ADMINISTRATIVE COMMITTEE
5.	CONSIDER EXPENDITURE OF FUNDS AND AUTHORIZATION TO CONTRACT WITH HAYASHI & WAYLAND TO CONDUCT ANNUAL FINANCIAL AUDITS FOR FISCAL YEARS 2006-07, 2007-08 & 2008-09
Meeting Date:		June 7, 2007	Budgeted:	Yes
From:		David A. Berger,	Program/	Services & Supplies –
		General Manager	Line Item No.:	Professional Services
Prepared By:		Rick Dickhaut	Cost Estimate:	$24,500 (FY 2006-07) $77,000 (Three Year Total)
General Counsel Approval: N/A
Committee Recommendation: The Administrative Committee reviewed this item on June 7, 2007 and recommended ____________________.
CEQA Compliance: N/A

SUMMARY: The District is required by Monterey County to have an annual audit performed by an accounting firm approved by the County Auditor-Controller. The three-year agreement with the firm of Hayashi and Wayland (H&W) to conduct the annual audit of the District’s financial records expired in Fiscal Year (FY) 2005-06. In early 2006, the American Institute of CPA’s Auditing Standards Board, passed a sweeping set of new auditing standards which consist of eight statements related to the assessment of risk and performance procedures in an audit of financial statements. The standards will significantly increase the work required by auditors. At the heart of these statements are requirements for the auditor to:

• Obtain a broader and deeper understanding of the entity and its environment, including its internal control, to identify the risks of material misstatements in the financial statements and define what the entity is doing to mitigate them
• Perform a more rigorous assessment of the risks of material misstatement of the financial statements
• Demonstrate linkage between the assessed risks and the audit procedures performed in response to those risks
• Perform substantive audit procedures for all significant accounts, transaction classes and financial statement disclosures, regardless of the risk assessment for those items

At the request of District staff, H&W has submitted a three-year proposal in the amounts of $24,500 for FY 2006-07, $25,500 for FY 2007-08 and $27,000 for FY 2008-09. If the District were to choose a one-year engagement, the cost for FY 2006-07 would be $27,000. To calculate fees for the FY 2006-07 H&W estimated 236 hours would be required, resulting in a total cost of $30,000. The rate quote of $27,000 for a single year contract is $3,000, or 11% below their estimated cost; while their rate quote for a three-year contract starting in FY 2006-07 is $24,500, or 18% below their estimated cost of $30,000.

District staff has contacted the fiscal officers of the Carmel Area Wastewater District and Pebble Beach Community Services District to obtain information about their annual audit costs. Based on a comparison of the estimated hours and fees paid by those two agencies, District staff feels that the quotes from H&W are reasonable and competitive, particularly when the new auditing requirements discussed above are taken into account.

RECOMMENDATION: District staff recommends that the Board authorize the General Manager to enter into a three-year agreement with Hayashi & Wayland, beginning with FY 2006-07, to conduct the annual audit of the District’s financial records for a total cost of $77,000.

BACKGROUND: Annually, the District is required to secure an independent audit of its financial operations in conformance with the requirements set by the Governmental Accounting Standards Board (GASB), the California State Controller and Monterey County. Due to the uniqueness of the District’s operations, including its involvement with the CAWD/PBCSD Wastewater Reclamation Project, there is a very high learning curve for auditors to become sufficiently knowledgeable with the District’s financial records to enable them to complete an efficient and adequate audit. The District has used the accounting firm of Hayashi & Wayland to conduct the annual audit of the District’s financial records since 1989. Since that time, the firm has become very familiar with the operations of the District and has done an excellent job of completing the annual audits. The audit for FY 2005-06 cost $19,500 and concluded the latest three-year agreement with Hayashi & Wayland.

EXHIBITS

None

U:\staff\word\committees\Admin\2007\20070607\05\item5.doc