City Auditor - City Recorder - Council Ordinance - 176669 KPMG contract Scope of Work Exh A

According to Section 1 of the Agreement, the Accountants agree to provide the following services to the Auditees.

GENERAL

The Accountants agree to conduct audits of the Auditees' financial statements in accordance with auditing standards generally accepted in the United States of America and the standards for financial audits contained in Government Auditing Standards issued by the Comptroller General of the United States, the Single Audit Act of 1984 and 1996 Amendments, the provisions of Office of Management and Budget (OMB) Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations and the Minimum Standards for Audits of Oregon Municipal Corporations as appropriate. The objectives of the audits are to express opinions and/or issue separate written reports as set forth below.

The audit engagements will be led by:

Timothy McCann, who will be responsible for assuring the overall quality, value, and timeliness of services to the Auditees,

Mary Augustyn, will be responsible for managing and delivery of services to the Auditees,

Kathleen Porterfield will serve as concurring partner and will be available in the absence of Timothy McCann.

LIMITATIONS OF THE AUDITING PROCESS

The audits will be planned and performed to obtain reasonable assurance that the financial statements are free of material misstatements, whether caused by error or fraud. As the Auditees are aware however, absolute assurance is not attainable because of the nature of audit evidence and the characteristics of fraud. Therefore, there is a risk that material errors or fraud (including fraud that may be an illegal act) may exist and not be detected by an audit performed in accordance with auditing standards generally accepted in the United States of America.

Similarly, in performing the audits, the Accountants will be aware of the possibility that illegal acts or noncompliance may have occurred. However, it is recognized that the audits provide no assurance that illegal acts or noncompliance generally will be detected and only reasonable assurance that illegal acts or noncompliance having a direct and material effect on the determination of financial statement amounts will be detected. The Accountants will inform the Auditees and City Auditor of any material errors and fraud, or illegal acts that come to the Accountant's attention during the course of the audits.

COMPLIANCE WITH LAWS AND REGULATIONS

As part of obtaining reasonable assurance about whether the financial statements are free of material misstatement, the Accountants will perform tests of the Auditees' compliance with certain provisions of applicable laws, regulations, contracts, and grants. However, except for major federal financial assistance programs, and requirements of the Minimum Standards for Audits of Oregon Municipal Corporations, the Accountants' objective is not to provide opinions on the overall compliance with such provisions.

NOTIFICATION OF START OF FIELD WORK

For purposes of establishing the day that field work is begun, the Accountants agree to provide written notification of the date(s) to the Contract Manager and the Auditee Project Managers.

ADJUSTING ENTRIES

Accountants shall first discuss all proposed adjusting entries with appropriate Auditee project managers/bureau accounting staff. Thereafter, the Accountants shall provide copies of all proposed adjusting entries to the Accounting Division of the Office of Management and Finance. The Accounting Division will then distribute copies of the journal entries to the appropriate bureaus and Auditees. The Accounting Division will also record the entries in the appropriate accounting records and ledgers.

REPORTS TO BE PROVIDED

Unless otherwise indicated, the reports to be provided will cover the fiscal year beginning July 1, 2001 and ending June 30, 2002 for all Auditees.

Accountants agree to provide the Auditees with the following reports at the completion of the audits in the quantities, form, and dates set forth below.

CITY OF PORTLAND

1. Comprehensive Annual Financial Report (CAFR)

A report on the audit of the City’s basic financial statements.

The City's financial statements will also include the financial data from the Portland Development Commission (a component unit), the Fire and Police Disability and Retirement Funds, and the Hydroelectric Power Fund.

The objective of the audit is the expression of an opinion concerning whether the basic financial statements present fairly, in all material respects, the financial position of the City, results of its operations, and cash flows of its proprietary fund types in conformity with accounting principles generally accepted in the United States of America. The report will also include Accountants' comments and disclosures required by the Minimum Standards for Audits of Oregon Municipal Corporations.

Accountants will also read Management’s Discussion and Analysis and the supplementary information included in the CAFR and consider whether such information, including the manner of presentation, is materially consistent with information appearing in the basic financial statements. However, they are not required to provide an opinion on Management’s Discussion and Analysis or on the supplementary or statistical information contained in the CAFR.

As required by Government Auditing Standards, the Accountants will prepare a separate written report on their tests of compliance with applicable laws and regulations. This report will contain a statement on those items not tested, and a description of all material instances of noncompliance.

Accountants will complete their audit of the basic financial statements, review of City-prepared printer-ready proofs of the CAFR, and deliver 1 copy of their audit opinion to the Auditee Project Manager no later than November 18, 2002. The City will print and assemble the CAFR.

The City intends to qualify its CAFR for the GFOA Certificate of Achievement for Excellence in Financial Reporting. Accordingly, the Accountants will assist City personnel in their efforts to prepare the CAFR so that all the qualifications for obtaining the Certificate are met.

2. Report on the Single Audit

As required by OMB Circular A-133 and related Compliance Supplements, the Accountants will consider and test the City's internal control structure policies and procedures used in administering federal financial assistance programs. Based on this consideration and these tests, the Accountants will assess risk and determine the nature, timing, and extent of tests of compliance with requirements that, if not complied with, could have a material effect on a major federal financial assistance program. Also, in connection with the audit of the financial statements or their consideration of the internal control structure over federal financial assistance programs, if the Accountants select a transaction for testing that is applicable to a non-major program, they will also test it generally for compliance with laws and regulations.

In accordance with OMB Circular A-133, City Grants Compliance staff will provide a schedule of expenditures of federal awards, a summary schedule of prior audit findings, a corrective action plan for current year audit findings, and data collection form (Part 1).

Accountants will issue the following:

• A report on compliance and on internal control over financial reporting based on an audit of the basic financial statements,,

• A report on compliance with requirements applicable to each major program and internal control over compliance in accordance with OMB Circular A-133, and

• Schedule of Findings and Questioned Costs.

Accountants will draft, type and deliver 1 copy of the appropriate OMB data collection forms and 50 copies of the Single Audit report, including management's responses to the findings and recommendations, to the Contract Manager no later than December 13, 2002.

If the Accountants find indications of fraud, waste and illegal acts, or questioned costs, a separate written report to the funding agency is required.

3. Hydroelectric Power Fund

A report on the audit of the financial statements of the Hydroelectric Power Fund. The fiscal year for this fund is August 31; accordingly, the Accountants will have to review an interim closing at June 30 in order to include the operations of this fund in the City's CAFR. Accountants will assist in drafting the financial statements and deliver 2 copies of a final draft of the financial statements to the Auditee Project Managers by January 10, 2003. Accountants will type and deliver 30 copies of the final report and related financial statements to the Contract Manager no later than January 17, 2003.

FIRE AND POLICE DISABILITY AND RETIREMENT FUNDS

Reports on the audits of the financial statements of the Fire and Police Disability and Retirement Fund and the Fire and Police Disability and Retirement Reserve Fund. Accountants will assist in drafting the financial statements and deliver 1 copy of a final draft of the financial statements and notes to each Auditee Project Manager for the City and for these Funds no later than November 4, 2002. Accountants will type and deliver 25 copies of the final reports and related financial statements and notes to the Contract Manager no later than November 29, 2002.

BUREAU OF LICENSES

Accountants shall use the efforts of Bureau employee Karen Johnson for up to 880 audit hours during the term of this contract to enable her to satisfy the Oregon Board of Accountancy’s experience requirements for licensure as a Certified Public Accountant. Karen’s efforts shall be at least 20 hours per week but may be as much as 40 hours per week, unless reduced to less than 40 hours by the Bureau.

The Bureau will make Karen available at no cost to the Accountants as consideration for the Accountant’s providing Karen with a qualified CPA/mentor who will supervise Karen’s work. At the end of this contract, depending on Karen’s demonstrated abilities in one or more of the seven core competencies required by the Board of Accountancy, complete the Board of Accountancy’s Competency Evaluation Worksheet attesting to those core competencies successfully demonstrated by her.

MANAGEMENT LETTERS

As part of the audits, the Accountants will consider the Auditee's internal control structure, as required by auditing standards generally accepted in the United States of America. These standards require the Accountants to obtain an understanding of the controls and assess risk as a basis for determining the nature, timing, and extent of auditing procedures necessary for expressing their opinions on the financial statements. The Accountants will communicate in writing with the Auditees and City Auditor on matters that come to their attention that represent reportable conditions and/or material weaknesses in the design or operation of internal controls.

If a written letter to management is prepared, City Charter Section 2-511 requires management's written responses be included. Accordingly, the Accountants shall work with the Contract Manager to prepare a Working Draft of the report and to discuss proposed findings and recommendations with management and staff of applicableCity bureaus. The Working Draft will be submitted to the Contract Manager not later than 60 days after the date of the Accountant’s report on the City’s CAFR. City Bureaus and managers shall provide written responses within 10 working days of receipt of a Final Draft. The Accountants will prepare and deliver 30 copies of the Final Letter, including management's responses, to the Contract Manager not later than 10 days after receipt of responses from management.

TECHNICAL ASSISTANCE

As part of the overall services to be provided, the Accountants agree to provide up to a total of 40 hours of limited technical assistance to the Auditees throughout the year. Such assistance shall include but not be limited to the following:

o Consultation and assistance as necessary and requested by the Auditees to provide a reasonable level of assurance regarding adoption of appropriate accounting standards.

o Assist the City in maintaining its GFOA Certificate of Achievement in Financial Reporting.

o Provide Auditees with counsel and advice on reformatting financial statements to reflect any future FASB/GASB pronouncements, especially GASB 34.

o Provide ongoing continuity throughout the year at the partner level.

o Provide Auditees access to Accountants' technical library and assistance in research when requested.

SPECIAL STUDIES OR ASSISTANCE

The Accountants agree to notify the Contract Manager when they have been asked by any City agency to propose on or contract for other work not encompassed by this Agreement. Such communications shall be written and include the name of the requesting bureau or office and the nature and scope of the work requested.

Any special studies or assistance not encompassed by this Agreement, shall be negotiated separately with the requesting City agency and the Accountants in accordance with the City’s Purchasing Rules for PTE Services.

COMMUNICATIONS

As part of the audits, the Accountants will ensure that certain additional matters are communicated to the appropriate members of management, City Auditor, and City Council/Governing Boards. Such matters include:

1. The initial selection of and changes in significant accounting policies and their application;

2. The process used by management in formulating particularly sensitive accounting estimates and the basis for their conclusions regarding the reasonableness of those estimates;

3. Audit adjustments that could, in their judgement, either individually or in the aggregate, have a significant effect on Auditee financial reporting processes;

4. Any disagreements with management, whether or not satisfactorily resolved, about matters that individually or in the aggregate could be significant to the financial statements or the Accountants' reports;

5. The Accountants' views about matters that were the subject of management's consultation with other accountants about auditing and accounting matters;

6. Major issues that were discussed with management in connection with the retention of Accountants' services, including, among other matters, any discussions regarding the application of accounting principles and auditing standards; and

7. Serious difficulties encountered in dealing with management related to conducting the audit.

As part of the ongoing process of assessing the quality of the Accountants' services, the Auditees may receive questionnaires from the Accountants and/or visits from senior partners not directly involved in providing services to the Auditees. The Accountants would appreciate the attention given to these inquiries and value the commentary of the Auditee Project Managers. Additionally, if the Auditees have any questions or concerns about the Accountants' services, they are free to contact Robert Henarie, the Client Service Partner-In-Charge for the audit team serving the Auditees.

NOTICE, CHANGE IN SCOPE, AND ADJUSTMENT OF COMPENSATION

FAILURE TO FOLLOW THESE PROCEDURES SHALL PRECLUDE

ANY EXTENTIONS OF REPORT DELIVERY DATES

OR ADJUSTMENTS OF COMPENSATION

1. Any extensions of report delivery dates set forth above, either requested by the Accountants, or as evidenced by non-receipt of reports by the Contract Manager, is a change in the scope of work under this Agreement.

2. A “Notice of Change in Scope and Adjustment of Compensation” (Notice), as set forth in Agreement Exhibit I, shall be used to request extensions of report delivery dates and/or adjustments to compensation as set forth below:

a. If the amendment and extension of a report due date results from the Accountant's own internal operations and scheduling, such amendments shall decrease the compensation as set forth in Exhibit E, by $960 per day ($1,148 if after January 15, 2003) or part of a day that a report is delinquent.

b. If the amendment and extension of a report due date results from late delivery of financial statements or audit schedules, and not from the Accountant's own internal operations and scheduling, such amendments shall increase the compensation set forth in Exhibit E, by $960 per day ($1,148 if after January 15, 2003) or part of a day, and extend the Accountant's report delivery date by the same number of days that such schedules or report drafts remain delinquent.

c. If the amendment resulted from increasing the number of report copies to be provided by the Accountants as set forth above, such amendments shall increase the compensation by $35.00 per report.

3. Processing Notices and related amendments to the Agreement

a. A Notice shall be prepared and signed by the Accountants and delivered to the Auditee Project Manager and Contract Manager. Upon receipt of the Notice, the Contract Manager will obtain the signature of the Auditee Project Manager and deliver the signed Notice to the City Auditor for approval and signature. Once approved, the Notice shall constitute an amendment to the Agreement. The Contract Manager will distribute signed/approved copies of the Notice/Amendment to the Accountants and Auditee Project Manager.

b. If the change in scope results in an increase in fees as provided for in Sections 7(b) and 30 of the Agreement, the Contract Manager will facilitate the increase in total compensation to the Accountants, including formal approval of such amendments by the City Auditor and/or City Council as appropriate.

4. Limit on Report Due Date Extensions

ACCOUNTANTS AND AUDITEES AGREE TO EXERCISE THEIR BEST EFFORTS TO ENSURE THAT ANY AMENDMENTS UNDER THESE PROCEDURES DO NOT EXTEND REPORT DELIVERY DATES BEYOND THE TIME REQUIRED TO FILE THESE REPORTS WITH APPLICABLE AGENCIES UNDER FEDERAL, STATE, OR LOCAL LAWS, CONTRACTS, OR AGREEMENTS, OR WITH THE GOVERNMENT FINANCE OFFICERS ASSOCIATION FOR PURPOSES OF OBTAINING ANY CERTIFICATES OF ACHIEVEMENT FOR EXCELLENCE IN FINANCIAL REPORTING.