HomeMy WebLinkAboutItem 19 - Outside Audit Services ContractMEMO TO: HONORABLE MAYOR AND MEMBERS OF THE CITY COUNCIL
FROM: BRUNO RUMBELOW, CITY MANAGER
MEETING DATE: MAY 20, 2014
SUBJECT: APPROVAL TO RENEW AN ADDITIONAL ONE YEAR
CONTRACT OPTION FOR OUTSIDE AUDIT SERVICES WITH
PATTILLO, BROWN & HILL, LLP
RECOMMENDATION:
City Council to consider approval to renew an additional one year contract option for
outside audit services with Pattillo, Brown & Hill, LLP in the amount of $105,500.
FUNDING SOURCE:
Funds are available for professional auditing service fees of $105,500 in the various
Operating Funds in account 44540 for the annual audit.
The City Council approved a five year contract with Pattillo, Brown & Hill, LLP on
April 16, 2013 to perform the City of Grapevine's annual audit services. This would be
the second year of the five year contract renewal options. Pattillo, Brown & Hill, LLP
have extensive experience providing these services throughout the North Texas area
with several municipal clients in the Metroplex that are pleased with their professional
services. The firm has also performed the City's annual audit for the past six years with
satisfactory results.
Staff recommends approval.
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PA'I,'TIL•LO, BROWN & HILL,
CERTIFIED PUBLIC ACCOUNTANTS N BUSINESS CONSULTANTS
April 29, 2014
City of Grapevine, Texas
Attention: Karen Walker
P.O. Box 95104
Grapevine, Texas 76099
We are pleased to confirm our understanding of the services we are to provide the City of Grapevine,
Texas for the year ended September 30, 2014. We will audit the financial statements of the governmental
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 basic financial statements, of the City of Grapevine, Texas as of and for the year
ended September 30, 2014. 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 of Grapevine, Texas' 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 of Grapevine, Texas' 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:
1) Management's Discussion and Analysis.
2) Budgetary Comparison Schedules.
3) Schedule of Funding Progress for Retirement Plan.
4) Schedule of Funding Progress for OPEB Plan.
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City of Grapevine, Texas April 28, 2014 Page 2
We have also been engaged to report on supplementary information other than RSI that accompanies the
City of Grapevine, Texas' 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) Schedule of Expenditures of Federal Awards.
2) Combining and individual fund financial statements and 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 auditors' report will not
provide an opinion or any assurance on that other information.
1) Introductory section.
2) Statistical section.
Audit Objectives
The objective of our audit is the expression of opinions as to whether your financial statements are
fairly presented, in all material respects, in conformity with U.S. generally accepted accounting
principles and to report on the fairness of the 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 Government Auditing Standards report on internal control over financial reporting and on
compliance and other matters will include a paragraph that states (1) that the purpose of the report is
solely to 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 entity'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 entity's internal control and compliance. The
OMB Circular A -133 report on internal control over compliance will include a paragraph that states
that the purpose of the report on internal control over compliance is solely to describe the scope of
testing of internal control over compliance and the results of that testing based on the requirements of
OMB Circular A -133. Both reports will state that the report is not suitable for any other purpose.
City of Grapevine, Texas April 28, 2014 Page 3
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. We will issue written reports upon
completion of our Single Audit. Our reports will be addressed to Management and the City Council
of the City of Grapevine, Texas. 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 issue reports, or may withdraw from this
engagement.
Management Responsibilities
Management is responsible for the 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 all federal and state awards received and understanding and
complying with the compliance requirements, and for preparation of the Schedule of Expenditures of
Federal Awards (including notes and noncash assistance received) 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. 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. You agree to assume all
management responsibilities relating to the financial statements, Schedule of Expenditures of Federal
Awards, related notes, and any other nonaudit services we provide. You will be required to
acknowledge in the management representation letter our assistance with preparation of the financial
statements, Schedule of Expenditures of Federal Awards, and related notes 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. Further, you agree to
oversee the nonaudit services by designating an individual, preferably from senior management, who
possesses suitable skill, knowledge, or experience; evaluate the adequacy and results of those
services; and accept responsibility for them.
Management is responsible for (a) 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; (b) following laws and regulations; (c) ensuring
that there is reasonable assurance that government programs are administered in compliance with
compliance requirements; and (d) ensuring that management is reliable and financial information is
reliable and properly reported. Management is also responsible for implementing systems designed to
achieve compliance with applicable laws, regulations, contracts, and grant agreements. You are also
responsible for the selection and application of accounting principles; for the preparation and fair
presentation of the financial statements in conformity with U.S. generally accepted accounting
principles; and for compliance with applicable laws and regulations and the provisions of contracts
and grant agreements.
City of Grapevine, Texas April 28, 2014 Page 4
Management is also responsible for making all financial records and related information available to
us and for the accuracy and completeness of that information. 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 management representation letter that the effects of any uncorrected
misstatements aggregated by us during the current engagement and pertaining to the latest period
presented are immaterial, both individually and in the aggregate, to the financial statements taken as a
whole.
You are responsible for the design and implementation of programs and controls to prevent and detect
fraud, and for informing us about all known or suspected fraud affecting the government involving
(1) management, (2) employees who have significant roles in internal control, and (3) others where
the fraud could have a material effect on the financial statements. Your responsibilities include
informing us of your knowledge of any allegations of fraud or suspected fraud affecting the
government received in communications from employees, former employees, grantors, regulators, or
others. In addition, you are responsible for identifying and ensuring that the government complies
with applicable laws, regulations, contracts, agreements, and grants. Management is also responsible
for taking timely and appropriate steps to remedy fraud and noncompliance with provisions of laws,
regulations, contracts, and grant agreements, or abuse that we report. 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.
You are responsible for preparation of the Schedule of Expenditures of Federal Awards (including
notes and noncash assistance received) 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. 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) 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) 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. 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
City of Grapevine, Texas April 28, 2014 Page 5
GAAP; (2) you believe the supplementary information, including its form and content, is fairly
presented in accordance with GAAP; (3) 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.
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 government or to acts by management or employees acting on behalf of the
government. 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
City of Grapevine, Texas April 28, 2014 Page 6
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; Schedule of Expenditures of Federal Awards; federal award programs; compliance with laws,
regulations, contracts, and agreements; and other responsibilities required by generally accepted auditing
standards.
Audit Procedures — Internal Control
Our audit will include obtaining an understanding of the government 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.
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.
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
You may request that we perform additional services not addressed in this engagement letter. If this
occurs, we will communicate with you regarding the scope of the additional services and the estimated
City of Grapevine, Texas April 28, 2014 Page 7
fees. We also may issue a separate engagement letter covering the additional services. In the absence of
any other written communication from us documenting such additional services, our services will
continue to be governed by the terms of this engagement letter.
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.
We will provide copies of our reports to the City; however, management is responsible for
distribution of the reports and the financial statements. Unless restricted by law or regulation, or
containing privileged and confidential information, copies of our reports are to be made available for
public inspection.
The audit documentation for this engagement is the property of Pattillo, Brown and Hill, L.L.P. 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 a federal or state 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 Pattillo, Brown and Hill, L.L.P.
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 or for any additional period requested by the cognizant agency, oversight agency for
audit, or 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 on approximately November 17, 2014 and to issue our reports no later
than February 27, 2015. Todd Pruitt, CPA, 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 $105,500. 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
City of Grapevine, Texas April 28, 2014 Page 8
presentation. In accordance with our firm policies, work may be suspended if your account becomes
30 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 reports. 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.
Government Auditing Standards require that we provide you with a copy of our most recent external
peer review report and any letter of comment, and any subsequent peer review reports and letters of
comment received during the period of the contract. Our 2013 peer review report accompanies this
letter.
We appreciate the opportunity to be of service to the City of Grapevine, Texas 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,
Pattillo, Brown & Hill, L.L.P.
ddiw�
Todd Pruitt, CPA
TP /ad
RESPONSE:
This letter correctly sets forth the understanding of the City of Grapevine, Texas.
Management Signature:
Title:
Date:
Governance Signature:
Title:
Date:
American Institute of
Certified Board Accountants
3820 1 -55 North, Suite 100
Jackson, MS 39211
Mississippi Society of
Post Office Box 16090
Certified Public Accountants
Eubank, Betts, Hirn, Wood, PLLC
Jackson, MS 39236 -6090
An Independent Member of
P
A Professiema( Limited Liability Company
Phone,: 601 - 987 -4300
CPA Associates International, Inc,,
CERMIED PUBLIC ACCOUNTANTS
Fax: 601 -987 -4314
A Worldwide Association of Accounting Firms
vnawcubankbetts.com
August 29, 2013
To the Partners of
Pattillo, Brown & Hill, L. L. P.
and the National Peer Review Committee
We have reviewed the system of quality control for the accounting and auditing practice
of Pattillo, Brown & Hill, L. L. P. (the firm) in effect for the year ended May 31, 2013.
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 a 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/prsumMM.
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 and examinations of service organizations [Service
Organizations Control (SOC) 1 engagements]).
In our opinion, the system of quality control for the accounting and auditing practice of
Pattillo, Brown & Hill, L. L. P. in effect for the year ended May 31, 2013, 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 deficiency(ies) or fail.
Pattillo, Brown & Hill, L. L. P. has received a peer review rating of pass.
4,.L'`
EUBANK, BETTS, HIRN, WOOD,