Item 4HCity of Southlake, Texas
MEMORANDUM
February 27, 2008
TO: Shana Yelverton, City Manager
FROM: Sharen Jackson, Finance Director
SUBJECT: Authorize a professional services agreement with Weaver and Tidwell, L.L.P.,
for audit services.
Action Requested: Approval of Weaver and Tidwell 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 and Tidwell 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 $80,000.
Citizen Input/
Board Review: None required
Legal Review: Not considered necessary- standard agreement.
Alternatives: None
Supporting
Documents: Professional Service Agreement
Staff
Recommendation: Approve professional services contract with Weaver and Tidwell L.L.P.
WEAVER
1.
TIDWELL
February 18, 2008
L L. P
Statistical section.
CERTIFIED PUBLIC
To the Honorable Mayor and
ACCOUNTANTS
AND CONSULTANTS
Members of the City Council
City of Southlake
1400 Main Street
Southlake, Texas 76092
We are pleased to confirm our understanding of the services we are to provide the
City of Southlake, Texas for the year ended September 30, 2007. We will audit
the financial statements of the governmental activities, the business -type
activities, each major fund, and the aggregate remaining fund information, which
collectively comprise the basic financial statements of the City of Southlake,
Texas as of and for the year ended September 30, 2007. Also, the document we
submit to you will also include the following additional information that will be
subjected to the auditing procedures applied in our audit of the basic financial
statements:
1. Combining and individual fund financial statements and schedules.
2. Schedules of capital assets used in the operation of governmental
funds.
The document submitted will also include the following required supplementary
information on which we will apply limited procedures in accordance with
auditing standards generally accepted in the United States of America:
1. Management's Discussion and Analysis.
2. Budgetary Comparison Schedules.
3. Condition Rating of Street System.
The document submitted will also include the following additional information
that will not be subjected to the auditing procedures applied in our audit of the
basic financial statements, and for which our auditor's report will disclaim an
opinion.
1.
Introductory section.
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Statistical section.
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City of Southlake
February 18, 2008
Page 2
Audit Objectives
The objective of our audit is the expression of an opinion as to whether your
financial statements are fairly presented, in all material respects, in conformity
with accounting principles generally accepted in the United States of America and
to report on the fairness of the additional information referred to in the first
paragraph when considered in relation to the financial statements taken as a
whole. Our audit will be conducted in accordance with U.S. generally accepted
auditing standards and the standards for financial audits contained in Government
Auditing Standards, issued by the Comptroller General of the United States, and
will include tests of the accounting records of the City of Southlake, Texas, and
other procedures we consider necessary to enable us to express such an opinion. If
our opinion on the financial statements is other than unqualified, we will fully
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 an opinion, we may
decline to express an opinion or to issue a report as a result of this engagement.
We will also provide a report (that does not include an opinion) on internal
control related to the financial statements and compliance with laws, regulations,
and the provisions of contracts or grant agreements, noncompliance with which
could have a material effect on the financial statements as required by
Government Auditing Standards. This report will include a statement that the
report is intended solely for the information and use of the audit committee,
management, and specific legislative or regulatory bodies and is not intended to
be and should not be used by anyone other than these specified parties.
Management Responsibilities
Management is responsible for establishing and maintaining internal control and
for compliance with laws, regulations, contracts, and agreements. In fulfilling
this responsibility, estimates and judgments by management are required to assess
the expected benefits and related costs of the controls. The objectives of internal
control are to provide management with reasonable, but not absolute, assurance
that assets are safeguarded against loss from unauthorized use or disposition, that
transactions are executed in accordance with management's authorizations and
recorded properly to permit the preparation of financial statements in accordance
with U.S. generally accepted accounting principles.
City of Southlake
February 18, 2008
Page 3
Management is responsible for making all financial records and related
information available to us. We understand that you will provide us with such
information required for our audit and that you are responsible for the accuracy
and completeness of that information. We will advise you about appropriate
accounting principles and their application and will advise you in the preparation
of your financial statements, but the responsibility for the financial statements
remains with you. As part of our engagement, we may propose standard,
adjusting, or correcting journal entries to your financial statements. You are
responsible for reviewing the entries and understanding the nature of any
proposed entries and the impact they have on the financial statements. That
responsibility includes the establishment and maintenance of adequate records
and effective internal control over financial reporting, the selection and
application of accounting principles, and the safeguarding of assets. Management
is responsible for adjusting the financial statements to correct material
misstatements and for confirming to us in the representation letter that the effects
of any uncorrected misstatements aggregated by us during the current engagement
and pertaining to the latest period presented are immaterial, both individually and
in the aggregate, to the financial statements taken as a whole.
You are responsible for the design and implementation of programs and controls
to prevent and detect fraud, and for informing us about all known or suspected
fraud affecting the government involving (a) management, (b) employees who
have significant roles in internal control, and (c) others where the fraud could
have a material effect on the financial statements, You are also responsible for
informing us of your knowledge of any allegations of fraud or suspected fraud
affecting the government received in communications from employees, former
employees, grantors, regulators, or others. In addition, you are responsible for
identifying and ensuring that the entity complies with applicable laws and
regulations and for taking timely and appropriate steps to remedy any fraud,
illegal acts, violations of contracts or grant agreements, or abuse that we may
report.
As part of the audit, we will prepare a draft of your financial statements and
related notes. In accordance with Government Auditing Standards, you will be
required to review and approve those financial statements prior to their issuance
and have a responsibility to be in a position in fact and appearance to make an
informed judgment on those financial statements. Further, you are required to
designate a qualified management -level individual to be responsible and
accountable for overseeing our services.
City of Southlake
February 18, 2008
Page 4
Audit Procedures — General
An audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements; therefore, our audit will involve judgment
about the number of transactions to be examined and the areas to be tested. We
will plan and perform the audit to obtain reasonable rather than absolute assurance
about whether the financial statements are free of material misstatement, whether
from errors, fraudulent financial reporting, misappropriation of assets, or
violations of laws or governmental regulations that are attributable to the entity or
to acts by management or employees acting on behalf of the entity. Because an
audit is designed to provide reasonable, but not absolute assurance and because
we will not perform a detailed examination of all transactions, there is a risk that
material misstatements may exist and not be detected by us. 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 you of any material errors that
come to our attention, and we will inform you of any fraudulent financial
reporting or misappropriation of assets that comes to our attention. We will also
inform you 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 matters that might arise
during any later periods for which we are not engaged as auditors.
Our procedures will include tests of documentary evidence supporting the
transactions recorded in the accounts, and may include tests of the physical
existence of inventories, and direct confirmation of receivables and certain other
assets and liabilities by correspondence with selected individuals, creditors, and
financial institutions. We will request written representations from your attorneys
as part of the engagement, and they may bill you for responding to this inquiry.
At the conclusion of our audit, we will also require certain written representations
from you about the financial statements and related matters.
Identifying and ensuring that the City of Southlake, Texas complies with laws,
regulations, contracts, and agreements is the responsibility of management. As
part of obtaining reasonable assurance about whether the financial statements are
free of material misstatement, we will perform tests of City of Seagoville's
compliance with applicable laws and regulations and the provisions of 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.
City of Southlake
February 18, 2008
Page 5
Audit Procedures— Internal Control
in planning and performing our audit, we will consider the internal control
sufficient to plan the audit in order to determine the nature, timing, and extent of
our auditing procedures for the purpose of expressing our opinions on the City of
Southlake's financial statements.
We will obtain an understanding of the design of the relevant controls and
whether they have been placed in operation, and we will assess control risk. Tests
of controls may be
performed to test the effectiveness of certain controls that we consider relevant to
preventing and detecting errors and fraud that are material to the financial
statements and to preventing and detecting misstatements resulting from illegal
acts and other noncompliance matters that have a direct and material effect on the
financial statements. Tests of controls are required only if control risk is assessed
below the maximum level. Our tests, if performed, will be less in scope than
would be necessary to render an opinion on internal control and, accordingly, no
opinion will be expressed in our report on internal control issued pursuant to
Government Auditing Standards.
An audit is not designed to provide assurance on internal control or to identify
reportable conditions. However, we will inform the governing body or audit
committee of any matters involving internal control and its operation that we
consider to be reportable conditions under standards established by the American
Institute of Certified Public Accountants. Reportable conditions involve matters
coming to our attention relating to significant deficiencies in the design or
operation of the internal control that, in our judgment, could adversely affect the
entity's ability to record, process, summarize, and report financial data consistent
with the assertions of management in the financial statements. We will also
inform you of any non - reportable conditions or other matters involving internal
control, if any, as required by Government Auditing Standards.
Audit Administration, Fees, and Other
We understand that your employees will prepare all schedules and confirmations
we request and will locate any invoices selected by us for testing.
City of Southlake
February 18, 2008
Page 6
The workpapers for this engagement are the property of Weaver and Tidwell,
L.L.P. and constitute confidential information. However, pursuant to authority
given by law or regulation, we may be requested to make certain audit
documentation available to federal agencies providing direct or indirect funding
or the U. S. General Accounting Office for purposes of a quality review of the
audit, to resolve audit findings, or to carry out oversight responsibilities. We will
notify you of any such request. If requested, access to such documentation will be
provided under the supervision of Weaver and Tidwell, L.L.P. personnel.
Furthermore, upon request, we may provide copies of selected audit
documentation to the aforementioned parties. These parties may intend, or decide,
to distribute the copies of information contained therein to others, including other
governmental agencies.
We agree that any dispute between you and Weaver and Tidwell, L.L.P., relating to
this engagement, this agreement, or the breach of it, shall, 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 before resorting to arbitration. We agree to conduct the mediation in
good faith and make reasonable efforts to resolve any dispute by mediation. Failure
or refusal by either party to mediate shall not in any way affect any subsequent
arbitration, We agree to conduct the mediation in Dallas, Texas, or another mutually
agreed upon location.
If the dispute is not resolved by mediation, the dispute shall be subject to binding
arbitration under the Dispute Resolution Rules for Professional Accounting and
Related Services Disputes of the AAA and judgment on the award rendered by the
arbitrator may be entered in any court of competent jurisdiction. The arbitration
shall be heard before one or more arbitrators selected in accordance with these rules.
The parties agree to conduct the arbitration in Dallas, Texas, or another mutually
agreed upon location. The arbitrator may only award actual damages and may not
award consequential, exemplary, or punitive damages. The prevailing party in any
arbitration or litigation shall be entitled to recover from
the other party reasonable attorney and expert witness fees, court costs, and the
administrative costs, fees, and expenses of the AAA, as the case may be, incurred in
the same, in addition to any other relief that may be awarded.
Notwithstanding the provisions of the immediately preceding paragraph, neither we
nor you shall be compelled to arbitrate any dispute between us which arises out of or
is related to any claim asserted against either of us by a third parry unless the third
party (whether one or more) agrees to join the arbitration or can be compelled to join
it.
City of Southlake
February 18, 2008
Page 7
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.
Our fee for these services will be at our standard hourly rates plus out -of- pocket
costs (such as report reproduction, typing, postage, travel, copies, telephone, etc.).
We estimate that our fees for this engagement will be approximately $80,000.
Our standard hourly rates vary according to the degree of responsibility involved
and the experience level of the personnel assigned to your audit. Our invoices for
these fees will be rendered each month as work progresses and are payable on
presentation. The above fee is based on anticipated cooperation from your
personnel and the assumption that unexpected circumstances will not be
encountered during the audit. If significant additional time is necessary, we will
discuss it with you and arrive at a new fee estimate before we incur the additional
costs.
Government Auditing Standards require that we provide you with a copy of our
most recent quality control review report. Our 2004 peer review report
accompanies this letter. As of the date of this letter, our 2007 peer review report is
not available. We will provide an amendment to this letter providing our 2007
peer review report, when it becomes available for public inspection.
We appreciate the opportunity to be of service to the City of Southlake, Texas and
believe this letter accurately summarizes the significant terms of our engagement.
If you have any questions, please let us know. If you agree with the terms of our
engagement as described in this letter, please sign the enclosed copy and return it
to us.
Very truly yours,
0'aa ,
WEAVER AND TIDWELL, L.L,P.
City of Southlake
February 18, 2008
Page 8
Up a 'I , f
This letter correctly sets forth the understanding of the City of Southlake, Texas.
Title:
Date:
ROKANE QUINCY
COLFAX _M- CITIES
GRANDVMV W.%LLA WAL1A
LIO5F_�L;iKE WCNATCHEE
0 YAKPI IA
OTHELLO
LE MASTER SL
DANIELS PLLC
ACCOUNTING To the Partners of
Weaver and Tidwell, LLP
AND and the Center for Public Company Audit Fi rms Peer Review Committee
(AINS LTING
We have reviewed the system of quality control for the accounting and auditing practice of
srltvn.r5 Weaver and Tidwell, LLP (the firm) applicable to non -SEC issuers in effect for the year
ended May 31, 2004. The firm's accounting and auditing practice applicable to SEC issuers
was not reviewed by as since the Public Company Accounting Oversight Board ( PCAOB) is
responsible for inspecting that portion of the firm's accounting and auditing practice in
AsEMNER OF accordance with PCAOB requirements. A system of quality control encompasses the firm's
organizational structure and the policies adopted and procedures established to provide it
T€ IE with reasonable assurance of complying with professional standards. The elements of qu
control are described in the Statements on Quality Control Standards issued by the American
MAJLAC1rI V Institute of Certified Public Accountants (the AICPA). Th design of the system, and
compliance with it, are the responsibilities of the firm. Our responsibility is to express an
N opinion on the design of the system, and the firm's compliance with that system based on our
review.
Our review was conducted in accordance with standards established by the Peer Review
Committee of the Center for Public Company Audit Firms and included procedures to plan
and perform the review that are summarized in the attached description of the peer review
process. Our review would not necessarily disclose all weaknesses in the system of quality
control or all instances of lack of compliance with it since it was based on selective tests.
Because there are inherent limitations in the effectiveness of any system of quality control,
departures from the system may occur and not be detected. Also, projection of any
evaluation of a system of quality control to future periods is subject to the risk that the
system of quality control may become inadequate because of changes in conditions, or that
the degree of compliance with the policies or procedures may deteriorate..
In our opinion, the system of quality control for the accounting and auditing practice
applicable to the non -SEC issuers of Weaver and Tidwell, LLP in. effect for the year ended
May 31, 2004, has been designed to meet the requirements of the quality control standards
for an accounting and auditing practice established by the AICPA, and was complied with
during the year then ended to provide the firm with reasonable assurance of complying with
applicable professional standards.
Spokane, Washington
September 15, 2004
NAMED 2001 FIRM OF THE YEAR BY THE WASHINGTON SOCIETY OF CERTIFIED PUBLIC ACCOUNTANTS
Attachment to the Peer Review Report of Weaver and Tidwell, LLP
Description of the Peer Review Process
Overview
Firms enrolled in the AICPA Center for Public Company Audit Firms (the Center) Peer Review
Program have their system of quality control periodically reviewed by independent peers, These
reviews are system and compliance oriented with the objectives of evaluating whether;
The reviewed firm's system of quality control for its accounting and auditing practice applicable
to non -SEC issuers has been designed to meet the requirements of the Quality Control Standards
established by the AICPA.
The reviewed firm's quality control policies and procedures applicable to non -SEC issuers were
being complied with to provide the firm with reasonable assurance of complying with
professional standards.
A peer review is based on selective tests and directed at assessing whether the design of and compliance
with the firm's system of quality control for its accounting and auditing practice applicable to non -SEC
issuers provides the firm with reasonable, not absolute, assurance of complying with professional
standards. Consequently a peer review on the firm's system of quality control is not intended to, and
does not, provide assurance with respect to any individual engagement conducted by the firm or that
none of the financial statements audited by the firm should be restated.
The Center's Peer Review Committee (PRC) establishes and maintains peer review standards. At
regular meetings and through report evaluation task farces, the PRC considers each peer review,
evaluates the reviewer's competence and performance, and examines every report, letter of comments,
and accompanying response from the reviewed firm that states its corrective action plan before the peer
review is finalized, The Center's staff plays a key role in overseeing the performance of peer reviews
working closely with the peer review teams and the PRC.
Once the PRC accepts the peer review reports, letters of comments, and reviewed firms' responses, these
documents are maintained in a file available to the public. In some situations, the public file also
includes a signed undertaking by the firm agreeing to specific follow -up action requested by the PRC.
Firms that perform_ audits or play a substantial role in the audit of one or more SEC issuers, as defined
by the Public Company Accounting Oversight Board (PCAOB), are required to be registered with and
have their accounting and auditing practice applicable to SEC issuers inspected by the PCAOB.
Therefore, we did not review the firm's accounting and auditing practice applicable to SEC issuers.
Page 2
Planning the Review for the Firm's Accounting and Auditing Practice Applicable to Non -SEC
Issuers
To plan the review of Weaver and Tidwell, LLP, we obtained an understanding of (1) the nature and
extent of the firm's accounting and auditing practice, and (2) the design of the firm's system of duality
control sufficient to assess the inherent and control risks implicit in its practice, Inherent risks were
assessed by obtaining an understanding of the firm's practice, such as the industries of its clients and
other factors of complexity in serving those clients, and the organization of the fmn's personnel into
practice units. Control risks were assessed by obtaining an understanding of the design of the firm's
system of quality control, including its audit methodology, and monitoring procedures. Assessing
control risk is the process of evaluating the effectiveness of the reviewed firm's system of quality
control in preventing the performance of engagements that do not comply with professional standards,.
Performing the Review for the Firm's Accounting and Auditing Practice Applicable to Non -SEC
Issuers
Based on our assessment of the combined level of inherent and control risks, we identified practice units
and selected engagements within those units to test for compliance with the firm's system of quality
control, The engagements selected for review included engagements performed under the Gover - 77711ent
Auditing Standards and audits of Employee Benefit Plans. The engagements selected for review
represented a cross - section of the firm's accounting and auditing practice with emphasis on higher -risk
engagements. The engagement reviews included examining working paper files and reports and
interviewing engagement persommel.
The scope of the peer review also included examining selected administrative and personnel files to
determine compliance with the firm's policies and procedures for the elements of quality control
pertaining to independence, integrity, and objectivity, personnel management; and acceptance and
continuance of clients and engagements. Prior to concluding the review, we reassessed the adequacy of
scope and conducted a meeting with firm management to discuss our findings a - ad recommendations.