county of san mateo, california request for proposal for professional auditing … ·...

COUNTY OF SAN MATEO, CALIFORNIA

REQUEST FOR PROPOSAL

FOR

PROFESSIONAL AUDITING SERVICES

NOVEMBER 18,2002

Reyna Farrales Deputy County Manager

c/o COUNTY MANAGER’S OFFICE 400 COUNTY CENTER, FIRST FLOOR REDWOOD CITY, CALIFORNIA 94063

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COUNTY OF SAN MATEO, CALIFORNIA

REOUEST FOR PROPOSAL

TABLE OF CONTENTS

I. INTRODUCTION

A. General Information B. Term of Engagement

II. NATURE OF SERVICES REQUIRED

A. B. C. D. E. F.

General Scope of Work to be Performed Auditing Standards to be Followed Reports to be Issued Special Considerations Working Paper Retention and Access to Working Papers

III. DESCRIPTION OF THE GOVERNMENT

A. C. C. D. E.

Background Information General Financial Information About the County Component Units Joint Ventures Availability of Prior Reports and Working Papers

IV. TIME REQUIREMENTS

A. B. C. D. E. F.

Proposal Calendar Notification and Contract Dates Date Audit May Commence Schedule for the 2003 Fiscal Year Audit Entrance Conferences, Progress Reporting and Exit Conferences Date Final Report is Due

V. ASSISTANCE TO BE PROVIDED TO THE AUDITOR AND REPORT PREPARATION

A. B.

Finance Department and Clerical Assistance Internal Audit Staff Assistance

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C. Work Area, Telephone, Photocopying and FAX Machines D. Report Preparation E. Time Table for Other Reports

VI. PROPOSAL REQUIREMENTS

A. B.

General Requirements Technical Proposal

1. 2. 3. 4. 5. 6. 7. 8. 9. 10.

General Requirements Independence License to Practice in the State of California Firm Qualifications and Experience Partner, Supervisory and Staff Qualifications and Experience Prior Engagements with the County Similar Engagements with Other Government Entities Specific Audit Approach Identification of Anticipated Potential Audit Problems Report Format

C. Sealed Dollar Cost Proposal

1. 2.

3.

4. 5.

Total All-Inclusive Maximum Price Rates by Partner, Specialist, Supervisory and Staff Level Times Hours Anticipated for Each Out-of-pocket Expenses in the Total All-inclusive Maximum Price and Reimbursement Rates Rates for Additional Professional Services Manner of Payment

VII. EVALUATION PROCEDURES

A. Selection Committee B. Review of Proposal C. Evaluation Criteria

1. Mandatory Elements 2. Technical Qualifications 3. Price

D. Oral Presentations E. Final Selection F. Right to Reject Proposal

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APPENDICES

A. Schedule of Expenditures of Federal Awards for the Fiscal Year Ended June 30, 2001

B. County of San Mateo Investment Policy

C. Sample County Contract Form Document

D. Proposer Guarantees

E. Proposer Warranties

F. Format for Schedule of Professional Fees and Expenses to Support the Total All- inclusive Maximum Price

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I. INTRODUCTION

A. General Information

The County of San Mateo, California and the San Mateo County Grand Jury (the County) are requesting proposals from qualified firms of certified public accountants to audit its financial statements for the fiscal years ending June 30,2003,2004 and 2005, with the option of auditing its financial statements for each of the two (2) subsequent fiscal years. These audits are to be performed in accordance with generally accepted auditing standards, the standards set forth for financial audits in the current General Accounting Office’s (GAO) Government Auditing Standards, the provisions of the federal Single Audit Act of 1984 (as amended in 1996) and U.S. Office of Management and Budget (OMB) Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations as well as the following additional requirements:

l California Government Code Section 25250 and Penal Code Section 925,

l Specific requirements of any compilations, audits or reviews performed under Section II. B. of this document, Scope of Work to be Performed.

There is no expressed or implied obligation for the County to reimburse responding firms for any expenses incurred in preparing proposals in response to this request.

Any inquiries concerning the Request for Proposal should be addressed to

REYNA FARRALES DEPUTY COUNTY MANAGER C/O COUNTY MANAGERS OFFICE 400 COUNTY CENTER, FIRST FLOOR REDWOOD CITY, CALIFORNIA 94063

To be considered, ten (10) copies of a proposal must be received in the County Manager’s Office by 12:00 Noon on December 20,2002. The County reserves the right to reject any or all proposals submitted.

Proposals submitted will be evaluated by a Selection Committee.

During the evaluation process, the Selection Committee and the County reserve the right, where it may serve the County’s best interest, to request additional information or clarifications from proposers, or to allow corrections of errors or omissions. At the discretion of the County or the Selection Committee, firms submitting proposals

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may be requested to make oral presentations as part of the evaluation process.

‘The County reserves the right to, retain all proposals submitted and to use any ideas in a proposal regardless of whether that proposal is selected. Submission of a proposal indicates acceptance by the firm of the conditions contained in this Request for Proposal, unless clearly and specifically noted in the proposal submitted and confirmed in the contract between the County and the firm selected.

It is anticipated the selection of an auditor will be completed by January 3 1, 2003. Following the notification of the selected firm it is expected a contract will be executed between both parties by February 28,2003.

B. Term of Engagement

A three-year contract with two one-year options is contemplated, subject to the recommendation of the Selection Committee, the satisfactory negotiation of terms (including a price acceptable to both the County and the selected firm), the approval of the County’s Board of Supervisors and the annual availability of an appropriation.

II. NATURE OF SERVICES REQUIRED

A. General

The County is soliciting the services of qualified firms of certified public accountants to audit its financial statements for the fiscal years ending June 30,2003,2004 and 2005 with the option to audit the County’s financial statements for each of the two (2) subsequent fiscal years.

B. Scope of Work to be Performed

The County desires the auditor to express an opinion on the fair presentation of the County’s basic financial statements contained in a Comprehensive Annual Financial Report (CAFR) in conformity with accounting principles generally accepted in the United States of America.

The following sections provide additional detail and describe the specific areas to be audited. Interested and qualified firms are invited to submit a proposal to include the financial areas (Items 1 to 12) listed below.

1. The auditor shall conduct an audit of the financial statements of the County in accordance with auditing standards generally accepted in the United States of America and therefore shall conduct such tests of the accounting records

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and such other auditing procedures considered necessary under the circumstances in order that the auditor may render an opinion of the financial statements of the County for the fiscal year ending June 30.

The auditor is not required to audit the combining and individual fund financial statements and supporting schedules. However, the auditor is to provide an “in-relation-to” report on the combining and individual fund financial statements and supporting schedules based on the auditing procedures applied during the audit of the basic financial statements. The auditor is not required to audit the introductory section of the CAFR or the statistical section of the CAFR.

The auditor shall also be responsible for performing certain limited procedures involving required supplementary information required by the Governmental Accounting Standards Board as mandated by generally accepted auditing standards.

2. The auditor shall conduct a Single Audit in accordance with the Office of Management and Budget Circular A-133. The auditor shall, in conjunction with the audit of the County’s financial statements, conduct audits described in the following three (3) paragraphs and issue separate reports thereon:

a. The audits shall be the financial and compliance type described in the Standards for Audit of Governmental Organizations, Programs, Activities and Functions published by the Comptroller General of the United States.

b. The auditor’s examination of the County’s financial statements shall be the financial type described in the AICPA Industry Audit Guide, Audits of State and Local Governmental Units and the Governmental Accounting and Financial Reporting Standards published by the Governmental Accounting Standards Board. The examination shall be conducted in accordance with auditing standards generally accepted in the United States of America leading to the expression of an opinion in compliance with Rule 58.1 of the California State Board of Accountancy.

C. The compliance examination shall enable the auditor to determine whether the organization has complied with the laws and regulations that may have a material effect on each major Federal assistance program. The auditor shall supply special reports and expressions as required by the cognizant agency and express an opinion on the County’s compliance with all Federal assistance programs in

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accordance with OMB Circular A-l 33. A Schedule of Expenditures of Federal Awards for the Fiscal Year Ended June 30, 2001 is attached (Appendix A). Audits of secondary recipients are excluded from this agreement.

The auditor is not required to audit the schedule of expenditures of federal awards. However, the auditor is to provide an “in-relation-to” report on that schedule based on the auditing procedures applied during the audit of the financial statements.

3. The audit shall include a review to determine if the County is complying with the uniform accounting standards and procedures as specified by the State of California Administrative Code.

4. The scope of the audit shall include examination by selective tests of financial transactions of the County as reflected in the records of the County Controller and, to the extent deemed necessary, the records of financial transactions in other County offices, institutions and departments. The extent of tests necessary for such other offices, institutions and departments will be determined by the auditor.

5. The auditor shall examine and review the responses of the County departments to the recommendations of the prior year audit arising out of its examination of the internal controls and accounting procedures of said departments and offices of the County for the fiscal year ended. The auditor will render a written report of recommendations and conclusions to the Controller, the Audit Committee (if any), County Manager and Grand Jury foreman each fiscal year. Each year the auditor shall communicate in a letter to management any reportable conditions found during the audit. A reportable condition shall be defined as a significant deficiency in the design or operation of the internal control structure, which could adversely affect the organization’s ability to record, process, summarize, and report financial data consistent with the assertions of management in the financial statements.

6. The audit is not to cover the financial statements of school district funds and funds of special districts governed by local boards.

7. The auditor shall audit the accounts of the Office of Criminal Justice Planning grants for each fiscal year ending June 30 and provide separate reports thereon.

8. For each fiscal year ending June 30, the auditor shall conduct an examination and prepare separate reports on the County’s compliance with the Investment

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C. Auditing Standards To Be Followed

Policy adopted by the Board of Supervisors and other relevant Government Code sections. A copy of the Investment Policy is included in Appendix B.

9. For each fiscal year ending June 30, the auditor shall review the calculations of the appropriations limits of the County pursuant to the provisions of Proposition 111 (Section 1.5 of Article XIIIB of the California Constitution). The review will evaluate the accuracy of the computations and the adequacy of documentation. A separate report thereon shall be provided by the auditor.

10. The auditor shall audit the following three grants for the District Attorney’s Office and issue separate reports thereon in accordance with grant requirements:

a. California Department of Insurance l Automobile Insurance Fraud Grant - Sub-Org 25 132 l Worker’s Compensation Insurance Fraud Grant - Sub-Org 25 13 1

b. California Department of Justice l Spousal Abuser Prosecution Program - Sub-Org 25 14 1

11. The auditor shall audit the Joint Powers Financing Authority and issue a report thereon. These financial statements will be blended into the County’s financial statements and the auditor will provide the appropriate blending entries.

12. The auditor shall perform a separate, stand-alone audit of the San Mateo Medical Center enterprise funds (inclusive of Clinics). This audit shall be performed in accordance with auditing standards generally accepted in the United States of America and shall comply with the applicable AICPA audit guide(s). In addition to the audited financial statements and accompanying footnotes of the San Mateo Medical Center, the auditor shall provide the appropriate entries for blending into the CAFR.

The audit shall be performed in accordance with generally accepting auditing standards as set forth by the American Institute of Certified Public Accountants, the standards for financial audits set forth in the U.S. General Accounting Office’s Government Auditing Standards (1994), the provisions of the Single Audit Act of 1984 (as amended in 1996) and the provisions of U.S. Office of Management and Budget (OMB) Circular A-l 33, Audits of States, Local Governments, and Non-Profit Organizations, Audits of State and Local Governments.

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D. Reports to be Issued

Following the completion of the audit of each fiscal year’s financial statements, the auditor shall issue to the Controller, the Audit Committee (if any), County Manager and Grand Jury foreman:

1. A report on the fair presentation of the financial statements in conformity with accounting principles generally accepted in the United States of America, including an opinion on the fair presentation of the supplementary schedule of expenditures of federal awards “in relation to” the audited financial statements.

2. A report on compliance and internal control over financial reporting based on an audit of the financial statements.

3. A report on compliance and internal control over compliance applicable to each major federal program.

In the required reports on compliance and internal controls, the auditor shall communicate any reportable conditions found during the audit. A reportable condition shall be defined as a significant deficiency in the design or operation of the internal control structure, which could adversely affect the organization’s ability to record, process, summarize and report financial data consistent with the assertions of management in the financial statements.

Reportable conditions that are also material weaknesses shall be identified as such in the report. Nonreportable conditions discovered by the auditor shall be reported in a separate letter to management, which shall be referred to in the reports on compliance and internal controls.

The reports on compliance and internal controls shall include & instances of noncompliance.

Irrenularities and illegal acts. Auditor shall be required to make an immediate, written report of all irregularities and illegal acts or indications of illegal acts of which they become aware to the County.

Reporting . Auditor shall assure themselves that the County is informed of each of the following:

1. The auditor’s responsibility under generally accepted auditing standards

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2. Significant accounting policies

E.

F.

3. Management judgments and accounting estimates

4. Significant audit adjustments

5. Other information in documents containing audited financial statements

6. Disagreements with management

7. Management consultation with other accountants

8. Major issues discussed with management prior to retention

9. Difficulties encountered in performing the audit

Special Considerations

1. The County will send its Comprehensive Annual Financial Report to the Government Finance Officers Association of the United States and Canada for review in its Certificate of Achievement for Excellence in Financial Reporting program. The auditor will be required to provide special assistance, primarily in the form of a technical review, to the County to meet the requirements of that program. Should the Award not be received for any fiscal year covered by the contract, it shall be considered sufficient grounds for the County to terminate the contract.

2. The County currently does not anticipate in Fiscal Year 2003-04 it will prepare one or more official statements in connection with the sale of debt securities which will contain the general purpose financial statements and the auditor’s report thereon.

3. The Schedule of Expenditures of Federal Awards and related auditor’s report, as well as the reports on compliance and internal controls are not to be included in the comprehensive annual financial report, but are to be issued separately.

Working Paper Retention and Access to Working Papers

All working papers and reports must be retained, at the auditor’s expense, for a minimum of seven (7) years, unless the auditor is notified in writing by the County of the need to extend the retention period. The auditor will be required to make working papers available, upon request, to the following parties or their designees:

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The Grand Jury

County Management

U.S General Accounting Office (GAO)

Parties designated by the federal or state governments or by the County as part of an audit quality review process

Auditor of entities of which the County is a subrecipient of grant funds

In addition, the auditor shall respond to the reasonable inquiries of successor auditor and allow successor auditor to review working ‘papers relating to matters of continuing accounting significance.

III. DESCRIPTION OF THE GOVERNMENT

A. General Description

San Mateo County is located on the San Francisco Peninsula between the City and County of San Francisco and Santa Clara and Santa Cruz Counties. The Pacific Ocean forms its western boundary and San Francisco Bay the eastern boundary. The County covers 447 square miles and contains 20 incorporated cities. It is the 13ti largest county in the State in terms of population. As of June 2000, the estimated population was 707,160.

