MINUTES OF MEETING OF THE

AUDIT SUBCOMMITTEE OF THE LEGISLATIVE COMMISSION

Legislative Building

401 S. Carson Street, Room 2144

April 30, 1997

A meeting of the Audit Subcommittee of the Legislative Commission (NRS 218.6823) was called to order by Senator Lawrence E. Jacobsen, Chairman, at 4:30 p.m., Wednesday, April 30, 1997, in room 2144 of the Legislative Building, Carson City, Nevada.

AUDIT SUBCOMMITTEE MEMBERS PRESENT:

Senator Lawrence E. Jacobsen, Chairman

Assemblyman John W. Marvel, Vice Chairman

Assemblyman Morse Arberry, Jr.

Assemblyman Joseph E. Dini, Jr.

Senator Raymond D. Rawson

LEGISLATIVE COUNSEL BUREAU STAFF PRESENT:

Gary Crews, Legislative Auditor

Stephen Wood, Chief Deputy Legislative Auditor

Marie Cavin, Audit Secretary

Timothy Brown, Audit Supervisor

Gary Crews, Legislative Auditor, explained the State of Nevada receives approximately $800 million a year in federal funds. The conditions of receiving those funds are to have an annual audit which includes the financial statements and an audit to ensure compliance with federal regulations performed. To accomplish this, the Legislative Auditor’s Office has chosen to contract this out to public accounting firms in Nevada. Generally, this is done through a three-year contract. Each year Mr. Crews’s office updates a list of firms willing to do governmental auditing work in Nevada. From this list, his office put together a list of seven firms with the size and capable staffing to do the audit. The Request for Proposal (RFP) was issued to those firms on February 28, 1997, and four well-established firms in the State responded.

Mr. Crews explained three staff, all CPA’s, evaluated the proposals and the Proposal Evaluation Summary is a compilation of the average of the three evaluations. It is a weighted evaluation of the proposals as far as the firm, staff, governmental auditing experience, technical presentation of the proposal, and the fee. All the scores were relatively high—ranging from 4.11 to 4.85 on a scale of 1 to 5, with 5 being the highest score available. Fees for the three-year contract ranged from $427,500 to $480,000. The four firms submitting proposals were invited to attend the meeting today.

Mr. Bill Hartman, Managing Partner for Deloitte Touche, introduced Dennis Gauger, Partner, Laura Fitzpatrick, Senior Audit Manager, and Fred James, a subcontractor for the engagement. He gave some background on the firm and added that they have had numerous contracts with the State of Nevada including being the first outside auditors for the State of Nevada approximately eight years ago. Each representative gave a short presentation on their role in the audit.

Mr. Dave Ebner, Partner for Kafoury, Armstrong & Co., introduced Felicia O’Carroll, Partner and Project Manager, and Dave Silva, Senior Manager. Background information was given on their firm. Kafoury, Armstrong & Co. has done the Single Audit for the last three years and many other projects over the years. The other two representatives gave a presentation on the firm and their roles in the audit.

Assemblyman Marvel asked if during their audits they have been able to detect if some of the state agencies are drifting out of compliance. Ms. O’Carroll explained that during the course of the audit over the last three years they have come across findings that are reported in the compliance report. They indicate, in one form or another, the State has not complied with the regulations pertinent to receiving the federal money and typically those are the agencies or departments that receive substantial federal money. She was pleased to say that in the three years they did the Single Audit, those findings were minimal.

Assemblyman Dini commented how impressed he was with the proposals from all four firms. Senator Jacobsen concurred.

Mickael Flaa, Partner for KPMG Peat Marwick LLP, and Tom Snow, Partner In-Charge of the Public Service Practice for the Pacific Southwest, gave background on their firm.

Richard Bowler, Partner for Piercy, Bowler, Taylor & Kern, gave a brief summary of his firm’s proposal.

Senator Rawson asked if the State has a policy of changing auditors. Assemblyman Dini commented that he liked the idea of continuity because there is a certain amount of expertise developed resulting in less hours and less disruption to the staff.

Senator Rawson made some tabulations of the personnel in the four firms and he noted there is a range. Assemblyman Arberry commented on the Proposal Evaluation Summary provided by the Legislative Auditor and all the firms rated very well. Typically the lowest bidder is awarded the contract, even though they are looking at the qualifications, and he added that he is apt to go with the company with the lowest bid. They show they can provide a lot of hours at the lowest cost. They are nationally known and he feels the company shows they can meet the deadline at a good cost.

Senator Jacobsen thanked the audit staff for their effort.

THE SINGLE AUDIT OF THE STATE OF NEVADA FOR THE YEARS

ENDED JUNE 30, 1997, 1998, AND 1999, TO KAFOURY, ARMSTRONG

& CO. SECONDED BY ASSEMBLYMAN MARVEL.

Senator Jacobsen asked if there was any further discussion. Assemblyman Arberry

stated that he likes the motion and he knows the company being considered right now has the existing bid, but he also likes the other bids. He added that he likes Deloitte Touche. Staff rated them very well and gave them high marks on staffing and governmental auditing. Looking at the comparison, the Audit Subcommittee typically goes not only with the lowest bid but with the best qualifications.

Senator Rawson asked if Kafoury, Armstrong & Co. did not have the lowest bid. Assemblyman Arberry answered that he was looking at the hourly rate. Deloitte Touche charges $49 an hour versus $51 by Kafoury Armstrong, $52 by Peat Marwick, and $79 by Piercy Bowler, even though Deloitte Touche had the higher figure.

Assemblyman Dini commented that Kafoury Armstrong comes in strong in the total billable hours because of their experience just coming off the last three years’ audit. The staff has just done that audit and can go in with their expertise and save time and disrupt the agencies less.

After looking at the representatives of the firms, Mr. Arberry felt Deloitte Touche had gender equity. He felt the other groups did not reach out and try to bring a small firm in of somewhat of color and they also have a woman who has brought her expertise from across the country. He pointed out another firm that was all white male gender, not taking away their experience and education, but they also do have a woman. Mr. Arberry commented that he had asked Gary if he had put in the proposal that the firms had to reach out and get women and minorities, and Mr. Crews had replied no. Mr. Arberry felt swayed because Deloitte Touche reached out and is bringing people from the community to the plate. The rest of the firms didn’t bring anyone to the plate. That is why he is more apt to support Deloitte Touche because they are reaching for the 21^st century.

Senator Rawson commented that Kafoury Armstrong has many women graduates from UNR that are fairly recent graduates. This shows they have reached out to Nevada graduates and have brought a lot of women into the firm. As he looked at the other staffs, he noticed a bigger spread in the ages and from the universities they graduated from.

Assemblyman Arberry understood that Deloitte Touche had the bid before and they were voted out. Now Kafoury Armstrong has the bid, not that they didn’t perform it very well, but he asked what is wrong with Deloitte Touche.

Mr. Crews informed the committee that last time Kafoury Armstrong had the highest score, as well as the lowest bid.

Mr. Arberry pointed out he likes what Deloitte Touche has done—they have reached out to the community. It is not only just a bid, they are spreading the wealth throughout the community and this is an opportunity, even though Senator Rawson brought up the idea the other group has hired women, when you deal with the issue of equal oppor-tunity, he was impressed and that is why he is pushing this so.

Senator Jacobsen added that his points are well taken.

The motion was repeated.

THE SINGLE AUDIT OF THE STATE OF NEVADA FOR THE YEARS

ENDED JUNE 30, 1997, 1998, AND 1999, TO KAFOURY, ARMSTRONG

& CO. SECONDED BY ASSEMBLYMAN MARVEL. THERE WERE

There being no further business, the meeting was adjourned.

Respectfully submitted,

Marie Cavin, Secretary to the

Legislative Auditor

Senator Lawrence E. Jacobsen

Chairman of the Audit Subcommittee

of the Legislative Commission

Date

Wm. Gary Crews, Legislative Auditor

and Secretary to the Audit Subcommittee

of the Legislative Commission

Date