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HomeMy WebLinkAboutDavis Hammon & Co., COU and URA Audits, 1999-04-15DAVIS IL4A MON & CO. Certified Public Accountants O April 15, 1999 Candace Horsley City Manager City of Ukiah 300 Seminary Avenue Ukiah, California 95842 Dear Candace, Davis W. Hammon, Jr., CPA (1924-1989) Stephen B. Norman, CPA • PFS Stephen J. Herr, CPA We are very pleased to confirm our understanding of the services we are to provide as an extension to our previous engagement letter dated June 21, 1994. Under the terms of this extension, we will continue to provide audit and accounting services to the City of Ukiah (City) and the Ukiah Redevelopment Agency (Agency) for the year ended June 30, 1999, and the subsequent four (4) fiscal years ending June 30, 2000, 2001, 2002 and 2003. Specifically, we will audit the general purpose financial statements of the City of Ukiah and the Ukiah Redevelopment Agency as of and for the year ended June 30, 1999, and the subsequent four (4) fiscal years. We will also provide the following additional services that will not be subjected to the auditing procedures applied in our audit of the general purpose financial statements: 1) We will prepare the Annual Report of Financial Transactions to the State Controller for the City of Ukiah, the Ukiah Redevelopment Agency, and the City's Gas Tax Funds. 2) We will complete the annual liability premium financial audit as required by the Redwood Empire Municipal Insurance Fund for each year under audit. Audit Objectives The objective of our audits is the expression of an opinion as to whether your general purpose financial statements are fairly presented, in all material respects, in conformity with generally accepted accounting principles. Our audits will be conducted in accordance with generally accepted auditing standards; the standards for financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States; and (if required) the Single Audit Act Amendments of 1996; and the provisions of OMB Circular A-133. Our audits will include tests of the accounting records of the City and Agency as well as a determination of major program(s) in accordance with Circular A-133, and other procedures we consider necessary to enable us to express an unqualified opinion that the financial statements are fairly presented, in all material respects, in conformity with generally accepted accounting principles and to report on the schedule of expenditures of federal awards and on the City's and Agency's MEMBERS: AMERICAN INSTITUTE AND CALIFORNIA SOCIETY OF CERTIFIED PUBLIC ACCOUNTANTS 2080 Mvers Street. Oroviile. CA 95966-5341 (530) 533-3392 FAX (530) 533-2714 DAMS HAMMON & CO. Certified Public Accountants 0 compliance with laws and regulations and their internal controls. If our opinion is other than unqualified, we will fully discuss the reasons with you in advance. If, for any reason, we are unable to complete the audits or are unable to form or have not formed an opinion, we may decline to express an opinion or to issue a report as a result of this engagement. Management Responsibilities Management is responsible for establishing and maintaining an internal control structure and for compliance with the provisions of contracts, agreements, and grants. In fulfilling this responsibility, estimates and judgments by management are required to assess the expected benefits and related cost of controls. The objectives of internal control are to provide management with reasonable, but not absolute, assurance that assets are safeguarded against loss from unauthorized use or disposition, that transactions are executed in accordance with management's authorization and recorded properly to permit the preparation of general purpose financial statements in accordance with generally accepted accounting principles, and that federal financial award programs are managed in compliance with applicable laws and regulations and the provisions of contracts and grant agreements. Management is responsible for making all financial records and related information available to us. We understand that you will provide us with such information required for our audit and that you are responsible to the accuracy and completeness of that information. We will advise you about appropriate accounting principles and their application and will assist in the preparation your financial statements, including the schedule of expenditures of federal awards (if required), but the responsibility for the financial statements remains with you. That responsibility includes the establishment and maintenance of adequate records and effective internal control over financial reporting and compliance, the selection and application of accounting principles, and the safeguarding of assets. 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 corrective action plan. 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 examined and the areas to be tested. 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 caused by error or fraud. As required by the Single Audit Act Amendments of 1996 and OMB Circular A-133, our audit will include tests of transactions related to major federal financial assistance programs for compliance with applicable laws and regulations and the provisions of contracts and grant agreements. Because of the concept of reasonable assurance and because we will not perform a detailed examination of all transactions, there is a risk that material errors, irregularities, or illegal acts, including fraud or defalcations, %DAV]rS MA MON & CO. Certified Public Accountants 0 may exist and not be detected by us. In addition, an audit is not designed to detect errors, fraud, or other illegal acts that are immaterial to the general purpose financial statements or to major programs. However, we will inform you of any material errors and any fraud that comes to our attention. We will also inform you of any other illegal acts that come to our attention, unless clearly inconsequential. 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 audits and does not extend to matters that might arise during any 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 evidence of inventories, and other direct confirmation of receivables and certain other assets and liabilities by correspondence with selected individuals, creditors, and financial institutions. We will request written representations from your attorneys as part of this engagement. At the conclusion of our audit, we will also request certain written representations from you about the financial statements and related matters. An audit of the general purpose financial statements performed in accordance with generally accepted auditing standards is not designed to determine whether the computer systems of the City and Agency are year 2000 compliant, or to provide any assurance an whether the City and Agency have addressed all of the affected systems on a timely basis. Further, we have no responsibility with regard to the systems of vendors, service providers, or any third parties. These are responsibility of management. However, we may choose to communicate matters that come to our attention relating to the Year 2000 issue. Audit Procedures - Internal Control In planning and performing our audits, we will consider the internal control sufficient to plan the audits in order to determine the nature, timing, and extent of our auditing procedures for the purpose of expressing our opinions on the City of Ukiah's general purpose financial statements and on its compliance with requirements applicable to major programs. We will obtain an understanding of the design of relevant policies and procedures and whether they have been placed in operation, and we will assess control risk. Tests of controls may be performed to test the effectiveness of certain policies and procedures that we consider relevant to preventing and detecting errors and fraud that are material to the general purpose 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 general purpose financial statements. Tests of controls relative to the general purpose financial statements are required only if control risk is assessed below the maximum level. 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. DAVIS MAMMON & CO. Certified Public Accountants O As required by OMB Circular A-133, we will perform tests of controls to evaluate the effectiveness of the design and operation of controls that we consider relevant to preventing or detecting material noncompliance with compliance requirements applicable to each major federal award programs. 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 reportable conditions. However, we will inform the governing body or audit committee of any matters involving internal control and its operation that we consider to be reportable conditions under standards established by the American Institute of Certified Public Accountants. Reportable conditions involve matters coming to our attention relating to significant deficiencies in the design or operation of the internal control that, in our judgment, could adversely affect the entity's ability to record, process, summarize, and report financial data consistent with the assertions of management in the general purpose financial statements. We will also inform you of any nonreportable conditions or other matters involving internal control, if any, as required by OMB Circular A-128. Audit Procedures - Compliance Our audits will be conducted in accordance with the standards referred to in the section titled Audit Objectives. As part of obtaining reasonable assurance about whether the general purpose financial statements are free of material misstatement, we will perform tests of the City's and Agency's compliance with applicable laws and regulations and the provisions of 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 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 the applicable procedures described in the OMB Circular A-133 Compliance Supplement. The purpose of those procedures will be to express an opinion on the City of Ukiah's compliance with requirements applicable to major programs in our report on compliance issued pursuant to OMB Circular A-133. Audit Administration Fees an Other The City of Ukiah and Ukiah Redevelopment Agency, and Davis Hammon & Co. retain the right to unilaterally cancel this agreement, without cause, in years subsequent to June 30, 1999, by providing written notification to the other party at least five (5) months prior to June 30, each year. DAVIS IL4 MMON & CO. Certified Public Accountants When required, at the conclusion of each year's engagement 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 designated federal clearinghouse and, if appropriate, 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. If required, we will provide the information to management as to where the reporting packages should be submitted and the number to submit at the conclusion of each engagement. The workpapers for this engagement are the property of Davis Hammon & Co. and constitute confidential information. However, we may be requested to make certain workpapers available to the State Controller's Office pursuant to authority given to it by law or regulation. If requested, access to such workpapers will be provided under the supervision of Davis Hammon & Co. personnel. Furthermore, upon request, we may provide photocopies of selected workpapers to the State Controller's Officer. The State Controller's Office may intend, or decide, to distribute the photocopies or information contained therein to others, including other government agencies. The workpapers for this engagement will be retained for a minimum of three years after the date of the auditors' report is issued or for any additional period requested by the State Controller's Office. If we are aware that a federal award 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 workpapers. We will be available throughout the year to consult with you on the accounting effects of any proposed transactions or contemplated changes in business policies. Our key personnel will usually be available, with 24 hours notice, for consultation. Annually, we will begin preliminary audit work for each the fiscal year in June. The preliminary and interim audit work will take approximately one week to complete. We will begin final audit work in August or September, and anticipate completion of field work by October 31. Barring any unforeseen circumstances, we will prepare and issue draft copies of the audit reports and management recommendations, and any other relevant documentation, by November 30. We anticipate delivery of twenty-five (25) completed copies of the final reports by December 15. The maximum annual fees stipulated below contemplate that conditions satisfactory to the normal progress and completion of the examination will be encountered and that the City's and Agency's accounting personnel will furnish necessary accounting records, documents, minutes and legal rulings for auditors inspection. However, if unusual circumstances are encountered which would make it necessary for us to do additional work, we shall report such conditions I DAVIS HAMMON & CO. Certified Public Accountants 0 immediately to the responsible City officials and both parties may negotiate such additional compensation as appears justified. The City may request our firm to perform financial analysis, accounting and auditing services in addition to those which are usual and customary in making an examination of the financial statements. If so, our firm shall be compensated for any such services performed, which are authorized, at our standard rates. However, if such additional services require the expertise of consultants, auditors and the City may negotiate separate rates and estimated fees for the work contemplated. Our fee for audit services will be at our regular hourly rates plus out-of-pocket expenses. However, our fee will not exceed the amounts set forth below: 1999 2000 2001 2002 2003 City of Ukiah Annual Audit $17,000 $17,500 $18,000 $18,500 $19,100 State Controller's Report 1,500 1,500 1,500 1,500 1,500 Gas Tax Report 1,000 1,000 1,000 1,000 1,000 REMIF Liability Report 300 300 300 300 300 Ukiah Redevelopment Agency Annual Audit 3,000 3,100 3,200 3,300 3,400 State Controller's Report 600 600 600 600 600 TOTAL ANNUAL FEES $23,400 $24,000 $24,600 $25,200 $25,900 As required by Government Auditing Standards, we are providing you with a copy of our most recent quality control review report. Our 1997 peer review report accompanies this letter. Mr. Stephen J. Herr is authorized to make presentations for Davis Hammon & Co. This proposal is an irrevocable offer for a period of 60 days from the date of issuance, April 15, 1999. Mr. Herr a partner of Davis Hammon & Co. and can be reached at 2080 Myers Street, Oroville, California 95966, telephone (916) 533-3392. Mr. Herr is authorized to sign this proposal and is authorized to bind Davis Hammon & Co. without exception. DAVIS HAMMON & CO. Certified Public Accountants O We appreciate the opportunity to be of continued service to the City of Ukiah and Ukiah Redevelopment Agency and believe this letter accurately summaries the significant terms of our engagement. If you have any questions, please let us know. If you agree with the terms as described in this letter, please sign the enclosed copy and return it to us Respectfully Submitted, DAVIS HAMMON & CO. `l'am Stephen J. err, CPA RESPONSE: This letter correctly sets forth the understanding of the City of Ukiah. City of Ukiah Y Title: - Date:- Ukiah Redevelopment Agency n~~a _ CU ROY R. SEILER Certified Public Accountant P.O. Box 133 • 231 W. Wood St. Willows, CA 95988 916/934-8841 / 916/934-8849 (Fax) Davis Hammon and Co. December 5, 1997 Certified Public Accountants Review No. 112050 I have reviewed the system of quality control for the accounting and auditing practice of Davis Hammon and Co., in effect for the year ended October 31, 1997. My review was conducted in conformity with standards established by the Peer Review Board of the American Institute of Certified Public Accountants. I tested compliance with the firm's quality control policies and procedures to the extent I considered appropriate. These tests included a review of selected accounting and auditing engagements. In performing my review, I have given consideration to the quality control standards issued by the AICPA. Those standards indicate that a firm's system of quality control should be appropriately comprehensive and suitably designed in relation to the firm's size, organizational structure, operating policies, and the nature of its practice. They state that variance in individual performance can affect the degree of compliance with a firm's quality control system and, therefore, recognize that there may not be adherence to all policies and procedures in every case. In my opinion, the system of quality control for the accounting and auditing practice of Davis Hammon and Co., in effect for the year ended October 31, 1997, met the objectives of quality control standards established by the AICPA and was being complied with during the year then ended to provide the firm with reasonable assurance of conforming with professional standards in the conduct of that practice. Roy R. Seiler, CPA Member American Institute and California Society of Certified Public Accountants