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HLB °RUM ES p4
Certified Public Accountants
CLIENT COPY
February 10, 2012
City of Columbia Heights
590 40th Avenue Northeast
Columbia Heights MN 55421-3878
We are pleased to confirm our understanding of the services we are to provide the City of
Columbia Heights, Minnesota for the year ending December 31, 2011. The scope of services
includes the following:
• 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 Columbia
Heights, Minnesota as of and for the year ending December 31, 2011.
The following supplementary information required by generally accepted accounting
principles that will be subjected to certain limited procedures, but will not be audited:
o Management's discussion and analysis
o Budgetary comparison schedules presented as RSI
o Schedule of Funding Progress - OPEB
We have also been engaged to report on supplementary information other than RSI
that accompanies the City's 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:
o Schedule of expenditures of federal awards, if required
o Combining and individual fund financial statements
4810 White Bear Parkway White Bear Lake,MN 55110 651.426.7000 651.426.5004 fax www.hlbtr.com
1544I Opportunity Employer 100-Percent Employee-Owned
HLB Tautges Redpath,Ltd is a member of HLB International,a world-wide network of independent accounting firms and business advisors.
City of Columbia Heights
Contract for Auditing Services
Page 2
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 for which our auditor's report will not provide an opinion or any assurance.
o Introductory section
o Statistical section
The following
o State Legal Compliance Audit
o Copying and binding of financial statements
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 fairness of the additional 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 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
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 reports on internal control and compliance will each include a statement that the
report is intended solely for the information and use of management, the body or individuals
charged with governance, others within the entity specific legislative or regulatory bodies,
federal awarding agencies, and if applicable, pass-through entities and is not intended to be
and should not be used by anyone other than these specified parties.
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
1569445.1
City of Columbia Heights
Contract for Auditing Services
Page 3
opinions and to render the required reports. If our opinions on the financial statements or the
Single Audit compliance opinions are other than unqualified, 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 to 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 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 the 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 internal controls over compliance and for evaluating and monitoring ongoing
activities, to help ensure that appropriate goals and objectives are met and that there is
reasonable assurance that government programs are administered in compliance with
compliance requirements. You are also responsible for the selection and application of
accounting principles; for the fair 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 Columbia Heights, Minnesota 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 also responsible for making all financial records and related information
available to us and for ensuring that management and financial information is reliable and
properly recorded. Your responsibilities also include, including identifying significant
vendor relationships in which the vendor has responsibility for program compliance and for
1569445.1
City of Columbia Heights
Contract for Auditing Services
Page 4
the accuracy and completeness of that information. Your responsibilities include adjusting
the financial statements to correct material misstatements and 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 government involving (1) management, (2) employees who have significant
roles in internal control, and (3) 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 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 entity complies with
applicable laws, regulations, contracts, agreements, and grants. Additionally, as required by
OMB Circular A-133, it is management's responsibility to follow up and take corrective
action on reported findings and to prepare a summary schedule of prior audit findings and a
corrective action plan. You are responsible for the preparation of the supplementary
information 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.
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 other 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 timing and format for providing that information.
With regard to the electronic dissemination of audited financial statements, including
financial statements published electronically on your website, you understand that electronic
sites are a means to distribute information and, therefore, we are not required to read the
information contained in these sites or to consider the consistency of other information in the
electronic site with the original document.
1569445.1
City of Columbia Heights
Contract for Auditing Services
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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. 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 entity or to acts by management or employees acting
on behalf of the entity. Because the determination of abuse is subjective, Government
Auditing Standards do not expect auditors to provide reasonable assurance of detecting
abuse.
Because 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 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 come to our attention. We
will also inform you 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
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 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 the financial statements and related matters.
Audit Procedures—Internal Controls
Our audit will include obtaining an understanding of the entity 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
1569445.1
City of Columbia Heights
Contract for Auditing Services
Page 6
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. 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 of Columbia Heights, Minnesota'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.
The Minnesota Legal Compliance Audit Guide for Local Government requires that we
test whether the auditee has complied with certain provisions of Minnesota Statutes. Our
audit will include such test of the accounting records and other procedures as we consider
necessary in the circumstances.
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 of
Columbia Heights, Minnesota's major programs. The purpose of these procedures will be to
express an opinion on the City of Columbia Heights, Minnesota's compliance with
requirements applicable to each of its major programs in our report on compliance issued
pursuant to OMB Circular A-133.
1569445.1
City of Columbia Heights
Contract for Auditing Services
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Engagement Administration, Fees and Other
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. We will provide copies of our
reports to the City of Columbia Heights, Minnesota; however, 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 a corrective action plan) along with the Data Collection Form to the federal audit
clearinghouse and, if appropriate, to pass-through entities. We will coordinate with you the
electronic submission and certification. 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.
The audit documentation for this engagement is the property of HLB Tautges Redpath,
Ltd. and constitutes confidential information. However,pursuant to authority given by law or
regulation, we may be requested to make certain audit documentation available to grantor
agency(ies), a federal 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 HLB
Tautges Redpath, Ltd. 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 grantor
agency(ies). 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 estimate that our fee for these services, including expenses, will be as follows:
Financial audit, including copying and binding of CAFR
and REAC submission $35,000
Single audit (assumes one major program) $ 3,000
1569445.1
City of Columbia Heights
Contract for Auditing Services
Page 8
Our invoices for these fees will be rendered each month as work progresses and are
payable on presentation. The above fee is based on anticipated cooperation from your
personnel, completion of workpapers per the client to prepare list by your personnel, and the
assumption that unexpected circumstances will not be encountered during the audit. If
significant additional time is necessary due to a change in scope of services or delays in
receiving audit information requests, we will discuss it with you and arrive at a new fee
estimate.
Government Auditing Standards require that we provide you with a copy of our most
recent quality control review report and letter of comment, if any. Our 2010 peer review
report accompanies this letter. We are pleased to report that we did not receive a letter of
comment.
We appreciate the opportunity to be of service to the City of Columbia Heights,
Minnesota 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,
HLB TAUTGES REDPATH, LTD.
David J. Mol, CPA
Response:
This letter correctly sets forth the understanding of the City of Columbia Heights, Minnesota:
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1569445.1
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1569445.1