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HomeMy WebLinkAboutMcGladrey & Pullen, LLP-4/25/2011= McGladrey April 18, 2011 Honorable Mayor and Members of City Council City of Waterloo, Iowa 715 Mulberry Street Waterloo, Iowa 50703 Attention: Michelle Weidner, Chief Financial Officer McGladrey & Pullen, LLP Certified Public Accountants 4801 Main St., Ste. 400 Kansas City, MO 64112-2543 O 816.753.3000 F 816.751.1890 www.mcgladrey.com This letter is to explain our understanding of the arrangements for the services we are to perform for City of Waterloo, Iowa for the year ending June 30, 2011 and June 30, 2012. We ask that you either confirm or amend this understanding. Audit Services We will perform an audit of City of Waterloo, Iowa's governmental activities, business -type activities, aggregate discretely presented component units, each major fund, and aggregate remaining fund information as of and for the years ended June 30, 2011 and June 30, 2012, which collectively comprise basic financial statements. We understand that the financial statements will be prepared in accordance with accounting principles generally accepted in the United States of America. The objective of an audit of financial statements is to express an opinion on those statements. We are responsible for forming and expressing an opinion about whether the financial statements that have been prepared by management with the oversight of the City Council are presented fairly, in all material respects, in conformity with accounting principles generally accepted in the United States of America. We will also perform the audit of City of Waterloo, Iowa as of June 30, 2011 and June 30, 2012, so as to satisfy the audit requirements imposed by the Single Audit Act and the U.S. Office of Management and Budget (OMB) Circular No. A-133. We will conduct the audit in accordance with auditing standards generally accepted in the United States of America and "Government Auditing Standards" issued by the Comptroller General of the United States; and the provisions of the Single Audit Act, OMB Circular A-133. Those standards, circulars, supplements, or guides require that we plan and perform the audit to obtain reasonable, rather than absolute, assurance about whether the financial statements are free of material misstatement whether caused by error or fraud. Accordingly, a material misstatement, may remain undetected. Also, an audit is not designed to detect errors or fraud that are immaterial to the financial statements. The determination of abuse is subjective; therefore, Government Auditing Standards do not expect us to provide reasonable assurance of detecting abuse. An audit of financial statements includes obtaining an understanding of the City and its environment, including its 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. An audit is not McGladrey is the brand under which RSM McGladrey, Inc. and McGladrey & Pullen, LLP serve clients' business needs. Member of RSM International network, a network of The two firms operate as separate legal entities in an alternative practice structure. independent accounting, tax and consulting firms. City of Waterloo, Iowa April 18, 2011 Page 2 designed to provide assurance on internal control or to identify significant deficiencies or material weaknesses. However, we will communicate to management and the City Council any significant deficiencies or material weaknesses that we become aware of during the course of the audit. We will also communicate to the City Council (a) any fraud involving senior management and fraud (whether caused by senior management or other employees) that causes a material misstatement of the financial statements, (b) any illegal acts, violations of provisions of contracts or grant agreements, and abuse that come to our attention•(unless they are clearly inconsequential), (c) should any arise, any disagreements with management and other serious difficulties encountered in performing the audit, and (d) various matters related to the City's accounting policies and financial statements. In addition to our reports on the City's financial statements, we will also issue the following reports or types of reports: • A report on the fairness of the presentation of the City's schedule of expenditures of federal awards for the years ending June 30, 2011 and June 30, 2012. • Reports on internal control related to the financial statements and major programs. These reports will describe the scope of testing of internal control and the results of our tests of internal controls. • Reports on compliance with laws, regulations, and the provision of contracts or grant agreements. We will report on any noncompliance which could have a material effect on the financial statements and any noncompliance which could have a direct and material effect on each major program. • A schedule of findings, responses and questioned costs. • Certification of the Waterloo Housing Authority's audited financial statement with the Real Estate Assessment Center. The responsibility we are to take for the material included in this report will be the same as that we assume for other supplementary information accompanying the financial statements. Report on compliance with requirements that could have a direct and material effect on the passenger facility charge (PFC) program and on internal control over compliance. The funds that you have told us are maintained by the City and that are to be included as part of our audit will be discussed and coordinated with you prior to beginning fieldwork. The component unit whose financial statements you have told us are to be included as part of the City's basic financial statements are listed here: • Waterloo Housing Authority • Waterloo Waterworks • Waterloo Convention & Visitors Bureau, Inc. The federal financial assistance programs that you have told us that the City participates in and that are to be included as part of the single audit will be discussed and coordinated with you prior to beginning fieldwork Our reports on internal control will include any significant deficiencies and material weaknesses in controls of which we become aware as a result of obtaining an understanding of internal control and performing tests of internal control consistent with requirements of the standards and circulars identified above. Our report(s) on compliance will address material errors, fraud, abuse, violations of compliance requirements, and other responsibilities imposed by state and federal statutes and regulations and City of Waterloo, Iowa April 18, 2011 Page 3 assumed by contracts; and any state or federal grant, entitlement of loan program questioned costs of which we become aware, consistent with requirements of the standards and circulars identified above. City of Waterloo, Iowa's Responsibilities Management is responsible for the financial statements, including the selection and application of accounting policies, adjusting the financial statements to correct material misstatements, and for making all financial records and related information available to us. Management is responsible for providing us with a written management representation letter confirming certain representations made during the course of our audit of the financial statements and affirming to us that it believes 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 and to the opinion units of the financial statements. Management is responsible for establishing and maintaining effective internal control over financial reporting and for informing us of all significant deficiencies and material weaknesses in the design or operation of such controls of which it has knowledge. Management is responsible for identifying and ensuring that the City complies with the laws and regulations applicable to its activities, and for informing us about all known material violations of such laws or regulations. In addition, management is 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 City involving management, employees who have significant roles in internal control, and others where the fraud could have a material effect on the financial statements. Management is also responsible for informing us of its knowledge of any allegations of fraud or suspected fraud affecting the City received in communications from employees, former employees, analysts, regulators, or others. Management is also responsible for (a) making us aware of significant vendor relationships where the vendor is responsible for program compliance, (b) following up and taking corrective action on audit findings, including the preparation of a summary schedule of prior audit findings, and a corrective action plan, and (c) report distribution including submitting the reporting packages. The City Council is responsible for informing us of its views about the risks of fraud within the City, and its knowledge of any fraud or suspected fraud affecting the City. The City agrees that it will not associate us with any public or private securities offering without first obtaining our consent. Therefore, the City agrees to contact us before it includes our reports or otherwise makes reference to us, in any public or private securities offering. We may conclude that we are not otherwise associated with the proposed offering and that our association with the proposed offering is not necessary, providing the City agrees to clearly indicate that we are not associated with the contents of the official statement or memorandum. The City agrees that the following disclosure will be prominently displayed in the official statement or memorandum: McGladrey & Pullen, LLP, our independent auditor, has not been engaged to perform, and has not performed, since the date of its report included herein, any procedures on the financial statements addressed in that report. McGladrey & Pullen, LLP, also has not performed any procedures relating to this official statement or memorandum. Our association with an official statement or memorandum is a matter for which separate arrangements will be necessary. The City agrees to provide us with printer's proofs or masters of such offering documents for our review and approval before printing, and with a copy of the final reproduced material for our approval before it is distributed. In the event our auditor/client relationship has been terminated when the City seeks such consent, we will be under no obligation to grant such consent or approval. City of Waterloo, Iowa April 18, 2011 Page 4 Because McGladrey & Pullen, LLP will rely on City of Waterloo, Iowa and its management and audit committee to discharge the forgoing responsibilities, City of Waterloo, Iowa holds harmless and releases McGladrey & Pullen, LLP, its partners, and employees from all claims, liabilities, losses, and costs arising in circumstances where there has been a knowing misrepresentation by a member of City Of Waterloo, Iowa's management that has caused, in any respect, McGladrey & Pullen, LLP's breach of contract or negligence. This provision shall survive the termination of this arrangement for services. City of Waterloo, Iowa's Records and Assistance If circumstances arise relating to the condition of your records, the availability of appropriate audit evidence, or indications of a significant risk of material misstatement of the financial statements because of error, fraudulent financial reporting, or misappropriation of assets which in our professional judgment prevent us from completing the audit or forming an opinion, we retain the unilateral right to take any course of action permitted by professional standards, including declining to express an opinion or issue a report, or withdrawal from the engagement. During the course of our engagement, we may accumulate records containing data that should be reflected in the City's books and records. The City will determine that all such data, if necessary, will be so reflected. Accordingly, the City will not expect us to maintain copies of such records in our possession. The assistance to be supplied by City personnel, including the preparation of schedules and analyses of accounts, has been discussed and coordinated with you. The timely and accurate completion of this work is an essential condition to our completion of the audits and issuance of our audit reports. From time to time and depending upon the circumstances, we may use third -party service providers to assist us in providing professional services to you. In such circumstances, it may be necessary for us to disclose confidential client information to them. We enter into confidentiality agreements with all third - party service providers and we are satisfied that they have appropriate procedures in place to prevent the unauthorized release of your confidential information to others. In addition, we may provide financial information you have provided to us in connection with this engagement to RSM McGladrey Inc. for purposes of creating benchmarking data to be used by McGladrey & Pullen, LLP and RSM McGladrey Inc. professionals and other clients. This benchmarking data is aggregated with data from a minimum of five other entities so that users of the data are unable to associate the data with any single entity in the database. Fees, Costs, and Access to Audit Documentation Our fees for the audit and accounting services described above are based upon the time required by the individuals assigned to the engagement, plus direct expenses. Interim billings will be submitted as work progresses and as expenses are incurred. Billings are due upon submission. Our fee for the services described in the letter will not exceed the amounts included as an attachment to this letter, unless the scope of the engagement is changed, the assistance which the City has agreed to furnish is not provide, or unexpected conditions encountered in which case we will discuss the situation with you before preceding. Our professional standards require that we perform certain additional procedures, on current and previous years' engagements, whenever a partner or professional employee leaves the firm and is subsequently employed by or associated with a client. Accordingly, the City agrees it will compensate McGladrey & Pullen, LLP for any additional costs incurred as a result of the City's employment of a partner or professional employee of McGladrey & Pullen, LLP. City of Waterloo, Iowa April 18, 2011 Page 5 In the event we are requested or authorized by City of Waterloo, Iowa or are required by government regulation, subpoena, or other legal process to produce our documents or our personnel as witnesses with respect to our engagements for of Waterloo, Iowa, of Waterloo, Iowa will, so long as we are not a party to the proceeding in which the information is sought, reimburse us for our professional time and expenses, as well as the fees and expenses of our counsel, incurred in responding to such requests. The documentation for this engagement is the property of McGladrey & Pullen, LLP. However, you acknowledge and grant your assent that representatives of the cognizant or oversight agency or their designee, other government audit staffs, and the U.S. Government Accountability Office shall have access to the audit documentation upon their request; and that we shall maintain the audit documentation for a period of at least three years after the date of the report, or for a longer period if we are requested to do so by the cognizant or oversight agency. Access to requested documentation will be provided under the supervision of McGladrey & Pullen, LLP audit personnel and at a location designated by our Firm. You have informed us that you intend to prepare a comprehensive annual financial report (CAFR) and submit it for evaluation by the Government Finance Officers Association's Certificate of Achievement for Excellence in Financial Reporting. Our participation in the preparation of the CAFR is to consist of technical review for program compliance. We will propose audit adjusting journal entries if necessary and prepare a draft of the basic financial statements. The two overarching principles of the independence standards of the "Government Auditing Standards" issued by the Comptroller General of the United States provide that management is responsible for the substantive outcomes of the works, and therefore, has a responsibility and is able to make any informed judgment on the results of the services described above. Accordingly of City of Waterloo, Iowa agrees to the following: • Michelle Weidner will be accountable and responsible for overseeing the proposed audit adjustments and drafting of the financial statements. • City of Waterloo, Iowa will establish and monitor the performance of the proposed audit adjustments and drafting of the financial statements to ensure that they meet management's objectives. • City of Waterloo, Iowa will make any decisions that involve management functions related to the proposed audit adjustment and drafting of the financial statement and accepts full responsibility for such decisions. • City of Waterloo, Iowa will evaluate the adequacy of services performed and any findings that result. Claim Resolution City of Waterloo, Iowa and McGladrey & Pullen, LLP agree that no claim arising out of services rendered pursuant to this agreement shall be filed more than two years after the date of the audit report issued by McGladrey & Pullen, LLP or the date of this arrangement letter if no report has been issued. City of Waterloo, Iowa waives any claim for punitive damages. McGladrey & Pullen, LLP's liability for all claims, damages, and costs of City of Waterloo, Iowa arising from this engagement is limited to the amount of fees paid City of Waterloo, Iowa to McGladrey & Pullen, LLP for the services rendered under this arrangement letter. City of Waterloo, Iowa April 18, 2011 Page 6 This letter constitutes the complete and exclusive statement of agreement between McGladrey & Pullen, LLP and City of Waterloo, Iowa superseding all proposals, oral or written, and all other communications, with respect to the terms of the engagement between the parties. In accordance with Government Auditing Standards, a copy of our most recent peer review is enclosed, for your information. If this letter defines the arrangements as the City understands them, please sign and date the enclosed copy and return it to us. McGladrey & Pullen, LLP Kevin Smith Confirmed o ehalf of City of Wat- r <.., lo a: 625 2011 City of Waterloo, Iowa Proposed Schedule of Fees June 30, 2011 and 2012 audits City of Waterloo, Iowa Employee Classification Hours Standard Hourly Rate Quoted Hourly Rate Total Partner/Director 40 $ 400 $ 234 $ 9,350 Manager 80 200 130 10,400 Supervisory Staff 230 160 100 23,000 Staff 450 125 85 38,250 2011 Total Hours and Fees 2012 Total Fees 800 * $ 81,000 * $ 83,000 * The audit fee includes the following: - all travel and other expenses - routine calls/questions throughout the year - REAC fee of $3,600 in 2011 and $3,700 in 2012 - PFC fee of $1,500 in 2011 and $1,550 in 2012 - Single audit testwork - up to 5 major programs; any programs over 5 would be billed at $6,000/program In 2010 there were 7 major programs; 2009 - 4; 2008 - 5 Any additional staff time outside of the normal scope of the audit would be billed at the quoted hourly rates noted above. DD CPAs & Advisors 910 E. St. Louis Street, Suite 200 P.O. Box 1190 Springfield, MO 65801-1190 417.865.8701 Fax 417.865.0682 www.bkd.com System Review Report To the Partners of McGladrey & Pullen, LLP and the National Peer Review Committee of the American Institute of Certified Public Accountants Peer Review Board We have reviewed the system of quality control for the accounting and auditing practice of McGladrey & Pullen, LLP (the firm) applicable to non -SEC issuers in effect for the year ended April 30, 2010. 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. 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/prsummaiy. As required by the standards, engagements selected for review included engagements performed under Government Auditing Standards, audits of employee benefit plans and audits performed under FDICIA. In our opinion, the system of quality control for the accounting and auditing practice of McGladrey & Pullen, LLP applicable to non -SEC issures in effect for the year ended April 30, 2010, 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 fad. McGladrey & Pullen, LLP has received a peer review rating of pass. December 2, 2010 exnerience J .3(b, �r Praxitx: MEMBER . • GLOBAL ALLIANCE OF IUfl DttIflt11T CIDYC