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HomeMy WebLinkAboutItem 08 - Government Accounting StatementITEM MEMO TO: HONORABLE MAYOR AND MEMBERS OF THE CITY COUNCIL FROM: ROGER NELSON, CITY MANAGE MEETING DATE: JUNE 20, 2000 SUBJECT: LETTER AGREEMENT WITH DELOITTE & TOUCHE TO PERFORM A GOVERNMENT ACCOUNTING STANDARDS STATEMENT NO. 34 READINESS ASSESSMENT RECOMMENDATION: City Council to consider authorizing the City Manager to execute a letter agreement with Deloitte & Touche, LLP. to perform a readiness assessment and assist the City in implementation of Government Accounting Standards Board Statement No. 34 (GASB 34) in an amount of $40,000. FUNDING SOURCE: Funds are available in the following accounts: 100-44540-120-1 $13,000 200-44540-533-1 $13,000 116-44540-535-1 $14,000 BACKGROUND: In June, 1999 the Governmental Accounting Standards Board (GASB) issued its Statement No. 34. Basic financial statements — and management's discussion and analysis — for state and local governments. Implementation of this statement will require substantial changes in the way that the City collects information about financial transactions, records certain transactions in its ledgers and reports its financial information in accordance with Generally Accepted Accounting Principles (GAAP). The recommended study will produce an assessment of needs for GASB 34 compliance which can be addressed in FY 2001 to prepare us for 2002/2003 compliance. The cost for Deloitte & Touche to assist the City in assessment of GASB 34 compliance needs and developing an implementation plan is $40,000. June 16, 2000 (9:54AM) It should be noted that this requirement affects all state and local governmental entities including school districts, counties, etc. Compliance with Statement 34 will change the framework of financial reporting for state and local governments. A partial list of the new requirements is as follows: • Management's Discussion and Analysis (MD&A). This is similar to what is required from public companies when reporting to the Securities and Exchange Commission (SEC). This is something which has not been previously required of governmental entities. • Government wide financial statements on full accrual basis. This method of reporting will give a clear picture of the government as a single unified entity, rather than an aggregation of separate funds as has been reported in the past. • Statement of activities on a "cost of service" basis. The standard model requires cost information for both governmental and business type activities. The new schedules will demonstrate the degree to which each governmental function is self-financing; i.e., financed through non -tax resources. • Separate reporting on only major funds rather than aggregations of fund types as has been done in the past. • There will be a new definition of fund types, which generally will include governmental type activities and business type activities. Cost data, including depreciation and other internal costs such as information technology and building services internal services funds must be accrued to operating funds for a full cost allocation picture. • Depreciation of all fixed assets must be shown. In the past, general fixed assets have not been required to be depreciated and shown as expenses on the financial statements of the general fund. General fixed assets include non utility -fund fixed assets such as streets, bridges, traffic signals, buildings, parking lots and the like. These items will have to be cataloged, a value determined, a depreciation schedule established and depreciation shown in the general operating funds. GASB 34 requires going back to 1980 on assets on the City's books to be included on the depreciation schedules. This sort of report has never been previously required in order to be in compliance with Generally Accepted Accounting Principles. (GAAP). • The new standards require a more extensive budget comparison than has been necessary in the past. The results of the financial operations must be compared to both the original approved budget and the final amended budget. The standard also requires narrative discussion of variances between original and final amended budget with discussion of policies affecting such changes. June 16, 2000 (9:54AM) Many of these standards will require significant research and preparation on the part of the City prior to implementation. The City auditors have recommended in their observations recorded in the FY 99 Audit that the City should review the requirements of GASB 34 and develop a plan of action for implementation. City staff review of GASB 34 requirements has been completed and it is recommended that the attached letter agreement from Deloitte & Touche be authorized. The City must comply with GASB 34 for the fiscal year ended September 30, 2003. To meet this schedule, the City must have its assessment completed now so that implementation of GASB 34 procedures can begin in FY 2001. Staff recommends approval. WAG/cjc H:GASBAGM June 16, 2000 (9:54AM) Deloitte &Touche LLP Suite 1600 Chase Tower 2200 Ross Avenue Dallas,Texas 75201-6778 Tel: (214) 777 7000 www.us.deloitte.com June 12, 2000 Mr. Fred Werner City of Grapevine, Texas 200 South Main Grapevine, Texas 76051 Dear Mr. Werner: Deloitte & Touche Deloitte & Touche LLP ("D&T") is pleased to provide this engagement letter to confirm this engagement to provide certain services to assist the City of Grapevine, Texas (the "City") in its assessment of its readiness to implement the requirements of Governmental Accounting Standards Board (GASB) Statement No. 34, "Basic Financial Statements — and Management's Discussion and Analysis — for State and Local Governments" ("GASB Statement No. 34") on the terms and conditions set forth herein. The services described herein shall be performed by D&T in accordance with the standards for consulting services of the American Institute of Certified Public