Item 4J4.Ity Ui ouatuiawc, Icaaa
MEMORANDUM
January 10, 2007
177
FROM:
SUBJECT
Shana Yelverton, City Manager
Sharen Jackson, Finance Director
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 inten7al 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 $68,000.
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
TIDWELL
L.L.P.
To the Honorable Mayor and
Members of the City Councli
C50T IFIED PUBL
City of Southlake
COUNANTS
AC cOUN T ANTS
AND CONSULTANTS
4400 Main Street
Southlake, Texas 75092
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, 2005. We will audit the financial
statements of the governmental activities, the business -type activities, the aggregate
discretely presented component units, each major fund, and the aggregate remaining
fund information, which collectively comprise the basic financial statements of City of
Southlake, Texas as of and for the year ended September 30, 2008. Also, the document
we submit to you will include the Following additional information that will be subjected to
the auditing procedures applied in our audit of the basic financial statements:
Combining and individual fund financial statements and schedules.
The document will also include the "lowing required supplementary information on
which we will apply limited procedures in accordance with auditing standards generally
accepted in the United States of America:
I_ Management's discussion and analysis.
2. Budgetary comparison schedules.
3. Condition Dating of Street System
The document will also include the following additional information that will not be subject
to the auditing procedures applied in our audit of the financial statements, and for which
our auditor's report will disclaim an opinion
1. Introductory section.
2. Statistical section.
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Audit Objectives
The objective of our audit is the expression of an opinion as to whether the financial
statements are fairly presented, in all material respects, in conformity with U.S. generally
accepted accounting principles and to report an 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 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.
AN INDEPENDENT MEMBER OF
BAKFR TILLY
INTERNATIONAL
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 intemal 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 generally accepted
accounting principles.
The management of the City of 5outhlake, Texas 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 assist 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
eepresentation 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 or
illegal acts affecting the City of 5outhlake, Texas involving (a) management, (b)
employees who have significant roles in internal control, and (c) others where the fraud or
illegal acts 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, or illegal acts affecting the City of 5outhlake, Texas 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 and fraud, illegal acts,
violations of contracts or grant agreements, or abuse that we may report.
CITY OF SOUTHIAKE, TEXAS
September 13, 2006
Page 3
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. f=urther, you are required to designate a qualified management -level individual
to be responsible and accountable for overseeing our services.
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 from 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 the determination of abuse is subjective,
Govemment Auditing Standards do not expect auditors to provide reasonable assurance
of detecting abuse. 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 government 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'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 SOUTHIAKE, TEXAS
September 13, 2006
Page 4
Audit Procedures - Internal Controls
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 an opinion on City'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
GovemmentAudifing 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 confirmations and other schedules
we request and will locate any invoices selected by us for testing.
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 CAAA ") 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 lifigation shall be entitled to recover from
CITY OF SOUTHLAKE, TEXAS
September 13, 2006
Page 5
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 eiffier of us by a third party unless the third party (whether one or
more) agrees to join the arbitration or can be compelled to join it
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
except that we agree that our gross fee, including expenses, will not exceed $68,000.
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.
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
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 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.
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.
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.
CITY OF SOUTHIAKE, TEXAS
September 13, 2006
Page 6
Very truly yours,
WEAVER AND TTDWELL, LLP.
RESPONSE:
This letter correctly sets forth the understanding of the City of Southlake, Texas.
By:
Title: Date: