PURPOSE

The purpose of this report is to present the Redevelopment Agency Board with a proposed scope of services to perform a comprehensive operational audit of the Burbank Housing Corporation. Staff recommends retaining the services of Diehl Evans and Company, LLP (DE&Co) and Keyser Marston and Associates (KMA) to perform this operational audit.

BACKGROUND

On January 23, 2007 the Redevelopment Agency Board considered and approved the funding of a Burbank Housing Corporation (BHC) real property acquisition of 261 W. Verdugo Ave., 2219 and 2329 North Niagara for the purpose of increasing the City�s inventory of affordable housing.  The staff report recommending the approval of the affordable housing agreement between the Burbank Redevelopment Agency (Agency) and BHC focused on the following:  an analysis of the subject property in its current condition; the level and cost of rehabilitation recommended for the property if acquired by BHC; household income and affordability requirements; proposed Agency financial assistance and loan terms; tenant relocation; the total project cost; and the fair market value of the property including the cost to acquire 261 W. Verdugo Ave. 

While the staff report focused on the merits of funding the proposed BHC property acquisition the Agency Board voiced its collective concern regarding the fact that information pertaining to a recent, private party real estate transaction was not addressed in the staff report of January 23, 2007. This matter was discussed by the Agency Board on March 20, 2007 and staff was directed to return with additional information regarding, 1 the 261 W. Verdugo transaction, and 2 general BHC and Agency practices and procedures. 

In addition, staff was also directed to proceed with a complete operational audit of BHC.  In a memorandum to the City Manager dated March 27, 2007 (Queue List Item #806), staff indicated that the scope of the audit would come to the Agency Board on April 24^th.   At the Redevelopment  Agency Board meeting of April 24^th, CDD staff provided an update and follow up on numerous issues surrounding the 261 West Verdugo property; however, staff had not yet been able to finalize the proposed audit scope as it involved input from the City Attorneys Office, Financial Services Department, Community Development Department, and Keyser Marston Associates (KMA).

Staff has finalized the proposed audit scope, and met with the Burbank Housing Corporation Council Sub-Committee (Vice Mayor Golonski and Council Member Gordon) on May 29^th to present the details. 

ANALYSIS

The Financial Services Department has taken the lead in coordinating the comprehensive operational audit of the BHC.  Staff from Financial Services, Community Development and the City Attorney�s office met with Bill Morgan from Diehl Evans and Co, LLP, (DE&Co) an independent CPA firm and representatives from Keyser Marston Associates (KMA), a real estate advisory firm, both of whom are together well qualified to provide the scope of services contemplated by this audit.  It is recommended that a third consultant, with an expertise in the area of government-related appraisal services, also be retained for purposes of reviewing the appraisal report on 261 W. Verdugo, if that is the Redevelopment Agency Board�s direction.

William Morgan, CPA, is Director of Consulting Services for DE&Co, and has many years of experience in the municipal finance area specializing in performance and operational reviews such as this.  The City of Burbank has engaged Mr. Morgan several times in the past, most notably about 10 years ago to perform a complete historical analysis of the Burbank Redevelopment Agency�s major development agreements from the beginning of all the project areas through 1997.  Results from that review, which were delivered to the City Redevelopment Agency Board, provided an opportunity to revisit how the deals were structured, and provided a basis for future deals.  We would expect their work on this audit to be done in a similar manner.

Kathe Head is a senior principal in the Los Angeles office of Keyser Marston Associates. She has played a significant role in the structuring of affordable housing and redevelopment projects for a number of public agencies in California, including Burbank.   Her expertise and experience would be used to focus on the historical origins and growth of BHC, its internal processes and procedures and community results � and how they compare and contrast to other similar housing agencies.  Mr. Morgan and Ms. Head�s resumes are attached for your review.

After consultation with Mr. Morgan and Ms. Head, a review of the tapes of previous Redevelopment Agency Board meetings and after meeting with the City Council sub-committee, staff has developed a proposed scope of services for your review.  This scope, which is attached, incorporated the subject areas to be examined, the tasks to be completed, and the key deliverables for this audit.  Also included is a draft scope of review specifically for the review of the property appraisal at 261 W. Verdugo, if the Agency Board wishes to have the appraisal reviewed by another appraiser.  Upon receipt of the Agency Board�s direction regarding the appraisal, we anticipate that we would determine how much any such review would cost and would bring back a contract for an appraiser at a subsequent meeting.  This would not be expected to delay the rest of the process.

Staff anticipates that the audit will start in early July, and that it will be completed by late July or early August, and the results reported back to the Redevelopment Agency Board in late August or early September. 

FISCAL IMPACT

Funds for this engagement are available in the Redevelopment Agency�s operating budget, account 305.CD23A.62085.0000.000000, so no additional appropriation is necessary.  It is estimated   that the operational audit done by DE&Co. will cost $39,500, depending on the time necessary to complete all the tasks outlined.  KMA�s audit services are estimated to cost an additional $41,500.  There will be an additional cost associated with the retention of an appraiser to perform the appraisal review, which is unknown at this time.  Once the Agency Board provides its direction as to the desired scope of review of the real estate appraisal, staff will return with a proposed retention agreement.  This will not delay or prevent the other portions of the audit from commencing or going forward.

RECOMMENDATION

Staff recommends the Agency Board:

1. Review the proposed scope of services, make any desired changes and/or provide direction to staff;

2. Approve a Resolution of the Redevelopment Agency Board authorizing the City Manager to retain the services of Diehl Evans and Co. and Keyser Marston Associates to perform the operational audit of the Burbank Housing Corporation, in a form as approved by the City Attorney.

3. Provide direction to staff as to the desired scope of review of the appraisal report prepared for BHC regarding the 261 W. Verdugo property.

Attachments: 

1. Scope of BHC Operational Audit

2. Resume-Bill Morgan

3. Resume-Kathe Head

4. Draft Scope of Services for Appraisal Review