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HomeMy WebLinkAboutPR 19267: LETTER OF ENGAGEMENT WITH WHITLEY PENN, LLP, INDEPENDENT AUDITOR City of Port Arthur Memorandum • To: Brian McDougal, City Manager From: Jerry W. Dale, Interim Director of Finance Date: January 5, 2016 Re: PR 19267 Recommendation I recommend that the City Council adopt Proposed Resolution 19267 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, 2015. 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 fee of $88,700, which includes $5,000 for out of pocket expenses. The City contracted with Whitley Penn, LLP for its FYE 2014 audit, with additional options to renew for another four years. It is customary for the City to retain the same auditors for five consecutive years, the maximum the charter allows. We find this allows us to keep costs consistent and improve efficiency. The engagement letter is attached as Attachment 1. Budgetary Effect This contract calls for interim billings, with a projected budgetary impact of$ 88,700. Funding is provided in the 2015-2016 budget for the Finance Department for this annual expense. Z:\Finance\Resolutions\PR 16521 Auditor Whitley Penn.doc P.R. 19267 1/05/16 JWD 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 $88,700 FOR THE YEAR ENDING SEPTEMBER 30, 2015. 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, 2015, 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 January, 2016, 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: Debris Prince, Mayor ATTEST: Sherri Bellard, City Secretary APPROVED AS TO FORM: \i;0 Val Tizeno, Ci ttorney APPROVED FOR ADMINISTRATION: Brian McDougal, City Manager APPROVED AS TO AVAILABILITY OF FUNDS: Jerry W.-Dale, Interim Direc or of Finance EXHIBIT "A" j Houston Office 3411 Richmond Avenue vvhitleypenn Suite 500 Houston.Texas 77046 713.621.1515 Main whitleypenn.com January 5, 2016 To the Honorable Mayor,Members of City Council and City Manager City of Port Arthur,Texas We are pleased to confirm our understanding of the services we are to provide the City of Port Arthur, Texas (the "City") for the year ended September 30, 2015. We will audit the financial statements of the governmental activities, the business-type activities, the aggregate discretely presented component units, each major fund,and the aggregate remaining fund information, including the related notes to the financial statements, which collectively comprise the basic financial statements, of the City as of and for the year ended September 30,2015. Accounting standards generally accepted in the United States of America provide for certain required supplementary information(RSI),such as management's discussion and analysis(MD&A),to supplement the City's 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 City's RSI in accordance with auditing standards generally accepted in the United States of America. These limited procedures will consist of inquiries of management regarding the methods of preparing the information and comparing the information for consistency with management's responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We will not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. The following RSI is required by generally accepted accounting principles and will be subjected to certain limited procedures,but will not be audited: • Management's Discussion and Analysis. • Required Pension and Other Post Employment Benefit Information We have also been engaged to report on supplementary information other than RSI that accompanies the City's financial statements. We will subject the following supplementary information to the auditing procedures applied in our audit of the financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the financial statements or to the financial statements themselves,and other additional procedures in accordance with auditing standards generally accepted in the United States of America and will provide an opinion on it in relation to the financial statements as a whole: • Schedule of expenditures of federal awards. • Individual and combining fund financial statements • Budgetary comparison schedules An lndepende Member of Dallas Fort Worth Houston NEXIA INTBRNAT:JN:i. To the Honorable Mayor,Members of City Council and City Manager City of Port Arthur, Texas Page 2 of 8 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 auditor's report will not provide an opinion or any assurance on that other information. • Introductory Section • Statistical Section 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 reporting on— • 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. • 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. 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 reporting 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 of OMB Circular A-133,and will include tests of accounting records,a determination 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 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 formed opinions,we may decline to express opinions or to issue a report as a result of this engagement. To the Honorable Mayor,Members of City Council and City Manager City of Port Arthur, Texas Page 3 of 8 Other Services We will also assist in preparing the financial statements, schedule of expenditures of federal awards, and related notes of the District in conformity with U.S. generally accepted accounting principles and the Uniform Guidance based on information provided by you. These nonaudit services do not constitute an audit under Government Auditing Standards and such services will not be conducted in accordance with Government Auditing Standards. Management Responsibilities 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 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 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 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. 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 fmancial 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 financial 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 To the Honorable Mayor,Members of City Council and City Manager City of Port Arthur,Texas Page 4 of 8 responsible for 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 prior to the first day of scheduled field work. You are responsible for preparation of the schedule of expenditures of federal awards in conformity with OMB Circular A-133.You agree to include our report on the schedule of expenditures of federal awards in any document that contains and indicates that we have reported on the schedule of expenditures of federal awards. You also agree to include the audited financial statements with any presentation of the schedule of expenditures of federal awards that includes our report thereon OR make the audited financial statements readily available to intended users of the schedule of expenditures of federal awards no later than the date the schedule of expenditures of federal awards is issued with our report 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 in accordance with OMB Circular A-133; (2) that you believe the schedule of expenditures of federal awards, including its form and content, is fairly presented in accordance with OMB Circular A-133; (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. You are also responsible for the preparation of the other supplementary information, which we have been engaged to report on, in conformity with U.S. generally accepted accounting principles. You agree to include our report 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 statements with any presentation of the supplementary information that includes our report thereon OR make the audited financial statements readily available to users of the supplementary information no later than the date the supplementary information is issued with our report thereon]. Your responsibilities include acknowledging to us in the written representation letter that(1)you are responsible for presentation of the supplementary information in accordance with GAAP;(2)that you believe the supplementary information, including its form 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, performance 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. To the Honorable Mayor,Members of City Council and City Manager City of Port Arthur, Texas Page 5 of 8 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 (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.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 inform the appropriate level of management of any material errors, 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 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. 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 certain written representations from you about the financial statements and related matters. Audit Procedures—Internal Control Our audit will include obtaining an understanding of the entity 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. As required by OMB Circular A-133, 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. To the Honorable Mayor, Members of City Council and City Manager City of Port Arthur, Texas Page 6 of 8 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 AICPA professional standards, Government Auditing Standards, and OMB Circular A-133. To the extent they are applicable,these matters include: • Significant deficiencies in internal controls • Significant changes in accounting policies • Our basis for conclusions regarding sensitive accounting estimates • Significant Audit adjustments (recorded and unrecorded) • Consultation by management with other accountants on significant matters • Serious difficulties encountered in performing the audit • Disagreements with management. 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 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 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 tests of transactions and other applicable procedures described in the OMB Circular A-133 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, 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 Whitley Penn 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 cognizant or oversight 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 To the Honorable Mayor,Members of City Council and City Manager City of Port Arthur,Texas Page 7 of 8 notify you of any such request. If requested,access to such audit documentation will be provided under the supervision of Whitley Penn 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 a cognizant or oversight agency for audit, or a pass- through entity. 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. We expect to begin our audit February 2016 and to issue our reports no later than May 31,2016.Christopher Breaux is the engagement partner and is responsible for supervising the engagement and signing the reports or authorizing another individual to sign them. Our fee for these services will be at our standard hourly rates plus out-of-pocket costs (such as report reproduction, word processing, postage,travel, copies, telephone, etc.) except that we agree that our gross fee, including expenses, will not exceed $88,700. 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. We would like to make the following comments regarding fee estimates: • 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 the circumstances with you, arrive at a new fee estimate and submit an engagement letter addendum to be mutually executed by the City and the Firm before we incur the additional costs. • Any weaknesses noted in the internal control may affect the nature, timing, and extent of our procedures and accordingly our fees will be adjusted to reflect such changes. • Our fee estimates have not considered the effects of any changes to auditing standards and accounting principles,which may be promulgated by the AICPA,Congress or any other regulatory body in the future and are unknown to us at this time. If significant additional time is necessary resulting in increased fees, we will endeavor to notify you of any such circumstances as they are assessed. • The City's personnel are responsible for the preparation of all items requested in the "PBC (prepared by City)Listing"and received by the date requested.Any delays caused by not preparing the items when requested may result in additional fees. To the Honorable Mayor,Members of City Council and City Manager City of Port Arthur, Texas Page 8 of 8 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. Very truly yours, LAA,4-4, RESPONSE: This letter correctly sets forth the understanding of the City of Port Arthur, Texas. Management signature: Title: Date: Governance signature: Title: Date: