18-262s:\legal\our documents\ordinances\18\ordinance Irg bkd amended 2.13.2018.docx
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WHEREAS, the Council of the City of Denton, Texas understands that the contracted
services are exempted from ordinary bidding and procurement requirements by the Professional
Services Procurement Act, and case law interpretations of same. See, Tex. Gov't Code §2254.001,
et seq.; and
WHEREAS, the Council of the City of Denton, Texas finds that the contracted services are
necessary and appropriate, due to the departure of the City's Internal Auditor after initiating this
investigation, as well as the consequent needs to take prompt remedial actions (if any should prove
necessary), and to reach a timely, unbiased, and definitive resolutian of any public controversy
which might arise out of this pending and unresolved investigation and audit; and
WHEREAS, the previous budget of $50,000 for such services by Ordinance 2017-368 was
for professianal fees anly, and did not account for or include billed expenses obligated for payment
by the terms of the approved contract of engagement, nor did it account for or include fees or
expenses approved by delegated authority in professional services associated with earlier phases
of this investigation and audit; and
WHEREAS, in order to pramote a more accurate and comprehensive record, the City
desires to bring all outside fees and expenses associated with this engagement into a more
comprehensive budget of both fees and expenses, both past and anticipated; and
WHEREAS, many of these fees and expenses are payable from salary savings and other
budgetary allocations of the vacant Internal Auditor position; and
WHEREAS, unanticipated resistance from external sources necessitated additional time,
expenditure and efforts to obtain documents and personal interviews from non-City individuals;
and
WHEREAS, after Lynn Ross and Gannaway and KD provided preliminary reports af
findings, they were asked to provide additional information; and
WHE AS, Lynn Ross and Gannaway and BKD were subsequently asked to expand the
ariginal scope of the engagement previously approved by Ordinance 2017-368 to include a public
presentation of the findings; and
s:\legal\our documents\ordinances\l 8\ordinance Irg bkd amended 2.13.2018.docx
WHEREAS, with due deference to the language and intent of Section 6.04 of Denton's
Charter, the Council of the City of Denton, Texas finds that during the vacancy of the City Auditor
position, this pending and unresolved investigation and audit should proceed at the hands of
outside legal and auditing professionals reporting directly to the City Council; NOW,
THEREFORE,
THE COUNCIL OF THE CITY OF DENTON HEREBY ORDAINS:
SECTION 1. The above recitals are fully adopted and incorporated herein for all purposes.
SECTION 2. The Mayor is hereby authorized to execute the revised and amended
engagement agreement by and between the City and the law firm of Lynn, Ross and Gannaway,
LLP, and the BKD, LLP accounting firm for professional services, as stated substantially in the
terms of said Agreement, attached hereto as Exhibit "A", incorporated herein by reference.
SECTION 3. The award of this Agreement by the City is on the basis of the demonstrated
competence, knowledge, and qualifications of the firms and the demonstrated ability of the firms,
and their demonstrated ability to timely perform the services needed by the City, for fair and
reasonable fees.
SECTION 4. The expenditure of funds as provided in the attached Agreement is hereby
limited to a revised and amended amount, not to exceed One Hundred Twenty-Five Thousand
Dollars ($142,000), for past and anticipated professional fees and expenses within the revised and
expanded scope of these amended professional services agreements.
SECTION 5_. Ordinance 2017-368 is hereby repealed, superseded, and replaced in its
entirety.
SECTION 6. This Ordinance shall become effective immediately upon its passage and
approval.
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PASSED AND APPROVED this the ,�,,��"°�a�� day of ����"�±������� �� � �, 2018.
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ATTEST:
JENNIFER WALTERS, CITY SECRETARY
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s:\legal\our documents\ordinances\18\ordinance lrg bkd amended 2.13.2018.docx
APPROVED AS TO LEGAL FORM:
AARON LEAL, CITY ATTORNEY
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February 9, 2018
Mayor Chris Watts and Denton City Council
City of Denton
215 E. McKinney St.
Denson, TX 76201
Re: Retention of Legal Counsel to work with Forensic Accounting Firm Investigation
Relationship between City of Denton and Denton Parks Foundation
October 1, 2012 — September 30, 2017
Amended Engagement
Dear Mayor and Council:
We appreciate being asked to assist the City of Denton ("City") in conducting this confidential
investigation. In this role, we will be engaged in the dual functions of fact-finding and legal
analysis. It is our understanding the City of Denton intends to establish a relationship with our
firm that would establish not only an attorney/client privilege with regard to verbal and written
communications, but also would cloak our investigation notes and other documents with the
attorney work product privilege. To facilitate a thorough investigation, we have been authorized
to retain BKD, LLP's Forensics & Valuation Services team, (`BKD").
I have attached a copy of BKD's amended engagement letter as Exhibit A, which is incorporated
by reference into this Engagement.
Amended Fees and Expenses
Prior to our engagement with City Council as reflected in Ordinance 2017- 368, executed on
November 14, 2017, BKD had been retained by former Finance Director Chuck Springer to
conduct a preliminary review, and LRG had been retained on October 18, 2017 through the City
Attorney's Office.
Based on the information that was available to both BKD and my firm, we initially estimated that
BKD's fees (not including expenses or costs) would be $30,000. I had estimated that my fees
should not exceed $20,000 following the date of initial engagement, November 14, 2017 to
completion, as I bill at $250.00 per hour. Our initial estimate had assumed all information would
be provided to us completely and expeditiously.
Current City staff promptly and expeditiously complied with all requests for information.
However, the former City Auditor was not available to provide information, background, or
explanation of what, how and where he left off his involvement as the lead investigator of the
Fraud, Waste & Abuse Committee. His absence and unavailability resulted in additional time and
EXHIBMT
A to Ordinance
Mayor and Council
February 9, 2018
Page 2
expense in recreating assumptions, assimilating and reviewing work and efforts performed from
the inception of the investigation to the point where he suddenly resigned.
Additionally, we were met with unanticipated resistance from the Parks Foundation President
when we asked for more and different documentation than what the City's Fraud, Waste & Abuse
Committee had originally requested. After extensive communication, the Parks Foundation Board
and their employees provided the information requested.
On December 8, 2017, we informed potential interviewees of the interview dates of December 14
and 15, 2017. While City staff made themselves available, we were not immediately informed
that the Parks Foundation Treasurer or the Executive Director were not going to be available. After
we set the interview dates, both the Foundation Treasurer and the Executive Director retained
counsel. We were unable to agree to the Treasurer's counsel's preconditions (which ultimately
resulted in the refusal to engage in a face-to-face personal interview), but we were able to reach
agreement with the Executive Director's counsel's preconditions. However, the Executive
Director and her counsel were unavailable on December 14 or 15, and her interview had to be
conducted on December 21, 2017. The Board President met with the investigative team without
precondition on December 15, 2017.
Given the level of resistance we encountered, the initial estimated amount was exceeded in
January, 2018. After preparing and providing a preliminary verbal report to City Council, we were
requested to provide further responses and legal analysis, and to provide an updated verbal report.
Further analysis was requested, which necessitated an additional update, and then it is anticipated
that LRG and BKD will provide a public presentation of the fndings at a time designated by City
Council.
Therefore, due to unanticipated circumstances and an expanded scope of deliverables, BKD and
LRG are seeking an amended engagement.
Our amended not to exceed amount estimate, including fees, expenses, and costs will not exceed
$142,000.00 for the entirety of all work performed by BKD and LRG on this matter.
It is anticipated that the remaining fees for completion of all remaining work, including billed and
unbilled time, will be an additional $84,000, of which $18,000 would be work performed by LRG
and $66,000 would be work performed by BKD.
Please contact me if you have any questions. We are pleased to have this opportunity to be of
service and to work with you.
Very truly yours,
/s/ Julia Gannaway
Julia Gannaway
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Writer's Direct Dial: (817) 332.8512
Mayor and Council
February 9, 2018
Page 3
ACCEPTED ���1� ��,�'�f�b��1��) l�".� "���"��1,�'�� � ad���� DAY OF FEBRUARY, 2018.
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CPps & Advlsors
February 9, 2018
Ms. Julia Gannaway
Lynn, Ross & Gannaway, LLP
306 West Broadway Avenue
Fort Worth, TX 76104
10001 Reunion Place, Suite 400 I San Anlonio, TX 78216-4137
210.341.9400 I Fax 210.341.9434 I bkd.com
The puipose of this document is to amend our previous letter dated November 3, 2017, to
provide a detailed scope for our work with your client, City of Denton, Texas. This scoping
document is meant to supplement our previous discussions. These processes are based on
information gathered to date. The work performed as outlined below shall be limited to the scope
period of October 1, 2012, through September 30, 2017, (Scope Period) unless otherwise noted.
All documentation should be provided in electronic form, where applicable.
1. Conduct interviews of the City of Denton (COD) and Denton Parks Foundation (DPF)
and their x•epresentatives, as necessary, to develop an understanding of the relationship
and interactions between COD and DPF. These interviews toolc place in 2017 on
December 14, 15 and 21, requiring additional preparation and travel.
2. Obtain an electronic copy of COD's employee master file, vendor master file and other
necessary repoi�ts to adequately assess and document the interaction between COD and
DPF.
3. Obtain an electronic version of the QuickBooks accounting software for DPF (and
associated username and passwords, if applicable), including employee master file and
vendor master fle and perform procedures such as:
a. Assessment of the audit log, if enabled
b. Obtain genez•al ledger detail repoi�ts and identify entries that appear unusual based
on amount, nature, timing or manner of recording. We will request supporting
documentation for entries that appear unusual
c. Analyze for conflicts of interest and related party transactions between the DPF
and COD
d. Prepare a listing of all identified payments directly to a COD employee fi•om DPF.
4. Obtain and read a copy of the policies and procedures of the COD that were active
during the Scope Period. Obtain and read a copy of the contract between the COD and
DPF existing during the Scope Period.
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City of Denton, Texas
February 9, 2018
Page 2
5. Obtain copies of the COD City Council minutes for all matters related to the interaction
between the COD and DPF, including but not limited to cash payments to DPF from
the COD, approval of the use of COD assets on DPF projects, etc.
6, Assess the findings of the Fraud, Waste & Abuse Committee from its investigation into
the relationship between the COD and DPF and consider whether additional follow up
should be performed.
7. Obtain and analyze COD and DPF bank statements, check images and monthly account
reconciliations during the scope period.
8. Obtain and analyze COD and DPF check register foc all bank accounts during the scope
period.
9. Analyze books and records for the following:
a. Indications of amounts received by DPF from advertising revenue on COD
property and quantify the amounts received
b. Annual cash receipts from pledges and trace uses of those funds received related
to annual donation pledges made to DPF
c. All other sources of revenues
10. Prepare a written report for City Council to read.
11. Prepare and present to City Council on January 16, 2� 18, February 6, 2018, and on
February 13, 2018, in closed sessions in cooperation with and pursuant to privileged
attorney-client discussions to present preliminary findings, answer questions and
determine if fu��ther work is warranted or requested. Make edits to report draft, as
deemed necessary by BKD.
12. Present an additional open session to be determined at a later date.
The results of the listed procedures may uncover information that would necessitate further
investigation. Additional procedures may be suggested, if appropriate. At the conclusion of all
of our procedures, we will prepare a written repo�•t.
Based upon the information you have provided, we have estimated our fees for these procedures
will be an additional $66,000. This amount is in addition to the $30,000 estimate provided in the
November 3, 2017, letter. This is an estimate only and not a cap or guaranteed maximum. The
above fees estimates include our estimate of travel costs, if any, as well as an administrative fee
of 4 percent to cover items such as copies; postage and other delivery charges; supplies;
City of Denton, Texas
February 9, 2018
Page 3
technology-related costs such as computer processing, software licensing, research and library
databases; and similar expense items. This fee estimate assumes that all information will be
pcovided to us completely and expeditiously and that no unusual or unanticipated circumstances
arise in our engagement. If unusual or unanticipated circumstances require us to expand the
scope of our engagement, we will discuss this with you before beginning the additional work.
For purposes of this agreement, it is understood that expanding the scope of our engagement,
including upon your request, has increased our anticipated fees, Throughout this engagement,
we will monitor the time spent and notify you if and when it becomes apparent to us that our
total fees may exceed our estimated fee. Following acceptance of this document by you, we will
begin planning and executing on the procedures as soon as possible.
BKD, LLP
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The services and arrangements described in this letter are in accordance with our understanding
and are acceptable to us.
LYNN, ROSS & GANNAWAY, LLP
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