Loading...
Agenda item #4C - Audit Engagement LetterCITY OF ATLANTIC BEACH C ITY COMM IS SION MEETING STAFF REPORT AGENDA ITEM II i.IC Ml\ Y 12, 2014 AGENDA lT il:M: Audit Engagement Letter SUBM ITT E D BY: Nelson Van Licre, City Manager 6? DATE: April17, 2014 BACKGROUND: Purvis Gray & Company ha s conclud ed the audit of the Ci ty 's financial records for fi sca l year 20 13 and p resented the rcp01t to the Commission on March 10, 20 14. lt is already time to plan for next year's audit, as the auditors work plan includ es interim fieldwork over the summer. Therefore, it .is necessa ry to execute the audit agreement extension engagement letter for services early in the year. BUDGET: The original contract for audit services was awarded in 2010. The Auditor Selection Comm itt ee 's recommendation , approved by the City Co mmi ssion, aJi owed for an initial engagement of four years, plus two addit ional years, i f service was satisfactory. A n engagement letter defines the legal re lationship (or engagement) between a professional finn and their cli ents . lt primarily addresses the scope, term s and conditions, and compensatio n for the engagement. This engagement letter inc ludes the authority to proceed with the final two years of the extension period, which is budgeted annua ll y. The base fee for audit services wil1 not exceed $42,000 and $43,000 for 20 14 and 20 15, respectively. If a Feder al or State Single Audit of our grants is requ ired, e.g., separate ly, Federal or State grant expenditures exceed $500,000 during the year, then an additional $3,000 per Single Audit wou ld be added to the base fees in that tiscal year. In consideration of the excelle nt service provided in past yea rs, it is approp ri ate to exercise the two-year extension. This expenditure crosses fiscal years due to the interim work perfom1cd in the summer. There are suffi cie nt fund s i n the Finance Department budget for this year's cost, and the rem aind er of the funds will be inc lu ded in subseq uent yea r's budget recommendat ions. RECOMMENDATION: Authorize the Ci ty Manager to s ign the two-year audit agreement extension engagement lett er for services wi th Purvis, Gray & Company, based on the excellent services provided , in accordance with the original four-year contract provi s ions. ATTACHMENT: March 12, 20 14 Audit Engagement Letter ClTY MANAGER APPROVAL: Lf· ~ ;::kL AGENDA ITEM II 4C MAY 12,2014 GPurvis ray&. _____________________ C_o_m_Qany March 12,2014 AUDIT ENGAGEMENT LETTER Honorable Mayor, C ity Commiss ioners a nd Mana gement City of Atl a nti c Beach 800 Seminole Road At lantic Beach, Florida 32233 We arc pleased to co nfi rm o ur und erstanding o f the serv ices we are to provide the City of Atlantic Beach, Florid a (the City), fo1· the periods endi ng September 30, 201 4 and 20 15. We will audit the financial statements of the govem mcn ta l ac tivi ti es, th e business-type acti vities, each maj or fund, and th e aggrega te rema in ing fund informa tio n, in cludi ng the re lated notes to th e financia l statement s, whic h coll ective ly co mprise th e basic financial statements of th e City as of and for the periods en din g Septembe r 30, 2014 and 20 15. Accou nting sta nd ards generall y acce pted in the United States of Amer ica provide for ce11a in required supp le mentary inform ation (RS l), such as manage me nt's discussion and ana lysis (MD&A), to s upp le ment the City's basic financia l sta tements. Suc h infonnation, a ltho ugh not a part of the bas ic financial s tateme nt s, is req ui red by the Governmental Acco un ting Sta nd ard s Board who considers it to be an essenti a l patt of fin a ncia l reporting fo •· pl ac in g the basic financia l state ment s in an ap propriate operational , econom ic, or historical co nt ext. As part of ou r engagement, we will apply certain limited procedures to the C ity 's RSI in accorda nce with aud iti ng standards ge ne ra ll y accepted in t he United Stat es of America . Th ese limited pro ced ur es will cons is t of inqui ri es of management regardi n g th e met hods of preparing th e information and co mpal'in g the in forma ti on for co ns istency w ith mana ge ment 's re sponses to our inqui ries, th e basic fin anc ia l statemen ts, and other know ledge we obtained during ou r au dit of th e bas ic fin ancia l s tate me nts. We will not exp ress an opi nio n or provide any assura nce on the informati on because the lim ite d procedures do not provide us with s uffi cient evidence to exp ress an opi ni o n or pro v id e any assura nce. The fo ll owin g RSf is requi red by genera ll y accepted acco untin g pr incip les and will be s ubj ected to certain limited procedures, but will not be audite d: I. Management 's Discussio n and Analysis 2 . Required Pension and Other Postretirement