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HomeMy WebLinkAbout2013-11-06 PACKET 04.E.REQUEST OF CITY COUNCIL ACTION COUNCIL AGENDA MEETING ITEM # DATE 11 /6/13 ` • PREPARED BY Finance Robin Roland ORIGINATING DEPARTMENT DEPARTMENT HEAD ******************************�***************** COUNCIL ACTION REQUEST Consider appointment of independent audit firm for year ending December 31, 2013. STAFF RECOMMENDATION: Authorize engagement of Kern, DeWenter, Viere, Ltd. for the independent audit of the City's financial records for fiscal year ending December 31, 2013. BUDGET IMPLICATION: BUDGETED AMOUNT ADVISORY COMMISSION ACTION DATE ❑ PLANNING ❑ PUBLIC SAFETY ❑ PUBLIC WORKS ❑ PARKS AND RECREATION ❑ HUMAN SERVICES/RIGHTS ❑ ECONOMIC DEV. AUTHORITY ❑ SUPPORTING DOCUMENTS: REVIEWED ❑ ❑ ❑ ❑ ❑ ❑ ❑ ACTUAL AMOUNT APPROVED ❑ ❑ ❑ ❑ ❑ ❑ ❑ � MEMO/LETTER: ❑ RESOLUTION: ❑ ORDINANCE: ❑ ENGINEERING RECOMMENDATION: ❑ LEGAL RECOMMENDATION: � OTHER: Engagement letter, copy of system quality review report ADMINISTRATORS COMMENTS Administrator DENIED ❑ ❑ ❑ ❑ ❑ ❑ ❑ �� ��_ ate ************************��*�************:�**�**** H:\Council items\council-action.doc Cottage / Grove � Pride and PCp5Perity Meet To: Mayor and City Council Members Ryan Schroeder, City Administrator From: Robin Roland, Finance Director Date: October 23, 2013 Subject: Consider Appointment - Independent Audit Firm Introduction The City Council authorized requests for proposals for audit services for fiscal year end December 31, 2013 with potential extension for 2014-2016 at the July 17, 2013 council meeting. The Government Finance Officers Association (GFOA) recommends that a full-scale competitive audit RFP be completed every five years. The City last went out for RFP for audit services in 2005 and retained LarsonAllen (now CliftonLarsonAllen) at that time. CliftonLarsonAllen has completed the City audit for the last eight years. They are professional and have worked well with city staff. However, based on responses to the RFP staff is recommending a change in Auditors at this time. Discussion The Requests for Proposals were sent to five Minnesota firms that specialize in Municipal Auditing. All five firms submitted proposals. After reviewing the proposals, one firm was the unanimous choice of the selection committee comprised of the City Administrator, Finance Director and Assistant Finance Director. Staff obtained two solid references from current clients of the chosen firm who were described as "efficient and effective" and "providing a quality audit in a timely manner". Staff is recommending selection of Kern DeWenter Viere, Ltd. to complete the audit for the fiscal year ending December 31, 2013 based on their proposal. Cost of the audit is proposed at $31,275 with subsequent years increasing to $32,050, $32,800 and $33,600 respectively. (In comparison, the cost of the 2012 audit was $32,600). Action Requested Authorize engagement of Kern, DeWenter, Viere, Ltd for the independent audit of the City's financial records for the fiscal year ending December 31, 2013. _� = � _.� � � �� �; � � � � ��. October 15, 2013 Ms. Robin Roland, Finance Director City of Cottage Grove 12800 Ravine Parkway Cottage Grove, MN 55016. Dear Ms. Roland: We are pleased to confirm our understanding of the services we are to provide to the City of Cottage Grove, Minnesota, (the "City") for the year ended December 31, 2013. We will audit . the financial statements of the governtnental activities, the business-type activities, the discretely presented component unit, each major fund and the aggregate remaining fund information, including the related notes to the financial statements, which collectively comprise the City's basic financial statements as of and for the year ended December 31, 2013. 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 witli 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 lcnowledge 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 accounting principles generally accepted in the United States of America and will be subjected to certain limited procedures, but will not be audited. 1. Management's Discussion and Analysis 2. Schedule of Funding Progress — Other Post Employment Benefits Expert ndvice. When you tteed it.�' Ce:rtifi PuGlicAetountnnf5 Wcnith Tlmmgement Patrall Sen�ices 73usiness t'nl��atioiu 7edmotafi}� Senrires ltvin Cifles St. C(oud 3800 American Bou]e.vacd W, 220 Padc Avenue S. Sui[e ]000 EO, Box 1304 Bloomi��gton, btianesota SL Cloud, Minnacota 55431 56303 Phone: 952.5G3.6300 Phone: 320.251.7010 Fae: 952.5G3.6801 Pax: 32D.251.1784 wcvw.tcav,cum 877.912.7G9G Technology Hefp Beslc 86G.400.G42G <, We have also been engaged to report on supplementaiy 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: 1. Combining and Individual Fund Financial Statements 2. Supplemental Schedules 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 repoi�t will not provide an opinion or any assurance on that other information. 1. Introductory Section of Comprehensive Annual Financial Report 2. Statistical Section of Comprehensive Annual Financial Report 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. Our audit will be conducted in accordance with auditing standards generally accepted in the United States of America and the standards for financial audits contained in Gove�nment Audzting Standa�ds, 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 opinions. 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 �nancial statements 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. We will also provide a report (that does not include an opinion) 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 �nancial statements . as required by Government Auditing Standards. The Government Auditing Standards report on internal control over financial reporting and on compliance and other matters will include a paragraph that states that the purpose of the report is solely to (1) describe the scope of testing of internal control and compliance, and the results of that testing, and not to provide an opinion on the effectiveness of the City's internal control or on compliance, and (2) that the report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the City's internal control and compliance. The paragraph will also state that the report is not suitable for any other purpose. If during our audit we become aware that 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. � 2 Management Responsibilities Management is responsible for the basic financial statements and all accompanying information as well as all representations contained therein. As pai�t of the audit, we will assist with preparation of your financial statements and related notes. These nonaudit services do not constitute an audit under GovernmentAuditing Standards and such services will not be conducted in accordance with Government Auditzng Standa�ds. You will be required to acknowledge in the written management representation letter our assistance with the preparation of the financial statements and that you have reviewed and approved the financial statements 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 pxovide; oversee the services by designating an individual, 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 evaluating and monitoring ongoing activities, to help ensure that appropriate goals and objectives are met, for following laws and regulations; for the selection and application of accounting principles; and fox the prepaxation and fair presentation of the financial statements in conformity with accounting principles generally accepted in the United States of America. Management is also responsible for implementing systems designed to achieve compliance with applicable laws and regulations. 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 infoi7nation 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 include adjusting the financial statements to correct material misstatements and for 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 lcnown 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 entity complies with applicable laws, regulations, contracts, agreements, and grants and for taking timely and appropriate steps to remedy any fraud and noncompliance with provisions of laws, regulations, contracts and grant agreements, or abuse that we may report. You are responsible for the preparation of the supplementary information 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 3 responsibilities include acicnowledging to us in the wi•itten 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 n�easurement or presentation have not changed fronn 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, performalice audits, or other 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 repoi�t, 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 znanagement, 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 City or to acts by management or employees acting on behalf of the City. Because the determination of abuse is subjective, Gove�nment Auditing Standards do not expect auditors to provide reasonable assurance of detecting abuse. Because of the inherent limitations of an audit, coxnbined 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 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. 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. 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. Our procedures will include tests of documentary evidence suppoi�ting 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 your responsibilities for the financial statements; compliance � with laws, regulations, contracts, and grant agreements; and other responsibilities required by generally accepted auditing standards in the United States of America. Audit Procedures — Internal Control Our audit will include obtaining an understanding of the City and its environment, including internal con�rol, 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 necessaxy to render an opinion on internal control and, accordingly, no opinion will be expressed in our report on internal control issued pursuant to Government Audzting Standards. 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 and GovernmentAuditing 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 your 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 the 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 documents selected by us for testing. • 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. 5 The audit documentation for this engagement is the property of Kern, DeWenter, Viere, Ltd. and constitutes confidential information. However, subject to applicable laws and regulations audit documentation and appropriate individuals, will be made available upon request and in a timely manner 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 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 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. 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-tluough 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. Matt Mayer is the engagement partner and is responsible for supeivising the engagement and signing the repoi�ts or authorizing another individual to sign them. Our fees for these services will be $ 31,275. 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, 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�1"� per month, which is an annual rate of 12�fi�, 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. If you intend to publish or otherwise reproduce the financial statements and malce 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 repoi�t 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 ei�ror 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. � Any disputes between us that arise under this agreement, or for a breach of this agreement or that arise out of any other services performed by us for you, must be submitted to nonbinding mediation before either of us can start a lawsuit against the other. To conduct mediation, each of us shall designate a representative with authority to fully resolv� any and all disputes, and those representatives shall meet and attempt to negotiate a resolution of the dispute. If that effoi�t fails, then a competent and impartial third party acceptable to each side shall be appointed to hold and conduct a nonbinding mediation proceeding. You and we will equally share in the expenses of the mediator and each of us will pay for our own attorney's fees, if any. No lawsuit or legal process shall be commenced until at least 60 days after the mediator's first meeting with the parties. The nature of our engagement malces 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 repoi�t. 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 pat�ties 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. You agree that it is appropriate to limit the liability of Kern, DeWenter, Viere, 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 worlc 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. Government Auditing Standa�ds 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 repoi�ts and letters of comment received during the period of the contract. Our 2011 peer review report accompanies this letter: ' f�l 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 lcnow. 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. �������� Matthew L. Mayer Cei�tified Public Accountant RESPONSE: This letter correctly sets forth the understanding of the City of Cottage Grove, Minnesota. s X � Title: Date: 8 Lewis, Kisch & Associates, Ltd. CERTtFlED PUBLIC ACCOIlN7'AN15 1303 South Frontage Road, Suite 3 HasHngs, Minnesota 55033 ����li�� � �� ���� James V. Lewis, C.I'.A. Telephone: {b51) 437-3356 Carol J. Sailer, C.P.A. FAX: (651j 437-3808 Thomas A. Madsen, C.P.A. email: admin�lewiskisch,com SYSTEM REVIEW REPORT August 18, 2011 To the Shareholders Kem, DeWenter, Viere, l.td. and the Pee� Review Committee of the Minnesota Society of Certified Public Accountants We have �eviewed the system of qualiry control for the accounting and auditing practice of Kern, DeWenter, Viere, Ltd, (the firm) in effect for the year ended March 31, 2411. Our peer revlew was canducted in accordance with the Standards for Pefforming and Reparting on Peer Reviews estabiished by the Peer Review Board of the American Institute of Certified Public Accountants. The firm is responsible for designing a system of quality controi and complying with ii to provide the firm with reasonable assurance of performing and reporting in conformity with applicable professiona{ standards in ail material respects. Ou� responsibility is to express an opinion on the design of the system of quality contral 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 revfew included engagements performed under Govemment Auditing Standarrls and audits of emptoyee benefit plans. in au� opinion, the system bf quality control for the accounting and auditing p�actice of Kern, DeWenter, Viere, Ltd. in effect for the year ended March 31, 2011, has been suitably designed and complied with to provide the firm with reasonable assurance of performing and repo�ting in conformity wlth appiicable professEonal standards in ail material respects. Firms can receive a rating of pass, pass wilh defrclency{res), or fail. Kern, DeWenter, Viere, Ltd. has received a peer review rating ofpass. Respectfuily submitted, .�.', �t'..�,�,��,�, Members CPA a Minnesata Sotiety of Certified Publfc Accountants American Institute of Certified Public Accountants Minnesota Association of Aublie Accountants