The County is a political subdivision chartered by the Sate of California and as such, can exercise the powers specified by the Constitution and statutes of the State of California.

The County’s legislative body is a five-member Board of Supervisors, elected County- wide. The County Manager, appointed by the Board of Supervisors, administers County affairs. Other elected County officials include the Assessor-Clerk-Recorder, Controller, District Attorney, Sheriff; Coroner and Treasurer-Tax Collector. The County provides a wide variety of services which are administratively organized into six areas: administration and fiscal, criminal justice, environmental management, health services, public works, and human services.

B. General Financial Information About the County

County management is responsible for establishing and maintaining an internal control structure designed to ensure that the assets of the County are protected from loss, theft or misuse, and that accounting data are compiled to allow for the preparation of financial

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statements in conformity with accounting principles generally accepted in the United States of America. The internal control structure is designed to provide reasonable, but not absolute, assurance that these objectives are met. The concept of reasonable assurance recognizes that: (1) the cost of a control should not exceed the benefits likely to be derived; and (2) the evaluation of costs and benefits requires estimates and judgments by management.

The County maintains budgetary controls with the objective of ensuring compliance with legal provisions embodied in the annual appropriated budget approved by the County’s Board of Supervisors. Activities of the General Fund, certain Special Revenue, certain Proprietary Funds, certain Debt Service and Capital Projects Funds are included in the annual appropriated budget. The level of budgetary control (that is, the level at which expenditures cannot exceed the appropriated amounts) is maintained on the object level for all budgets with the County. Any amendments or transfers of appropriations between object levels within the same budget unit or between budget units within any fund are authorized by the County Manager’s office and must be approved by the Board of Supervisors. The Board of Supervisors must approve supplemental appropriations normally financed by unanticipated revenues during the year. Pursuant to Board Resolution, the County Manager is authorized to approve transfers and revision of appropriations under $50,000 within a single budget unit as deemed necessary and appropriate. Any appropriations remaining in the budget unit at the end of the fiscal year automatically lapse and are transferred to the fund balance. The year-end fund balance, along with projected revenues, becomes available for appropriation the following year. An encumbrance accounting system is used to facilitate effective budgetary control. An encumbrance reserves a portion of an appropriation at the time a commitment is made to acquire goods or services. Open encumbrances are reported as reservations of fund balances at fiscal year-end and are re-appropriated as part of the following year’s budget.

The Controller maintains the County’s automated accounting system and prepares a Comprehensive Annual Financial Report (CAFR) covering the entirety of the financial operations of the County. The County’s basic financial statements have been audited annually by firms of independent Certified Public Accountants. Prior years’ audits are available for review.

Mandatory and discretionary departmental audits are performed by the internal audit division of the County Controller’s Office. Copies of internal audit reports will be made available to the successful proposer.

The County utilizes an automated accounting systems known as IFAS (Integrated Financial Accounting System). This system is a 7-year old, client/server, on-line processing system. The system runs on an IBM RS6000 minicomputer housed in the Information Services Division computing facility. Under IFAS, a self-balancing set of General Ledger accounts

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is maintained for each fund. The accounting records for some funds are limited to the General Ledger; detailed records on the IFAS Job Ledgers support other funds.

Retirement Programs

The County participates in and contributes to a defined benefit pension plan which provides retirement, disability, and death benefits for substantially all employees of the County. Contributions are made to the. San Mateo County Employees’ Retirement Association (SamCERA) in accordance with the County Retirement Act of 1937. SamCERA is reported as a Pension Trust Fund in the County’s Fund Financial Statements; however, SamCERA is audited by separate, independent auditors and a Comprehensive Annual Financial Report is available from SamCERA.

Risk Management

The County maintains a comprehensive risk management program administered by a full- time professional risk manager, and staff. The County is self-insured for property damage, general liability, workers compensation, automobile liability, medical malpractice and long-term disability insurance. Commercial insurance companies provide excess insurance coverage for property damage, general liability, workers’ compensation, and automobile liability. Medical malpractice is primary coverage with a deductible.

The County currently reports its risk management activities in its Workers’ Compensation Insurance, Long-Term Disability, Personal Injury and Property Damage Trust Funds (Internal Service Funds). The County uses the following fund types and account groups in its financial reporting:

Number of Reported Number With Individual Legally Adopted

Fund Type Funds Annual Budgets General fund 1 1 Special revenue funds (1) 13 16 Debt service funds (2) 2 1 Capital projects funds 5 5 Enterprise funds 5 5 Internal service funds (3) 6 2 Investment trust funds (4) 4 Pension (and other employee benefits)

trust funds 1 1 Agency funds 6

(l)- Four special revenue funds with budgets (Fish and Game, Off-Highway Vehicle

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License Fees, Highlands Landscape Maintenance District and Various Drainage Districts Funds) are combined in the CAFR under the category “Other Special Revenue Funds”. (2)- The debt service fund, Joint Powers Financing Authority, has no budget. (3)- Two internal service funds, Tower Road and Fleet Maintenance, have budgets. The remaining four internal service funds (Worker’s Compensation Insurance, Long- Term Disability Trust, Employee Benefits Trust and Personal Injury and Property Damage Trust) are on a full reimbursement basis and have no budgets. (4)- These are fiduciary funds with no budgets.

C. Component Units

The County is defined as a primary government, for financial reporting purposes, in conformity with the Governmental Accounting Standards Board’s Codzjkation of Governmental Accounting and Financial Reporting Standards, Section 2 100. Using these criteria, component units are included in the County’s financial statements. The management of the County identified the following component units for inclusion in the County’s financial statements:

San Mateo Joint Powers Financing Authority The San Mateo County Joint Powers Financing Authority (the JPFA) is a joint exercise of powers agency organized under the laws of the State of California by agreements dated May 15, 1993 and entered into by the County. The JPFA was formed to assist the County in the financing of public capital improvements.

The JPFA and the County have a financial and operational relationship which requires that the JPFA’s financial statements be blended into the County’s financial statements. The JPFA’s policies are determined by a five-member board appointed by the San Mateo County Board of Supervisors. The JPFA has no employees and all staff work is done by the County staff or by consultants to the JPFA.

Financial statements are audited annually by the independent certified public accountants awarded this contract. This component unit is to be audited as part of the audit of the County’s financial statements. Fiscal year end: June 30.

San Mateo County Employees’ Retirement Association (SamCERA) The financial activities of the County’s pension plan are reported in the pension trust fund of the basic financial statements because it is an integral part of the County. SamCERA is controlled by a nine-member Retirement Board. The Board is comprised of the County Treasurer, two general members of SamCERA, four members appointed by the County Board of Supervisors, one member from SamCERA’s safety membership and one member from the retired membership. The

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Retirement Board has administrative and fiduciary responsibility over the pension plan. The Retirement Board utilizes third-party banking institutions as custodians over the plan’s assets. SamCERA is independently audited by the County’s Internal Audit Division annually. The auditor of SamCERA are contractually obligated to provide information needed for the audit of the County. Fiscal year end: June 30.

Housing Authority The Housing Authority was established pursuant to the State Health and Safety Code by the County Board to provide housing assistance to low and moderate income families at rents they can afford. Eligibility is determined by family composition and income in areas served by the Housing Authority. Most of the housing programs administered by the Housing Authority are funded by contributions from the U.S. Department of Housing and Urban Development (HUD) pursuant to the United States Housing Act of 1937 and the HUD Act.

The Housing Authority’s Board of Commissioners is composed of the same members as the County’s Board of Supervisors. The activities of the Housing Authority are blended with the primary government. The Housing Authority’s financial statements are audited annually by auditors other than the independent certified public accountants awarded this contract. The auditors of the Housing Authority are contractually obligated to provide information needed for the audit of the County. Fiscal year end: June 30.

In-Home Supportive Services (IHSS) Public Authority The IHSS Public Authority maintains a registry and referral system to assist consumers in finding qualified in-home supportive services personnel as well as training of and support for providers and recipients of IHSS. The IHSS Public Authority is primarily tided by state grants. The County’s Board of Supervisors is the governing body for the IHSS Public Authority. Therefore, this entity has been blended with the primary government and is included in the overall scope of this proposal. This component unit is to be audited as part of the audit of the County’s financial statements. Fiscal year end: June 30.

D. Availability of Prior Audit Reports and Working Papers

Interested proposers who wish to review prior years’ audit reports and management letters should contact Orlene Ferrando at Controller’s Office, 555 County Center, 4* Floor, Redwood City, CA 94063. The County will use its best efforts to make prior audit reports available to proposers to aid their response to this Request for Proposal. CAFRs for the fiscal year’s ended June 30, 2000 and 2001 are available online at http://www.co.sanmateo.ca.us/controller/.

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IV. TIME REQUIREMENTS

A. Proposal Calendar

The following is a list of key dates up to and including the date proposals are due to be submitted:

Request for Proposal issued November 18,2002

Due date for proposals December 20,2002,12:OONoon

Review of Proposal by Selection Committee December 20,2002 - January lo,2003

Interview Finalist Firms Week of January 20,2003

Recommendation of Firm Completed by Selection Committee January 27,2003

B. Notification and Contract Dates

Selected firm notified January 3 1,2003

Contract date February 25,2003

C. Date Audit May Commence March 3,2003

The County will have all records ready for audit and all management personnel available to meet with the auditor’s personnel as of March 2003.

D. Schedule for the 2003 Fiscal Year Audit of the Comprehensive Annual Financial Report (CAFR) (a similar time schedule will be developed for audits of future fiscal years).

Each of the following should be completed by the auditor no later than the dates indicated. Should the County require additional time up to 40 days, the auditor shall ensure that the necessary auditor resources remain available to complete the audit as close to the scheduled dates as possible.

1. Interim Work

The auditor shall complete interim work by June 15.

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2. Detailed Audit Plan

The auditor shall provide County by May 31 a list of all schedules to be prepared by the County.

3. Fieldwork

The auditor shall complete all fieldwork by September 15.

4. Draft Reports

The auditor shall have drafts of the audit report and recommendations to management available for review by the Controller, the Audit Committee (if any), the County Manager and Grand Jury foreman by September 15.

E. Entrance Conferences, Progress Reporting and Exit Conferences (A similar time schedule will be developed for audits of future fiscal years).

At a minimum, the following conferences should be held by the dates indicated on the schedule:

Week of Entrance conference with Controller, Audit Committee (if any), County Manager and Grand Jury foreman March 17

Entrance conference with all key finance department personnel and department heads of key offices or programs March 17

The purpose of this meeting will be to discuss prior audit problems and the interim work to be performed. This meeting will also be used to establish overall liaison for the audit and to make arrangements for work space and other needs of the auditor

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Progress conference with Controller and department heads of key offices or programs

The purpose of this meeting will be to summarize the results of the preliminary review and to identify the key internal controls or other matters to be tested

Progress conference with Controller, Audit Committee (if any), County Manager and Grand Jury foreman

Progress conference with Controller, key finance department personnel and other department heads of key offices or programs

The purpose of this meeting will be to discuss the year-end work to be performed

Entrance conference with Controller to commence year-end audit work

Exit conference with Controller and department heads of key offices or programs

The purpose of this meeting will be to summarize the results of the field work and to review significant findings

Exit conference with Controller, Audit Committee (if any), County Manager and Grand Jury foreman

May 19

May 26

June 23

August 18

September 8

September 8

F. Date Final CAFR Report is Due

The Controller shall prepare draft financial statements, notes and all required supplementary schedules and statistical data by August 22. The auditor shall provide all recommendations, revisions and suggestions for improvement to the Controller by September 8. A revised report, including a draft auditor’s report shall be delivered

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to the Controller by September 15.

The Controller will complete the review of the draft report as expeditiously as possible. It is not expected that this process should exceed one week. During that period, the auditor should be available for any meetings that may be necessary to discuss the audit reports. Once all issues for discussion are resolved, the final signed report shall be delivered to the Controller within 5 working days. It is anticipated that this process will be completed and the final report delivered by September 22.

The final report and 50 signed copies should be delivered by the auditor to the Controller at 555 County Center, 4” Floor, Redwood City, CA 94303. The auditor shall also deliver the report electronically in a format similar to the 2001 CAFR appearing on the Controller’s internet site.

V. ASSISTANCE TO BE PROVIDED TO THE AUDITOR AND REPORT PREPARATION

A. Controller’s Office and Clerical Assistance

The Controller’s Office staff and responsible management personnel will be available during the audit to assist the auditor by providing information, documentation and explanations. The preparation of confirmations will be the responsibility of the County under direction of the auditor.

B. Internal Audit Staff Assistance

Proposers are advised not to anticipate any field assistance from the internal audit division.

C. Work Area, Telephones, Photocopying and FAX Machines

The County will provide the auditor with reasonable work space, desks and chairs. The auditor will also be provided with access to 1 telephone line, 1 modem line, photocopying facilities and FAX machines.

D. Report Preparation

Report preparation, editing and printing shall be the responsibility of the auditor and the County.

E. Timetable for other reports listed in Section II. B. (NATURE OF SERVICES REQUIRED - Scope of Work to be Performed) of this Request for Proposal.

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I deliverable l JPFA Report (#ll) September 1 l Comprehensive Annual Financial September 22

Report (CAFR) (250 bound copies) (#l) l Report on Appropriation Limit (50 September 22

bound copies) (#9) l Medical Center Enterprise Funds Audit September 22

Report (50 bound copies) (#12) l Investment Policy Report (25 bound November 15

copies) (#8) l Three (3) reports for the District November 15

Attorney’s Office (5 bound copies each) (#lO)

l Single Audit Reports (50 bound copies) November 30 (#2)

l Grants Funded by Office of Criminal November 30 Justice Planing for the Various Periods Ended June 30 (10 bound copies) (#7)

l Management Letter (50 bound copies) November 30 (#5) L

r qote: Numbers in parenthesis (#) refer to items in Section I, B, “Scope of Work to Be Performed” on pages 7 through 9.

1 Due Date

VI. PROPOSAL SUBMISSION REQUIREMENTS

A. General Requirements

1. Inquiries

Inquiries concerning the Request for Proposal and the subject of the Request for Proposal must be made to:

REYNA FARRALES DEPUTY COUNTY MANAGER C/O COUNTY MANAGER’S OFFICE 400 COUNTY CENTER, FIRST FLOOR REDWOOD CITY, CALIFORNIA 94063 650-363-4130

CONTACT WITH PERSONNEL OF THE COUNTY OTHER THAN REYNA FARRALES REGARDING THIS REQUEST FOR PROPOSAL MAY BE GROUNDS FOR ELIMINATION FROM THE SELECTION PROCESS.

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2. The last date on which proposals will be accepted is 12:00 Noon on December 20, 2002. Proposals postmarked on or before this date and time but received after this deadline will not be accepted. Facsimile or email transmission will not be accepted.

3. All proposals shall be firm offers and will be considered so by the County for a contract covering the three fiscal years ending June 30,2003, June 30,2004, June 30, 2005, with the option to extend for the fiscal year ending June 30,2006 and June 30, 2007.

4. Submission of Proposal

The following material is required to be received by 12:OO Noon on December 20, 2002 for a proposing firm to be considered:

A. A master copy (so marked) of a Technical Proposal and 10 copies to include the following:

1. Title Page

Title page showing the Request for Proposal subject; the firm’s name; the name, address and telephone number of the contact person; and the date of the proposal.

2. Table of Contents

3. Transmittal Letter

A signed letter of transmittal briefly stating the proposer’s understanding of the work to be done, the commitment to perform the work within the time period, a statement why the firm believes itself to be best qualified to perform the engagement and a statement that the proposal is a firm and irrevocable offer for 120 days after December 20,2002.

4. Detailed Technical Proposal

THERE SHOULD BE NO DOLLAR UNITS OR TOTAL COSTS INCLUDED IN THE TECHNICAL PROPOSAL DOCUMENT.

The purpose of the Technical Proposal is to demonstrate the qualifications, competence and capacity of the firms seeking to undertake an independent audit of the County in conformity with the requirements of this Request for Proposal. As such, the substance of

22 11/18/02 5:54 PM

proposals will carry more weight than their form or manner of presentation. The Technical Proposal should demonstrate the qualifications of the firm and of the particular staff to be assigned to this engagement. It should also specify an audit approach that will meet the Request for Proposal requirements.

The Technical Proposal should address all the points outlined in the Request for Proposal (excluding any cost information which should only be included in the sealed dollar cost proposal). The Technical Proposal should be prepared simply and economically, providing a straightforward, concise description of the proposer’s capabilities to satisfy the requirements of the Request for Proposal. While additional data may be presented, the following subjects, items A through F, must be included. They represent the criteria against which the proposal will be evaluated.

a. Minimum Technical Requirements Only the proposals of those firms whose proposal demonstrates the following minimum qualifications will be evaluated by the county

l Independence: The firm must be able to provide an affirmative statement that is independent of the County in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in the Government Auditing Standards issued by the Comptroller General of the United States.

The firm also must provide an affirmative statement that it is independent of all of the component units of the County as defined by those same standards.

The firm must also list and describe the firm’s professional relationships involving the County or any of its agencies or component units for the past five (5) years, together with a statement explaining why such relationships do not constitute a conflict of interest relative to performing the proposed audit.

In addition, the firm must give the County written notice of any professional relationships entered into at the County or its component units during the period of this agreement.

23 11/18/02 5:54 PM

l License to Practice in the State of California: An affirmative statement is required that the firm and all assigned key professional staff are properly registered and licensed to practice in the State of California.

l Experience: The firm must have a minimum of five (5) years experience in a lead capacity on the audit of financial statements of a minimum of three (3) local governments conducting high quality audits with General Fund net assets/fund balance of at least $100 million and federal expenditures of at least $100 million in -accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards issued by the Comptroller General of the United States; and the United States Office of Management and Budget (OMB) Circular A- 133, Audits of States, Local Governments and Non-Profit Organizations.

l Firm Capacity: Demonstrated capacity to devote the necessary personnel and technical resources to complete the work described in accordance with the scheduled timeline.

b. Audit Schedule and Approach

An audit schedule detailing a work plan/time estimates and a descriptions of the f%-m’s approach to audits.

c. Assigned Personnel

A complete list of personnel who will be assigned to the audits. For each person on this list the following information must be provided:

l Academic background, including names of institutions and dates

l Experience background, including time periods, type of experience, completing financial and/or management audits, references and tenure with firm.

l List of related past employers. l Number of hours per week and total number of weeks the

individual will spend in the audit and the percentage of total time the individual will be devoting to the audit.

24 11/18/02 5:54 PM

d. Firms Qualifications and Experience

The proposer should state the size of the firm, the size of the firm’s governmental audit staff? the location of the office from which the work on this engagement is to be performed and the number and nature of the professional staff to be employed in this engagement on a full-time basis and the number and nature of the staff to be so employed on a part-time basis.

If the proposer is a joint venture or consortium, the qualifications of each firm comprising the joint venture or consortium should be separately identified and the firm that is to serve as the principal auditor should be noted, if applicable.

The firm is also required to submit a copy of the report on its most recent external quality control peer review, with a statement whether that quality control peer review included a review of specific government engagements.

The firm shall also provide information on the results of any federal or state desk reviews or field reviews of its audits during the past three (3) years. In addition, the firm shall provide information on the circumstances and status of any disciplinary action taken or pending against the firm during the past three (3) years with state regulatory bodies or professional organizations.

e. References

For the firm’s office that will be assigned responsibility for the audit, list the most significant engagements (maximum - 5) performed in the last three years that are similar to the engagement described in this Request for Proposal. These engagements should be ranked on the basis of total staff hours. Indicate the scope of work, date, engagement partners, total hours, and the name and telephone number of the principal client contact.

f. Acceptance of Conditions A statement affirming acceptance of the terms and conditions contained in the RFP and. understanding that the successful proposer will be required to enter into a contract with the County in a form substantially similar to the form contract attached hereto

25 11/18/02 3:54 PM

as Appendix C.

5. Executed copies of Proposer Guarantees (Appendix D) and Proposer Warranties (Appendix E) attached to this RFP.

B. Sealed Dollar Cost Proposal

1. Total All-Inclusive Maximum Price

The sealed dollar cost proposal should contain all pricing information relative to performing the audit engagement as described in this Request for Proposal. The total all-inclusive maximum price to be proposed is to contain all direct and indirect costs including all out-of-pocket expenses.

The County will not be responsible for expenses incurred in preparing and submitting the technical proposal or the sealed dollar cost proposal. Such costs should not be included in the proposal.

The first page of the sealed dollar cost proposal should include the following information:

a. Name of Firm

b. Certification that the person signing the proposal is entitled to represent the firm, empowered to submit the proposal, and authorized to sign a contract with the County.

C. A Total All-Inclusive Maximum Prices for each of the fiscal years ended June 30, 2003, 2004, 2005, 2006 and 2007 engagements.

2. Rates by Partner, Specialist, Supervisory and Staff Level Times Hours Anticipated for Each

The second page of the sealed dollar cost proposal should include a schedule of professional fees and expenses, presented in the format provided in the attachment (Appendix F), that supports the total all- inclusive maximum price. The cost of special services described in Section II E of this Request for Proposal should be disclosed as separate components of the total all-inclusive maximum price.

3. Out-of-pocket Expenses Included in the Total All-inclusive Maximum Price and Reimbursement Rates

26 11/18/02 5~54 PM

Out-of-pocket expenses for firm personnel (e.g., travel, lodging and subsistence) will be reimbursed at the rates used by the County for its employees. All estimated out-of-pocket expenses to be reimbursed should be presented on the second page of the sealed dollar cost proposal in the format provided in the attachment (Appendix F). All expense reimbursements will be charged against the total all-inclusive maximum price submitted by the firm.

In addition, a statement must be included in the sealed dollar cost proposal stating the firm will accept reimbursement for travel, lodging and subsistence at the prevailing County rates for its employees.

4. Rates for Additional Professional Services

If it should become necessary for the County to request the auditor to render any additional services to either supplement the services requested in this RFP or to perform additional work as a result of the specific recommendations included in any report issued on this engagement, then such additional work shall be performed only if set forth in an addendum to the contract between the County and the firm. Any such additional work agreed to between the County and the firm shall be performed at the same rates set forth in the schedule of fees and expenses included in the sealed dollar cost proposal.

5. Manner of Payment

Progress payments will be made on the basis of hours of work completed during the course of the engagement and out-of-pocket expenses incurred in accordance with the firm’s dollar cost proposal. Interim billing shall cover a period of not less than a calendar month. Ten percent (10%) will be withheld from each billing pending

delivery of the firm’s final reports.

The proposer shall submit an original and ten (10) copies of a dollar cost proposal in a separate sealed envelope marked as follows:

SEALED DOLLAR COST PROPOSAL FOR

COUNTY OF SAN MATE0 FOR

PROFESSIONAL AUDITING SERVICES [DATE]

27 11/18/02 5~54 PM

Contents of completed proposal: Proposers should send the completed proposal consisting of the two separate envelopes to the following address:

REYNA FARRALES DEPUTY COUNTY MANAGER C/O COUNTY MANAGERS OFFICE 400 COUNTY CENTER, FIRST FLOOR REDWOOD CITY, CALIFORNIA 94063

VII. EVALUATION PROCEDURES

A. Selection Committee

Proposals submitted will be evaluated by a Selection Committee.

B. Review of Proposal

The Selection Committee will evaluate each technical proposal by each of the criteria described in Section VII C below.

After the technical evaluation for each firm has been established, the sealed dollar cost proposal will be opened and additional evaluation will be performed.

The County reserves the right to retain all proposals submitted and use any idea in a proposal regardless of whether that proposal is selected.

C. Evaluation Criteria

Proposals will be evaluated using three sets of criteria. Firms meeting the mandatory criteria will have their proposal evaluated for both technical qualifications and price. The following represent the principal selection criteria which will be considered

during the evaluation process.

1. Mandatory Elements

a. The audit firm is independent as defined in this RFP

b. The audit firm is licensed to practice in the State of California

C. The audit firm has the requisite experience

d. The audit firm demonstrates the requisite capacity

28 11/18/02 5~54 PM

e. The audit firm demonstrates the requisite firm size

f. The firm adheres to the instructions in this Request for Proposal on preparing and submitting the proposal

2. Technical Quality

Expertise and Experience

(1)

(2)

(3)

(4)

(5)

3. Price

The reasonableness and clarity of the firms audit schedule and approach The quality of the firm’s professional personnel to be assigned to the engagement and the quality of the firm’s management support personnel to be available for technical consultation The firm’s past experience and performance on comparable government engagements The timeliness and results of the audit firm’s most recent quality review which included a review of specific government engagements Reference from governmental entities similar in size and scope to the County and from any other references

COST WILL NOT BE THE PRIMARY FACTOR IN THE SELECTION OF AN AUDIT FIRM

D. Oral Presentations

During the evaluation process, the Selection Committee may, at its discretion, request any one or all firms to make oral presentations. Such presentations will provide firms with an opportunity to answer any questions the Selection Committee may have on a firm’s proposal. Not all firms may be asked to make such oral presentations.

E. Final Selection

The County will select a firm based upon the recommendation of the Selection Committee.

It is anticipated that a firm will be selected by January 27, 2003. Following notification of the firm selected, it is expected a contract will be executed between both parties by February 25,2003.

29 11/18/02 5~54 PM

F. Right to Reject Proposal

Submission of a proposal indicates acceptance by the firm of the conditions contained in this Request for Proposal unless clearly and specifically noted in the proposal submitted and confirmed in the contract between the County and the firm selected.

The County reserves the right without prejudice to reject any or all proposals.

30 11/18/02 5:54 PM

APPENDICES

A. Schedule of Expenditures of Federal Awards for the Fiscal Year Ended June 30,200l

8. County of San Mateo Investment Policy

C. Sample County Contract Form Document

D. Proposer Guarantees

E.

F.

Proposer Warranties

Format for Schedule of Professional Fees and Expenses to Support the Total All- inclusive Maximum Price

11/18,0~L5:54 PM

APPENDIX A

COUNTY OF SAN MATE0

Single Audit Reports ..

For the Fiscal Year Ended.June 30,200l

COUNTY OF SAN MATE0 Single Audit Reports

For the Fiscal Year Ended June 30,200l

Table of Contents

Page(s)

Independent Auditor’s Report on the Schedule of Expenditures of Federal Awards . . . . . . . . . . . . . . . . . . . . . . . . 1

Schedule of Expenditures of Federal Awards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . _. . . 2-5

Notes to the Schedule of Expenditures of Federal Awards.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6-8

Independent Auditor’s Report on Compliance and on Internal Control Over Financial Reporting Based on an Audit of Basic Financial Statements Performed in Accordance with Government Auditing Standards . . . . . . . . . . . . . . . . . . . . . . .;. . . . 9-10

Independent Auditor’s Report on Compliance with Requirements Applicable to Each Major Program and on Internal Control Over Compliance in Accordance with OMB Circular A-133 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11-12

Schedule of Findings axid Questioned Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . *. . . . . . . . . _ . . . . . . . . . . . . . . . . . . . . . . . .13-19

Status of Prior Year Findings and Questioned Costs . . . . . . . . . _ . _ . . . . . . . . _ . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . _ . . .20-27

Macias, Gini & Company LLP cLtT,,‘,*d P”bhC Atsountents e.“d Management Co”8”ltantn

Pmtners Mt. Diablo Plaza

Kenneth A. Macias, Managing Partner

Ernest J. Gini

Kevin J. O’Connell

Richard A. Green _

Jan A. Rosati

James 17. Godsey

2175 N. California Boulevard

Suite 620

Walnut Creek, CA 94596-3565

925*274*0190

,925.274.3819 FAX

www.maciasgini.com

INDEPENDENT AUDITOR’S REPORT ON SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS

Board of Supervisors County of San Mateo, California

We have audited the basic financial statements of the County of San Mateo (the County), as of and for the year ended June 30, 2001, and have issued our report thereon dated October 5, 2001, which includes an explanatory paragraph due to the adoption of provisions of Governmental Accounting Standards Board Statements No. 33 and 34. These basic financial statements are the responsibility of the County’s management. Our responsibiliry is to express an opinion on these basic financial statements based on our audit.

We conducted our audit in accordance with auditing standards generally accepted in the United States of America; the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States; and Oh@ Circular A-133, Audits of States, Local Govemmenrs, and Non-Pro@ Organizations. Those standards and OMB Circular A-133 require that we plan and perform the audit to obtain reasonable assurance about whether the basic financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the basic financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the basic financial statements. We believe that our audit provides a reasonable basis for our opinion.

Our audit was performed for the purpose of forming an opinion on the basic financial statements of the County taken as a whole. The accompanying Schedule of Expenditures of Federal Awards is presented for purposes of additional analysis as required by OMB Circular A-133 and is not a required part of the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, is fairly stated, in all material respects, in relation to the basic financial statements taken as a whole.

ma&i AA4L Certified Public! Accountants

Walnut Creek, California October 5, 2001

OFFICE LOCATIONS

Sacramento 0 Los Angeles 0 Fresno * San Francisco Bay Area

1

COUNTY OF SAN MATE0

Schedule of Expe&ituxzs of Federal Awards

For the Fiscal Year Ended June 30,2001

Federal Grantor/Pass-Through Grantor/Program Title

, Catalog of Federal Amount Domestic Assistance Federal Provided to

Number (CFDA) Expenditures Subrecipients

U.S. DEPARTMENT OF AGRICULTURE

Direct Programs: None $ -$ -

Pass-Through Programs, State of California: Food Stamp Cluster:

Food Stamps State Adminisuadve Matching Grants for Food Stamp Program

Subtotal Food Stamps Cluster Child Nutrition Cluster:

10.551 10.561

3,834,191 2,371,532 6,205,723

School Breakfast Program National School Lunch Program

Subtotal Child Nutrition Cluster Special Supplemental Nutrition Program for Women, Infants,

and Children (WIG Program) Nutrition Program for the Elderly (NPE)

Subtotal Pass-Through Programs

TOTAL U.S. DEPARTMENT OF AGRICULTURE

10.553 10.555

109,999 168,051 278,050

10.557 10.570

1,454,016 195,569 195,569

8,133,358 195,569

8,133,358 195,569

U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

Direct Programs: Co~unity Development Block Grants/Entitlement Grants Emergency Shelter Grants Program HOME Investment Partnerships Program

Sub-Total of Direct Programs

14.218 14.231 14.239

6,048,862 3.424.251 130,421 125,996

2,266,774 991,454

S&+6,057 4,541,701

Pass-Through Programs, State of California: Housing Opportunities for Persons with AIDS (HOPWA)

TOTAL U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

14.241 677,525 587,552

9,123,582 5.129253

U.S. DEPARTMENT OF JUSTICE

Direct Programs: Srate Domestic Preparedness Equipment Support Program Drug Court Discretionary Grant Program Grants to Encourage Arrest Policies and Enforcement of Protection Orders State Criminal Alien Assistance Program (SCAAP) Bulletproof Vest Partnership Program Public Safety Partnerships and Community Policing Grants (“COPS” Grants)


16.007 200,ooo 16.585 133,648 16.590 284,633 16.606 2,537,246 16.607 13,314 16.710 11,845

3,180,686

Pass-Through Programs, State of California: Juvenile Justice and Delinquency Prevention-Allocation to States Crime Victim Assistance Byrne Formula Grant Program Local Law Enforcement Block Grants Program Drug Enforcement Administrative Grant

Sub-Total of Pass-Through Programs

TOTAL U.S. DEPARTMENT OF JUSTICE

16.540 16.575 16.579 16.592

16

199,624 177,282 353,208 296,242 74,004 15,000

938,078 177,282

4,118,764 177,282

See notes to the schedule of expenditures of federal awards.

L

COUNTY OF SAN MATE0

f Schedule of Expenditures of Federal Awards

For the Fiscal Year Ended June 30,201


Catalog of Federal Amount Domestic Assistance Federal Provided to

Number (CFDA) Expenditures Subrecipients

(Continued)

U.S. DEPARTMENT OF LABOR

Direct Programs: None

Pass-Through Programs, State of California: Senior Conununity Service Employment Program 17.235 Welfare-to-Work Grants to States and Localities .. 17.253 Workforce Investment Act (WIA)


TOTAL U.S. DEPARTMENT OF LABOR

17.255

U.S. DEPARTMENT OF TRANSPORTATION

Direct Program: Airport Improvement Program (AIP) 20.106 24,524

Pass-Through Programs, State of California: Highway PIarming and Construction (Federal-Aid Highway Program) State and Community Highway Safety


20.205 20.609

TOTAL U .S . DEPARTMENT OF TRANSPORTATION

U.S. ENVIRONMENTAL PROTECTION AGENCY


Pass-Through Programs, State of California: Local Oversight Program - Groundwater Protection

TOTAL U.S. ENVIRONMENTAL PROTECTION AGENCY

66

FEDERAL EMERGENCY MANAGEMENT AGENCY

Direct Programs: Public Assistance Grants

<Pass-Through Programs, State of California: Hazard Mitigation Grant (HMGP)

TOTAL FEDERAL EMERGENCY MANAGEMENT AGENCY

U.S. DEPARTMENT OF EDUCATION


Pass-Through Programs, State of California: Safe and Drug-Free Schools and Communities - State Grants

TOTAL U.S. DEPARTMENT OF EDUCATION

170,751 170,751 168,521 128,760

2,397,422 769,216

2,736,694 1,068,727

2,736,694 19068,727

346,527 18,425 16,143

364,952 16,143

389,476 16,143

295,125

295,125

83.544 1,361

83.548 269,458

270,819

84.186 104,993

104,993


3

COUNTY OF SAN MATE0

Schedule of Expenditures of Federal Awards

For the Fiscal Year Ended June 30,200l



Number (CODA) Expenditures Subrecipients

(Continued)

U.S. DEPARTMENT GF HEAJZII AND HUMAN SERVICES

Direct Programs: Special Programs for the Aging - Title III, Part B - Grants for

Supportive Services and Senior Centers Health Center Grants for Homeless Populations Connnunity Health Centers Consolidated Knowledge Development and Application (KD & A) Program Community Access Program (CAP) Health Care Financing Research, Demostrations and Evaluations

(HCFA Research) Substance Abuse/HIV Outreach Project


Pass-Through Programs, State of California: Special Programs for the Aging - Tide VII, Chapter 3 - Programs for

Prevention of Elder Abuse, Neglect, and Exploitation Special Programs for the Aging - Title VII, Chapter 2 - Long Term Care

Ombudsman Services for Older Individuals Special Programs for the Aging - Title III, Part B - Grants for

Supportive Services and Senior Centers Special Programs for the Aging - Tide El, Part C - Nutrition Services Special Programs for the Aging - Title IIl, Part D - ln Home

Services for Frail Older Individuals Acquired Immunodeliciency Syndrome (AIDS) Activity Projects for Assistance in Transition from Homelessness (PATH) Disabilities Prevention Jmmunization Grants Centers for Disease Control and Prevention - Investigations and

Technical Assistance Promoting Safe and Stable Families Temporary Assistance for Needy Families Child Support Enforcement Refugee and Entrant Assistance - State Administered Programs Child Care and Development Block Grants Repatriation Program Child Care Mandatory and Matching Funds of the

Child Care and Development Fund Adoption Incentive Payments Child Welfare Services - State Grants Foster Care - Title IV-E Adoption Assistance Independent Living Medical Assistance Program (Medicaid; Title XJX) HIV Emergency Relief Project Grants Block Grants for Community Mental Health Services Block Grants for Prevention and Treatment of Substance Abuse

(SAPT Block Grant) Preventive Health and Health Services Block Grant Maternal and Child Health Services Block ,Gzmnt to the States Adolescent Family Life - Demostration Projects (AFL)


TOTAL U.S. DEPARTMENT OF HEALTH AND HUMAN SERVICES

93.044 78,923 93.151 697,125 238,176 93.224 1,155,843 93.230 1,873,297 1,788,236 93.252 203,676

93.779 93.949

23,211 20,008 342,017 193,460

4,374,092 2,239,880

93.041 10.918

93.042 23,986

93.044 371,980 93.045 1,136,310

93.046 44,634 93.118 1,483,397 93.150 37,819 93.184 646,630 93.268 108,997

10,918

23,986

371,980 1,012,232

44,634 133,241 37,819

93.283 11,200 93.556 502,635 93.558 28,042,575 93.563 9,808,771 93.566 22,779 93.575 1,810,870 93.579 1,973

8.850

734,260

1,810,870

93.596 147,025 93.603 8,926 93.645 459,735 93.658 10,441,899 93.659 1,880,545 93.674 243,784 93.778 1,556,572 93.914 2,344.934 93.958 598,301

147,025

377,835 168,083

93.959 93.991 93.994 93.995

4,416,668 27,944

1,240,064

4253,661 16,452

185,680

67,617,551 9,151,846

71,991,643 11,391,726


4

COUNTY OF SAN MATE0

f Schedule of Expenditures of Federal Awards

For the Fiscal Year Ended June 30, 2001


Federal Grantor/Pass-Through Grantor/Program Title Number (CFDA) Experiditures Subrecipients

(Continued)

OFFICE OF THE PRESIDENT

Direct Programs: High Intensity Drug Trafficking Area

TOTAL OFFICE OF THE PRESIDENT.

TOTAL EXPENDITURES OF FEDERAL AWARDS

99 2,500,OOO

2,500,ooo

$ 99,664,454 s i7378.700


5

.COUNTY OF SAN MATE0 Notes to the Schedule of Expenditures of Federal Awards

For The Fiscal Year Ended June 30,200l

1. GENERAL

The Schedule of Expenditures of Federal Awards includes the federal grant activity of the County of San Mateo. All federal financial assistance received directly from federal agencies as tiell as federal financial assistance passed through other governmental agencies are included on this schedule except for assistance related to Medical Assistance (Medi-Cal) and Medicare Hospital Insurance (Medicare) (Note 5) and to the Housing Authority of the County of San Mateo (Housing Authority) (Note 6).

2. BASIS OF ACCOUNTING

The accompanying Schedule of Expenditures of Federal Awards is presented using the modified - accrual basis of accounting for program expenditures accounted for in the governmental funds

and the accrual basis of accounting for program expenditures accounted for in the proprietary funds as described in Note 2(c) of the County’s basic financial statements.

3. RELATIONSHIP TO FEDERAL FINANCIAL REPORTS

Amounts reported in the accompanying Schedule of Expenditures of Federal Awards agree or can be reconciled with amounts &ported in the related federal financial assistance reports.

.4. RELATIONSHIP TO BASIC FINANCIAL STATEMENTS

Federal award expenditures agree or ‘can be reconciled with the amounts reported in the County’s basic financial statements.

5. MEDI-CAL AND MEDICARE

Direct Me&Cal and Medicare expenditures are excluded from the Schedule of Expenditures of Federal Awards. These expenditures represent fees for services and are not included in the Schedule of Expenditures of Federal Awards or in dete rmining major programs. The County assists the State in determining eligibility and provides Medi-Cal and Medicare services through County-owned facilities.

Administrative costs related to Medi-Cal and Medicare are, however, included in the Schedule of Expenditures of Federal Awards under Medical Assistance Program (Federal CFDA number 93.778).

6

COUNTY OF SAN MATE0 Notes to the Schedule of Expenditures of Federal Awards (Continued)

For The Fiscal Year Ended June 30, 2001

6. HOUSING AUTHORITY

Housing Authority expenditures are excluded from the Schedule of Expenditures of Federal Awards because it is separately audited. The programs of the Housing Authority are as follows:

Program Title CFDA No. Expenditures

Section 8 Programs: Moderatt: Rehabilitation Program 14.856 $ 1,068,575 Voucher 14.871 30,179,460 Moving to Work 14.871 222,525

Total $31.470.560 L

7. FOOD COUPONS

The County issued food coupons valued at $3,834,191 as of June 30, 2001. This amount is for information only as receipts and issuances of food coupons are not recorded in the County’s financial records.

8. LOANS OUTSTANDING

The County had the following loan receivable balances outstanding at June 30, 2001:

Program Title AIU0UIlt

CFDA No. Ol.ltstanding

Community Development Block Grants/Entitlement Grants HOME Investment Partnerships Program

14.218 $18,722,467 14.239 9,077,426

$27.799.893

Included in the loan receivable amount outstanding are expenditures related to new loans issued during fiscal year 2000-01. The County incurred $1,151,437 in expenditures related to new loans under the Community Development Block Grants and $2,321,787 under the HOME Investment Partnership Program.

COUNTY OF SAN MATE0 Notes to the Schedule of Expenditures of Federal Awards (Continued)

For The Fiscal Year Ended June 30,200l

9. DEPARTMENT OF LABOR GRANTS

During fiscal year 2001, the County transferred unused Job Training Partnership Act (JTPA) Cluster (CFDA 17.250) grants to the Workforce Investment Act Program (WIA) in the amount of $766,986 for the transition and implementation of the WIA Dislocated Worker and Adult Programs. The County is authorized to expend these funds over a two-year period. The JTPA funds are subject to the same terms and conditions as the WI,4 funds. The amount expended under WIA from JTPA transfers was included in the expenditures of WI4 and was used in determining Type A programs.

Macias, Gini & Company L.LP Certl‘led PYbllC ACCOY”lB”t6 an*

t.+ensgefnent Crlnaultants

Pnrtilers

Kenneth A. Macias, Managing Partner

Ernest J. Gini

Kevin J. O’Connell

Richard A. Green

Jan A. Rosati

James V. Godsey

Mt. Diablo Plaza


Suite 620


925*274.0190

9250274-3819 FAX

www.maciasgini.com


INDEPENDENT AUDITOR’S RJZPORT ON COMPLIANCE AND ON INTERNA.L CONTROL.OVER FINANCIAL REPORTING BASED ON AN AUDIT OF BASIC FINANCIAL

STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS

We have audited the basic financial statements of the County of San Mateo, California (County) as of and for the fiscal year ended June 30, 2001, and have issued our report thereon dated October 5, 2001, which includes an explanatory paragraph due to the adoption of provisions of Governmental Accounting Standards Board Statements No. 33 and 34. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States.

Compliance

As part of obtaining reasonable assurance about whether the County’s basic financial statements are free of material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts and grants, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit, and accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance that are required to be reported. under Government Auditing Standards. However, we noted certain immaterial instances of noncompliance, which we have reported to management of the County in a separate letter dated December 20, 2001.

Internal Control Over Financial Repodzg

In planning and performing our audit, we considered the County’s internal control over financial reporting in order to determine our auditing procedures for the purpose of expressing our opinion on the basic financial statements and not to provide assurance on the internal control over financial reporting. Our consideration of the internal control over financial reporting would not necessarily disciose ali matters in the internal control over financial reporting that might be material weaknesses. A material weakness is a condition in which the design or operation of one or more of the internal control components does not reduce to a relatively low level the risk that misstatements in amounts that would be material in relation to the basic financial statements being audited may occur and not be detected within a timely period by employees in the normal course of performing their assigned functions. We noted no matters involving the internal control over financial reporting and its operation that we consider to be material weaknesses. However, we noted other matters involving internal control over financial reporting which we have reported to the County’s management in a separate letter dated December 20, 2001.

OFFICE LOCATIONS

Sacramento 0 Los Angeles * Fresno 0 San Francisco Bay Area

9

This report is intended solely for the information and use of the County of San Mateo Grand Jury,, Counv Board of Supervisors, County management, federal awarding agencies and pass&rough entities and is not intended to be and should not be used by anyone other than these specified parties.

maLii4 Certified Pubiid Accountants

LLB

Walnut Creek, California October 5, 2001

10

Partners

Kenneth A. Ma&as, Managing Partner

Ernest J. Gini

Kevin J. O’Connell Macias, Gini & Company LLP

Cortlfled PUbllC Acco”“la”l8 and Manapement Conavltants

Richard A. Green

Jan A. Rosati

James V. Godsey


Mt. Diablo Plaza


Suite 620


925*274*0190

925*274*3819FAX

www.maciasgini.com

INDEPENDENT AUDITOR’S REPORT ON COMPLIANCE WITH REQUIREMENTS APPLICABLE TO EACH MAJOR PROGRAM AND ON INTERNAL CONTROL OVER

COMPkANCE IN ACCORDANCE WITH OMB CIRCULAR A-133

Compliance

We have audited the compliance of the County of San Mateo (County) .with the types of compliance requirements described in the U.S. Ofice of Management and Budget (OMB) Circular A-133 Compliance Supplement that are applicable to each of its major federal programs for the fiscal year ended June 30, 2001. The County’s major federal programs are identified in the summary of auditor’s results section of the accompanying schedule of findings and questioned costs. Compliance with the requirements of laws, regulations., contracts and grants~applicable to each of its major federal programs is the responsibility of’the County’s management. Our responsibility is to express an opinion on the County’s compliance based on our audit.

We conducted our audit of compliance in accordance with auditing standards generally accepted in the United States of America; the standards applicable to fmancial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States; and OMB Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations. Those standards and OMB Circular A-133 require that we plan and perform the audit to obtain reasonable assurance about whether noncompliance

-with the types of compliance requirements referred to above that could have a direct and material effect on a major federal program occurred. An audit includes examinin g, on a test basis, evidence about the County’s compliance with those requirements and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Our audit does not provide a legal determination on the County’s compliance with those requirements.

In our opinion, the County complied, in all material respects, with the requirements referred to above that are applicable to each of its major federal programs for the fiscal year ended June 30, 2001. However, the results of our auditing procedures disclosed instances of noncompliance with those requirements, which are required to be reported in accordance with OMB Circular A-133 and which are described in the accompanying schedule of findings and questioned costs as items 01-1, 01-2, 01-3, and 01-4.

OFFICE LOCATIONS

Sacramento 0 Los Angeles 0 Fresno 0 San Francisco Bay Area

11

Internal Control Over Compliance

The management of the County is responsible for establishing and maintaining effective internal control over compliance with requirements of laws, regulations, contracts and grants applicable to federal programs. In planning and performing our audit, we considered the County’s internal control over compliance with requirements that could have a direct and material effect on a major federal program in order to determine our auditing procedures for the purpose of expressing our opinion on compliance and to test and report on internal control over compliance in accordance with OMB Circular A- 133.

We noted certain matters involving the internal control over compliance and its operations that we consider to be reportable conditions. Reportable conditions involve matter coming to our attention relating to significant deficiencies in the design or operation of the internal control over compliance that, in our judgment, could adversely affect the County’s ability to administer a major federal program in accordance with the applicable requirements of laws, regulations, contracts, and grants. Reportable conditions are described in the accompanying schedule of findings and questioned costs as items 01-1, 01-2, 01-3, and 01-4.

A material weakness is a condition in which the design or operation of one or more of the internal control components does not reduce to a relatively low level the risk that noncompliance with applicable requirements of laws, regulations, contracts and grants that would be material in relation to a major federal program being audited may occur and not be detected within a timely period by employees in the normal course of -performing their assigned functions. Our consideration of the internal control over comphance would not necessarily disclose all matters in the internal control that might be reportable conditions and, accordingly would not necessarily disclose all reportable conditions that are also considered to material weaknesses. However, we believe that none of the reportable conditions described above are material weaknesses. In addition, we noted other matters involving internal control over compliance and its operations, which we have reported to management in a separate letter dated December 20, 200 1.

This report is intended solely for the information and use of the County of San Mateo Grand Jury, County Board of Supervisors, County management, federal awarding agencies and pass-through entities and is not intended to be and should not be used by anyone other than these specified parties.

Certified Public Accountants

Walnut Creek, California December 20, 2001

12

COUNTY OF SAN MATE0 Schedule of Findings and Questioned Costs For The Fiscal Year Ended June 30,200l

Section I - Summary of Auditor’s Results

Financial Statements:

Type of auditor’s report issued: Unqualified

Internal control over financial reporting:

l Material weaknesses identified? l Reportable conditions identified that are

not considered to be material weaknesses

No

None reported.

Noncompliance material to fmancial statements noted? No

Federal Awards:

Internal control over major programs:

l Material weaknesses identified? l Reportable conditions identified that are

not considered to be material weaknesses

No

Yes

Type of auditor’s report issued on compliance for major programs Unqualified

Any audit fmdings disclosed that are required to be reported in accordance with section 510(a) of Circular A-133? Yes

Identification of major programs:

Program Title

Community Development Block Grants/ Entitlement Grants 14.218 Grants to Encourage Arrest Policies and Enforcement of Protection Orders 16.590 Workforce Investment Act 17.255 Temporary Assistance for Needy Families 93.558 Child Support Enforcement 93.563 Foster Care - Title IV - E 93.658 Block Grants for Community Mental Health Services 93.958

CFDA Number

13

COUNTY OF SAN MATE0 Schedile of Findings and Questioned Costs (Continued)


Section I i Summary of Auditor’s Results (Continued)

Federal Awaids (Continued):

Dollar threshold used to distinguish between Type A and Type B programs: $&989,934

Auditee qualified as low-risk auditee? Yes

Section II - Financial Statement Findings

None noted.

Section 1I.I - Federal Award Findings and Questioned Costs

Fiudhig 01-l U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT Co-unity Development Block Grant, CFDA Number 14.218 Administered by the San Mateo County Human Services Agency

Criteria

In accordance with Title 24, section 570.506 of the Code of Federal Regulations, when CDBG fimds are used for rehabilitation, the grantee must assure that the work is properly completed. in doing so, the grantee is required to inspect the recipient’s financial records and facility to ensure that the work was carried out in accordance with contract specifications. Any deficiencies are to be documented and incorporated into the rehabilitation contract for correction.

Condition

One of the four rehabilitation files selected for testing was considered incomplete as there was no documentation noted in the file that indicated an inspection of the recipient’s financial records or . facility.

We cannot determine if the County complied with the rehabilitation requirements due to the lack of documentation.

iiecommendation

We recommend that the County establish and implement policies and procedures requiring a project supervisor to review rehabilitation project files on a periodic basis to ensure all requirements are met.

14

COUNTY OF SAN MATE0 Schedule of Findings and Questioned Costs

For The Fiscal Year Ended June 30, (Continued) 2001

Section III - Federal Award Findings and Questioned Costs (Continued)

Finding 01-l (Continued)

Management response

We will include in our policies and procedures a periodic supervisory review of rehabilitation project files. A new supervisory position has recently been created and it will be the responsibility of this supervisor to ensure that staff adhere to documentation requirements and monitoring procedures as stipulated in the Monitoring Manual.

Finding 01-2 U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT Community Development Block Grant, CFDA Number 14.218 Administered by the San Mateo County Human Services Agency

Criteria

Under the requirements of the Single Audit Act and OMB Circular A-133, subrecipienta of federal awards must be monitored by the primary recipient to determine whether the subrecipient has expended the awards in accordance with applicable laws and regulations, Furthermore, OMB Circular A-133 provides that, in such instances, the primary recipient should, among other things:

1. Determine whether the subrecipient has met the audit requirements of OMB Circular A-133, if applicable;

2. Determine whether the subrecipient spent federal awards provided in accordance with applicable laws and regulations; and

3. Consider various risk factors in developing subrecipient monitoring procedures such as:

a. relative size and complexity of the federal awards administered by the subrecipient,

b. prior experience with each subrecipient, and

C. cost-effectiveness of various monitoring procedures.

The primary recipient’s responsibilities may be discharged for subrecipients receiving federal awards of $300,000 or more by relying upon independent audits of the subrecipients, performed in accordance with OMB Circular A-133. For those subrecipients that are required to receive single audit reports in accordance with OMB Circular A-133, the County, as the primary recipient, is also required to ensure that the audits are performed, and must follow-up on the resolution of all reported findings and questioned costs.

15

COUNTY OF SAN MATE0 Schedule of Findings and Questioned Costs (Continued)



Finding 01-2 (Continued)

Criteria (continued)

The primary recipient’s responsibilities may be discharged for subrecipients receiving federal awards less than $300,000 by performing a combination of the following procedures:

1. Relying on appropriate procedures performed by the primary recipient’s internal audit department or program management personnel through on-site visits;

2. Reviewing documentation in support of amounts claimed for reimbursement; and

3. Applying certain agreed-upon procedures.

-

Condition

The County has established monitoring policies and procedures and has prepared a monitoring manual for staff use. However, we noted that Housing Division’s monitoring activities are not documented. In addition, we noted that the Housing Division’s supervisors do not perform oversight of their staffs subrecipient monitoring activities or follow-up of identified findings.

Without documenting and reviewing monitoring procedures performed, the County cannot ensure its internal controls governing compliance with all applicable laws and regulations are operating as planned.

Recommendation

We recommend that the County develop and implement policies requiring the documentation and review of subrecipient monitoring activities.

Management Response

The County has policies and procedures in place. The Agency is working on creating uniformity in documenting monitoring activities.

Measures to enforce compliance with documentation requirements include updating a documentation and compliance checklist that will serve as a mechanism to keep an account of monitoring activities. Periodic review by supervisor and management oversight will be included in doclurmentation.

16

COUNTY OF SAN MATE0 Schedule of Findings and Questioned Costs (Continued)



Finding 01-3 U.S. DEPARTMENT OF HEALTH AND HUMAN SERVICES _ Temporary Assistance For Needy Families, CFDA Number 93.558

Passed Through the State of California, Department of Social Services Administered by the San Mateo County Human Services Agency

Criteria

In accordance with OMB A-133, a grantee is responsible for. documenting eligibility determinations. Under the eligibility requirements of this grant, the County must obtain a Monthly Income Determination form (CW7) from each participant monthly.

Condition

Four of the forty participant case files selected for testing were missing several of the Monthly Income Determination (CW7) forms. These forms are completed by the participants and are used by the Benefit Analysts to monitor the participants’ financial status.

There is no indication of possible changes in financial status which could affect a participant’s benefits.

Recommendation

We recommend that the County review procedures of obtaining and maintaining all necessary eligibility documentation to ensure that eligible participants are receiving the correct amount of benefits given their financial status.

Management Response

Problems cited in this fmding will be reviewed by the appropriate Policy Team, which includes representatives from various levels in the organization and all major offices. This information will also be posted on the Human Services Agency Intranet. In 2001, a Quality Assurance (QA) Committee was formed and is currently developing QA procedures for implementation in 2002. Eligibility

I documentation, including the CW7 form, will be part of that QA review process. In this manner, this issue will be resolved at a systemic level.

17

CQUNTY OF SAN MATE0 Schedule of Findings and Questioned Costs (Continued)



Finding 01-4 US. DEPARTMENT OF HEALTH AND HUMAN SERVICES Foster Care - Title IV-E, CFDA Number 93.658 Passed Through the State of California, Department of Social Services Administered by the San Mate0 County Human Services Agency

Criteria

In accordance with CMB A-133, a grantee is responsible for documenting eligibility determinations. Under the eligibility requirements of this grant, the grantee must compleE the following forms documenting eligibility:

Form name Statement of Facts

Supporting Eligibility for AFDC-Foster Care

Form # Purpose Frequencv FC-2 To document the initial Every

eligibility determination 6 months for participation in the Foster Care program.

Determination of Federal AFDC-FC Eligibility

FC-3 To document whether Every Foster Care benefits 6 months will be paid by the State or the Federal government.

Prepared/ Signed by Social Worker and Benefits Analyst

Benefits Analyst

Reviewed/ Signed by Benefit Supervisor - required for initial determination, after initial determination, review is performed on a random basis.

Benefit Supervisor - required for initial determination, after initial determination, review is performed on a random basis.

In addition copies of the following documents musr be maintained in the participants files documenting eligibility:

Document Purpose Birth certificate, social security card, naturalization To document age of child and papers, adoption decree, etc. citizenship.

18

CQM OF SAN MATE0 Schedule of Findings and’Questioned Costs (Continued)




Condition

During our testing of forty participant files for compliance with eligibility requirements, we noted the following:

l Four files were missing one or more of the FC-2, l One file was missing the FC-3, l Three files were missing the supervisor’s signature on the initial FC-2, and l Two files indicated that the required 6 month eligibility redetermination was performed one

month late,

In addition to our testing of the County’s compliance with eligibility requirements, we noted four files indicated that an incorrect rate or an undocumented rate was used to pay participants.

Effect

Incomplete and missing documentation and/or missing approvals may result in improper determinations, thus benefits could be disbursed to ineligible participants.

We recommend that the County strengthen its monitoring controls governing the eligibility determination of these participants to ensure that proper eligibility has been determined and forms are completed in accordance with program guidelines.

Management Response

Problems cited in this finding will be reviewed by the appropriate Policy Team, which includes representatives from various levels in the organization and all major offices. A memo will also be issued to staff informing them of this finding and stressing the importance of complete, accurate and timely documentation in determinin g eligibility. In 2001, a Quality Assurance (QA) Committee was formed and is currently developing QA procedures for implementation in 2002. Eligibility documentation, including the FC2 and FC3 forms, will be part of that QA review process. In this manner, this issue will be resolved at a systemic level.

19

COUNTY OF SAN MATE0 Status of Prior Year Findings and Questioned Costs


Financial Statement Findings

Finding 00-l U.S. DEPARTMiNT OF HEALTH AND HUMAN SERVICES Foster Care - Title IV - E, CFDA Number 93.658 Passed through the State of California, Department of Social Services Administered by the San Mateo County Human Services Agency

Criteria

Under the guidelines of OMB Circular A-87, the County is eligible to claim costs that are legal, proper, and consistent with the policies that govern the County’s own expenditures, and that are paid to the eligible participants.

Condition

On April 18, 2001 the County’s Human Services Agency discovered that one of its benefits analysts for the Foster Care program was allegedly embezzling Foster Care supplemental program funding. The employee was able to create electronic case files without establishing the required hard case that maintained all the eligibility determination documentation and then issued supplemental checks to fictitious claimants. The County performed an internal investigation and concluded that the embezzled funds were isolated to State Foster Care program funding, yet both State and Federal program funding determinations are governed by the same internal control environment. The County’s internal investigation also, uncovered the following control weaknesses in that internal control environment:

l Benefit analysts’ assigned duties allow them to control the issuance of checks on-line using the Case Data System (CDS) without offsetting control such as the required approval of a benefits analyst supervisor. Benefit analysts determine eligibility, establish the electronic case file, issue supplemental checks in any dollar amount, and manipulate closed case files all without supervisory approval. There is no procedure to ensure independent detection of an incorrect or improper check issuance. There is no limit imposed by CDS as to the number or dollar amount of supplemental checks issued on a respective case.

l Specific monitoring reports from the CDS are not being generated and analyzed. Only month end CDS reports are generated and analyzed listing active cases at the end of the month. There are no controls in place to monitor intra-month activity (cases opened and closed in the same month). Knowing employee would be able to by-pass controls by electronically opening and closing’cases within the same month, not being detected.

l Closed cases are not always assigned a closed case number and remain in the benefit analyst number for various reasons, but the status of these cases are not monitored by a supervisor. Lack of monitoring poses risk that an employee could essentially manipulate information in closed cases and issue frau&~!ent checks.

20

COUNTY OF SAN MATE0 Status of Prior Year Findings and Questioned Costs (Continued)


Financial Statement Findings (Continued)


Conditkn (Continued)

l Warrant registers are not being closely reviewed. Cases are coded depending on the type of foster care services ordered by the court. Warrant registers should be reviewed for consistency with the case code assigned. For instance a case coded as receiving services from an approved facility should not be generating checks to individuals.

l Passwords assigned for access into the CDS are for an entire foster care unit and not by individual requiring access to the system. In addition passwords are not changed periodically, nor are they changed when an employee leaves the unit. Unit passwords make it difficult to determine who is accessing the system and limits the audit trail of who made changes to case data. In addition, not changing passwords after employees leave the department provides an environment for employees to fraudulent manipulate case data.

Contfa

The Department maintains the case records for various categories of aid, including supplemental payments on the CDS. This computer system is widely used by other California counties. CDS stores historical and financial case data, issues benefit checks, produces client notices and forms, and generates audit trail documents advising benefit analysts and management of actions taken or requested. Benefit analysts determine and approve clients’ eligibility for assistance checks on-line from CDS and monitor clients’ compliance with eligibility requirements. These employees are supervised by benefit analyst supervisors who generally have similar computer access on CDS.

During the current year, supplemental checks coded as State aid were issued through CDS with limited internal controls. Benefit analysts have both duties and computer access that were not offset with proper checks and balances. Federal aid disbursements are made under the same internal control environment, thus such funding is susceptible to fraud due to the weak internal control environment.

EfJect

In an environment without proper internal controls, such as segregation of duties, an organization is more susceptible to fraud, which may go undetected or not be detected in a timely manner.

Recommendation

Based on the County’s internil investigation and irtmml1 control 5ndiigs, management should s “LllLLl immediately implement the proposed corrective action plan.

21



Financial Statement Findings (Continued)


Management ‘s response

We concur. The Human Services Agency’s Corrective Action plan has been implemented.

Status

This situation was not noted in fiscal year 2001.

Federal Award Findings and Questioned Costs

Finding 00-l U.S. DEPARTMENT OF HEALTH AND HUMAN SERVICES Foster Care - Title IV - E, CFDA Number 93.658 Passed through .the State of California, Department of Social Services Administered by the San Mateo County Human Services Agency

The details- of this finding can be found under Status of Prior Year Findings and Questioned Costs, Financial Statement Findings, as the finding is a reportable condition that affects both Governmental Auditing Standards and the provisions of OMB Circular A- 133. As a result of the control deficiencies noted above, a certain employee of the County embezzled supplemental funds that were reimbursed under the State’s Foster Care program, in which the same internal control environment over these funds also was supposed to safeguard federal assistance under the Foster Care program.

Finding 00-2 U.S. DEPARTMENT OF HEALTH AND HUMAN SERVICES Foster Care - Title IV - E, CFDA Number 93.658 Passed through the State of California, Department of Social Services Administered by the San Mateo County Human Services Agency

Criteria

Under the eligibility requirements, the grantee is required to determine eligibility based on the program requirements and maintain documentation supporting that determination. Documentation includes abiding by the established internal controls set in place to ensure that staff make a proper determiuation of eligibility.

Condition

The Fos+dr Care supervisor’s signature was not noted on the Form K-2, Statement ofFacts Supporting Eligibility for AFDC-Foster Care in five of forty case files selected for testing.

22

COIJNTYOFSANMATEO Status of Prior Year Findings and Questioned Costs (Continued)


Federal Award Findings and Questioned Costs (Continued)


Context

The Form FC-2 documents the initial eligibility determination for participation in the Foster Care program and must. be reviewed and signed by a supervisor prior to a program participant receiving benefits.

Effect

We were unable to determine whether these forms were reviewed by a supervisor, whose signature indicates their approval that the applicants were eligible to receive federal Foster Care program benefits.

Recommendation

We recommend that department management remind supervisors and staff of the importance of obtaining required signatures, which indicate approval of eligibility determination and authorizes a participant to receive benefits.

Management’s response

We concur. A memorandum, dated February 26, 2001, was issued to all Foster Care case workers reminding them that the FC-2 form must be signed by the Unit Supervisor or their representative and that documentation must be filed in the case folder. In addition, quality control review requirements, established in November 2001, mandate the Foster Care Unit Supervisor randomly select four cases per month per worker for quality control review. The review tool, form C-197-85, is designed to include the review of the FC-2 and the. FC-3 when determining Federal vs. Non-Federal eligibility.

Status

This situation was noted again in fiscal year 2001. See Finding 01-4 for the current status.

Finding 00-3 u.s.DEm~mm~~o~ma~~m MUMANSERVICES Temporary Assistance for Needy Families, CFDA Number 93.558 Passed through the State of California, Department of Social Services Administered by the San Mateo County Human Services Agency

Criteria

Under the eligibility requirements, the grantee is required to maintain documentation supporting eligibility determination.

23





Condition

The County was unable to locate one of the forty case files selected for testing.

Context

This file was reconstructed in July 2001 for the annual eligibility re-certification of the participant, but the original eligibility determination documentation could not be provided.

Effect

We were unable to determine whether the participant selected was eligible during the period under audit as their case file was missing.

Recommendation

We recommend- that the County evaluate their file management policies and procedures to ensure they are adequate for maintaining all necessary documentation.

Management’s response

We concur. The CalWORKs Handbook has been reissued with revised lost/duplicate case procedures.

Status

This situation was not noted in fiscal year 2001.

Finding 00-4 U.S. DEPARTMENT OF HEALTH AND HUMAN SERVICES Temporary Assistance for Needy Families, CFDA Number 93.558 Passed through the State of California, Department of Social Services Administered by the San Mateo County Human Services Agency

Criteria

Under the eligibility requirements, the grantee is required to determine eligibility based on the program requirements and maintain documentation supporting that determination. Documentation includes abiding by the established internal controls set in place to ensure that staff make a proper determination of eligibility.

24

COUNTY OF SAN iMATE Status of Prior Year Findings and Questioned Costs (Continued)




Condition

Per our discussions with three of the seven unit-supervisors for the TANF program, we noted that at those three sites new and re-certification case files are not being reviewed in accordance with the County’s review policy.

Context

It is the County’s policy that unit-supervisors review at least 50% of new and re-certification case files every month at their respective locations. ,

Effect

Not reviewing case files weakens the control environment as there is no over-site of eligibility determination, which could result in the misappropriation of assets relating improper use of federal funds.

We recommend that the County evaluate current program activities and develop and implement procedures to ensure that these reviews are performed timely.

Management s response

We concur. A review of current quality control procedures will be conducted and revised procedures will be fully implemented by October 200 1.

Status

Supervisory reviews are an essential component of effective case management of CalWORKs cases. The Human Services Agency has elected to implement a more comprehensive solution that goes beyond supervisory case reviews. A Quality Assurance Committee has been formed and will be developing Quality Assurance procedures for implementation in 2002. Supervisory review of new and recertified cases will be a component of that process.

25




Finding 00-5 U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT HOME Investment Partnership Program, CFDA Number 14.239 Administered by the San Mateo County Human Services Agency

Criteria

Under the cash management guidelines, when entities are funded on a reimbursement basis, program costs must be paid for by entity funds before reimbursement is requested from the Federal Government. Furthermore, Title 24, section 92.502(c)(2) of the Code of Federal Regulations states that “HOME funds drawn from the United States Treasury account must be expended for eligible costs within 15 days. n

Condition

The County claimed reimbursement for a deposit made into an escrow account for property acquisition, but an escrow deposit is not considered an expenditure. The County should recognize these types of expenditure when escrow on the property closes. The County did though have a 15 day grace period from the draw down per Title 24, section 92.502(c)(2) of the Code of Federal Regulations, yet escrow did not close within the 15 days thus the County was no longer entitled to their draw down and should have returned the funds to HUD.

Context

Of the expenditures claimed for reimbursement, the County claimed an escrow deposit of $229,640 that did not meet the criteria of an actual expenditure within 15 days of the reimbursement draw down.

Effect

The County has claimed reimbursement for costs that were unallowable due to a misunderstanding that the disbursement of an escrow deposit was considered an actual expenditure.

Recommendation

We recommend that the County review the policies for allowable costs and develop and implement procedures to ensure that only allowable costs are claimed for reimbursement within the allowable timeframe.

County has not experienced similar timing lag problems between HUD drawdown and expenditure since this single, isolated case. Tighter internal control measures and closer monitoring of projects preclude reoccurrence.

26

T

COIJNTY OF SAN MATE0 Schedule Of Prior Year Findings and Questioned Costs (Continued)



Finding 00-6 U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT HOME Investment Partnership Program, CFDA Number 14.239 Administered by the San Mateo County Human Services Agency

Criteria

Under the special tests and provisions guidelines for housing quality standards, during the period of availability for HOME assisted rental housing, the participating jurisdiction must perform on-site inspections to determine compliance with property standards and verify information submitted by owners no less than every two years for projects containing five to twenty-five units.

Condition

The County was unable to provide supporting documentation indicating whether these inspections were performed and whether there were any findings needing corrective action.

Context

The County has never- established formaL written procedures regarding reviewing and documenting housing quality standards inspections of. subrecipients. Management has represented that these reviews are being performed in accordance with the HOME regulations but are not formally documented.

Eflect

It is undeterminable -whether these inspections are being completed in accordance wi@ the HOME -regulations as there are no written procedures that can be reviewed for comparison to the HOME regulations and there is not formal documentation that can be reviewed to determine the compliance with this requirement.

Recommendation

We recommend that management establish written procedures regarding reviews and documentation of housing quality standards inspections of HOME assisted units during the period of affordability.

Status

County Housing Staff has implemented a tracking system linking each HOME-assisted project to a master file and indicating how often on-site inspections according to HQS criteria are to be monitored. Each project has a separate file containing an HQS inspection checklist. Staff is being trained to conduct HQS inspections and to date, two HCD Staff have undergone training.

27

f

. . .

I .

.

APPENDIX B

COUNTY OF

SAN NLATEO

POOLEDFUND INVESTMENT

POLICY January, 2002

Phlilosophy

Objectives of the Fond: Safe@, Liquidity, Yield and Public Trust

Strategy: Allowable Hnstrumetnts, Fkxibility~ Qual@cations

Maturity and Average L@e of the County Pool

Quallpcations of all Instruments

Comtrols

Frocedures to be followed in the execution of Investment Authority

Limits on Honoraria, G&ts and Gratuities

3

3

5

6

7

9

12

64

2

January3, 2002

To meet the needs of liquidity and long term investing the County has established the County Investment Pool. This fund is suitable for planned expenditures or capital funds. The securities in this pool may have longer individual maturities, but will have a dollar weighted average maturity of no more than five years.

“Dollar Weighted average portfolio maturity” means the sum of every portfolio investment multiplied by its respective number of years to maturity divided by the total amount of portfolio investments.

The responsibility for managing the San Mateo County investment program resides with the Treasurer. The investment program is supervised within the guidelines set forth in the investment policy, developed by the Treasurer, reviewed and approved annually by the County Treasury Oversight Committee and the County Board of Supervisors.

This policy sets aside up to one million dollars for investment in banks whose primary operations are located in San Mateo County. Investments from this fund must meet the requirements of the California Government Code and any investment of more than $100,000 must be collateralized at a rate of 105% to 150% of the value of the deposit to guarantee the safety of the public funds.

’ Other socially responsible issues may be considered for inclusion in this investment policy (1) so long as they are not inconsistent with generally accepted investment standards for the management of pooled public funds (Government Code 536018~ 53635), and (2) they remain within the guidelines of the “Prudent Person Rule”.

Objectives of the Fund: Safety, Liquidity, Yield and Public Trust

1. Safety

Preservation of principal is of primary importance. The objective is to minimize credit risk while recognizing and controlling market risk,

2. Liauidiiy

The Pool attempts to match maturities with capital expenditures and other planned outlays. The nature of the planning process behind these expenditures is relatively predictable and less volatile than is the case for pass-through money. This allows leeway for the underlying investments in the County Pool to have a longer duration. The County Pool will maintain a dollar weighted average portfolio maturity of five years or less.

3

Funds deposited in the County Pool may be reclaimed subject to the conditions of Sections 27133 (h) and 27136 of the California Government Code at the rate of 20% of the principal balance per month, exclusive of apportionment, payrolls and day to day operations, unless specifically authorized by the Treasurer.

Gains and losses in this fund will be proportionately allocated to each depositor. Each depositor is given credit for accrued interest earnings and capital gains based on their average daily pool balance as reported by the county controller. Gains or losses will be attributed to the fund balance of each depositor quarterly. The minimum balance for an outside agency to maintain an account in the county pool is $100,000.

For those agencies requesting wire transfer of their apportionment money, or a portion thereof, the following conditions will apply. The county will only wire funds out for members, who maintain an account in the county pool.

Moneys apportioned to voluntary participants who want their funds wired out will be held in a separate account and will be wired out the day after receipt of the funds. Wiring instructions must be received in the Treasurer’s Office 24 hours prior to the actual date of transfer. Wiring instructions must be signed by authorized signatories on file with the Treasurer’s Office.

3. Yield

The County Pool is designed as an income fund to maximize the return on investible funds over various market cycles, consistent with limiting risk and prudent investment principles. Yield will be considered only after the basic requirements of safety and credit quality have been met. The County Pool is managed as an income fund whose purpose is to provide its investors with a reasonably predictable level of income, as opposed to a growth fund or fund measured in the basis of total return that could encounter negative returns.

4. Leverage

‘The Treasurer shall not leverage the County Pool through any borrowing collateralized or otherwise secured by cash or securities held unless authorized by this investment policy. Security lending is authorized by this policy, if and when it is authorized within the context of section 53601 and section 53635 of the Government code. If used Security Lending will be limited to a maximum of 20% of the portfolio.

5. Public Trust

In managing the Investment Portfolio, the Treasurer shall exercise a degree of professionalism that will sustain public confidence in the County and pool participants, remembering that both investment instruments and the method of transacting investment business are subject to public scrutiny. The perception of safety and professionalism is as important as the reality of these concepts. To further public trust the Investment Officer is prohibited fi-om doing personal business with brokers that do business with the county.

4

In the implementation of the Investment Policy, the County adheres to the guidanci: provided by the “Prudent Person Rule”, whereby a fiduciary is obligated to ensure investments will be made with the exercise of judgment and care, under circumstances then prevailing, which persons of prudence, discretion and intelligence would exercise in the management of their own affairs, not for speculation but for investment, considering the probable safety of their capital as well as the probable income to be derived.

The Treasurer’s office has created a synthetic index of securities, based on various readily available Merrill Lynch indices, that parallel the pool’s investment objectives. This index will be used as an artificial measure of the pool performance, and the general interest rate outlook.

The allocation of the synthetic index is as follows: 30% O-l year U.S. Governments 20% l-2.99 year U.S. Governments 20% 3-5 year U.S. Governments 10% l-10 year U.S. Governments 20% l-5 year Corporate Bonds

This Investment Policy must be reviewed and approved annually by the County Board of Supervisors. All amendments to this Policy must be approved by the Board of Supervisors.

This Investment Policy and all subsequent amendments will be communicated by the Treasurer to the Pool participants and acknowledged in writing.

Strategy: Akwable Instruments, Fktibtity, Qualifications

Subject to the limitations set forth in California Government Code sections 53600 et seq., which may be amended from, time-to-time, the Treasurer may invest in the following instruments, subject to the limits of flexibility described on @e following page:

Issuer U.S. Treasury Obligations 100 100 15 years

Obligations of U.S. Agencies or govenunent 100 100 15 years sponsored enterprises

Bankers Acceptances A-l / P-l

*Domestic: ($500 million minimum assets) 15. 10 270 days *Foreign: ($500 million minimum assets) 15 10 270 days

5

I

Collateralized time deposits within the state of CALIFORNIA Negotiable ceticates of deposit

*Commercial paper

Repurchase agreements secured by U.S. Treasury or agency obligation (102% collate&)

Reverse Repurchase agreements

Corporate bonds qnd medium term notes includi:Jg asset-backed bonds (two agencies)

Local Agency Investment Fund (LAIF)

Shares of beneficial interest issued by diversified management companies as defined in Government Code Section 5360 1

Mortgage Backed Securities: No Inverse Floaters No Range Notes No Interest only strips derived Ii-om a pool of Mortgages

A-l 1 P-l 40 180 days

5 years

I

Up to the current state limit

A

10

20

30 days

5 years

-

The maximum allowable maturity of instruments in the County Pool at the time of investment will be 15 years and the maximum dollar weighted average maturity of the fund will be 5 years. The focus of this fund is on income and value in the yield curve. On the basis of risk/reward there is very little yield incentive to move out on the yield curve beyond intermediate maturities. The policy of maintaining a maximum dollar weighted maturity of five years leaves open the flexibility to take advantage of interest rate trends to maximize the return on investment. The imposed maximum five year average maturity limits the market risk to levels appropriate to an intermediate income fund. The word “Maturity” refers to the instrument’s stated legal f%ral redemption date - not coupons reset dates, put dates, or call dates.

Securities purchased specifically to match the maturity of a bond issue and/or a contractual arrangement must be authorized by Government Code 53601 and 53635, but are not included in the requirements listed above; such securities shall be clearly designated in the appropriate investment journals and reports.

6

Q ua cations Qf a Instrnmments aa, be used as Investments in the county Pool

US Treasurv Obliglafions are obligations for which the full faith and credit of the United States Government are pledged for the payment of principal and credit.

Obliwtions of &I;S. Agencies are debt instruments issued by a federal agency carrying a high credit rating because it is government sponsored.

Banker’s Acceptances must be drawn on Bar&s whose short term rating is Al/H (S&P and Moody’s) or better whose long term rating is A or better by two of the nationally recognized rating services (Moody’s, Standard and Poor’s, Fitch, Duff & Phelps) and rank among the largest 50 banks in the world. Foreign banks with domestic licensed branches must be considered in light of their parent country’s political and economic stability. Bankers’ Acceptances may not exceed 270 days in maturity. All things being equal, preference will be given to banks with branches in CALIFORNIA.

Collateralized CD.s must comply with Government Codes: 1. Bank Deposit Law Section 16500 et seq. 2. Savings and Loan Association section 16600 et. seq.

In addition, all recipient institutions must have a short term rating of Al/P1 or better and be rated A or better by two of the nationally recognized rating services.

Nepotiable C.D.s issued by nationally or state chartered Banks or Savings and Loans or by a domestic-licensed branch of a foreign bank, must have a short term rating of Al/P1 or better and have a long term rating of A or better by two of the nationally recognized rating services, and must have a liquid secondary market. The following types of C.D.s are authorized by this Policy:

C.D. Tvne Issuer Domestic: Domestic Offices of U.S. Banks Yankee: U.S. Branches of Foreign Banks Eurodollar: Issued in London by U.S. Banks TlXifi: U.S. S & L’s and Savings Banks

Commercial PaDer must be rated Al/P1 by two of the nationally recognized rating services. Eligibility is further limited to U.S. organized and operating corporations with assets in excess of $500 million, and having an A or better rating on the issuer’s debt other than commercial paper and may not exceed 180 days maturity. Purchases may not represent more than 10% of the outstanding paper of the issuing corporation. Purchases of commercial paper normally will not exceed 400/? of the fund’s investible money.

7

Repurrchase Agreements will only be executed with dealers with whom the County has written agreements and who report to the Market Reports Division of the Federal Reserve Bank of N.Y., i.e. Primary Dealers, and will be collateralized at 102% of current value plus accrued interest and will be marked to market daily. The collateral received mustmeet the requirements of the pool investment policy. These dealers shall not be entitled to Rights of Substitution except as authorized by the County. The maturity of the underlying collateral will be as specified in sections 53601 and 53635 of the California Government Code. For purposes of this section, the term “Repurchase Agreement” means a purchase’ of a security by the County pursuant to an agreement by which the seller will repurchase the securities on or before a specified date and for a specified amount and will deliver the underling securities to the County by book-entry, or by third-party custodial agreement. The custodian shall maintaiu a debt rating of at least A by one of the three nationally recognized rating services. When the transaction is unwound the transfer of underlying securities back to the counter party bank’s account will be,by book-entry. The term “counter party” means the other party to the transaction with the County. The term “securities” in a repurchase agreements means securities of the same issuer, description, issue date and maturity. The maximum term of a Repurchase Agreement shall not exceed 92 days.

Reverse Remrchase Aweements may be used so long as the securities purchased have a maximum maturity of 92 days or maturity equal to, or shorter than, the stated final maturity of the security underlying the Reverse Repurchase Agreement itself, and subject to the limitations of Government Code 53601 and 53635 with special attention to 53635.7. The term “Reverse Repurchase Agreement” means a sale of securities by the County pursuant to an agreement by which the County will repurchase such securities on or before a specified date and for a specified price.

Corborate Securities must be rated A or better by Moody’s, Standard and Poors or Fitch. Corporate asset-backed securities must be issued by an issuer having an A or higher rating for the issuer’s debt by two of the three nationally recognized rating services, and the corporation must further be rated at least AA or its equivalent. Securities in this classification must be registered with the Securities and Exchange Commission and be publicly traded or, at least, have undergone shelf registration. The maximum maturity for any Corporate Securities purchased is five years.

Local Ageno Investment Fund is an investment fund run by the Treasurer of the State of California to pool local agency investments.

Shares of BeneficialInterest issued by diversified management companies investing in the securities and obligations authorized by this policy may be purchased by the fund. However, these companies must be rated AAA by at least two nationally recognized rating services, and have an Investment Advisor registered with the Securities and Exchange Commission with not less than five years’ experience investing in the securities and obligations authorized by this policy, and have assets under management of over $500,000,000. The purchase price of these shares of beneficial interest may not include any commission these companies may charge.

8

Motigae Backed Secwities are debt instruments with a pool of real estate loans as the underlying collateral. The mortgage payments of the individual real estate assets are used to pay interest and principal on the loans.

Inverse Floaters are instruments with interest rates that change according to market conditions generally having rates that move contrary to a specific measure. Inverse Floaters are not authorized for investment.

Rawe Notes are instruments in which the interest rate will move within specific limitations based on market conditions. Range Notes are not authorized for investment.

Interest Onlv §trim based on Motizazes is the separation of coupons from a mortgage backed bond where the coupons become a security, and the remaining face value bond becomes another security that is known as a Zero Coupon bond. Interest only strips based on mortgages are not authorized for investment.

l[nvestment Alathor&- and ResnoxnsibiIitv: The responsibility for conducting the County’s investment program resides with the Treasurer, who supervises the investment program within the guidelines set forth in this policy. The Treasurer may delegate the authority for day-to-day investment activity to the Assistant Treasurer.

Countv Treasure Oversi&t Committee: The Board of Supervisors, in consultation with the Treasurer, hereby establishes an eight member County Treasury Oversight Committee pursuant to California Government Code section 27130 et. seq. The committee shall consist of the following members: The County Budget Officer; A person appointed by the Board of Supervisors who possesses expertise and knowledge in investment and public fmance; The County Superintendent of Schools or his designee; A person selected by a majority of the presiding officers of the governing bodies of the school districts and the community college district in the county; Four persons nominated by the Treasurer and confnmed by the Board of Supervisors who represent the San Mateo County Transportation Authority, the Bay Area Air Quality Board; the San Mateo County City Treasurers and Finance Officers, and a representative from one of the cities in the county, who have expertise in, or an academic background in, public finance and investment. The Treasury Oversight Committee will meet at least quarterly to evaluate general strategies and to monitor results and shall include in its discussions the economic outlook, portfolio diversification, maturity structure and potential tisks to the funds. All actions by the Treasury Oversight Committee will be governed by rules set out in Section 2713 1 et. seq. of the California Government Code.

9

Membership in the County Treasury Oversight Committee will pay particular attention to California Government Code Sections 27132.1,27132.2,27132.3 and 27132.4 which read as follows:

27 132.1 A member may not be employed by an entity that has (a) contributed to the campaign of a candidate for the office of local treasurer or (b) contributed to the .campaign of a candidate to be a member of a legislative body of any local agency that has deposited funds in the county treasury, in the previous three years or during the period that the employee is a member of the committee.

27132.2 A member may not directly or indirectly raise money for a candidate for local treasurer or a member of the governing board of any local agency that has deposited funds in the county treasury while a member of the committee.

27 132.3 A member may not secure employment with bond underwriters, bond counsel, security brokerages or dealers or with financial services fulns during the period that the person is a member of the committee or for three years after leaving the committee.

27 132.4 Committee meetings shall be open to the public and subject to the-Ralph M. Brown Act (chapter 9-commencing with section 54950) of Part 1 of Division 2 of Title 5.

ReDodine: The Treasurer will prepare a monthly report for the County Pool participants and members of the County Treasury Oversight Committee stating the type of investment, name of the issuer, maturity date, par and dollar amount of the investment. For the total Pooled Investment Fund the report will list average maturity and the market value. In addition, the Tremer shall prepare a quarterly cash flow report which sets forth projections for revenue inflows, and interest earnings as compared to the projections for the operating and capital outflows of depositors. This projection shall be for at least the succeeding 12 months.

Annual Audit of Compliance: The County Treasury Oversight Committee shall cause an annual audit to be conducted of the portfolios, procedures, reports and operations related to the County Pool in compliance with California Government Code Section 27134.

Loss Codrol: While this Investment Policy is based on the prudent person rule, the Treasurer shall seek to enhance total portfolio return by means of active portfolio management. In any professionally managed portfolio occasional controlled losses are inevitable, and these must be realized and judged within the context of overall portfolio performance. Losses shall be allocated as otherwise described in this Investment Policy.

Credit Oualitv: Should any financial institution represented in the portfolio be downgraded by any of the major rating services to a rating below those established in this investment policy, the Treasurer must immediately make an informed decision as to the disposition of that asset, and will so advise the County Treasury Oversight Committee. The situation will be monitored daily by the Treasurer until final disposition has been made.

10

Apnroved Brokers: The Treasurer will maintain a current list of approved brokerage firms to conduct business with the .County. All financial institutions on the approved list will have a strong capital and credit base. The Treasurer will forward a copy of the County Investment Policy to all approved vendors and require written acknowledgment of the Policy from the vendor. No broker, brokerage, dealer or securities firm can be on the approved list that has, within any consecutive 48 month period made a political contribution, in an amount exceeding the limitations contained in Rule G-37 of the Municipal Securities Rulemaking Board, to the local Treasurer, any member of the governing board of the local agency, or any candidate for those offices.

TarPnsaction Settlement: Payment of settlement in a securities transaction will be against delivery only. A due bill or other substitution will not be acceptable. All securities

e purchased’ from the Brokers/Dealers must be held in safekeeping by the County’s Safekeeping Agent or appropriate third party.

Method of Accomthg:

1. Investments will be carried at original purchase cost (plus purchased accrued interest, if applicable). Premiums or discounts acquired in the purchase of securities will be amortized or accreted over the life of the respective securities.

2. Gains or losses form investment sales will be credited or charged to investment income at the time of sale.

3. Purchased accrued interest will be capitalized until the fust interest payment is received. Upon receipt of the first interest payment, the funds will be used to reduce the investment to its principal cost with the remaining balance credited to investment income.

4. Yield is calculated on an accrual basis using a 365 day calendar. Earnings are calculated as follows:

fiamh~s* + Capital Gains) - lBankmg Cost +Fees+Amortized Premiums + Capital Losses) Average Daily Pool Balance

* Earnings equal net interest payments + accrued interest + accreted discounts

5. The County Pool will be divided into three parts, Pool 1, Pool 2 and Pool 3. The basis for this designation will be the nature of the funds and amount of banking activity generated by the account. Funds that generate specific banking charges such as payroll, extra reporting etc. will be assigned to Pool 1, and will be charged fixed and variable banking costs as well as administrative fees before interest allocation. Pool 2 is made up of funds that do not generate excessive banking costs. Pool 2 funds are charged fixed banking costs and administrative fees. Pool 3 funds represent those funds that have only an incidental use of the county banking system and therefore only pay administrative fees.

11 .

Withdrawal Remests

The Treasurer will honor all requests to withdraw fun& for normal cash flow purposes. Any requests to withdraw funds for purposes other than cash flow such as for external investing, shall be subject to the consent of the Treasurer. In accordance with California Government Code Section 27136 et seq. and 27133 (h) et seq., such requests for withdrawals must first be made in writing to the Treasurer. These requests are subject to the Treasurer’s consideration of the stability and predictability of the pooled investment fund, or the adverse effect on the interests of the other depositors in the pooled investment fund.

Internal Controls:

The Treasurer has established a system of controls designed to prevent losses of pooled funds due to fraud, employee error, misrepresentations by third parties, unanticipated changes in financial markets or imprudent actions by employees of the County. The controls include:

1. Procedures for Investment activity which include separation of transaction authority ft=om Accounting and Operations, and requiring clear documentation of activity.

2. Custodial Safe keeping as prescribed in Government Code 53601 3. Independent Audit, both external and internal. 4. Clear delegation of Authority. 5. Written confirmations of all telephone transactions. 6. Establishment of written Ethical Standards and Rules of Behavior.

Procednres to be followed in the execution of Investment Authoritv:

1. All transactions are documented as to date, time, and vendor, signed by the originator and will include the following information: A. B. C. D. E. F. G.

H.

Buy or Sell Specific description of security involved (CUSIP) Settlement date Price The total amount of funds involved Delivery instructions @-I non-Treasury or Agency transactions a notation will be made on the transaction ticket of competitive bids and offers Broker/Dealer

12

3 I.

3.

This information is given to the Investment Specialist to be used as follows: A. To contact the dealer to verify the information on the trade with the dealer’s

instructions. Any misunderstanding is clarified at that time. B. To provide the County’s Custodian Bank with the specifics of the pending transaction

to assure a smooth settlement. C. To compare with the daily custodian transaction report to assure there are no errors. D. To generate the internal entries necessary for the movement of funds to complete the

transaction. E. To compare with the broker’s confirmations when they are available.

At the end of the day the Investment Specialist s ummarizes all of the day’s transactions in a “Daily Cash Flow Report” that is available the first thing on the following morning. This report includes: A. A summary of all the day’s investment transactions B. A listing of the day’s wires in and out C. A listing of all state automatics and other deposits received during the day D. If.the pool has “Repo?s” out, a statement as to the current earnings rate. E. An estimate of the total anticipated clearings for the day. F. A listing of the day’s Treasurer’s deposits and Tax receipts.

4. The Treasurer will obtain a minimum of three prices from different brokers before executing a security transaction whenever possible. Exceptions will occur with Treasuries, When Issued Securities, and New Issues. In those cases the Bloomberg screen will be printed as. close to the physical transaction as possible. In the case of money market or agency paper being purchased to fill a specific maturity a best effort will be made to obtain differential bids.

5. Repurchase Agreements and Reverse Renurchase Agreements with Brokers/Dealers will be done through a “Tri-party Custodian Agreement” that has been approved in writing by the Treasurer. All Repurchase and Reverse Repurchase Agreements with Commercial Banks will be governed by a Public Securities Association (PSA) agreement that has been approved in writing by the Treasurer.

6. Confirmations resulting from securities purchased or sold under a Repurchase or Reverse Repurchase Agreement shall state the exact and complete nomenclature of the underlying securities bought or sold, as well as the term structure (i.e. maturity) of the transaction.

7. Securities on loan under the County Security Lending Program must be monitored daily by the Investment Specialist to assure the Assistant Treasurer has a list of those securities that are out on loan. Interest earned will be monitored daily and compared to the monthly report of earnings by the Custodial Bank.

13

8.

9.

Au transactions will be executed on a Delivery versus Pay Bases.@VP). The assets of the County shall be held in safekeeping by the County’s safekeeping agent, or secured through third-party custody and safekeeping procedures. A due bill or other substitution will not be acceptable.

Safekeeping procedures shall be reviewed annually by the Treasurer’s office and an external auditor. Surprise audits of safekeeping and custodial procedures should be conducted at least once a year.

10. Securitv Lending: The Custodial Bank may be authorized to lend out up to 20% of the portfolio within the guidelines of this policy.

11. Voluntarv Participants will be accepted for participation in the San Mateo County pooled fund so long as they meet the following requirements: A. A public agency B. Domiciled in the County of San Mateo. C. Agree to abide by the approved San Mateo County Pooled Fund Investment Policy. D. Acknowledge changes to the policy annually in writing and meet the minimum balance

requirements. Agencies, whose jurisdiction includes San Mate0 County but are not domiciled in San Mate0 County, may participate in the San Mateo County Pooled Fund with the approval of the Treasurer and the County Treasury Oversight Committee.

Limits on Honoraria, Gifts and Gratuities

In accordance with California Government Code section 27133 (d) et Seq., this Policy hereby establishes limits for the Treasurer, individuals responsible for management of the portfolios, and members of the Investment Group and Oversight Committee. Any individual who receives an aggregate total of gifts, honoraria and gratuities in excess of $280 per calendar year from a broker/dealer, bank or service provider to the Pooled Investment Fund must report the gifts, dates and firms to the County Treasurer and complete the appropriate State forms. Any violation must be reported to the State Fair Political Practices Commission.

14 1

APPENDIX C

COUNTYOFSANMATEO Agreement No.. AGREElliENTWlTHlNDEPENDENTCONTRACTOR

Contractor Name and Address Contractor: Upon completion of work or agreed-upon work periods, mail invoice with above Agreement Number to:

Department: Board of Supervisors

Attention:

-----

-----

Address:

City, State, Zip

It is agreed between the County of San Mateo, California, and Contractor as follows:

1.

2.

3.

4.

5.

6.

7.

Services to be performed by Contractor In consideration of the payments hereinafter set forth, Contractor shall perform services for County in accordance with the terms, conditions and specifications set forth herein and in Exhibit “A” attached hereto for the COUNTY OF SAN MATE0 Board of Supervisors. Contractor shall ensure compliance with all state, federal and local laws or rules applicable to performance of the work required under this contract.

Contract Term The term of this Agreement shall be from to - unless terminated earlier by the County.

Payments In consideration of the services rendered in accordance with all terms, conditions and specifications set forth herein and in Exhibit “A”, County shall make payment to Contractor in the manner specified herein and in Exhibit “A”. In the event that the County makes any advance payments, Contractor agrees to refund any amounts in excess of the amount owed by the County at the time of contract termination. The County reserves the right to withhold payment if the County determines that the quantity or quality of the work performed is unacceptable. In no event shall total payment for services under this Agreement exceed $ .

Relationship of the Parties Contractor agrees and understands that the work/services performed under this Agreement are performed as an Independent Contractor and not as an employee of the County and that Contractor acquires none of the rights, privileges, powers or advantages of County employees.

Worker’s Compensation Insurance The Contractor shall have in effect, during the entire life of this Agreement, Worker’s Compensation and Employer Liability Insurance providing full statutory coverage. In signing this Agreement, Contractor certifies awareness of the provisions of section 3700 of the California Labor Code which requires every employer to be insured against liability for Worker’s Compensation or to undertake self-insurance in accordance with the provisions of the Code, and certifies compliance with such provisions before commencing the performance of this work of the Agreement as set forth in California Labor Code section 1861.

Insurance The Contractor shall take out and maintain during the life of this Agreement such Bodily Injury Liability and Property Damage Liability Insurance as shall protect him/her while performing work covered by this Agreement from any and all claims for damages for bodily injury, including accidental death, as well as any and all operations under this Agreement, whether such operations be by himselI7herself or by any Subcontractor or by anyone directly or indirectly employed by either of them. Such insurance shall be combined single limit bodily injury and property damage for each occurrence and shall not be less than the amount specified by Risk Management.

Hold Harmless Contractor agrees to indemnify and defend the County, its employees and agents from any and all claims, damages and liability in any way occasioned by or arising out of the negligence of the contractor in the performance of this agreement.

ttistritIution-1 ~~twtoeaCh:Pnrchasinu 6ttentCountY ManagehOtitce, Controtter.CentractorandDepartment Retfised6/02

Pagelot

8. Confidentiali@ All data produced or compiled by Contractor shall be considered confidential unless it can be obtained as public record and shall not be shared with a third party without the prior written consent of County. All financial, statistical, personal, technical, and other data and information relating to the County’s operations which is made available to the Contractor in order to carry out this Agreement shall be presumed to be confidential. Contractor shall protect said data and information from unauthorized use and disclosure by the observance of the same or more effective procedures as the County requires of its own personnel. The Contractor shall not, however, be required by this paragraph to keep confidential any data or information which is or becomes publicly available, is already rightfully in the Contractor’s possession, is independently developed by the Contractor outside the scope of the Agreement or is rightfully obtained from third parties.

9. Non-Assignabilitv Contractor shall not assign this Agreement or any portion thereof to a third party without the prior written consent of County, and.any attempted assignment without such prior written consent in violation of this Section shall automatically terminate this Agreement.

10. Termination of Agreement The County Purchasing Agent may, at any time from execution of Agreement, terminate this Agreement, in whole or in part, for the convenience of the County, by giving written notice specifying the effective date and scope of such termination. Termination shall be effective on a date not less than thirty days from notice. In the event of termination, all finished or unfinished documents, data, studies, maps, photographs, reports, and materials (hereafter referred to as materials) prepared by Contractor under this Agreement shall become the property of the County and shall be promptly delivered to the County. In the event of termination, Contractor shall be paid for all work satisfactorily performed until termination, except where the contracting department determines the quality or quantity of the work performed is unacceptable. Such payment shall be that portion of the full payment, which is determined by comparing the work/services completed to the work/services required by the Agreement.

11. Payment of Permits/Licenses It shall be the Contractor’s responsibility to obtain any license, permit or approval required from any agency for work/services to be performed at his/her own expense, prior to commencement of said work/services or forfeit any right to compensation under this Agreement.

12. Non-Discrimination No person shall be excluded from participation in, denied benefits of, or be subject to discrimination under this Agreement on the basis of their race, color, religion, national origin, age, sex, sexual orientation, pregnancy, childbirth or related conditions, medical condition, mental or physical disability or veteran’s status. Contractor shall ensure full compliance with federal, state and local laws, directives and executive orders regarding non-discrimination for all employees and Subcontractors under this Agreement.

Violation of the non-discrimination provisions of this Agreement shall be considered a breach of this Agreement and subject the Contractor to penalties, to be determined by the County Manager, including but not limited to: i) termination of this Agreement; ii) disqualification of the Contractor from bidding on or being awarded a County contract for a period of up to 3 years; iii) liquidated damages of $2,500 per violation; iv) imposition of other appropriate contractual and civil remedies and sanctions, as determined by the County Manager.

To effectuate the provisions of this paragraph, the County Manager shall have the authority to: i) examine Contractor’s employment records with respect to compliance with this paragraph; ii) set off all or any portion of the amount described in this paragraph against amounts due to Contractor under the Contract or any other Contract between Contractor and County.

Contractor shall report to the County Manager the filing by any person in any court of any complaint of discrimination or the filing by any person of any and all charges with the Equal Employment Opportunity Commission, the Fair Employment and Housing Commission or any other entity charged with the investigation of allegations within 30 days of such filing, provided that within such 30 days such entity has not notified Contractor that such charges are dismissed or otherwise unfounded. Such notification shall include the name of the complainant, a copy of such complaint and a description of the circumstance. Contractor shall provide County with a copy of its response to the Complaint when filed.

13. Eclual Benefits With respect to the provision of employee benefits, Contractor shall comply with the County Ordinance which prohibits contractors from discriminating in the provision of employee benefits between an employee with a domestic partner and an employee with a spouse.

14. Retention of Records Contractor shall maintain all records related to this Agreement for no less than three years after the County makes final payment or after termination of this contract and all other pending matters are closed. All records shall be subject to the examination and/or audit by agents of the County, the State of California and/or Federal grantor agencies.

15. Merger Clause This Agreement, including Exhibit “A” attached hereto and incorporated herein by reference, constitutes the sole Agreement of the parties hereto and correctly states the rights, duties, and obligations of each party as of this document’s date. Any prior agreement, promises, negotiations, or representations between the parties not expressly stated in this document are not binding. All subsequent modifications shall be in writing and signed by the County Purchasing Agent. In the event of a conflict between the terms, conditions, or specifications set forth herein and those in Exhibit “A” attached hereto, the terms, conditions, or specifications set forth

Revised 6/62 Distribution -1 cow to each: Purchasine Aseat, 6ounnr ManageI’s Off ice, Controller, Contractor and Oeaartment Page 2 of 3

herein shall prevail. This Agreement, or facsimile proposal of the Agreement, constitutes the entire Agreement between County and Contractor. Further, liability referenced to in section 6 is limited to Contractor’s negligence during the Contractor’s performance under this contract.

THlSCOWTRACTISWOTUAllDUWTllSI6WEDBYALLPABTlES

Contractor’s Signature Date Contractor’s Signature Date

Contractor’s Tax I.D. number or Social Security number:

1 hereby certify that the services requested are necessary, that the selectron process documentation IS accurate, that all insurance certrlicates including Worker’s Compensation are on file in this office, that Risk Management has approved any reductions in Contractor’s insurance limits below $l,OOO,OOO, and that no work will commence until this document is signed by the County Purchasing Agent. The Contractor shall comply fully with the non-discrimination requirements required by 41 CFR 60-741.5(a), which is incorporated herein as if fully set forth.

Purchasing Agent, County of San Mateo Date

Department or Division Head Approval Date Budget Unit

Distribution -1 corm to each: Purchasing A6ent CounN Manager’s 66ice. Controller, Contractor and ttegarnnent Revised 6/02

Page 3 ot 3

APPENDIX D

PROPOSER GUARANTEES

I. The proposer certifies it can and will provide and make available, as a minimum, all services set forth in Section II, Nature of Services Required.

II. The proposer has read Appendix C, Contractual Requirements, and agrees that the rights and prerogatives as detailed in that appendix are retained by the County.

III. The proposer agrees to be bound by the contractual requirements delineated in Appendix C.

Signature of Official: Name (typed): Title: Firm: Date:

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APPENDIX E

PROPOSER WARRANTIES

A. Proposer warrants that it is willing and able to comply with State of California laws with respect to foreign (non-state of California) corporations.

B. Proposer warrants that it is willing and able to obtain an errors and omissions insurance policy providing a prudent amount of coverage for the willful or negligent acts, or omissions of any officers, employees or agents thereof.

C. Proposer warrants that it will not delegate or subcontract its responsibilities under an agreement without the prior written permission of the County.

D. Proposer warrants that all information provided by it in connection with this proposal is true and accurate.

Signature of Official: Name (typed): Title: Firm: Date:

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APPENDIX F Page 1

SCHEDULE OF PROFESSIONAL FEES AND EXPENSES

FOR THE AUDIT OF THE [YEAR1 FINANCIAL STATEMENTS

Hours

Standard Quoted Hourly Hourly Rates Rates Total

Partners

Managers

Supervisory staff

Staff

Other (specify):

Subtotal

Total for services Described in Section II of the RFP (Detail on subsequent paw)

Out-of-pocket expenses:

Meals and lodging

Transportation -

Other (specify):

Total all-inclusive maximum price for [YEAR] audit -

Note: The rate quoted should non be presented as a general percentage of the standard hourly rate or as a gross deduction from the total all-inclusive maximum price.

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APPENDIX F Page 2


FOR THE AUDIT OF THE [YEAR1 FINANCIAL STATEMENTS:

COMBINING SCHEDULE - ALL SERVICES

DESCRIBED IN RFP SECTION II E

Nature of Service To Be Provided Schedule Total Price

EACH SERVICE DESCRIBED IN RFP SECTION II E SHOULD BE SUPPORTED BY AN INDIVIDUAL SCHEDULE IN THE FORMAT PROVIDED ON PAGE 3 OF THIS APPENDIX.

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Appendix F Page 3


FOR THE AUDIT OF THE [YEAR1 FINANCIAL STATEMENTS:

SUPPORTING SCHEDULE FOR l-NAME OF SERVICE-l

Hours

Standard ’ Hourly Rates

Quoted Hourly

Rates Total

Partners - - -

Managers - - -

Supervisory staff - - -

Staff - - -

Other (specify): - - -

Subtotal -

Out-of-pocket expenses:

Meals and lodging -

Transportation

Other (specify):

Total price for [NAME OF SERVICE]

-

-

-

Note: The rate quoted should not be presented as a general percentage of the standard hourly rate or as a gross deduction from the total all-inclusive maximum price

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