HomeMy WebLinkAbout[04f] Audit Services •
cm oF ST. "% PH Council Agenda Item 4(f)
MEETING DATE: September 15, 2011
AGENDA ITEM: Audit Services - Requested Action: Authorize execution of
the Engagement Letter between the City of St. Joseph and
KDV for the years 2011— 2013..
SUBMITTED BY: Administration /Finance
BOARD /COMMISSION /COMMITTEE RECOMMENDATION:
PREVIOUS COUNCIL ACTION:
BACKGROUND INFORMATION: The City has received the annual engagement letter from KDV to prepare and
complete the 2011 Audit. KDV has reduced their audit price by $ 25,900 to $ 25,000. All Cities over 2500 are
required to hire an independent auditor annually. They have provided a quote for the next three years and they
are as follows:
December 2011 $ 25,000
December 2012 $ 25,450
December 2013 $ 25,950
BUDGET /FISCAL IMPACT: See table above
ATTACHMENTS: Request for Council Action 4(f):1 -2
Engagement Letter 4(f):3 -10
REQUESTED COUNCIL ACTION: Authorize the Administrator to execute the engagement letter between the City
of St. Joseph and KDV for a three year term beginning in 2011 and ending in 2013.
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Expert advice. When you need it.'
July 20, 2011
RECEIVED
The Honorable Mayor and City Council JUL 2 1 2011
c/o Ms. Judy Weyrens, City Administrator
c/o Ms. Lori Bartlett, Finance Director CITY OF ST, JvSEPH
City of St. Joseph
25 College Avenue North
PO Box 668
St. Joseph, MN 56374
• Dear Ms. Weyrens and Ms. Bartlett:
We are pleased to confirm our understanding of the services we are to provide to the City of St.
Joseph, Minnesota, (the "City ") for the years ending December 31, 2011, 2012 and 2013. We
will audit the financial statements of the governmental activities, the business -type activities,
each major fund and the aggregate remaining fund information, which collectively comprise the
City's basic financial statements as of and for the year ending December 31, 2011, 2012 and
2013. 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
City's basic financial statements. As part of our engagement, we will apply certain limited
procedures to the City's RSI. These limited procedures will consist principally of inquiries of
management regarding the methods of measurement and 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, 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:
1. Management's Discussion and Analysis
Supplementary information other than RSI also accompanies the City's basic financial
statements. We will subject the following supplementary information 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 fmancial statements:
1. Combining and Individual Fund Financial Statements
2. Supplemental Schedules
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Audit Objectives
The objective of our audit is the expression of opinions as to whether your 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 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
established by the Auditing Standards Board 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 and other procedures we consider
necessary to enable us to express such an opinion. If our opinions on the financial statements are
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 opinions, we may
decline to express opinions or to issue a report as a result of this engagement.
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. The report on internal control will
include a statement that the report is intended solely for the information and use of management,
the body of individuals charged with governance, others within the entity and specific legislative
or regulatory bodies and is not intended to be and should not be used by anyone other than these
specified parties. If during our audit we become aware the City is subject to an audit
requirement that is not encompassed in the terms of this engagement, we will communicate to
management and those charged with governance that an audit in accordance with U.S. generally
accepted auditing standards and the standards for financial audits contained in Government
Auditing Standards may not satisfy the relevant legal, regulatory or contractual requirements.
Management Responsibilities
Management is responsible for the basic financial statements and all accompanying information
as well as all representations contained therein. As part of the audit, we will prepare a draft 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 representation letter that you have reviewed and approved the financial
statements, schedule of expenditures of federal awards, and related notes prior to their issuance
and have accepted 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 adequacy and results of those services and accepting responsibility for them.
Management is responsible for establishing and maintaining internal controls, including
monitoring ongoing activities; for the selection and application of accounting principles; 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 City and
the respective changes in financial position and cash flows, where applicable, in conformity with
U.S. generally accepted accounting principles.
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Management is also responsible for making all financial records and related information
available to us 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 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 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 for identifying and
ensuring that the City complies with applicable laws, regulations, contracts, agreements and
grants for taking timely and appropriate steps to remedy any fraud, illegal acts, violations of
contracts or grant agreements, or abuse that we may report.
Management is responsible for establishment and maintenance of a process for tracking the
status of audit findings and recommendations. Management is also responsible for identifying
for us previous audits or other engagements or 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 or
other engagements 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. 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 (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 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 governmental regulations that do not have a
direct and material effect on the financial statements. 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. Our responsibility as auditors is
limited to the period covered by our audit and does not extend to later periods for which we are
not engaged as auditors.
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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 also require certain written
representations from you about the financial statements and related matters.
Audit Procedures — Internal Controls
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 financial 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.
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
AICPA professional standards and Government Auditing Standards.
Audit Procedures — Compliance
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 the provisions of
applicable laws, regulations, contracts, agreements and grants. However, the objective of our
audit 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.
Engagement Administration, Fees and Other
We may from time to time, and depending on the circumstances, use third -party service
providers in serving our account. We may share confidential information about you with these
service providers, but remain committed to maintaining the confidentiality and security of your
information. Accordingly, we maintain internal policies, procedures and safeguards to protect
the confidentiality of your personal information. In addition, we will secure confidentiality
agreements with all service providers to maintain the confidentiality of your information and we
will take reasonable precautions to determine that they have appropriate procedures in place to
prevent the unauthorized release of your confidential 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 third -party service provider.
Furthermore, we will remain responsible for the work provided by any such third -party service
providers.
We understand that your employees will prepare all cash or other confirmations we request and
will locate any invoices selected by us for testing.
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We will provide copies of our reports to the City; however, management is responsible for
distribution of the reports and the financial statements. Unless restricted by law or regulation, or
containing privileged and confidential information, copies of our reports are to be made available
for public inspection.
The audit documentation for this engagement is the property of Kern, DeWenter, 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, 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 carryout oversight responsibilities. We will notify you of any such requests. If
requested, access to such audit documentation will be provided under the supervision of Kern,
DeWenter, Viere, Ltd's 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. This engagement letter includes your authorization for us to supply you with
electronically formatted financial statements or drafts of financial statements, financially
sensitive information, spreadsheets, trial balances or other financial data from our files, upon
your request.
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 oversight, regulatory or state
agencies. If 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.
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
approval before printing. You also agree to provide us with a copy of the final reproduced
material for our approval before it is distributed. Additionally, if you include our report or a
reference to our Firm name in an electronic format, you agree to provide the complete electronic
communication using or referring to our name to us for our review and approval prior to
distribution.
During the course of our engagement, we will request information, and explanations from
management regarding the City's operations, internal controls, future plans, specific 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 representations
in a written representation letter. The procedures we will perform in our engagement and the
conclusions we reach as a basis for our report will be heavily influenced by 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 as a result of false or
misleading representations that are made to us by management.
In addition, the City further agrees to indemnify and hold us harmless for any liability and all
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.
personnel.
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Steven Wischmann is the engagement partner and is responsible for supervising the engagement
and signing the reports or authorizing another individual to sign them.
Our fees for these services will be as follows for the audit of the City's basic financial
statements, and includes KDV providing the report draft.
December 31, 2011 $25,000
December 31, 2012 25,450
December 31, 2013 25,950
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 necessary, including a single audit in accordance with OMB Circular A - 133, we will
discuss it with you and arrive at a new fee estimate before we incur the 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 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 will be added to the
amount due.
Because there are inherent difficulties in recalling or preserving information as the period after
an engagement increases, you agree that, notwithstanding the statute of limitations of the State of
Minnesota, any claim based on this engagement must be filed within 12 months after
performance of our service, unless you have previously provided us with a written notice of a
specific defect in our services that forms the basis of the claim.
The nature of our engagement makes it inherently difficult, with the passage of time, to present
evidence in a lawsuit that fully and fairly establishes the facts underlying any dispute that may
arise between us. We both agree that notwithstanding any statute of limitation that might
otherwise apply to a claim or dispute, including one arising out of this agreement or the services
performed under this agreement, or for breach of contract, fraud or misrepresentation, a lawsuit
must be commenced within twenty -four (24) months after the date of our report. This twenty -
four (24) month period applies and starts to run on the date of each report, even if we continue to
perform services in later periods and even if you or we have not become aware of the existence
of a claim or the basis for a possible claim. In the event that a claim or dispute is not asserted at
least sixty (60) days before the expiration of this twenty -four (24) month period, then the period
of limitation shall be extended by sixty (60) days, to allow the parties to conduct non - binding
mediation.
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
adoption of any plans and for implementing any plans you may develop, including any that we
may discuss with you.
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You agree that it is appropriate to limit the liability of KDV, Ltd., its shareholders, directors,
officers, employees and agents and that this limitation of remedies provision is governed by the
laws of Minnesota, without giving effect to choice of law principles.
You further agree that you will not hold us liable for any claim, cost or damage, whether based
on warranty, tort, contract or other law, arising from or related to this agreement, the services
provided under this agreement, the work product, or for any plans, actions or results of this
engagement, except to the extent authorized by this agreement. In no event shall we be liable to
you for any indirect, special, incidental, consequential, punitive or exemplary damages, or for
loss of profits or loss of goodwill, costs or attorney's fees.
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
agreement, but any recovery on any such claims, including any costs and attorneys' fees incurred
in pursuing them, shall not exceed the fees actually paid under this agreement by you to KDV,
Ltd.
Government Auditing Standards require that we provide you with a copy of our most recent
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 2008 peer review report
accompanies this letter.
We appreciate the opportunity to be of service to the City, 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.
Sincerely,
KERN, DEWENTER, VIERE, LTD.
�Jc W ti Lec...�
Steven Wischmann
Certified Public Accountant
RESPONSE:
This letter correctly sets forth the understanding of the City of St. Joseph, Minnesota.
By:
Title:
Date:
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