Em pl oy ment Benefits 3 . Major Fund Budgetary Information We have a lso been engaged to repo rt on supplem entary info rmati on othe r tha n R SI t hat accomp a ni es the City's financ ia l sta tement s. We will subject th e follow in g s up plemen tary infom1ation to the auditin g procedures app lied in ou r audit of the financia l statements and certain add iti ona l proced ures, including comparing and reconciling such information d irectly to the unde rl ying accou nting and other reco rd s used to prepare th e fina11 c ial sta teme nts or· to the financ ial stateme nt s themselves, and othe r additiona l procedures in accorda nce wi th a uditin g sta nd ards generally accepted in th e United States of America a nd w ill provide an o p ini on on it in relation to the fin anc ial s tatements as a whole: Ce rtifi ed Publ ic Ac counta nts P.O . llfl\ 14 1270 . I 1 1 N.[. 1 ~1 Sl rccl. Gain r sv ille, rlorida 326 14 -1270. ( l 'i).) '178-246 1 • FAX (3521 178-2'i05 Laure l Rid ge Professi onal Ce nter • .1:~4 7 S.E. 17th ~r ree r • Oca l fl, Fl orida 344 7 1 • ('1 ~2) 732-J f\72 • FAX f 352) 7J2-0 542 4 43 Edsl Co llcgr. Avenu e: • Ta ll a has~cc, Florida 32.3 01 • IHSOJ 22 4 -7 144 • FAX (8 51 1) 224-17&2 500 1 Lilkcwood Ranch Bl vd . N., Suit £' 101 • Sa ra~ol a, Florid,1 1424 0 • (<J41) 907-0350 • FAX 1941 ) CJ07 -0109 MU.I~LR't O r A\IIRII':AN liN D nOR In A II-6TifUT(S (If Cl krll IW PUIJtl( ACCOU NTANTS •IIMII/1. ••r .\.\1/kil ·\NIS\111\111 o • f klll/ffl l'l 1111, '''' ''"'~NJ\I'KI\~T· ri•IIIIW-.11'. ·\'P~I • ""' I• I'"' llr •~·' Honorable Mayor, City Commissioners and Management City of Atlantic Beach Atlantic Beach, Florida 1. Schedule of Expenditures of Federal Awards -2- 2. Combining Nonmajor and Fiduciary Fund Statements 3. Schedule of Source and Expenditure of City Grant Funds 4. Historical Revenues and Expenses 5. Schedules of Net Revenues in Accordance with Bond Resolutions AGENDA ITEM# 4C MAY 12,2014 March 12, 2014 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 our auditors' report will not provide an opinion or any assurance on that other infonnation. 1. Statistical Supporting Schedules 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. The objective also includes repmting on: 11 Internal control related to the financial statements and compliance with the provisions of laws, regulations, contracts, and grant agreements, noncompliance with which could have a material effect on the financial statements in accordance with Government Auditing Standards. 111 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 Governments, and Non-Profit Organizations and Chapter 10.550, Rules ofthe Auditor General of the State of Florida. The reports on internal control and compliance will each include a paragraph that states that the purpose of the report is solely to describe: (1) the scope of testing of internal control over financial repmting and compliance and the result of that testing and not to provide an opinion on the effectiveness of internal control over financial reporting or on compliance; (2) the scope of testing internal control over compliance for major programs and major program compliance and the result of that testing and to provide an opinion on compliance but not to provide an opinion on the effectiveness of internal control over compliance; and (3) that the report is an integral part of an audit performed in accordance with Government Auditing Standards in considering internal control over financial reporting and compliance and OMB Circular A-133 in considering internal control over compliance and major program compliance. The paragraph will also state that the report is not suitable for any other purpose. Our audit will be conducted in accordance with auditing standards generally accepted in the United States of America; the 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 provisions ofOMB Circular A-133, and will include tests of accounting records, a determination of major program(s) in accordance with OMB Circular A-133; and the provisions of Chapter 10.550, and other procedures we consider necessary to enable us to express such opinions and to render the required reports. We cannot provide assurance that unmodified opinions will be expressed. Circumstances may arise in which it is necessary for us to modify our opinions or add emphasis-of-matter or other-matter paragraphs. If our opinions on the financial statements or the Single Audit compliance opinions are other than unmodified, we will 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 fonned opinions, we may decline to express opinions or to issue a report as a result of this engagement. Honorable Mayor, City Commissioners and Management City of Atlantic Beach Atlantic Beach, Florida Management Responsibilities -3- AGENDA ITEM# 4C MAY 