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HomeMy WebLinkAbout2009 02 23 Regular 600 Forensic Auditing ServicesCOMMISSION AGENDA ITEM 600 I Consent I I I Informational I I I Public Hearing I I X February 23, 2009 Regular Meeting MGR. /DEPT. uthorization REQUEST: City Manager requesting the Commission to provide direction for procuring a firm to perform forensic auditing services for the City. PURPOSE: This agenda item is needed for the Commission to provide staff with further direction for procuring a firm to perform forensic auditing services for the City. CONSIDERATIONS: On January 26, 2009 the Commission directed the City Manager to bring back recommendations on how to proceed with procurement of a firm to provide forensic auditing services for the City. Normally, the appropriate course of action would be to proceed with a Request for Proposals (RFP) process for procurement of a firm to perform forensic auditing services. A key consideration in this effort would be to define the scope of services for the audit work to be performed. For example, "How many years should the auditor encompass in performing its review and audit?" "What level of transactional detail is requested?" "Are there any specific areas of concern that should be focused upon? With this in mind, it is recommended that the procurement of the forensic auditing firm be facilitated in two phases as follows: • Phase 1 -Contract with a forensic auditing firm to develop a scope of services for the audit. This phase would involve the forensic auditing firm meeting with the City Commission to discuss and determine the specific concerns regarding the need for a forensic audit and reviewing specific accounting records to assist them in determining the scope and time required for Phase 2. A preliminary analysis report and Phase 2 budget would result from the Phase 1 work. • Phase 2 -Contract with a forensic auditing firm to perform the scope of services derived in Phase 1. The selection of a forensic auditing firm for Phase 1 may be accomplished by either of two options as follows: 1. The Commission could direct the City Manager to issue and Request for Qualifications (RFQ) to procure a firm, or 2. The Commission could direct the City Manager to contract with a firm based on staff's "informal RFQ/P" and research and evaluation. Staff has made direct contact with two firms who specialize and have extensive expertise in forensic auditing. Those firms are: a. Berkowitz, Dick, Pollack & Brant. b. Michaelson & Company. If this option is selected, the City Manager would recommend selecting Berkowitz, Dick, Pollack & Brant to perform this service, based on their staffing, expertise and fees. Their cost, per their attached proposal, for Phase 1 is $7,000. Upon completion of Phase 1 and establishment of the scope of services, the Commission could then either: 1. Issue an RFP for forensic auditing services utilizing the scope of services derived in Phase 1, or 2. Contract with Berkowitz, Dick, Pollack & Brant to perform the scope of services defined in Phase 1. An advantage of forgoing the formal RFQ/RFP process and contracting with Berkowitz, Dick, Pollack & Brant is the saving of time required under the RFQ/RFP process (approximately 90 days for each process) and thus the ability to move forward with the forensic audit immediately. If the Commission agrees to proceed in this manner, the following considerations are offered: • It is not uncommon to forgo the formal RFQ/RFP process in procuring a forensic auditor due to the nature of the service. • The Commission has the authority to contract with a forensic auditing firm without engaging in a formal RFQ or RFP process. • Florida Statutes Section 218.391 mandates the "Auditor Selection Process" and associated procedures required for procuring an auditor. However, these procedures apply only the procurement of an auditor to perform the City's annual financial audit (i.e., the annual audit of our CAFR). Therefore, these requirements do not apply to the selection of this forensic audit. The City Attorney concurs with his assessment. • Of the two firms contacted, Berkowitz, Dick, Pollack & Brant quoted the lower fee. • This firm is independent of and has no prior association with the City of Winter Springs, its current or former City Manager or staff, or the City Commission. • This firm has a dedicated forensic auditing practice ad extensive experience in this filed. The firm also has a sitting Miami Beach Commissioner on staff who is intimately familiar with forensic audits of governments as well as governmental operations. • This firm has the available staff to begin work immediately. FUNDING: If the Commission agrees to proceed with the hiring of Berkowitz, Dick, Pollack & Brant, the estimated fees for services are as follows: • Phase 1: $7,000 • Phase 2: $20,000 - $35,000, depending upon the scope of services. Berkowitz, Dick, Pollack & Brant's overall fee quote was significantly lower than that of Michaelson & Company. RECOMMENDATION: The City Manager recommends that the City Commission approve the "phased approach" to procuring a forensic auditor and choose from one of the following options for proceeding with Phase 1 of the selection process: 1. Direct the City Manager to issue an RFQ to procure a forensic auditing firm to develop a scope of services for the forensic audit. 2. Direct the City Manager and City Attorney to enter in a contract with Berkowitz, Dick, Pollack & Brant to develop a scope of services for Phase 2 of the forensic audit and authorize the expenditure of $7,000 for this phase. BERKOWIT'Z D:ICKPOLLACK(`3r~RANT L:1 Cc 'Yi P'i 1`Iti F"C'ut ic, rS. LTU t=R1'.4 y'Y~ ~ (:. c"~~51'. G'E'.a N'i"s. 1I.T 2tK) Snnrh 11isc, tytte 13c~ulevsrrd Sixrh l~trx?r 4'liatrti. Flarid~x 3313 t-5310 "1'clelrhonc: 3013-3 i+)-"(X3{l `Full Fri: F~00-"J9'~-ICC:t'A i I"~i?S Pax; 304-37`2•E3~tN3 February 9, 2009 Michelle Greco Finance Director City of Winter Springs 1126 East SR 434 Winter Springs, Florida 32708 Dear Ms. Greco: 41 ~ (-'.act j is <Jlas E3a~ilecaxd Fifmrnth I-Lxsr I'or~ l auzlecdalc., tFlnrida 311301-2'~fil ~1cErphone:95k-?IZ-'000 'Iol (rec; 3U(~ ~)q-1 CPA;12??.} l:tx: )'>4•?I'-?070 rcvrv ~. Jiapfr,tnm I would like to provide you with information about our public sector and forensic accounting practice and a description of our qualifications as discussed in our conference call last week. This information maybe of assistance to you in your professional service provider selection process. Qualifications The public sector practice of Berkowitz Dick Pollack & Brant Certified Public Accountants & Consultants, LLP ("BDPB" or the "Firm") is headed by Deede Weithorn, a Miami Beach Commissioner who has dedicated her career to understanding the financial and regulatory issues of government. She has more than 25 years experience in providing audit and accounting services to government entities. The Firm's forensic accounting practice is a highly regarded inter-disciplinary practice that includes certified public accountants, certified fraud examiners, certified insolvency and restructuring advisors, certified anti-money laundering specialists, finance and valuation professionals and computer forensic technology professionals. Public Sector/Municipal Government Experience BDPB has experience working with municipal governments as auditors, consultants and forensic accountants. Our staff has performed audits of municipalities, single audits (Federal and Florida), pension plan audits, quasi-governmental entities, and special taxing districts audits. We also have also performed forensic accounting work in the municipal arena including departmental audits, general governmental consulting, internal control reviews and municipal bond consulting. Forensic Accounting Proposal February 9, 2009 Page 2 Some examples of our specific experience include an internal control review of a building department as well as an audit of the permit fees charged to developers. We also have experience in reviewing capital projects budgets vs. comparable unit pricing in the marketplace to help determine if all bids should be rejected. Our forensic team has investigated allegations on behalf of a municipal government regarding the misappropriation of assets, the misuse of earmarked funds for other than their designated purpose and unauthorized loans and advances. They have also been retained by the directors and officers of a Florida university to investigate allegations regarding the improper use of funds by the university's foundation. We have experience in a variety of municipal governments from large governmental agencies to smaller cities and towns. The Firm's Forensic Experience BDPB is recognized as one of the largest forensic accounting practices in the State of Florida. Our professionals have significant experience conducting large, complex, time-sensitive forensic investigations for insurance entities, courts, receiverships, regulated companies, and private businesses. We also provide economic damage analysis, business valuations, accounting investigations and expert testimony. The scope of our practice includes: Accounting Investigations -investigations of accounting malpractice, audit malpractice, financial statement fraud, related party transactions, diversion of assets, self-dealing, financial reporting schemes, officer and director misconduct, and other types of examinations; and providing expert witness testimony. Economic Dispute Services -analysis of the economic, valuation and accounting issues involved in complex commercial disputes; and providing expert witness testimony. Receivership and Bankruptcy -investigation of financial statement fraud, accounting malpractice, fraud schemes, related party transactions, possible preferential transfers and/or fraudulent conveyances; solvency analysis, tracing funds to find and assist in the recovery of assets, valuation of businesses and investments, calculation of damages, identification and analysis of contracts, and expert testimony. Electronic Evidence Recovery -computer forensics that include recovery and management of electronic data, accounting records, transaction databases, emails, and others documents. Forensic Accounting Proposal February 9, 2009 Page 3 The Firm has a proven track record of providing forensic accounting and expert testimony for the FDFS Division of Rehabilitation and Liquidation. In addition, the following provides a brief overview of the BDPB Forensic team's relevant experience in successfully managing large, complex and time sensitive investigations for universities, municipalities, and companies under regulatory scrutiny. • On behalf of the State of Florida in an insurance receivership, our forensic accounting services included the investigation and identification of fraudulent transfers and preferences; the investigation of financial statement fraud and CPA malpractice; tracing funds between the self insurance fund and its third party administrator and corporate insiders; solvency analysis and calculation of damages; we have provided forensic services that have been instrumental in obtaining substantial recoveries for the receivership estate. • We were also engaged to assist the FDFS in implementing and enforcing the Holocaust Victims Insurance Act. As part of our role in that engagement we audited domestic and international insurer reports, assisted the FDFS with Holocaust victims' claims resolution and prepared the Report to the Legislature as required by the Holocaust Victims Insurance Act on behalf of the FDFS. • We assisted the court-appointed receiver for a major national viatical company based in South Florida in connection with an SEC action to marshal and recover corporate assets, identify cash account, identify related party transactions, investigate financial reporting and analyze transactions in what the SEC alleged was a Ponzi scheme. • We have provided services for numerous other entities in other matters and can provide more information upon request. Proposed Forensic Services for the City of Winter Springs The forensic services we propose to provide include: Phase One 1. Interview the Mayor and Commission to determine what their specific concerns are regarding the need for a forensic audit. 2. Interview key purchasing and accounting personnel to help identify potential risk areas. 3. Review selected accounting records to determine scope and time required for Phase Two. 4. Develop preliminary analysis report and define Phase Two scope and budget. Phase Two 1. Extract detailed information to be tested in high risk areas for a period of 24 months. 2. Detail information for all purchases/expenditures identified above. Where necessary compare measurable for number of units purchased, standard unit pricing etc. 3. Document results and recommend if additional work is required. Forensic Accounting Proposal February 9, 2009 Page 4 Client Service Team Our client service team has a proven track record of experience and "know-how" to meet your objectives and complete the job with value-added advice and services. This project will be under the direct personal attention of Richard A. Pollack and Deede Weithorn. They will be responsible for planning the engagement, oversight and project strategy. Such planning will include developing a critical path of dates for task completion to insure timely completion of our report. Joel Glick will serve as manager of the engagement. A brief bio of each is attached in Appendix A. You can be assured that the above-mentioned professionals have the necessary credentials to service your engagement. They also have the hands-on experience needed to ensure that the engagement runs as smoothly and as efficiently as possible. The client service team is always accessible through their direct phone lines, a-mail or cell phones. BDPB prides itself in providing an immediate response, within 24 hours, to all communications from its clients. Fees for Proposed Services We propose to work with you in phases. The first phase would be to meet with you in Winter Springs to obtain more information regarding the issues and records, and to develop detailed procedures with you. We estimate that the cost of Phase One to be $7,000. The second phase will be to perform the detailed procedures that we develop and agree upon in phase 1. The cost of these services will depend on many factors and be affected by the extent of our findings, the volume and condition of the records, the availability of knowledgeable persons and unforeseen circumstances. We estimate that the cost of Phase Two will be in the range of $20,000 to $35,000. Fees for consulting services and forensic services not described in this letter are billed on an hourly basis after being discussed in advance with you. Our invoices will also include the charges for our out-of-pocket expenses. Other phases will be developed and budgeted with detailed cost estimates as you determine it is needed. Additionally, we will keep you informed of our fees in a timely manner with the goal of avoiding any billing surprises. Forensic Accounting Proposal February 9, 2009 Page 5 Contact Information Thank you for the opportunity to present this proposal. We hope that we have conveyed our enthusiasm and sincere desire to working with the City of Winter Springs. We believe that we have the industry depth and the experienced forensic team you need. We look forward to meeting with you to further discuss the qualifications of our forensic team and our approach. Should you have any questions or need additional information, please do not hesitate to contact me directly. Richard A. Pollack rpollack@bdpb.com (305)960-1214 We look forward to the opportunity to discuss this engagement in more detail. We are available to commence work immediately. Thank you for your consideration. Very t ly ~qG~~s ,.~ %' ~ ~ ~ ~~~ ~~ ~' ~~ i~'""~ ~r fir, R~cha~d'A P~~Ilack Director in Charge of Forensic and Business Valuation Services RAP: lre Appendix A: Key Staff Biographies Forensic Accounting Proposal February 9, 2009 Page 6 Appendix A rpollack@bdpb.com "Our reputation far combining technical expertise with passion and integrity has earned us the trust of our Clients." Richard A. Pollack, CPA/ABV/C FF/PFS, ASA, C BA, C FE Managing Director of Forensic and Business Valuation Services Richard Pollaclz is ~~'Iana~ink Director o~ the Firm's Forensic and Business Valuation Services practice. ~'Ir. Pollaclz leas over tlrirty years experience serving as a litigation consultant, expert witness, court appointed expert, ~orensic accountant and forensic investigator. Ike specializes in damage quantification, fraud claims, commercial disputes, aecountin~, auditing, btisirtess valuation and business planning. NIr. Pollacle is a Certified Public Accountant (CI'<~), and bolds many valuation and. forensic credentials, some of which include, Certified in I"inancial Forensics (CFP), Accredited in Business Valuation (AI3V), and a Certified Fraud Examiner (CrE). He has testified. numerous times in a variety of federal and state courts and other dispute resolution fontms. NIr. Pollacl: is a frequent writer and a nationally recognized speal~er for the accounting and. legal profession. He recently co-authored the American Institute of Cortified Public ~ceountants Practice Aid entitled, ~Calculatin~ lost Pro~its", a publication which discusses roles the CPA may be asbed to talZe in a lost profits damage analysis-, the professional standards applicable to those services, and the basic principles and. guidelines for preparing lost profit damages analyses. Nir. P~llaclz is a member ~>f t:he American Institute of Certified Public Accountants (t~1CI-~~), ~:be rlorida Institute: of Certified Public Accountants (FICPA), the American Society of Appraisers, the Institute of Business Appraisers and the National Association of Certified fraud Examiners. IIe cturently serves and has previously eerved on a number of committees of the AICPA and the FICPA. Ile received his Bachelor of Business Administration I~e~+ree from the tTniversity of Miami and Master of Science in Finance from Florida. International university. BERKOWITZ DICKPOLLACK&BRANT ~:= Cear~r~sll Puu[.ir, Accou N~raNTS h Covsuernnrs, eir 200 S. Biscayne Blvd., Sixth Floor, Mianri, FL 33131 • Phone: 305-379-7000 • Fax: 30,5-379-8?00 dweithorn@bdpb.com °As a professional who has dedicated her career to understanding the financial and regulatory issues of government, I can assist government entities with their management and accounting needs and help them achieve true transparency." Deeds Weithorn, CPA Associate Director of Audit and Attest Services Commissioner Deede ~'eit~orn ~xas more t}xan 25 years o~ experience in accounting, financial analysis, and in providing audit services ~or not-~ar- pro~it and government entities as wel~ as businesses in t~e real estate and distribution industries. Sbe bas particular expertise in ~ha~t-Hartley audits (ERiSA), Common Interest Realty associations (CiRA), and mergers and acquisitions. Ms. Weitlzorn IZas served as ~. Cornntissioner {or the C.tty n: Miami Beach since November 2007. Slte also serves as Vice Cliar on. the City s Pittance ~'orxttxtittee, Cltairntarx c,~ the Capital Improvements Projects Clversi~ba Board anal Cltai.rrnan o~ tlxe Transparency, .Reliability and f~ccourttabilitV Couunittee (TIZAC). ~?ldditiona))y, s~xe serves as a mem~xer o~ t}xe Poard and as L~}xairman o~ t11e Finance ~'ommittee o~ t~e i~iami-fade County l.ea~ue o~ Cities. ~'ommissioner ~eitlZOrn, a Miami ~eac~ native, is a Lerti~ied Pubic f~ccountant. Sloe is a member o~ the t~merican Institute o~ Certi~ied Public r~.ccourttants (aICPA) and the Florida Instihtte o~ Cert~ied Public r~ccourxtants (FICP~.), and bas served as Cltai.r of ilte Mate ~..e~islative Policy ~'omntittee, President o{ the Mold 'oast Llrapter and Cltair. of Florida State Tax Section. Commissioner ~~%itb~,rn received her Pacbelor crj Science in Fn~ineerin~ rum 1:lte ~Jniversity c>~ Florida and bet Masier al Science in I:ngineerin~ f tom the Massachusetts Institu{:e of Technology. She also received her Masser o~) Science in r~ccoun{ing ~rom I"lorida International l Iniversity. BERKOWITZ DICKPOLLACK&I3RANT (:Eft"1'1 FLED 1~VBLIC .~LI. (.)li N'TA N'/'S & Lo N51i l'iA N'C S, 111' 200 S. Biscayne Blvd., Sixtlx Floor, Miami, FL 33131 • Phone: 305-379-7000 • Fax: 305-379-8200 z€~ .. L sz ~ ~h .~. ~``q- F' t°. ~.. Yy,;,. ~ .~. i. jglickCbdpb.com Joel D. Glick, CPA, CFF Manager of Forensic and Business Valuation Services Joel Glicle practices primarily in forensic services providing litigation support in the areas of lost profit and damage analysis, banlzruptcy and reeeiversbip matters, fraud and forensic accounting investigations, breach of contract, shareholder disputes, non- compete covenants, securities litigation, matrimonial disputes, wrongful death, defamation, and other general commercial matters. He also practices in the areas of strategic financial consulting and business advisory services including due-diligence investigations, preparation of pro-forma financial information and financial forecasts. IUIr. C?liclz bas worized in the following industries: real estate, telecommunications, motor sports, furniture, bealtlrcare, retail, industrial, hospitality, banlzing, private equity investment funds, and entertainment. He is a Certified .Public. Accountana, Certified in Financial Forensics. He is a member. of the r'1.rnericarr Lnstitute of Certified public Acanr.ntants (AICPA), the Florida Institute of Certified Public Accountants (FICPA), and the Association of Fraud Fxarniners (ACFE). lvir. Gh1~1:~ reL~ei~ed his 13a~hel~~r of Science in Ac<:ounting from the ~lniversity of I"lorida. BERKOWITZ DICKPOLLACK&BRANT C,lR'1'] E f E U ~' U BLIC .~l:C()L!N'iA N'1'S & C:oN S U 1'iA N'1'.C, L L P 200 >. Biscayne Blvd.., Sixtlx Floor, Miami, FL 33131 • Phone: 305-379-7000 • Fax: 305-379-8?00