HomeMy WebLinkAboutPR 19379: THE AMENDMENT TO THE CONTRACT FROM BKD, LLP OF HOUSTON P. R. NO. 19379
04/27/2016 jnp
RESOLUTION NO.
A RESOLUTION AUTHORIZING THE AMENDMENT TO THE
CONTRACT FROM BKD, LLP OF HOUSTON, IN THE
TOTAL AMOUNT OF $30,311 . 99 FOR COMPLETION OF
PHASE ONE OF FORENSIC AUDIT; FUNDING AVAILABLE
IN ACCOUNT NOS . 001-1031-515 . 54-00 .
WHEREAS, it is deemed in the best interest of the citizens of
Port Arthur to provide a clear perspective of the financial state
of the City of Port Arthur; and
WHEREAS, on February 9, 2016, the City Council approved
Resolution 16-054 authorizing the City Manager to negotiate a
contract with BKD, LLP of Houston, Texas, to perform the forensic
audit in four (4 ) phases; and
WHEREAS, on March 31, 2016, a letter of agreement for Phase
One of the forensic audit was executed by the City Manager in an
estimated amount of $25, 000 . 00; and
WHEREAS, there was a minor increase in cost; therefore, an
amended letter of agreement for Phase One of the forensic audit and
an invoice of $30, 311 . 99 has been submitted; and
WHEREAS, it is in the best interest of the City of Port Arthur
to authorize execution of the letter agreement (in substantially
the same form as Exhibit "A") and to submit a payment to BKD, LLP
(as delineated in Exhibit "B") .
s.pr19379
NOW THEREFORE, BE IT RESOLVED BY THE CITY COUNCIL OF THE CITY
OF PORT ARTHUR:
Section 1. That the facts and opinions in the preamble are
true and correct .
Section 2 . That the City Manager is hereby authorized and
directed to execute an amended letter agreement on behalf of the
City of Port Arthur and approve Invoice No. BK00573746 in the
amount of $30, 311 . 99.
Section 3. That a copy of the caption of this Resolution
shall be spread upon the Minutes of the City Council .
READ, ADOPTED, AND APPROVED, this day of
2016, AD, at a Regular Meeting of the City Council of the City of
Port Arthur, Texas by the following vote : AYES :
Mayor:
Councilmembers : •
NOES:
Mayor
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ATTEST:
City Secretary
APPROVE. AS TO FOz :
/ I //011,1
117 City AT orney
APPROVED FOR • .MINISTRATION:
City Manager
APPROVED AS TO AVAILABILITY OF FUNDS :
521. A:40a C0i144-17:49/ie4
Director of Finance
0 `4" *4 (AT Apt0C-a-06407-
P ' chasing Manager
s.pr19379
EXHIBIT "A"
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April 29, 2016
Mr.Brian McDougal
City Manager
City of Port Arthur
444 4th Street
Port Arthur, Texas 77640
This will serve as a first addendum to our original engagement letter dated and signed
March 3, 2016, (attached hereto)related to forensic investigation services provided for the City
of Port Arthur.
We originally provided a Phase 1 professional fee estimate of$25,000,plus expenses and a
four percent administrative fee. Our revised fee for Phase 1 of this engagement is $30,311.99,
as represented in the attached invoice.
All other terms and conditions in our original engagement letter remain in effect. A second
addendum will follow for Phase II.
BKD,LLP
The services and arrangements described in this letter are in accordance with our understanding
and are acceptable to us.
CITY OF PORT ARTHUR
BY
Mr. Brian McDougal, City Manager
DATE
BiaGu, 1pij;li Rnuninn Pia,:-.S iior 4(X)//Sao Ardonu),TX '8216 4137
CPAS&Advisors Q 'it)34.1 9.1(X)//) fax 2111.311 9134//bkd.corn
March 3, 2016
Mr. Brian McDougal, City Manager
City of Port Arthur
444 4th Street
Port Arthur,Texas 77640
We are pleased to confirm the arrangements of our engagement and the nature of the services we
will provide to the City of Port Arthur.
OUR SERVICES AND RESPONSIBILITIES
We will provide forensic investigation services for the City of Port Arthur(City)in connection
with an analysis of certain policies,procedures and practices surrounding the City's financial
activities during the time period of October 1,2009 to March 31,2015.
BKD has recommended certain forensic accounting procedures to be performed during Phase 1
of the engagement, to which the City has taken no exception,and which are attached hereto as
Exhibit 1. There can be no assurance that such procedures will identify fraud that may exist. As.
is outlined further below, at certain points during the engagement,we will consult with you
regarding the sufficiency of the procedures to be performed to ensure that we are addressing
areas of your concern. For example,you have asked us to focus on certain departments in Phase
1: the Finance,Public Works, Parks and Recreation and Human Resources Departments. In
addition,we will make recommendations to you regarding our view of the procedures that
should be performed. However,we will not make management decisions or perform
management functions,the responsibility for which remains with City management and the City
Council.
In our experience,these types of projects are usually best performed in phases. The procedures
outlined in Exhibit 1 for Phase 1 of this engagement consist of gathering and analysis of
information,to include interviews of City personnel. We have also agreed to provide the City
with monthly progress reports during Phase 1. We anticipate that this phase will lead us to
specific areas requiring further investigation and the development of a work plan for phase 2.
Fees for this phase are estimated to be$25,000.
At the conclusion of Phase 1 based upon the information we have obtained, we will present to
you the additional procedures and estimated costs to be considered in subsequent phases of our
engagement. Once a mutual determination has been made,a supplemental engagement letter
will be executed to memorialize the scope, nature,anticipated services and estimated costs
associated with the subsequent phase or phases of the engagement.
Praxity:
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Our services do not include an interpretation of legal matters. You should seek the advice of
legal counsel in such matters.
At the conclusion of all phases of our work or at a time where we can clearly communicate the
results of specific findings,we will present our findings through a written report. We have been
retained to provide fraud investigation services only;however,we understand and accept that we
may be requested to furnish testimony at trial and will prepare accordingly.
We will not update our report for or disclose any event or circumstances after the date of our
report. If for any reason not under our control we are not able to complete our forensic
investigation,we may decline to issue a report as a result of this engagement. If we are not able
to complete our investigation,we will prepare a limited report describing the procedures that we
have performed,any conclusions reached, and the limitations of our ability to come to certain
conclusions.
Todd Burchett will be the lead service provider for this engagement.
ENGAGEMENT FEES
Our fees will be based on time expended at our standard hourly rates. In addition,you will be
billed travel costs,as well as an administrative fee of four percent to cover items such as copies,
postage and other delivery charges, supplies,technology-related costs such as computer
processing,software licensing, research and library databases and similar expense items. The
hourly rates for the professionals expected to participate in this engagement are as follows:
S.Todd Burchett,Partner $400
Angela Morelock,Partner $425
Anthony DeBenedictis,Director $325
Jeremy Clopton,Director $270
Julia Mast, Senior Managing Consultant $255
Lanny Morrow,Managing Consultant $250
Aissa Garza, Senior Consultant $220
Hourly rates are adjusted annually,typically on November 1st
We will issue progress billings during the course of our engagement. Due to the nature of our
engagement,we are unable to provide a maximum fee range for our services. However,should
our fees for the first phase of our engagement reach$25,000;we will not proceed further without
your written authorization and approval. At each phase of the engagement,we will present to
you a range of possible services and estimated costs to be considered in subsequent phases of our
engagement. A mutual determination will be made,and a supplemental engagement letter
executed,to memorialize the scope,nature, anticipated services and estimated costs associated
with the subsequent phase or phases of the engagement.
Our pricing for this engagement and our fee structure are based upon the expectation that our
invoices will be paid promptly. We will issue progress billings during the course of our
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engagement, and payment of our invoices is due upon receipt. In the event that outstanding
invoices are not paid within 60 days, we reserve the right to suspend services.
We cannot testify in deposition or in a court proceeding unless our outstanding invoices have
been paid prior to the deposition or court proceeding. We reserve the right to withdraw from the
engagement if our fees are not paid.
In the event of a question or dispute about the invoice you receive, you agree to contact your
BKD professional within 30 days of your receipt of the invoice. We will work with you to
answer questions and address disputed issues as quickly as possible. For this engagement, the
person to contact with respect to any such billing questions and issues is Todd Burchett.
OTHER ENGAGEMENT MATTERS AND LIMITATIONS
During the course of our engagement,we anticipate that we will prepare written reports for the
use of City of Port Arthur that support our conclusions. We understand that you will likely make
some part, if not all,of our final written reports available to the public. These reports are the
property of BKD and will not to be published or used in any other manner other than noted
above without the written consent of BKD. This restriction is not intended to restrict the City of
Port Arthur from providing the reports to any party the City deems necessary
If any party intends to publish or otherwise reproduce BKD's report and make reference to our
firm name,BKD must be provided with the printer's proofs or masters for our review and
approval before printing or other reproduction and provided with a copy of the final reproduced
material for our approval before it is distributed.
As of the date of this letter, we are not aware of any potential conflicts of interest with any party.
If we determine that any additional potential conflict of interest has arisen, we will immediately
advise you so that a determination may be made by both of us as to whether we should continue
to be engaged. If services are terminated as a result of a conflict of interest, or for any other
reason,you agree to pay us for time expended to date. In addition,you will be billed travel
costs,as well as an administrative fee of four percent to cover items such as copies, postage and
other delivery charges, supplies,technology-related costs such as computer processing, software
licensing, research and library databases and similar expense items.
We will use and rely on information furnished by you and on information available from
generally recognized public sources.
Our workpapers and documentation retained in any form of media for this engagement are the
property of BKD. We will make our workpapers available to the City,upon their request. We
can be compelled to provide information under legal process. In addition,we may be requested
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 pursuant to legal process.
Any liability of BKD and its personnel to you is limited to the amount of the fee you paid for this
engagement as liquidated damages.
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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 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. In addition,you will be billed travel costs and fees for services from other
professionals, if any,as well as an administrative fee of four percent to cover items such as
copies,postage and other delivery charges,supplies,technology-related costs such as computer
processing, software licensing,research and library databases and similar expense items.
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. In the event we are unable to secure an appropriate confidentiality agreement,you
will be asked to provide your consent prior to the sharing of your confidential information with
the third-party service provider.
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 and should not be distributed in any way.
Any time you intend to reference our firm name in any manner in any published materials,
including on an electronic site,you agree to provide us with draft materials for our review and
approval before publishing or posting such information.
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
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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.
HIPAA BUSINESS ASSOCIATE AGREEMENT
We agree not to use or disclose Protected Health Information of your(patients/employees
(hereinafter referred to as"PHI")obtained or produced in any form of media during the course of
our work in a manner prohibited by HIPAA, as amended. We may use or disclose PHI for
purposes of(a)performing our engagement,(b) management and administration of BKD,or
(c)carrying out legal responsibilities of BKD. We will not further disclose information except as
permitted or required by this contract or as required by law. When using or disclosing PHI in
relation to this engagement,we will limit disclosures as required by HIPAA. We will not use
PHI in any marketing activities in a manner that would violate HIPAA. We represent to you that
we have implemented what we consider to be appropriate administrative,physical and technical
safeguards to protect the confidentiality, integrity and availability of your PHI as required for us
as a business associate to comply with HIPAA.
With respect to your PHI,we will report to you any breach(as defined in 45 CFR 164.402),
material security incident or use or disclosure not authorized by this agreement and,to the extent
practical,assist you in mitigating any harmful effects caused by breaches,material security
incidents or unauthorized uses or disclosures of which we become aware. To assist you in
fulfilling your responsibility to notify impacted individuals and others of a breach involving
unsecured PHI(as required under 45 CFR 164.400 et seq.), in this report we will identify to you,
to the extent reasonably possible:
1. Each individual whose unsecured PHI was subject to the breach.
2. Any other available information you are required to include in your notification to such
individual(s)or others under 45 CFR 164.404(c).
We agree that any material violation of these confidentiality provisions by us entitles you to
terminate this engagement. Similarly, if we become aware of a violation of HIPAA by you that
cannot be or is not timely cured,we may be obligated to terminate this engagement.
BKD agrees to:
1. Upon their request,make available to the Secretary of Health and Human Services(HHS)
our internal practices and books and records relating to the use and disclosure of PHI for
purposes of determining your compliance with the Security and Privacy Rule,subject to
any applicable legal privileges.
2. Make available information necessary for you to make an accounting of disclosures of
PHI about an individual.
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3. To the extent we maintain information that is part of a Designated Record Set,make
available information necessary for you to respond to requests by individuals for access
to PHI that is not in your possession but is considered part of a Designated Record Set.
4. Upon receipt of a written request from you, incorporate any amendments or corrections to
PHI contained in our workpapers in accordance with the Security and Privacy Rule to the
extent such PHI is considered part of a Designated Record Set.
For purposes of this agreement,the term"Security and Privacy Rule"refers to the final rules
published to implement the Administrative Simplification provisions of the Health Insurance
Portability and Accountability Act of 1996, specifically 45 CFR Parts 160 and 164. The terms
"Protected Health Information"and"Designated Record Set"have the same meaning as defined
in the Security and Privacy Rule.
At the conclusion or termination of this engagement, any PHI retained by us will be subject to
the same safeguards as for active engagements.
We will obtain from any agents, including subcontractors,to whom we provide PHI received
from you, or created or received by us on behalf of you, an agreement to the same restrictions
and conditions that apply to us with respect to such PHI.
To the extent that any relevant provision of HIPAA is eliminated or held to be invalid by a court
of competent jurisdiction,the corresponding portion of this agreement shall be deemed of no
force and effect for any purpose. To the extent that any relevant provision of HIPAA is
materially amended in a manner that changes the obligations of business associates or covered
entities that are embodied in term(s)of this engagement,the Parties agree to negotiate in good
faith appropriate amendment(s)to this engagement to give effect to such revised obligations. In
addition,the terms of this engagement should be construed in light of any interpretation and/or
guidance on HIPAA issued by HHS from time to time.
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 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. If the signed copy you return to us is in electronic form,you agree that such
copy shall be legally treated as a"duplicate original"of this agreement.
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The services and arrangements described in this letter are in accordance with our understanding
and are acceptable to us.
CITY OF PORT ARTHUR
By:
Brian McDougal, City Manager
Date: /2 II1
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City of Port Arthur
Exhibit 1 to Engagement Letter
Proposed Phase 1 Scope of Work
Time Period: October 1,2009 to March 31,2015
General scope statement: The first phase will consist of an onsite assessment,including
interviews of City personnel at various levels and a review of selected documentation.
The purpose of the first phase is to make a preliminary assessment of any allegations or
areas of weakness that need to be addressed and develop a more defined work plan for
the additional work. At the conclusion of Phase 1, based upon the information obtained
we will present to you a range of possible services and estimated costs to be considered in
subsequent phases of our engagement,to include of Finance,Public Works, Parks and
Recreation and Human Resources.
At the conclusion of all phases of our work, we will present our findings through a final
written report. If such a report is requested,we will not update our report for or disclose
any event or circumstances arising after the date of our report. If for any reason not
under our control we are not able to complete our work,we may decline to issue a report
as a result of this engagement.
Procedures to perform:
1. Hold discussions with the City to gather information, such as accounting systems,
personnel, policies,procedures and initial concerns of City officials and citizenry.
2. Establish a means for employees and the general public to submit relevant documentation
and information directly to BKD related to any allegations or concerns of wrongdoing
and other issues. BKD will follow up on information provided as BKD deems
appropriate in its investigation.
a. Set-up a BKD Information Line.
b. Coordinate with the City Manager on communication to the general public.
3. Conduct interviews with City management, department leads and certain other City
personnel at various levels of Finance, Public Works, Parks and Recreation and Human
Resources.
4. Read the independent auditor's reports and communications for FYE's 2012 -2014 and
discuss with the outside auditors any previous findings communicated to City
management.
a. Interview the auditors to learn about any verbal comments provided to
management.
b. Analyze the procurement process for selection of the financial statement auditor,
through interviews of those involved in the selection process and an analysis of
policies and procedures. Assess the selection process for compliance with
established policies.
iii. Purchasing/procurement cards
1. Identification of transactions occurring on:
a. Weekends
b. Holidays
c. Shopping holidays (Black Friday,Cyber Monday)
d. Employee vacation days
2. Analysis of transactions with:
a. High risk merchants (ex: iTunes,Apple Store,Kindle
Store,PayPal, eBay, Square)
b. Unauthorized merchant types (based on client's policies)
c. Potential split transactions
d. Indications of gift card purchases
3. Analysis of line item purchase detail (where available)
4. Analysis of transactions for compliance with internal policies
5. Dashboards of activity and key results by:
a. Employee
b. Department(if available)
c. Job Type (if available)
d. Location (if available)
iv. General ledger
1. Analysis of entries for high risk combinations, including:
a. DR Bad debt expense,CR cash
b. DR Liability,CR revenue
2. Identification of round thousand dollar entries
3. Identification of entries made on:
a. Weekends
b. Holidays
c. Other non-business days of the City
4. Keyword analysis of entry descriptions(keyword list to be agreed
upon prior to testing)
5. Summarization of entries by user
6. Additional Phases: Additional phases will be covered by a separate addendum that we
will issue to you. Upon completion of our work, write a report with findings, including
recommendations to improve processes as noted in the steps performed above and present
findings to the City Council or audience to be determined.
EXHIBIT "B"
s.pr19379
910 E.St. Louis Street,Suite 200
P.O.Box 1190
Springfield,
65801-1190
Forensics & Valuation Services 417.865.8701 x:417.865.
BKDLLP Fax:417.865.0682
CPAs&Advisors
BKD Tax ID#:44-0160260
INVOICE
City of Port Arthur
Jerry W Dale AMOUNT ENCLOSED
444 4th Street
Port Arthur TX 77640 $
Date: 04/01/16
Page: 1
Client#: 1162419 - Invoice#: BK00573746
Please return top portion with payment
Client#: 1162419 - Invoice#: BK00573746
Professional Fees for Phase 1 City of Port Arthur Forensic Investigation 26,053.75
DeBenedictis 28.50 HRS
Garza 38.00 HRS
Martin 1.25 HRS
Mast 32.50 HRS
Burchett 14.00 HRS
Total 114.25 HRS
Administrative fee 1,042.15
Reimbursement for charges for travel, lodging, and meals as applicable. 3,216.09
Airfare- $1,288.13
Hotel-$1,144.09
Auto/parking-$491.42
Meals-$227.51
External Hard Drive-$64.94
Invoice Total $30,311.99
Invoices are due upon receipt and assessed finance charges after 32
days past due date unless detailed in engagement letter.
Thank you for your business!
BKD,LLP•910 E.St.Louis Street,Suite 200•P.O.Box 1190•Springfield,MO 65801-1190
Phone 417.865.8701 •Fax 417.865.0682