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HomeMy WebLinkAboutResolution - 2009-R0251 - Contract - BKD LLP - Franchise Fee Audit - 07/08/2009Resolution No. 2009—RO25I July 8, 2009 Item No. 5.3 RESOLUTION BE IT RESOLVED BY THE CITY COUNCIL OF THE CITY OF LUBBOCK: THAT the Mayor of the City of Lubbock BE and is hereby authorized and directed to execute for and on behalf of the City of Lubbock, a Contract for franchise fee audit, by and between the City of Lubbock and BKD, LLP of Little Rock, Arkansas, and related documents. Said Contract is attached hereto and incorporated in this resolution as if fully set forth herein and shall be included in the minutes of the City Council. Passed by the City Council this ATTEST: Rebecc Garza, City Secretary APPROVED AS TO CONTENT: 8th day of July '2009. LLM &9tn= Andy B sham, Chief Financial Officer APPROVED AS ty Attorney Res-Contract-BKD, LLP 6.8.09 J;;�� �, 40— TOM MARTIN, MAYOR BKOLLP CPAs & Advisors June 11, 2009 Members of City Council Honorable Tom Martin, Mayor Ms. Lee Ann Dumbauld, City Manger Mr, Andy Burcham, Chief Financial Officer City of Lubbock, Texas P.O. Box 2000 Lubbock, Texas 79457 Resolution No. 2009-80251 400W. Capitol Avenue, Suite 200 F.O. Box 3667 Little Rock, AR 72203-3667 501.372.1040 Fax 501.372.1250 www.bkd.com We are pleased to confirm the arrangements of our engagement and the nature of the services we will provide to the following specified users: the City of Lubbock, Texas, and its franchises. OUR SERVICES AND THE RESPONSIBILITIES OF THE PARTIES We will apply the procedures enumerated in the attachment to this letter regarding the City of Lubbock's franchise agreements with Atmos Energy, Inc., South Plains Electric Cooperative, Suddenlink, Inc. and Xcel Energy, Inc. for the 42 -months period ended December 31, 2008, in accordance with attestation standards established by the American Institute of Certified Public Accountants. The sufficiency of the requested procedures is solely the responsibility of the parties to be specified in our report. Consequently, we make no representation regarding the sufficiency of the procedures for the purpose for which the report has been requested or for any other purpose. Because we have not been engaged to conduct an examination, we will not express an opinion on whether the remitted franchise fees are proper. In addition, we have no obligation to perform any procedures beyond those contemplated in the attachment to this letter. Our engagement will not include a detailed examination of all transactions and cannot be relied upon to disclose misstatements that might exist due to error, fraud and illegal acts. however, we will inform you of any such matters, if material, that come to our attention. It should be understood that the management of the City of Lubbock, 'texas, and Atmos Energy, Inc., South Plains Electric Cooperative, Suddenlink, Inc. and Xcel Energy, Inc. are responsible for the proper recording of transactions and preparation of their financial statements. Management of the City of Lubbock, Texas, and Atmos Energy, Inc_, South Plains Electric Cooperative, Suddenlink, Inc. and Xcel Energy, Inc. are also responsible for establishing and maintaining effective internal control over financial reporting and setting the proper tone; creating and maintaining a culture of honesty and high ethical standards; and establishing appropriate controls to prevent, deter and detect fraud and illegal acts. Management of the City of Lubbock, Texas, and its franchisees are also responsible for identifying and ensuring compliance with laws and regulations applicable to their activities and for establishing and maintaining effective internal control over compliance:, experience BKO Praxity�: ME SER ' EL09AI. ALLIANCE DF IND€P€NDEN7 FM M5 Members of City Council Honorable Tom Martin, Mayor Ms. Lee Ann Dumbauld, City Manger Mr. Andy Burcham, Chief Financial Officer City of Lubbock, Texas June 11, 2009 Page 2 We will submit a report summarizing the procedures performed and the results of those procedures. The report is intended solely for the information and use of the City of Lubbock, Texas, and is not intended to be and should not be used by anyone other than these specified parties. If, for any reason, we are unable to complete our procedures, we may decline to issue a report as a result of this engagement. OTHER SERVICES We may perform other services for you not covered by this engagement letter. You agree to assume full responsibility for the substantive outcomes of those services, including any findings that may result. You also acknowledge that those services are adequate for your purposes and that you will establish and monitor the performance of those services to ensure that they meet management's objectives. Any and all decisions involving management functions related to those services will be made by you, and you accept full responsibility for such decisions. We understand that you will designate a management -level individual to be responsible and accountable for overseeing the performance of those services, and that you will have determined this individual is qualified to conduct such oversight. ENGAGEMENT FEES Our fees will be based on time expended plus charges for travel, long-distance telephone, copies, etc. and are not expected to exceed $45,000. If the requested procedures exceed those anticipated, our fees may increase. We will discuss any proposed increase with you before performing any increased work. We will issue progress billings during the course of our engagement, and our statements are due when received. Our engagement fee does not include any time for post -engagement consultation with your personnel or third parties, inquiries from regulators or testimony or deposition regarding any subpoena. Charges for such services will be billed separately. If our invoices for this or any other engagement you may have with BKD are not paid within 30 days, we may suspend or terminate our services for this or any other engagement. In the event our work is suspended or terminated as a result of nonpayment, you agree we will not be responsible for any consequences to you. Members of City Council Honorable Tom Martin, Mayor Ms. Lee Ann Dumbauld, City Manger Mr. Andy Burcham, Chief Financial Officer City of Lubbock, Texas June 11, 2009 Page 3 OTHER ENGAGEMENT MATTERS AND LMTATIONS Our workpapers and documentation retained in any form of media for this engagement are the property of BKD. We can be compelled to provide information under legal process. In addition, we may be required by regulatory or enforcement bodies to make certain workpapers available to them pursuant to authority granted by law or regulation. You agree that we have no legal responsibility to you in the event we provide such documents or information. You agree to hold harmless BKD and its personnel from any claims, liabilities, costs and expenses relating to our services under this agreement attributable to false or incomplete representations by management, except to the extent determined to have resulted from the intentional or deliberate misconduct of BKD personnel. You agree that any dispute regarding this engagement will, prior to resorting to litigation, be submitted to mediation upon written request by either party. Both parties agree to try in good faith to settle the dispute in mediation. The American Arbitration Association, or another mutually agreeable mediator, will administer any such mediation in accordance with its Commercial Mediation Rules. The results of the mediation proceeding shall be binding only if each of us agrees to be bound. We will share any costs of mediation proceedings equally. Either of us may terminate these services at any time. Both of us must agree, in writing, to any future modifications or extensions. If services are terminated, you agree to pay us for time expended to date plus charges for travel, long-distance telephone, copies, etc. If any provision of this agreement is declared invalid or unenforceable, no other provision of this agreement is affected and all other provisions remain in full force and effect. This engagement letter represents the entire agreement regarding the services described herein and supersedes all prior negotiations, proposals, representations or agreements, written or oral, regarding these services. It shall be binding on heirs, successors and assigns of you and BKD. We may from time to time utilize third -party service providers, e.g., domestic software processors or legal counsel, or disclose confidential information about you to third -party service providers in serving your account. We remain committed to maintaining the confidentiality and security of your information. Accordingly, we maintain internal policies, procedures and safeguards to protect the confidentiality of your information. In addition, we will secure confidentiality agreements with all service providers to maintain the confidentiality of your information. Members of City Council Honorable Tom Martin, Mayor Ms. Lee Ann Dumbauld, City Manger Mr. Andy Burcham, Chief Financial Officer City of Lubbock, Texas June 11, 2009 Page 4 We will, at our discretion or upon your request, deliver financial or other confidential information to you electronically via email or other mechanism. You recognize and accept the risk involved, particularly in email delivery as the Internet is not necessarily a secure medium of communication as messages can be intercepted and read by those determined to do so. You agree you will not modify these documents for internal use or for distribution to third parties. You also understand that we may on occasion send you documents marked as draft and understand that those are for your review purpose only, should not be distributed in any way and should be destroyed as soon as possible. BKD is a registered limited liability partnership under Missouri law. Under applicable professional standards, partners of BKD, LLP have the same responsibilities as do partners in a general accounting and consulting partnership with respect to conformance by themselves and other professionals in BKD with their professional and ethical obligations. However, unlike the partners in a general partnership, the partners in a registered limited liability partnership do not have individual civil liability, directly or indirectly, including by way of indemnification, contribution, assessment or otherwise, for any debts, obligations or liabilities of or chargeable to the registered limited liability partnership or each other, whether arising in tort, contract or otherwise. We are an independent accounting firm allowed to use the name "Praxity" in relation to our practice. We are not connected by ownership with any other firm using the name "Praxity," and we will be solely responsible for all work carried out by us on your behalf. In deciding to engage us, you acknowledge that we have not represented to you that any other firm using the name "Praxity" will in any way be responsible for the work that we do. We will be pleased to discuss this letter with you at any time and look forward to the opportunity of serving you. If the above arrangements are acceptable to you, please sign the enclosed copy of this letter and return it to us. BKD, LLP Members of City Council Honorable Tom Martin, Mayor Ms. Lee Ann Dumbauld, City Manger Mr. Andy Burcham, Chief Financial Officer City of Lubbock, Texas June 11, 2009 Page 5 The services and arrangements described in this letter are in accordance with our understanding and are acceptable to us. CITY OF LUBBOCK, TEXAS BY TITLE TOM MARTIN, MAYOR DATE July 8, 2009 dc:kk:ll Enclosures ATTEST: i Rebec a Garza, Cit ecreta APPROVED AS TO CONTENT: Andy Borcham, Chief Financial Officer APPROVED AS TO FORM: 20090 ienU724481EWL0944 Resolution No. 2009-RO251 City of Lubbock Engagement Scope and Procedures Forty-two Months Ended December 31, 2008 1. Obtain copies of checks or wire transfers from the City of Lubbock's (the City) accounting department, evidencing payments received from Atmos Energy, Inc., 'south Plains Electric Cooperative, Suddenlink, Inc. and Xcel Inc. (Franchisees) during the 42 -months ended December 31, 2008, and prepare a listing of payments. Then compare the amounts on the listing to the City's general ledger and include any differences on the listing. 2. Obtain the City's franchise ordinance for each of the Franchisees and obtain clarification from City management or the City's attorney regarding any unclear language in the ordinances or other interpretation the City believes appropriate, and include them in the report. 3. Conduct office visits of each of the Franchisees and apply the following procedures to the 42 - months ended December 31, 2008: a. Obtain the document(s) from the Franchisees that was used to compute the franchise fee remitted to the City. b. Inquire of the Franchisee's management as to their understanding of the appropriate revenue inclusions and exclusions for the franchise fee calculation. c. Compare revenue on the document(s) used to compute the franchise fee to the Franchisee's general ledger or billing system amounts. The general ledger or billing system amounts referred to in the preceding sentence shall be used and relied upon without verification or other testing. d. Recalculate totals, subtotals and other amounts computed on the document referred to in items a. and c. above. e. Compare the franchise fee shown on the document referred to in items a., c. and d. above to franchise fees actually received by the City. f. Prepare a schedule that shows the revenue amounts that are included in the franchise fee calculation and the revenue amounts that are exclude from the franchise fee calculation. g. Report, to City officials, the revenue amounts that are included in and excluded from the franchise fee calculations, and obtain clarification from City management and/or City's attorney regarding the revenue sources that are properly includable in and excludable from franchise fee calculation. h. Prepare a schedule that compares the revenue actually used to compute the franchise fee with the revenue that should have been used to compute the franchise fee based upon the requirements of City management and/or the City's attorney that were obtained in item g. above. Recalculate and compare franchise fees based upon the revenue reported by the franchisee and the revenue to be included per City Management and/or the City's attorney. j. Compute the difference between the franchise fee paid and the amount computed based on the procedures performed in item i. above. k. Calculate interest due as stipulated in the franchise agreement based on the differences computed as a result of item j. above. 1. Inquire of the Franchisee's management and report to City officials as to the steps taken to remedy the findings in BKD's June 30, 2005, agreed upon procedures engagement. Information provided by the Franchisees shall be used without any investigation or other verification of the accuracy and completeness of the information provided, except as required by steps c. and d. above. 4. Report any differences in revenue or franchise fee as recalculated for the 42 -months ended December 31, 2008, based upon procedures performed during office visits. Agenda Item #.## Contract Resolution - Finance : Consider a resolution authorizing the Mayor to execute Contract 9453 with BKD, LLP for a franchise fee audit. Item Summary The contract provides audits of corporations that have franchise agreements with the City. Pursuant to the franchise agreements, corporations remit funds to the City based on an amount equal to five percent of annual gross receipts from retail sales for consumption within the corporate limits of Lubbock. Corporations to be audited include Xcel Energy, Atmos Energy, South Plains Electric Cooperative, and Suddenlink. Franchise agreements specify conditions requiring examination of records, maintenance of records, annual reports including the number of customers served, statements of gross revenues, annual review of performance and quality of service, public hearings, handling of customer complaints, and other components relevant to providing the respective services. Corporations are required to report and remit funds to the City based on the contractual agreements. Audits confirm that the amounts reported and remitted are accurate, timely, and in accordance with the contract terms. Any errors and/or amounts not reported and remitted are subject to collection. BKD, LLP currently performs the City's financial audit and BKD performed the franchise fee audit for the twenty-four months ended, June 30, 2005. This audit will apply certain agreed-upon procedures to franchise agreements from July 1, 2005, through December 31, 2008. Staff recommends contract award to BKD, LLP of Little Rock, Arkansas, for $45.000. Fiscal Impact Funding is available in the Gateway Fund. If the audit reveals discrepancies, franchise fee revenues will either increase or decrease in the Gateway and General Funds. Staff/Board Recommending Andy Burcham, Chief Financial Officer City Council Meeting