12,2014 March 12, 2014 Management is responsible for the basic financial statements, schedule of expenditures of federal awards, and all accompanying information as well as all representations contained therein. Management is also responsible for identifying government award programs and understanding and complying with the compliance requirements, and tor preparation of the schedule of expenditures of federal awards and state financial assistance in accordance with the requirements of OMB Circular A-133 and Chapter 10.550, Rules qf the Auditor General. As part of the audit, we will assist with preparation of your financial statements, schedule of expenditures of federal awards and state financial assistance, and related notes. You will be required to acknowledge in the written representation letter our assistance with preparation of the financial statements and schedule of expenditures of federal awards and state financial assistance and that you have reviewed and approved the financial statements, schedule of expenditures of federal awards and state financial assistance, and related notes prior to their issuance and have accepted responsibility for them. You agree to assume all management responsibilities for any nonaudit services we provide; oversee the services by designating an individual, preferably from senior management, who possesses suitable skill, knowledge, or experience; evaluate the adequacy and results of the services; and accept responsibility for them. Management is responsible for establishing and maintaining effective internal controls, including internal controls over compliance, and for evaluating and monitoring ongoing activities, to help ensure that appropriate goals and objectives are met and that there is reasonable assurance that government programs are administered in compliance with compliance requirements. You are also responsible for the selection and application of accounting principles; for the preparation and fair presentation of the financial statements in conformity with U.S. generally accepted accounting principles; and for compliance with applicable laws and regulations and the provisions of contracts and grant agreements. Management is also responsible for making all financial records and related information available to us and for ensuring that management is reliable and financial information is reliable and properly recorded. You are also responsible for providing us with: (1) access to all information of which you are aware that is relevant to the preparation and fair presentation of the financial statements; (2) additional information that we may request for the purpose of the audit; and (3) unrestricted access to persons within the government from whom we determine it necessary to obtain audit evidence. Your responsibilities also include identifying significant vendor relationships in which the vendor has responsibility for program compliance and for the accuracy and completeness of that information. Your responsibilities include adjusting the fmancial statements to correct material misstatements and confirming to us in the written 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 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 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 City complies with applicable laws, regulations, contracts, agreements, and grants. Additionally, as required by OMB Circular A-133 and Chapter I 0.550, Rules of the Auditor General, 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 on the commencement of fieldwork. Honorable Mayor, City Commissioners and Management City of Atlantic Beach Atlantic Beach, Florida Management Responsibilities (Concluded) -4- AGENDA ITEM# 4C MAY 12,2014 March 12, 2014 You are responsible for preparation of the schedule of expenditures of federal awards and state financial assistance in conformity with OMB Circular A-133 and Chapter 10.550, Rules of the Auditor General. You agree to include our report on the schedule of expenditures of federal awards and state financial assistance in any document that contains and indicates that we have reported on the schedule of expenditures of federal awards or state financial assistance. You also agree to include the audited financial statements with any presentation of the schedule of expenditures of federal awards and state financial assistance that includes our repmi thereon. Your responsibilities include acknowledging to us in the written representation letter that: ( 1) you are responsible for presentation of the schedule of expenditures of federal awards and state financial assistance in accordance with OMB Circular A-13 3 and Chapter 10.550, Rules of the Auditor General; (2) that you believe the schedule of expenditures of federal awards and state financial assistance, including its form and content, is fairly presented in accordance with OMB Circular A-133 and Chapter 10.550, Rules of the Auditor General; (3) that the methods of measurement or presentation have not changed from those used in the prior period (or, if they have changed, the reasons for such changes); and ( 4) you have disclosed to us any significant assumptions or interpretations underlying the measurement or presentation of the schedule of expenditures of federal awards and state financial assistance. You are also responsible for the preparation of the other supplementary infonnation, which we have been engaged to report on, in conformity with U.S. generally accepted accounting principles. You agree to include our repmt on the supplementary information in any document that contains and indicates that we have reported on the supplementary information. You also agree to include the audited financial statement<> with any presentation of the supplementary information that includes our report thereon. Your responsibilities include acknowledging to us in the written representation letter that: (I) you are responsible for presentation of the supplementary information in accordance with GAAP; (2) that you believe the supplementary information, including its fmm and content, is fairly presented in accordance with GAAP; (3) that the methods of measurement or presentation have not changed from those used in the prior period (or, if they have changed, the reasons for such changes); and (4) you have disclosed to us any significant assumptions or interpretations underlying the measurement or presentation of the supplementary information. 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, petformance audits, or 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. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. 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 Honorable Mayor, City Commissioners and Management City of Atlantic Beach Atlantic Beach, Florida Audit Procedures-General (Concluded) -5- AGENDA ITEM# 4C MAY 12,2014 March 12, 2014 (4) violations of laws or governmental regulations that are attributable to the City or to acts by management or employees acting on behalf of the City. Because the determination of abuse is subjective, Government Auditing Standards do not expect auditors to provide reasonable assurance of detecting abuse. Because of the inherent limitations of an audit, combined with the inherent limitations of internal control, 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, even though the audit is properly planned and performed in accordance with U.S. generally accepted auditing standards and Government Auditing Standards. 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 infonn the appropriate level of management of any material elTors, any fraudulent financial reporting, or misappropriation of assets that come to our attention. We will also inform the appropriate level of management of any violations of laws or governmental regulations that come to our attention, unless clearly inconsequential, and of any material abuse that comes to our attention. We will include such matters in the reports required for a Single Audits. 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. 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 ce1tain written representations from you about the financial statements and related matters. Audit Procedures-Internal Control Our audit will include obtaining an understanding of the City and its environment, including internal control, sufficient to assess the risks of material misstatement of the fmancial 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. As required by OMB Circular A-133 and Chapter 10.550, Rules of the Auditor General, we will perform tests of controls over compliance to evaluate the effectiveness of the design and operation of controls that we consider relevant to 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 internal control issued pursuant to OMB Circular A-133 and Chapter 10.550. An audit is not designed to provide assurance on internal control or to identify significant deficiencies or material weaknesses. 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 American Institute of Certified Public Accountants professional standards, Government Auditing Standards, OMB Circular A-133, and Chapter 10.550, Rules ofthe Auditor General. Honorable Mayor, City Commissioners and Management City of Atlantic Beach Atlantic Beach, Florida Audit Procedures-Compliance -6- AGENDA ITEM# 4C MAY 12,2014 March 12, 2014 As part of obtaining reasonable assurance about whether the financial statements are free of material misstatement, we will perform tests of the City's compliance with provisions of applicable laws, regulations, contracts, and agreements, including grant agreements. However, the objective of those procedures 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. OMB Circular A-133 and Chapter 10.550 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 oftests of transactions and other applicable procedures described in the OMB Circular A-133 Compliance Supplement, and Department of Financial Services' State Projects Compliance Supplement, for the types of compliance requirements that could have a direct and material effect on each of the City's major programs. The purpose of these procedures will be to express an opinion on the City'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 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. At the conclusion of the engagement, we will complete the appropriate sections of the Data Collection Form that summarizes our audit findings. It is management's responsibility to submit the reporting package (including financial statements, schedule of expenditures of federal awards and state financial assistance, summary schedule of prior audit findings, auditors' reports, and corrective action plan), along with the Data Collection Form to the federal audit clearinghouse. We will coordinate with you the electronic submission and certification. If applicable, we will provide copies of our report for you to include with the reporting package you will submit to pass-through entities. The Data Collection Form and the reporting package must be submitted within the earlier of 30 days after receipt of the auditors' 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. The audit documentation for this engagement is the property of Purvis, Gray and Company, LLP 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 or state agency or its 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 requested, access to such audit documentation will be provided under the supervision of Purvis, Gray and Company, LLP 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 five years after the report release date or for any additional period requested by the federal or state agency. lf we are aware that a federal awarding agency, pass-through entity, 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. Honorable Mayor, Ci ty Comm iss ioners and Manageme nt City of Atlantic Beach Atlantic Benc h, Florida -7- En ga~c m cnt Administratio n , Fees, a nd O th er (Concluded) AGENDA ITEM# 4C MAY 12,2014 March 12,2014 We expect to begi n our audit in approximately November 2014 and 20 15 and to issue our reports no later than March 3 1, 2015 and 2016 for th e 20 14 and 2015 audits , respecti vely. I wi ll be the engagement partne r and will be respo nsible fo r superv ising the engagemen t and signing the reports or authorizing another indiv idua l to sig n t hem. Our fee for these services wi ll be at our standard hou rl y rates plu s out- of-pocket costs (such as report reproduction, word process ing , postage, trave l, cop ies, te lep hone, etc.) except th at we agree that our gross fee, inc lu di ng ex pe nses , wi ll not exceed $42,000 and $43,000 for t he years 2014 and 2015, respective ly. If a Federal or State Single Aud it is require d, th e fee will increase $3,000 fo r each Sing le Audit required . Our standal'd hourly rates vary according to the degree of res ponsibi li ty invo lved and the experience leve l of the personnel assigned to yo ur aud it. Our invoices fo r these fees w ill be re nde red each month as work progresses and are payab le on presentatio n. If we elect to ter min ate ou r services for nonpayment, ou r engageme nt will be dee med to have bee n comp le ted upon wr itten notifica tio n of termi na t io n, even if we have not completed our reports. You wi ll be obl iga ted to compensate us for a ll time expended and to rei mbu rse us for a ll out-of-pocket costs throug h the date of te rmi nation. Tho above fee is based on antici pated coope ration fro m your personnel and tl te as sumpti on that un expected circumstances wi ll no t be encountered duri ng the audit. If significant additional time is necessary , we w il l discuss it with you and arrive at a new fee estimate before we incur the additional costs. We appreciate the oppo rtunity to be of serv ice to the C ity of Atla ntic 13eac h, F lorida, and believe thi ~ letter acc ur ate ly s umm arizes the s ignificant te rm s of ou r engRgcment. If you have any questions, p lease let us know . lf you agree w it h the te rm s of om engageme nt as described in this letter, p lease s ign t he enc losed copy and return it to us. Very t rul y yo urs , PURV IS, GRAY AND COMPANY, LLP r-·-;;; "' RDW/pab RES P ONSE: Ronald D. Whi tes ides, C.P .A. 1\ ud it Pa rt ner Thi s le tter co rrectly sets fo 11 h the u11 dersta ndi ng of the Ci ty of Atlantic Beach, Flor ida. Management s ig naC u rc: --------- Title: Date: