Item 5Fl_Jty UL 3UUL111dKC, ICAUS
MEMORANDUM
February 28, 2006
TO Shana Yelverton, City Manager
FROM: Sharen Jackson, Finance Director
SUBJECT: Authorize the City Manager to enter into 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.
Financial
Considerations: The total amount is not to exceed $65,000.
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.
5 �r MX.1i
Audit Objectives
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The objective of our audit is the expression of an opinion as to whether the financial
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October 14, 2005
WEAVE
accepted accounting principles and to report on the fairness of the additional information
TIDWELL
referred to in the first paragraph when considered in relation to the financial statements
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taken as a whole. Our audit will be conducted in accordance with U.S. generally accepted
To the Honorable Mayor and
CERTIF'EO PU13L €C
Members of the City Council
AU L"NTANTS
AND CONSULTANTS
City f Southlake
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817A32 7905
1400 Main Street
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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, 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, 2005. 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 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 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:
Introductory section
Statistical section
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Audit Objectives
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The objective of our audit is the expression of an opinion as to whether the financial
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statements are fairly presented, in all material respects, in conformity with U.S, generally
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accepted accounting principles and to report on the fairness of the additional information
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referred to in the first paragraph when considered in relation to the financial statements
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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 Govemment Auditing
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Standards, issued by the Comptroller General of the United States; and will include tests of
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the accounting records of the City of Southlake, Texas and other procedures we consider
817A32 7905
necessary to express such an opinion. If our opinion on the financial statements is other
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than unqualified, we will fully discuss the reasons with you in advance.. If, for any reason, we
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are unable to complete the audit or are unable to form or have not formed an opinion, we
AN N,UEPL=NUI;NS MEMBER OF
may decline to express an opinion or to issue a report as a result of this engagement.
RAKER T }LLY
N€trANATIDNAL
CITY OF 5OUTHtAK1 , TEXAS
October 14, 2005
Page 2
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 generally accepted
accounting principles.
The management of the City of Southlake, 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
compieteiness 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
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 ris about all known or suspected fraud or
illegal acts affecting the City of Southlake, 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 Southlake, 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 SOUTHLAKE, TEXAS
October '14, 2005
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. Further, 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,
Government 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 SOUTHLAKE, TEXAS
October 14, 2005
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
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 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 ( "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
CITY OF SOUTHLAKE, TEXAS
October 14, 2005
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 either 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 $65,000.
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 SOUTHLAKE, TEXAS
October 14, 2005
Page 6
Very truly yours,
L)).f,� 4 ,,/ 7-44�. L-. L � R. -
WEAVER AND TIDWELL, L.L.P.
RESPONSE:
This letter correctly sets forth the understanding of the City of Southlake, Texas
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Title: pate:
t ONSLIITIN6
We have reviewed the system of'quality control for the accounting and auditing practice of
Weaver and Tidwell, LLP (the firin) 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 us since the Public Company Accounting Oversight Board (PCAOB) is
responsible for inspecting that portion of the firin's accounting and auditing practice in
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
rlEl: with reasonable assurance of complying with professional standards. The elements of quality
control are described in the Statements on Quality Control Standards issued by the American
�s la,�i w;lil Institute of Certified Public Accountants (the ATCPA). The design of the system, and
compliance with it, are the responsibilities of the firm- Our responsibility is to express an
opinion on Ilia design of the system, and the firm's compliance with that system based on our
review.
Our ieview 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 duality
control or all instances of lacy of compliance with it since it was based on selective tests
Because there are inherent limitations in the effectiveness of any systern 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 AI.CPA, and was complied with
during the year then ended to provide the firm with reasonable assurance of complying with
applicable professional standards,
Spoltane, Washington
September 15, 2004
NAMU) 2001 FIRM or rr°rE YEAR BY Ti IE WASHINGTON SOCIE 71 Y of crii nro PUBLIC ACCt)UN'TANTS
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DANIELS PLI.0
ACCOUNTING
To the Partners of
Weaver and Tidwell, LLP
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and the Center for Public Company Audit Firms Peer Review Committee
t ONSLIITIN6
We have reviewed the system of'quality control for the accounting and auditing practice of
Weaver and Tidwell, LLP (the firin) 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 us since the Public Company Accounting Oversight Board (PCAOB) is
responsible for inspecting that portion of the firin's accounting and auditing practice in
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
rlEl: with reasonable assurance of complying with professional standards. The elements of quality
control are described in the Statements on Quality Control Standards issued by the American
�s la,�i w;lil Institute of Certified Public Accountants (the ATCPA). The design of the system, and
compliance with it, are the responsibilities of the firm- Our responsibility is to express an
opinion on Ilia design of the system, and the firm's compliance with that system based on our
review.
Our ieview 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 duality
control or all instances of lacy of compliance with it since it was based on selective tests
Because there are inherent limitations in the effectiveness of any systern 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 AI.CPA, and was complied with
during the year then ended to provide the firm with reasonable assurance of complying with
applicable professional standards,
Spoltane, Washington
September 15, 2004
NAMU) 2001 FIRM or rr°rE YEAR BY Ti IE WASHINGTON SOCIE 71 Y of crii nro PUBLIC ACCt)UN'TANTS