April 10, 2008

REPORT OF THE FINANCE-AUDITING COMMITTEE

Honorable Board of Directors
Golden Gate Bridge, Highway
  and Transportation District

Honorable Members:

A meeting of the Finance-Auditing Committee was held in the Board Room, Administration Building, Toll Plaza, San Francisco, California, on Thursday, April 10, 2008, at 10:00 a.m., Chair Stroeh presiding.

Committee Members Present (7): Chair Stroeh; Vice Chair Pahre; Directors Boro, Cochran, Eddie and Middlebrook; President Moylan (Ex Officio)

Committee Members Absent (2): Directors Grosboll and Reilly

Other Directors Present (0): None

Staff Present: General Manager Celia G. Kupersmith; District Engineer Denis J. Mulligan; Auditor-Controller Joseph M. Wire; Secretary of the District Janet S. Tarantino; Attorney David J. Miller; Deputy General Manager/Bridge Division Kary H. Witt; Deputy General Manager/Bus Division Susan C. Chiaroni; Deputy General Manager/Administration and Development Teri W. Mantony; Procurement and Retail Operations Director Lori Murray; Director of Planning Alan R. Zahradnik; Deputy District Engineer Ewa Z. Bauer; Property Management and Development Specialist Norma Jellison; Assistant Clerk of the Board Karen B. Engbretson; Executive Assistant to the General Manager Amorette Ko

Visitors Present: David Bullock and Cynthia Pon, Macias, Gini & O’Connell LLP; Leonard Danna and Ahmad Gharaibeh, Vavrinek, Trine, Day & Co., LLP

     
1.

Authorize Actions Relative to the FY 07/08 California Transit Assistance Grant Program Administered by the Governor’s Office of Homeland Security

In a memorandum to Committee, Capital and Grant Programs Manager Gayle S. Prior, Auditor-Controller Joseph Wire and General Manager Celia Kupersmith reported on staff’s recommendation to authorize all actions necessary relative to the FY 07/08 California Transit Assistance Grant Program administered by the Governor’s Office of Homeland Security. The report stated that in November 2006, California voters approved Proposition 1B, the Highway Safety, Traffic Reduction, Air Quality and Port Security Bond Act of 2006. This bond provides almost $20 billion in state general obligation bonds for approximately 14 different categories of transportation projects. One bond category, the Transit System Safety, Security and Disaster Response program (Transit Assistance Funds), will be administered by the Governor’s Office of Homeland Security (OHS). Funds from this program are available to State Transit Assistance (STA) eligible agencies, including the District, and the program is distributed by the same formula as is STA funds.

The report also stated that as a part of the March 13, 2008 FY 07-08 California Transit Security Grant Program, California Transit Assistance Fund, Program Guidelines and Application Kit issued by OHS, project applicants are required to adopt a resolution appointing individuals or positions to act on behalf of the applicant and its governing body and to provide related certifications and assurances.

The report further stated that staff recommends that all necessary actions related to the above-described grant program be authorized, in order to secure Transit Assistance Funds to support the District’s transit security capital projects. A copy of the staff report is available in the Office of the District Secretary and on the District’s web site.

Staff recommended and the Committee concurred by motion made and seconded by Directors MIDDLEBROOK/COCHRAN to forward the following recommendation to the Board of Directors for its consideration:

RECOMMENDATION

The Finance-Auditing Committee recommends the Board of Directors authorize all necessary actions related to filing the grant applications and agreements for the FY 07/08 Transit System Safety, Security, and Disaster Response Program funds administered by the Governor’s Office of Homeland Security, to support the District’s transit security capital projects.

Action by the Board - Resolution
NON-CONSENT CALENDAR

AYES (7): Chair Stroeh; Vice Chair Pahre; Directors Boro, Cochran, Eddie and Middlebrook; President Moylan (Ex Officio)
NOES (0): None
ABSENT (2): Directors Grosboll and Reilly

     
2.

Authorize Execution of a Professional Services Agreement with Vavrinek, Trine, Day & Co., LLP, Relative to Request for Proposals No. 2008-D-3, External Audit Services

In a report to Committee, Director of Accounting Manager Bette Joe, Auditor-Controller Joseph M. Wire and General Manager Celia Kupersmith provided staff’s recommendation regarding execution of Professional Services Agreement (PSA) relative to Request for Proposals (RFP) No. 2008-D-3, External Audit Services, to Vavrinek, Trine, Day & Co., LLP. The report stated that the PSA with the current audit firm, Macias, Gini & O’Connell LLP, which has been the District’s auditors since 2000, concluded with the issuance of the audited financial statements for the fiscal year ended June 30, 2007.

The report also stated that the District advertised RFP No. 2008-D-3 on February 5, 2008, and received four proposals by the due date of March 4, 2008. The report noted that the RFP was posted on the District’s website and that 33 potential proposers, including six DBE firms, were notified of the posting. An Evaluation Committee, composed of District staff, evaluated the proposals using the following criteria: (1) experience of the audit firm (0 20 points); (2) experience of the personnel assigned to the engagement (0-30 points); (3) audit approach, including education and training opportunities (0-30 points); and, (4) fee structure (0-20 points).

The report also stated that all four audit firms were interviewed by the Evaluation Committee. The District invited all four firms to submit “Best and Final Offers,” with the right to submit revised costs proposals based on a three-year base contract term plus two one-year options. Based upon the evaluation of both the written proposals, the results of the oral interviews and the revised cost proposals, the Evaluation Committee determined that Vavrinek, Trine, Day & Co., LLP (VTD), remained the highest-ranked proposer.

The report noted that the Evaluation Committee was particularly impressed by VTD’s knowledge of government accounting pronouncements, its ability to understand the nature of the District’s operations by way of its audit experience with other transit agencies in the Bay Area, the emphasis on ease of transition to a new audit firm, customer care and VTD’s commitment to meeting critical reporting deadlines. In addition, VTD’s fee structure was highly competitive and offers the lowest short-term and long-term savings for the District, without sacrificing the expected level of audit expertise and services.

The report also stated that staff recommends execution of a PSA with VTD, of Rancho Cucumonga, CA, relative to RFP No. 2008-D-3, in the amount of $279,000, for a three-year term, with two one-year options. The report further stated that the RFP includes an option to retain VTD for additional specially defined audit services. The report explained that certain areas of the District’s operations may require independent audit review, and the audit firm can serve in this capacity. Staff recommends the authorization of a 10 percent contingency, in the amount of $48,000, for funding these specially defined audit services. A copy of the report is available in the Office of the District Secretary and on the District’s web site.

At the meeting, Joseph Wire summarized the staff report, noting that a protest letter from the current audit firm, Macias, Gini & O’Connell LLP, dated April 8, 2008, was received by the District Secretary’s Office within the prescribed deadline date.

Attorney David Miller described the District’s procedures with respect to RFP protests, noting that the proposal specifications include verbiage that allows the proposer to submit a protest relative to the staff’s recommendation. He stated that the protest letter from Macias, Gini & O’Connell LLP appears to be timely from a legal standpoint. He further stated that the appropriate course of action would be to offer the protesting party an opportunity to address the Committee and answer any questions, and then to allow any others who are participating in this procurement to also address the Committee.

Chair Stroeh invited David Bullock, of Macias, Gini & O’Connell LLP, to address the Committee. At the Committee’s request, Mr. Bullock provided highlights of his April 8th letter, noting the following salient points:

  1. Experience of the Audit Firm: Mr. Bullock noted that his firm was the predecessor auditor for many of the Bay Area transit agencies listed as clients by VTD;
  2. Customer Care: Mr. Bullock expressed his concern that VTD received a high score with this criterion, because in his opinion, having an auditor firm be independent of management and comfortable providing constructive feedback is more important than ensuring client satisfaction.
  3. Composition of Evaluation Committee: Mr. Bullock expressed his concerns that the Evaluation Committee was made up of only District staff, and did not include persons outside the District.

Discussion ensued, including the following:

  • Director Boro made the following inquiries:
    • He inquired as to whether the District has a policy of regularly changing providers of professional services. In response, Mr. Wire stated that the District does not have such a policy. He noted that Macias, Gini & O’Connell LLP provided external auditing services for the past eight years, and that the previous external auditors had served the District for over 20 years.
    • He inquired as to whether it was necessary to issue an RFP for external auditor services. In response, Attorney Miller stated that as a matter of state law, the District is not required to issue an RFP for such services, but in accordance with the District’s Procurement Manual, it has been the District’s practice to do so. Ms. Kupersmith added that the District does not issue a formal RFP for certain procurements that are under a certain minimum dollar amount, but instead uses an informal competitive proposal process.

Public Comment

Leonard Danna, of Vavrinek, Trine, Day & Co., LLP, stated that he does not dispute the experience and qualifications of Macias, Gini & O’Connell LLP. He also provided a response to certain points made by Mr. Bullock during his testimony, expressing his concerns with Mr. Bullock’s inference that “customer care” has anything to do with the independence of an external auditor. He stated that independence is the cornerstone of the auditing business, and that it is imprudent to conflate “customer care” with being too cozy with a client’s staff. He expressed his firm’s appreciation for staff’s recommendation to authorize execution of a PSA with his firm.

Attorney Miller provided the Committee with advice from a legal standpoint as to how to proceed with respect to the protest from Macias, Gini & O’Connell LLP. Mr. Miller stated that it does not appear that the April 8th protest letter has brought up any issue that indicates impropriety. He further stated that after his careful review of the protest letter and the testimony provided at this meeting, there is no basis to accept the protest. The RFP criteria were followed appropriately during the selection process for RFP No. 2008 D-3. In response to Mr. Bullock’s comment about the composition of the Evaluation Committee, Mr. Miller asserted that there is nothing improper about having such a committee composed entirely of District staff. He further stated that during the RFP process, Macias, Gini & O’Connell LLP benefited from staff’s decision to have the proposers submit revised cost proposals by being able to lower their original cost proposal by $100,000. However, using the objective criteria in the RFP, Macias, Gini & O’Connell LLP’s “Best and Final Offer” was still higher than that of VTD. In conclusion, Mr. Miller advised the Committee that it would be appropriate to reject the protest of Macias, Gini & O’Connell LLP.

Following the above discussion by the Committee and testimony by the proposer, Directors MIDDLEBROOK/EDDIE moved and seconded the following motion:

“Reject the bid protest submitted by Macias, Gini & O’Connell LLP, Walnut Creek, CA, relative to Request for Proposals No. 2008-D-3, External Audit Services.”

Carried

AYES (7): Chair Stroeh; Vice Chair Pahre; Directors Boro, Cochran, Eddie and Middlebrook; President Moylan (Ex Officio)
NOES (0): None
ABSENT (2): Directors Grosboll and Reilly

 

Staff recommended and the Committee concurred by motion made and seconded by Directors PAHRE/COCHRAN to forward the following recommendation to the Board of Directors for its consideration:

RECOMMENDATION

The Finance-Auditing Committee recommends that the Board of Directors authorize execution of a Professional Services Agreement with Vavrinek, Trine, Day & Co., LLP, Rancho Cucumonga, CA, relative to Request for Proposals No. 2008-D-3, External Audit Services, at a cost of $279,000, for a three-year term, with two one-year options to be exercisable at the discretion of the General Manager or her designee, at a cost of $99,000 for the first one-year option and at a cost of $102,000 for the second one-year option, and authorize a contingency fund in the amount of $48,000, equal to 10 percent of the Agreement, to conduct specially defined audit review services at designated rates; with the understanding that requisite funds are available in the FY 07/08 District Division Operating Budget.

Action by the Board at its meeting of April 11, 2008 – Resolution
NON-CONSENT CALENDAR

     
3.

Authorize Execution of an Amendment to Contract No. 2005-D-6, Revenue Collection, with Securitas Security Services USA, Inc., Relative to an Extension of the Contract Term

In a memorandum to Committee, Deputy General Manager Kary Witt and General Manager Celia Kupersmith reported on staff’s recommendation to extend the term of Contract No. 2005-D-6, with Securitas Security Services USA, Inc. (Securitas), Sacramento, CA, for a term not to exceed six months. The report stated that in May 2005, the District entered into a contract with Securitas for revenue collection services. These services involve picking up and transporting Bus and Ferry transit revenue to the District’s Vault at the Golden Gate Bridge Toll Plaza, using a vehicle provided by the District. The contract was for a two-year term, with an option to extend the term for a successive one-year term. The District exercised the one-year option, and this option year expires on April 30, 2008.

The report also stated that on February 19, 2008, the District issued a Request for Proposals (RFP) No. 2008-MD-4, Revenue Collection. No proposals were received by the District by the deadline date of March 18, 2008. The report noted that when staff inquired of potential proposers as to why they chose not to bid this RFP, staff discovered that most of the potential proposers wanted to provide their own armored vehicle, and not use the one provided by the District. Securitas, the incumbent, did not submit a proposal because it is no longer interested in providing this type of transportation service, preferring instead to focus on its core business of security guard services. Although Securitas was not interested in responding to the RFP, it is willing to continue to provide its services at the current rates for up to an additional six months in order to help the District avoid interruption of this critical service. Staff proposes to extend the Contract with Securitas for a term not to exceed six months, commencing on May 1, 2008 and terminating on October 31, 2008. Board authorization of this extension is required as the amount exceeds 10 percent of the original contract value. A copy of the report is available in Office the District Secretary and on the District’s web site.

At the meeting, Celia Kupersmith stated that during the contract extension term, staff will review other options for the revenue collection services, such as seeking proposals from armored car transportation services or utilizing in-house forces. She also stated that staff will review all options and provide a report of its findings and a recommendation to the Board within the next six months.

Staff recommended and the Committee concurred by motion made and seconded by Directors EDDIE/MIDDLEBROOK to forward the following recommendation to the Board of Directors for its consideration:

RECOMMENDATION

The Finance-Auditing Committee recommends that the Board of Directors authorize execution of an amendment to Contract No. 2005-D-6, Revenue Collection, with Securitas Security Services USA, Inc., Sacramento, CA, in an amount not to exceed $25,469, for a contract extension not to exceed six months, effective May 1, 2008 to October 31, 2008; with the understanding that requisite funds are available in the FY 07/08 Bus Transit and Ferry Transit Division Operating Budgets, and that requisite funds for the remainder of the six-month extension will be included in the FY 08/09 Bus Transit and Ferry Transit Division Operating Budgets.

Action by the Board at its meeting of April 11, 2008 – Resolution
NON-CONSENT CALENDAR

AYES (7): Chair Stroeh; Vice Chair Pahre; Directors Boro, Cochran, Eddie and Middlebrook; President Moylan (Ex Officio)
NOES (0): None
ABSENT (2): Directors Grosboll and Reilly

     
4.

Closed Session

Attorney David Miller, at the request of Chair Eddie, stated that the Finance-Auditing Committee would convene in closed session to discuss a matter of real property negotiations listed on the agenda as Item No. 5., Conference with Real Property Negotiator, with respect to a long-term ground lease with Sports City, Inc., for 2.5 acres of land at the District’s Santa Rosa Bus Lot, a portion of Sonoma County Assessor’s Parcel Number 015-012-006.

After closed session, Chair Stroeh called the meeting to order in open session with a quorum present. Attorney Miller reported that the Committee met in closed session, as permitted by the Brown Act, to hear a report from Agency Negotiator Norma Jellison regarding the property described above. He further stated that no action is necessary at this time.

Action by the Board – None Required

     
5.

Public Comment

Public comment was received regarding Agenda Item No. 2., Authorize Execution of a Professional Services Agreement with Vavrinek, Trine, Day & Co., LLP, Relative to Request for Proposals No. 2008-D-3, External Audit Services.

     
6.

Adjournment

All business having been concluded, the meeting was adjourned at 10:55 a.m.

     

Respectfully submitted,

/s/ J. Dietrich Stroeh, Chair
Finance-Auditing Committee