HomeMy WebLinkAboutDavis Hammon & Co - CC 12-013 , C C ia - oi3
DAVlS HAIVIlVION 8L CO. Davis W.Hammon,Jr.,CPA
Certified Pu61ic Accountanis � (1924-1989)
O Stephen B.Norman,CPA•PFS
Stephen J.Herr,CPA
KerryA.Webber,CPA
� James L.Duckett,CPA
April 10, 2012
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 for the yeaC ended June 30, 2012, and subsequent two years ending June 30, 2013 and
2014. 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 of and for the fiscal year
ended June 30, 2012, and subsequent two years ending June 30, 2013 and 2014. The following
supplementary information accompanying the basic financial statements is required by generally
accepted accounting principtes and will be subjected to certain limited procedures, but will not .
be audited:
➢ ManagemenYs discussion and analysis.
➢ Budgetary comparison schedules.
➢ Supplementary pension schedules.
Also, the following additional information accompanying the basic financiai statements will be
subjected to the auditing procedures applied in our audit of the financial statements upon which
we will provide an opinion in relation to the basic financial statements:
➢ Schedule of expenditures of federal awards.
If required, and in accordance with Public Utilities Code 99245, we will conduct a fiscal and
compliance audit of the City's MCOG funds for the purpose of rendering an opinion on the City
of Ukiah's compliance with the Transportation Development Act of the State of California.
Audit Objectives
The objective of our audit is the expression of opinions as to whether your basic financial
statements are fairly presented, in all material respects, in conformity with U.S. generally
accepted accounting principles and to report on the faimess of the additional information
referred to in the first paragraph when considered in relation to the basic financial statements
taken as a whole. The objective also includes reporting on:
• Internal control related to the financial statements and compliance with the provisions of
applicable laws, regulations, contracts, and grants, noncompliance with which could
MEMBERS: AMERICAN IYVSTITUTE APfD CALIFORNIA SOCIETY OF CERTIFIED PUBLIC P,CCOUIVTAfdYS
2080 Myers S4ree4,Suite 3,Oroville,CA 95966-5341 (630)533-3392 FAX(530)533-2714
DAVIS H[ll{ZMON 8L CO. '
Certified Public Accountants
O `
have a material effect on the financial statements in accordance with Govemmental
Auditing Standards.
• Intemal 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 reports on internal controi and compliance will each include a statement that the report is
intended for the information of the City Council, management, specific legislative or regulatory
bodies, federal 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 conducted in accordance with U.S. generally accepted auditing standards; the
standards for financial audits contained in Govemment 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 inciude 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 opinions and to render the required reports. If
our opinions on the financial statements or the Single Audit compliance opinions are other than
unqualfied, we will fully discuss the reasons with you in advance. If, for any reason, we are
unabie to complete the audit or are unable to form or have not formed opinions, we may decline
to express opinions or issue a report as a result of this engagement.
Management Responsibilities
Management is responsible for the basic financial statements and all accompanying information
as well as all representations contained therein. Management is also responsible for identifying
government award programs and understanding and complying with the compliance
requirements, and for preparation of the schedule of expenditures of federal awards 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. You are responsible for making all management decisions and performing all
management functions relating to the financial statements, schedule of expenditures of federal
awards, and related notes and for accepting full responsibility for such decisions. You will be
required to acknowledge in the management representation letter our assistance with
preparation of the financial statements and schedule of expenditures of federal awards 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 are required to designate an individual with suitable skill, knowledge, or experience
to oversee any nonaudit services we provide and for evaluating the adequacy and results of
those services and accepting responsibility for them.
Management is responsible for establishing and maintaining effective internal controls, including
intemal controls over compliance, and for evaivating and monitoring ongoing activities, to help
ensure that appropriate goals and objectives are met and that there is reasonable assurance
that govemment programs are administered in compliance with compliance requirements. You
are also responsible for the selection and application of accounting principles; for the fair
DAVIS HAMMON 8�; CO.
Certified Puhlic Accountants
. O
presentation in the financial statements of the respective financial position of the governmental
activities, the business-type activities, the aggregate discretely presented component units,
each major fund, and the aggregate remaining fund information of the City of Ukiah and the
respective changes in financial position and, where applicable, cash flows 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.
Management is responsible for making all financial records and related information available to
us, including any significant vendor relationships in which the vendor has responsibility for
program compliance. 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.
ManagemenYs responsibilities include 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 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, or illegal acts affecting the
govemment involving (a) management, (b) employees who have significant roles in intemal
control, and (c) others where the fraud or illegal acts could have a material effect on the
financial statements. Your responsibilities include informing us of your knowledge of any
allegations of fraud, suspected fraud, or illegal acts affecting the government received in
communications from employees, former employees, grantors, regulators, or others. In addition,
you are responsible for identifying and ensuring that the entity complies with applicable laws
and regulations and for taking timely and appropriate steps to remedy any fraud, iliegal acts,
violations of contracts or grant agreements, or abuse that we may report. Additionally, as
required by OMB Circular A-133, it is managemenYs responsibility to follow-up and take
corrective action on reported audit findings and to prepare a summary schedule of prior audit
findings and a corcective action plan.
Management is responsible for establishing and maintaining a process for tracking the status of
audit findings and recommendations. Management is also responsible for identffying 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 managemenYs views on our current findings,
conclusions, and recommendations, as weil 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 examined and the areas to be tested. We will plan and pertorm the audit to obtain
reasonable rather than absolute assurance about whether the financial statements are free of
material misstatement, whether from (a) errors, (b) fraudulent financial reporting, (c)
misappropriation of assets, or (d) violations of laws or govemmental regulations that are
DAVIS FIAMMON 8L CO. �
Certifled Public Accountants
Y
O
attributable to the entity or to acts by management or employees on behalf of the entity.
Because the determination of abuse is subjective, Government Auditing Standards do not
expect the auditor to provide reasonable assurance of detecting abuse. 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.
Because an audit is designed to provide reasonable, but not absolute assurance and because
we will not pertorm a detailed examination of all transactions, there is a risk that material
misstatements or noncompliance may exist and not be detected by us. 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 you of any material errors and any fraudulent financial
reporting or misappropriation of assets that comes to our attention. We will also inform you of
any violations of laws or govemmental regulations that come to our attention, unless clearly
inconsequential. We wili 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 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, 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 pertormed to test
the effectiveness of certain controls that we considered 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. 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
pursuantto GovemmentAudifing Standards.
As required by OMB CiFCUIar 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 requireme�ts applicable to each major
federal award program. However, our tests will be less in scope than would be necessary to
DAVIS F�MMON 8L CO.
Certified Public Accountants
O
render an opinion on those controls and, accordingly, no opinion will be expressed in our report
on intemal control issued pursuant to OMB Circular A-133.
An audit is not designed to provide assurance on internal control or to identify significant
deficiencies. However, during the audit, we will communicate to management and those
charged with govemance intemal control related matters that are required to be communirated
under AICPA professional standards, Govemment 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 Govemment 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 agreemerrts applicable to major programs. Our procedures will consist of
the applicable procedures described in the OMB CircularA-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 compiiance issued pursuant to OMB Circular A-133.
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 managemenYs 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 Coliection 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. 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 Califomia 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
DAVIS HAMMON SL CO. '
Certified Public Accountants
�
O
supervision of Davis Hammon 8 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 govemment agencies.
The audit documentation for this engagement wili be retained for a minimum of five (5) years
after the date of the auditors' report is issued or for any additional period requested by the O�ce
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 the audit in June, 2012. The preliminary and interim audit work will take
approximateiy five days to complete. We will begin final audit work in August or September, and
anticipate completion of fieldwork in October. Barring any unforeseen circumstances, we will
prepare and issue 17 copies of the audit report and management recommendations, if
applicable, by December 31, 2012. 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 firrn 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.
Our fee for audR services will be at our regular hourly rates, plus out-of-pocket expenses.
However, our fees will not exceed the amounts set forth below:
Total Annual Fee
2012 2013 2014
General City Audit $28,500 $30,000 $31,500
State CoMroller's Reports:
City of Ukiah 1,800 1,900 2,000
Annual Streets Report-Gas Tax Funds 1,140 1,180 1,220
Ukiah Valley Sanitation District 410 420 430
Annual REMIF Iiabiiity report 425 400 410
MCOG TDA Audit' 1,000 1,050 1,100
$33,275 $34,950 $36,660
•=Fee only applipble in years requiring TDA related audit. �
The maximum annuai 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
DAVIS HAMMON 8L CO.
Certified Public Accountants
. O
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 and any letter of comment, and any subsequent peer review reports
and letters of comment received during the period of the contract. Our August 31, 2009 peer
review report 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, Suite 3,
Oroville, Califomia 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 believe this
letter accurately summarizes the sign"rficant 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 . Herr, CPA
RESPONSE:
This letter correctly sets forth the understanding of the City of Ukiah:
�
By: �—
Title: (�/!�„ d Y1
Date: 7//3// Z