HomeMy WebLinkAboutPR 20361: LETTER OF ENGAGEMENT WITH WHITLEY PENN, LLP AS AN AUDITOR City of Port Arthur
Memorandum
To: Harvey Robinson, Interim City Manager
From: Andrew Vasquez, Director of Finance
Date: January 24, 2018
Re: PR 20361
Recommendation
I recommend that the City Council adopt Proposed Resolution 20361 which authorizes a letter of
engagement for the services of Whitley Penn, LLP, as independent auditor for the City of Port
Arthur for the year ending September 30, 2018.
Background
According to Article XII, Section 17 of the Charter of the City of Port Arthur, a CPA firm must be
engaged annually to perform an audit of all accounts of the City. The scope of services includes
auditing the accounts of the Economic Development Corporation. The term of the letter of
engagement is one year, and will provide for the audit of the general purpose financial statements
as presented in the Comprehensive Annual Financial Report and the Single Audit reports in
accordance with Federal requirements.
Whitley Penn, LLP was selected through a competitive RFQ process. This firm's personnel are
experienced in governmental audits, and meet all continuing education and quality review
requirements. The firm has agreed to a fee of$108,800, which includes $5,000 for out of pocket
expenses. An additional $20,000 has been added to report preparation, which I recommend. The
City contracted with Whitley Penn, LLP for its FYE 2017 audit, with additional options to renew
for another four years. It is customary for the City to retain the same auditors for five consecutive
years, the maximum the charter allows. We find this allows us to keep costs consistent and
improve efficiency. The engagement letter is attached as Attachment 1.
Budgetary Effect
This contract calls for interim billings, with a projected budgetary impact of$ 108,800. Funding is
provided in the 2017-2018 budget for the Finance Department for this annual expense.
P.R.20361
7/23/18 JNP
RESOLUTION NO.
A RESOLUTION AUTHORIZING THE CITY
MANAGER TO EXECUTE A LETTER OF
ENGAGEMENT WITH WHITLEY PENN, LLP, AS
INDEPENDENT AUDITOR FOR THE CITY OF PORT
ARTHUR WITH A PROJECTED BUDGETARY IMPACT
OF $108,800 FOR THE YEAR ENDING SEPTEMBER 30,
2018. FINANCE DEPARTMENT ACCOUNT #001-1031-
515.54-00
BE IT RESOLVED BY THE CITY COUNCIL OF THE CITY OF PORT ARTHUR:
THAT the City Manager of the City of Port Arthur is hereby authorized and directed to
execute on behalf of the City of Port Arthur an engagement letter between the City of Port
Arthur and Whitley Penn, LLP, for an independent audit of all accounts of the City and the Port
Arthur Economic Development Corporation for the fiscal year ending September 30, 2018, as
described in Exhibit "A"; and
THAT a copy of said contract is attached hereto and made a part hereof as Exhibit "A";
and,
THAT a copy of the caption of this resolution be spread upon the Minutes of the City
Council.
READ, ADOPTED, AND APPROVED, this day of July,2018,A.D.,at a
Regular Meeting of the City Council of the City of Port Arthur, Texas by the following vote:
AYES: Mayor:
Councilmembers:
NOES:
Derrick Freeman, Mayor
ATTEST:
Sherri Bellard, City Secretary
APPROVED AS TO FORM:
VdclAo_41b
Val Tizeno, City A rney
APPROVED FOR ADMINISTRATION:
Harvey Robinson, Interim City Manager
APPROVED AS TO AVAILABILITY OF FUNDS:
Andrew Vasquez, Director of Finance
EXHIBIT "A"
In Houston Office
Off 3737 Buffalo Speedway
whitleypenn Suite 1600
Houston.Texas 77098
713 621 1515 Main
whitleypenn.corn
July 19,2018
To the Honorable Mayor Freeman,
Members of City Council and City Manager
City of Port Arthur,Texas
You have requested that we audit the financial statements of the governmental activities,the business-type
activities,the aggregate discretely presented component unit,each major fund,and the aggregate remaining
fund information of the City of Port Arthur,Texas(the"City"),as of September 30,2018,and for the year
then ended, and the related notes to the financial statements, which collectively comprise the City's basic
financial statements.
In addition,we will audit the entity's compliance over major federal award programs for the period ended
September 30, 2018. We are pleased to confirm our acceptance and our understanding of this audit
engagement by means of this letter. Our audits will be conducted with the objectives of our expressing an
opinion on each opinion unit and an opinion on compliance regarding the entity's major federal award
programs.
Accounting principles generally accepted in the United States of America require that management's
discussion and analysis,general fund budgetary comparison information as well as supplementary pension
and other post-employment benefit information be presented to supplement the basic financial statements.
Such information, although not a part of the basic financial statements, is required by the Governmental
Accounting Standards Board,who considers it to be an essential part of financial reporting for placing the
basic financial statements in an appropriate operational, economic, or historical context. As part of our
engagement, we will apply certain limited procedures to the required supplementary information(RSI) in
accordance with auditing standards generally accepted in the United States of America. These limited
procedures will consist primarily of inquiries of management regarding their methods of measurement and
presentation,and comparing the information for consistency with management's responses to our inquiries.
We will not express an opinion or provide any form of assurance on the RSI.The following RSI is required
by accounting principles generally accepted in the United States of America.This RSI will be subjected to
certain limited procedures but will not be audited:
• Management's discussion and analysis
• General Fund budgetary schedules
• Required supplementary pension information
• Required supplementary other post-employment benefits information
A member of
Nexis Austin Dallas Fort Worth Houston
International
To the Honorable Mayor Freeman,
Members of City Council and City Manager
City of Port Arthur,Texas
July 19,2018
Page 2 of 8
Supplementary information other than RSI will accompany 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 certain additional procedures, including comparing and reconciling the
supplementary information to the underlying accounting and other records used to prepare the financial
statements or to the financial statements themselves,and additional procedures in accordance with auditing
standards generally accepted in the United States of America. We intend to provide an opinion on the
following supplementary information in relation to the financial statements as a whole:
• Individual and combining fund financial statements and schedules
• Discretely presented component unit fund statements
Schedule of Expenditures of Federal and State Awards
We will subject the schedule of expenditures of federal awards to the auditing procedures applied in our
audit of the basic financial statements and certain additional procedures, including comparing and
reconciling the schedule to the underlying accounting and other records used to prepare the financial
statements or to the financial statements themselves,and additional procedures in accordance with auditing
standards generally accepted in the United States of America. We intend to provide an opinion on whether
the schedule of expenditures of federal awards is presented fairly in all material respects in relation to the
financial statements as a whole.
Also,the document we submit to you will include the following other additional information that will not
be subjected to the auditing procedures applied in our audit of the financial statements:
• Introductory Section
• Statistical Section
Data Collection Form
Prior to the completion of our engagement,we will complete the sections of the Data Collection Form that
are our responsibility. The form will summarize our audit findings, amounts and conclusions. It is
management's responsibility to submit a reporting package including financial statements, schedule of
expenditure of federal awards, summary schedule of prior audit findings and corrective action plan along
with the Data Collection Form to the federal audit clearinghouse.The financial reporting package must be
text searchable, unencrypted, and unlocked. Otherwise,the reporting package will not be accepted by the
federal audit clearinghouse. We will assist you in the electronic submission and certification. You may
request from us copies of our report for you to include with the reporting package submitted to pass-through
entities.
The Data Collection Form is required to be submitted within the earlier of 30 days after receipt of our
auditors' reports or nine months after the end of the audit period,unless specifically waived by a federal
cognizant or oversight agency for audits. Data Collection Forms submitted untimely are one of the factors
in assessing programs at a higher risk.
To the Honorable Mayor Freeman,
Members of City Council and City Manager
City of Port Arthur,Texas
July 19,2018
Page 3 of 8
Audit of the Financial Statements
We will conduct our audit in accordance with auditing standards generally accepted in the United States of
America (U.S. GAAS), the standards applicable to financial audits contained in Government Auditing
Standards, issued by the Comptroller General of the United States of America; the audit requirements of
Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost
Principles, and Audit Requirements for Federal Awards (Uniform Guidance). Those standards and the
Uniform Guidance require that we plan and perform the audit to obtain reasonable assurance about whether
the basic financial statements are free from material misstatement.An audit involves performing procedures
to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures
selected depend on the auditor's judgment, including the assessment of the risks of material misstatement
of the financial statements,whether due to error,fraudulent financial reporting,misappropriation of assets,
or violations of laws,governmental regulations,grant agreements,or contractual agreements.
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.If appropriate,our procedures will therefore include tests of documentary evidence
that support the transactions recorded in the accounts, tests of the physical existence of inventories, and
direct confirmation of cash, investments, and certain other assets and liabilities by correspondence with
creditors and financial institutions. As part of our audit process, we will request written representations
from your attorneys, and they may bill you for responding. At the conclusion of our audit, we will also
request certain written representations from you about the financial statements and related matters.
Because of the inherent limitations of an audit,together with the inherent limitations of internal control,an
unavoidable risk that some material misstatements or noncompliance(whether caused by errors,fraudulent
financial reporting, misappropriation of assets, detected abuse, or violations of laws or governmental
regulations) may not be detected exists, even though the audit is properly planned and performed in
accordance with U.S.GAAS and Government Auditing Standards of the Comptroller General of the United
States of America. Please note that the determination of abuse is subjective and Government Auditing
Standards does not require auditors to detect abuse.
In making our risk assessments, we consider internal control relevant to the entity's preparation and fair
presentation of the financial statements in order to design audit procedures that are appropriate in the
circumstances,but not for the purpose of expressing an opinion on the effectiveness of the entity's internal
control. However, we will communicate to you in writing concerning any significant deficiencies or
material weaknesses in internal control relevant to the audit of the financial statements that we have
identified during the audit.Our responsibility as auditors is,of course,limited to the period covered by our
audit and does not extend to any other periods.
We will issue a written report upon completion of our audit of the City's basic financial statements. Our
report will be addressed to the governing body of the City. We cannot provide assurance that unmodified
opinions will be expressed.Circumstances may arise in which it is necessary for us to modify our opinions,
add an emphasis-of-matter or other-matter paragraph(s),or withdraw from the engagement.
To the Honorable Mayor Freeman,
Members of City Council and City Manager
City of Port Arthur,Texas
July 19,2018
Page 4 of 8
In accordance with the requirements of Government Auditing Standards,we will also issue a written report
describing the scope of our testing over internal control over financial reporting and over compliance with
laws, regulations, and provisions of grants and contracts, including the results of that testing. However,
providing an opinion on internal control and compliance over financial reporting will not be an objective
of the audit and,therefore,no such opinion will be expressed.
Audit of Major Program Compliance
Our audit of the City's major federal award program(s)compliance will be conducted in accordance with
the requirements of the Single Audit Act,as amended;and the Uniform Guidance,and will include tests of
accounting records,a determination of major programs in accordance with the Uniform Guidance and other
procedures we consider necessary to enable us to express such an opinion on major federal award program
compliance and to render the required reports.We cannot provide assurance that an unmodified opinion on
compliance will be expressed.Circumstances may arise in which it is necessary for us to modify our opinion
or withdraw from the engagement.
The Uniform Guidance requires that we also plan and perform the audit to obtain reasonable assurance
about whether the entity has complied with applicable laws and regulations and the provisions of contracts
and grant agreements applicable to major federal award programs. Our procedures will consist of
determining major federal programs and performing the applicable procedures described in the U.S.Office
of Management and Budget OMB Compliance Supplement for the types of compliance requirements that
could have a direct and material effect on each of the entity's major programs. The purpose of those
procedures will be to express an opinion on the entity's compliance with requirements applicable to each
of its major programs in our report on compliance issued pursuant to the Uniform Guidance.
Also, as required by the Uniform Guidance,we will perform tests of controls 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 of the entity's major federal award
programs. However, our tests will be less in scope than would be necessary to render an opinion on these
controls and,accordingly,no opinion will be expressed in our report.
We will issue a report on compliance that will include an opinion or disclaimer of opinion regarding the
entity's major federal award programs, and a report on internal controls over compliance that will report
any significant deficiencies and material weaknesses identified; however, such report will not express an
opinion on internal control.
To the Honorable Mayor Freeman,
Members of City Council and City Manager
City of Port Arthur,Texas
July 19,2018
Page 5 of 8
Management's Responsibilities
Our audit will be conducted on the basis that management acknowledge and understand that they have
responsibility:
1. For the preparation and fair presentation of the financial statements in accordance with accounting
principles generally accepted in the United States of America;
2. For the design,implementation,and maintenance of internal control relevant to the preparation and
fair presentation of financial statements that are free from material misstatement, whether due to
error fraudulent financial reporting,misappropriation of assets,or violations of laws,governmental
regulations,grant agreements,or contractual agreements;
3. For safeguarding assets;
4. For identifying all federal awards expended during the period including federal awards and funding
increments received prior to December 26, 2014, and those received in accordance with the
Uniform Guidance generally received after December 26,2014;
5. For preparing the schedule of expenses of federal awards(including notes and noncash assistance
received)in accordance with the Uniform Guidance requirements;
6. For the design, implementation,and maintenance of internal control over compliance;
7. For identifying and ensuring that the entity complies with laws, regulations,grants, and contracts
applicable to its activities and its federal award programs and implementing systems designed to
achieve compliance with applicable laws,regulations,grants,and contracts applicable to activities
and its federal award programs;
8. For identifying and providing report copies of previous audits, attestation engagements, or other
studies that directly relate to the objectives of the audit,including whether related recommendations
have been implemented;
9. For addressing the findings and recommendations of auditors, for establishing and maintaining a
process to track the status of such findings and recommendations and taking corrective action on
reported audit findings from prior periods and preparing a summary schedule of prior audit
findings;
10. For following up and taking corrective action on current year audit findings and preparing a
corrective action plan for such findings;
11. For submitting the reporting package and data collection form to the appropriate parties;
12. For making the auditor aware of any significant vendor/contractor relationships where the vendor
/contractor is responsible for program compliance;
13. To provide us with:
a. Access to all information of which management is aware that is relevant to the preparation and
fair presentation of the financial statements, and relevant to federal award programs, such as
records,documentation, and other matters;
b. Additional information that we may request from management for the purpose of the audit;and
c. Unrestricted access to persons within the entity from whom we determine it necessary to obtain
audit evidence.
14. For adjusting the financial statements to correct material misstatements and confirming to us in the
management representation letter that the effects of any uncorrected misstatements aggregated by
us during the current engagement and pertaining to the current year period(s) under audit are
immaterial,both individually and in the aggregate,to the financial statements as a whole;
15. For maintaining adequate records, selecting and applying accounting principles,and safeguarding
assets;and
To the Honorable Mayor Freeman,
Members of City Council and City Manager
City of Port Arthur,Texas
July 19,2018
Page 6 of 8
With regard to the supplementary information referred to above, you acknowledge and understand your
responsibility (a) for the preparation of the supplementary information in accordance with the applicable
criteria,(b)to provide us with the appropriate written representations regarding supplementary information,
(c)to include our report on the supplementary information in any document that contains the supplementary
information and that indicates that we have reported on such supplementary information,and(d)to present
the supplementary information with the audited financial statements, or if the supplementary information
will not be presented with the audited financial statements,to make the audited financial statements readily
available to the intended users of the supplementary information no later than the date of issuance by you
of the supplementary information and our report thereon.
As part of our audit process, we will request from management written confirmation concerning
representations made to us in connection with the audit.
We understand that your employees will prepare all confirmations we request and will locate any documents
or invoices selected by us for testing.
If you intend to publish or otherwise reproduce the financial statements and make reference to our firm,
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.
Fees and Timing
The timing of our audit will be scheduled for performance and completion as follows:
Begin Complete
Conduct internal control and compliance testing Jul 31,2018 Au:ust 10,2018
October 1,2018 October 15,2018
Mail confirmations
January 22,2018 March 31,2018
Perform year-end audit procedures
March 31, 2018
Issue audit reports
Christopher L. Breaux, CPA is the engagement partner for the audit services specified in this letter. His
responsibilities include supervising Whitley Penn's services performed as part of this engagement and
signing or authorizing another qualified firm representative to sign the audit report.
Our fee for these services will be at our standard hourly rates plus out-of-pocket costs and are estimated
as detailed below:
Financial Statement and Compliance Audit $88,800
Report Preparation 20,000
Total Estimated Fees S108,800
To the Honorable Mayor Freeman,
Members of City Council and City Manager
City of Port Arthur, Texas
July 19,2018
Page 7 of 8
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. In accordance with our firm policies, work may be
suspended if your account becomes 60 days or more overdue and may 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(s). You will be obligated to compensate us for all time expended and to reimburse us for all out-of-
pocket costs through the date of termination. 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.
Other Matters
During the course of the engagement,we may communicate with you or your personnel via e-mail,and you
should be aware that communication in those mediums contains a risk of misdirected or intercepted
communications.
The audit documentation for this engagement is the property of Whitley Penn and constitutes confidential
information. However, we may be requested to make certain audit documentation available to state and
federal agencies and the U.S.Government Accountability Office pursuant to authority given to it by law or
regulation, or to peer reviewers. If requested, access to such audit documentation will be provided under
the supervision of Whitley Penn's personnel.Furthermore,upon request,we may provide copies of selected
audit documentation to these agencies and regulators. The regulators and agencies may intend, or decide,
to distribute the copies of information contained therein to others, including other governmental agencies.
We agree to retain our audit documentation or work papers for a period of at least five years from the date
of our report.2
With respect to any nonattest services we perform,the City's management is responsible for(a)making all
management decisions and performing all management functions;(b)assigning a competent individual to
oversee the services; (c) evaluating the adequacy of the services performed; (d) evaluating and accepting
responsibility for the results of the services performed; and (e) establishing and maintaining internal
controls,including monitoring ongoing activities.Nonattest services include the preparation of the financial
statements and full accrual entries. Further, we will be available during the year to consult with you on
financial management and accounting matters of a routine nature.3
You agree to inform us of facts that may affect the financial statements of which you may become aware
during the period from the date of the auditor's report to the date the financial statements are issued.
At the conclusion of our audit engagement, we will communicate to City Council and management the
following significant findings from the audit:
• Our view about the qualitative aspects of the entity's significant accounting practices;
• Significant difficulties,if any,encountered during the audit;
• Uncorrected misstatements,other than those we believe are trivial, if any;
• Disagreements with management, if any;
To the Honorable Mayor Freeman,
Members of City Council and City Manager
City of Port Arthur,Texas
July 19,2018
Page 8 of 8
• Other findings or issues, if any, arising from the audit that are, in our professional judgment,
significant and relevant to those charged with governance regarding their oversight of the financial
reporting process;
• Material, corrected misstatements that were brought to the attention of management as a result of
our audit procedures;
• Representations we requested from management;
• Management's consultations with other accountants,if any;and
• Significant issues, if any, arising from the audit that were discussed, or the subject of
correspondence,with management.
In accordance with the requirements of Government Auditing Standards, we have attached a copy of our
latest external peer review report of our firm for your consideration and files.
Please sign and return the attached copy of this letter to indicate your acknowledgment of,and agreement
with, the arrangements for our audit of the financial statements compliance over major federal award
programs including our respective responsibilities.
We appreciate the opportunity to be your financial statement auditors and look forward to working with
you and your staff.
Respectfully,
W//f+Ich
0l L cP
r
RESPONSE:
This letter correctly sets forth our understanding.
Acknowledged and agreed on behalf of the City of Port Arthur,Texas by:
Signature:
Title: Interim City Manager
Date:
Signature:
Title: Mayor
Date:
c ' OLSEN THIELEN & CO. , L'I'D.
Certified Pub!:c Accountants&Consultu'i
SYSTEM REVIEW REPORT
June 25,2015
To the Partners of Whitley Penn LLP and the
National Peer Review Committee of the AICPA
Ne have reviewed the system of quality control for the accounting and auditing practice of Whitley
Penn LLP the Firm) applicable to engagements not subject to PCAOB permanent inspection in
effect for the year ended April 30, 2015. Our peer review was conducted in accordance with the
Standards for Performing and Reporting on Peer Reviews established by the Peer Review Board of
the American Institute of Certified Public Accountants. As part of our peer review, we considered
reviews by regulatory entities, if applicable, in determining the nature and extent of our procedures.
The Firm is responsible for designing a system of quality control and complying with it to provide the
Firm with reasonable assurance of performing and reporting in conformity with applicable
professional standards in 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.objectives, scope, limitations of, and the procedures performed in a System Review are
described in the standards at www.aicpa.org/prsummary.
As required by the standards, engagements selected for review included engagements performed
under Government Auditing Standards, audits of employee benefit plans, audits performed under
FDICIA, audits of carrying broker-dealers, and examinations of service organizations (Service
Organization Control(SOC) 1 engagements).
In our opinion, the system of quality control for the accounting and auditing practice of Whitley Penn
LLP applicable to engagements not subject to PCAOB permanent inspection in effect for the year
ended April 30, 2015, has been suitably designed and complied with to provide the Firm with
reasonable assurance of performing and reporting in conformity with applicable professional
standards in all material respects. Firms can receive a rating of pass, pass with defrciencyties)or
fa,. 'Atitley Penn LLP has received a peer review rating of pass.
Olsen Thielen&Co., Ltd.
0441 71144
Sc Paul O+F:ce I. 7S tong Lake Road 15: Paul.MN S5113-11171651 483 4S?I 1631 483.2447 FAX
M.mltapol„hilar I SOP I'ra:+it[;enter L).,S:r. SUI!I Menne•pal:.,MN 33344--'903 1152-941-12421 932-941-0377 FAX