Accountants. Project Workplan The following section describes D&T's overall 3-phase workplan designed to assist the City in its assessment of its readiness to implement the requirements of GASB Statement No. 34. Phase 1.0 - Project Initiation D&T's objectives in this initial phase of the project to assist the City in its assessment of its GASB Statement No. 34 implementation readiness are to: 1.1 Explain our overall methodology and deliverables for this engagement; 1.2 Establish primary D&T and City contact persons for the performance of this engagement, as well as regularly scheduled times for such contact persons to meet; 1.3 Assist the City in identifying the types of information required under GASB Statement No. 34 and of information sources at the City; 1.4 Assist the City in developing (a) an initial interview list of key personnel of the City for use in the Assessment phase of this project and (b) a preliminary schedule for interviews of such personnel to be conducted by D&T; and 1.5 Analyze and make observations concerning the anticipated scope and timing of the City's assessment plan. Deloitte Touche Tohmatsu Mr. Fred Werner June 12, 2000 Page 2 Phase 2.0 — Assessment The objectives of the second phase of our work are to assist the City in its assessment of (1) the availability of information at the City needed to satisfy each significant financial reporting area of GASB Statement No. 34, as identified by the City and D&T, and (2) the ability of the City's current accounting systems to assemble information in accordance with GASB Statement No. 34 requirements. This phase of the workplan will utilize D&T's proprietary reporting model risk assessment tool, which is designed to assist in the identification of areas that may require additional attention or resources in order for the City to effectively implement the requirements of GASB Statement No. 34. In addition, during this phase (a) D&T and/or the City, as may be mutually agreed to in writing by D&T and the City, shall conduct interviews of City personnel identified in phase 1, and (b) D&T will also assist the City with its: 2.1 Identification and prioritization of projects relating to the City's implementation of GASB Statement No. 34, such as accounting system changes, capital asset tracking procedures, and financial statement design; 2.2 Development of a general time line for the implementation of each of the critical new reporting requirements, as identified by the City and D&T, to facilitate the City's readiness for implementation of GASB Statement No. 34 by fiscal year 2002; 2.3 Identification of the availability of significant information that is required to be gathered and analyzed during the implementation of GASB Statement No. 34, using D&T's proprietary reporting model risk assessment tool; 2.4 Identification of the types of financial statements and level of detail required for presentation under GASB Statement No. 34; and 2.5 Analysis of whether the City's current fund structure conforms to GASB Statement No. 34 requirements. Also during this phase, D&T and the City will jointly develop possible recommendations, if any, of potential strategies the City may adopt to facilitate financial statement preparation under GASB Statement No. 34. Phase 3.0 — Report on Findings, Observations and Possible Recommendations In this phase we will prepare and deliver to the City, as the deliverable under this Agreement, a written report summarizing (a) our findings and observations in the previous two phases and (b) the possible recommendations developed in phase two, if any, of potential strategies the City may adopt to facilitate financial statement preparation under the requirements of GASB Statement No. 34. ********** The services that D&T is to perform hereunder at the request of the City are limited in nature and do not comprehend all matters that might be pertinent or necessary to the City's assessment of its readiness to implement the requirements of GASB Statement No. 34. Mr. Fred Werner June 12, 2000 Page 3 D&T will not provide any assurances, nor will D&T express any opinion, relating to GASB Statement No. 34 or the City's readiness to implement the requirements thereof. The City acknowledges that (a) the nature, scope and design of its GASB Statement No. 34 implementation readiness assessment, for which the City has requested D&T's assistance pursuant to the terms hereof, is the sole responsibility of the City, (b) D&T has no responsibility to advise the City of alternative assessment methods that might be performed or conducted, and (c) D&T makes no representations as to the sufficiency of the City's GASB Statement No. 34 implementation readiness assessment program. Project Staffing We propose to staff this engagement with Blake Wilson, manager, and Reem Samra, senior manager. Additional Services Upon completion of the workplan described above, it is anticipated that additional work will be required to determine the appropriate steps to be taken by the City to implement the requirements of GASB Statement No. 34 and to implement any recommendations proposed by D&T. Examples of such steps include, but are not limited to, implementing new information systems, preparing inventories of and valuing fixed assets, and revising external reporting processes. The implementation of any D&T recommendations and the general implementation of the requirements of GASB Statement No. 34, are not a part of this engagement and the City acknowledges and understands that certain items, facts or events may come to the City's or the implementer's attention during the course of any such implementation that may modify the findings or observations provided to you as part of this engagement. D&T would be pleased to assist you in any implementation of GASB Statement No. 34 pursuant to the terms and conditions of a separate mutually agreed-upon engagement letter. Professional Fees and Term Our estimated professional fees for this project are $40,000. Our fees will be based on actual hours spent on the engagement at D&T's standard hourly rate in effect from time to time. The estimated completion date of our project is dependent upon, among other things, your cooperation and the cooperation and availability of members of your staff. We will promptly notify you of any circumstances we encounter that could significantly affect our fee estimate or estimated completion date. Such estimates and description of the workplan are based on information known to us at the time of the signing of this engagement letter and the assumption that unexpected circumstances will not be encountered during this engagement. If modifications to our workplan are necessary, we will promptly discuss such changes with you and arrive at a revised agreed-upon workplan description. If significant additional time is Mr. Fred Werner June 12, 2000 Page 4 necessary, we will discuss it with you and arrive at a revised agreed-upon estimated completion date or fee estimate before we incur additional costs substantially in excess of our cost estimate. This engagement letter, including the General Business Terms attached hereto as Exhibit I and made a part hereof, constitutes the entire agreement between the City and D&T with respect to this engagement, supercedes all other oral and written representations, understandings or agreements relating to this engagement, and may not be amended except by the mutual written agreement of the City and D&T. If the foregoing sets forth your understanding and you are in agreement with the terms and conditions set forth herein, please sign the enclosed copy of this letter at the space indicated below and return it to us. Yours truly, ACCEPTED AND AGREED TO BY: City of Grapevine, Texas Signature: Printed name of signer Title: Date: Attachment EXHIBIT I ro GENERAL BUSINESS TERMS 1. Services. It is understood and agreed that the services of Deloitte & Touche LLP ("D&T) may include advice and recommendations, but all decisions in connection with the implementation of such advice and recommendations shall be the responsibility of, and made by, the City of Grapevine, Texas (the "City"). In connection with its services hereunder, D&T shall be entitled to rely on all decisions and approvals of the City. 2. Payment of Invoices. Properly submitted invoices upon which payment is not received within thirty (30) days of the invoice date shall accrue a late charge of the lesser of (i) 1'/2% per month or (ii) the highest rate allowable by law, in each case compounded monthly to the extent allowable by law. Without limiting its rights or remedies, D&T shall have the right to halt or terminate entirely its services until payment is received on past due invoices. 3. Term. Unless terminated sooner in accordance with its terms, this engagement shall terminate on the completion of D&T's services hereunder. This engagement may be terminated by either party at any time by giving written notice to the other party not less than 30 calendar days before the effective date of termination. 4. Ownership. a) D&T Technology. D&T has created, acquired or otherwise has rights in, and may, in connection with the performance of services hereunder, employ, provide, modify, create, acquire or otherwise obtain rights in, various concepts, ideas, methods, methodologies, procedures, processes, know-how, and techniques (including, without limitation, function, process, system and data models; templates; the generalized features of the structure, sequence and organization of software, user interfaces and screen designs; general purpose consulting and software tools, utilities and routines; and logic, coherence and methods of operation of systems) (collectively, the "D&T Technology"). b) Ownership of Deliverables. Except as provided below, upon full and final payment to D&T hereunder, the tangible items specified as deliverables or work product in the engagement letter to which these terms are attached (the "Deliverables") shall become the property of the City. To the extent that any D&T Technology is contained in any of the Deliverables, D&T hereby grants the City, upon full and final payment to D&T hereunder, a royalty -free, fully paid-up, worldwide, non-exclusive license to use such D&T Technology in connection with the Deliverables. c) Ownership of D&T Property. To the extent that D&T utilizes any of its property (including, without limitation, the D&T Technology or any hardware or software of D&T) in connection with the performance of services hereunder, such property shall remain the property of D&T and, except for the license expressly granted in the preceding paragraph, the City shall acquire no right or interest in such property. Notwithstanding anything in this engagement letter, including these terms, to the contrary, the parties acknowledge and agree that (a) D&T shall own all right, title, and interest, including, without limitation, all rights under all copyright, patent and other intellectual property laws, in and to the D&T Technology and (b) D&T may employ, modify, disclose, and otherwise exploit the D&T Technology (including, without limitation, providing services or creating programming or materials for other Cities). D&T does not agree to any terms that may be construed as precluding or limiting in any way its right to (a) provide consulting or other services of any kind or nature whatsoever to any person or entity as D&T in its sole discretion deems appropriate or (b) develop for itself, or for others, materials that are competitive with those produced as a result of the services provided hereunder, irrespective of their similarity to the Deliverables. 5. Limitation on Warranties. THIS IS A SERVICES ENGAGEMENT. D&T WARRANTS THAT IT SHALL PERFORM SERVICES HEREUNDER IN GOOD FAITH. D&T DISCLAIMS ALL OTHER WARRANTIES, EITHER EXPRESS OR IMPLIED, INCLUDING, WITHOUT LIMITATION, WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE. 6. Limitation on Damages. a) The City agrees that D&T and its personnel shall not be liable to the City for any claims, liabilities, or expenses relating to this engagement for an aggregate amount in excess of the fees paid by the City to D&T pursuant to this engagement, except to the extent finally judicially determined to have resulted from the bad faith or intentional misconduct of D&T. In no event shall D&T or its personnel be liable for consequential, special, indirect, incidental, punitive or exemplary loss, damage, or expense relating to this engagement. b) The limitation on liability of this engagement letter shall apply to the fullest extent of the law, whether in contract, statute, tort (such as negligence), or otherwise. 7. Cooperation. The City shall cooperate with D&T in the performance by D&T of its services hereunder, including, without limitation, providing D&T with reasonable facilities and timely access to data, information and personnel of the City. The City shall be responsible for the performance of its personnel and agents and for the accuracy and completeness of all data and information provided to D&T for purposes of the performance by D&T of its services hereunder. 8. Force Majeure. D&T shall not be liable for any failures or delays resulting from circumstances or causes beyond its reasonable control, including, without limitation, acts or omissions or the failure to cooperate pursuant to this engagement letter, including these terms, by the City (including, without limitation, entities or individuals under its control, or any of their respective officers, directors, employees, other personnel and agents), acts or omissions or the failure to cooperate by any third party, fire or other casualty, act of God, strike or labor dispute, war or other violence, or any law, order or requirement of any governmental agency or authority. 9. Limitation on Actions. No action, regardless of form, arising under or relating to this engagement, may be brought by either party more than one year after the cause of action has accrued, except that an action for non-payment may be brought by a party not later than one year following the date of the last payment due to such party hereunder. 10. Independent Contractor. It is understood and agreed that each of the parties hereto is an independent contractor and that neither party is, nor shall be considered to be, an agent, distributor or representative of the other. Neither party shall act or represent itself, directly or by implication, as an agent of the other or in any manner assume or create any obligation on behalf of, or in the name of, the other. 11. Confidentiality and Internal Use. a) The City agrees that all services hereunder and Deliverables shall be solely for the City's informational purposes and internal use. The City further agrees that such services and Deliverables shall not be used by, or circulated, quoted, disclosed, or distributed to, nor shall reference to such services or Deliverables be made to, any person or entity other than the City. b) To the extent that, in connection with this engagement, D&T comes into possession of any proprietary or confidential information of the City, D&T will not disclose such information to any third party without the City's consent, except (a) as may be required by law, regulation, judicial or administrative process, or in accordance with applicable professional standards, or in connection with litigation pertaining hereto, or (b) to the extent such information (i) shall have otherwise become publicly available (including, without limitation, any information filed with any governmental agency and available to the public) other than as the result of a disclosure by D&T in breach hereof, (ii) is disclosed by the City to a third party without substantially the same restrictions as set forth herein, (iii) becomes available to D&T on a nonconfidential basis from a source other than the City which D&T does not believe is prohibited from disclosing such information to D&T by obligation to the City, (iv) is known by D&T prior to its receipt from the City without any obligation of confidentiality with respect thereto, or (v) is developed by D&T independently of any disclosures made by the City to D&T of such information. In addition, the City acknowledges and agrees that any such information that comes to the attention of D&T in the course of performing this engagement will be considered and used by D&T in the context of responding to its professional obligations as the independent accountants for the City. 12. Survival. The agreements and undertakings of the City contained in the engagement letter to which these terms are attached, together with the provisions of Paragraphs 1, 2, 4, 5, 6, 7, 8, 9, 10, 11, 12, 13 and 14 hereof, shall survive the expiration or termination of this engagement. 13. Assignment. Except as provided below, neither party may assign, transfer or delegate any of the rights or obligations hereunder without the prior written consent of the other party. D&T may assign or subcontract its rights and obligations hereunder to any affiliate or related entity without the consent of the City. 14. Governing Law and Severability. These terms, and the engagement letter to which these terms are appended, including the exhibits, shall be governed by, and construed in accordance with, the laws of the State of New York (without giving effect to the choice of law principles thereof). If any provision of this engagement letter, including these terms, is found by a court of competent jurisdiction to be unenforceable, such provision shall not affect the other provisions, but such unenforceable provision shall be deemed modified to the extent necessary to render it enforceable, preserving to the fullest extent permissible the intent of the parties set forth in this engagement letter, including these terms.