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HomeMy WebLinkAbout5.F.3. Auditor's Proposal for 2011 Audit Process _ _ . _ i � �� . I � CITY OF SHAKOPEE � I i Memorandum ,� �,, � � �,, �,, A ,�,,, ��. �.� i� �� � � �, �.�. .� ,� ,,� �' +� I �,:: . .. _ �n I TO: Mayor and City Council I Mark McNeill, City Administrator � I FROM: Julie A. Linnihan, Finance Director SUBJECT: Auditor's Proposal for 2011 Audit Process � � DATE: October 17, 2011 I INTRODUCTION: � Annually, the City of Shakopee initiates the process for audit compliance and report preparation. This audit service and engagement letter is presented to the City Council for � i approval, prior to starting the annual audit process. I BACKGROUND: The City of Shakopee has retained the firm of Kern, DeWenter, Viere, Ltd. (KDV) far the annual audit process, the Single Audit process and other required reporting compliance issues since the 1990's. This consistency has provided the City and the Finance staff with the professional I I support that has resulted in the award of the Government Finance Officers Association (GFOA) i reporting designation, the Certificate of Achievement, for the past two decades. The staff from KDV has also been instrumental in the establishment of criteria and procedures for � implementation of updated and enhanced reporting criteria. The attached proposal for the 2011 audit is for $39,200, in comparison to the previous years' i audit costs of 38,500, or an increase of $700 (1.8 %). The previous year audit contained no increase. The budget for 2011 auditing was 39,300. � In the event that a Single Audit would be required, (receipt of federal funds in excess of the cap � established by the Office of Management and Budget (OMB), the budget also provides for $3,100 for this specific use. ' RECOMMENDATION: I Approval of the firm of Kern DeWenter, Viere, Ltd. for the 2011 audit process, which will I initiate in late 2011, proceeding into the first half of 2012. RECOMMENDED ACTION: i Move to approve the engagement of Kern DeWenter and Viere, as auditors for the fiscal year 2011 audit, at the proposed amount of $39,200, with additional funds as budgeted for a Single I Audit process, if needed, as mandated by use and receipt of federal funds. II � � � - -- - , � Expert advice. When you need it. � October 17, 2011 To the Honorable Mayor and City Council c/o Julie Linnihan, Finance Director City of Shakopee , 129 Holmes Street South Shakopee, MN 55379 ; I i Dear Ms. Linnihan: � i i i We are pleased to confirm our understanding of the services we are to provide the City of City of � j Shakopee, Minnesota, (the "City") year ended December 31, 2011. We will audit the financial I j statements of the governmental activities, the business-type activities, the aggregate discretely � � presented component units, each major fund, and the aggregate remaining fund information, i which collectively comprise the basic financial statements, of the Authority as of and for the year i ' ended December 31, 2011. U.S. generally accepted accounting standards provide for certain required supplementary information (RSI), such as Management's Discussion and Analysis � � (MD&A), to accompany the Authority's basic financial statements. As part of our engagement, I we will apply certain limited procedures to the Authority's RSI. These limited procedures will � j consist principally of inquiries of management regarding the methods of ineasurement and I presentation, which management is responsible for affirming to us in its representation letter. � � Unless we encounter problems with the presentation of the RSI or with procedures relating to it, i i we will disclaim an opinion on it. The following RSI is required by U.S. generally accepted accounting principles and will be subjected to certain limited procedures, but will not be audited: � I � 1. Management's Discussion and Analysis. i Su lement information other than RSI also accom anies the Authorit 's a' I � pp �'y p y b sic financial I statements. We will sub�ect the foilowing supplementary mformation to the auditing procedures � applied in our audit of the basic financial statements and will provide an opinion on it in relation � to the basic financial statements: � 1. Schedule of Expenditures of Federal Awards � 2. Combining and Individual Fund Financial Statements � 3. Supplemental Schedules i I ' The following additional information accompanying the basic financial statements will not be j subjected 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 of the Comprehensive Annual Financial Report I � 2. Statistical Section of the Comprehensive Annual Financzal Report i i i __ _ , I f Audit Objectives The objective of our audit is the expression of opinions as to whether your basic financial i statements are fairly presented, in all material respects, in conformity with U.S. generally accepted accountmg principles and to report on the fairness of the additional information referred � . to in the first paragraph when considered in relation to the basic financial statements taken as a , whole. The objective also includes reporting on: • Internal control related to financial statements and compliance with laws, regulations, and i the provisions of contracts or grant agreements, noncompliance with which could have a � material effect on financial statements in accardance with Government Auditing i Standards. ' I • Internal control related to major programs and an opinion (or disclaimer of opinion) on � compliance with laws, regulations, and the provisions of contracts or grant agreements � that could have a direct and material effect on each major program in accordance with the Single Audit Act Amendments of 1996 and OMB Circular A-133, Audits of States, Local i j Governments and Nonprofit Organizations. i � � The reports on internal control and compliance will each include a statement that the report is � i intended solely for the information and use of management, the body or individuals charged with � I overnance others within the entit s ecific le islative or re ulator bodies federal awardin � g � Y� P g� g Y , g � agencies, and if applicable, pass-through entities and is not intended to be and should not be used � i by anyone other than these specified parties. I i Our audit will be conducted in accordance with U.S. generally accepted auditing standards; the i standards for financial audits contained in Government Auditing Standards, issued by the ! ! Comptroller General of the United States; the Single Audit Act Amendments of 1996; and the � i provisions of OMB Circular A-133, and will include tests of accounting records, a determination i � of major program(s) in accordance with OMB Circular A-133, and other procedures we consider � � necessary to enable us to express such opinions and to render the required reparts. If our � opinions on the financial statements or the Single Audit compliance opinions are other than i unqualified, we will fully discuss the reasons with you in advance. If, for any reason, we are i � unable to complete the audit or are unable to form or have not formed opinions, we may decline � j to express opinions or to issue a report as a result of this engagement. � Management Responsibilities � � Management is responsible for the basic financial statements and all accompanying information � ' as well as aIl representations contained therein. Management is also responsible for preparation � � of the schedule of expenditures of federal awards in accordance with the requirements of OMB � � Circular A-133. As part of the audit, we will assist with preparation of your financial statements, � � schedule of expenditures of federal awards, and related notes. You are responsible for making � all management decisions and performing all management functions relating to the financial ' ' statements, schedule of expenditures of federal awards, and related notes and for accepting full � � responsibility for such decisions. You will be required to acknowledge in the management I ' representation letter that you have reviewed and approved the financial statements, schedule of I � expenditures of federal awards, and related notes prior to their issuance and have accepted i 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 I � adequacy and results of those services and accepting responsibility for them. � � � I 2 I i --- - ------- --- -- - - - --------------� � , � � � I Management is responsible for establishing and maintaining internal contxols, including internal controls over compliance and for monitoring ongoing activities, to help ensure that appropriatc � goals and objectives are met. You are also responsible for the selection and application of I accounting principals; for the fair presentation in the financial statements of the respective financial position of the governmental activities, the business-type activities, the aggregate � discretely presented component units, each major fund, and the aggregate remaining fund � information of the Authority and the respective changes in financial position and, where applicable, cash flows in conformity with U.S. generally accepted accounting principles; and for federal award program compliance with applicable laws and regulations and the provisions of I contracts and grant agreements. Management is also responsible for making all financial records and related information � available to us, including identifying significant vendor relationships in which the vendor has the I responsibility for program compliance and for the accuracy and completeness of that information. 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 I 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 I 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 far identifying � and ensuring that the entity complies with applicable laws, regulations, contracts, agreements � and grants. Additionally, as required by OMB Circular A-133, it is management's responsibility ' to follow up and take corrective action on reported audit findings and to prepare a summary schedule of prior audit findings and a corrective action plan. The summary schedule of prior , audit findings should be available for our review at fieldwark. � Management is responsible for establishing and maintaining a process for tracking the status of I audit findings and recommendations. Management is also responsible for identifying for us I previous financial audits, attestation engagements, performance audits, or other studies related to � I the objectives discussed in the Audit Objectives section of this letter. This responsibility includes reiaying to us corrective actions taken to address significant findings and � recommendations resulting froxn those audits or other engagements or studies. You are also responsible for providing management's views on our current findings, conclusions and I recommendations, as well as your planned corrective actions for the report and for the timing and � format for providing that information. I � I Audit Procedures — General i 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 I 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. i 3 ' I __ ___ _ - _ _ _ . i I I Because the determination of abuse is subjective, Government Auditing Standards do not expect I 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 or noncompliance 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 or major programs. 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. We will include such matters in the reports required for a Single Audit. Our responsibility as auditors is limited to the period covered by our audit and does not extend to any later periods for which we are not engaged as auditors. I 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 i e resentations from ur attorne as art t e wr tten r p yo ys p of h engagement, and they may bill you for ! responding to this inquiry. At the conclusion of our audit, we will also require certain written I representations from you about the financial statements and related matters. I � Audit Procedures — Internal Controls � Our audit will include obtaining an understanding of the entity and its environment, inciuding i internal control, sufficient to assess the risks of material misstatement of the f nancial 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 i detectin errors and fraud that are material to the financial statements and to reventin g p g 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 I scope than would be necessary to render an opinion on internal control and, accordingly, no I ! opinion will be expressed in our report on internal control issued pursuant to Gove�nment i � Auditing Standards. As required by OMB Circular A-133, we will perform tests of controls over compliance to I evaluate the effectiveness of the design and operation of controls that we consider relevant to I preventing or detecting material noncompliance with compliance requirements applicable to each � � major federal award program. However, our tests will be less in scope than would be necessary to render an opinion on those controls and, accordingly, no opinion will be expressed in our � report on intemal control issued pursuant to OMB Circular A-133. � I 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 i professional standards, Government Auditing Standards and OMB Circular A-133. i i 1' � j � j � I � 4 � � , i I I �I Audit Procedures — Compliance As part of obtaining reasonable assurance about whether the financiai statements are free of material misstatement, we will perform tests of the Authority's compliance with applicable laws and regulations and the provisions af contracts and agreements, including grant agreements. However, the ob'ective of those rocedures will not be to rovide an o inion on overall J P P P compliance and we will not express such an opinion in our report on compliance issued pursuant to Government Auditin Standards. g OMB Circular A-133 requires that we also plan and perform the audit to obtain reasonable assurance about whether the auditee has complied with applicable laws and regulations and the provisions of contracts and grant agreements applicable to major programs. Our procedures will consist of test of transactions and other applicable procedures described in the OMB CiYCUIar A- i 133 Compliance Supplement for the types of compliance requirements that could have a direct � and material effect on each of the Authority's major programs. The purpose of those procedures , � will be to express an opinion on the Authority's compliance with requirements applicable to each ; of its major programs in our report on compliance issued pursuant to OMB Circular A-133. , � Engagement Administration, Fees and Other We may from time to time, and depending on the circumstances, use third-party service � ; providers in serving your account. We may share confidential information about you with these i service providers, but remain committed to maintaining the confidentiality and security of your i information. Accordingly, we maintain internal policies, procedures and safeguards to protect � the confidentialit of our ersonal information. In addition we will se cure confidenti it y y p , al Y agreements with all service providers to maintain the confidentiality of your information and we I will take reasonable precautions to determine that they have appropriate procedures in place to � re ent t e unauthorized relea e f u � p v h s o yo r confidentiai information to others. In the event that we � are unable to secure an appropriate confidentiality agreement, you will be asked to provide your ' consent prior to the sharing of your confidential information with the third-party service j provider. Furthermore, we will remain responsible for the work provided by any such third-party I , service providers. j I We understand that your employees will prepare all cash, accounts receivable, or other confirmations we request and will locate any documents selected by us for testing. � I At the conclusion of the engagement, we will complete the appropriate sections of and sign the � Data Collection Form that summarizes our audit fndings. We will provide copies of our reports � to the Authority; however, it is mana ement's res onsibilit to submit the re ortin acka e g P Y P gP g (including financial statements, schedule of expenditures of federal awards, summary schedule � , of prior audit findings, auditor's reports and a corrective action plan) along with the Data I j Collection Form to the designated federal clearinghouse and, if appropriate, to pass-through I � entities. The Data Collection Form and the reporting package must be submitted within the i earlier of 30 days after receipt of the auditor's reports or nine months after the end of the audit � ' period, unless a longer period is agreed to in advance by the cognizant or oversight agency for � audits. � I I � � I 5 � �______ _ _ _ _ _ _______ _ _ _ _ _ _ . i I I i � The audit documentation for this engagement is the property of Kern, DeVVenter, Viere, Ltd. and � constitutes confidential information. However, pursuant to authority given by law or regulation, ! we may be requested to make certain audit documentation available to oversight, regulatory or � state agencies, or their designee, 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 I requested, access to such audit documentation will be provided under the supervision of Kern, i DeWenter, Viere, Ltd's personnel. Furthermore, upon request, we may provide copies of � j selected audit documentation to the a£orementioned parties. These parties may intend or decide, � to distribute the copies or information contained therein to others, including other governmental � i agencies. I � The audit documentation for this engagement will be retained for a minimum of five years after ' � the report release or for any additional period requested by the oversight, regulatory or state ' agencies. If we are aware that a federal awarding agency, pass-through entity or auditee is I contesting an audit finding, we will contact the party (ies) contesting the audit finding for � guidance prior to destroying the audit documentation. i If you intend to publish or otherwise reproduce the financial statements and make reference to � our Firm name, you agree to provide us with printers' proofs or masters for our review and i approval before printing. You also agree to provide us with a copy of the final reproduced I material for our approval before it is distributed. Additionally, if you include our report or a j reference to our Firm name in an electronic format ou a ree to rovide the com lete electr i ,y g p p onc communication using or referring to our name to us for our review and approval prior to � distribution. 1 i � ! During the course of our engagement, we will request information, and explanations from � i management regarding the Authority's operations, internal controls, future plans, specific i , 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 i representations in a written representation letter. The procedures we will perform in our i ' engagement and the conclusions we reach as a basis for our report will be heavily influenced by i � the written and oral representations that we receive from management. Accordingly, false representations could cause us to expend unnecessary efforts or could cause a material error or a ' fraud to go undetected by our procedures. In view of the foregoing, you agree that we shall not ! be responsible for any misstatements in the City's financial statements that we may fail to detect I as a result of false or misleading representations that are made to us by management. I I In addition, the City further agrees to indemnify and hold us harmless for any liability and all i reasonable costs, including legal fees that we may incur as a result of the services performed under this engagement in the event there are false or misleading representations made to us by any member of the City's management, except to the extent such liability or costs are determined � to have resulted from the intentional or deliberate misconduct of Kern, DeWenter, Viere, Ltd. I personnel. I Steven Wischmann is the engagement partner and is responsible for supervising the engagement I and signing the reports or authorizing another individual to sign them. � i I � � 6 I I . i I I i I Our fees for these services will be $ 33,750 for the audit of the City's basic financial statements, � $ 5,450 for report preparation and $ 3,050 for the Single Audit if required. The fee estimate 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 I necessary, we will discuss it with you and arrive at a new fee estimate before we incur the i additional costs. 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 will not be resumed until your account is � paid in full. If we elect to terminate our services for nonpayment, our engagement will be I 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 expenditures through the date of termination. A service � charge of 1% per month, which is an annual rate of 12%, will be added to all accounts unpaid 30 � days after billing date. If collection action is necessary, expenses and reasonable attorney's fees i will be added to the amount due. Our role is strictly limited to the engagement described in this letter, and we offer no assurance as to the results or ultimate outcomes of this engagement or of any decisions that you may make based upon our communications with, or our reports to you. Your City will be solely responsible for making all decisions concerning the contents of our communications and reports, for the I adoption of any plans and for implementing any pians you may develop, including any that we may discuss with you. � The exclusive remedy available to you shall be the right to pursue claims for actual damages that � � are directly caused by acts or omissions that are breaches by us of our duties under this i ' agreement, but any recovery on any such claims, including any costs and attorneys' fees incurred I in pursuing them, shall not exceed the fees actually paid under this agreement by you to KDV, I i Ltd. I I Government Auditing Standards require that we provide you with a copy of our most recent I 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 2011 peer review report � accompanies this letter. j I We appreciate the opportunity to be of service to the City and believe this letter accurately � I summarizes the significant terms of our engagement. If you nave any questions, please let us I � 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. i � Sincerely, � KERN, DEWENTER, VIERE, LTD. I I �� ���� � Steven Wischmann � Certified Public Accountant I I i i I � i � I I - - - --- - -- ------i i . I ,. i RESPONSE: This letter correctly sets forth the understanding of the City of Shakopee, Minnesota. I I I BY� I I Title: � Date: i � i I I I I � i i � I � � I � I I � � � � � i I I I I � � I I 1 � � � � I � I I I i I I � I I I I i I � � I I i � i 8 � I • . . Lewis, Kisch & Associates, Lfd. I CERTlfIED AUBLIC ACCOUMAMS 1303 South Frontage Road, Suite 3 Hastings, Minnesota 55033 I James V. Lewis, C.P.A. Telephone: (651) 437-3356 i Carol J. Saiier, C.P.A. FAX: (651) 437-38Q8 I Thomas A. Madsen, C.P.A. email: admin�Jlewiskisch.com I SYSTEM REVIEW REP�RT ' August 18, 2011 � I To the Shareholders I Kem, DeWenter, �ere, Ltd. I and the Pee� Review Committee of the Minnesota Society of Certified Public Accountants I We have reviewed the system of quality contral for the accounting and auditing practice of Kern, DeWenter, Viere, Ltd. (the firm) in effect for the year ended March 31, 2011. Our peer review was conducted in accordance with the Standards for Performing and Reporting on Peer Reviews esiablished by the Peer Review Board of the American Institute of Certified Public Accountants. The firm is responsible for designing a system of quality controt and complying with it to provide the firm with reasonable assurance of performing and reporting in conformity with applicable professional standards in i all material respects. Our responsibility is to express an opinion on the design of the system of quality control and the firm's compliance therewith based on our review. The nature, abjectives, scope, I limitati�ns of, and the procedures performed in a System Review are described in the standards at www.aicpa.orglprsummary. I As required by the standards, engagements setected for review included engagements performed � under Govemment Audrting Sfandarnls and audits of employee benefit plans. � In our opinion, the system of quality control for the accounting and auditing practice of I Kem, DeWenter, �ere, Ltd. in effect for the year ended March 31, 2011, has been suitably designed and , complied with to provide the firtn with reasonable assurance of performing and reporting in conformity with � applicabte professianal standards in all materia� respects. Firms car� receive a ra6ng of pass, pass with deficiency(iesj, or fail. Kem, DeWenter, Viere, Ltd. has received a peer review rating of pass. � , Respectfully submitted, .�.', �1'.�,�,��,�. I � � I i I � � � I I I I Members I CP A � Minnesota Society of Certi�ed Public Accountants �� American Institute of Certified Public Accounlants Minnesota Association of Pubiic Accountants � �