5. Presentation of 1989 Audit Report ) _
CITY OF ....6--
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} ��1_, ,. 690 COULTER DRIVE• P.O. BOX 147• CHANHASSEN, MINNESOTA 55317
(612)937-1900• FAX(612)937-5739
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MEMORANDUM
I TO: Mayor and City Council
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FROM: Don Ashworth, City Manager 9j`
I DATE: June 25, 1990
ISUBJ: Presentation of 1989 Audit Report, Deloitte-Touche
II Please bring your copy of the 1989 Audit an Management Report to
the meeting with you. These were distributed; approximately 3 weeks
ago. It is anticipated that liff =Hoffman and Dan Mag],ab . .swill be
I present to make the presenta ion. , t
to keep their presentation to a minimal time frame, i.e. 15-20
minutes.
1 Also attached is the Finance Department's recommendation to employ
Deloitte-Touche to complete an "arbitrage" report for the City.
This report is mandatory and requires specialized training to
II complete. Although bids could be obtained from other firms, the
background knowledge of Deloitte-Touche, by completing the audit
work, gives them a competitive edge (see letter from Springsted) .
I Approval of the Deloi ,te . proposal to complete arbitrage is
recommended. '
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-� r 690 COULTER DRIVE• P.O.BOX 147• CHANHASSEN,MINNESOTA 55317
-{612)937-1900•FAX(612)937-5739
I
MEMORANDUM
IDATE: May 23, 1990
IITO: Don Ashworth, City Manager
FROM: '�'
Tom Chaffee, Data Processing Coordinator
ISUBJECT: Arbitrage Reporting/Rebate
One of the major issues brought out during our 1989 Audit and Finan-
' cial Report process is the problem of arbitrage reporting and poten-
tial rebate requirements. As you know, the Tax Reform Act of 1986
(TRA) established some extremely lkomplex and potentially lethal
I restrictions on the usage of proceeds from tax exempt bond issues.
Because of the complexity and severity of the TRA as well as sub-
sequent modifications, it would °be .mpractical of the City to not
I engage experts to at least assist us with the accounting, rebate
calculations, and reporting necessary.
At your direction, I contacted Dave MacGillivray of Springsted, Inc.
I and Cliff Hoffman of Deloitte and Toucbe to review our position and
suggest actions we might taice. Additionally, I have provided con-
siderable detail pertaining to revenues, expenditures and investments
I surrounding the issues and projects related to the city bonding
programs of 1987 throu9t 1989.
The attached engagement proposal from Deliitte and Touche is the
Iresult of several meetings, numerous telephone conversations, and
considerable4time ,opentlpura4s004. ataii data I provided to them.
The attached letter _from ...Spr ngsted4 ,Inc. _lends further support to my
II recommendation 'that Iwe-engage">5eltdtte and ci tht s- tbitrage Con-
sultants. My`recommendations would be:
I1 . Engage Deloitte "andl ' uche:4ar. rb -rage consulting.
2. Contract to run concurs with current contract for
auditing and financial% porting.
II3. Define more specifically our involvement so as to
contain costs.
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DeIoitte &
Touche
4300 Norwest Center Facsimile:(612)339-6202
90 South Seventh Street
Minneapolis,Minnesota 55402-4150
Telephone:(612)344-0200
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April 23, 1990
Mr. Tom Chaffee
City of Chanhassen
690 Coulter Drive
P. O. Box 147
Chanhassen, MN 55317
Dear Mr. Chaffee:
Deloitte & Touche is pleased to present our proposal to
serve as arbitrage rebate consultants for the City of
Chanhassen, Minnesota. As a leading provider of
professional services to the public sector, we are eager to
share our experience and expertise in serving the City. We
are in the process of providing similar services to school
districts as well as government units in the
Minneapolis/Saint Paul area.
A summary of the key points of our proposal follows: 1
Local Service, National Resources '
Our service team combines the accessibility of service from
partners and managers in the Minneapolis/Saint Paul area
with national specialists in arbitrage rebate. In this
way, the City will receive the best of local service and
national resources. The arbitrage rebate calculations and
reports will be prepared by specialists from our firm-wide
group.
Engagement Plan
We have a service plan which incorporates efficient and
cost effective techniques. We take the business approach
to our services which enables us to perform our services in
accordance with professional standards and simultaneously
focus our efforts on issues of concern to you. Our work
will be completed and final reports rendered to you in .a
timely manner.
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Mr. Tom Chaffee
II April 23, 1990
Page 2
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IICompetitive Fee
I We are very aware of the financial and budgetary challenges
which you face every day and the need to restrain costs and
expenses. We constantly monitor our work to be certain
I that we are delivering services in the most cost effective
manner.
With this in mind, we undertake professional services with
I the objective that our demonstrated competence and
commitment to timely, responsive services--rendered at a
fair price--will result in a continuing professional
IIrelationship.
Our governmental practice locally and nationwide has been
growing rapidly during the past several years. As a
I result, you will be assured experienced staff and
personalized attention to your concerns.
II We appreciate this opportunity to present our credentials
to serve the City of Chanhassen. As you review this
proposal, if you have any questions, please do not hesitate
II to contact us.
Yours very truly,
IDELOITTE & TOUCHE
II i
dfifisiovt44.-I/ i
ohn Stuehrmann-Salbego
IIManager
Enclosure
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ABOUT DELOITTE & TOUCHE
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Leader in Arbitrage Jtebate Services
As a leader in providing service to local governments and
school districts at all levels, we were among the first to
recognize and help our clients respond to the implications ,
of the arbitrage rebate provisions of the Tax Reform Act of
1986. D&T arbitrage rebate services are designed to assist
tax-exempt entities to comply with the tax-exempt borrowing
provisions of the Tax Reform Act of 1986, and the related
regulations, and to perform the calculation of the rebate
due to the Internal Revenue Service.
Overview The Tax Reform Act of 1986, in addition to
limiting the permissible purposes for which not-for-profit
entities borrow, expanded the scope of arbitrage rebate
requirements to include virtually all tax-exempt bonds.
The 1986 Act requires not-for-profit entities to determine
excess earnings on their tax-exempt borrowing and to make
periodic installment payments to the federal government.
Compliance with the new rebate provisions of the 1986 Act
can be burdensome, and the difficulties with compliance '
rise with the complexity and volume of investment
transactions. Penalties for failure to comply range from a
substantial cash "fine" to loss of tax-exempt status
retroactive to the date of 'the bond issuance.
D&T provides a multi-disciplined approach to this complex II
problem. Our service was developed by professionals in the
governmental and tax practices working in concert with
leading information systems consultants and tax attorneys
specializing in arbitrage. We offer a full array of
arbitrage-related professional services supported by
computer software which performs the necessary calculations
to determine rebate amounts and monitors compliance with
the 1986 Act.
Arbitrage Software '
As a firm, Deloitte & Touche has invested considerable
resources to develop the necessary computer, governmental,
and tax expertise to provide prompt, cost-effective
services.
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The software we use computes th e rebate amount based on
existing law and regulations and will provide for future
11 changes. The arbitrage software performs all necessary
calculations to determine rebate amounts.
' Although only temporary regulations have been promulgated
by the Treasury Department, we do expect final regulations
to be issued at some point in time. Our software will be
updated to accommodate such changes as may arise in final
L regulations. Computations for years subsequent to an
update will be cumulatively adjusted for such changes.
' Our clients receive a report detailing all investment
activity. Investment data is stored on a computer database
simplifying the rebate computation effort in future years.
Our report includes the details of all transactions as well
as the rebate calculation. This documentation should be
retained to satisfy federal requirements that
substantiation for computations be available throughout the
life of each issue.
Benefits - D&T arbitrage rebate services offer your City
important benefits. These benefits include:
. The ability to comply with the requirements of the
Tax Reform Act of 1986, and the regulations.
. The provision of a database from which to compute
the excess arbitrage profits rebate amount.
. The confidence of retaining the tax-exempt status
of the outstanding debt through annual monitoring
of specific arbitrage requirements.
. Experience in designing recordkeeping systems - As
accountants we have significant experience in the
' design and implementation of recordkeeping systems
that can be applied in simplifying the require-
ments inherent in the regulations.
' . Timely service - Because our services are
automated the rebate calculations can be prepared
in a timely fashion thus enabling users of our
service to more effectively manage their
investments and remit any arbitrage earnings to
the Internal Revenue Service by the required
' payment date.
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D&T SERVICE TEAM
Our service team is composed of Minneapolis personnel I
supplemented by national resources who are specialists in
arbitrage rebate services. The Minneapolis partner and
manager for the City of Chanhassen will remain the City's
principal contacts for the arbitrage rebate services. We
will leverage their considerable knowledge and experience
with your accounting systems and personnel.
Engagement Partner
Cliff Hoffman, audit partner, will head our arbitrage
rebate service team. Cliff has an array of experience in
servicing public entities. His is a firm designated
specialist in government and education and has supervised
many large and complex audit engagements.
Engagement Manager
John Stuehrmann-Salbeao, tax manager, will be responsible
for all administrative aspects of the engagement and
coordinating our arbitrage rebate services with the City.
His experience serving both the public and private sector
will be particularly relevant to the arbitrage rebate
work. With his knowledge of rebate calculation issues, he
is also well positioned to answer your questions and assist
the City with tax planning consulting. I
PROFESSIONAL ARRANGEMENTS '
D&T, as a firm, is committed to maintaining fees at
reasonable levels. Service to our clients is our first
consideration. We undertake professional services with the
objective that our demonstrated competence and commitment
to timely, responsive services will result in a continuing
professional relationship. I
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Scope of Services
Our consulting services will consist of the following
activities:
' . Review the bond document.
. Determine the status of the bonds with respect to the
Iarbitrage rebate rules.
. Calculate the bond yield as required under existing
regulations.
' . Calculate earnings from investment of bond proceeds by
fund for each computation period and determine if any
' rebate to the federal government is required.
. Provide updates to you of current developments in the
arbitrage bond area.
. Issue a 5-year summary report presenting the results
for the immediately preceding computation period, plus
Icumulative results since the issue date.
. Prepare necessary reports and IRS forms to accompany
any required payment to the federal government.
. Consult with the City treasurer on future bond issues
to either avoid or minimize the effect of arbitrage on
' those issues.
We propose to provide the aforementioned services for each
issuance of debt by the City of Chanhassen occurring on or
before August 31, 1986.
f r t e f-
We would be pleased to expand our consulting services to
' include any future issues which may occur within the
contract period.
Other Services
For certain types of bonds, monitoring requirements must be
satisfied in addition to the rebate rules. In such cases,
our service plan will include the necessary monitoring to
ensure that the City's tax-exempt bonds retain their
tax-exempt status.
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Professional Fees
Our fees for the arbitrage rebate consulting services are 1
based on our service time at hourly rates related to the
experience levels of the individuals assigned.
The cost of our arbitrage rebate consulting services will
be $1,800-$2,000 for each issue for the first year. Future
costs involve the following: I
1. maintaining the database (investment information) ;
2. doing yearly calculations for financial statement
purposes; and
3. calculating the rebate payment due to the federal
government.
These future costs will be based solely on the actual
service time required to perform the tasks. These fees
will be considerably less than the initial start-up
costs.
The proposal, as a whole, is based on temporary regulations
in conjunction with the Tax Reform Act of 1986. Final
regulations could substantially alter the rebate
calculation. In this case, we would request to resubmit a
proposal. I
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ill :0- SPRINGSTED
PUBUC FINANCE ADVISORS -
85 East Seventh Place,Suite 100
Saint Paul,MN 55101-2143
(612)223-3000
Fax:612-223-3002
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111 May 16, 1990
Mr.Tom Chaffee, Finance Director
Chanhassen City Hall
690 Coulter Drive
IChanhassen, MN 55317
Re: Arbitrage or Rebate Reporting
IDear Mr. Chaffee:
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I You have contacted us regarding our performing the arbitrage reporting and rebate
calculations for the City. We do provide our clients with this service, but only provide such
service when the client has no other viable aftemative. It has been our experience that CPA
firms are in a better position to provide this service as part of their routine annual audit
Iprocedure of the investment portfolio.
It is my understanding the City is in receipt of a proposal from its auditing firm to provide this
I service. Therefore, as the City already has a viable alternative service, we would decline
from quoting a fee for this service. If the City finds that the CPA service is unacceptable, we
would be glad to reconsider our position.
IPlease feel free to contact us if you have any questions.
Sincerely,
i ( c__
David N. MacGillivray
I . Vice President
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MAY 171993
ICItY.OF CHANHASSEN
Indiana Office: Kansas Office: Wisconsin Office:
135 North Pennsylvania Street 6800 College Boulevard 500 Elm Grove Road
I Suite 2015 Suite 600 Suite 101
Indianapolis, IN 46204-2498 Overland Park, KS 66211-1533 Elm Grove,WI 53122-0037
(317)684-6000 (913)345-8062 (414)782-8222
Fax:317-684-6004 Fax:(913)345-1770 Fax:414-782-2904
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