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Item 4G - MemoM E M O R A N D U M December 27, 2022 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 $136,000. 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. Due to the Coronavirus State and Local Fiscal Recovery Funds (CSLFRF) funding received/expended in 2022, the city will undergo an examination for compliance with the CSLFRF Requirements. The purpose of the examination involves performing procedures to obtain evidence the city followed the rules for federal awards. Financial Considerations: The total amount is not to exceed $136,000. $131,000 for the annual financial audit and the estimated cost to complete the examination for compliance with the CSLFRF requirements is $5,000. The agreement is within the funds budgeted for the service. 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. Honorable Mayor and City Council Page 2 of 2 Alternatives: None Supporting Documents: Professional Service Agreement Staff Recommendation: Approve professional services contract with Weaver L.L.P. weaver)ollo- As s u ra n ce � To w i A rNkoiy November 14, 2022 To the Audit Committee City of Southlake, Texas 1400 Main Street Southlake, Texas 76092 You have requested that Weaver and Tidwell, L.L.P ("Weaver", "our", "us", and "we") audit the governmental activities, the business -type activities, each major fund, and the aggregate remaining fund information of The City of Southlake, Texas (the "City"), as of September 30, 2022, 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. 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 iterns, be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by GASB, which considers if 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 f"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: I . Management's Discussion and Analysis 2. General Fund and Major Special Revenue Funds Budgetary Comparison Schedules 3. Schedule at Changes in Net Pension Liability and Related Ratios —Texas Municipal Retirement System (TMRS) 4, Schedule of Pension Contributions—TMRS 5. Condition Rating of Street System 6. Schedule at Changes in Net OPEB Liability and Related Ratios —Health Insurance 7. Schedule of Changes in Total OPEB Liability (Asset) and Related Ratios—TMRS— Supplemental Death Benefits 8. Schedule of OPEB Contributions —Health Insurance 9. Schedule of OPEB Contributions- TMRS—Supplemental Death Benefits 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 U.S. GARS. Weaver and Tidwell, L.L.P. is AND ADVISORS I WEAVER.COM City of Southlake, 'Texas November 14, 2022 We intend to provide an opinion on the following supplementary information in relation to the financial statements as a whole: 1.. Combining and Individual Fund Financial Statements and Schedules 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 of the basic financial statements: 1. Introductory Section 2. Statistical Section We are pleased to confirm our acceptance and our understanding of this audit engagement by rneans of this letter. 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"). Auditor Responsibilities We will conduct our audit in accordance with U.S. GAAS, the standards applicable to financial audits contained in GAGAS. Those standards require f hat 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 at 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 infernal control, an unavoidable risk that some material misstatements (whether caused by errors, fraudulent financial reporting, misappropriation of assets, or violations of laws or governmental City of Soufhlake, Texas November 14, 2022 Page 3 of 9 regulations) may not be detected exists, even though the audit is property planned and performed in accordance with U.S. GAAS and GALAS. 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 regulafions 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. 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 identifiecl during the audit. 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. Mrs. Jennifer Ripka is the engagement partner for the audit services specified in this letter, and is responsible for supervising our set -vices performed as part of this engagement and signing or authorizing another qualified firm representative to sign the audit report. We may from time to time, and depending on the circumstances, use third -party service providers in performing this engagement. 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 cleterr-nine 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, We expect to begin our audit procedures in August 2022, and issue out, report in March 2023. 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 Honorable Mayor, Members of the City Council, and the City Manager. 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 ofher-r-natter paragraph(s), or withdraw from the engagement, It our opinions on the financial statements are other than unmodified, we will discuss the reasons with you in advance. It, 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, City of Southlake, Texas November 14, 2022 Page 4of9 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. 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. 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 the framework described in Audit Objectives above-, 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; iL additional information that we may request from management for the purpose of the audit; 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, and our report on any supplementary information if described above, in any document containing the basic financial statements that indicates that such financial statements have been audited by the City's auditor; e. for idenfifying and ensuring that the City complies with the laws and regulations applicable to its activities: 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; g. for maintaining adequate records, selecting and applying accounting principles, and safeguarding assets; City of Southlake, Texas November 14,2022 Page 5 of 9 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; and i, informing 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. For confirming your understanding of your responsibilities in this letter to us in your management representation letter, 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. If we agree herein or otherwise to perform any non -attest services (such as tax services or any other non -attest services), you agree to assume all management responsibilities for those services; oversee the services by designating an individual, preferably