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HomeMy WebLinkAboutDavis Hammon & Co.,COU and URA Audits, 2004-06-04DAMS HAIUMON & CO. Davis W. Hammon, Jr., CPA Certified Public Accountants (1924-1989) Stephen B. Norman, CPA • PFS Stephen J. Herr, CPA Kerry A. Parapid, CPA June 4, 2004 Honorable Mayor and City Council Members of the City of Ukiah 300 Seminary Avenue Ukiah, CA 95482 Ladies and Gentlemen: We are pleased to confirm our understanding of the services we are to provide to the City of Ukiah and Ukiah Redevelopment Agency for the year ended June 30, 2004. We will audit the financial statements of the governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information, which collectively comprise the entity's basic financial statements, of the City of Ukiah and Ukiah Redevelopment Agency as of and for the fiscal year ended June 30, 2004. Also, the documents we submit to you will include the following additional information that will be subjected to the auditing procedures applied in our audit of the financial statements: ~ Management's discussion and analysis. Schedule of expenditures of federal awards. 9 Budgetary comparison schedules. Audit Objectives The objective of our audit is the expression of an opinion as to whether your financial statements are fairly presented, in all material respects, in conformity with accounting principles generally accepted in the United States of America. The objective also includes reporting on: Internal control related to the financial statements and compliance with laws, regulations, and the provisions of contracts or grant agreements, noncompliance with which could have a material effect on the financial statements in accordance with Governmental Auditing Standards. Internal Control related to major programs and an opinion on compliance with laws, regulations, and the provisions of contracts or grant agreements that could have a direct and material effect on each major program in accordance with the Single Audit Act Amendments of 1996 and OMB Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations. The reports on internal control and compliance will each include a statement that the report is intended for the information of the City Council, management, the Office of the Controller of the State of California specific legislative or regulatory bodies, federal MEMBERS: AMERICAN INSTITUTE AND CALIFORNIA SOCIETY OF CERTIFIED PUBLIC ACCOUNTANTS 2080 Myers Street, Oroville, CA 95966-5341 (530) 533-3392 FAX (530) 533-2714 DAVIS MMMON & CO. Certified Public Accountants n awarding agencies, and if applicable, pass-through entities and is not intended and should not be used by anyone other than these specified parties. Our audit will be performed 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 the accounting records, a determination of major program(s) in accordance with Circular A-133, and other procedures we consider necessary to enable us to express such an opinion and to render the required reports. If our opinion on the financial statements or the Single Audit compliance opinion is other than unqualified, we will clearly state the reasons for qualification with you in advance. If, for any reason, we are unable to complete the audit or are unable to form or have not formed an opinion, we may decline to express an opinion or issue a report as a result of this engagement. Management Responsibilities Management is responsible for establishing and maintaining internal control 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 costs of the 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, and that transactions are executed in accordance with management's authorizations and recorded properly to permit the preparation of financial statements in accordance with generally accepted accounting principles, and that the activities of the City 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 for the accuracy and completeness of that information. We will advise you about appropriate accounting principles and their application and will assist in the preparation of your financial statements, 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. Management is responsible for adjusting the financial statements to correct material misstatements and for confirming to us in the 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 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 (a) management, (b) employees who have significant roles in internal control, and (c) others where the fraud could have a material effect on the financial statements. You are also responsible for informing us of your knowledge of any allegations of fraud or suspected fraud affecting the government received in DAVIS HAMMON & CO. Certified Public Accountants O 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 and regulations. 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. 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 assurance about whether the financial statements are free of material misstatement, whether from errors, fraudulent financial reporting, misappropriation of assets, or violations of laws or governmental regulations that are attributable to the City of Ukiah or to acts by management or employees on behalf of the City. 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 award programs for compliance with applicable laws and regulations and the provisions of contracts and grant agreements. An audit is designed to provide reasonable, but not absolute assurance and because we will not perform a detailed examination of all transactions, there is a risk that material misstatements (whether caused by errors or fraud), illegal acts, or noncompliance may exist and not be detected by us. In addition, an audit is not designed to detect immaterial misstatements, immaterial illegal acts, or illegal acts that do not have a direct material effect on the financial statements. However, we will inform you of any material errors that come to our attention 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 required reports. Our responsibility as auditors is limited to the period covered by our audits and does not extend to matters that might arise during 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 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. Audit Procedures - Internal Controls In planning and performing our audit, we will consider the internal control sufficient to plan the audit 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 financial statements and on its compliance with requirements applicable to major programs. We will obtain an understanding of the design of relevant controls 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 controls that we considered relevant to DAVIS HAMMON &b CO. n Certified Public Accountants 1.1 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. Test of controls relative to the 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 the 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 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 reportable conditions. However, we will inform the governing body of any matters involving internal control and its operation that we consider to be reportable conditions under the 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 an entity's ability to record, process, summarize, and report financial data consistent with the assertions of management in the financial statements. We will also inform you of any non-reportable conditions or other matters involving internal control, if any, as required by Government Auditing Standards and OMB Circular A-133. Audit Procedures - Compliance Our audit 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 financial statements are free from material misstatement, we will perform tests of the City of Ukiah'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 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 the 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 of Ukiah's major programs. The purpose of those procedures will be to express an opinion on the City of Ukiah's compliance with requirements applicable to each of its major programs in our report on compliance issued pursuant to OMB Circular A-133. DAMS IMMMON &L CO. Certified Public Accountants Audit Administration, Fees, and Other At the conclusion of the engagement, we will complete the appropriate sections of and sign the Data Collection Form that summarizes our audit findings. We will provide copies of our reports to the City of Ukiah. 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 - when applicable) along with the Data Collection Form to the designated federal clearinghouse and, if appropriate, pass-through entities. The Data Collection Form and the reporting package must be submitted within the earlier of 3o 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. At the conclusion of the engagement, we will provide information to management as to where the reporting packages should be submitted and the number to submit. The audit documentation for this engagement is the property of Davis Hammon & Co. and constitutes confidential information. However, pursuant to authority given by law or regulation, we may be requested to make certain audit documentation available to the Office of the Controller of the State of California or its designee, a federal agency providing direct or indirect funding, or the U.S. General Accounting Office for the purposes of a quality review of the audit, to resolve 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 Davis Hammon & Co. personnel. Furthermore, upon request, we may provide photocopies of selected audit documentation to the aforementioned parties. These parties may intend, or decide, to distribute the photocopies or information contained therein to others, including other government agencies. The audit documentation 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 Office of the Controller of the State of California. 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 will begin audit on June 28, 2004. The preliminary and interim audit work will take approximately four days to complete. We will begin final audit work in August or September, and anticipate completion of fieldwork by October 15th. Barring any unforeseen circumstances, we will prepare and issue twenty-five (25) copies of the audit report and management recommendations, if applicable, by November 30th. Any or all of the above time frames can be changed to better coordinate our fieldwork with the desires of City staff. The City may request our firm to perform financial analysis, accounting and auditing services in addition to those that 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. DAVIS HAMMON & CO. Certified Public Accountants 0 Our fee for audit services will be at our regular hourly rates plus out-of-pocket expenses. However, our fees will not exceed the amounts set forth below: General City Audit - Single Audit $ 21,000 Ukiah Redevelopment Agency Audit 4,000 Prepare City's Annual State Controller's Report 1,500 Prepare Ukiah RDA Annual State Controller's Report 600 Prepare Annual Streets/Gas Tax Report 1,000 Prepare Annual REMIF Report 325 Total $ 28,425 The maximum annual fees stipulated above contemplate that conditions satisfactory to the normal progress and completion of the examination will be encountered and that the City'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 immediately to the responsible City officials and both parties may negotiate such additional compensation as appears justified. 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. Government Auditing Standards require that we provide you with a copy of our most recent external peer review report that accompanies this letter. Mr. Stephen J. Herr is authorized to make presentations for Davis Hammon & Co. Mr. Herr is a shareholder of Davis Hammon & Co. and can be reached at 2080 Myers Street, Oroville, California 95966, telephone (530) 533-3392. Mr. Herr is authorized to sign this proposal and is authorized to bind Davis Hammon & Co. without exception. We appreciate the opportunity to be of continued service to the City of Ukiah and Ukiah Redevelopment Agency 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 attached copy and return it to us. Respectfully Submitted, DAVIS HAMMON & CO. Stephen J. Herr, CPA DAVIS HAMMON& CO. Certified Public Accountants O RESPONSE: This letter correctly sets forth the understanding of the City of Ukiah and Ukiah Redevelopment Agency: Date: 6-t o 0(-/ By: