INTRADEPARTMENTAL CORRESPONDENCE

Transcription

1 Date: April 14, 2016 CITY OF LOS ANGELES DEPARTMENT OF WATER AND POWER INTRADEPARTMENTAL CORRESPONDENCE To: From: Retirement Board Members Linda P. Le, Retirement Plan Manager Subject: Board Agenda Item No. 5: Interview and Selection of External Auditors; and Possible Action (April 20, 2016, Special Retirement Board Meeting) Recommendation That the Board of Administration (Retirement Board) of the Water and Power Employees' Retirement Plan (Plan) consider the recommendation of the Audit Committee to interview and select one of the following three candidates as External Auditor: a) Brown Armstrong Accountancy Corporation b) Simpson & Simpson, CPAs c) Vasquez & Company, LLP Summary At its regular meeting on December 16, 2015, the Retirement Board approved Resolution No to proceed with a Request for Proposal (RFP) for an external auditor to conduct annual audits of the financial statements and perform related advisory services. Staff released the RFP on December 29, Three firms respo11ded to the RFP: Brown Armstrong Accountancy Corporation; Simpson & Simpson, CPAs; and Vasquez & Company, LLP. Staff evaluated the responses using the following criteria: 1) quality of the proposal; 2) fees; 3) references; and 4) compliance with contract requirements specified in the RFP. The rating factors and the weights assigned to each are as follows: 1) Quality of the Proposal (weight of 40%) - includes the firm's organization and industry experience particularly with retirement systems 2) Fees (weight of 25%) - includes the fixed cost for the annual audit and the rates for non-recurring services 3) References (weight of 20%) - includes responses from references regarding their experience working with the firms 5.1

2 4) Contract Compliance (weight of 15%) - includes compliance with City and Department contract requirements such as insurance. Based on staff's evaluation of the RFP responses using the rating factors, all three firms are deemed capable of performing the required services. The following document is attached: Resolution No Monette arranceja Assistant Retirement Plan Ma LPUMCNVF:mea 5.2

3 RESOLUTION NO RESOLUTION TO SELECT AN EXTERNAL AUDITOR FOR THE PLAN WHEREAS, the Board of Administration (Retirement Board) of the Water and Power Employees' Retirement Plan (Plan) released a Request for Proposal (RFP) for an external auditor to conduct annual audits of the financial statements and perform related advisory services, and received three responses; and WHEREAS, staff evaluated the responses and found all three respondents, Brown Armstrong Accountancy Corporation; Simpson & Simpson, CPAs; and Vasquez & Company, LLP., capable of performing the audit services; and WHEREAS, at its special meeting held on April 20, 2016, the Retirement Board interviewed the three respondents; and WHEREAS, the Retirement Board selected Simpson & Simpson CPAs to provide audit services for the Plan, subject to agreement on the contract terms. NOW, THEREFORE, BE IT RESOLVED, the Retirement Board President and Retirement Plan Manager are hereby authorized to enter into a contract with Simpson & Simpson CPAs, pending negotiation of contract terms. I HEREBY CERTIFY, the foregoing is a full, true, and correct copy of a Resolution adopted by the Retirement Board of Administration [created by Section (b) of the Los Angeles City Charter] at its special meeting held on April20, Linda P. Le Retirement Plan Manager 5.3

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5 Outline Firm Profile Proposed Audit Team Audit Approach Relevant Experience Questions 2

6 Firm Profile Brown Armstrong is one of the largest regional accounting firms in California. We service all of California from our 4 offices located in Pasadena, Bakersfield, Fresno and Stockton. Of our 73 employees, 42 service our governmental clients. Lines of Business: - Public Retirement Systems - Municipalities - Transit and Transportation Planning - Public Companies - School Districts -Health Care College Districts - Special Districts Our Staff Partners 9 Managers 15 Seniors 6 Staff Accountants 22 Support Staff 21 Total 73 Governmental Staff Partners 6 - College Districts Managers 8 Seniors 5 Staff Accountants 22 Support Staff 1 Total 42 3

7 Proposed Audit Team Water and Power Employees Retirement, Disability and Death Benefit Insurance Plan Rosalva Flores, CPA Technical Review Partner Andrew J. Paulden, CPA Engagement Partner Alaina Sanchez, CPA Engagement Manager Marybeth Brooks Engagement Senior Engagement Staff Engagement Staff 4

8 Audit Approach We provide the highest quality audit with a specific audit approach. This approach is non-intrusive to your day to day operations, but is hands-on, making you feel comfortable and part of the process. Part of our relationship will involve Brown Armstrong educating employees and advising you on current requirements and regulations. Annual two-day governmental CPE. GASB implementation specialists. 5

9 Planning and Internal Controls Compliance Financial Audit Completion of Audit May/June July/August September/October November/December Familiarize ourselves with operating environment Assess internal control environment Plan and perform substantive audit procedures Perform completion procedures Perform risk assessment procedures Perform SAS 99 (Fraud evaluation) procedures Conduct final analytical review Draft internal control and compliance management letter comments Determine planning materiality Identify internal control strengths and weaknesses Consider audit evidence sufficiently Draft reports and management letter Perform preliminary analytical review Evaluate design and implementation of selected controls Conclude on critical accounting matters Issue auditor s reports and management letter Develop audit plan Test controls over financial reporting and administration Continually educate staff about upcoming auditing regulations Identify significant audit areas and confirmation procedures Understand accounting and reporting activities Exit conference with management Determine nature and extent of audit procedures Evaluate the progress of the audit and make any changes on audit approach and procedures, if necessary 6

10 Risk Assessment and Fraud Detection Procedures Risk Assessment Fraud Detection Understanding of the entity and operating environment Understanding of Internal Controls Determination of materiality Identify Significant Processes and Transaction Classes Walkthrough each Significant Process Assess IT Risks Interview Key Personnel Summarize Risk Assessment Create Planning Memo Based upon Risk Assessment, we design tests of controls for higher risk areas such as: Participant Payments Employee and Employer Contributions Employer Pensionable Payroll Hold Interviews with: Board and/or Audit Committee members Key Finance/Accounting Personnel IT Systems Vulnerability Tests 7

11 Relevant Experience Clients that Count on Us Los Angeles City Employees Retirement San Joaquin County Employees Retirement System Association Los Angeles County Employees Retirement t San Mateo County Employees Retirement Association Association San Diego County Employees Retirement Sonoma County Employees Retirement Association Association Contra Costa County Employees Retirement Tulare County Employees Retirement Association Association Fresno City Employees Retirement System Ventura County Employees Retirement Fresno County Employees Retirement Association Association San Francisco Bay Area Rapid Transit District Imperial County Employees Retirement System Money Purchase Plan and Deferred Marin County Employees Retirement Compensation Plan Association San Luis Obispo County Pension Trust Fresno Metropolitan Flood Control District Santa Barbara County Employees Retirement Pension Plan and Trust System Kern Schools Federal Credit Union 401(k) and Stanislaus County Employees Retirement Defined Benefit Plan Association 8

12 Questions? Andrew J. Paulden, CPA Alaina C. Sanchez, CPA Marybeth A. Brooks 9

13 Contact Us 4200 Truxtun Avenue, Suite S. Los Robles, Suite 310 Bakersfield, California Pasadena, California Phone: (661) Phone: (626) Website: Fax: (661)

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15 Agenda Our Firm Relevant Experience Audit Objectives Audit Approach Audit Team Why Select Simpson & Simpson Questions and Answers ACCOUNTANTS 2

16 Our Firm Firm was established in 1976 ACCOUNTANTS 3

17 Our Firm We have a distinguished reputation in serving governmental and employee benefit plan sectors. The City of Los Angeles ACCOUNTANTS 4

18 Our Firm Firm Resources STAFF CLASSIFICATION NUMBER OF STAFF BACHELOR'S DEGREE CPA CERTIFICATION Partners/Principal Managers Supervisors Senior Auditors Staff Auditors Administrative ACCOUNTANTS 5

19 Our Firm IT Auditing Capability INFORMATION SYSTEMS EXPERIENCE Robert Fleming - IT Audit Principal: CISA (Certified Information Systems Auditor) CFSA (Certified Financial Services Auditor) 20+ years of IT Audit Experience BIG 4 Senior Management Experience TECHNICAL EXPERIENCE ERP Accounting Systems (e.g., SAP, Oracle Financials) Network Security Operating Systems Software Database Management Systems Public Sector Accounting Software CAATs (Computer Assist Audit Techniques) IT BEST PRACTICES / INTERNAL CONTROL FRAMEWORKS COBIT (Control Objectives for IT) ISO17799, NIST (National Institute of Standards and Technology) ITIL (Information Technology Infrastructure Library) ACCOUNTANTS 6

20 Our Firm Quality Assurance Continuing Professional Education Quality Control Pre-issuance quality control partner review Annual inspection Peer Review ACCOUNTANTS 7

21 Our Firm Prior project s performance No litigation (past or pending) Excellent track record ACCOUNTANTS 8

22 Certified Public Accountants Relevant Experience Employee Benefit Plans Water and Power Employees Retirement, Disability and Death Benefit Insurance Plan City of Los Angeles Fire and Police Pension System Los Angeles County Metropolitan Transportation Authority Retirement Plans Southern California Edison Company Retirement Plan Edison International Midwest Generation, LLC Bargaining Unit Employees Retirement Plan Edison International EMC Homer City Generation LP Bargaining Unit Employees Retirement Plan Edison International Welfare Benefit Plan Cameron LNG Retirement Savings Plan Southern California Gas Company Represented and Nonrepresented Retiree Health and Welfare Program (Sempra Energy) San Diego Gas & Electric Company Retiree Combined Group Health and Welfare Program (Sempra Energy) ACCOUNTANTS Slide#9 of 22 9

23 Relevant Experience Government Sector Clients include: City of Los Angeles Port of Los Angeles City of Los Angeles Department of Water and Power (Subcontract) Los Angeles World Airports (Subcontractor) CRA/LA, Designated Local Authority City of Port Hueneme Los Angeles Unified School District Metropolitan Water District (Subcontractor) County of Los Angeles Los Angeles County Metropolitan Transportation Authority South Coast Air Quality Management District ACCOUNTANTS 10

24 Audit Objectives Deliverance of audit services at three levels For stakeholders Independent opinions and reports that add credibility to financial information released by the Retirement Office For the administrative committee Assistance to Board of Administration and Audit committee in discharging its governance and fiduciary responsibilities For management Observations and recommendations on financial reporting and business operations ACCOUNTANTS 11

25 Audit Objectives Auditing Standards Generally Accepted Auditing Standards, published by the American Institute of Certified Public Accountants ACCOUNTANTS 12

26 Audit Objectives Deliverables Independent auditor s report on the financial statements; Written and oral communication with those charged with governance; Written communication on significant deficiencies and material weakness; Management Letter. ACCOUNTANTS 13

27 Audit Approach Timely Contract Planning Fieldwork Supervision & Review Deliverables ACCOUNTANTS 14

28 Audit Approach Planning Conduct entrance conference Update our understanding of the business and operating environment Update our understanding of the business cycles, accounting and IT processes, and policies & procedures Perform procedures walkthrough Identify key controls Perform analytical procedures Use of data analysis software to enhance audit planning process and sample selection Conduct audit team orientation and brain storming session ACCOUNTANTS 15

29 Audit Approach Field Work Perform testing of key controls identified during planning Evaluate the results from testing of key controls Identify, assess and evaluate audit risks Design audit procedures and develop audit programs Perform substantive testing Evaluate audit results Prepare audit reports and written communication of any control deficiencies Conduct exit conference ACCOUNTANTS In the field supervision and review Timely communication of audit status, potential adjustments and control deficiencies 16

30 Audit Team Organizational Chart GRACE YUEN, CPA Engagement Partner MELBA SIMPSON, CPA Quality Control Partner ROBERT FLEMING, CISA/CIA/CFSA IT Principal ETTA HUR, CPA Audit Manager Wensi Hu Senior Auditor Staff Auditors ACCOUNTANTS 17

31 Why Select Simpson & Simpson? Substantial experience with employee benefit plan and governmental sectors Experience in audits of large government retirement plans and other postemployment benefit plans Experience in audits of government entities and implementing latest GASB pronouncements Experience in implementing GASB statements 67 and 68 Experience in audits of investments, including alternative investments The City of Los Angeles ACCOUNTANTS 18

32 Why Select Simpson & Simpson? Extensive resources to perform the work IT capability Steadfast commitment to independence and quality Dedication of our employees to servicing governmental and nonprofit sectors Commitment to key engagement team continuity MELBA SIMPSON, CPA 30 years of experience 20 years of service GRACE YUEN, CPA 27 years of experience 25 years of service ROBERT FLEMING, CISA/CIA.CFSA 20 years of experience 5 years of service Etta Hur, CPA 14 years of experience 10 years of service ACCOUNTANTS 19

33 Why Select Simpson & Simpson? Excellent reputation and outstanding prior projects performance Assisted various clients in obtaining GFOA Certificate of Achievement for Excellence in Financial Reporting ACCOUNTANTS 20

34 Why Select Simpson & Simpson? Timely communication of audit progress and adjustments Ongoing communication of accounting pronouncements and developments ACCOUNTANTS 21

35 Why Select Simpson & Simpson? Competitive fee structure ACCOUNTANTS 22

36 T HANK Y OU Slide# 23

37 Contra Costa County Employees Retirement Association Fresno County Employees Retirement Association Kansas City Employees Retirement System Santa Barbara County Employees Retirement System San Bernardino County Employees Retirement Association San Diego City Employees Retirement System San Diego County Employees Retirement Association San Mateo County Employees Retirement Association Tulare County Employees Retirement Association Ventura County Employees Retirement Association Team s Representative Experience Los Angeles County Employees Retirement Association Orange County Employees Retirement System San Francisco Bay Area Rapid Transit Money Purchase Plan San Francisco Bay Area Rapid Transit Deferred Compensation Plan North Bakersfield Recreation & Park District Pension Plan Pasadena Fire and Police Retirement System Kern County Employees Retirement Association Los Angeles City Employees Retirement Association Riverside County Employees Retirement System California Retirement System ($100 billion + assets) Range of Services

38 Our value proposition to the Water and Power Employees Retirement, Disability and Death Benefit Insurance Plan The Plan receives a dedicated local team and a commitment to provide an exceptional client experience About Vasquez Over 40% of our audit practice is focused on governmental agencies. Consistently ranked among the top accounting firms in Los Angeles County as reported by the Los Angeles Business Journal. Over 20,000 financial and compliance audits, including some of the largest, most complex governmental agencies in Southern California. Over 10,000 financial and compliance audits, including some of the largest, most complex governmental agencies in Southern California. Firm members have held leadership roles in the accounting industry, including serving as GFOA reviewers, past president of the California Board of Accountancy, and past- Audit Committee Chair of the California Society of CPAs National resources of the McGladrey Alliance the 5 th largest accounting firm the United States. Client Service Team Lead Partner Roger A. Martinez, Vasquez Audit Practice Leader and former KPMG national office practice partner will be responsible for planning and directing our services to the Plan. He will be available throughout the term of the engagement to ensure proactive issue identification and service delivery. Roger was previously the lead partner on the financial statement audit of LADWP. Project Director Connie Perez, Vasquez Director and former Brown Armstrong partner with fourteen (14) years of public accounting experience will oversee the day-to-day activities and task accomplishments, monitor progress, and ensure schedule compliance and will spend significant time onsite, ensuring the smooth operation of our financial and compliance audit process. QC Partner Margaret J. McBride, Vasquez Consulting Practice Leader and former KPMG partner-in-charge of government advisory services to the Western Region will be the primary professional standards reviewer of reports issued. IT Practice Leader Oscar Chacon, Vasquez IT Practice Leader and former KPMG Information Risk Management Practice Manager with over fifteen (15) years of information systems audit/assurance will oversee our evaluation of Plan IT systems controls. Senior Manager Mark Siegfried, Senior Manager with fourteen (14) years of public accounting experience will work closely with the lead partners in planning, coordinating, and reviewing the fieldwork for the Plan audit engagements. Our Approach Partner Involvement significant partner involvement throughout the audit to ascertain and efficient and effective audit. Actuarial Review unlike most other firms our size, our audit team will include an Actuary who will perform an independent review of the actuarial assumptions of the Plan as part of our normal audit procedures. Smooth Transition - Vasquez has the experience, expertise, and resources to have a smooth transition to a new audit firm. By having the largest government practice in Los Angeles County, Vasquez has the flexibility in resources necessary to develop a plan that meets the needs of the Board and management. Quality Vasquez has a dedicated QC department that ensures adherence to best practices, auditing and accounting standards. A cold review of all deliverables and workpapers will be performed by our QC Partner on the engagement who has served the largest government agencies in California. Experience Experience in serving some of the largest and most complex organizations in California, including LADWP. IT Involvement of IT Specialists to provide added value and a more efficient audit. Structured for Timeliness Structured approach to ensure prompt identification of issues and adherence to agreed-upon deadlines. WHAT OUR CLIENTS SAY ABOUT US Important Expertise IT controls enhancements New accounting pronouncements Independent actuarial review Plan investments and related income Contributions and Contributions Receivable Benefit Payments and Benefits Payable Investment and Administrative Expenses and Related Liabilities Total Pension Liability, Net Pension Liability, and Related Disclosures Quality Control Dedicated Quality Control Department ensures strict adherence to industry standards and best practices. Independence policies and monitoring program to ensure personnel comply with relevant ethical requirements. Performance monitoring addressing all phases of the design and execution of the engagement performance. I wanted to thank both of you for the presentation today. I got outstanding feedback from the City Council. They appreciated the education received and the observations that were provided. City of Vernon We are pleasantly surprised that Vasquez, a small CPA firm compared to the Big Four is capable to provide such exceptional services. Again, we are pleased with the quality of service they provide. Community Development Commission Of the County of Los Angeles Vasquez & Company, LLP, have provided SCAG with audit services for many years in a very professional and competent manner. I especially appreciate the fact that Vasquez staff have taken the time to understand our business and organize their procedures to minimize the disruption to our daily operations. I would not hesitate to recommend them for any audit for which they are being considered. Southern California Association of Governments