from senior management, with suitable skill, knowledge, or experience,- evaluate the adequacy and results of the services: and accept responsibility for them. The City has designated Sharon Jackson, Chief Financial Officer, to oversee these services, Such services include: i. Preparation of the financial statements and related notes 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, City of Southlake, Texas November 14, 2022 Page 6 of 9 Fees and Invoicing We estimate that the fee for this engagement will be $131,000. The fee estimate is based on anticipated cooperation from all involved and the assumption that unexpected circumstances will not be encountered during the engagement. This is only an estimate and the fee for these services will be determined by the complexity of the work performed and the tasks required. It significant additional time is necessary, we will discuss the reasons with you and arrive at a new fee estimate before we incur the additional costs. It is understood that neither our fees nor the payment thereof will be contingent upon the results of this engagement. Our engagement fees do not include consulting on the adoption at new accounting standards and any future increased duties because of any regulatory body, auditing standard or an unknown or unplanned significant transaction. We will consult with you in the event any at these take place that may affect our tees. We will also invoice for reasonable and necessary time and out-of-pocket expenses we incur to respond to any request (such as a subpoena, summons, court order, or administrative investigative demand) pertaining to this engagement in a legal matter to which we are not a party. Our fir-ne to facilitate the response will be billed at our then-curreni standard hourly rates, and our expenses (including attorney's fees) will be billed at cost. If we agree to perform additional substantive services related to or arising out of the request, such matters may be the subject of a new engagement letter. Our invoices for this engagement will be rendered each month as work progresses. Our invoices are payable on presentation. For invoices not paid within sixty (60) days of the invoice date, a late charge will be added to the outstanding balance. The late charge will be assessed at a rate of half a percent (0.5%) on the unpaid balance per month. If invoices are not paid within one hundred twenty (120) days of the invoice date, the engagement will be placed on hold and we will stop work until the balance is brought current, or we may withdraw from the engagement (and any other engagements for the same client). Payment is due in accordance with Texas Government Code § 2251 .021. Ethical Conflict Resolution 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, 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, Audit Documentation and Confidentiality The audit documentation we prepare pertaining to and in support of this engagement is our property and constitutes confidential information. If we are requested to make the audit documentation available to outside parties, except in the case of requests during our peer review City of Southlake, Texas November 14, 2022 Page 7 of 9 (discussed below) or when prohibited by law or direction of law enforcement, any such requests will be discussed with you before we make the documentation available to the requesting parties. We may be requested to make certain audit documentation (working papers) available to regulators and other government agencies, pursuant to authority given by law or regulation. You should understand that responding to many such requests is mandatory. In those cases, access to such working papers will be provided under our supervision and we may, upon their request, provide the regulator or agency with copies of all or selected working papers. The requesting party may intend or decide to distribute the copies or information contained therein to others, including other regulators or agencies. You will be billed for additional fees as a result of the aforementioned work, Our firm, as well as other accounting firms, participates in a peer review program covering our audit and accounting practices. This program requires that once every three years, we subject our system of quality control to an examination by another accounting firm. As part of this process, the firm conducting our peer review will review a sample of our work. It is possible that the work we perform for you may be selected for such a review. If it is, our peer review firm is bound by professional standards to keep all information confidential and we are required to provide the required infori-riation. We will retain our audit documentation for a period of at least seven years fror-n the date of our report. You agree that following such period, we may destroy the audit documentation without notice to you. To maintain independence, we will not act as the host of your financial or non -financial information or as your information back-up service provicler. Instead, it is your responsibility to maintain a complete set of your financial and non -financial data and records. If some portion of your data and records is contained only within our files, you agree to inform us before the issuance of our report and we will provide that to you. The parties do not intend this engagement letter to be for the benefit of any third -party, You may inform us of third -parties who will receive a copy of our audit report. LlOess you inform us of such third -parties in writing, we are not aware of who you intend to supply our audit report to and we do not anticipate other third parties' reliance upon our professional services unless expressly stated herein. During the course of the engagement, we may communicate via fax, email, or other electronic mechanism, Please be aware that communication in those mediums contains a risk of misdirected or intercepted communications. Dispute Resolution Procedure including Jury Waiver If a dispute arises out of or relates to this engagement or engagement letter, or the breach thereof, and it the dispute cannot be settled through negotiation, the parties agree first to try in good faith to settle the dispute by mediation before resorting to litigation. In such event, the parties will attempt to agree upon a location, mediator, and mediation procedures, but absent such agreement any party may require mediation in Dallas, Texas, administered by the AAA under its Commercial Mediation Procedures. This engagement letter and all disputes between the parties shall be governed by, resolved, and construed in accordance with the laws of the State of Texas, without regard to conflict -of -low City of Southlake, Texas November 14, 2022 principles. Any action arising out of or relating to this engagement or engagement letter shall only be brought in, and each party agrees to submit and consent to the exclusive jurisdiction of, the federal or state courts situated in Harris County, Texas. Each party hereby irrevocably waives any right it may have to trial by jury in any proceeding arising out of or relating to this engagement or this engagement letter. Whenever possible, this engager-nent letter shall be interpreted in such a manner as to be effective and valid under applicable laws, regulations, or published interpretation, but if any term of this engagement letter is declared illegal, unenforceable, or unconscionable, that term shall be severed or modified and the remaining terms of the engagement letter shall remain in force. The parties 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 because of a change in status or due to any other reason, any provision in this engagement letter would be prohibifed by, or would impair our independence under laws, regulations or published interpretations by governmental bodies, professional organizations or other regulatory agencies, such provision shall, to that extent, be of no further force and effect and this agreement shall consist of the remaining portions, Miscellaneous In accordance with the requirements of Government Auditing Standards, we have attached a copy of the latest external peer review report of our firm for your consideration and files. We may at times provide you with documents marked as drafts. You understand that those documents are for your review purposes only. You should not rely upon those documents in any way. Although the engagement partner responsible for this engagement is a licensed certified public accounfant, we inform you that we have nonlicensees who may provide services pertaining to this engagement. If you intend to make reference to our firm or include our report or any portion of it in a published document or of her reproduction, and that document or other reproduction includes a version of our report or the financial statements that is assembled differently than any version we provided you or audited, you agree to provide us with printers" proofs or masters for our review and approval before reproducing. You also agree to provide us with a copy of the final reproduced material for our written approval before it is distributed. If, in our professional judgment, the circumstances require, we may withhold our approval. This requirement does not perfain to distributing our report or the financial statements when you do not modify their assembly or in situations where you disseminate the audited financial statements as a standalone document, such as on your welosite. This engagement letter sets forth all of the agreed upon terms and conditions of our engagement with respect to the matters covered herein, and supersedes any that may have corne before. This engagement letter may not be amended or modified except by further writing signed by all the parties. City of Souf hlake, Texas November 14, 2022 Page 9 of 9 We appreciate the opportunity to assist you and look forward to working with you and your team. Sincerely, a'a WEAVER AND TIDWELL, L.L.P. Dallas, Texas Please sign and return a copy of this letter to indicate your acknowledgment of, and agreement with, the arrangements for our engagement as described herein, including each party's respective responsibilities. By signing below, the signatory also represents that they have been authorized to execute this agreement. City of Southlake, Texas By: Printed Name. - Title: Date: CPAs & BUSINESS ADVISORS Report on Firm's System of Quality Control To the Partners ofWeaver and Tidwell, LLP. and the National Peer Review Committee We have reviewed the system of quality control for the accounting and auditing practice of Weaver and Tidwefl,L.L.P. (the firm) applicable to engagements not subject to PCAOB permanent inspection in effect for the year ended May 31,2019.Our peer review was conducted imaccordance with theStandards for Performing and Reporting omPeer Reviews established by the Peer Review Board of the American Institute of Certified Public Accountants (Standards). Asummary ofthe nature, objectives, scope, limitations of, and the procedures performed in a System Review as described inthe Standards may 6efound The summary also includes anexplanation of how engagements identified as not performed or reported in conformity with applicable professional standards, if any, are evaluated by a peer reviewer to determine a peer review rating. Firm's Responsibility The firm is responsible for designing a system of quality control and complying with it to provide the firm with reasonable assurance of performing and reporting in conformity with applicable professional standards in all material respects. The firm is also responsible for evaluating actions to promptly remediate engagements deemed as not performed or reported in conformity with professional standards, when appropriate, and for remediating weaknesses inits system ofquality control, ifany. Peer Reviewer's Responsibility Our responsibility istoexpress an opinion on the design of the system of quality control and the firm's compliance therewith based on our review. Engagements selected for review included engagements performed under Government Auditing Standards, including compliance audits under the Single Audit Act; audits of employee benefit plans, an audit performed under FMCIA, an audit of a broker -dealer, and examinations of service organizations [SOC 1 and SOC 2engagements]j Asapart ofour peer review, meconsidered reviews 'byregulatory entities zucommunicated bythe firm, ifapplicable, in determining the nature and extent of our procedures. What inspires you, inspires us. I eidebailly.com uoBancorp Center Jmmwic"lle`Mall .Ste ,`mm| Minneapolis mwo54n2-r03a|rs`zum,6n00| ponzzan6600 |soe In our opinion, the system of quality control for the accounting and auditing practice of Weaver and Tidwell, L.L.P. applicable to engagements not subject to PCAOB permanent inspection in effect for the year ended May 31, 2019, has been suitably designed and complied with to provide the firm with reasonable assurance of performing and reporting in conformity with applicable professional standards in all material respects, Firms can receive a rating of pass, pass with deficiency(ies) or fail. Weaver and Tidwell, L.L.P. has received a peer review rating of pass.