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DATE: January 30, 2017

TO: Invited Parties – CPA Firms

FROM: Sherry M. Frisbee

Manager Finance & Accounting

SUBJECT: Professional Auditing Services

NU is soliciting proposals from qualified firms of certified public accountants to audit NU's financial

statements for the fiscal year ending June 30, 2017, with the option of auditing future fiscal years

based on yearly negotiations. Enclosed for your consideration is a Request for Proposal (RFP).

To be considered for this engagement, your firm must meet the qualifications and satisfy the

requirements set forth in the RFP.

Mail Delivery: Overnight Delivery:

NU NU

Sherry Frisbee Sherry Frisbee

Manager Finance & Accounting Manager Finance & Accounting

P.O. Box 519 170 Cope Blvd.

Newport, TN 37822 - 0519 Newport, TN 37821

Completed proposals must be received by 2:00 pm, local time, on February 20, 2017.

All questions and correspondence may be directed to Sherry Frisbee in writing at the above address,

via email at sfrisbee@newportutilities.com or by calling 423-625-2845.

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NU

REQUEST FOR PROPOSALS

FOR

PROFESSIONAL AUDITING SERVICES

January 30, 2017

NU

PO Box 519

Newport, TN 37822-0519

3

NU

REQUEST FOR PROPOSALS

TABLE OF CONTENTS

Page

I. INTRODUCTION 6

A. General Information

B. Background Information

II. NATURE OF SERVICES REQUIRED 7

A. Auditing Standards to be followed

B. Deliverables

C. Special Considerations

D. Working Paper Retention and Access to Working

Papers

III. TIME REQUIREMENTS 8

A. Proposal Calendar

B. Notification and Contract Dates

C. Schedule for the 2017 Fiscal Year Audit

IV. ASSISTANCE TO BE PROVIDED TO THE AUDITOR AND REPORT 9

PREPARATION

A. Finance Division

B. Statements and Schedules to be prepared by the Staff of NU

C. Work Area, Telephone, Photocopying and Wireless Internet

D. Annual Report Preparation

V. PROPOSAL REQUIREMENTS 10

A. Transmittal Letter

B. Sample Contract

C. Non-Collusion Affidavit

D. Technical Qualifications

E. Price, Terms and Conditions

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VI. EVALUATION PROCEDURES 13

A. Evaluation

B. Evaluation Criteria

C. Final Selection

D. Right to Reject Proposals

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APPENDICES

A. List of Key Personnel, Office Locations and Telephone Numbers 15

B. Sample Audit Contract 16

C. Prior Year Annual Report 20

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NU

REQUEST FOR PROPOSALS

I. INTRODUCTION

A. General Information

NU is soliciting the services of qualified firms of certified public accountants to audit

its financial statements for the fiscal year ending June 30, 2017, with the option of

auditing future fiscal years based on yearly negotiations. These audits are to be

performed in accordance with the provisions contained in this request for proposals.

There is no expressed or implied obligation for NU to reimburse responding firms for

any expenses incurred in preparing proposals in response to this request, all such

costs and expenses to be at the sole cost of the respective proposers.

B. Background Information

NU is a component unit of the City of Newport, Tennessee, with an independent

board whose electric system, water system, and wastewater systems are in the

exclusive control and direction of NU’s seven-member governing board. NU’s audit

and financial statements are prepared separately from those of the City of Newport

for its general government operation. NU's fiscal year begins on July 1 and ends on

June 30. At the end of December 2016, NU was providing electric service to 21,898

customers in a 450-square-mile area in Cocke County, TN and parts of surrounding

counties.

At December 31, 2017, NU was providing water services to10,756 customers.

At December 31, 2017, NU was providing wastewater services to 4,412 customers.

NU had a total yearly payroll for FY 2016 of $6,266,391.00; at December 31, 2017

there were 99 employees.

NU is organized into three operating systems - Electric Distribution, NU Water and

NU Wastewater. The accounting and financial reporting functions of NU are

centralized.

II. NATURE OF SERVICES REQUIRED

A. Auditing Standards to Be Followed

To meet the requirements of this request for proposals, the audit shall be performed

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in accordance with: auditing standards generally accepted in the United States as set

forth by the American Institute of Certified Public Accountants and the standards

applicable to financial audits contained in Government Auditing Standards issued by

the Comptroller General of the United States.

B. Deliverables

NU desires the auditor to express an opinion on the fair presentation of its basic

financial statements in conformity with accounting principles generally accepted in

the United States.

NU also desires the auditor to express an opinion on the fair presentation, in relation

to the basic financial statements as a whole, on its Supplemental Financial Report

including the supplemental schedules, compliance, and internal controls which could

have a direct and material effect on the determination of financial statements

amounts. The auditor will also be responsible for issuing a report on NU’s internal

control over financial reporting and compliance with certain provisions of laws,

regulations, contracts, and grants. The auditor will be responsible for sending this

information to NU and to the Tennessee Department of Revenue’s Municipal Audit

Division.

Prior to and during the audit, the auditor will be required to inform NU personnel of

any significant issues, disclosures, or footnotes, which will be required to regarding

the financial statements.

The auditor will be required to review the Annual Report for reasonableness in

relation to the financial statements.

Auditors will be required to make an immediate report of all irregularities and illegal

acts of which they become aware to the appropriate level of responsibility.

Auditors will be required to assure themselves that NU's Board is informed of each of

the following:

1. The auditor's responsibility under generally accepted auditing standards

2. Significant accounting policies

3. Management judgments and accounting estimates

4. Significant audit adjustments

5. Other information in documents containing audited financial statements

6. Disagreements with management

7. Management consultation with other accountants

8. Major issues discussed with management prior to retention

9. Difficulties encountered in performing the audit

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C. Special Considerations

1. NU is a component unit of the City of Newport, Tennessee, with an

independent board. NU reports its financial condition and operations

separately from those of the City of Newport general government. NU has an

Electric System, Water System and Wastewater System. The financial

condition and financial results of NU will be presented within two financial

reports. The financial condition and financial results of the Electric System

will be one report. The financial condition and financial results of the Water

& Wastewater System will be combined in one financial report.

D. Working Paper Retention and Access to Working Papers

All working papers and reports must be retained, at the auditor's expense, for a

minimum of three (3) years, or such longer time as may be required by federal or

state law with respect to the financial statements of municipal electric distribution

systems and telecommunication providers, unless the firm is notified in writing by

NU of the need to extend the retention period. The auditor will be required to make

working papers available, upon request, to NU and auditors of entities of which NU

is a component unit.

In addition, the firm will be required to respond to the reasonable inquiries of

successor auditors and allow successor auditors to review working papers relating to

matters of continuing accounting significance.

III. TIME REQUIREMENTS

A. Proposal Calendar

The following is a list of key dates up to and including the date proposals are due

to be submitted:

Request for proposal issued 01/30/2017

Due date for proposals (2pm local time) 02/20/2017

B. Notification and Contract Dates

Evaluation of Vendor Proposals Completed 02/28/2017

Selected firm notified First week in March 2017

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C. Schedule for the 2017 Fiscal Year Audit (A similar time schedule will be

developed for audits of future fiscal years if NU exercises its option for additional

audits).

Preliminary Work May/June

FY 2017 Financial Statements Ready 7/15/2017

for Detail Testing

Fieldwork and Draft Report Completed October 15th, 2017

Print Ready Copy Completed October 30th, 2017

Auditor’s Report Presented to the Board December 2017

IV. ASSISTANCE TO BE PROVIDED TO THE AUDITOR AND REPORT PREPARATION

A. Accounting and Finance Department

Accounting will make audit workpapers and reports available to the auditors. All

bank accounts will be audited internally and these audit reports will be available to

the auditors.

The staff will be available during regular business hours for any required assistance,

including preparation of workpapers, schedules, variance analysis, explanations,

preparation of confirmation letters, copying, and other assistance or audit tests

requested by the auditor.

B. Statements and Schedules to be prepared by the Staff of NU.

Accounting will prepare complete draft financial statements, supplemental

information. (Internal Only)

C. Work Area, Telephones, Photocopying and wireless internet.

NU at no cost to the auditor will, provide the auditor with reasonable workspace,

desks and chairs. The auditor similarly will also be provided with access to our

NISC computer network, telephone lines, local calling (but not the cost of long

distance or other tariffs), and photocopying facilities.

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D. Editing and printing of the Annual Audit Report shall be the responsibility of the

independent auditor.

V. PROPOSAL REQUIREMENTS

The following material is to be received by 2 pm, local time, on February 20, 2017, for a

proposing firm to be considered. Additional information may be included if desired.

A. Transmittal Letter

A signed letter of transmittal briefly stating the proposer's understanding of the work

to be done, the commitment to perform the work within the time period, a statement

why the firm believes itself to be best qualified to perform the engagement, a

statement that the proposal is a firm and irrevocable offer for FY 2017, and a

certification that the person signing the proposal is entitled to represent the firm,

empowered to submit the bid, and authorized to sign a contract with NU.

B. Sample of Contract

A sample of the audit firm’s proposed standard contract. Proposers should

understand that as a Tennessee municipal entity NU will not be able to agree to many

contractual provisions of the type customary in the private sector with a notable

example being NU’s lack of authority to enter into indemnity contract provisions

except for its sole negligence and then only to the extent of its liability under the

Tennessee Governmental Tort Liability Act.

C. Non-Collusion Affidavit

By submitting its proposal, the proposer certifies that:

The prices in its proposal have been arrived at independently, without consultation,

communications, or agreement for the purpose of restricting competition as to any

matter relating such prices with any other proposer or with any competitor;

Unless otherwise required by law, the prices which have been quoted in this proposal

have not been knowingly disclosed by the proposer prior to the due date for

proposals, directly or indirectly, to any other proposer or to any competitor; and

No attempt has been made or will be made by the proposer to induce any other

person or firm to submit a proposal or to take or refrain from taking any action for the

purpose of restricting competition.

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D. Technical Qualifications

1. Independence

The firm should provide an affirmative statement that it is independent of

NU. This statement should list and describe any professional or business

relationships with NU during the past five years.

2. License to Practice in Tennessee

An affirmative statement should be included that the firm and all assigned

key professional staff are properly registered/licensed to practice in

Tennessee.

3. Firm Qualifications and Experience

The proposer should state the size of the firm, the size of the firm's audit

staff, the location of the office from which the work on this engagement is to

be performed and the number, diversity, and experience of the professional

staff to be employed in this engagement.

The proposer should also state the firm’s experience with auditing: the

electric utility industry, the water and wastewater industry, municipal audits

in Tennessee, municipal bond related issues, and GASB 34 related issues.

Provide detailed information regarding the qualifications, experience and

training, including relevant continuing professional education of the firm's

professional personnel to be assigned to the engagement and the quality of the

firm's management support personnel to be available for technical

consultation

The firm should also provide information on the results of the latest peer

review of the office that does the work. In addition, the firm shall provide

information on the circumstances and status of any disciplinary action taken

or pending against the firm during the past three years with state regulatory

bodies or professional organizations.

4. Specific Audit Approach

The proposal should set forth in detail an explanation of the audit approach

and methodology to be followed. Included should be the approach, which

will be used to: gain and document an understanding of NU's internal control

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structure; identify applicable laws and regulations; determine the extent of

sampling; determine the level of compliance testing to be performed.

5. If the firm provides consulting services (whether directly or through

subsidiaries, affiliates, or other entities in which it has controlling interest) in

addition to audit services, please include information as to relative percentage

of gross revenue it receives from the respective audit and consulting services,

and a general statement of the firm’s intended future reliance on revenues

from consulting services.

6. Professional Liability Insurance

Proposers should identify its insurer for professional liability with the policy

limits of such coverage and expiration date. The successful proposer will be

required to provide evidence of such insurance as part of its contract with

NU.

E. Price, Terms and Conditions

1. Price

The proposal should contain all pricing information relative to performing the

audit engagement as described in this request for proposal. The total all-

inclusive maximum price is to contain all direct and indirect costs including

all out-of-pocket (e.g., travel, lodging and subsistence) expenses for firm

personnel. However, the indirect costs should be identified.

The proposal should indicate firm pricing for 1, 2, and 3 years.

NU will not be responsible for expenses incurred in preparing and submitting

the proposal. Such costs should not be included in the proposal.

2. Additional Professional Services

If it should become necessary for NU to request the auditor to render any

additional services to either supplement the services requested in this RFP or

to perform additional work as a result of the specific recommendations

included in any report issued on this engagement, then such additional work

shall be performed only if set forth in an addendum to the contract between

NU and the firm.

Also, include firm pricing for any required Single Audit Procedure that

occurs from time to time, i.e., CDBG and ARC Grants.

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3. Manner of Payment

Progress payments will be made on the basis of percentage of work

completed during the course of the engagement. The last ten percent (10%)

payment will be made after delivery of the firm's final reports.

VI. EVALUATION PROCEDURES

During the evaluation process NU reserves the right, where it may serve NU's best interest, to request

additional information or clarifications from proposers, or to allow corrections of errors or

omissions. A proposer may be disqualified from further consideration upon failure to timely respond

to NU with the requested information. At the discretion of NU, firms submitting proposals may be

requested to make oral presentations as part of the evaluation process.

A. Evaluation

Proposals submitted will be evaluated by Sherry Frisbee, Manager of Finance and

Accounting; but the final decision for selection of the successful proposer will be

made by NU’s governing board.

B. Evaluation Criteria

The following represent the principal selection criteria, which will be considered

during the evaluation process.

1. Mandatory Elements

a. The audit firm is independent and licensed to practice in

Tennessee.

b. The firm has no conflict of interest with regard to any other work it

performs for others and the work it performs for NU.

c. The firm adheres to the instructions in this request for proposal on

preparing and submitting the proposal.

d. The firm provides information on results of peer reviews and any

state or professional organization review of its audits for the last

three years.

2. Expertise and Experience

a. The firm's past experience and performance on comparable

electric, water and wastewater utility and municipal electric

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engagements.

b. The quality of the firm's professional personnel to be assigned to

the engagement and the quality of the firm's management support

personnel to be available for technical consultation.

c. Adequacy of proposed staffing for the engagement.

d. Results of latest peer reviews and status of any disciplinary action.

2. Audit Approach

a. Audit Methodology.

b. Scope of audit work.

c. Gaining an understanding of NU’s internal control structure.

d. Determining laws and regulations that will be subject to audit tests.

e. Sampling techniques and analytical procedures.

4. Price:

Cost will be a consideration but not the primary factor in the selection of

an audit firm.

C. Final Selection

NU management will select a firm based upon the completion of the evaluation, and

recommend that selection to the NU governing board. It is anticipated that a firm will

be selected by February 28, 2017. After the selected firm is notified it will submit a

sample (proposed) contract for NU’s consideration. NU reserves the right to negotiate

the exact terms of the contract and both parties agree to negotiate in good faith to

reach a mutual agreement. It is anticipated that a contract will be executed between

both parties by April, 2017, but NU is not obligated to execute a contract with any of

the proposers.

D. Right to Reject Proposals

Submission of a proposal indicates acceptance by the firm of the conditions and

scope of work contained in this request for proposal unless clearly and specifically

noted in the proposal submitted and confirmed in the contract between NU and the

firm selected.

NU is an equal opportunity employer and has strong diversity among its employees.

As such NU strives to do business with minority suppliers and considers diversity in

its selection process of professional service providers.

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NU reserves the right to refuse any or all proposals and to provide to each

participating proposer their award status only, without further explanation of

evaluation.

APPENDIX A

LIST OF KEY PERSONNEL, OFFICE LOCATIONS AND TELEPHONE NUMBER

Name & Title Location of Office Telephone

Glenn Ray

General Manager

170 Cope Blvd.

Newport, TN

(423) 625 -2821

Jimmy Robertson

Electric Department Manager

1419 W Hwy 25-70

Newport, TN

(423) 625 - 2809

Chris Archer

Interim Wastewater Department Mgr.

465 Lisega Blvd.

Newport, TN

(423) 625- 2847

Linten Atkins

Water Department Mgr.

170 Cope Blvd.

Newport, TN

(423) 625 - 2819

Sherry Frisbee

Manager Finance & Acct.

Donna Cureton

Purchasing Agent

Carmen Lichty

Customer Relations & Manager

170 Cope Blvd

Newport, TN

170 Cope Blvd

Newport, TN

170 Cope Blvd

Newport, TN

(423) 625 – 2845

(423) 625-2843

(423) 625-2822

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APPENDIX B

SAMPLE AUDITOR CONTRACT

i

ii

iii

iv

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APPENDIX C

PRIOR YEAR ANNUAL REPORT

ANNUAL REPORT FOR 6/30/16