Item 4FCITY 1 OF
SOU 1 1 LAKE
MEMORANDUM
September 29, 2010
To: Shana Yelverton, City Manager
From: Sharen Jackson, Finance Director
Subject: Approve 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 $110,000 which is same
amount as the prior year.
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- standard agreement.
Alternatives: None
Supporting
Documents: Professional Service Agreement
Staff
Recommendation: Approve professional services contract with Weaver and
Tidwell L.L.P.
weaver}
September 13, 2010
Ms. Sharen Jackson
Director of Finance
City of Southlake
1400 Main Street
Southlake, TX 76092
Dear Ms. Jackson:
We are pleased to confirm our understanding of the services we are to provide the City of
Southlake for the year ended September 30, 2010. 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 as of and for the year ended September 30, 2010. Accounting standards
generally accepted in the United States provide for certain required supplementary information
(RSI), such as management's discussion and analysis (MD &A), to supplement the City of
Southlake's basic financial statements. Such information, although not a part of the basic
financial statements, is required by the Governmental Accounting Standards Board 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 City of Southlake's RSI in accordance with auditing
standards generally accepted in the United States of America. These limited procedures will
consist of inquiries of management regarding the methods of preparing the information and
comparing the information for consistency with management's responses to our inquiries, the
basic financial statements, and other knowledge we obtained during our audit of the basic
financial statements. We will not express an opinion or provide any assurance on the information
because the limited procedures do not provide us with sufficient evidence to express an opinion
or provide any assurance. The following RSI is required by generally accepted accounting
principles and will be subjected to certain limited procedures, but will not be audited:
1) Management's Discussion and Analysis.
2) Budgetary Comparison Schedules.
3) Condition Rating of Street System.
Supplementary information other than RSI also accompanies the City of Southlake's financial
statements.
AN INDEPENDENT WEAVER AND TIDWELL LLP DALLAS
MEMBER OF BAKER TILLY CERTIFIED PUBLIC ACCOUNTANTS AND CONSULTANTS 12221 MERIT DRIVE, SUITE 1400, DALLAS, TX 75251
INTERNATIONAL WWW.WEAVERLLP.COM P: (972) 490 1970 H972) 702 8321
City of Southlake
September 13, 2010
Page 2
We will subject the following supplementary information to the auditing procedures applied in
our audit of the financial statements and certain additional procedures, including comparing and
reconciling such information directly to the underlying accounting and other records used to
prepare the financial statements or to the financial statements themselves, and other additional
procedures in accordance with auditing standards generally accepted in the United States of
America and will provide an opinion on it in relation to the financial statements as a whole:
1) Combining and individual fund financial statements and schedules.
2) Schedules of capital assets used in the operation of governmental funds.
The following other information accompanying the financial statements will not be subjected to
the auditing procedures applied in our audit of the financial statements, and for which our
auditor's report will not provide an opinion or any assurance.
1) Introductory section.
2) Statistical section.
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 respects, in conformity with U.S. generally
accepted accounting principles and to report on the fairness of the supplementary information
referred to in the second paragraph when considered in relation to the financial statements as a
whole. Our audit will be conducted in accordance with auditing standards generally accepted in
the United States of America 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 and other procedures we consider
necessary to enable us to express such opinions. If our opinions on the financial statements are
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 opinions, we may
decline to express opinions 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.
City of Southlake
September 13, 2010
Page 3
The report on internal control and compliance will include a statement that the report is intended
solely for the information and use of management, the body or individuals charged with
governance, others within the entity, and specific legislative or regulatory bodies and is not
intended to be and should not be used by anyone other than these specified parties, If during our
audit we become aware that the City of Southlake is subject to an audit requirement that is not
encompassed in the terms of this engagement, we will communicate to management and those
charged with governance that an audit in accordance with U.S. generally accepted auditing
standards and the standards for financial audits contained in Government Auditing Standards
may not satisfy the relevant legal, regulatory, or contractual requirements.
Management Responsibilities
Management is responsible for the basic financial statements and all accompanying information
as well as all representations contained therein. As part of the audit, we will assist with
preparation of your financial statements and related notes. You are responsible for making all
management decisions and performing all management functions relating to the financial
statements and related notes and for accepting full responsibility for such decisions. You will be
required to acknowledge in the management representation letter our assistance with preparation
of the financial statements and that you have reviewed and approved the financial statements and
related notes prior to their issuance and have accepted responsibility for them. Further, you are
required to designate an individual with suitable skill, knowledge, or experience to oversee any
nonaudit services we provide and for evaluating the adequacy and results of those services and
accepting responsibility for them.
Management is responsible for establishing and maintaining effective internal controls, including
monitoring ongoing activities, to help ensure that appropriate goals and objectives are met; for
the selection and application of accounting principles; and for the fair presentation in the
financial statements of the respective financial position of the governmental activities, the
business -type activities, each major fund, and the aggregate remaining fund information of the
City of Southlake and the respective changes in financial position and cash flows, where
applicable, in conformity with U.S. generally accepted accounting principles.
Management is also responsible for making all financial records and related information
available to us and for ensuring that management and financial information is reliable and
properly recorded. Your responsibilities include 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.
City of Southlake
September 13, 2010
Page 4
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 (1) management, (2) employees who have significant roles in internal control, and (3)
others where the fraud or illegal acts could have a material effect on the financial statements.
Your responsibilities include 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, regulations, contracts, agreements, and
grants for taking timely and appropriate steps to remedy any fraud, illegal acts, violations of
contracts or grant agreements, or abuse that we may report. You are responsible for the
preparation of the supplementary information in conformity with U.S. generally accepted
accounting principles. You agree to include our report on the supplementary information in any
document that contains and indicates that we have reported on the supplementary information.
You also agree to present the supplementary information with the audited financial statements no
later than the date the supplementary information is issued with our report thereon.
Management is responsible for establishing and maintaining a process for tracking the status of
audit findings and recommendations. Management is also responsible for identifying for us
previous financial audits, attestation engagements, performance audits or other studies related to
the objectives discussed in the Audit Objectives section of this letter. This responsibility includes
relaying to us corrective actions taken to address significant findings and recommendations
resulting from those audits, attestation engagements, performance audits, or other studies. You
are also responsible for providing management's views on our current findings, conclusions, and
recommendations, as well as your planned corrective actions, for the report, and for the timing
and format for providing that information.
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 (1) errors, (2) fraudulent financial reporting, (3)
misappropriation of assets, or (4) 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 the determination of abuse is subjective, Government Auditing Standards do not expect
auditors to provide reasonable assurance of detecting abuse.
City of Southlake
September 13, 2010
Page 5
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 and any fraudulent financial reporting or misappropriation of assets that come 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 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, funding sources, 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 require certain written
representations from you about the financial statements and related matters.
Audit Procedures — Internal Controls
Our audit will include obtaining an understanding of the entity and its environment, including
internal control, sufficient to assess the risks of material misstatement of the financial statements
and to design the nature, timing, and extent of further audit procedures. 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. 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 significant
deficiencies. However, during the audit, we will communicate to management and those charged
with governance internal control related matters that are required to be communicated under
AICPA professional standards and Government Auditing Standards.
City of Southlake
September 13, 2010
Page 6
Audit Procedures — Compliance
As part of obtaining reasonable assurance about whether the financial statements are free of
material misstatement, we will perform tests of the City of Southlake's compliance with the
provisions of applicable laws, regulations, contracts, agreements, and grants. 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 our report on compliance issued pursuant to Government Auditing
Standards.
Engagement Administration, Fees, and Other
We understand that your employees will prepare all cash or other confirmations we request and
will locate any documents selected by us for testing.
During the course of our engagement, we will request information and explanations from
management regarding the City of Southlake'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 of Southlake 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. Thus, the City of Southlake agrees that we will
not be liable for any damages or otherwise responsible for any misstatements in the City of
Southlake's financial statements that we may fail to detect as a result of false or misleading
representations that are made to us by management. Moreover, the City of Southlake agrees to
indemnify and hold us harmless from any claims and liabilities, including reasonable attorneys'
fees, expert fees and costs of investigation and defense, arising out of or related to this
engagement if false or misleading representations are made to us by any member of the City of
Southlake's management.
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.
City of Southlake
September 13, 2010
Page 7
Mediation is not a pre - condition to the arbitration provided for below and the failure or refusal by
either party to request or participate in mediation shall not preclude the right of either parry to
initiate arbitration. We agree to conduct the mediation in Dallas, Texas, or another mutually agreed
upon location.
Both of us agree that any dispute arising from the engagement, this agreement or the breach of it
shall be subject to binding arbitration under the provisions of the Federal Arbitration Act (9 U.S.C. §
1, of seq.) and of the Dispute Resolution Rules for Professional Accounting and Related Services
Disputes of the AAA (the Rules), 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 the Rules. The parties agree to conduct the arbitration in
Dallas, Texas, or another mutually agreed upon location. The arbitrator may only award direct
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 attorneys'
and expert witness fees, court costs, and the administrative costs, arbitrator's fees, and expenses of
the AAA incurred in the arbitration or litigation in addition to any other relief that may be awarded.
Notwithstanding the provisions of the immediately preceding paragraph, neither of us shall be
compelled to arbitrate any dispute between us which arises out of 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.
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 arbitrator(s) or Court, as the case may be, 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.
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.
City of Southlake
September 13, 2010
Page 8
We will provide copies of our reports to the City of Southlake; however, management is
responsible for distribution of the reports and the financial statements. Unless restricted by law
or regulation, or containing privileged and confidential information, copies of our reports are to
be made available for public inspection.
The audit documentation for this engagement is the property of Weaver and Tidwell, L.L.P. and
constitutes confidential information. However, pursuant to authority given by law or regulation,
we may be requested to make certain audit documentation available to a federal agency
providing direct or indirect funding, or the U.S. Government Accountability 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 audit 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 or information contained therein to
others, including other governmental agencies.
The audit documentation for this engagement will be retained for a minimum of seven years after
the report release date or for any additional period requested by the City. If we are aware that a
federal awarding agency or auditee is contesting an audit finding, we will contact the party(ies)
contesting the audit finding for guidance prior to destroying the audit documentation.
Mr, Shawn Parker is the engagement partner and is responsible for supervising the engagement and
signing the report on behalf of Weaver and Tidwell, L.L.P.
Our fee for these services will be at our standard hourly rates plus direct expenses. We estimate
that our gross fee, including expenses, will range between $100,000 and $110,000. 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. In accordance with our firm policies, work may
be suspended if your account becomes 60 days or more overdue and may not be resumed until
your account is paid in full. If we elect to terminate our services for nonpayment, our
engagement will be deemed to have been completed upon written notification of termination,
even if we have not completed our report. You will be obligated to compensate us for all time
expended and to reimburse us for all out -of- pocket costs through the date of termination. 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.
City of Southlake
September 13, 2010
Page 4
Government Auditing Standards require that we provide you with a copy of our most recent
external peer review report and any letter of comment, and any subsequent peer review reports
and letters of comment received during the period of the contract. Our 2007 peer review
accompanies this letter.
If you intend to publish or otherwise reproduce the financial statements and make reference to
our firm name, you agree to provide us with a copy of the final reproduced material for our
approval before it is distributed.
We appreciate the opportunity to be of service to the City of Southlake 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.
Yours truly,
WEAVER AND TIDWELL L.L.P.
SMP:res
RESPONSE:
This letter correctly sets forth the understanding of the City of Southlake
Officer signature
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