except 10 days notice of cancellation for nonpayment of premium. CERTIFICATE HOLDER CANCELLATION INSUR-2 SHOULDANYOFTHEABOVEDESCRIBEDPOUCIES BE CANCELLED BEFORETHEEXPIRATION Insured's Copy DATE THEREOF,THE ISSUING INSURER WILL ENDEAVOR TO MAIL 30 DAYS WRITTEN NOTICE TO THE CERTIFICATE HOLDER NAMED TO THE LEFT,BUT FAILURE TODO SO SHALL IMPOSE NO OBLIGATION OR LIABILITY OF ANY KIND UPON THE INSURER,ITS AGENTS OR REPRESENTATIVES. AUTHORIZED REPRESENTATIVE ACORD 25(2009/01) 1988-2009 ACORD CORPORATION. All rights reserved. The ACORD name and logo are registered marks of ACORD 42 ri MAZE ASSOCIATES February 27,2012 David Woo Finance Director City ofCupertino 10300 Torre Avenue Cupertino, CA 95014 Dear David: We are pleased to submit our Technical Proposal to Provide Professional Auditing Services for the City ofCupertino for the years ending June 30,2012 through 2016 with options to extend. Yours very truly, John Rodriguez JR:smg Enclosures 925.93C.7302 Accouribaivey Corporation r 925.03(10135 47 Busk*Aveitpa,SAW 215 L nlazsernazeassociates corn Ple6sant Hh,CA 04523 MatessamelatIMOOtti 3 PROPOSAL To Provide Professional Auditing Services For The CITY OF CUPERTINO g I C ii CUPEVINO Submitted By MAZE & ASSOCIATES ACCOUNTANCY CORPORATION CERTIFIED PUBLIC ACCOUNTANTS I 3478 Buskirk Avenue, Suite 215, Pleasant Hill, CA 94523 925)930-0902-r (925)-930-0135 February 27,2012 Contact Persona Mark Wong, CPA Cory Bins,CPA Vice President President 925)-930-0902,Ext.250 925)430-0902,Ext.225 rnarkwQmazeassociates corn El corvbamazeassomates..com CITY OF CUPERTINO AUDIT PROPOSAL TABLE OF CONTENTS Page TRANSMITTAL LETTER 1 INDEPENDENCE 3 LICENSE TO PRACTICE IN CALIFORNIA 3 Business License Required at the Time of Contract Award 3 Insurance 3 FIRM QUALIFICATIONS AND EXPERIENCE 4 Overview 4 Equality and Diversity 4 National Recognition 4 Reputation 5 Our Municipal Focus 6 City Clients 7 Grant and Compliance Audit Experience 8 Large Enterprise Operations 10 Redevelopment Agency Experience 11 Retirement Plan Experience 11 Transportation Experience 11 Long Term Debt Experience 12 Public Financing Authorities and Mello-Roos Experience 12 Assistive Resources 12 Client Training and Professional Development 12 Books,Periodicals,News Letters,and Professional Standards 13 Support Services 13 Professional Activity 14 Internal Quality Assurance System 15 No Disciplinary Action 15 Federal or State Field Reviews 15 Litigation 16 External Quality Control Review 16 Peer Review Letter 17 PARTNER,SUPERVISORY AND STAFF QUALIFICATIONS AND EXPERIENCE 18 Audit Team 18 StaffTraining 21 Qualifications and Continuity 23 CITY OF CUPERTINO AUDIT PROPOSAL TABLE OF CONTENTS Page SIMILAR ENGAGEMENTS WITH OTHER GOVERNMENT ENTITIES City Client List 23 References 23 SPECIFIC AUDIT APPROACH AND CITY STAFF HOURS 25 Specific Audit Approach 25 Specific Audit Strategy—Interim 25 Laws Regulations and Compliance 25 Specific Audit Strategy—Year End 26 Audit IT Systems and Going Green 26 Turn-Key Financial Statement Drafts 27 Auditing Large and Complex EDP Systems 27 Information System Review 27 System Controls and Transaction Cycle Processing Verification 28 Profiles,Access&Setup Controls 28 Data Extraction 29 Assessing Risks—Interim Phase 29 Fraud Consideration 29 Client Tailored Risk Assessment 30 Client Participation in the Risk Assessment Process 30 Assessing Risks—Final Phase 31 Ability to Provide Services on a Short Notice 31 Communication and Coordination 31 Prompt Service and Delivery of Reports 32 Audit Schedule 32 Proposed Engagement Segments and Budget 33 Exhibit C 34 TOTAL MAXIMUM PRICE 35 Total Cost ofAudit 35 What our Price Includes 35 Additional Services 35 Fees and Billings 35 Cost Rationale 35 Total Maximum Price and Total Estimated Hours Fee Per Fiscal Year(1) 36 Schedule ofProfessional Fees and Expenses 37 Insurance Certificates 42 WA MAZE ASSOCIATES February 23,2012 David Woo Finance Director City of Cupertino 10300 Torre Avenue Cupertino,CA 95014 Dear Mr.Woo: We appreciate this opportunity to submit our proposal to provide eecternal audit services for the City of Cupertino. We agree to audit the basic financial statements of the City as well as assist with the preparation of the Comprehensive annual Financial Report(W14 We will also perform additional services as specified in the City's Request for Proposal,within the time periods established by the City. We are quite certain we are the most qualified firm to tie your independent accountants. Maze & Associates began operating a quarter of a century ago,and since that time,we have rigorously employed our philosophy that We are in Business to Help our Clients Succeed"! Our clients know from experience we employ a variety of techniques, technologies and strategies to maximize effective and efficient audits without shifting our work onto our clients staff. We have summarized our reasons below and explained them in depth in our proposal. A We are the best-known regional municipal audit firm in Northern California. Over our twenty-five year history, we have achieved national recognition with the consistent high quality of our work and with our leadership on issues such as bankruptcy trends and implications, GASB Statement 45, GASB Statement 34, Y2K, and municipal investment losses. Municipal auditing is our main business.We believe we have the necessary qualifications and are your best choice. o We annually audit over 200 municipalities including special districts, joint powers authorities, redevelopment agencies,housing authorities and financing authorities. o We currently have forty-six City clients ranging in size from small towns to large complex cities, many ofwhich are similar in size and complexity to the City of Cupertino. o We currently have over 30 Redevelopment Agency clients,with varying degrees of complexity. We have experience with single, multiple and merged project areas, low and moderate ineorne housing set-aside requirements, project area implenualtation plans, pass-through agreements, and complex development arrangements. o We have experience auditing several dozen large enterprise operations, some operated as departments or funds of our City clients and others operated as stand-alone independent special districts and authorities. o We conduct three dozen Single Audits annually. o Our firm does not make the newspapers very often,but when it does,it's for doing our job. T 925.93C.0902 Accountancy Corporation r 925.R:1(1.0135 3'. 5 Buskirk Avenue,Suite 215 6 mazeVrazes,sacclates sorn Pleasant HiI,CA 94523 w merwassoclittes-com We currently prepare the annual required filings for the State Controllers Office, including the Annual Report of Financial Transactions and Street Report,for many ofour municipal clients. Our Partners are actively involved in planning, conducting and completing the audit in our client's offices and our Partners are available when you need them. We resolve issues on the spot while the audit is being performed. When our Partners communicate with you,the Council and Committees,their knowledge is based on detailed specifics,not information which has been filtered through several layers ofreview. We have a long term track record of client retention beyond our client's original contract terms because of the quality of our service. Please pay special attention to the client start dates on page 7. Our audit staff average more than 80 hours of training in municipal auditing and accounting and 1,500 hours of municipal audit experience each year.This means you do not train our staff! With our qualified information security staff we have developed and employ a number of technologies to streamline our audit process, ensure open channels of communication and data transfer while securing the confidentiality of client data. These technologies include LANs, a VPN, "Leapfile" data file transfers, Quarantine" email protection software, paperless audit workpapers, and a major upgrade of our "direct downloads" technique eliminating manual financial statement inputs and maximizing easy to use financial rollup reports. Up to half our total audit time is spent at interim each year, ensuring a smooth year-end audit. Our interim audit includes much of the work other firms postpone to year-end; we even begin the preparation of the financial statements. We have never been sued over deficient work,although we are proud to say we were sued for doing our work too well! See Firm Qualifications and Experience-Litigation for details. Our references-indeed,any of our clients,will confirm we are your best choice. As with all our audits, we are committed to providing timely, quality audit services to the City of Cupertino. We have no doubt that we are the firm best qualified to perform the services described in the request for proposal. After you have analyzed our proposal and - most important - talked with our references, we are quite confident you will agree. The proposal is a firm and irrevocable offer for a period of sixty days from the date of this proposal. Mark Wong, Vice President and Cory Biggs, President are authorized to represent, sign for and contractually obligate Maze & Associates, a Professional Corporation, located at 3478 Buskirk Avenue, Suite 215, Pleasant Hill,CA,94523,(925)930-0902. We look forward to the opportunity to once again work with the City! Yours very truly, 1: Rodriguez JR:smg 2 INDEPENDENCE As independent auditors, our most valuable asset is our independence. Unlike many firms, we have never allowed our independent audit function to be used to promote consulting or other work. In fact, consulting and related work have never amounted to more than a few percent of our total revenues,while our independent audit work has amounted to over eighty percent ofour revenues. Our firm and all our partners and employees are independent of the City of Cupertino and its component units as that term is defined by the General Accountability Office's Standards for Audits of Governmental Organizations., Programs,Activities and Functions,the American Institute of Certified Public Accountants,the California Society of Certified Public Accountants and the California State Board of Accountancy. We have no present or past professional relationships with the City or any of its Council members or employees that would compromise our independence. We will discuss in advance with the City any professional relationships being contemplated during the period of engagement that may present a potential conflict of interest. If the City and we believe any such relationship presents a conflict of interest,we will not enter into it. LICENSE TO PRACTICE IN CALIFORNIA Maze & Associates are properly licensed California Certified Public Accountants. We are members of the Government Finance Officers Association (GFOA) and the California Society of Municipal Finance Officers CSMFO)as well as the American Institute of Certified Public Accountants and the California Society of Certified Public Accountants. All assigned key professional staff are properly licensed to practice in California. Those staff that are certified public accountants have current California CPA licenses in the attest function, and have received more than twice the required level of continuing education, including the credits specifically required in the area of governmental audits. Neither our firm nor any of our employees have a record of substandard or unsatisfactory performance,nor have any claims ever been filed with any State Board of Accountancy against our firm or any of our employees. Business License Required at the Time ofContract Award We will possess a City of Cupertino business license upon being named the City's new auditors. Insurance Maze &Associates maintains professional, general liability, worker's compensation and automobile insurance at limits which minimally will meet those required by the City of Cupertino. All insurance will remain in effect through our entire term as the City of Cupertino's auditors'. 3 FIRM QUALIFICATIONS AND EXPERIENCE Overview We are a professional services corporation located in Pleasant Hill,California.We presently have a total offorty- six people, including nine shareholders, two Directors, ten Supervisors, seven Senior Associates, twelve Associates and six Office staff. Thirteen of our professional staff are California Certified Public Accountants and two additional staff are in the process of completing their applications for licensure. All of our professional staff comprise our governmental audit staff, as our firm's emphasis is on governmental auditing and accounting. Several of our professional staff have national accounting firm experience,which we have blended with the more personal approach ofa smaller firm. Most of our clients are cities or other municipal entities and we do this work twelve months of the year. We limit our practice in other areas and focus on being the best municipal audit firm in Northern California. Our clients include several districts similar to the City ofCupertino in size. Our audit strategy is tailored to municipalities and is quite different from the traditional approach adapted from commercial clients by general practice accounting firms. We have focused on municipalities since our inception in 1986. We are active in GFOA, CSMFO and CMTA, and our Partners have been speakers at many GFOA,CSMFO and CMTA functions. We are in business to help our clients succeed. We help you use the ever-growing tangle of accounting rules properly,but to your best advantage,by helping you keep out oftrouble and helping you do the right thing. We stay in touch throughout the year to keep you abreast of municipal accounting developments and to help you avoid problems, instead of coming in afterwards to assess the damage. We rotate our audit emphasis based on our planning meetings with you so areas that concern you can be addressed as a normal part ofthe audit at no extra cost. Equality and Diversity Our philosophy is to expect our staffto conduct themselves as intelligent professionals and encourage them to use their best judgment and good sense to treat others as they would themselves be treated. Our basic policy is that others must, at the very least,be treated as equals, with full fairness and without thought of gaining an advantage of any kind or for any reason. This policy applies regardless of sex,job description, or any other factor. Our Human Resource Partner, John Rodriguez, implements and oversees that philosophy. And our corporate ownership and staff composition reflects this philosophy. Out of nine shareholders, five are women and/or minorities. Out of our eleven supervisors, 90% are women and/or minorities. For our staff as a whole, 68% are minorities and/or women. National Recognition We first achieved national recognition among accountants when we identified problems with municipal investments in April of 1994,months before the same problem drove Orange County into bankruptcy. While others dithered, we prepared our clients for the inevitable questions by alerting them immediately to the problem, working with GASB to address the accounting issues involved, and increasing our clients' financial statement disclosures so that the questions which came later were already answered in the fmancial statements. We were pleasantly surprised to see that a key disclosure element of GASB 40 is investment maturity data. Some of our client's have included maturity data in their CAFRs since 1994,when we recommended it as a way of reporting liquidity to financial statement users. In early 1999, when most accounting firms were saying that Y2K uncertainties would affect their audit opinions,we took a different stance. We said full disclosure ofthe steps taken to prepare for Y2K was sufficient for us to issue an unqualified opinion. By this time our national reputation was such that GASB used our refusal to follow the majority as leverage in negotiating a compromise on the Y2K issue with the American Institute ofCPAs. 4 FIRM QUALIFICATIONS AND EXPERIENCE(Continued) In the years before the issuance of GASB 34, we developed a full-blown alternative to GASB's heavily criticized Dual Perspective proposal. Our alternative received favorable written comment from over one hundred and twenty-five cities and prompted many of the major changes made by GASB before they issued.GASB 34. We received national recognition for this effort and one of our Partners was named to the GASB 34 Implementation Guide Task Force. We have stayed active throughout the years in alerting our clients to potential issues by recognizing important trends and advising our clients of their impacts well before they become effective. We noted years before GASH 45 became effective that advance funding other post employment benefits had signifiatnt long term savings potentials and since 2007, we have eanphasised to our clients the need to pay careful attention to the shin in the municipal debt markets from one based on insurance to one based on credit worthiness. Our work quality and financial statement clarity have earned us a solid national reputation with underwriters, bond counsel, financial advisors and others involved with debt issuances. Our clients have been involved with a broad variety of debt issues and refundings over the years, and the quality of our work has never been an issue_ Underwriters have praised our financial statements for being very clear and easy to understand. Reputation We believe quality and an emphasis on doing our job right is far more important than being cheaper than our competitors. Despite the economic pressures faced by municipalities and the need to save money,there are other, more serious concerns to be weighed. Those being perceived or actual audit failures in the municipal audit sector. The City of Bell news, especially the State Controller's Office Report on that City's audit firm is raising serious questions about municipal audit quality. Whether this is justified or not isn't really the issue. What is at issue is the perception of poor quality in municipal audits. We have received a number of inquiries and requests for proposal from that firm's clients who desire a change in auditors. A former client of ours, which rotated to them several years ago, called us and asked if we would propose on the City's work That Council simply does not want to expend the energy to defend whether that firm is providing quality work. We have also received calls from other municipalities with a different audit firm that has not yet released their audit reports for fiscal 2009-1 0. The reason-the audit firm merged and re-merged in fiscal 2009-10 and the new firm has placed a "quality control review" on municipal audits. The end result is that CAFR extensions Were needed for 2009-10 and may expire without a GFOA award. These trends indicate that it would unwise to reduce audit effort for any municipal audit. Our commitment to quality and preserving our firm's reputation remains our lop priority and serves our clients best. Clients tend to remain with us though their difficulties. Consider for a moment high risk audit environments, which are those entities undergoing financial stress, bankruptcy or fraud. For example, these clients are still clients today: Vallejo- Bankruptcy/Financial Stress(Ongoing) it Richmond Financial Stress(FYs 2002-05) Millbrae —Financial Stress(FYs 2002-05) We think there are two other clients worthy ofcontinent. FIRM QUALIFICATIONS AND EXPERIENCE(Continued) In early 2009,the City of Los Banos discovered fraud originally estimated at$400,000. This was the second case ofcash receipts fraud at that City within the last five years. The Los Banos Council instructed staffto replace the then audit firm with a "credible auditor" - they hired us. After that City's forensic auditor completed their investigation,the actual fraud was revised to$1.7 million. Our audits revealed numerous material weaknesses in cash receipts and billing controls. It is clear to us that the weaknesses had been present for many years and that the weaknesses were obvious. That City no longer believes a cheap audit has value. Lastly, we used to audit the City of Pacific Grove. In our first audit in fiscal 2003-04,we determined that their General Fund cash balances were not sufficient and included our comments in the year end management letter. Our firm made the local paper. The article was titled: "Auditor Warns P. G. Council!" We are rarely In the news,but when we are it is for doing ourjob. Our AfUnicOaf Focus We have focused on municipalities since our inception in 1986. We are active in and our Partners have been speakers at GFOA,CSMFO,CMTA,and the CaICPA Education Foundation. Our practice currently includes thirty-nine city clients and forty-one city and special district CAFR award winners— more city clients and more award winners than any other Northern California accounting firm or international rum branch office.Every one ofthe above CAFRs,won awards from GFOA andfor CSMFO. 130 140 130 120 110 100 90 80 70 60 50 40 30 20 10 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 6 FIRM QUALIFICATIONS AND EXPERIENCE(Continued) 1 City Clients The table below summarizes our most recent experience with audits of cities. We are responsible for all phases of the work on these clients. All of this work represents recurring annual audit and related work; all this work and that presented in the table was completed on or before the deadline from the first year listed for each client- Team- Retire, tihmt Moe pertatiaa rre fdng at/M,St CAM itt)4, Matti "IDA Measure Mew, ( Pvpittation4,.10009 Conant igo:2 V V V 1 1 Daly City t99q e llayenta 2111t I V •/ aticitteoed 7,011.5 V V Roseville 1.9M V V .1 Sunnyvale la(4 V 1 Stockton flH V V ./ Vallejo Zatt4 V V ./` V V Alameda 14,af, V 1 V 1 AmettseCanyon Zelalt Atittrion 1 1 Achntm, Benicia 2911 / Brentwood 2107 V 1 / artabeste ze 1 I v Davis vr 1 1 E& PaoA1Io I V e Fl(:Cnrit0 20415 rairias 244, Oak 20.0 V Larkspur V)I Lathrop V Livcratent I V. LasBane* 2i mt Maatteo v-afi Mania= WM= p V Milpitas 99.,, V I Mt.VIM NI: NaPe 2i1441 e I Oakley 2o5to 1 Mamma VII V Piedmont Pitt:Aram Prate&Valley 2UI V RaltaXI CORIOVIV S V V 1 1 1 Sty Leaetko 2.” t V V 1 1 V San Pallo Sett Rafael 1.047 smundito 21tO6 l4V101100 ri3 V S.Sell Frahti£40* 2414 Weed 204 W.Saerateenea 2404 Wvoillskle 1,19/ 7 FIRM QUALIFICATIONS AND EXPERIENCE(Continued) As you can see from the client list on the previous page,we have a winning combination that has resulted in strong client loyalty and retention. Several clients who left have returned afterseeing the difference between our firm and our competitors.Others have remained our clients after completing a full-blown proposal process,most recently Brentwood,Belmont and South Lake Tahoe. Grant and Compliance Audit Experience Our pertinent Non-Transportation Single Audit Act experience is graphed below: i4 intg F ; ' 1 E ' ttplitit katicao- mr11)11410t MI* x" ct=cils-1 WAWA Client ItiCltt ;fir°it, ` D Iinterior;liumasitits Lgt4,: v Iwo*" Alameda la N a M American Canyon a ABAG 0 W a Belmont a Concord le FlalyCity IN III 0 0 W 0 Davis a a a FBlw4U'D a 0 a East Palo Alto a R W El Cerrito FAF) R Food Bard. f 0 Galt a Livermore a a a IN 0 Manteca 0 a Mar'uncx a is IiIititas a la Mountain View a a Naha IN U Palo Alto Y a n' a Barn huCenlova a a Richmond la n Roseville a a 0 WET'A San Pablo San Rafael a a SRVFPF) a So.Lake Tahoe a a In So.San Francisco a a R n a Suisun City a Sunnyvale a a a a Vallejo a sr A 111 0 Waterford West Sacramento a a aI et I FIRM QUALIFICATIONS ANI)EXPERIENCE(Continued) Our pertinent Single Audit Act and Transportation grant experience is graphed below: r as 'a's N'1-r e k.• as 21 I.y fin'. a1 tt nnning& Tranit r•s ullJ ( lier ! ABM TtCaturtau'y: ACTIA 4 4 AGTA Alameda American Canyrnl t 4 4ABACI Atherton Belmont Brentwoodwood CC:TA 4 44 4 Concord 4 4 DalyCity tl Davis 4 East Palo Alto El Cerrito 4 4Galt Larkspur I.iverrtuxe f 4 1,AVTA 4 L4 i Banos t` 4 Manteca Martini Millbrae 4 Ivlillritas Modesto t MVlauntain View Naga Oakley PCTI'B Pala AltoAl Pamela Valley Rancho Cordova RidanunJ 4 iRoseville San Curiae SAMTRANS 4 4 SNIC7 A tih'PTA San Pablo San Rol Solara)Tama Authority South Lake Tahoe 4 South San Francisco r Suisun City I Sunnyvale 4 Vallejo Wateriind West S ;ra nt i Woodside Cr FIRM QUALIFICATIONS AND EXPERIENCE(Continued) Large Enterprise Operadona We have a variety of municipal clients(both city operated and separate enterprises)which operate large enterprises. Many ofthem also participate in or operate cost sharing arrangements such as separate JPAs,cost sharing contracts, or take-or-pay contracts associated with sophisticated jointly financed projects. Our experience includes the following large enterprise operations: r 0km k‘tiettlioriniatiiim Viehttr°, aft Alameda 4 Alameda Power and Telccem ABAG Belmont Benicia Calaveras County WaterDistrict Coastside County Water District 4 Concord Concord Sanitary Sewer Services, Contra Costa Solid Waste Authority Contra Costa Water District 4 Daly City W Davis Delta Diablo Sanitation District East Bay Municipal Water District 4 El Dorado Irrigation District 4 it Hayward 4 Livermore s+ LivcrmorelAmador Valley Wastewater Authority Mrmteet Martinez MYlilhrae 4 S+ Milpitas Modesto L4 4 Mountain View s• Napa North Coast County Water District Palo Alto Pinola 4 4 Pittsburg 4 Rio Vista Roseville tr 4 Santa Clara 4 Santa Clara Valley Water District Skyline County Water District Solana Irrigation District South Bay System Authority s' South Placer Wastewater Authority South San Francisco 4 South San Joaquin Irragation District 4 t+ Trt-Valley Wastewater Authority Union Sanitary District 4 Vallejo 4 Woodland 1d FIRM QUALIFICATIONS AND EXPERIENCE(Continued) RedevelopmentAgency Experience Over 80% of our City clients have Redevelopment Agencies and we have substantial experience auditing these Agencies' financial statements and performing tests of the compliance with Guidelines for Compliance Audits of California Redevelopment Agencies. Our Redevelopment Agency clients range from start up Agencies with no adopted plan or project areas to mature multiple project area Agencies with complex development agreements and significant amounts of debt. On December 29,2011 the California Supreme Court ruled in favor of a state law passed last summer that abolished redevelopment agencies. As a result, there are many accounting issues that need to be addressed. Two of our partners are involved with the Governmental Accounting&Auditing Committee of the California Society of Certified Public Accountants. The Committee is working with the State Controller's Office to determine the proper accounting and reporting for the events surrounding the dissolution. The Committee intends to issue a white paper on accounting and reporting on the dissolution ofthe agencies and the successor agencies. We will keep you informed about the status ofany accounting and reporting requirements or guidance that is issued. RetirementPlan Experience We have experience on a dozen different retirement plans ranging in complexity from deferred compensation plans to complex sole employer defined benefit plans. We are familiar with the retirement plan complex cash and investment portfolios and how they differ from the typical municipal treasury function,benefit payment calculations and actuarial study analyses. Our largest retirement plan experience as measured by total assets are: D East Bay Municipal Utility District Retirement Plan-$1 Billion D Contra Costa Water District Retirement Plan-$110 million D City ofConcord Retirement Plan-$45 million Some of our clients have requested we perform extra services for their retirement operations. For example, we performed a complete recalculation of all retiree benefit payments from retirement date through 2009 to address concerns one client had about the administrator's accuracy.. On several occasions we have performed an analysis of proposed actuary studies to determine acceptability and adequacy of assumptions based on accounting standards. We are currently engaged in our second contract with another firm as consultants for the largest retirement system in the state. Our part of the engagement is directed toward; governmental retirement plan accounting and fmancial reporting and the interpretation ofthose requirements. Our work has encompassed technical research on a variety of issues including an analysis of the Governmental Accounting Standards Board's exposure draft on Pensions. We supplemented our research of the exposure draft with our first hand knowledge gained while participating in the Governmental Accounting Standards Board's round table discussion held in San Francisco prior to the release of the exposure draft. Our latest project concerns the appropriate treatment for Term Asset Backed Securities Loan Program(TALF)transactions. Transportation Experience We have experience on both an international airport, (e.g.) San Francisco and on regional client airports including Hayward,Livermore, South Lake Tahoe,Modesto,and Visalia. Our experience includes important segments such as,concessionaires and lessees,hangar rentals and construction,Federal Transit Assistance programs,fuel farms and assisting in the evaluation and ranking ofAirport Operator proposals. Our Transportation experience includes audits of airports, fixed-route transit,paratransit and ferry transit operations funded by State Transit Assistance, Federal Transit Assistance, County voter approved transportation grants and Transportation Development Act grants received under Articles 3.0,4.0,4.5 and 8.0. We have also audited Article 3.0 projects such as bike paths,wheelchair ramps and trails and Proposition 1B projects. 11 FIRM QUALIFICATIONS AND EXPERIENCE(Continued) Long Term Debt Experience Because of our depth of experience with municipalities we have experience with virtually every debt type and structure. We have experience auditing revenue bonds, certificates of participation, special assessment bonds, Marks-Roos bond pools, capital appreciation bonds, variable rate demand bonds, auction rate bonds, bond anticipation notes and bonds/swap agreements with synthetic fixed interest rates. Our experience with swaps by client including the total notional amount follows: Contra Costa Transportation Authority-$300 million(Forward Swap commitment) City ofRichmond-$199 million,including a counter swap City ofPittsburg-$156 million City ofRoseville-$115 million South Placer Wastewater Authority-$94 million City of Modesto-$62 million City of San Pablo-$36 million Public FinancingAuthorities and MelloRoos Experience We have performed audits of Public Facilities Financing Authorities and Mello-Roos districts and designed financial statements that went beyond required disclosures to include Inception-to-Date information about capital projects. These disclosures can allow the reader to see and understand the entire scope and cost of capital projects, even though they may not remain on the Authority's books after completion. We are familiar with public fmancing authorities and the accounting and auditing problems that can arise with their use. We have many clients that use fmancing authorities in issuing debt. We have considerable experience with the blending"of fmancing authority funds with other City funds. Assistive Resources Our client support is unmatched by any other firm.As a San Francisco Bay Area municipal audit niche firm with six audit partners,we are positioned perfectly to provide staff,Council with a wide variety of resources. Support ranges from turn key fmancial statement drafts with linked footnotes and direct download- based fmancial statements to professional continuing education sessions. We are active in professional organizations affecting local government and have a strong presence in neighboring local governments which keeps our knowledge current that we readily share with our clients.And we do not charge extra for the five minute phone calls throughout the year. Client Training andProfessional Development We can provide you with varying levels oftraining and professional development resources. We provide our semi- annual continuing education to our staff and have on occasion opened it up to our clients who wish to keep their licensees current. We have also developed and conducted training specifically for our clients. Training can be general theory in nature,semi—customized or fully customized training that fits your operations.Theory intensity can be at the beginning, intermediate and advanced levels. On occasion, we have provided our clients with shorter presentations of new pronouncements and other requirements. At the City ofRichmond,for example,we developed and taught monthly training sessions on virtually every major finance area to its staff over a twelve month period. Much of their staff assumed new functions in the aftermath of serious staffing cuts several years ago and their Finance Director was seeking an economical method of enhancing their knowledge base and skill sets.At the City of Livermore,we provided customized training on capital assets to their fmance staff and grants management training to several departments as a means of solving coordination weaknesses. 12 FIRM QUALIFICATIONS AND EXPERIENCE(Continued) Books,Periodicals,News Letters,andProfessional Standards We provide our staff and our clients, ifthey wish, all of the resources they need to complete their work efficiently and effectively. Our resources include all AICPA Professional Standards, AICPA Audit and Accounting Guides, GASB statements, interpretations, implementation guides and concept statements, FASBs,ARBs,APBs,Generally Accepted Government Audit Standards(The"Yellow Book"), Single Audit Regulations and website links to OMB Circulars,the SF-Sac Data Collection Form and instructions,website links for CFDA numbers,the Code of Federal Regulations and publications of the Government Accountability Office. We also have GFOA documents such as CAFR Checklists, the Governmental Accounting, Auditing and Financial Reporting Guide (the"Blue Book"), the GAAFR Review, and ACWA and CRA newsletters. We maintain an up-to-date library of guidelines and other documents we use such as Redevelopment guidelines, cash and investment guidelines, and Transportation Development Act regulations and guidelines,Transportation Measures A,B and C guidelines and regulations. And, we attend conferences by CSMFO,CRA,ACWA,AIPCA and the Ca1CPA Education Foundation to keep ourselves current. Support Services We also provide a variety ofother services which you may need,including: Temporary Accounting Assistance - When we are not limited by independence regulations, we have provided additional accounting help in areas such as: D Construction in Progress Accounting D Capital Assets D Owner Participation Agreement/Disposition and D General Ledger Journal Entries Development Agreement Accounting D Forecasts and Projections D Debt recording D Grant Management D Account analysis and clean up Preparation of Controller's Reports and annual filings- We can prepare any of the following whether you are an audit client or not: State Controller's Reports for: D Annual Street Reports Cities Statements ofIndebtedness Redevelopment Agencies Information Returns Special Districts,or Transportation Planning Agencies Training and Continuing Education—Generic or customized to fit your needs! Governmental Accounting - Beginning, D Accounting for Receivables and Intermediate and Advanced Levels Revenues Grant Accounting and Management Accounts Payable and Purchasing Bank Reconciliations Capital Asset Accounting Management and Accounting D Debt Accounting and Management Cash and Investments D Information System Security and Microsoft training Operational Segment Audits such as: D Cash collection controls and procedures Police evidence room D Loans receivable management Cal-Card and Purchasing Card 13 FIRM QUALIFICATIONS AND EXPERIENCE(Continued) Project Length Audits such as Construction in Progress project audits and Joint Powers Authority member equity calculations. Lease/Franchise/TOT/Independent Operator Agreement Audits including rent recalculations, revenue controls,payroll/independent contractor compliance and more. Pre-award Operator/Contractor Analysis and Audits,such as Preaward audits of Engineering Firms funded by CALTRANS Independent Analysis of Proposed Airport Operators Independent Analysis for Prospective Fire Service Providers Information Systems Support customized to fit your needs: Information System Reviews and Audits Security and Microsoft Certified Training Network Vulnerability Scans Microsoft Small Business Specialist Security and Access Reviews Microsoft Professional Accountants Network ProfessionalActivity We are active members of the Government Finance Officers Association and the California Society of Municipal Finance Officers as well as the American Institute of Certified Public Accountants and the California Society of Certified Public Accountants. We are also members of the Association of California Water Agencies (ACWA), and the California Redevelopment Association(CRA). We are frequent speakers at various organizations; some of our pertinent presentations are listed below: In May 2009, Cory Biggs, our company CEO, was a speaker at the annual Governmental Accounting and Auditing Conference hosted by the Education Foundation of the California Society of Certified Public Accountants. This annual conference is held for CPAs for the purpose of keeping CPAs current on issues affecting Governmental Accounting and Auditing. At the conference, Cory presented "The Auditor's Perspective" on auditing municipalities on the verge of, or in bankruptcy. His presentation followed remarks made by the City of Vallejo Assistant Finance Director and the City's bankruptcy attorney.He has been requested to provide an update at this year's conference. Also in 2009, Cory spoke at the semi-annual conference of the California Municipal Treasurer's Association on Maintaining a Good Relationship with Your Auditor" in which he discussed techniques for treasury staff to use when working with auditors to achieve a meaningful, thorough audit process. This discussion included a heavy focus on cash and investment processes and procedures,compliance,financial reporting and disclosures. In August 2007, Cory presented Trust Fund Alternatives for Funding Retiree Health Care Benefits at a symposium sponsored by ABAG. In August 2006, Cory, made two presentations at a Symposium on the Implementation of GASB #45, sponsored by ABAG. One presentation was a summary of the Statement and its impacts on municipalities and the other presentation explored funding options and ramifications of the Statement. In February 2006, Cory presented "Cost Impacts from Implementing GASB 45, Accounting of Financial Reporting by Employers for Post-employment Benefits Other then Pensions", to the San Mateo Finance Officers Group. He was also a speaker at the 2005 CSMFO Annual Conference, on "How to Stay Out of Trouble" regarding identification ofadverse fiscal trends in local governments and appropriate responses. 14 FIRM QUALIFICATIONS AND EXPERIENCE(Continued) We attend CSMFO Northern California chapter meetings on a regular basis, and we have served as speakers on various occasions. We all attend the CSMFO Annual Conference,at which our Partners have been speakers. We have also attended the League ofCalifornia Cities'annual Financial Management Seminars. We also attend the Semi-Annual Conference of ACWA. Internal Quality Assurance System Every one of our audit and assurance engagements has an Engagement Partner responsible for the successful completion of the work as well as ensuring we maintain quality levels that satisfy professional standards. Our very high Partner to staff ratio of one to six is double that of traditional firms. We specifically structure our work for on-site Engagement Partner participation while the audit is being conducted. This structure is done by design to ensure we have active on the job oversight of staff and timely completion of the work. We have always subjected our audit and assurance engagements to a second Quality Assurance Review. Historically this was performed by a second partner. However, over the past several years audit quality controls standards have been revised and enhanced. Standards issued by the American Institute of Certified Public Accountants and General Accountability Office now form the guidance in determining adequate quality controls for audit firms. While not required by the Standards, we believed it would be better to have an independent second review of the work by someone without engagement responsibilities and to have that person report to the shareholders directly as a group rather than any one shareholder. In response to that, we hired Melita Law, a Certified Public Accountant, as our Quality Assurance Director. Melita had been a top performing Supervisor with our firm for over ten years before leaving us to move to Hong Kong in 2008. Because ofher many years of municipal auditing and accounting experience,she has been a perfect fit and provides a significant strengthening to our quality control. No Disciplinary Action We have no record of substandard or unsatisfactory performance,nor have any claims ever been filed with any State Board ofAccountancy against our firm or any of our employees. Federal or State FieldReviews We have not been subject to any Federal or State Field Reviews of our audits during the past three years,with two exceptions. During calendar 2008,the Department ofHousing and Urban Development(HUD)selected our firm for a quality assurance review of our housing authority audits. HUD selected four of the five housing authorities we audited in fiscal year 2006 and performed an extensive, thorough review of our reports, filings, workpapers, audit methodologies,and our quality assurance controls. Their team expended approximately forty hours on each audit to determine whether our firm complied with Generally Accepted Auditing Standards as well as Generally Accepted Government Auditing Standards. After HUD's extensive review, they identified only four findings. We carefully reviewed their fmdings, implemented a few minor changes and communicated these changes to HUD where upon they concluded that no further action was warranted. The State of California selected our largest financing authority audit for a field review covering three fiscal years. The State review team consisted ofthree individuals and their review lasted less than one week. The State had no findings. 15 FIRM QUALIFICATIONS AND EXPERIENCE(Continued) Litigation We have not been sued over poor work quality,nor have we paid any such claims out of court in the past five years. But we are proud to say we have been sued! This was an action by a third-party contractor who filed suit to prevent us from issuing a report critical oftheir operation and their method of determining the amount of revenue they should share with our client. This action was not settled out of court; but went to judgment. In that case the Superior Court of the State of California held in our favor and dismissed us from the proceedings without prejudice. In other words,the Court decided that our report should be issued without any change. In the words of our insurance representative,"You are the only accounting firm we know of that has been sued for doing their work RIGHT!" External Quality Control Review We are members ofthe Quality Review Program of the AICPA,which means we subject ourselves to a peer review of our workpapers and quality control systems every three years by independent accountants specializing in such work. Our most recent peer review was completed in 2011 and we are waiting on the acceptance letter from the AICPA Peer Review program. In 2008 we received an unqualified opinion,the highest level of assurance possible.This peer review included a review of four governmental and non-profit audit engagements. A copy ofour 2008 peer review opinion is located at the end ofthis section. 16 Aec.44r tAine c!CERTIFIED PUBLIC ACCOUNTANTS 16360 Monterey Rd.,Suite 170 4040 Moorpark Ave.,Suite 230 Morgan Hill,CA 95037 San Jose.,Ca 95117 Tel:(408)779-3313 Tel:(408)557-9890 Fax:(408)776-1555 Fax:(408)557-9893 October 7,2008 To the Shareholders Maze&Associates Accountancy Corporation Pleasant Hill,California We have reviewed the system of quality control for the accounting and auditing practice of Maze &Associates Accountancy Corporation (the firm) in effect for the year ended May 31, 2008. A system of quality control encompasses the firm's organizational structure, the policies adopted and procedures established to provide it with reasonable assurance ofconfonning with professional standards. The elements ofquality control are described in the Statements on Quality Control Standards issued by the American Institute of Certified Public Accountants(AICPA). The firm is responsible for designing a system of quality control and complying with it to provide the firm reasonable assurance of conforming with professional standards in all material respects. Our responsibility is to express an opinion on the design of the system ofquality control and the firm's compliance with its system of quality control based on our review. Our review was conducted in accordance with standard; established by the Peer Review Board of the AICPA. During our review, we read required representations from the firm, interviewed firm personnel and obtained an understanding of the nature of the firm's accounting and auditing practice, and the design of the fm's system of quality control sufficient to assess the risks implicit in its practice. Based on our assessments, we selected engagements and administrative files to test for conformity with professional standards and compliance with the firm's system of quality control. The engagements selected represented a reasonable cross-section of the firm's accounting and auditing practice with emphasis on higher-risk engagements. The engagements selected included, among others, engagements performed under Government Auditing Standards. Prior to concluding the review,we reassessed the adequacy of the scope of the peer review procedures and met with firm management to discuss the results of our review. We believe the procedures we performed provide a reasonable basis for our opinion. In performing our review,we obtained an understanding of the system of quality control for the firm's accounting and auditing practice. In addition,we tested compliance with the firm's quality control policies and procedures to the • extent we considered appropriate. These tests covered the application of the firm's policies and procedures on selected engagements. Our review was based on selected tests therefore it would not necessarily detect all weaknesses in the system ofquality control or all instances ofnoncompliance with it. There are inherent limitations in the effectiveness of any system of quality control and therefore noncompliance with the system ofquality control may occur and not be detected. Projection of any evaluation of a system of quality control to future periods is subject to the risk that the system of quality control may become inadequate because of changes in conditions, or because the degree ofcompliance with the policies or procedures may deteriorate. In our opinion, the system of quality control for the accounting and auditing practice of Maze & Associates Accountancy Corporation in effect for the year ended May 31,2008,has been designed to meet the requirements of the quality control standards for an accounting and auditing practice established by the AICPA and was complied with during the year then ended to provide the firm with reasonable assurance of conforming with professional standards. As is customary in a system review,we have issued a letter under this date that sets forth comments that were not considered to be of sufficient significance to affect the opinion expressed in this report. A74,14. 4, 0 Nichols,Rick&Company www.nichalsrick.com 17 PARTNER,SUPERVISORY AND STAFF QUALIFICATIONS AND EXPERIENCE Audit Team We are proposing to assign Mark Wong as Engagement Partner, Cory Biggs as Alternate Partner and Grace Zhang as Supervisor to your audit. We will also have Donald Hester, our Information Technology Director, perform a review of your information system as it relates to our work and our Quality Assurance Director, Melita Law,perform a Quality Assurance Review ofall our reports and workpapers. We understand that engagement partners, managers, directors and other supervisory staff may be changed only with the express written permission of the City. We will balance out our resources with our Senior Associates and Associates to form fully leveraged teams. All of our audit staff are experienced with Comprehensive Annual Financial Reports,Redevelopment Agencies and related compliance, large enterprise operations,retirement plans, Single Audits, capital assets and infrastructure, long term debt, including swaps and related compliance and continuing disclosures, and all other aspects of municipal accounting and financial reporting. Brief resumes of our proposed team members follow: MARK WONG, Engagement Partner—Mark graduated from Golden Gate University with an M.BA. in Accounting and is a California CPA. He is a member of the AICPA and California Society of CPA's. Mark has received two hundred and forty hours of continuing professional education in the past three years as an in-house instructor and participant. He has gained valuable experience on the audits ofthe following: Alameda County Transportation Improvement Authority City of Millbrae Alameda County Transportation Authority Northcoast County Water District Alameda Reuse and Redevelopment Authority City of Pacific Grove City of Alameda City of Piedmont Alameda Power and Telecom City of Pinole City of Albany City of Pleasant Hill City of Atherton Town ofPortola Valley City of Belmont City of San Carlos Coastside County Water District Santa Clara Valley Water District Contra Costa Transportation Authority City of Sausalito City of Cupertino St.Vincent de Paul Society City of Daly City City of South Lake Tahoe East Bay Municipal Utility District City of South San Francisco City of Emeryville City of Suisun City City of Half Moon Bay City of Sunnyvale City of Hayward City ofVallejo Town of Hillsborough City ofVisalia Housing Authority ofthe City ofRichmond Town of Woodside City of Larkspur Youth Law Center,Inc. 18 PARTNER,SUPERVISORY AND STAFF QUALIFICATIONS AND EXPERIENCE (Continued) CORY BIGGS, CEO & Alternate Partner — Cory is a graduate of CSU Hayward with a B.S. in Business, emphasis in Accounting. He is a California CPA with over twenty nine years experience, three with Deloitte, Haskins& Sells,three with Seiler&Company,a large Bay Area local firm, and the rest with us. He is a member of the AICPA and California Society of CPA's. Cory's experience includes cities, school districts, and a variety of high-tech and commercial for-profit organizations. He is a CAFR reviewer for the GFOA and was a member ofthe Professional and Technical Standards Committee which summarizes and makes the final determination for CSMFO awards for Cities. Cory is an instructor of our(IASB 45 and GASB 34 Implementation and many other training courses. Cory has accumulated three hundred twenty hours of continuing education in the past three years as an in-house instructor and participant. His relevant municipal experience includes: City of Alameda Livermore AmadorNalley Transit Authority City of American Canyon City of Los Altos Association ofBay Area Governments Town of Los Altos Hills Town ofAtherton Town ofLos Gatos City of Belmont City of Manteca Belmont San Carlos Fire Department City of Martinez Belmont Net Six Joint Powers Authority City of Millbrae Belmont South San Mateo Police Authority City of Milpitas City of Capitola City of Modesto Coastside County Water District City of Mountain View City of Concord City of Napa Contra Costa County Bond Funds City of Palo Alto Contra Costa Transportation Authority Placer County Water Agency City ofCupertino City of Pleasant Hill City of Daly City Town ofPortola Valley City ofDublin Richmond Housing Authority Dublin San Ramon Services District San Francisco Bay Area Water Emergency Transit Authority East Bay Municipal Utility District San Francisco Bay Transit Water Emergency Authority City ofEl Cerrito City of San Carlos El Dorado Irrigation District Santa Clara Valley Water District City of Emeryville San Ramon Valley Fire Protection District City of Hayward City of Saratoga Town of Hillsborough City of South Lake Tahoe City of Livermore South Lake Tahoe Basin Waste Management Authority Livermore-Amador Valley Transit Authority City of South San Francisco Livermore Area Recreation and Park District City of San Rafael City of Vallejo GRACE ZHANG,Supervisor-Grace graduated from Assumption University in Bangkok,Thailand,with a BBA in Finance and received her MBA in Finance from Case Western Reserve University, Ohio, in 2001. She has received over 500 hours of continuing education since joining Maze & Associates in 2005. Grace has been a certified public accountant since 2006, and audit supervisor since 2007 and is a member of the AICPA and California Society of CPA's. Grace has participated in the following audits: City ofCampbell City ofNewark Contra Costa Water District City ofPalo Alto City ofCupertino City ofPiedmont 19 PARTNER,SUPERVISORY AND STAFF QUALIFICATIONS AND EXPERIENCE(Continued) Grace Zhang(Continued) City of Daly City City of Richmond City of East Palo Alto Richmond Housing Authority City of Hayward City of San Carlos City of Livermore City of Sausalito Livermore Amador Valley Transportation Authority Silicon Valley Animal Control Authority City of Martinez City of South Lake Tahoe City of Milpitas City of South San Francisco City of Mountain View West Bay Sanitary District City of Sunnyvale Town of Woodside MELITA LAW, Quality Assurance Director-Melita graduated from St.Mary's College with a Bachelors of Arts Degree in Business Administration with an emphasis in Accounting and a Minor in Economics. Prior to joining Maze&Associates Melita tutored accounting students. Melita is a Certified Public Accountant and was with our firm for over 10 years as an auditor working exclusively on municipal auditing and accounting where she earned several promotions. Melita was an audit Supervisor for over five years before leaving us to move to Hong Kong in 2008.In 2009, after a one year hiatus, Melita rejoined our firm as our Quality Assurance Director. Because of her many years auditing municipalities, she has been a perfect fit and provides significant strengthening to our Internal Quality Control System. Melita attends our semi-annual continuing education sessions and is in the process of changing her license to active status.During her time as an auditor,Melita participated in the following audits: Alameda Power&Telecom City ofMonterey Alameda Reuse and Redevelopment Authority City of Mountain View City ofBelmont City of Napa City ofBenicia City of Palo Alto City of Campbell City of Pleasant Hill City ofConcord RHA Properties City ofDaly City Richmond Housing Authority(RHA) City ofDavis City of Roseville Dublin-San Ramon Services District Saint Vincent De Paul East Bay Municipal Utility District City of San Carlos East Bay Regional Park District City of San Pablo City ofEmeryville City of Saratoga City ofHayward City of South Lake Tahoe City ofLivermore City of South San Francisco Town of Los Altos Hills Stanislaus Waste-to Energy City of Manteca Union Sanitary District City ofMillbrae City ofVallejo City ofMilpitas West Contra Costa Transportation Advisory Committee City of Woodland 20 PARTNER,SUPERVISORY AND STAFF QUALIFICATIONS AND EXPERIENCE(Continued) DONALD E. HESTER, Director-Donald's clients include local municipalities, non-profits, corporations and federal government agencies, specializing in a wide array of compliance programs and security assessments such as PCI, FISMA, COBIT, ITIL and IS027002. He is a guest lecturer and speaker on security topics for CMTA, CSMFO, MISAC, CISOA,ISACA and others and he has served on various advisory committees and as a subject matter expert in information technology and security. Donald also teaches IT Audit and Forensics at the University of San Francisco and Microsoft courses for Los Positas College, San Diego City College and for the @One program of the California State Chancellor's office. Donald graduated with honors from the American Military University with a Bachelor's Degree in Security Management with a concentration in Information Security. He has nearly 20 years of experience in the security field. Donald has been with us for ten years now and has received more than 320 hours of continuing education in the past three years and has over 900 hours of instructional work. His certifications include; CISSP, CISA, CAP, MCT, MCITP, MCTS, MCSE Security, MCSA Security,MCDST,Security+and CTT+. Donald is also a Chairman and past Treasurer for the Brentwood Veterans Memorial Building and Commandant and past Treasurer for the Delta Diablo Det. 1155 Marine Corps League. Staff Training We believe the level oftraining we provide is unmatched by any other accounting firm. Our audit staff receives an average of 80 hours of continuing education annually, including an average of over 48 hours of municipal audit and accounting training.These are twice the amount required by professional standards. Our program places heavy emphasis on governmental accounting and auditing classes conducted by our own staff, supplemented by courses offered by the California. Society of Certified Public Accountants, the American Institute of Certified Public Accountants,the Government Finance Officers Association,the California Municipal Finance Officers Organization and the Association of California Water Agencies. We accomplish this task by reserving a solid week in January or February and another week in July solely for staff training. Our training is very specific and very participatory; lectures are almost non-existent as people are involved in a continual give-and-take format designed to educate while it helps us improve our services. We deal with specific clients and situations, we solve problems and do case studies, and we train people for real-life situations through role-play exercises. Everyone is equal in these exercises and everyone contributes their own experience in the field and the ideas they have formulated from that experience. Suggestions coming out of staff training sessions are the source of most of the service improvements and refinements we make each year. 21 PARTNER,SUPERVISORY AND STAFF QUALIFICATIONS AND EXPERIENCE(Continued) A listing of our continuing education courses provided to all our staA both certified on non-certified, over the past three years is as follows: 2009 2010 2011 Spring Summe Spring Summer Spring Area/Course 40 Hrs. 40 Hn. 40 Hrs. 40 Hrs. 40 Hrs. Munici,al Audit-Practice Ana is and Review atllIlMLIIIjllIlMjllrttjllWjll Maim in MuMei,al Audits-Audit Su •rvisors 1111U114 IIMAI tEir.1111111111111111111.1111111111111111111latall Quality Control GAAP 11 ates Cash,Deb and Ca.Its!Asset Auditin. U dates KMMilli 'Km§atm Accounting GASB/FASB U ate MIK WM GASB 34-Capital Assets and Deferred Revenue Journal Entry Testing M11111111111111111111211111111111111111111111 Com lance Audits Tram ortation Audits-TDA,STIP and Measures A.13,C EMI RDA Coin fiance 111111111U11[ IIImemims sin 4e Audit Corn Hance EMI Ilousin Authority-Audits and REAC Submissions Milli 111111111 Prop 18 Testing 11111111111111111111 Audit Standards U ate New SASs,Risk Assessment and lull cis on A .roach IM3111! I1111111111111E11111 sessin:internal Control Risks/Sam le Sizes 1111Willi! 1111M11111Ea. El min our Audit A. roach IllI SAS 112/11S/Memorandum on Internal Control Workshop 111U1101 Corn.hianceAudiths 'AS 11 MIIIIIIIIIMILL1111111111111111 Yellow Book U•date MillMil IT/Pa ksokIther Team Buildin :Buildin and Mannikin Effective and Successful Teams ILNIM CCH Pa•edam Audit Software/Trial Balance Function WM' tiKijaillKjllg 11111U111 IT Information Systems Review Updates IIMJ11111 Professional Liabili Insurer Loss Prevention Seminar 22 PARTNER,SUPERVISORY AND STAFF QUALIFICATIONS AND EXPERIENCE(Continued) Qualifications and Continuity Our people accumulate over 1500 hours of purely municipal audit and accounting experience annually,far more than in any general service accounting firm. And we keep the same people on the job,normally for at least three years. We provide our clients continuity while introducing enough new people to keep our perspective fresh and provide you with the benefits of rotation. We intend to retain all the people assigned to your audit throughout this year's entire engagement. In future years we plan to rotate no more than one person on each segment whom we will replace with someone of equal experience. We do everything we can to ensure continuity because it helps you, it helps our staff and it helps us. We schedule the entire year in advance to avoid conflicts, and we give priority to clients who are able to accurately predict the date their books will be closed, so that the staff on their audit will not be affected if another client's closing or audit is delayed. We attempt to match personalities as well as skills and abilities so that our staff and yours will get along well. SIMILAR ENGAGEMENTS WITH OTHER GOVERNMENT ENTITIES City Client List Please see the listing of all ofour city clients on page 7. References City ofEast Palo Alto–A client since 2009 Engagement Partner–Mark Wong Principal contact-Stephanie Osaze,Finance Director(650)853-3115 Workscope and reports: Comprehensive Annual Financial Report Redevelopment Agency Report Single Audit Act Reports Gann Limit Agreed Upon Procedures Report Measure C Parcel Tax Report Measure A Funds Report Employee Deferred Compensation Plan Annual Report ofFinancial Transactions for the City Annual Report ofFinancial Transactions for the RDA City ofSunnyvale–A client since 2008 Principal contact—Grace Leung,Finance Director(408)'730-7501 Engagement Partner–Mark Wong Workscope and reports: Comprehensive Annual Financial Report Redevelopment Agency Report Sunnyvale Materials Recovery and Transfer(SMaRT)Station Federal Equitable Sharing Program Santa Clara Valley Urban Runoff Pollution Prevention Program Single Audit Report Transportation Development Audit Proposition 111 Agreed Upon Procedures Opinion Memorandum on Internal Control 23 SIMILAR ENGAGEMENTS WITH OTHER GOVERNMENT ENTITIES(Continued) Town ofWoodside-A client since 1997 Engagement Partner–Mark Wong Principal contact—Susan George,Town Manager 650-851-6790 Workscope and reports: General Purpose Financial Statements Transportation Development Act Reports Proposition 111 Agreed Upon Procedures Opinion Recommendations for Improvements in Internal Control County Measure A Compliance Report Public Improvement Corporation Financial Statements Financing Joint Powers Authority Financial Statements City ofBelmont-A client since 1998 Principal contact-Thomas Fil,Finance Director(650)595-7433 Engagement Partner-Cory Biggs Workscope and reports: Comprehensive Annual Financial Report(Consistent GFOA and CSMFO award winner) Memorandum on Internal Control Redevelopment Agency Audit and Compliance Reports Single Audit Act Report Gann Limit Agreed Upon Procedures Report Transportation Development Act Audit Report South County Fire Authority Financial Statements Net Six Financial Statements South San Mateo Police JPA Financial Statements Ralston/Holly/Harbor Projects Financial Statements Annual Street Report Annual Report ofFinancial Transactions for the City City ofMountain View-A client since 2001 Engagement Partner–Cory Biggs Principal contact–Patty J.Kong,Assistant Finance and Administrative Services Director,(650)903-6006 Workscope and Reports: Audits: Comprehensive Annual Financial Report Revitalization Authority including Redevelopment Compliance Report Shoreline Regional Park Community Basic Component Unit Financial Statements Single Audit Act Report Transportation Development Act including Compliance Report Memorandum on Internal Controls Agreed Upon Procedures GANN Gatekeeper Program(tests of costs charged to development fees) GolfCourse Secret Shopper and Revenue Procures Lessee Revenue and Control Procedures(Michaels) Lessee Revenue and Control Procedures(Silicon Shores) Lessee Revenue and Control Procedures(Livenation) 24 SPECIFIC AUDIT APPROACH AND CITY STAFF HOURS Specific AuditApproach Our audit strategy is designed specifically for municipalities. We perform half our audit well before year-end so we can identify problems early. Our strategy maximizes our efficiency and lessens the load on our clients. When engaged to prepare the fmancial statements, we prepare proformas of them for your review, well before year-end and we give you detailed checklists of all the items we will need from you months in advance. We have integrated GASB 34 requirements into our strategy so that there is a seamless transition to the entity-wide statements. We will plan the audit in detail and prepare an Audit Plan which details the information we will need from you to complete our interim and year-end audits, along with the person responsible for preparing it and the date they will have it ready. We tailor it to refer directly to the schedules you already prepare. We do not require special reports or reconciliations just for our audit. We have found that coordinating our team and our client's staff works very well because it helps minimize the impact on your staff at year end. This way the Audit Plan includes most data we need from you so you and your staff can plan and schedule your work accordingly. The City knows from prior experience with our firm,that we excel at minimizing our impact on City staff. Please see an estimate of the number of"additional"City staffhours(Exhibit C)required to assist the auditors in the table at the end of this section. Specific Audit Strategy—Interim Unlike older-style firms,we perform most of our important work at interim,well before the end of the fiscal year. We use our interim work to identify and solve problems and plan the year-end closing and audit in detail. Well before we begin our interim work we'll send you a list of the items we need, so you will have time to prepare. We forecast many year-end amounts at interim, so that we can limit the amount of work required at year-end and concentrate instead on areas of concern. For example,we normally perform all our cash and investment testing at interim, including sending confirmation letters to depositories and determining financial statement categorizations. Performing these last two steps at interim allows plenty oftime to follow up on confirmations or resolve questions about the proper categorization of an investment without delaying the audit. As another example,we test long-term debt at interim and forecast year-end balances and transactions for each debt issue. We use remote inquiry as much as possible at interim, in order to increase our efficiency and reduce our impact on your staff. We can download Council Minutes and other documents from your Website for review, and have the ability to select transactions for test and analyze accounts using remote inquiry and read-only features of your system. Combining these abilities with our checklists has allowed us to perform larger portions of the audit in our own offices and reduce our questions to writing so that you have more time to deal with them. Laws,Regulations and Compliance Our audits are designed to ensure that we test transactions for compliance with the Single Audit Act and other applicable laws and regulations, including the California Government Code, provisions of applicable Grant guidelines, California Constitution Gann Limit requirements, requirements of local measures, Transportation Development Act requirements, etc. We identify applicable laws and regulations as part of our audit planning each year. The California Government Code has many provisions and underlying regulations relating to investments and the investment policy, all of which are tested as part of cur audit of cash and investments. That Code and the underlying regulations also form the basis of our compliance audit tests of Redevelopment Agencies, Child Development Programs,debt and other areas. 25 SPECIFIC AUDIT APPROACH AND CITY STAFF HOURS(Continued) To the extent possible, we also begin our tests of compliance with laws and regulations at interim, including use ofthe Guidelines for Compliance Audits of California Redevelopment Agencies, Transportation Development Act regulations,OMB Circular A-133 and the Compliance Supplement and any other applicable compliance guidelines. Even ifthe work cannot begin until year-end we determine the applicable laws and regulations for our compliance testing so that we may incorporate the necessary information in our year-end closing checklist. Our audit samples for purposes of compliance vary based on the grant or compliance guidelines and are program-specific.The samples are stratified to ensure we test transactions that are representative ofthe costs charged to grants. Specific Audit Strategy—Year End At year-end we do not repeat any of the work we performed at interim. Instead, we focus on the items in your Audit Plan and on the Basic Financial Statements. Our year-end audit field-work actually starts in our office, so that when we do arrive in your offices we are fully prepared and we minimize our impact on your operations. In our offices, we cross-reference or reconcile your Audit Plan information, reports and schedules. The Engagement Partner performs our detailed Analytical Review and emails our questions to you in advance of our arrival in your offices. Our experience is that this Analytical Review identifies any issues remaining after our interim work, as well as most potential audit adjustments. This gives all of us time to address these items in person while the audit field-work is proceeding,instead of by telephone,fax and e-mail afterward. When we start work in your offices, we will need you to complete your responses to the Analytical Review, but we will not need much ofyour time and we will not ask for more schedules or reports. Our Engagement Partner will meet with you on the first day of the year-end audit to review the draft financial statements with you and to discuss any remaining unanswered Analytical Review questions. This meeting sets the stage for the year-end audit;by this time the format and content of the financial statements is pretty well set and most audit adjustments have been identified. If we fmd any material adjustments, we will discuss them with you immediately and provide you with the journal entries required;we do not propose adjustments that are not material. At the conclusion of our year-end field-work, our Partners and Senior Supervisors will review the fmal financial statement drafts with you and your staff as part of our exit conference. The following week, our Quality Assurance Director will perform a"quality assurance review"of the financial statements and workpapers so that we will be ready to sign the financial statements as soon as the City approves them. We designed this strategy specifically to fit cities and the complications introduced by GASB 34. It requires our Partners to be fully and actively involved in the planning and performance of the work and it allows us to issue final fmancial statements and reports immediately after we finish our field-work in your offices. You will find our strategy allows you to control the audit process, enables you to spread the work over the year as you wish and greatly reduces the pressure at year end. Audit IT Systems,Security and Going Green Hand-in-hand with our continuing investment in our people has been our increased investment in systems and hardware support. Eight years ago our systems work was handled by an outside consultant Today,we have a full- time staff ofthree people who maintain our state-of-the-art systems capabilities and provide increasing levels ofsuch service to our clients. Every person on our staff is provided with a Windows XP/VISTA operating system PC networked with other audit team PCs and a printer via our own wireless LAN establish at the start of each audit in our client's office. In 2008, we completely eliminated hardcopy workpapers by converting to ProSystems fx Engagement paperless audit software published by Commerce Clearing House. We use Word 2003 as our word processor and Excel 2003 for preparation of fmancial statements and schedules and Outlook 2003 for personal information management. 26 SPECIFIC AUDIT APPROACH AND CITY STAFF HOURS(Continued) Because of our shift from hardcopy documentation to so:ftcopy and our obligation under professional standards to maintain confidentiality of client data,we instituted state-of-the-art security protections to ensure client data remains confidential and secure. For example, many CPAs use email as a method of communicating financial data to and from clients. But emails are not secure communications! We therefore employ a secure data file transfer system called "LeapFile" under which we exchange data files with our clients using a secure website. This keeps data confidential and has the added benefit ofpermitting downloads of large excel files or Microsoft Office files that may be erroneously rejected by some email scanning software. In the event one of our staff works out of town or telecommutes, they access data via our virtual private network. Our VPN, LANs, and audit software are password protected and encrypted to ensure your data remains confidential and secure. We will also use some type of connection to the internet during our audit, but coordinate it with our client's IT Staff to ensure there are no breaches in security or protocols. Turn-Key FinancialStatement Drafts We have moved most of our clients from a manual input of their general ledger data to a fully mechanized computer download of data directly into our Excel-based financial statement formats. At the same time,we have added significant numbers of internal data controls to financial statement formats. This strategy has virtually eliminated input errors,increased efficiency,and allowed our clients to spend less time reviewing and approving the fmancial statements. Not only do our templates produce fund-basis fmancial statements, they produce the entity- wide fmancial statements and accumulate the data required to calculate Major Funds, produce a complete reconciliation between fund basis and City-wide formats, and produce ancillary reconciliations and supporting schedules,all for your files. We also employ Excel file linking to use the power of Excel for tables of data included in footnote disclosures. This active linking ensures tables consistently foot, crossfoot and tie to general ledger balances without your staff having to manually re-total and recheck each and every number on each and every draft. This also saves your stafftime. Auditing Large and Complex EDP Systems Our approach to auditing EDP systems encompasses information system reviews,system controls and transaction cycle processing,verification and data extraction. Information System Review Information System Security became an important part of fmancial statement audits and we have performed an Information Systems Review(ISR)with every audit since 2001. Unlike our competitors,we extend our review to not only encompass the fmancial system, but also the network environment that houses that system. From our perspective,the internal controls that are present in the overall network environment are critical to understanding the internal controls over the fmancial system. Unlike financial statements, there are currently no authoritative standards that local governments must employ to ensure that adequate and appropriate IT controls are designed and implemented. We extensively researched this area and concluded it was most appropriate to base our ISR on the certification and accreditation framework developed by the National Institute of Standards and Technology(NIST)for the Federal Information Security Management Act(FISMA)which is the minimum security required for federal government agencies information systems. NIST recommends states, local governments and Indian tribes comply with these standards as well. Our reviews include procedures to determine that your systems are adequately protected from unauthorized internal access, provide for reasonable measures to ensure continuation of service, provide for security of data from physical or network access and have internet access defenses including hacker prevention,detection and deterrent systems. 27 SPECIFIC AUDIT APPROACH AND CITY STAFF HOURS(Continued) Our information systems reviews are performed by qualified information security professionals who hold at least the Information Systems Audit and Control Association's (ISACA) Certified Information Systems Auditor (CISA) or the (ISC)2's Certified Information Systems Security Professional (CISSP). Both certifications require continuing professional education. As a value added service we will provide the City with a matrix of the City's maturity as compared with NIST's certification and accreditation framework. Each internal control taken from NIST SP 800-53Rev1 is ranked in this maturity matrix and an average score is provided to the City to give the City a benchmark. System Controls and Transaction Cycle Processing Verification With any data processing system upon which we intend to rely as a means of reducing substantive testing, we perform a variety of tests to verify the accuracy of transaction processing, the reliability of system control points and authorization controls,appropriateness of profile structures including Super-user rights access,and automated functionality such as sub-ledger integration and autojournal entry validity and set up controls. Gaining an understanding ofthe design of relevant procedures,controls and authorization levels is integrated with our risk assessment procedures discussed below under the Client Tailored Risk Assessment section. As part of our risk assessment process we identify those transaction cycles we intend to rely on. Both processing procedures and controls that are to be relied on are tested with our audits. Transaction cycle processing and control tests typically involve sampling techniques. Most of our transaction samples are selected and tested during the interim portion of our work. Each sample will run from thirty to fifty transactions in size. We use interval and judgment sampling techniques with a high degree of stratification. Most municipalities operate more that one major revenue system. Therefore, we typically determine which revenue transactions are processed with common procedures and controls and deem that to be a single population and subject it to a single sample. Other revenue cycles processed with separate controls are tested with their own samples.For example, it is common for separate samples to be selected for governmental receipts and each major enterprise fund. Transaction cycles we sample are dependant on materiality to each client's financial statements but typically include, payroll, disbursements, receipts, loans receivable, investments and budget transactions and in accordance with the requirements of Statement of Auditing Standards #99 we also sample journal entries. Samples from each grant audit or major federal award program are also made. Samples are triple purpose samples and we test for correct recording, compliance with applicable policy or regulation and key control attributes-both manual and automated. This includes verification of sub-ledger integration and autojournal entry validity, if needed. Profiles,Access and Setup Controls Despite advances in information technology automation and system control features,classic segregation of duties concepts remain a mainstay for providing adequate internal controls. What has changed, however is the necessity to determine system profile structures and actual system access. We inquire how our clients establish and maintain system profiles for relevant staff with the objective of determining whether controls are in place to provide for adequate segregation of duties and to determine if system profiles are appropriate based on the individual's duties. We also determine how our clients monitor access and we test access through reviews of access logs,observation and in some extreme cases,with fully observed access attempts. We will also inquire about procedures and controls used to ensure only those system functions and controls assigned to an employee are in fact setup in system profiles. Considerations include Super User Rights, system profile set up, and system authorization functionality such as transaction initiation, review and approval, automated entry setup and posting. Work typically involves inquiry of staff with Super-User Rights and determining how the organization provides a check and balance against the possibility that one person with Super- User Rights can intentionally or inadvertently assign unauthorized access. We often review access logs and examine approvals of profile changes and review authorization levels. 28 SPECIFIC AUDIT APPROACH AND CITY STAFF HOURS(Continued) Data Extraction We employ rather simple data extraction techniques these days since most modern systems provide easy download capabilities to text or Excel files. We have been utilizing data extraction for over ten years. We first began data extraction as a means of downloading data from our clients financial systems for upload directly into the financial statements. Then we expanded this to include transaction details,account information and other data contained in our clients systems that we needed for audit. Our Chief Operations Officer,Chris Hunt,oversees our data extraction needs and has successfully worked with all of our clients and their systems to achieve data extractions for our use. We are extremely adept at converting from text,delimited and fixed width files, and with every system used by clients. Assessing Risks—Interim Phase Beginning with fiscal 2007-2008 audits, a new set of Statements of Auditing Standards became effective and required that most auditors change the way they audit. Much of this new guidance came out of the aftermath of highly publicized audit failures such as Enron, Global Crossings and the like. The Statements make it clear that a generalized one-size-fits all audit approach will not be permitted. An audit must be based on a unique audit strategy customized to fit each client and its industry. The primary objective of these Standards is to require the auditor's application of an audit risk model. The concept is that a set offmancial statements should be evaluated for the underlying risks of material misstatement. Then, a customized audit should be tailored to test for misstatements and verify that controls are designed and in place to prevent and detect misstatements. We have consistently employed a risk based concept from our firm's inception in 1986. Our audit checklists and programs were originated by reference to Audits of Local Governments published by the Practioners' Publishing Company (PPC), a third party vendor specializing in producing audit guides for unique industries. But, we have not simply used their guide as our approach. We have customized it further for the simple reason that California municipalities have many unique risks not faced by municipalities in other states. As you know, California state law and applicable regulations cover a wide variety of areas such as cash and investment management, redevelopment compliance, transportation development act programs, and child development programs. Indeed, even revenues of California municipalities are unusual and complex such as the Triple Flip and Proposition 1A securitization. Our primary objective in an audit of each client's financial statements is to opine on whether the financial statements, including disclosures, are free of material misstatement. Our opinion must be based on sufficient, appropriate audit evidence that we obtain and this evidence must be documented. To achieve this objective, we further refine our approach to be responsive to each individual audit. We may reduce the scope of our substantive audit tests provided we conclude there are effective specific controls in place which would detect and correct misstatements due to errors or fraud. Fraud Considerations Beginning with our 2004 audits,we employed additional audit steps required by Statement of Auditing Standards 99,Consideration ofFraud in a Financial Statement Audit. SAS#99 requires auditors to consider risk areas that may be susceptible to fraud and to then modify their audit strategy. We have been employing a variation of the SAS #99 concept since the early 1990's. For example, for many of our recurring clients, we visited all of their cash collection sites. We performed cash counts and reviewed cash handling practices and procedures, including security measures employed to limit access to cash. This and our planning meetings with our clients staff have resulted in the inclusion of a variety of special emphasis areas in our audits. We combine our fraud consideration brain storming sessions with our over all risk assessment process discussed below. 29 SPECIFIC AUDIT APPROACH AND CITY STAFF HOURS(Continued) Client Tailored Risk Assessment Our strategy to assessing risk begins with a brainstorming session of our audit team where they review your prior year financial statements and operations to identify areas of major audit risk. We also incorporate our consideration of other factors such as the risk of fraud, the economy, regulatory complexities or changes, credit market conditions and others into our initial assessment. We may also compare unusual transactions and estimates to those used by other municipalities or to current trends and issues. Since we are a niche firm specializing in California municipalities this is relatively easy. For example, certain development agreements are unique to redevelopment agencies. These agreements usually contain complex financial transactions and legal restrictions. With so much experience in this area we can quickly design an efficient response to these risks. Major audit risks are further evaluated through consideration of relevant assertions to determine inherent risk due to error or fraud. For example, cash on hand has a relative higher inherent risk of loss due to theft than an infrastructure asset.High and medium inherent risk audit areas are further evaluated to determine relevant internal controls needed to prevent,detect and correct errors or fraud. We start our evaluation of your internal controls by interviewing staff and meeting with Department heads as needed. We review policies and procedure manuals and other documentation to determine the design of procedures and controls. As part of our evaluations we document narrative memoranda outlining the duties of each pertinent person as well as our GRID evaluation of the important nexus control points. The GRID is our own design; it is a two-axis chart we use to identify potential conflicts of duties in your controls.We enhance our evaluation by reviewing system profile reports, paying special attention to super-user rights. This data is then used to determine the presence or absence of compensating controls designed to mitigate conflicts of duties vested in a single individual. We then test to verify that procedures and controls are operating effectively such that they reduce the risk that errors or fraud could occur and go undetected and uncorrected. We use a variety of techniques to verify controls are effective including: sampling, observation, documentation of reviews, examining system access reports and comparisons with other data. After this has been completed, we assess the risk of material misstatement which is determined by the relative inherent risk ofan area and the associated control risk to plan our substantive tests. That is,the risk that controls are not in place or are not operating effectively. Areas with a low risk of material misstatement assessment may receive limited substantive procedures while those with a high risk of material misstatement will receive significant substantive procedures. We then design our final phase audit plan to ensure we obtain sufficient appropriate evidence about the financial statements and disclosures. Specific audit procedures are developed and documented in our audit programs and we develop potential internal control points for further evaluation as to significance and communicate those to staff. Client Participation in the Risk Assessment Process Of course, any risk assessment process is incomplete without our clients' active participation. We hold meetings with senior fmance staff and internal auditors to discuss their views and assessments of risks affecting the financial statements. Our inquiries are backed up by reviews of the annual budget, mid-year budget revisions, internal audit reports, grantor performance and monitoring correspondence and any other pertinent data we deem relevant. 30 SPECIFIC AUDIT APPROACH AND CITY STAFF HOURS(Continued) We must also establish two-way communication with the Council or Audit Committee which we typically accomplish by meeting to discuss the audit process and timing, management representations and fraud considerations. For those organizations without an Audit Committee, we typically attend a Council meeting or meet with representatives of the Council. Assessing Risks-Final Phase Although the majority of our evaluations and testing of internal controls is completed with our interim testing, it is during the fmal phase that actual year end balances, transactions and disclosures are known and our substantive procedures are employed. These procedures and data often reveal unusual or unexpected results that must be considered in the risk assessment process. Risk assessment processes are iterative and cumulative. That is, we must continually re-evaluate our assessments based on information and procedures gathered. It is not uncommon for an initial assessment and the corresponding substantive audit work to be restructured as a result of new data. Indeed it is the intent of current audit standards that the audit be responsive to risks. Our substantive procedures are selected to be responsive to the assessed risk and relevant assertion and typically involve analytical procedures, third-party confirmation, estimation techniques, mini-max tests, trend analyses, recomputations, corroboration with other tests, tests in total, sampling and comparisons to data gathered in other municipal audits. Risk assessment procedures would be incomplete without an evaluation of the adequacy of our evidence obtained including internal control tests, any significant deficiencies or material weaknesses and substantive test results. These factors are considered prior to the release of our opinion in a final re-assessment process that includes our quality assurance review. Ability to Provide Services on a Short Notice We are always ready to provide our clients with the services they need. Depending on the amount of work involved we can adjust our calendar to accommodate smaller projects at any time. Larger projects can be problematic during our peak busy season which lasts from mid-September through December. During those months, our approach to providing services on a short notice is predicated on the principle that we must satisfy our existing obligations before accepting new work. In the rare instance that we are unavailable due to existing commitments,we have a number ofrecommended consu[tants that can assist the City. Communication and Coordination We will meet with you at the start of each phase ofwork and conduct an exit conference at the end of each phase ofwork. This will ensure you know everything we do,with plenty of time to address any issues. Two key objectives for a well run audit are to ensure timely communication ofthe audit results and to provide for seamless coordination of the external auditors with City staff. The concept is virtually identical to our Accounting Issues Memorandum and detailed Closing Checklists that we typically prepare for our clients. The Accounting Issues Memorandum concept was originated by one of our staff over a decade ago to function as a partner's brief of an engagement's status.It worked so well we expanded it to all our audits and share it with our clients. It has proven to be an indispensable communication and coordination tool ever since. This informal memo condenses and summarizes the audit status and issues as of the end of our interim work. It includes housekeeping matters, major and minor potential findings, scheduled audit fieldwork start and fmish dates, etc. We produce this memo right in your office before the conclusion of our interim work,so you have an idea of what we've found so far and whether there are areas that need work. 31 SPECIFIC AUDIT APPROACH AND CITY STAFF HOURS(Continued) Our Memorandum on Internal Control is drafted at year-end and may include significant issues raised with our interim phase Accounting Issues Memorandum as well as issues arising from our year-end work. We review a draft with you, so that you will have plenty of time to consider the facts and discuss our fmdings before the audit results are presented to the Council and Committees. Prompt Service andDelivery ofReports Financial information,like fish,must be as fresh as possible and this is an important part of our service. We have always focused on reducing financial statement turn-around time and we have never missed a deadline. We normally complete the fmal draft of the financial statements on the last day of our field-work in our clients' offices or within two weeks thereafter. Our audit strategy emphasizes detail planning and coordination of our staff and client staff to complete the audit as efficiently as possible. We have found that completing all our work and our reports as part of our field-work dramatically reduces the time required to issue fmal reports to our clients. Our strategy allows our clients ample time to review all report drafts before issuance, while ensuring that all reports are issued timely. Many clients have been able to advance the date on which their reports are presented to Council. AuditSchedule We have timed our audit to complete all your reports so that they are ready to print by your deadlines. Of course, our timetable may be adjusted to fit your needs. We will start our work as soon as you appoint us your auditors, with an entrance conference as soon as possible. Please see the proposed segmentation of the engagement on the following schedule. 32 CITY OF CUPERTINO Proposed Engagement Segments and Budget Budgeted Hours Partners Staff Audit Activities Engagement Review Manager Supervisor Associates Admin. Total Planning&budget/Confirm/Chechlists 4.00 8.00 4.00 16.00 SAS Fraud assessment 4.00 4.00 Minutes-resolutions 12.00 12.00 Supervision/review 32.00 4.00 80.00 116.00 Conferences&meetings ' 2.00 8.00 10.00 Management letter 1.00 4.00 1.00 6.00 MD&A 4.00 4.00 Accounting Issues Memo 1.00 2.00 3.00 Analytical review 4.00 4.00 Adjustments 2.00 2.00 Internal Control Evaluation 12.00 12.00 Information Systems Review 6.00 6.00 Cash&Investments 36.00 36.00 Revenue/Receivables 32.00 32.00 Interfunds 16.00 16.00 Notes/loans receivables 16.00 16.00 Capital Assets 32.00 32.00 Disbursements/Accounts Payable 32.00 32.00 Payroll/Accrued liabilities 32.00 32.00 Long Term Debt 36.00 36.00 PERS+OPEB 8.00 8.00 Fund balance&net assets 6.00 6.00 Self insurance/claims 6.00 6.00 Subtotal-ComprehensiveAnnual Financial Report,& Management Letter 44.00 4.00 6.00 120.00 272.00 1.00 447.00 Redevelopment Agency 3.00 1.00 5.00 32.00 1.00 42.00 Transportation Development Act 1.00 1.00 4.00 15.00 1.00 22.00 City Investment Policy 2.00 1.00 6.00 32.00 1.00 42.00 Appropriations Limit 1.00 1.00 4.00 1.00 7.00 Single Audit Act Report(Per Tested Program)2.00 1.00 8.00 36.00 1.00 48.00 City-State Controller's Report 8.00 40.00 2.00 50.00 GRAND TOTAL 61.00 8.00 6.00 144.00 _431.00 8.00 658.00 33 EXHIBIT C Estimated Additional City Staff Requirements Staff Hours Audit Finance Tasks Committee Director Accountant A/P Clerk Payroll Clerk NR Clerk Total Pilling and filing of invoices for testing 1.00 1.00 2.00 Pulling and filing of payroll related support 1.50 1.50 Pulling and filing of Cash and Investment support 1.00 1.00 SAS 99 Fraud Consideration Interview 1.00 1.00 2.00 Pulling and filing of Loan detail 0.50, 0.50 Gathering long-term agreements(debt official abatements and revised policy updates)for our permanent files 0.50 0.50 Total 1.00 1.00 2.00 1.00 1.50 1.00 7.50 34 TOTAL MAXIMUM PRICE Total Cost ofAudit Our Estimated All-inclusive Maximum Price for the services specified in the RFP for the years ending June 30, 2012 through 2016 are in this section. Our Total All-inclusive Maximum Price for the services specified in the RFP,are a firm fixed fee. What Our Price Includes Our price includes all the basic audit work and reports, statements and other deliverables specified in your request for proposal. Our price also includes the items below at no additional cost: 1) year-round support and telephone consultation on pertinent issues affecting your City, (10 hours max.) 2) copies of our journal entries and our leadsheets used to support the amounts in your financial statements, 3) a Study Session for the Council to discuss the audit process, financial statements and recommendations, 4) active Principal involvement in your work every year, 5) our typed Interim Audit Checklist, 6) our typed Annual Closing Checklist, 7) our typed interim Accounting Issues Memorandum, 8) preliminary draft financial statements at interim, 9) answers to most municipal payroll tax questions, 10)Pivot table analysis tools for the current and prior years 11)Overviews and summaries ofupcoming pronouncements and regulation affecting the audited financial statements. 12)Direct dump of general ledger data into our prosytem trial balance software which is fully linked to financial statement formats. Additional Services Any additional services will be performed and billed only on the City's prior authorization at our standard billing rates. Fees and Billings Our fees are on a not-to-exceed basis. In determining our fees, we understand that the City's records will be in condition to be audited;that is, transactions will be properly recorded in the general ledger and subsidiary records, these accounting records and the original source documents will be readily available to use, we will be furnished with copies of bank reconciliations and other reconciliations and analyses prepared by the City and City personnel will be reasonably available to explain procedures,prepare audit correspondence and obtain files and records. We do not post separate rate structures for municipal audit work. We view this work as being every bit as important and valuable as the work we perform for other clients and we put our best people on it. Any consulting work you request will be performed at the same rates as our audit work. Cost Rationale We have always completed our work in the time budgeted and for the agreed upon fee. We have never requested additional fees after our work was completed. As always,we fmish what we start,regardless of the accuracy of our budgets. 35 CITY OF CIUPERTINO TOTAL MAXIMUM PRICE AND TOTAL ESTIMATED HOURS PER FISCAL YEAR(1) 2011/12 2012/13 2013/14 2014/15 2015/16 Five Year Max Total Max Total Max Total Max Total Max Total Max Total Price Hours Price Hours Price Hours Price Hours Price Hours Price Hours City 52,945 447.00 $54,004 447.00 $55,084 447.00 $56,186 447.00 $57,310 447.00 $275,529 2,235.00 Redevelopment Agency 4,585 42.00 4,677 42.00 4,771 42.00 4,866 42.00 4,963 42.00 23,862 210.00 TDA 2,420 22.00 2,468 22.00 2,517 22.00 2,567 22.00 2,618 22.00 12,590 110.00 City Investment Policy 4,405 42.00 4,493 42.00 4,583 42.00 4,675 42.00 4,769 42.00 22,925 210.00 Proposition 111 825 7.00 842 7.00 859 7.00 876 7.00 894 7.00 4,295 35.00 Subtotal 65,180 560.00 66,484 560.00 67,814 560.00 69,170 560.00 70,553 560.00 339,201 2,800.00 Single Audit Act Report(Per Tested Program)4,985 48.00 5,085 48.00 5,187 48.00 5,291 48.00 5,397 48.00 25,945 240.00 City State Controller Report 5,930 50.00 6,049 50.00 6,170 50.00 6,293 50.00 6,419 50.00 30,861 250.00 Grand Total 76,095 658.00 $77,618 658.00 $79,171 658.00 $80,754 658.00 $82,369 658.00 $396,007 3,290.00 NOTES: 1) All inclusive total for services,out-of-pocket expenses,meals,lodging,transportation,mileage,printing and other costs. 2)Our policy is to attempt to keep our client's fees constant after inflation. Therefore,the fees for years subsequent to 2012 have been adjusted for the 2011 CPI increase of 2.0%for the Services Sector of the U.S.Department of Labor,Bureau of Labor Statistics for the San Francisco-Oakland Area. I am empowered to submit this bid,and am a orized to sign a contract with the City of Cupertino. Vice President S' a Title Maze&Associates Firm 36 CITY OF CUPERTINO SCHEDULE OF PROFESSIONAL FEES AND EXPENSES FOR THE AUDIT OF FISCAL YEAR 2011/2012 Hourly Hours Rates Price Partners 69.00 $300 $20,700 Manager 6.00 160 960 Supervisor 144.00 120 17,280 Associates 431.00 85 36,635 Administrative Staff 8.00 65 520 Total Maximum Price 658.00 $76,095 37 CITY OF CUPERTINO SCHEDULE OF PROFESSIONAL FEES AND EXPENSES FOR THE AUDIT OF FISCAL YEAR 2012/2013 Hourly Hours Rates Price Partners 69.00 $306 $21,114 Manager 6.00 163 979 Supervisor 144.00 122 17,626 Associates 431.00 87 37,368 Administrative Staff 8.00 66 530 Total Maximum Price 658.00 $77 618 38 CITY OF CUPERTINO SCHEDULE OF PROFESSIONAL FEES AND EXPENSES FOR THE AUDIT OF FISCAL YEAR 2013/2014 Hourly Hours Rates Price Partners 69.00 $312 $21,537 Manager 6.00 167 999 Supervisor 144.00 125 17,979 Associates 431.00 88 38,116 Administrative Staff 8.00 68 541 Total Maximum Price 658.00 $79,171 39 CITY OF CUPERTINO SCHEDULE OF PROFESSIONAL FEES AND EXPENSES FOR THE AUDIT OF FISCAL YEAR 2014/2015 Hourly Hours Rates Price Partners 69.00 $318 $21,967 Manager 6.00 170 1,019 Supervisor 144.00 127 18,338 Associates 431.00 90 38,878 Administrative Staff 8.00 69 553 Total Maximum Price 658.00 $80,754 40 CITY OF CUPERTINO SCHEDULE OF PROFESSIONAL FEES AND EXPENSES FOR THE AUDIT OF FISCAL YEAR 2015/2016 Hourly Hours Rates Price Partners 69.00 $325 $22,407 Manager 6.00 173 1,039 Supervisor 144.00 130 18,705 Associates 431.00 92 39,656 Administrative Staff 8.00 70 563 Total Maximum Price 658.00 $82,369 41 MAZE&-1 OP ID: CR ACORDzy CERTIFICATE OF LIABILITY INSURANCE I DAlE (MM/DD/YYYY) ~ 01/05/12 PRODUCER 925-284-3911 THIS CERTIFICATE IS ISSUED AS A MATTER OF INFORMATION Kosich & Callahan ONLY AND CONFERS NO RIGHTS UPON THE CERTIFICATE 3435 Mt. Diablo Blvd. Ste. 300 HOLDER. THIS CERTIFICATE DOES NOT AMEND, EXTEND OR Lafayette, CA 94549 ALTER THE COVERAGE AFFORDED BY THE POLICIES BELOW. Kos1ch Insurance Agency, Inc. INSURERS AFFORDING COVERAGE NAIC# INSURED Maze & Associates 1NsURERA: Travelers Casualty Ins Co 3478 Buskirk Ave9 Suite 215 INSURER e: Republic Indemnity Insurance Pleasant Hill, CA 4523 INSURER C: INSURER D: I INSURER E: COVERAGES THE POLICIES OF INSURANCE LISTED BELOW HAVE BEEN ISSUED TO THE INSURED NAMED ABOVE FOR THE POLICY PERIOD INDICATED. NOTWITHSTANDING ANY REQUIREMENT, TERM OR CONDITION OF ANY CONTRACT OR OTHER DOCUMENT WITH RESPECT TO WHICH THIS CERTIFICATE MAY BE ISSUED OR MAY PERTAIN, THE INSURANCE AFFORDED BY THE POLICIES DESCRIBED HEREIN IS SUBJECT TO ALL THE TERMS, EXCLUSIONS AND CONDITIONS OF SUCH POLICIES. AGGREGATE LIMITS SHOWN MAY HAVE BEEN REDUCED BY PAID CLAIMS. INSR [ft.I),~~ POLICY NUMBER POLICY EFFECTIVE POLICY EXPIRATION LIMITS LTR TYPE OF D"TEIMM/DD""""" D"lE IUM/DD~ GENERAL LIABILITY EACH OCCURRENCE $ 2,000,000 A -08/11/11 08/11/12 DAMAGE TO RENTED x COMMERCIAL GENERAL LIABILITY 6805529R288 PREMISES IEa occurencel $ 300,000 -D CLAIMS MADE [KJ OCCUR 10,000 MED EXP (Any one person) $ PERSONAL & ADV INJURY $ 2,000,000 f---4,000,000 GENERAL AGGREGATE $ f--4,000,000 GEN'L AGGREGATE LIMIT APPLIES PER: PRODUCTS -COMP/OP AGG $ n POLICY n ~~,Q.;: n LOG Emp Ben. 2,000,000 AUTOMOBILE LIABILITY COMBINED SINGUE LIMIT INCLUDED f--$ A ANY AUTO 6805529R288 08/11/11 08/11/12 (Ea accident) f--- -ALL OWNED AUTOS BODILY INJURY $ SCHEDULED AUTOS (Per person) -x HIRED AUTOS BODILY INJURY x (Per accident) $ NON-OWNED AUTOS f---PROPERTY DAMAGE $ (Per accident) GARAGE LIABILITY AUTO ONLY -EA ACCIDENT $ ~ANY AUTO OTHER THAN EAACC $ AUTO ONLY: AGG $ EXCESS I UMBRELLA LIABILITY EACH OCCURRENCE $ ~OCCUR D CLAIMS MADE AGGREGATE $ $ R DEDUCTIBLE $ RETENTION $ $ WORKERS COMPENSATION x I WCSTATU-I IOTH- AND EMPLOYERS' LIABILITY y / N TORY LIMITS ER B ANY PROPRIETOR/PARTNER/EXECUTIVE D 15076612 01/01/12 01/01/13 E.L. EACH ACCIDENT $ 1,000,000 OFFICER/MEMBER EXCLUDED? 1,000,000 (Mandatory In NH) E.L. DISEASE -EA EMPLOYEE $ If yes, describe under SPECIAL PROVISIONS below E.L. DISEASE-POLICY LIMIT $ 1,000,000 OTiiER DESCRIPTION OF OPERATIONS I LOCATIONS I VEHICLES I EXCLUSIONS ADDED BY ENDORSEMENT I SPECIAL PROVISIONS *Except 10 days notice of cancellation for nonpayment of premium. CERTIFICATE HOLDER CANCELLATION INSUR-2 SHOULD ANY OFTHEABOVE DESCRIBED POLICIES BE CANCELLED BEFORE THE EXPIRATION lnsured's Copy DATE THEREOF, THE ISSUING INSURER WILL ENDEAVOR TO MAIL ~ DAYS WRITTEN NOTICE TO THE CERTIFICATE HOLDER NAMED TO THE LEFT, BUT FAILURE TO DO SO SHALL IMPOSE NO OBLIGATION OR LIABILITY OF ANY KIND UPON THE INSURER, ITS AGENTS OR REPRESENTATIVES. AUTiiORIZED REPRESENTATIVE .,,('. ~./. c:::::L c::::::=w• I .. ACORD 25 (2009/01) © 1988-2009 ACORD CORPORATION. All rights reserved. The ACORD name and logo are registered marks of ACORD 42 MAZE&-1 OP ID:CR IMPORTANT If the certificate holder is an ADDITIONAL INSURED, the policy(ies) must be endorsed. A statement on this certificate does notconfer rights to the certificate holder in lieu of such endorsement(s). If SUBROGATION IS WAIVED, subject to the terms and conditions of the policy, certain policies may require an endorsement. A statement on this certificate does not confer rights to the certificate holder in lieu of such endorsement(s). DISCLAIMER This Certificate of Insurance does not constitute a contract between the issuing insurer(s),authorized representative or producer,and the certificate holder, nor does it affirmatively or negatively amend, extend or alter the coverage afforded by the policies listed thereon. ACORD 25(2009/01) 43 CERTIFICATE OF LIABILITY INSURANCE OP ID NO DATE(MMIDD/YYYY) 09/13/11 THIS CERTIFICATE IS ISSUED AS A MATTER OF INFORMATION ONLY AND CONFERS NO RIGHTS UPON THE CERTIFICATE HOLDER.THIS CERTIFICATE DOES NOT AFFIRMATIVELY OR NEGATIVELY AMEND,EXTEND OR ALTER THE COVERAGE AFFORDED BY THE POLICIES BELOW. THIS CERTIFICATE OF INSURANCE DOES NOT CONSTITUTE A CONTRACT BETWEEN THE ISSUING INSURER(S),AUTHORIZED REPRESENTATIVE OR PRODUCER,AND THE CERTIFICATE HOLDER. IMPORTANT: Ifthe certificate holder is an ADDITIONAL INSURED,the policy(ies)must be endorsed. If SUBROGATION IS WAIVED,subject to the terms and conditions of the policy,certain policies may require an endorsement. A statement on this certificate does not confer rights to the certificate holder in lieu ofsuch endorsement(s). PRODUCER UNIALINAME: PHONE FAX Mitchell & Mitchell-Lic0620650 A/C,No,Ext): A/C,No): 250 Bel Marin Keys Blvd, Bid E ADDRESS: Novato CA 94949 PRODUCER ID#. MAZEAS1 Phone:415-883-2525 Fax:415-883-7752 INSURER(S)AFFORDING COVERAGE NAIC# INSURED INSURER A: Continental Casualty Maze Associates INSURER B: 3478 Buskirk Ave. , #215 Pleasant Hill CA 94523 INSURER C: INSURER D: INSURER E: INSURER F COVERAGES CERTIFICATE NUMBER: REVISION NUMBER: THIS IS TO CERTIFY THAT THE POLICIES OF INSURANCE LISTED BELOW HAVE BEEN ISSUED TO THE INSURED NAMED ABOVE FOR THE POLICY PERIOD INDICATED. NOTWITHSTANDING ANY REQUIREMENT,TERM OR CONDITION OF ANY CONTRACT OR OTHER DOCUMENTWITH RESPECT TO WHICH THIS CERTIFICATE MAY BE ISSUED OR MAY PERTAIN,THE INSURANCE AFFORDED BY THE POLICIES DESCRIBED HEREIN IS SUBJECT TO ALL THE TERMS, EXCLUSIONS AND CONDITIONS OF SUCH POLICIES.LIMITS SHOWN MAY HAVE BEEN REDUCED BY PAID CLAIMS. INSR TYPE OF INSURANCE AUUL SUMH POLICY EFF POLICY EXP LIMITSLTRINSRWVDPOLICYNUMBERMMIDD/YYYY) (MM/DD/YYYY) GENERAL LIABILITY EACH OCCURRENCE $ UAMA(,t IU HEN I EU COMMERCIAL GENERAL LIABILITY PREMISES(Ea occurrence) $ CLAIMS-MADE OCCUR MED EXP(Any one person) $ PERSONAL 8 ADV INJURY $ GENERAL AGGREGATE $ GEN'L AGGREGATE LIMITAPPLIES PER:PRODUCTS-COMP/OP AGG $ 7 POLICY JECT LOC AUTOMOBILE LIABILITY COMBINED SINGLE LIMIT Ea accident) ANY AUTO BODILY INJURY(Per person) $ ALL OWNED AUTOS BODILY INJURY(Per accident) $ SCHEDULED AUTOS PROPERTY DAMAGE $ HIRED AUTOS Per accident) NON-OWNED AUTOS UMBRELLA LIAB OCCUR EACH OCCURRENCE $ EXCESS LIAB CLAIMS-MADE AGGREGATE DEDUCTIBLE RETENTION $ WORKERS COMPENSATION WC STATU- OTH- AND EMPLOYERS'LIABILITY YIN TORY LIMITS ER ANY PROPRIETOR/PARTNER/EXECUTIVEn E.L.EACH ACCIDENT $ OFFICER/MEMBER EXCLUDED? N I A Mandatory in NH) E.L.DISEASE-EA EMPLOYEE$ Ifyes,describe under DESCRIPTION OF OPERATIONS below E.L.DISEASE-POLICY LIMIT $ A Prof. Liability APL 275366619 o7/01/L1 0//01/12 Per Claim 2,000,000 Aggregate 2,000,000 DESCRIPTION OF OPERATIONS/LOCATIONS/VEHICLES(Attach ACORD 101,Additional Remarks Schedule,If more space is required) Full Prior Acts CERTIFICATE HOLDER CANCELLATION SHOULD ANY OF THE ABOVE DESCRIBED POLICIES BE CANCELLED BEFORE THE EXPIRATION DATE THEREOF,NOTICE WILL BE DELIVERED IN ACCORDANCE WITH THE POLICY PROVISIONS. AUTHORIZED REPRESENTATIVE Insured Paul W. Morris 1988-2009 ACORD CORPORATION. All rights reserved. ACORD 25(2009/09) The ACORD name and logo are registered marks of ACORD 44