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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. r)ALLA6 l6rrr F""'I s'r,�rl• r.fWrt 97 2 ' 42f) 1 9 ,7 ( ) FORT W9F'ITH 1600 W ?"Va Semen h Sirrel S"' " J00 Farr Word" 'Jeear /002-2 817.33.2.7.90 I' a 17. rj29,5 ,V6 WWW.WEAVERAr60TI DWELL.COM 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: