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Item 4KM E M O R A N D U M January 8, 2019 To: Shana Yelverton, City Manager From: Sharen Jackson, Chief Financial Officer Subject: Approve a professional services agreement with Weaver L.L.P., for audit services, in the amount not to exceed $130,000. Action Requested: Approval of Weaver L.L.P. professional services agreement. Background Information: City Charter requires the City at the close of each fiscal year have an independent audit performed by a Certified Public Accountant. The objective of the audit is the expression of an opinion as to whether the financial statements are fairly presented, in all material respects, in conformity with GAAP- generally accepted accounting principles. Weaver L.L.P. will also provide a report on internal control related to the financial statements and compliance with laws, regulations, and the provisions of contracts or grant agreements. Financial Considerations: The total amount is not to exceed $130,000 (same as prior year). The agreement is within budgeted funds. Strategic Link: F1 Adhere to financial management principles and budget F4 Establish and maintain effective internal controls Citizen Input/ Board Review: None required Legal Review: Not considered necessary-a standard agreement. Alternatives: None Supporting Documents: Professional Service Agreement Staff Recommendation: Approve professional services contract with Weaver L.L.P. weaver}- Assurance-Tax•Advisary June 20, 2018 To the Audit Committee City of Southlake 1400 Main Street Southlake,Texas 76092 You have requested that we audit the governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information of the City of Southlake (the City) as of September 30,2018,and for the year then ended and the related notes to the financial statements,which collectively comprise the City's basic financial statements as listed in the table of contents.We are pleased to confirm our acceptance and our understanding of this audit engagement by means of this letter. Accounting principles generally accepted in the United States of America (U.S. GAAP), as promulgated by the Governmental Accounting Standards Board (GASB) require that management's discussion and analysis and budgetary comparison information, among other items, be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the GASB,who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. As part of our engagement,we will apply certain limited procedures to the required supplementary information (RSI) in accordance with auditing standards generally accepted in the United States of America (U.S. GAAS). These limited procedures will consist primarily of inquiries of management regarding their methods of measurement and presentation, and comparing the information for consistency with management's responses to our inquiries. We will not express an opinion or provide any form of assurance on the RSI.The following RSI is required by U.S. GAAP. This RSI will be subjected to certain limited procedures but will not be audited: 1. Management's Discussion and Analysis 2. General Fund Budgetary Comparison Schedule 3. Schedule of Changes in Net Pension Liability and Related Ratios-TMRS 4. Schedule of Contributions-TMRS 5. Condition Rating of Street System 6. Schedule of Changes in Net OPEB Liability and Related Ratios 7. Schedule of OPEB Contributions Supplementary information other than RSI will accompany the City's basic financial statements. We will subject the following supplementary information to the auditing procedures applied in our audit of the basic financial statements and perform certain additional procedures, including comparing and reconciling the supplementary information to the underlying accounting and other records used to prepare the basic financial statements or to the basic financial statements themselves, and additional procedures in accordance with auditing standards generally accepted in the United States of America. We intend to provide an opinion on the Combining and Individual Fund Statements and Schedules in relation to the financial statements as a whole. Also, the document we submit to you will include the following other additional information that will not be subjected to the auditing procedures applied in our audit to the basic financial statements: 1. Introductory Section 2. Statistical Section AN INDEPENDENT MEMBER OF WEAVER AND TIDWELL,L.L.P. 12221 MERIT DRIVE,SUITE 1400,DALLAS,TX 75251 BAKER TILLY INTERNATIONAL CERTIFIED PUBLIC ACCOUNTANTS AND ADVISORS P:972.490.1970 F:972.702.8321 City of Southlake June 20, 2018 Page 2 Audit Objectives The objective of our audit is the expression of opinions as to whether your basic financial statements are fairly presented, in all material aspects, in conformity with U.S. GAAP and to report on the fairness of the supplementary information referred to above when considered in relation to the basic financial statements as a whole. The objective also includes reporting on internal control related to the basic financial statements and compliance with the provisions of laws, regulations, contracts, and grant agreements, noncompliance with which could have a material effect on the basic financial statements in accordance with Government Auditing Standards issued by the Comptroller General of the United States of America (GAGAS). We cannot provide assurance that an unmodified opinion will be expressed. Circumstances may arise in which it is necessary for us to modify our opinions, add emphasis-of-matter, or other-matter paragraphs. If our opinions on the financial statements or compliance are other than unmodified,we will discuss the reasons with you in advance.If,for any reason,we are unable to complete the audit or are unable to form or have not formed opinions, we may decline to express opinions or withdraw from this engagement. Auditor Responsibilities We will conduct our audit in accordance with U.S. GAAS and GAGAS. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the basic financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the basic financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the basic financial statements, whether due to error, fraudulent financial reporting, misappropriation of assets, or violations of laws, governmental regulations, grant agreements, or contractual agreements. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. If appropriate, our procedures will therefore include tests of documentary evidence that support the transactions recorded in the accounts, tests of the physical existence of assets, and direct confirmation of cash, investments, and certain other assets and liabilities by correspondence with creditors and financial institutions. As part of our audit process, we may request written representations from your attorneys,and they may bill you for responding.At the conclusion of our audit, we will also request certain written representations from you about the basic financial statements and related matters. Because of the inherent limitations of an audit, together with the inherent limitations of internal control, an unavoidable risk that some material misstatements (whether caused by errors, fraudulent financial reporting, misappropriation of assets, or violations of laws or governmental regulations) may not be detected exists,even though the audit is properly planned and performed in accordance with U.S. GAAS and GAGAS. In addition, an audit is not designed to detect immaterial misstatements or violations of laws or governmental regulations that do not have a direct and material effect on the financial statements. However,we will inform the appropriate level of management of any material errors,fraudulent financial reporting, or misappropriation of assets that comes to our attention. We will also inform the appropriate level of management of any violations of laws or governmental regulations that come to our attention, unless clearly inconsequential. Our responsibility as auditors is limited to the period covered by our audit and does not extend to any later periods for which we are not engaged as auditors. City of Southlake June 20, 2018 Page 3 In making our risk assessments, we consider internal control relevant to the City's preparation and fair presentation of the basic financial statements in order to design audit procedures that are appropriate in the circumstances but not for the purpose of expressing an opinion on the effectiveness of the City's internal control. However, we will communicate to you in writing concerning any significant deficiencies or material weaknesses in internal control relevant to the audit of the basic financial statements that we have identified during the audit. As part of obtaining reasonable assurance about whether the basic financial statements are free of material misstatement, we will perform tests of the City's compliance with the provisions of applicable laws, regulations, contracts, and agreements. However, the objective of our audit will not be to provide an opinion on overall compliance and we will not express such an opinion. We may from time to time, and depending on the circumstances, use third-party service providers in serving your account.We may share confidential information about you with these service providers, but remain committed to maintaining the confidentiality and security of your information. Accordingly, we maintain internal policies, procedures, and safeguards to protect the confidentiality of your personal information. In addition, we will secure confidentiality agreements with all service providers to maintain the confidentiality of your information and we will take reasonable precautions to determine that they have appropriate procedures in place to prevent the unauthorized release of your confidential information to others. In the event that we are unable to secure an appropriate confidentiality agreement,you will be asked to provide your consent prior to the sharing of your confidential information with the third-party service provider. Furthermore,we will remain responsible for the work provided by any such third-party service provider. Management Responsibilities Our audit will be conducted on the basis that management and,when appropriate, those charged with governance acknowledge and understand that they have responsibility: a. For the preparation and fair presentation of the basic financial statements in accordance with accounting principles generally accepted in the United States of America; b. For the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of basic financial statements that are free from material misstatement, whether due to error, fraudulent financial reporting, misappropriation of assets, or violations of laws, governmental regulations, grant agreements, or contractual agreements; and c. To provide us with: I. Access to all information of which management is aware that is relevant to the preparation and fair presentation of the financial statements such as records,documentation,and other matters; ii. Additional information that we may request from management for the purpose of the audit; j and iii. Unrestricted access to persons within the City from whom we determine it necessary to obtain audit evidence. d. For including the auditor's report in any document containing the basic financial statements that indicates that such financial statements have been audited by the City's auditor; e. For identifying and ensuring that the City complies with the laws and regulations applicable to its activities; and City of Southlake June 20, 2018 Page 4 f. For adjusting the basic financial statements to correct material misstatements and confirming to us in the management representation letter that the effects of any uncorrected misstatements aggregated by us during the current engagement and pertaining to the current year under audit are immaterial, both individually and in the aggregate, to the basic financial statements as a whole;and g. With respect to any nonaudit/nonattest services we perform, such as preparation of the financial statements, for (a) making all management decisions and performing all management functions; (b) assigning an individual with suitable skills, knowledge,and experience, preferably within senior management, to oversee the services; (c) evaluating the adequacy of the services performed; (d) evaluating and accepting responsibility for the results of the services performed; and (e) establishing and maintaining internal controls, including monitoring ongoing activities. These nonaudit/nonattest services do not constitute an audit under GAGAS and such services will not be conducted in accordance with GAGAS. h. With regard to the supplementary information referred to above: (a) for the preparation of the supplementary information in accordance with the applicable criteria; (b) to provide us with the appropriate written representations regarding supplementary information; (c) to include our report on the supplementary information in any document that contains the supplementary information and that indicates that we have reported on such supplementary information; and (d) to present the supplementary information with the audited basic financial statements, or if the supplementary information will not be presented with the audited basic financial statements, to make the audited basic financial statements readily available to the intended users of the supplementary information no later than the date of issuance by you of the supplementary information and our report thereon. GAGAS require that we document an assessment of the skills, knowledge, and experience of management, should we participate in any form of preparation of the basic financial statements and related schedules or disclosures as these actions are deemed a nonaudit/nonattest service. During the course of our engagement,we will request information and explanations from management regarding the City's operations, internal controls, future plans, specific transactions and accounting systems and procedures. At the conclusion of our engagement, we will require, as a precondition to the issuance of our report, that management provide certain representations in a written representation letter.The City agrees that as a condition of our engagement to perform an audit that management will, to the best of its knowledge and belief, be truthful, accurate and complete in all representations made to us during the course of the audit and in the written representation letter. The procedures we perform in our engagement and the conclusions we reach as a basis for our report will be heavily influenced by the written and oral representations that we receive from management. False or misleading representations could cause us to expend unnecessary efforts in the audit; or, worse, could cause a material error or a fraud to go undetected by our procedures. Reporting We will issue a written report upon completion of our audit of the City's basic financial statements. Our report will be addressed to the governing body of the City.We cannot provide assurance that unmodified opinions will be expressed. Circumstances may arise in which it is necessary for us to modify our opinions, add an emphasis-of-matter or other-matter paragraph(s), or withdraw from the engagement. City of Southlake June 20, 2018 Page 5 In accordance with the requirements of GAGAS, we will also issue a written report describing the scope of our testing over internal control over financial reporting and over compliance with laws, regulations; and provisions of grants and contracts,including the results of that testing. However,providing an opinion on internal control and compliance over financial reporting will not be an objective of the audit and, therefore, no such opinion will be expressed. Engagement Fees We estimate that the fee for our audit will range between $125,000 and $130,000. The fee estimate is based on anticipated cooperation from your personnel and the assumption that unexpected circumstances will not be encountered during the audit.We understand that your employees will prepare all confirmations we request and will locate any documents or support for any other transactions we select for testing. Our engagement fees do not include any time for post-engagement consultation with your personnel or third parties, inquiries from regulators or testimony or deposition regarding any subpoena. Charges for such services will be billed separately. Our engagement fees do not include consulting on the adoption of new accounting standards and any increased duties because of any future regulatory body,auditing standard or an unknown or unplanned significant transaction. We will consult with you in the event any of these take place that may affect our fees. Our invoices for these fees will be rendered each month as work progresses and are payable on presentation. Our fee is based upon the complexity of the work to be performed and the tasks required. Fees for our services are due upon receipt of our invoice. For bills not paid within 60 days of the billing date, a late charge will be added to the outstanding balance. The late charge will be assessed at .5% on the unpaid balance per month or Payments are due in compliance with the Texas Local Government Code. Other In the unlikely event that circumstances occur which we in our sole discretion believe could create a conflict with either the ethical standards of our firm or the ethical standards of our profession in continuing our engagement,we may suspend our services until a satisfactory resolution can be achieved or we may resign from the engagement. We will notify you of such conflict as soon as practicable, and will discuss with you any possible means of resolving them prior to suspending our services. j i The hiring of or potential employment discussions with any of our personnel could impair our independence. Accordingly, you agree to inform the engagement partner prior to any such potential employment discussions taking place. Both of us agree that any dispute between you and Weaver and Tidwell, L.L.P., arising from the engagement, this agreement, or the breach of it, may, if negotiations and other discussion fail be first submitted to mediation in accordance with the provisions of the Commercial Mediation Rules of the American Arbitration Association (AAA) then in effect. Both of us agree to conduct any mediation in good faith and make reasonable efforts to resolve any dispute by mediation. We agree to conduct the mediation in Dallas,Texas or another mutually agreed upon location.The prevailing party in any litigation City of Southlake June 20,2018 Page 6 shall be entitled to recover from the other party court costs and reasonable attorneys' and expert witness fees incurred in the litigation in addition to any other relief that may be awarded. If any term of this engagement letter is declared illegal, unenforceable, or unconscionable, that term shall be severed and the remaining terms of the engagement letter shall remain in force. Both of us agree that the Court should modify any term declared to be illegal, unenforceable, or unconscionable in a manner that will retain the intended term as closely as possible. If a dispute arising from the engagement or from this agreement or any term of it or any alleged breach of it is submitted to a Court for interpretation or adjudication, both of us irrevocably waive right to trial by jury and agree that the provisions of this engagement letter regarding damages,attorneys' fees,and expenses shall be applied and enforced by the Court. You agree to inform us of facts that may affect the basic financial statements of which you may become aware during the period from the date of the auditor's report to the date the basic financial statements are issued. During the course of the engagement, we may communicate with you or your personnel via fax or e- mail, and you should be aware that communication in those mediums contains a risk of misdirected or intercepted communications. Mr.John DeBurro is the engagement partner for the audit services specified in this letter. His responsibilities include supervising our services performed as part of this engagement and signing or authorizing another qualified firm representative to sign the audit report. During the course of the audit we may observe opportunities for economy in, or improved controls over, your operations. We will bring such matters to the attention of the appropriate level of management, either orally or in writing. The audit documentation for this engagement is the property of Weaver and Tidwell,L.L.P.and constitutes confidential information. However, we may be requested to make certain audit documentation available to regulators or other outside parties pursuant to authority given to it by law or regulation, or to peer reviewers. If requested, access to such audit documentation will be provided under the supervision of Weaver and Tidwell, L.L.P.'s personnel. furthermore, upon request,we may provide copies of selected audit documentation to regulators or other outside parties. The regulators or other outside parties may intend, or decide, to distribute the copies of information contained therein to others, including other governmental agencies. We agree to retain our audit documentation or work papers for a period of at least five years from the date of our report. In accordance with the requirements of GAGAS, we have attached a copy of our latest external peer review of our firm for your consideration and files. Please sign and return the attached copy of this letter to indicate your acknowledgment of, and agreement with,the arrangements for our audit of the basic financial statements including our respective responsibilities. City of Southlake June 20, 2018 Page 7 We appreciate the opportunity to be your financial statement auditors and look forward to working with you and your staff. (!)Aouvn as Q ,r;CP. WEAVER AND TIDWELL, L.L.P. JJD:ira RESPONSE: This letter correctly sets forth the understanding. Acknowledged and agreed on behalf of the City of Southlake by: Signature: Title: Date: