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Home My WebLink AboutContract 2012 2475M3 TAUTGES REDPATH, LTD. Certified Public Accountants December 3, 2012 Joe Kloiber City of Columbia Heights 590 40th Avenue Northeast Columbia Heights MN 55421 -3878 Dear Joe: Enclosed are two copies of the audit engagement letter for the years ending December 31, 2012 through 2014. As we discussed, I have included a termination clause (see page 8 of the engagement letter). If you have any questions, don't hesitate to call me. Thanks for the continued opportunity to be of service. If you have any questions, please call me. Sincerely, HLB TAUTGES REDPATH, LTD. 0 0- � �� David J. Mol, CPA DJM: aer Enclosure 4810 White Bear Parkway White Bear Lake, MN 55110 651.426.7000 651.426.5004 fax www.hlbtr.com Equal Opportunity Employer 100 - Percent Employee -Owned HLB Tautges Redpath is a member of HLB International, a world -.ride network of independent accounting firms and business advisors. 18253 64 .1 TAUTG E5 REDPATH, LTD. Certified Public Accountants December 3, 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 years ending December 31, 2012 through 2014. 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 years ending December 31, 2012 through 2014. 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 Equal Opportunity Employer 100 - Percent Employee -Owned HLB Tautge; Redpath is a member of HLB International, a orld -ide net pork of independent accounting firms and business ad .isors 1825364.1 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 other reports will be issued in conjunction with the financial audit: o Federal Single Audit (if required), including web -based SFAC o Audit Management Letter o State Legal Compliance Audit o Report on HUD Financial Data Schedule (FDS) Other Services As a part of this engagement, we will also provide the following services: Attest Services o Agreed upon procedures relating to REAC electronic submission Nonaudit Services 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. 1825364.1 City of Columbia Heights Contract for Auditing Services Page 3 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 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 1825364.1 City of Columbia Heights Contract for Auditing Services Page 4 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. You are also responsible for providing us with (1) access to all information of which you are aware that is relevant to the preparation and fair presentation of the financial statements, (2) additional information that we may request for the purpose of the audit, and (3) unrestricted access to persons within the government from whom we determine it necessary to obtain audit evidence. Your responsibilities also include, including identifying significant vendor relationships in which the vendor has responsibility for program compliance and for 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. 1825364.1 City of Columbia Heights Contract for Auditing Services Page 5 You are responsible for preparation of the schedule of expenditures of federal awards in conformity with OMB Circular A -133. You agree to include our report on the schedule of expenditures of federal awards in any document that contains and indicates that we have reported on the schedule of expenditures of federal awards. You also agree to make the audited financial statements readily available to intended users of the schedule of expenditures of federal awards no later than the date the schedule of expenditures of federal awards is issued with our report thereon. Your responsibilities include acknowledging to us in the written representation letter that (1) you are responsible for presentation of the schedule of expenditures of federal awards in accordance with OMB Circular A -133; (2) that you believe the schedule of expenditures of federal awards, including its form and content, is fairly presented in accordance with OMB Circular A -133; (3) that the methods of measurement or presentation have not changed from those used in the prior period (or, if they have changed, the reasons for such changes); and (4) you have disclosed to us any significant assumptions or interpretations underlying the measurement or presentation of 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. 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 1825364.1 City of Columbia Heights Contract for Auditing Services Page 6 Auditing Standards do not expect auditors to provide reasonable assurance of detecting abuse. Because of the inherent limitations of an audit, combined with the inherent limitations of internal control, 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 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 1825364.1 City of Columbia Heights Contract for Auditing Services Page 7 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. 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. We will provide copies of our reports to the City, however, management is responsible for distribution of the reports and the financial statements. Unless restricted by laws, regulation, or containing privileged and confidential information, copies of our reports are to be made available for public inspection. 1825364.1 City of Columbia Heights Contract for Auditing Services Page 8 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. David J. Mol, CPA is the engagement partner and is responsible for supervising the engagement and signing the report. We estimate that our fee for these services, including expenses, will be as follows: 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. Either the City of Columbia Heights or HLB Tautges Redpath, Ltd. may cancel this contract at any time by giving written notice to the other party at least thirty (30) calendar days prior to the effective date of the termination. HLB Tautges Redpath, Ltd. shall be paid for the work performed prior to the effective date of the termination. 1825364.1 2012 2013 2014 Financial audit, including copying and binding of CAFR and REAC submission $32,000 $32,000 $32,000 Single audit (assumes one major program) $ 3,000 $ 3,000 $ 3,000 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. Either the City of Columbia Heights or HLB Tautges Redpath, Ltd. may cancel this contract at any time by giving written notice to the other party at least thirty (30) calendar days prior to the effective date of the termination. HLB Tautges Redpath, Ltd. shall be paid for the work performed prior to the effective date of the termination. 1825364.1 City of Columbia Heights Contract for Auditing Services Page 9 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 H fights Minnesota: 1825364.1 Title:'` Date: /V- Appendix A M—f4— pr"K- MW LIEM & COMPANY, P.C. Affiedcm *,zffluk -W Certified Public Am-ountants & Business comultants cemrkd Pub4c &=Mwts ,dam SaAejtfC*dir.d NAIR� kwwr". 0 ctob er 28, 201 it To the SliaT a-oldcrs of JJH3 Tautges Rodpatli. TAd. and the Peer Review C'mmittee oftbe MiuriesoW Society of CPAs Abe have reviewed the system of quality control for the accounting and auditing pravtioz, of IILB'T"(9,cs Rodpath, 114. (the fim) in effect for the year ervied May 31, 2010. Our p= revit-w was ooadkic(ed in awordanct with (be Standards. for Performing mul Rquwting on Pctv RcvWwq ctaablit-hcd by the Peer Roricw Board of the Amcnicu, Institute of Certified Public Avrmwntants, The firm i5 responsible. for designing a system of quality control and vortiplying with it to provide the firm with roasonk1c assurance of performing and reporting in conbarmity with applicable profmsional standards in all material ruspc0s. Our rcsponsihility is to cxpr an opinion. on the Assign of the system of quality control and the -firm's compliance therewith based on, ow rcwkw, The nature, objectives, scope, limitations of., and the procedures performed in a System Review arc described in the standards at A-%,w.afcpa,orWprsun:imazy, As roquirod by the standards, engageincnis selected fray miew inGludod engagements P b under Gnaw-rnmew Audifing Stan dardsand audits of employee bmcfft plans. Crfo In our opinion, the system of quality control far the acc'mmting and auditmig practice of HLB'Tautges Rodpath, Ltd, in e-flec-t for the year ended May a1, 2010, has bccn suitably dcsiLmed and complied with to provide the firm with reasonable assurance of perfonning and reportuig in conforraity with -applicable professional standards in all material rcspccts. Finns can receive a rating of pass, pass with orfail. HLB rautges Rcdjrath Ltd, has received a pccT rcview rating oflKis. AS!5 &%t CameffiaLk Rtmd SLAt E290 Fhoer#K,Ar1wm 9W18 uephorte C602) W1-6tw WWW.1;e"k7&j-'bM 1825364.1 CITY COUNCIL LETTER MEETING OF: NOVEMBER 13 2012 AGENDA SECTION: CONSENT ORIGINATING DEPT: CITY MANAGER NO: FINANCE APPROVAL ITEM:AWARD AUDIT SERVICES CONTRACT BY: JOSEPH KLOIBER BY: FOR FISCAL YEARS 2012 -2014 105,000 35,000 3 Malloy Montigue Karnoswki DATE: NOVEMBER 6, 2012 105,800 Background At the request of the City Council, staff recently obtained contract proposals from CPA firms for the City's annual audit. As this service has not been bid in a number of years, the Council primarily sought assurance that the City was receiving a competitive fee for the work. In the words of one council member, "I have no problem with the service, but maybe they can sharpen their pencil." The City is required to undergo an independent annual audit by several statutory, contractual and charter requirements. As a by- product of this required process, an audit firm can also be well- positioned to advise the City on many significant issues at little or no additional cost. For this reason, it is valuable for the City to limit its consideration of audit firms to those that have sufficient experience with comparable municipalities to effectively provide such advice, as well as to conduct the audit efficiently. Staff prepared a 12 page request for proposals (RFP), detailing the scope of work, the City's financial systems and staffing, required scheduling, audit firm qualifications, and evaluation criteria. A copy of that RFP is attached. The RFP was distributed to CPA firms that met two criteria: 1) Firms with participation in the MN Government Finance Officers Association. This association's membership consists of almost all MN cities with populations over 5,000; plus various professional firms that seek to serve those cities. 2) Firms with participation in the Government Audit Quality Center of the American Institute of CPA's ( AICPA). The AICPA is the national organization that issues most auditing standards. Whereas the GASB decides what must be in the CAFR, the AICPA decides how auditors will test the CAFR. Participation in this particular group within the AICPA is a clear commitment by a firm to the specialized area of governmental auditing. Staff identified nine firms that met these two criteria. The responses are summarized below. The detailed proposal from each firm is available for review in the finance department. Firm Office 3 year Contract Average Annual Fee 1 Eikill Schilling Duluth 94,875 31,625 2 HLB Tautges Redpath White Bear Lake 105,000 35,000 3 Malloy Montigue Karnoswki Minneapolis 105,800 35,267 4 Abdo Eick Meyers Edina 106,475 35,492 5 CliftonLarsonAllen Minneapolis 109,493 36,498 6 Kern DeWenter Viere Bloomington 110,375 36,792 7 Schlenner Wenner St Cloud 117,885 39,295 8 Baker Tilly Minneapolis Declined N/A 9 Conway Deuth Sclimiesing Wilmar No response N/A MEETING OF NOVEMBER 13, 2012 AUDIT SERVICES CONTRACT FOR FISCAL YEARS 2012 -2014 — page 2 Analysis The five firms listed as 2 through 6 above conduct the substantial majority of the independent audits of Minnesota governmental units, particularly in the metro area. The proposals from these five firms are relatively similar in terms of the quality of staff proposed, the level of experience these firms have with comparable cities, and stated price. Staff judges that this reflects the degree to which these five firms regularly compete with each other for the same relatively fixed pool of similar clients. Observations on specific proposals are as follows: Firm 6 Kern DeWenter Viere (KDV) currently performs annual audits for the Columbia Heights paid -on -call firefighters' pension fund and for Columbia Heights School District 13. Under generally accepted auditing standards, conducting these other audits does not impair KDV's independence for auditing the City's CAFR, but the City Council should be aware of those relationships. Firm 5 CliftonLarsonAllen is a national firm with 90 offices. Staff judges that in some instances, the business model of a national firm may not be the best fit for the City of Columbia Heights. We note that the only other national firm to meet the criteria to receive the RFP was Baker Tilly (a McGladrey affiliate.) After reviewing both the RFP and the City's responses to their follow -up questions, Baker Tilly declined to submit a proposal. Firm 1 Eikill Schilling submitted the lowest bid. Their bid forecasted 28% fewer hours than our current audit firm. All other bidders were within about 5 -10% of the number of hours forecasted by our current audit firm. Based on their proposal, this firm primarily serves small communities in northern Minnesota. The only two city clients mentioned in their proposal that prepare a CAFR are Cloquet (pop 12,000) and Hermantown (pop 9,000). Neither of those cities have municipal liquor stores, although some of this firm's smaller clients do. None of the clients listed for this firm participate in the Area -Wide Fiscal Disparities Agreement which provides 28% of the Columbia Heights' levy. For these reasons, staff judges that Firm 1 is not the best fit for the City of Columbia Heights. We also note that this firm does not appear to currently participate in the MN Government Finance Officers Association. They were included in the RFP based on past participation in that association. Finn 2 HLB Tautges Redpath is the City's current auditor and submitted the second lowest bid. There are two inherent advantages to contracting with a current auditor, regardless of whom that auditor might be. First, there are significant one -time conversion costs for the City to change auditors. Staff estimates a minimum of 80 city staff hours would be required to format and transition various documentation and knowledge from any one firm's system to another in the first year. Second, no bidder knows more accurately what they are committing to than a current auditor. If professional service relationship is not a good deal for both parties, it won't be a good deal for either party. So, despite the stated contract term of "an all- inclusive not -to- exceed maximum price ", if a new auditor changes their mind about how much they want to do the work, we have little alternative but to muddle through an awkward and difficult situation for one year, and then incur the 80 staff hour transition costs again the next year to change auditors yet another time. Conversely, when continuing with the same audit firm for several years, there is a risk that the firm may become complacent and thereby fail to notice technical issues that should be considered in the audit. Some entities will periodically change auditors for this reason. The auditing profession has determined that this approach of "change for the sake of change" generally does not yield better quality audits. Oversights and omissions are actually more likely to occur from changing to a firm that did not audit the client's prior year. MEETING OF NOVEMBER 13, 2012 AUDIT SERVICES CONTRACT FOR FISCAL YEARS 2012 -2014 — page 3 Generally, a better approach is for the ongoing audit firm to periodically rotate some new personnel into key roles on the audit team. The proposal from Firm 2 HLB Tautges Redpath uses this approach. They propose to newly assign Jeffrey Wilson, a senior manager, to direct the day -to -day audit work, while retaining Dave Mol as the firm's partner on the audit. Jeffrey Wilson currently manages the City of Fridley and City of Champlin audits for the firm. Recommendation Based on the above analysis, staff recommends that the City Council adopt the following motion: RECOMMENDED MOTION: Move to award the City's audit service contract to HLB Tautges Redpath, Ltd. for fiscal years 2012 -2014, and to authorize the Mayor and City Manager to enter into a contract for same. COUNCIL ACTION: Motion approved 5 -0 CouncilLetter_2012 RHauditservices.docx Attachment REQUEST FOR PROPOSALS FOR AUDITING AND ANCILLARY SERVICES Fiscal Years Ending December 31; 2012, 2013 and 2014 1. Introduction The City of Columbia Heights (the City) is requesting proposals from qualified firms of certified public accountants to audit its financial statements for fiscal years ending December 31; 2012, 2013, and 2014, and to also provide certain ancillary services described herein. The audits are to be performed in accordance with auditing standards generally accepted in the United States of America, the standards applicable for financial audits contained in the Government Auditing Standards issued by the Comptroller General of the United States, the provisions of the Minnesota Legal Compliance Audit Guide; and (when applicable) the US Office of Management and Budget (OMB) Circular A -133 Audits of States, Local Governments, and Non- Profit Organizations, The City presents single year financial statements with only summarized prior year information for comparison purposes. The City will not reimburse firms for any expenses incurred in preparing proposals in response to this request. To be considered, proposals must be received by 4:30 p.m. October 31, 2012, at: City of Columbia Heights Attn: Finance Director 590 40th Ave NE of Columbia Heights Columbia Heights MN 55421 The City reserves the right to reject any or all proposals submitted. Submission of a proposal indicates acceptance by the firm of the conditions contained in this request for proposals, unless clearly and specifically noted in the proposal submitted and confirmed in the contract between the City and the firm selected. The City reserves the right to request additional information or clarifications from proposers, or to allow corrections of errors or omissions. The City reserves the right to retain all proposals submitted and to use any ideas in a proposal regardless of whether that proposal is selected. The City contact for audit firm inquiries regarding this request for proposal is Joseph Kloiber, Finance Director, `ose h.kloiber ci.columbia -hei hts.mn.us (763) 706 -3627. The City seeks a three year contract with an option for either party to terminate the contract after the first year. This approach is intended to strike a balance between the significant value to the City of retaining the same firm for multiple years, and the rare but potential case of the audit firm and the City being unable to establish a mutually beneficial professional services relationship. The City is not aware of any problems with the relationship it has with its most recent audit firm, and the City is satisfied with the quality of services it has received from that firm. Given that the City has used that firm for a number of years, the City's Council has initiated this proposal process to assure itself and the public that it is obtaining the appropriate market price for audit services. 1 I1. Scope of Work A. Reports Required Following the audit of the financial statements in accordance with the standards listed above, the auditor shall issue the following reports to be included in the City's comprehensive annual financial report (CAFR): 1. A report on the fair presentation of the financial statements in conformity with accounting principles generally accepted in the United States. 2. A report, or a paragraph in the report above, on the required supplementary information (RSI), stating that certain limited procedures have been applied to the RSI in accordance with auditing standards generally accepted in the United States. No opinion or provision of assurance is required in regard to the RSI. 3. An "in- relation -to" report, or an "in- relation -to" paragraph in the report above, on the combining and individual nonmajor fund statements and supplementary financial information contained in the CAFR. No opinion or provision of assurance is required in regard to the introductory or statistical sections of the CAFR. 4. A report on compliance with the Minnesota legal compliance audit guide for political subdivisions. 5. A report on internal control over financial reporting and on compliance and other matters based on an audit of financial statements performed in accordance with government auditing standards. 6. A report (if applicable) on compliance with requirements applicable to each major program and internal control over compliance in accordance with OMB Circular A -133. 7. An "in- relation -to" report (if applicable) on the schedule of expenditures of federal awards. 8. An "in- relation -to" report on the Financial Data Schedule required by the U.S. Department of Housing and Urban Development. In the required report(s) on internal control and compliance within the CAFR, the auditor shall communicate any significant deficiencies found during the audit. A separate management letter, not included in the CAFR, shall be issued to review and comment on the City's significant accounting policies, activities, and other matters. Auditors shall assure themselves that the City's Council is informed of each of the following, and are encouraged to do so via the management letter: 1. The auditor's responsibility under generally accepted auditing standards. 2. Significant accounting policies. 3. Management judgments and accounting estimates. 4. Significant audit adjustments. 5. Other information in documents containing audited financial statements. 6. Disagreements with management. 7. Management consultation with other accountants. 8. Major issues discussed with management prior to retention. 9. Difficulties encountered in performing the audit. B. Financial Statement Production The City's CAFR is consistently 200 -250 pages long. The preferred method of financial statement production is to populate templates established by the audit firm, in order to have a uniform proven style for headers, footers and other graphic elements of the CAFR. The report covers and plastic comb binding the City provides for its CAFR are designed to coordinate with the City's separate annual budget document. Approximately 30 hardcopy CAFRs and management letters are required each year. The City is willing to print and assemble these hardcopies, but generally has found it logistically more practical to have its audit firm print and assemble these in conjunction with the firm's final procedures. P1 For the basic fund financial statements, the budgetary comparison schedule within RSI, the combining fund statements, the individual fund statements, and the subcombining fund statements, the audit firm will need financial statement software that will group and map the accounts from the City's adjusted trial balance to financial statement templates. The City will provide its adjusted trial balance (in Microsoft excel or plain text format) and preliminary schedules detailing which accounts are grouped to yield each line item within the financial statement templates. Although this software will be maintained by the firm and reside within the firm's information system, the City will have responsibility for initiating and approving changes to the templates to reflect necessary line item additions /deletions or other presentation changes. Upon completion of the drafting process, the firm's financial statement software must generate final detail account grouping schedules which the City will approve and retain. For the remaining sections of the CAFR, the City will populate the firm's templates using Microsoft word or excel as appropriate. The City will compose the notes to its financial statements, but it is anticipated that the City will request example language from the firm to assist with composing new notes as necessary and that the firm will provide this example language if available. C. Special Conditions 1. The City will submit its comprehensive annual financial report to the Government Finance Officers Association (GFOA) of the United States and Canada for review under the Certificate of Achievement for Excellence in Financial Reporting program. It is anticipated that the City will not need the audit firm's assistance to meet the requirements of that program, but that the firm will provide assistance if requested. 2. The City prepares and submits a web -based version of the Financial Data Schedule required by the U.S. Department of Housing and Urban Development (HUD). This submission requires the audit firm to certify within the web -based HUD system that the City's submission is (or is not) consistent with that of the version of the Financial Data Schedule contained in the CAFR. As part of this engagement, the audit firm will perform the web -based certification and the firm's staff will obtain and maintain the necessary HUD user logins for the firm to do so. 3. In the event that the City is required to have an audit in accordance with OMB Circular A -133 the audit firm will provide the assistance necessary for the City to file the related web -based submission with the federal single audit clearinghouse of the U.S. Census Bureau. 4. The City, with the assistance of its financial advisors, could prepare an official statement in connection with the sale of debt securities which would contain the general purpose financial statements and the auditor's report. The auditor shall be required, if requested by the financial advisor and /or the underwriter, to issue a "consent and citation of expertise" as the auditor and any necessary "comfort letters." D. Retention and Access to Working Papers All working papers and reports must be retained, at the Auditor's expense, for a minimum of five years, unless the firm is notified in writing by the City of the need to extend the retention period. The auditor will be required to make working papers available, upon request, to the City of Columbia Heights, the Office of the MN State Auditor, and designees of grantors /pass- through entities of the City. In addition, the firm shall respond to the reasonable inquiries of successor auditors and allow successor auditors to review working papers relating to matters of continuing accounting significance. 3 I11. Description of the Government A. Background Information The City of Columbia Heights comprises 3.5 square miles at the southern -most point of Anoka County, bordering on northeast Minneapolis. The 2010 census population of the City was 19,496. Initially incorporated as a village in 1898, a home -rule city charter was adopted in 1921. The City's governing body consists of a mayor and five council members, all elected at large. The mayor serves a two -year term. Council members serve staggered four -year terms. The city manager is responsible for the daily management of city business and the administration of policy as directed by the Council. Walt Fehst is the city manager and has served in this capacity since 1996. As an older, fully - developed first -ring metro suburb, the City is challenged with replacing infrastructure and housing stock, as well as with serving a population that in recent years is far more diverse than was the case for most of the City's history. A community that is relatively modest in terms of household income and property value per household, the City has historically been a significant recipient of state aid to local government. That aid however, has been dramatically reduced over the past decade. The City operates one of the few remaining municipal libraries in the state. The City operates three municipal liquor stores, which collectively generate approximately the fifth highest gross annual sales of municipal liquor operations in Minnesota. The City presents two blended component units in its CAFR: 1. Columbia Heights Economic Development Authority (EDA) 2. Columbia Heights Housing and Redevelopment Development Authority (HRA) The EDA addresses redevelopment efforts within the City, which includes several tax - increment financing districts. The HRA's sole function is administration of the Parkview Villa senior housing development. Parkview Villa consists of 100 rental units of federally- subsidized low- income housing and 50 rental units of market rate housing. The HRA is currently in negotiations with HUD to sell Parkview Villa to a prospective buyer in mid -2013. If the sale is completed, the HRA is expected to dissolve. The City's most recent general obligation bond series, received an AA rating from Standard and Poor's upon issuance in 2009, based factors which included good financial management and planning practices. In August 2012, Standard and Poor's reaffirmed this AA rating with a stable outlook. The City's CAFR has received the GFOA Certificate of Achievement award each of the past twenty years. The City's three most recent CAFRs are available at the finance department page of the City's website: www. ci .columbia- heights.mn.us /index.gs NID =115 Note: Due to deadline pressures, the City elected to forgo correcting certain immaterial errors in the 2011 CAFR which were the result of inadvertent clerical omissions in the final drafting process. The City is aware that U.S. GAAP exclude the presentation of unassigned fund balance in other than the City's general fund (reference 2011 CAFR pages 88 and 117.) B. Finance Staffing The City's finance department consists of the following 9.75 full -time equivalents: 1. Finance Director 2. Assistant Finance Director 3. Accounting Coordinator /Accounts Payable 4. Finance Secretary /Accounts Payable 5. Payroll Accountant 4 6. Budget Coordinator /Accounting Clerk II - Liquor 7. Utility Billing Clerk II 8. Utility Billing Clerk I /Data Entry 9. Accounting Clerk I 10. Receptionist /Cashier (PT) In mid -2011, the City's previous finance director retired after nearly thirty years of service to the City. Joseph (Joe) Kloiber was then promoted to finance director after seven years as the department's assistant director. Joe is an active status CPA in Minnesota, with a BA degree in accounting, and a combination of public accounting and exempt organization experience totaling 24 years. At that same time, Jackie Senko was hired as assistant director. Jackie served as assistant finance director for the City of West Saint Paul for three years, and previous to that held various finance staff positions with the City of West Saint Paul and the City of Saint Anthony. Jackie has a BA degree in accounting and is currently pursuing an MBA degree and CPA certification. Jackie will coordinate the specific assistance and information to be provided by City to the audit firm in the course of the engagement. In mid -2012, external candidates were hired to fill the accounting clerk I and utility clerk II positions. The latter of these was due to the incumbent being promoted to fill a retirement vacancy in another department of the City. Also in mid -2012, a receptionist /cashier from the City's recreation department transferred to the position of finance department receptionist /cashier, when that incumbent left the workforce. Other finance staff have been in the department for a varying number of years. The City's information systems department consists of an I/S director that reports to the finance director, an assistant I/S director, and an I/S technician. The technician was hired in 2011. The I/S director and assistant I/S director have been with the City for many years. C. Financial Systems The City uses a suite of financial software applications from Affiliated Computer Services, Inc. (ACS), a Xerox corporation with offices in Waite Park Minnesota and other locations. ACS has a nation -wide user base. Formerly in much wider use in Minnesota, the ACS software operates on an IBM AS400 platform and is rather antiquated by today's standards. Users primarily access the AS400 through the City's PC network using "NewVision ", an ACS - affiliated interface installed on user PCs. NewVision somewhat simulates a windows environment for the user, despite ACS being an older "green screen" technology. For a limited number of functions, standard IBM client access software is installed on user PCs to access the AS400. The ACS modules used by the City include: 1. Government financial systems, including: a. General ledger b. Monthly P &L with budget -to- actual comparisons c. Cash Disbursements (for approximately 4,400 A/P checks per year) 2. Purchase order 3. Payroll (for approximately 200 total employees of all types) 4. Utility billing (for approximately 6,000 customers billed quarterly) 5. Cash register 6. Accounts receivable (limited use for miscellaneous A /R) 7. Capital Asset System The City uses Microsoft SQL Server for its special assessment database and Microsoft Access for the related user interface. The City uses Microsoft Office 2010 for most other financial record - creation purposes. Long -term record retention media is a combination of hardcopy and optical image. Laserfiche is the optical image system vendor. Minutes of the City Council, EDA and HRA meetings in Laserfiche are available through the City's website. 5 Monthly accounting records and source documents of the Parkview Villa senior housing development are prepared by the HRA's contract management company, CommonBond Inc., and are available upon request. Parkview Villa fund trial balances are consolidated into the City's financial system at yearend. As of 2011, the City reports 50 funds in its CAFR, including 13 major funds, with 2012 expected to be similar in this regard. Although the City formally adopts annual budgets for most of its funds for internal control purposes, only the general fund and six nonmajor special revenue funds are considered to have legally adopted budgets for general - purpose external reporting. The City's budgetary accounting method for governmental funds is consistent with U.S. GAAP. The City's budgetary accounting method for proprietary funds is a modified accrual basis with the addition of depreciation expense, which differs from the full accrual method used by the City for other proprietary fund purposes. This budgetary method for proprietary funds is expected to be changed beginning with approximately fiscal year 2014. The City reconciles and monitors key balance sheet accounts monthly, but prepares formal balance sheets only at fiscal yearend. For operating and debt service purposes, the City has a five -year financial plan through 2014. To varying degrees, the City has the components of a capital improvement plan in place, with the infrastructure components being the most formalized at this point. The buildings and equipment components of the plan are scheduled for significant updates and formalization in the next twelve to twenty -four months. IV. Time Period A. Schedule Desired for the 2012 Fiscal Year Audit (some limited flexibility available) 1. October 31, 2012: Audit proposal submission deadline. 2. November 14, 2012: City Council awards contract. Accepted firm notified as soon as possible. 3. Within First Two Weeks of December 2012 Audit entrance conference with finance director and assistant director. The purpose of this meeting will be to discuss any potential audit issues, the interim work to be performed; and to arrange for work space, internet access, and other needs of the auditor. This meeting will also be used to establish a work plan for the first year formatting of the fund financial statement templates described above in section II.B. 4. December 31, 2012 a. The firm provides a detailed list of all schedules, confirmations and other information to be prepared and /or made available by the City. b. The firm provides the City with blank templates in Microsoft office format for the CAFR pages not generated by the firm's fund financial statement software, such as notes to the financial statements, statements of cash flows, statistical tables, etc. 5. Within First Two Weeks of January 2013 The firm performs inventory observation /test counts. The City's liquor inventory is always material to its financial statements. It is located at three stores within the City. Store staff organize the stores during the week following the New Year's Day holiday, then typically count inventory at the largest store on one of the next two Sundays, and count at the two smaller stores on the alternate of those two Sundays The only other significant inventory in the City's financial statements is the auto parts and fuel inventory within the central garage internal service fund. The audit firm should use its judgment as to whether this inventory requires yearend observation or can be sufficiently verified by other audit procedures. Refer to 2011 CAFR page 149. 0 6. Mid - January 2013: The firm performs interim audit fieldwork. 7. March 25, 2013 a. The City finishes preparation of the introductory section of the CAFR. b. The City provides its trial balance, including substantially all adjustments other than entries for government -wide financial statement conversion, to the firm for import into the firm's fund financial statement software. 8. March 25 -29, 2013 The firm provides the City with the fund financial statement templates populated with the City's trial balance data, and the related detail account grouping schedules. 9. March 30 — April 21, 2013 a. The City verifies the appropriate accounting groupings are mapped to the correct line items in the draft fund financial statements. b. The City finishes preparation of supporting audit schedules. c. The City finishes government -wide financial statement conversion. d. The City updates notes to the financial statements. e. The City finishes preparation of HUD financial data schedule. 10. April 22 -May 10, 2013 The firm performs substantially all yearend fieldwork. 11. May 10 -19, 2013 a. The City finishes preparation of management's discussion and analysis. b. The City finishes preparation of the statements of cash flows. c. The City finishes preparation of the CAFR statistical section. 12. May 20 -24, 2013 The firm provides a complete draft CAFR for the City to detail proof; including unsigned audit reports, any draft audit findings, also the final related detail account grouping schedules, and draft management letter. 13. May 24 -31, 2013: The City detail proofs the complete draft CAFR and draft management letter. 14. May 31, 2013: Audit exit conference with finance director and assistant director. The purpose of this meeting will be for: a. The firm to summarize the results of field work and review significant findings. b. The City to provide a final list of proof corrections to the CAFR, the management letter, and responses to any audit findings. 15. June 1 -June 15, 2013: a. The firm provides a final draft CAFR and draft management letter for the City to confirm that all proof corrections have been carried throughout. b. The City and firm authorize assembly and issuance of the CAFR, including covers and bindings. c. The City distributes the CAFR and submits the related web -based submission to the Office of the State Auditor. 7 16. June or July 2013: The firm makes a brief presentation to the City Council at regular semi - monthly council meeting, regarding the City's financial statements and the auditors' reports thereon, followed by an opportunity for the Council to ask questions. 17. July 2013: The City and the firm complete their respective portions of the web -based submission of the HUD financial data schedule. V. Proposal Specifications A. Required proposal material: 1. Title page listing the proposal subject; the firm's name; the name, address and telephone number of the contact person; and the date of the proposal. 2. Technical proposal as described in section V.B. below. 3. Executed copy of proposer warranties (appendix A of this proposal). 4. Dollar cost bid in a separate sealed envelope. B. Technical Proposal The purpose of the technical proposal is to demonstrate the qualifications, competence and capacity of the firms seeking to undertake an independent audit of the City in conformity with the requirements of this request for proposal. The technical proposal should address the points outlined in the request for proposal (excluding any pricing information which should only be included in the sealed dollar cost bid) in a straightforward, concise manner. While additional data may be presented, the following items must be included. These represent the criteria against which the proposal will be evaluated: 1. Independence a. The firm should provide an affirmative statement that it is independent of the City and its component units, as defined by auditing standards generally accepted in the U.S. and the government auditing standards issued by the Comptroller General of the United States. b. The firm should list the any professional relationships involving the City, its component units, or other entities affiliated or associated with the City or it component units, for the past five years; together with a statement explaining why such relationships do not constitute a conflict of interest relative to performing the proposed audit. 2. Firm Qualifications and Experience a. The firm should provide an affirmative statement that the firm and all key engagement personnel hold the licenses /proper status certificates to practice in Minnesota. The proposer should state the size of the firm, the size of the firm's governmental audit staff, and the location of the office from which the work on this engagement is to be performed. c. Provide a copy of the firm's most recent peer review report. In addition, the firm shall provide information on the circumstances and status of any disciplinary action taken or pending against the firm during the past three years with state regulatory bodies or professional organizations. N d. Provide a brief description of the firm's recent involvement, if any, with current developments in the area of government auditing and governmental accounting through professional associations and/or regulatory bodies. e. For the firm's office that will be assigned responsibility for the audit, list the Minnesota city audit engagements performed in the last year and indicate which of these cities, if any, prepared a CAFR. For the three most comparable engagements, provide the name and telephone number of the principal client contact. 4. Partner, Supervisory and Staff Qualifications and Experience a. Identify the principal supervisory and management staff who would be assigned to the engagement. Provide information on the government auditing experience of each person. Engagement partners, managers, other supervisory staff may be changed if those personnel leave the firm, are promoted or are assigned to another office. To the extent practical, provide information regarding the number, qualifications and experience of the other staff to be assigned to this engagement. Indicate how the quality of staff, over the term of the engagement, will be assured. Staff at this level may be changed at the discretion of the proposer, provided that replacements have substantially the same or better qualifications or experience. Key Elements of the Audit Plan Provide the following information on the firm's planned audit approach: a. Level of staff and number of hours proposed for each segment of the engagement. b. Approach to be taken to document an understanding of the City's internal control. c. Approach to be taken in determining laws and regulations that will be subject to testing. d. Expected sample sizes and the extent to which statistical sampling is to be used, including sampling for purposes of tests of compliance, if any. e. Any anticipated potential audit problems identified by the firm. C. Sealed Dollar Cost Bid The sealed dollar cost bid should contain all pricing information relative to performing the audit engagement and ancillary services as described in this request for proposal. The total all- inclusive maximum price bid is to contain all direct and indirect costs, including all out -of- pocket expenses. The sealed dollar cost bid should include the following information: 1. Name of the firm. 2. A signed statement that the person signing the proposal is entitled to represent the firm, empowered to submit the bid, and authorized to sign a contract with the City of Columbia Heights; and that the proposal is a firm and irrevocable offer with a commitment to complete the services offered within the Minnesota statutory filing deadline six months following the end of each fiscal year. 3. The total all- inclusive maximum price for the proposed audit and ancillary services for each of the fiscal years ended December 31; 2012, 2013, and 2014 (state each year separately). The ancillary services include the report production and financial statement drafting services referred to in sections 11.13, and W.A. above. 4. A schedule of professional fees by staff level and expenses, presented in the format provided in the attachment (Appendix B) that supports the total all- inclusive maximum price. 01 The cost of any special services should be disclosed as separate components of the total all - inclusive maximum price. 6. The incremental cost to perform the audit in accordance with OMB Circular A -133 should be disclosed as a separate component of the total all- inclusive maximum price. In the event that OMB Circular A -133 audit procedures and related reports are not required in a given year, the all- inclusive maximum price will be reduced by this amount. It is unlikely that the City will expend more than $500,000 in federal awards in the fiscal year ended December 31, 2012. Expenditures of federal awards for subsequent years however, are not estimable at this time. The sealed dollar cost bid should state that, if it should become necessary for City to request that the firm render additional services to either supplement the services requested in this RFP or to perform additional work as a result of specific needs, then such additional work shall be performed only if set forth in an addendum to the contract between the City and the firm, and further state that any such additional work agreed to shall be performed at the same rates set forth in the schedule of fees and expenses included in the sealed dollar cost bid. S. The sealed dollar cost bid should state that, following completion of the services for the fiscal year 2012, the City or the firm may terminate the contract upon thirty (30) days written notice to the other party. Payments under the contract will be progress payments made on the basis of hours of work completed during the course of the engagement and out -of- pocket expenses incurred in accordance with the firm's dollar cost bid proposal. VI. Proposal Evaluation Criteria The basis of proposal selection will include, but not be limited to, the following criteria: A. Mandatory Criteria 1. The audit firm is independent and authorized to practice in Minnesota. 2. The firm has no conflict of interest with regard to any other work performed by the firm for the City, its component units, or affiliated entities. 3. The firm adheres to the instructions in this request for proposal on preparing and submitting the proposal. 4. The firm has a record of quality audit work. B. Technical Qualifications Criteria 1. Expertise and Experience a. The firm's past experience and performance on comparable government engagements. b. The quality of the firm's personnel to be assigned to the engagement. c. The firm's expertise with the GFOA Certificate of Achievement in Financial Reporting. d. The firm's involvement with current developments in the area of government auditing and government finance through professional associations and committees. Adequacy and Efficiency of Key Elements of the Audit Plan a. Proposed staffing plan for various segments of the engagement b. Approach to document an understanding of the City's internal control. c. Proposed sampling techniques. d. Approach to determine laws and regulations that will be subject to testing. 3. Cost 10 APPENDIX A PROPOSAL FOR AUDIT AND ANCILLARY SERVICES FOR THE CITY OF COLUMBIA HEIGHTS PROPOSER WARRANTIES A. Proposer warrants that it is willing and able to comply with State of Minnesota laws with respect to foreign (non -state of Minnesota) corporations. B. Proposer warrants that it is willing and able to obtain an errors and omissions insurance policy providing a prudent amount of coverage for the willful or negligent acts or omissions of any officers, employees or agents thereof. C. Proposer warrants that it will not delegate or subcontract its responsibilities under an agreement without the prior written permission of the City of Columbia Heights. D. Proposer warrants that all information provided in connection with this proposal is true and accurate. E. The proposer certifies that it can and will provide and make available at a minimum, all services set forth in the request for proposals. Signature of Official: Name (typed): Title: Firm: Date: no SCHEDULE OF PROFESSIONAL FEES AND EXPENSES FOR AUDIT AND ANCILLARY SERVICES FOR THE CITY OF COLUMBIA HEIGHTS Total all- inclusive maximum price for services for the fiscal year ended December 31, 2013 Total all- inclusive maximum price for services for the fiscal year ended December 31, 2014 12 Hours Standard Hourly Rates Quoted Hourly Rates Total Partners /Shareholders Managers Supervisory staff Staff Other (specify) Other (specify) Other (specify) OMB A -133 audit services Out -of- pocket expenses Transportation Meals, lodging Total all- inclusive maximum price for services for the fiscal year ended December 31, 2012 Total all- inclusive maximum price for services for the fiscal year ended December 31, 2013 Total all- inclusive maximum price for services for the fiscal year ended December 31, 2014 12 For the Fiscal Years Ending December 31, 2012 through 2014 • ROW11 •,. Ab • • October 31, 2012 Submitted By: David J. Mol, CPA Partner I hereby certify that I am entitled to represent HLB Tautges Redpath, Ltd. and am empowered to submit the bid and am authorized to sign a contract with the City of Columbia Heights, Minnesota. This proposal is a firm and irrevocable offer with a commitment to complete the services offered within the statutory filling deadline six months folllowing the end of each fiscal year. We understand that following completion of services for the fiscal year 2012, the City or the firm may terminate the contract upon thirty (30) days written notice to the other party. Summary schedule: Services 7 David J. Mol, Partner 2012 2013 2014 Total City audit(l) $32,000 $32,000 $32,000 $96,000 Single audit (if required )(2) 3,000 3,000 3,000 9,000 Quarterly Task List meetings no charge no charge no charge - Routine phone calls no charge no charge no charge - Total $35,000 $35,000 $35,000 $105,000 (l) Includes financial statement drafting and REAC submission. Assumes no significant changes in accounting and auditing standards. (2) Assumes one major program. The fee for each additional major program is approximately $1,500. TAUTGEs REDPATH, LTD. Certified Public Accountants City: Partner Senior Manager Senior auditor Audit staff Other: Support staff Subtotal Out -of- pocket expenses /other /rounding: Mileage Rounding /discount Subtotal - city audit Total all inclusive maximum price for 2014 audit(l) Hourly Rates Hours Standard Quoted Total 20 $303 $273 $5,460 80 212 191 15,280 90 128 115 10,350 90 106 95 8,550 25 70 63 1,575 305 41,215 (l) Assumes no significant changes in accounting and auditing standards. TAUTGES REDPATH, LTD. Certified Public Accountants (9,215) 32,000 $32,000 For the Fiscal Years Ending December 31, 2012 through 2014 Submitted By: David J. Mol, CPA Partner HLB Tautges Redpath, Ltd. is a member firm of the AICPA's Governmental Audit Quality Center Section Page Letter of Transmittal ...................................................................... l | Why HLBTautgesRedpath, Ltd ..................................................... 3 U |nd8p8ndence--.-------.—.-------...------ G U| License tO Practice in Minnesota ................................................... 7 K/ Firm Qualifications and Experience ............................................... 8 V Partner, Supervisory and Staff Qualifications and Experience ..... IO V| Resumes of Engagement Team ..................................................... 12 V1| Similar Engagements with Other Governmental Entities ............. 15 \0U Specific Audit Approach ................................................................ 18 CK Identification of Anticipated Potential Audit Problems ................ 24 X Acknowledgment of Scope and Required Audit Schedule ---.. 25 Appendix Peer Review Report ....................................................................... A Appendix PnoposerGuarenteesand\NarranUes -------------- B Appendix Sample Email Alerts Issued h»HLBTR........................................... C Dollar Cost Proposal ...................................................................... Separate Sealed Envelope TAUTGEs REDPATH, LTD. TAUTGEs REDPATH, LTD. Certified Public Accountants October 31, 2012 City of Columbia Heights Joseph Kloiber, Finance Director 590 40th Ave NE Columbia Heights, MN 55421 Dear Mr. Kloiber: It is our pleasure to present this proposal for the City of Columbia Heights (City). We have enjoyed working for the Columbia Height's team and desire to continue our relationship. We have the right systems, resources and talent in place to continue to meet your expectations. Here are a few examples of how we are different than our competition: Dedicated Government Service Area. We have a dedicated business unit of more than 20 professionals exclusively serving governmental and not - for - profit organizations. We currently provide audit, accounting and advisory services to a diverse group of more than 70 governmental entities. GFOA's Certificate Program. Several staff members participate in GFOA's certificate review program. Certificate reviewers perform reviews of four to six CAFR's each year. Peggy Moeller and David Mol are seminar presenters for MnGFOA's annual workshop regarding the Certificate of Achievement in Financial Reporting program. This experience better enables our staff to provide assistance with certificate program related issues. We are client- focused. Our client management structure is designed to deliver the best client service. A client service leader is assigned to manage your account and proactively serve your needs. Client service leaders are responsible for knowing the client's organization goals and needs; coordinating accurate and timely service delivery; and proactively educating you on new standards. We set up systems to ensure proactive delivery. The staff assigned to your account will meet monthly to review a "task list" customized to your needs. The "task list" meetings keep the team informed of all compliance deadlines, client expectations and client needs. Throughout the year, we meet with the client to discuss the "task list" and make sure all organization needs and compliance issues are identified, appropriate due dates are set, and expectations are determined. Training /Education. We are available to meet with the City Council and /or City staff to provide training /education on finance topics of interest to the City. These meetings will be at no- charge to the City. In addition, we issue email alerts to keep City staff informed on new accounting guidance. See Appendix C for examples of recent email alerts. 4810 White Bear Parkway White Bear Lake, MN 55110 651.426.7000 651.426.5004 fax www.hlbtr.com Equal Opportunity Employer 100 - Percent Employee -Owned HLB Tautges Redpath, Ltd. is an independent member of HLB International, a world -wide organization of professional accounting firms. TAUTGEs REDPATH, LTD. Certified Public Accountants Our understanding of the work to be done is outlined in Section X of this proposal. We commit to perform the work within the time period outlined in the Request for Proposal. Thank you for the opportunity to submit this proposal. Sincerely, HLB TAUTGES REDPATH, LTD. David J. Mol, CPA DJM:aer 4810 White Bear Parkway White Bear Lake, MN 55110 651.426.7000 651.426.5004 fax www.hlbtr.com Equal Opportunity Employer 100 - Percent Employee -Owned HLB Tautges Redpath, Ltd. is an independent member of HLB International, a world -wide organization of professional accounting firms. Why HLB Tautges Redpath, Ltd.? Simply put, you know us and we know you. You can expect to receive the same high level of service and quality that we have performed for you in the past. Thinkers vs. Robots We train our staff to be Thinkers, not Robots. Thinkers understand government finance. There are many good accountants that understand governmental accounting standards, but in today's world that is not good enough. We train our staff to think beyond accounting standards to have an understanding of City finance issues such as: • Tax increment financing • Arbitrage compliance • Fund balance Why is this important? HLB Tautges Redpath "Thinkers" are better equipped to identify audit and accounting issues and design the appropriate audit procedure, which ultimately protects your organization throughout the entire auditing process. Resources With approximately 110 employees at our White Bear Lake office, we are considered a "large local" CPA firm with national and international capabilities. In addition to governmental expertise, we have a full range of services at your disposal including employee benefits, payroll, sales tax, and more. Dedicated Governmental Staffing We have a business unit of 25 professionals exclusively serving governmental and not - for - profit organizations. As such, a great deal of time and effort is expended in the training of professional staff in this area through continuing education programs and in -house training. This time and effort has been successful in developing a competent, well - prepared audit staff sensitive to the continuing needs of governmental and not - for - profit entities. cA a TAUTGEs REDPATH, LTD. Page 3 1 Certified Public Accountants Governmental Experience HLB Tautges Redpath, Ltd. currently provides audit, accounting, and advisory services to a diverse group of more than 70 governmental entities. We have experience working with entities similar in size and activities to the City. Availability Throughout the Year Our clients are encouraged to contact us throughout the year with any questions that may arise. We take pride in providing a quick response to all client inquiries. We encourage you to ask any of our client references about our responsiveness to their inquiries. Staff Continuity Our goal is to maintain consistency with assigned staff from year -to -year especially at the manager level and above. We have a pool of more than 20 government /not- for - profit auditors that will help ensure that the quality of staff over the term of the engagement will not be impaired due to unforeseen circumstances. Approach to the Audit Process Our approach to an audit is to achieve a win -win outcome. The City wins by receiving a high - quality audit performed in an efficient and timely manner. Our firm wins by eliminating inefficiencies and receiving appropriate compensation for the value of services and approach provided. To achieve this outcome, audit planning and coordination with City staff is essential. We will work with City personnel to develop the necessary data for the preparation of audit schedules. Much of the data required for audit purposes is also required for the City in completion of the year -end closing process. Coordination of audit staff and City personnel will often result in one level of effort serving both purposes. This includes providing the City a comprehensive list of schedules and other information necessary to complete the audit. Additionally, our approach is to substantially complete all manager and partner reviews by the completion of fieldwork. This reduces the amount of calendar time between completion of fieldwork and report issuance. TAUTGES REDPATH, LTD. Page 4 Certified Public Accountonts Use of Technology /Audit Software to Create Efficiency /Client Portal HLB Tautges Redpath is committed to technology to continuously improve the effectiveness and efficiency of our audits. We use CitrixT°° servers enabling staff to connect to our main server from any location; we employ computer- assisted audit techniques (data mining) to identify unusual transactions, search for duplicate payments, sort financial data for audit test purposes, and analyze inventory reports comparing current and prior year costs; we use enhanced trial balance and document management software to more efficiently and easily link trial balance data to the financial statements and create electronic workpapers; and we empower our employees with information needed to provide better client service through a Client Relationship Management (CRM) system. These are all paperless systems. Additionally, our firm has a client portal system. This system facilitates the secure and efficient exchange of documents. Quality Control Our quality control document and our adherence to its provisions are subject to periodic peer review. The related percentage of governmental work requires that significant portions of our external quality control review be directed to governmental engagements. A copy of our unqualified peer review report is presented in Appendix A. Additionally, our audit reports are subject to review by the State Auditor's office as well as the Committee on Governmental Standards of the State Society of CPAs. There were no findings for any such reviews. HLB Tautges Redpath, Ltd. has not had any federal or state reviews of its audits or disciplinary action taken or pending against the firm during the past three years with State regulatory bodies or professional organizations. 100% Employee Ownership In January 2003, HLB Tautges Redpath, Ltd. became 100% employee -owned when an Employee Stock Ownership Plan (ESOP) was implemented. To our knowledge we are the only CPA firm in Minnesota with this structure. The ESOP is an important move that positions the firm for the future and gives us a competitive edge in attracting and retaining quality staff. As a result of the ESOP, the employees in our firm have a financial interest in the company and therefore have a vested interest in helping the firm grow and consistently delivering quality service. 1 TAUTGES REDPATH, LTD. Page 5 ® Certified Public Accountonts We are independent with respect to the City as defined by generally accepted auditing standards and Government Auditing Standards. We have no knowledge of any business, investment, or personal relationships with the City, their officials, appointed employees or department heads, and personnel of our firm that would impair our independence. HLB Tautges Redpath's has provided audit and related services to the City during the past five years. These services do not constitute a conflict of interest as these were audit services and required our firm to maintain its independence. HLB Tautges Redpath complies with the requirements of the AICPA's peer review program. A copy of our most recent external quality control review report, on which we received an unqualified opinion, is included in Appendix A. This review included specific government engagements. TAUTGEs REDPATH, LTD. Page 6 Certified Public Accountants Our firm is licensed and in good standing with the State of Minnesota. Our annual license is in effect from January 1, 2012 to December 31, 2012. We renew the license annually. Our license number is 359. The partners of our firm hold the following certificates issued by the Minnesota State Board of Accountancy: Name James S. Redpath David J. Mol D. Kenneth George Norman C. Longsdorf Steven J. Wahlin Mark C. Gibbs Thomas W. Hodnefield Paul W. Longsdorf Peggy A. Moeller Gretchen J. Kelly Brian J. Sweeney Gloria J. McDonnell Joel C. Newby Certificate No. 5846 9129 7601 8423 8160 11326 12890 12957 5515 17620 19549 18891 18904 All key employees assigned to the audit (managers, senior managers and principals) are properly licensed to practice in Minnesota. TAuTGES RE ®PATH, LTD. Certified Public Accountants Page 7 About Us HLB Tautges Redpath, Ltd. has grown by contributing to the success of its valued clients, not through mergers or acquisitions. Founded in 1971 with just three employees, the firm now employs approximately 110 staff in our White Bear Lake office. HLB Tautges Redpath, Ltd. is a full- service accounting firm. We help individuals and organizations — including businesses, local governments and not - for - profits — make decisions that create value and contribute to their financial well- being. Substantial effort of our professional staff is directed toward serving Minnesota local governments. Twenty -five staff members are assigned to governmental and not - for - profit services and devote significant time and effort in providing audit and other services to Minnesota governmental entities. HLB Tautges Redpath, Ltd. White Bear Lake office staff consists of the following positions: Classification Partners Principals Senior Managers Managers Professional staff Other staff Tota I TAUTGES REDPATH, LTD. Certified Public Accountants Government Total Staff Audit Staff Number Number 13 3 4 0 6 3 8 3 54 13 25 2 110 25 Page 8 Industry Involvement AICPA Governmental Audit Quality Center The Center is a national community of CPA firms that demonstrate a commitment to governmental audit quality and raise awareness about the importance of governmental audits. The Center provides members with best practices, guidelines, and tools CPAs need to perform quality governmental audits and better serve their clients. Members of the Center demonstrate their commitment by voluntarily agreeing to adhere to Center membership requirements, including designating an officer responsible for its governmental audit practice, establishing quality control programs, performing annual internal inspection procedures, and making the firm's peer review report findings publicly available. GFOA Three staff members currently participate in the GFOA's certificate review program. Additionally, three staff members are former reviewers. Certificate reviewers perform reviews of four to six CAFR's each year from governmental audits through the United States. This provides our staff exposure to different methods of reporting and financing governmental units. Minnesota GFOA Four staff members are members of MNGFOA. Our participation includes committee membership, an annual seminar to MNGFOA members regarding the certificate program, GASB updates, and governmental accounting training. David Mol is a member of the Education Committee and has taught intermediate governmental accounting and advanced governmental accounting to MNGFOA members. Peggy Moeller is a current member of the Conference Committee, Selection Committee and the Executive Committee, and a prior member of the Education Committee. Minnesota Society of CPAs Our participation includes staff members active in the MNCPA. David Mol is a member of the Society's Strategic Advisory Committee. Tom Hodnefield is a former member of the MNCPA Leadership Cabinet. Kris Blackburn and Rebecca Petersen are members of the School District Review Task Force. t TAUTGEs REDPATH, LTD. Page 9 1 Certified Public Accountonts Staff Assignments HLB Tautges Redpath, Ltd. is organized, managed and operated based upon a team concept. By expanding this concept to include the client, the enlarged team works together to meet the goals and objectives of the engagement. This team concept has and continues to work effectively in providing superior services and satisfying clients' needs. Our firm prides itself on delivering personal service. You will deal one -on -one with senior HLB Tautges Redpath staff. This way, our experienced staff can provide solutions to your accounting and financial reporting issues. The HLB Tautges Redpath, Ltd. staff responsible for your account will be: David J. Mol, CPA — Partner. David will be the assigned client manager and will be responsible for final review of audit work. David is also responsible for continued contact throughout the year. Jeff Wilson, CPA — Senior Manager. Jeff is responsible for coordinating fieldwork, supervising audit staff and reviewing audit work. Debra Jezierski, CPA — Manager. Resumes of the engagement team are provided in the Section VI. In addition to the above staff, we anticipate assigning two other staff auditors on a full -time basis. Equal employment opportunities and the value of diversity is an essential part of our business practices and principles. This commitment to equal employment opportunities extends to the assignment of staff to engagements. TAUTGEs REDPATH, LTD. Page 10 Certified Public Accountants All partners and professional staff of our firm are required to attain a minimum of 40 hours per year of continuing professional education (CPE). Of particular note, David Mol and Peggy Moeller annually attend the AICPA National Governmental Accounting and Auditing Conference and the GFOA Annual Governmental GAAP Update as part of their CPE program. These sessions enable HLB Tautges Redpath to not only stay current but to be proactive in anticipating future professional standard changes and certificate of achievement issues. We have developed relationships with national speakers and are able to contact them to discuss implementation issues. Included in the 40 hour per year requirement, partners and staff who work in the governmental area are required to have at least 24 hours of CPE directly related to the governmental environment and governmental auditing in a two -year period, in accordance with government audit standards. A summary of specialized training in governmental auditing and accounting for assigned personnel is as follows: Personnel David J. Mol, CPA Jeff Wilson, CPA Debra Jezierski, CPA Depth of Government Audit Staff In addition to the assigned staff, we have a pool of experienced government auditors. This will ensure that the quality of staff over the term of the engagement will not be impaired due to unforeseen circumstances. Other staff, who can be utilized on an as- needed basis with 10 or more years of government audit experience, are as follows: Peggy Moeller, CPA, Partner Thomas W. Hodnefield, CPA, Partner Melanie A. Accola, CPA, Senior Manager Andrew P. Hering, CPA, Senior Manager TAUTGES REDPATH, LTD. Page 11 Certified Public Accountants Hours of qualified "Yellow Book" CPE in govt auditing and accounting over the past three years ending June 30, Position 2010 2011 2012 Total Partner 35 39 51 125 Senior Manager 17 34.5 16 67.5 Manager 29 35.5 33 97.5 In addition to the assigned staff, we have a pool of experienced government auditors. This will ensure that the quality of staff over the term of the engagement will not be impaired due to unforeseen circumstances. Other staff, who can be utilized on an as- needed basis with 10 or more years of government audit experience, are as follows: Peggy Moeller, CPA, Partner Thomas W. Hodnefield, CPA, Partner Melanie A. Accola, CPA, Senior Manager Andrew P. Hering, CPA, Senior Manager TAUTGES REDPATH, LTD. Page 11 Certified Public Accountants David J. Mol., '' 4tidit Partner David is the Assurance and Accounting Operations Director at HLB Tautges Redpath. He is responsible for the success of all audit and accounting service areas of the firm. As a partner in the government service area, he also specializes in audit and management advisory services for local governments. He works with a variety of governmental entities including schools, cities, housing authorities, tribal governments, watershed districts and fire relief associations. David assists organizations with quality financial reporting and special projects such as debt studies, cash flow projections, advanced refunding verification reports, arbitrage compliance and rebate calculations, utility rate studies, cost allocation studies, and relief association pension benefit projections. He was a national reviewer of the Government Finance Officers Association's Certificate of Achievement in Financial Reporting Program and is a frequent presenter on topics surrounding governmental entities. David received his Bachelor of Science Degree from Augsburg College and is a member of the HLB International Audit Working Group, the American Institute of Certified Public Accountants (AICPA), Minnesota Society of Certified Public Accountants (MNCPA), Minnesota Association of School Business Officials (MASBO), Minnesota Government Finance Officers Association (MNGFOA) and the Government Finance Officers Association (GFOA). Outside of his passion for servicing governmental clients, David enjoys spending time at the cabin with family, hunting, fishing, and riding his motorcycle. He and his wife Rhonda live in Brooklyn Park and have three children. TAUTGEs REDPATH, LTD. Page 12 Certified Public Accountonts Jeffrey L. Wilson, Senior • G Jeff Wilson is a senior manager in the commercial audit service area and has provided services in this area for more than 20 years. He works with a variety of closely held businesses in the manufacturing industry and specializes in audits of financial statements. Jeff has provided public accounting services since 1984. He has a Bachelor of Science Degree from St. Cloud State University and is a member of the American Institute of Certified Public Accountants and the Minnesota Society of Certified Public Accountants. Jeff currently is the Manager on the following audits: • City of Fridley • City of Champlin • Access Insurance Association • Cummins NPower, LLC • Custom Mold & Design, LLC • Dynamic Air, Inc. • Karl Dungs, Inc. • Molenaar, LLC • Pathenon Agency, LLC • Teamvantage Molding, LLC • Wilson Tool International e TAUTGEs REDPATH, LTD. Page 13 Certified Public Accountants List of Government Clients Our firm has been involved in providing audit and other services to governmental units for more than thirty years. The following is a list of Minnesota governmental entities which we have served in the past year: Cities: Andover' Blaine' Bloomington "2 Cambridge 1,2 Champlin' Chanhassen' Columbia Heights' Columbus Coon Rapids1,2 Fridleyl,2 Housing and Redevelopment Authorities: Bloomington HRA Cambridge HRA Columbia Heights EDA /HRA Fridley HRA Special Districts: Minnesota Valley Transit Authority Minneapolis Park and Recreation Board Mille Lacs Band of Ojibwe North Suburban Hospital District Metropolitan Emergency Services Board Metropolitan Mosquito Control District 'GFOA Certificate Holder 2Required a federal single audit for 2011 Grand Rapid S1,2 Little Canada Linwood Township North Branch Oakdale' Oak Park Heights St. Anthony Village St. Louis Park 1,2 Waconia West St. Paul' St. Cloud HRA2 Washington County HRA 1,2 r TAUTGES REDPATH, LTD. Page 15 # Certified Public Accountants Client References: Services Provided FYE Entity Contact December 31, 2011 City of Bloomington Engagement Partner — David J. Mol City of Chanhassen Engagement Partner — David J. Mol Lori Economy - Schuller 952/563 -4930 Greg Sticha 952/227 -1100 — Financial audit (including golf course and recreation activities) — State legal compliance audit — CAR submitted to GFOA — Federal Single Audit — Financial audit — State legal compliance audit — CAM preparation — CAM submitted to GFOA City of Fridley Darin Nelson — Financial audit 763/572 -3520 — State legal compliance audit Engagement Partner — CAM submitted to GFOA — David J. Mol — CAM preparation City of St. Louis Park Brian Swanson — Financial audit 952/924 -2683 — State legal compliance audit Engagement Partner — CAM submitted to GFOA — David J. Mol — CAM preparation 1 TAUTGES REDPATH, LTD. Page 17 1 Certified Public Accountants Our working relationship with City staff will include the following: Internal task list meetings. The HLB Tautges Redpath team assigned to the City's audit meets monthly to ensure client needs are met. Our firm prepares a "task list" customized for each client. • Task list meetings with clients. The client manager coordinates periodic meetings with the Finance Director. The purpose of these meetings is to identify and discuss financial, accounting and audit topics. These meetings are generally held quarterly. • Audit planning meeting. Prior to year end, the client manager meets with the Finance Director to discuss the upcoming audit. This meeting includes establishing a timeline for each audit segment. Segmentation of the Audit We anticipate the following major audit phases: Audit Timeline We strive to build efficiency in our execution and timing of our audit engagements. We anticipate the following timeline: Audit planning (upon selection) — Includes the refining of audit programs to meet the particular needs of the engagement and performing various audit procedures required by SAS 99 (fraud standards) and SAS 104 -111 (risk assessment standards) such as initial internal control walk - throughs and documentation, conducting internal planning meetings to review audit strategy and scheduling of appropriate engagement personnel. Inventory observation (within the first two weeks of January 2013 TAUTGES REDPATH, LTD. Page 19 Certified Public Accountants Level of Staff Audit planning including the refining of audit programs to meet the Partner particular needs of the engagement and scheduling of appropriate Senior Manager support personnel Interim audit to accomplish audit tasks which will reduce final fieldwork Senior Manager requirements Staff Final fieldwork All levels In -house reviews, preparation of reports and exit conference to review All levels drafts of all reports Audit Timeline We strive to build efficiency in our execution and timing of our audit engagements. We anticipate the following timeline: Audit planning (upon selection) — Includes the refining of audit programs to meet the particular needs of the engagement and performing various audit procedures required by SAS 99 (fraud standards) and SAS 104 -111 (risk assessment standards) such as initial internal control walk - throughs and documentation, conducting internal planning meetings to review audit strategy and scheduling of appropriate engagement personnel. Inventory observation (within the first two weeks of January 2013 TAUTGES REDPATH, LTD. Page 19 Certified Public Accountants Interim fieldwork (by mid - January 2013) — Includes audit tasks that will alleviate final fieldwork requirements and SAS 104 -111 audit procedures such as client interviews, internal control testing and walkthroughs, legal compliance testing. Expected to be 2 to 3 days utilizing two HLB Tautges Redpath personnel. Receive trial balance and prepare draft financial statements — We use financial statement preparation software. This software enables the assigning of each account on the trial balance to a specific line item in the financial statements. Once all accounts have been assigned, and the financial statement templates are established, draft financial statements can be produced upon receiving a final trial balance. Our desire is to receive the trial balance and prepare draft financial statements prior to the start of fieldwork. Final Fieldwork (April 2013) — Performed by three HLB Tautges Redpath personnel. Final workpaper review and report preparation (April 2013) — Our approach is to have substantially all reviews (manager and partner) completed by the end of fieldwork. Draft reports (May 20 -24, 2013) — Draft reports shall be available for review by the Finance Director. Exit conference (May 31, 2013) — Draft report presentation. (Typically a draft report and any audit findings are reviewed and discussed with appropriate staff prior to this meeting). Report issuance (June 1 —June 15, 2013) Council Presentation —June 2013 Council Meeting. e TAUTGES REDPATH, LTD. Page 20 ® Certified Public Accountants Sampling Our firm uses statistical and non - statistical sampling for compliance (disbursement, payroll, and others) testing to provide reasonable assurance that internal controls are being applied as prescribed. We also use sampling for substantive tests of account balances and /or class of transactions. These account balances include payables, receivables, capital assets, inventories and other. Samples are drawn using a random number generator and /or systematic methods. Our approach in drawing audit samples for substantive tests for account balance or class of transaction is as follows: 1. Determine objectives of test 2. Define the population to be tested 3. Determine sample size 4. Determine method of selecting sample 5. Project errors in the sample to the total population 6. Define changes, if any, due to sampling results Analytical Procedures Our firm uses analytical procedures in the planning and final review stages as required by audit standards. We also use analytical procedures as substantive testing in areas where we believe such procedures are effective. Understanding of Your Internal Control We will request copies of City policies and procedures manuals. We will also interview the appropriate City staff to gain a further understanding of the City's design of the internal control structure. Our understanding of the City's controls is documented in narrative form and through the use of checklists. We also have created a "What Could Go Wrong" checklist for each significant account balance and class of transactions to assist in our understanding of your controls. 1 TAUTGEs REDPATH, LTD. Page 21 Certified Public Accountants Laws and Regulations Laws and regulations that are subject to audit test include applicable statutes as compiled by the Office of the State Auditor in the Minnesota Legal Compliance Audit Guide for Political Subdivisions. We have customized the State Auditor's checklist to include explanations of laws as appropriate. Data Mining HLB Tautges Redpath, Ltd. continuously looks for ways to improve the effectiveness and efficiency of our audits. We employ computer assisted audit techniques (data mining). Data mining software will assist audit staff to identify unusual transactions, search for duplicate payments and sort financial data for audit test purposes. Communication During the planning stage we establish two -way communication with management and those charged with governance. We will ask if you have any preferred method of communication, concerns or requests. All draft reports will be reviewed with you prior to issuance. The exit conference provides a forum to discuss issues raised during the engagement and to obtain an understanding of all reports prior to issuance. We are available to present the issued reports to the City Council. Proactive Service By having experienced auditors in the field, clients consistently receive proactive and open communication about ideas, opportunities and risks. We take a proactive approach with clients by keeping them up -to -date on new audit and compliance standards in their industry throughout the year. We monitor regulatory, business and economic trends, and continually look for ways for our clients to reduce risks or take advantage of opportunities. We communicate emerging developments through client letters, newsletters, e -mail, our Website and one -on -one communication. C e TAuTGES REDPATH, LTD. Page 22 Certified Public Accountants Electronic Document Management System HLB Tautges Redpath, Ltd. is different from other accounting firms in its use of a document management and imaging system to manage its records from creation to destruction. Other firms are starting to use this technology, but we have been storing all completed documents electronically for ten years, and we've incorporated records retention practices into the system to ensure only timely destruction. Our staff can view complete files on -line from any location (multiple people can access a document at one time), documents are secured at multiple levels, all information remains available, and it is backed up in case of a disaster. Records can be accessed in a matter of seconds when questions arise, leading to quicker answers and reducing phone tag. E- mailing documents is as easy as a click of a button. The efficiency of the system makes it possible for us to focus more attention on the details of your situation and to concentrate on issues above and beyond compliance work. t TAUTGEs REDPATH, LTD. Page 23 Certified Public Accountants We are not aware of any specific anticipated problems. However, should any situations arise during the course of our audit, our approach to resolving these problems generally is as follows: Situation is defined by audit manager. Is inquiry with client likely to resolve problem? BEI yes Audit Partner is advised of facts and circumstances. Research and audit team meeting will determine if client's position is acceptable. Does acceptance of client position resolve yes conflict? IN Client is advised of audit position and the matter is discussed. If situation requires additional work by client staff, audit staff or other resources, a plan of action is agreed upon and schedules adjusted as required. TAUTGEs REDPATH, LTD. Certified Public Accountants Situation is discussed with appropriate level of client staff. Is problem resolved? OM yes Client is advised of audit I Situation is resolved 1 Page 24 We understand that the work to be performed is as stated in the Services Requested section of the Request for Proposal on Auditing Services, key elements of which are as follows: • We will audit the basic financial statements of the City as of and for the years ending December 31, 2012 through 2014. Our audit(s) will be performed in accordance with auditing standards generally accepted in the United States of America, and the standards applicable to financial audits contained in Government Auditing Standards as set forth by the Comptroller General of the United States. We will provide an "in- relation-to" opinion on the combining and individual fund financial statements and schedules. The introductory and statistical sections will not be subjected to the auditing procedures applied in our audit of the basic financial statements. With regard to required supplementary information (RSI), we will apply certain limited procedures, which will consist principally of inquiries of management regarding methods of measurement and presentation of supplementary information. However, we will not audit the information nor express an opinion on it. • Independent Auditor's Report of Internal Control over Financial Reporting and on Compliance and Other Matters based on an Audit of Financial Statements Performed in Accordance With Government Auditing Standards. • Report on Compliance with Minnesota Legal Compliance. • Assistance with preparation of CAFR. • Preparation of Audit Management Letter. • Assistance with GFOA Certificate program issues. • Single Audit (if required). • Report on Financial Data Schedule (FDS). We believe our estimate of professional hours and fees to be competitive yet allow us to be responsive to your needs and provide high - quality service. We will respond to routine questions from the City personnel during the year at no additional charge. TAUTGES REDPATH, LTD. Page 25 Certified Public Accountants our proposed fee is based on the anticipated scope of services. An increase in the scope of service will necessitate an addendum (change order) to this agreement. Examples of an increase in the scope of service include additional audit procedures resulting from certain accounting issues or events, new contractual agreements, new accounting and auditing standards, if there is an indication of misappropriation or misuse of public funds, or difficulties encountered due to lack of accounting records, incomplete records, inaccurate records or turnover in the City's staff. Detail on fees is presented in the sealed Dollar Cost Proposal. TAUTGEs REDPATH, LTD. Page 26 Certified Public Accountants System Review Report October 28, 2010 To the Shareholders of HLB Tautges Redpath, Ltd. and the Peer Review Committee of the Minnesota Society of CPAs We have reviewed the system of quality control for the accounting and auditing practice of HLB Tautges Redpath, Ltd. (the firm) in effect for the year ended May 31, 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 duality 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 perfbrmed in a System Review are described in the standards at www.aicpa.org/prsumumary. As required by the standards, engagements selected for review included engagements performed under Government Auditing Standards and audits of employee benefit plans. In our opinion, the system of quality control for the accounting and auditing practice of HLB Tautges Redpath, Ltd. in effect for the year ended May 31, 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. Finns can receive a rating of pass, pass with dcfi'cienc)(ies) or./ail. HLB Tautges Redpath, Ltd. has received a peer review rating of pass. ✓ t � r� 4455 East Camelback Road Suite E290 Phoenix, Arizona 85018 Telephone (602) 667 -6040 Fax (602) 667 -6039 wmv.liemcpa.com e TAUTGES REDPATH, LTD. ;; Page 27 1 Certified Public Accountants Mcyn6cM: LI EM & COMPANY, P.C. $aCti0n. �Il'iailat 6f rfnfs. soctio O "ion of Run Certified Public Accountants & Business Consultants Amerltan Institute of Cettlffed Public Accountants Actium Society of Certified Public Account ants System Review Report October 28, 2010 To the Shareholders of HLB Tautges Redpath, Ltd. and the Peer Review Committee of the Minnesota Society of CPAs We have reviewed the system of quality control for the accounting and auditing practice of HLB Tautges Redpath, Ltd. (the firm) in effect for the year ended May 31, 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 duality 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 perfbrmed in a System Review are described in the standards at www.aicpa.org/prsumumary. As required by the standards, engagements selected for review included engagements performed under Government Auditing Standards and audits of employee benefit plans. In our opinion, the system of quality control for the accounting and auditing practice of HLB Tautges Redpath, Ltd. in effect for the year ended May 31, 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. Finns can receive a rating of pass, pass with dcfi'cienc)(ies) or./ail. HLB Tautges Redpath, Ltd. has received a peer review rating of pass. ✓ t � r� 4455 East Camelback Road Suite E290 Phoenix, Arizona 85018 Telephone (602) 667 -6040 Fax (602) 667 -6039 wmv.liemcpa.com e TAUTGES REDPATH, LTD. ;; Page 27 1 Certified Public Accountants PROPOSER GUARANTEES The proposer certifies it can and will provide and make available at a minimum, all services set forth in Section II, Nature of Services Required. PROPOSER WARRANTIES A. Proposer warrants that it is willing and able to comply with State of Minnesota laws with respect to foreign (non -state of Minnesota) corporations. B. Proposer warrants that it is willing and able to obtain an errors and omissions insurance policy providing a prudent amount of coverage for the willful or negligent acts, or omissions of any officers, employees or agents thereof. C. Proposer warrants that it will not delegate or subcontract its responsibilities under an agreement without the prior written permission of the City of Columbia Heights. D. Proposer warrants that all information provided in connection with this proposal is true and accurate. Signature of Official: Name (typed): David J. Mol, CPA Title: Partner Firm: HLB Tautges Redpath, Ltd. Date: October 31, 2012 TAUTGES REDPATH, LTD. Page 28 Certified Public Accountants TAUTGEs REDPATH, LTD. Certified Public Accountants Governmental Accounting Standards Board (GASB) Statement No. 54 Fund Balance Reporting and Governmental Fund Type Definitions is effective for calendar years ending December 31, 2011. Implementation may require action by your governing body, affect your 2011 budget, require tracking the use of funds, and /or require the establishment or modification of policies. We recommend addressing the folioraing implementation issues in early 2011: Fund Balance Reporting: Nonspendable Fund Balance and Restricted Fund Balance - Both are Outside the entity's control. The only action needed is to identify and track these balances during 2011. Committed Fund Balance - The governing body has the power to establish fund balance commitments but action must be taken by year end (although the exact dollar amount may be determined subsequently). Commitments should be established and /or identified and tracked during 2011. Assigned Fund Balance- The governing body has the power to assign fund balance or take action to delegate the authority to assign to an individual or group. Assignments should be established and /or identified and tracked during 2011. Unassigned Fund Balance - No action is required for unassigned fund balance. Fund Balance Policy - Governmental units should adopt a fund balance policy or modify their existing policy to address the following: • Flow assumptions (the order of use of the various components of fund balance) • Minimum fund balance (addressing cash flow, routine emergencies, etc.) • Stabilization arrangement (establishing conditions for spending, etc.) • Delegation of authority to assign (if desired). Fund Type Definitions: Capital Proiect Funds - Entities are now allowed to account for any financial resources that are restricted, committed or assigned for capital outlays (other than those financed by proprietary or fiduciary funds) in capital project funds. Activities related to capital outlay previously reported as a special revenue fund, because the expenditures were not for major capital facilities, should be reclassified to a capital project fund during 2011. "7;Viit,i - +r- :,'' ?,rrl;V.,.V G4h:t rs. ?:t,A 1 "N " ^lti; 6^1.<<'.f,.i;.,.' C?1.4;.6- 004`x- TAUTGEs REDPATH, LTD. Certified Public Accountants )' Page 29 TAUTGES REDPATH, LTD. CeNfled Public Accountants Special Revenue Funds - A specific revenue source is generally required that is restricted or committed to expenditures for the specific purpose (other than debt service or capital projects) of the special revenue fund. Restrictions are outside the control of the entity; however the governing body has the power to establish commitments. Commitments must be established before year end. The entity should document the restriction and /or commitment for each special revenue fund. Special revenue funds that do not meet GASB 54 requirements should be reclassified, generally to the General Fund. The entity may want to amend the General Fund budget for any reclassified activity. If you would like to further discuss GASB 54, please contact David Mot, CPA, at or Peggy Moeller, CPA, at TAUTGES REDPATH, LTD. Certified Public Accountants —qy ," Page 30 ' JIM Find us on I 1, "V lit- If ;r I. 'rkyvev V< hih r,= q L:ll.e, MN ',IIo . _. , '6 7; 1) .'1.,9:.+;.., ^J-: Fay TAUTGES REDPATH, LTD. Certified Public Accountants —qy ," Page 30 TAUTGES REDPATH, LTD. Certified Public Accountants The Governmental Accounting Standards Board (GASB) issued its Statement No. 59, Financial Instruments Omnibus, in June 2010. The effective date of GASB 59 is for fiscal periods beginning after June 15, 2010. The scope of this Statement covers four main topics: 2a7 -like external investment pools interest rate risk disclosures for debt investment pools; unallocated insurance contracts; and certain amendments to GASB 53 on derivatives. Below is a summary of the two topics that are most likely to impact Minnesota Cities. We will keep you informed of next steps as required implementation approaches next year. 2a7 -like External investment Pools GASB Statement No. 31 requires external investment pools to be reported at fair value. GASB 31 also provided an exception for 2a7 -like external investment pools to report on a basis other than fair value, such as the amortized cost method. Many external investment pools report their investments using the amortized cost method, so the GASB 31 exception is convenient. However, GASB was concerned that some entities were reporting their investment in external pools as a 2a7 -like pool even though the external investment pool was not conforming to SEC rule 2a7. So GASB 59 does two things - one, it elevates the definition of 2a7 -like pools to category (a) in the hierarchy of GAAP (previously 2a7 -like was defined in the Comprehensive Implementation Guide which is category (d)) and two, it emphasizes the attributes of a 2a7 -like pool investment which are limited to very high credit quality and short maturity, and emphasizes that investment policies of a 2a7 -like pool are set by a group of individuals that fulfill the functions of a board of directors. A common external investment pool used by Minnesota governmental entities is the league of Minnesota Cities' 4M Fund. The value of each investment in the fund is determined using the amortized cost method. Per discussion with 4M Fund, the Fund is 2a7 -like and qualifies for the GASB 31 exception to fair value reporting. The Fund invests in securities and instruments as permitted by MS 118A (high credit quality), maintains a weighted average maturity of ninety days or less (short maturity), and is governed by a board of directors. Interest Rate Risk Disclosure for Debt Investment Pools GASB 59 amends paragraph 15 of GASB 40 to clarify that interest rate risk disclosures for external investment pools should be limited to debt mutual funds and debt external investment pools. Interest rate risk disclosures for mutual funds and external investment pools that hold a mix of debt and equity investments is not required. This change primarily affects organizations such as fire relief associations. For more information, please contact David Mol, CPA at or Peggy Moeller, CPA at 1; #, tt; r• xr F`raY;'.W;,y 4'.' ?'it+ 3 >tlo' ! .:k,:, /AN' TAUTGES REDPATH, LTD. Certified Public Accountants (:its ti :Cis . ° i•? .Mf;;,; i °;;4, Page 31 TAUTGES REDPATH, LTD. Certified Public Accountants The Governmental Accounting Standards Board (GASB) issued Statement No. 61, The Financial Reporting Entity: Omnibus amendment of GASB Statements No. 14 and No. 34, in November 2010. The effective date of GASB 61 is for periods beginning after June 15, 2012. GASB 61 modifies the existing guidance including changes to 1) criteria for including potential component units in the reporting entity; 2) criteria for reporting component units as blended or discretely presented; and 3) determination of a major component unit. This article addresses the new guidance regarding fiscal dependency criteria and blending criteria. Fiscal Dependency. The existing guidance states if fiscal dependency exists, then including the component unit in the primary government's financial statement was appropriate. Fiscal dependency was defined as the component unit not having the ability to A) determine budget, B) establish tax levy or rate, or C) issue debt without approval of another government. The new guidance emphasizes that a financial benefit or burden relationship should exist. In other words, the primary government is A) legally entitled to or can otherwise access resources, or is B) legally obligated or has otherwise assured the obligation to finance deficits or provide financial support. Blending Criteria. There are now three circumstances (of which only one needs to be met) under which a component unit is reported using the blending method within the primary government financial statements. The three circumstances are: 1. Substantively the same governing body (changed). GASB provides guidance that the primary government also must generally manage the activities of the component unit in the same manner in which it manages its own programs. in other words, managernent of the primary government has operational responsibility for the component unit. 2. Exclusive or almost exclusive benefit to the primary government (no change), 3. Debt expected to be repaid by primary government (new), GASB emphasizes the total debt outstanding of the component unit is expected to be repaid entirely or almost entirely with resources of the primary government. Recommended Action The most significant change is how a component unit is included in a primary government's financial report. This standard will result in more component units presented under the discrete method. As such, vie recommend entities evaluate each component unit to determine if any changes are needed regarding inclusion method. y ,:IA -, L e TAUTGES REDPATH, LTD. ® Certified Public Accountants Page 32 TAUTGES REDPATH, LTD. Certified Public Accountants The Governmental Accounting Standards Board (GASB) recently issued statement No. 66 titled Technical Corrections -2012. GASB 66 addresses certain conflicts in existing guidance that resulted from the issuance of GASB 54 Fund Balance Reporting and Governmental Fund Type Definitions and GASB 62 Codification of Accounting and Financial Reporting Guidance Contained in Pre - November 30,1989 FASB and A1CPA Pronouncements. The most significant change under GASB 66 is as follows: GASB Statement No. 10 required that an entity's risk financing activities be accounted for in either the general fund or an internal service fund, if a single fund was used. However, the criteria for reporting activity within governmental funds under GASB Statement No. 54 would allow risk financing activity to be reported in special revenue funds in some circumstances, were it not for the prohibition under GASB 10. GASB 66 resolves this conflict by removing the provision that limits fund -based reporting of an entity's risk financing activities to either the general fund or an internal service fund. The statement is effective for financial statements for periods beginning after December 15, 2012 (calendar year 2013). If you would like to discuss GASB 66, please contact Peggy Moeller, CPA, at .. „ or David Mal, CPA, at i a4ili 'eVhit 2,9� L::.,u, MN :,SiiD :. "1.= _'.9..,.. G;j1 "'J.SC )r, TAUTGES REDPATH, LTD. Certified Public Accountants 1�" E ,., �; Page 33 M1WTA uTGEs REDPATH, LTD. Certified Public Accountants The Governmental Accounting Standards Board (GASB) recently issued a final statement titled Items Previously Reported as Assets and Liabilities. GASB 65 is a follow -up to GASB 63, which provided guidance on the financial reporting of deferred outflows of resources, deferred inflows of resources and Net Position_ GASB 65 addresses the financial statement classification of certain items that are currently reported as assets or liabilities. Three of the more significant changes under GASB 65 are as follows: 1. Deferred Revenue is currently reported as a liability in the governmental funds when an asset is reported in the fund but the revenue is not available (for example, property taxes and special assessments). GASB 65 will treat this item as a "deferred inflow of resources" rather than a "liability ". GASB 65 also limits the use of the term "deferred" to "deferred outflows of resources" and "deferred inflows of resources ". The financial statement line item currently called "Deferred Revenue" will require new terminology which is not defined by the GASB. 2. For current and advance refunding transactions reported in governmental activities, business type activities and proprietary funds, the difference between the reacquisition price and the net carrying amount of the old debt is reported netted to the bonds payable liability. This will change under GASB 65 and the difference will now be reported as a "deferred outflow of resources" or a "deferred inflow of resources." 3. Debt issuance costs are currently reported as assets (often called deferred charges) for the governmental activities, business type activities and proprietary funds. This will change under GASB 65 and all issuance costs, except insurance costs, will be recognized as an expense in the period incurred. The prepaid insurance will continue to be reported as an asset and recognized as an expense over the life of the related debt. In addition, GASB 34 established criteria for determining which funds should be reported as major funds. The criteria did not anticipate new financial statement categories such as "deferred outflows of resources" and "deferred inflows of resources." GASB 65 amends the rules for calculating major funds by providing guidance to combine "assets" and "deferred outflows of resources" and also combine "liabilities" and "deferred inflows of resources" before applying the major fund criteria. The statement is effective for financial statements for periods beginning after December 15, 2012 (calendar year 2013). If you would like to discuss GASB 65, please contact Peggy Moeller, CPA, at or David Mol, CPA, at c ^a+�i0 1%vh' .. aY'xrkv;:ay l"i;',,. Ei., 1 %; }:e.." , 3511v ";E1r`r.�,..i'Jl�„ SP, �t._, EuJ4 ;'r;nv:.hF tr.ca,vn; TAUTGEs REDPATH, LTD. ® Certified Public Accountants Page 34 TAUTGES REDPATH, LTD. Certified Public Accountants Governmental Accounting Standards Board (GASB) issued a proposed statement titled Government Combinations and Disposals of Government Operations on March 7, 2012. The statement would require governments to identify whether a government combination is a merger, acquisition or a transfer of operations. Examples of events that could result in a government combination or disposal of operations are annexations and arrangements in which an operation is transferred to a new governmental entity created to provide the related services. Below is a brief summary of some of the accounting and financial reporting guidance that is proposed for government combinations: Mergers (combination of legally separate entities without the exchange of significant consideration) - one or more entities cease to exist after a merger is complete. The proposed statement would require the use of carrying value to measure the assets and liabilities in a government merger. Acquisitions (one government acquires another entity, or its operations, in exchange for significant consideration) - The proposed statement would require the use of acquisition value to measure the assets acquired and liabilities assumed. The GASB describes acquisition value as a market based entry price (for example the price that would be paid to acquire a similar asset with similar remaining service capacity). Transfer of operations (there is no combination of legally separate entities and no exchange of significant consideration) - Operations are transferred either to continuing governments or form the basis of new governments. The proposed standard would require the use of carrying value to measure the assets and liabilities in a transfer of operations. The proposed statement would be effective for financial statements for periods beginning after December 15, 2013 (calendar year 2014). Comments on the exposure draft will be accepted by GASB through June, 15, 2012. If you would like to further discuss GASB's exposure draft on government combinations, please contact Peggy Moeller, CPA, at , or David Mol, CPA, at C V, hit-,. F:.kv;;t ',Jt,:,_.,.srL;,,'.I e, ? N ,5110 1::1.4:1 .'00' �:v: :.h[t..crm TAUTGES REDPATH, LTD. Certified Public Accountants " ".(a Page 35 ACYJR CERTIFICATE C LIABILITY I)�i (— DATE (MM /DD /YYYY) 11/15/2012 THIS CERTIFICATE IS ISSUED AS A MATTER OF INFORMATION ONLY AND CONFERS NO RIGHTS UPON THE CERTIFICATE HOLDER. THIS CERTIFICATE DOES NOT AFFIRMATIVELY OR NEGATIVELY AMEND, EXTEND OR ALTER THE COVERAGE AFFORDED BY THE POLICIES BELOW. THIS CERTIFICATE OF INSURANCE DOES NOT CONSTITUTE A CONTRACT BETWEEN THE ISSUING INSURER(S), AUTHORIZED REPRESENTATIVE OR PRODUCER, AND THE CERTIFICATE HOLDER. IMPORTANT: If the certificate holder is an ADDITIONAL INSURED, the policy(ies) must be endorsed. If SUBROGATION IS WAIVED, subject to the terms and conditions of the policy, certain policies may require an endorsement. A statement on this certificate does not confer rights to the certificate holder in lieu of such endorsement(s). PRODUCER NAME: John Jr Traeger John W. Traeger Agency Inc. 1050 W. County Road E PHONE (651)414 -6400 FAx A/C No: (651)414 -6401 E -MAIL g ADDRESS: trae er @'wtinsurance.com Suite 100 St Paul MN 55126 INSURERS AFFORDING COVERAGE NAIC # INSURER AACUITY 14184 INSURED INSURER B EACH OCCURRENCE HLB Tautges Redpath, Ltd. INSURER C: X COMMERCIAL GENERAL LIABILITY 4810 White Bear Parkway INSURER D: INSURER E DAMAGE TO RENTED PREMISES Ea occurrence St . Paul MN 55110 INSURER F: CLAIMS -MADE lil OCCUR COVERAGES CERTIFICATE NUMBER:CL1231203235 REVISION NUMBER- ..------------- - -- THIS IS TO CERTIFY THAT THE POLICIES OF INSURANCE LISTED BELOW HAVE BEEN ISSUED TO THE INSURED NAMED ABOVE FOR THE POLICY PERIOD INDICATED, NOTWITHSTANDING ANY REQUIREMENT, TERM OR CONDITION OF ANY CONTRACT OR OTHER DOCUMENT WITH RESPECT TO WHICH THIS CERTIFICATE MAY BE ISSUED OR MAY PERTAIN, THE INSURANCE AFFORDED BY THE POLICIES DESCRIBED HEREIN IS SUBJECT TO ALL THE TERMS, EXCLUSIONS AND CONDITIONS OF SUCH POLICIES. LIMITS SHOWN MAY HAVE BEEN REDUCED BY PAID CLAIMS. INSR LTR TYPE OF INSURANCE ADDL IN SR SUBR WVD POLICY NUMBER POLICY EFF MMIDD /YYYY POLICY EXP MM /DD /YYYY LIMITS GENERAL LIABILITY EACH OCCURRENCE $ 1,000,000 X COMMERCIAL GENERAL LIABILITY DAMAGE TO RENTED PREMISES Ea occurrence $ 250, 0 0 0 A CLAIMS -MADE lil OCCUR 96516 -BIS 1/1/2012 1/1/2013 MED EXP (Any one person) _ $ 10,000 PERSONAL & ADV INJURY $ 11000,000 GENERAL AGGREGATE $ 3,000,000 GENT AGGREGATE LIMIT APPLIES PER: PRODUCTS - COMP /OP AGG $ 3,000,000 X POLICY 7 PRO 7 LOC $ AUTOMOBILE LIABILITY 96516 -BIS 1/1/2012 1/1/2013 LIMIT Ea aBINEDtSINGLE 1,000,000 BODILY INJURY (Per person) $ A ANY AUTO ALL OWNED SCHEDULED AUTOS AUTOS ( BODILY INJURY Per accident ) $ X NON -OWNED HIRED AUTOS AUTOS X PROPERTY DAMAGE Per accident $ UMBRELLA LA B OCCUR EACH OCCURRENCE $ AGGREGATE $ A EXCESS LIAB CLAIMS -MADE DED I I RETENTION$ $ 96516 -UMB 1/1/2012 1/1/2013 A WORKERS COMPENSATION I WC STATU- OTH- AND EMPLOYERS' LIABILITY Y / N T RY LIM T E.L. EACH ACCIDENT $ 500,000 ANY PROPRIETOWPARTNER/EXECUTIVE N/A OFFICER/MEMBER EXCLUDED? (Mandatory inNH) 96516 -WC 1/1/2012 1/1/2013 E.L. DISEASE - EA EMPLOYEq — $ 500,000 If yes, describe under E.L. DISEASE - POLICY LIMIT 1 $ 500,000 DESCRIPTION OF OPERATIONS below DESCRIPTION OF OPERATIONS / LOCATIONS / VEHICLES (Attach ACORD 101, Additional Remarks Schedule, if more space is required) City of Columbia Heights 590 40th Avenue Northeast Columbia Heights, MN 55421 AL,UKLJ ZO IZU'1U/U5) INS025 rgninn,) m SHOULD ANY OF THE ABOVE DESCRIBED POLICIES BE CANCELLED BEFORE THE EXPIRATION DATE THEREOF, NOTICE WILL BE DELIVERED IN ACCORDANCE WITH THE POLICY PROVISIONS. AUTHORIZED REPRESENTATIVE John Jr Traeger /KAREN U 1988 -2010 ACORD CORPORATION. All rights reserved. Thn Af`r1Rr1 nmmn and Innn am rnniefnrn,l mnArc of ACr1Rr1 HLBTAUT OP ID: H3 4� CERTIFICATE ' ' Y ® ® r T u DATE 1 /15/ /YYYY) 11/15/12 THIS CERTIFICATE IS ISSUED AS A MATTER OF INFORMATION ONLY AND CONFERS NO RIGHTS UPON THE CERTIFICATE HOLDER. THIS CERTIFICATE DOES NOT AFFIRMATIVELY OR NEGATIVELY AMEND, EXTEND OR ALTER THE COVERAGE AFFORDED BY THE POLICIES BELOW. THIS CERTIFICATE OF INSURANCE DOES NOT CONSTITUTE A CONTRACT BETWEEN THE ISSUING INSURER(S), AUTHORIZED REPRESENTATIVE OR PRODUCER, AND THE CERTIFICATE HOLDER. IMPORTANT: If the certificate holder is an ADDITIONAL INSURED, the policy(ies) must be endorsed. If SUBROGATION IS WAIVED, subject to the terms and conditions of the policy, certain policies may require an endorsement. A statement on this certificate does not confer rights to the certificate holder in lieu of such endorsement(s). PRODUCER 763- 746 -8000 RJF Minneapolis 7225 Northland Dr N #300 Minneapolis, MN 55428 Bjorn Honda CONTACT NAME: PHONE FAX JAIC, No Ext : Arc, No E -MAIL ADDRESS: GENERAL LIABILITY INSURER(S) AFFORDING COVERAGE NAIC # INSURER A: Navigators Insurance Company EACH OCCURRENCE $ INSURED HLB Tautges Redpath, Ltd Attn: Julie Vick INSURER B: 4810 White Bear Parkway INSURER C DAMAGE ( RENTED PREMISES S Ea occurrence ) $ MED EXP (Any one person) White Bear Lake, MN 55110 INSURER D: CLAIMS -MADE 1:1 OCCUR INSURER E: INSURER F: PERSONAL & ADV INJURY COVERAGES CERTIFICATE NUMBER: REVISION NUMRFR- THIS IS TO CERTIFY THAT THE POLICIES OF INSURANCE LISTED BELOW HAVE BEEN ISSUED TO THE INSURED NAMED ABOVE FOR THE POLICY PERIOD INDICATED, NOTWITHSTANDING ANY REQUIREMENT, TERM OR CONDITION OF ANY CONTRACT OR OTHER DOCUMENT WITH RESPECT TO WHICH THIS CERTIFICATE MAY BE ISSUED OR MAY PERTAIN, THE INSURANCE AFFORDED BY THE POLICIES DESCRIBED HEREIN IS SUBJECT TO ALL THE TERMS, EXCLUSIONS AND CONDITIONS OF SUCH POLICIES. LIMITS SHOWN MAY HAVE BEEN REDUCED BY PAID CLAIMS. INSR LTR TYPE OF INSURANCE ADDL SUBR POLICY NUMBER POLICY EFF MM /DD/YYYY POLICY EXP MM/DD/YYYY LIMITS GENERAL LIABILITY EACH OCCURRENCE $ COMMERCIAL GENERAL LIABILITY DAMAGE ( RENTED PREMISES S Ea occurrence ) $ MED EXP (Any one person) $ CLAIMS -MADE 1:1 OCCUR PERSONAL & ADV INJURY $ GENERAL AGGREGATE $ [GEN'L AGGREGATE LIMIT APPLIES PER- PRODUCTS - COMP /OP AGG $ POLICY PRO LOC $ AUTOMOBILE LIABILITY (Ea aBINEDtSINGLE LIMIT $ BODILY INJURY (Per person) $ ANY AUTO ALL OWNED SCHEDULED AUTOS AUTOS BODILY INJURY Per accident ( ) $ NON -OWNED HIRED AUTOS AUTOS PROPERTY DAMAGE Per accident $ UMBRELLA LIAB OCCUR EACH OCCURRENCE $ AGGREGATE $ EXCESS LIAB CLAIMS -MADE DED I I RETENTION $ $ WORKERS COMPENSATION WC STATU- OTH- AND EMPLOYERS' LIABILITY Y / N ORY LIMIT TS ER E.L. EACH ACCIDENT $ ANY PROPRIETOR /PARTNER /EXECUTIVE OFFICER /MEMBER EXCLUDED? F—] N/A E.L. DISEASE - EA EMPLOYEE $ (Mandatory in NH) If yes, describe under E.L. DISEASE - POLICY LIMIT 1 $ DESCRIPTION OF OPERATIONS below A Professional Liab NY12APL806367NV 10/31/12 10131/13 Per Claim 4,000,000 Aggregate 4,000,000 DESCRIPTION OF OPERATIONS / LOCATIONS / VEHICLES (Attach ACORD 101, Additional Remarks Schedule, if more space is required) City of Columbia Heights 590 40th Avenue Northeast Columbia Heights, MN 55421 SHOULD ANY OF THE ABOVE DESCRIBED POLICIES BE CANCELLED BEFORE THE EXPIRATION DATE THEREOF, NOTICE WILL BE DELIVERED IN ACCORDANCE WITH THE POLICY PROVISIONS. AUTHORIZED REPRESENTATIVE Bjorn Honda ©1988 -2010 ACORD CORPORATION. All rights reserved. ACORD 26 (2010/05) The ACORD name and logo are registered marks of ACORD A N D C O M P A N Y November 12, 2015 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, 2015. 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, 2015. 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 2345635.1 4810 White Bear Parkway, St. Paul, MN, 55110 651.426.7000 www.redpathcpas.com 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. • Introductory section • Statistical section The following other reports will be issued in conjunction with the financial audit: • Federal Single Audit (if required), including web -based SFAC • Audit Management Letter • State Legal Compliance Audit • Report on HUD Financial Data Schedule (FDS) Other Services As a part of this engagement, we will also provide the following services: Attest Services o Agreed upon procedures relating to REAC electronic submission Nonaudit Services 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 provisions of Title 2 U.S. CFR part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards. 2345635.1 City of Columbia Heights Contract for Auditing Services Page 3 The Government Auditing Standards report on internal control over financial reporting and on compliance and other matters will include a paragraph that states that (1) the purpose of the report is solely to describe the scope of testing of internal control and compliance and the results of that testing, and not to provide an opinion on the effectiveness of the entity's internal control or on compliance, and (2) the report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the entity's internal control and compliance. The CFR part 200 report on internal control over compliance will include a paragraph that states that the purpose of the report on internal control over compliance is solely to describe the scope of testing of internal control over compliance and the results of that testing based on the requirements of CFR part 200. Both reports will state that the report is not suitable for any other purpose. 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 provisions of Title 2 U.S. CFR part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards, and will include tests of accounting records, a determination of major program(s) in accordance with CFR part 200, 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 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. 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 of the inherent limitations of an audit, combined with the inherent limitations of internal control, 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 even though the audit is properly planned and performed in accordance with U.S. generally accepted auditing standards and Government Auditing Standards. In addition, an audit is not designed to detect immaterial misstatements or violations of laws or 2345635.1 City of Columbia Heights Contract for Auditing Services Page 4 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 your responsibilities for the financial statements, schedule of expenditures of federal awards; federal award programs; compliance with laws, regulations, contracts, and grant agreements and other responsibilities required by generally accepted auditing standards. 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 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 CFR part 200, 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 CFR part 200. 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 2345635.1 City of Columbia Heights Contract for Auditing Services Page 5 communicated under AICPA professional standards, Government Auditing Standards, and CFR part 200. 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. CFR part 200 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 CFR part 200 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 CFR part 200. Management Responsibilities Management is responsible for 1) 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, 2) following laws and regulations; and 3) ensuring that there is reasonable assurance that government programs are administered in compliance with compliance requirements; and 4) ensuring that management and financial information is reliable and properly reported. Management is also responsible for implementing systems designed to achieve compliance with applicable laws, regulations, contracts and grant agreements. You are also responsible for the selection and application of accounting principles; for the preparation and fair presentation in the financial statements, schedule of expenditures of federal awards, and all accompanying information 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. You are also responsible for providing us with (1) access to all 2345635.1 City of Columbia Heights Contract for Auditing Services Page 6 information of which you are aware that is relevant to the preparation and fair presentation of the financial statements, (2) additional information that we may request for the purpose of the audit, and (3) unrestricted access to persons within the government from whom we determine it necessary to obtain audit evidence. Your responsibilities also include, including identifying significant vendor relationships in which the vendor has responsibility for program compliance and for 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 affecting the government involving (1) management, (2) employees who have significant roles in internal control, and (3) others where the fraud 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 CFR part 200, 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 identifying all federal awards received and understanding and complying with the compliance requirements and for the preparation of the schedule of expenditures of federal awards in conformity with CFR part 200. You agree to include our report on the schedule of expenditures of federal awards in any document that contains and indicates that we have reported on the schedule of expenditures of federal awards. You also agree to make the audited financial statements readily available to intended users of the schedule of expenditures of federal awards no later than the date the schedule of expenditures of federal awards is issued with our report thereon. Your responsibilities include acknowledging to us in the written representation letter that (1) you are responsible for presentation of the schedule of expenditures of federal awards in accordance with CFR part 200; (2) that you believe the schedule of expenditures of federal awards, including its form and content, is fairly presented in accordance with CFR part 200; (3) that the methods of measurement or presentation have not changed from those used in the prior period (or, if they have changed, the reasons for such changes); and (4) you have disclosed to us any significant assumptions or interpretations underlying the measurement or presentation of the supplementary information. 2345635.1 City of Columbia Heights Contract for Auditing Services Page 7 You are also responsible for the preparation of the other supplementary information, which we have been engaged to report on, in conformity with U.S. generally accepted accounting principles. You agree to include our report on the supplementary information on any document that contains and indicates that we have reported on the supplementary information. You also agree to include the audited financial statements with any presentation of the supplementary information that includes our report thereon. Your responsibilities include acknowledging to us in the written representation letter that (1) you are responsible for presentation of the supplementary information in accordance with GAAP; (2) you believe the supplementary information, including its form and content, is fairly presented in accordance with GAAP; (3) the methods of measurement or presentation have not changed from those used in the prior period (or, if they have changed, the reasons for such changes); and (4) you have disclosed to us any significant assumptions or interpretations underlying the measurement or presentation of 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. You agree to assume all management responsibilities relating to the financial statements, schedule of expenditures of federal awards, related notes, and any other nonaudit services we provide. You will be required to acknowledge in the management representation letter our assistance with preparation of the financial statements, schedule of expenditures of federal awards, and related notes 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 agree to oversee the nonaudit services by designating an individual, preferably from senior management, with suitable skill, knowledge, or experience; evaluate the adequacy and results of those services; and accept responsibility for them. 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. We will provide copies of our reports to the City, however, management is responsible for distribution of the reports and the financial statements. Unless restricted by laws, regulation, or containing privileged and confidential information, copies of our reports are to be made available for public inspection. 2345635.1 City of Columbia Heights Contract for Auditing Services Page 8 The audit documentation for this engagement is the property of Redpath and Company, 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 Redpath and Company, 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 fmding for guidance prior to destroying the audit documentation. David J. Mol, CPA is the engagement partner and is responsible for supervising the engagement and signing the report. We estimate that our fee for these services, including expenses, will be as follows: 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. Either the City of Columbia Heights or Redpath and Company, Ltd. may cancel this contract at any time by giving written notice to the other party at least thirty (30) calendar days prior to the effective date of the termination. Redpath and Company, Ltd. shall be paid for the work performed prior to the effective date of the termination. 2345635.1 2015 Financial audit, including copying and binding of CAFR and REAC submission $33,000 Single audit (assumes one major program) $ 3,500 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. Either the City of Columbia Heights or Redpath and Company, Ltd. may cancel this contract at any time by giving written notice to the other party at least thirty (30) calendar days prior to the effective date of the termination. Redpath and Company, Ltd. shall be paid for the work performed prior to the effective date of the termination. 2345635.1 City of Columbia Heights Contract for Auditing Services Page 9 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 2013 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. Sincerely, REDPATH AND COMPANY, LTD. � r / David J. Mol, CPA Response: This letter correctly sets forth the understanding of the City of Columbia Heights, Minnesota: : B Y Title: Date: G �� 2345635.1 Y Title: Date: Appendix A MrzrduN: C LIEM & COMPANY, P.C. S.n.4>.cx.. , g— 14 Nllnr . _ Awl -1 h -O mr of Certified Public Accountants & Business Consultants G:,Ii,ed P.,bk k—., wins Afl,a.x ti.r.Ov ul C,,1nA Nbli: &—mmA, System Review Report September 26, 2013 To the Shareholders of HLB Tautges Redpath, Ltd, and the Peer Review Committee of the Minnesota Society of CPAs We have reviewed the system of quality control for the accounting and auditing practice of HLB Tautges Redpath, Ltd. (the firm) in effect for the year ended May 31, 2013. 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. As a part of our peer review, we considered reviews by regulatory entities, if applicable, in determining the nature and extent of our procedures. 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 orglprsummary. As required by the standards, engagements selected for review included engagements performed under Government Auditing Standards and audits of employee benefit plans. In our opinion, the system of quality control for the accounting and auditing practice of HLB Tautges Redpath, Ltd. in effect for the year ended May 31, 2013, 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 fail. HLB Tautges Redpath, Ltd. has received a peer review rating of pass. 4455 East CmMback Read ."'Uile E290 Phornlx, A 707 85018 lidephn+w i602,1 667- (.()40 lax. (602; 667 -6039 wAwliemepa,com 2345635.1 /J �o to -aq 7 S� A N L7 C O M PAN Y November 28, 2016 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, 2016. 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, 2016. 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, St. Paul, MN, 55110 651.426.7000 www.redpathcpas.com 2529534.1 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. • Introductory section • Statistical section The following other reports will be issued in conjunction with the financial audit: • Federal Single Audit (if required), including web -based SFAC • Audit Management Letter • State Legal Compliance Audit • Report on HUD Financial Data Schedule (FDS) Other Services As a part of this engagement, we will also provide the following services: Attest Services o Agreed upon procedures relating to REAC electronic submission Nonaudit Services 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 provisions of Title 2 U.S. Code of Federal Regulations Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance). 2524534.1 City of Columbia Heights Contract for Auditing Services Page 3 The Government Auditing Standards report on internal control over financial reporting and on compliance and other matters will include a paragraph that states that (1) the purpose of the report is solely to describe the scope of testing of internal control and compliance and the results of that testing, and not to provide an opinion on the effectiveness of the entity's internal control or on compliance, and (2) the report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the entity's internal control and compliance. The Uniform Guidance report on internal control over compliance will include a paragraph that states that the purpose of the report on internal control over compliance is solely to describe the scope of testing of internal control over compliance and the results of that testing based on the requirements of the Uniform Guidance. Both reports will state that the report is not suitable for any other purpose. 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 provisions of Title 2 U.S. Code of Federal Regulations Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards, and will include tests of accounting records, a determination of major program(s) in accordance with the Uniform Guidance, 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 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. 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 of the inherent limitations of an audit, combined with the inherent limitations of internal control, 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 even though the audit is properly planned and performed in accordance with U.S. generally accepted auditing standards and Government Auditing Standards. In addition, an audit is not designed to detect immaterial misstatements or violations of laws or 2529534.1 City of Columbia Heights Contract for Auditing Services Page 4 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 your responsibilities for the financial statements, schedule of expenditures of federal awards; federal award programs; compliance with laws, regulations, contracts, and grant agreements and other responsibilities required by generally accepted auditing standards. 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 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 the Uniform Guidance, 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 the Uniform Guidance. 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 2529534.1 City of Columbia Heights Contract for Auditing Services Page 5 communicated under AICPA professional standards, Government Auditing Standards, and the Uniform Guidance. 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. The Uniform Guidance 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 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 the Uniform Guidance. Management Responsibilities Management is responsible for 1) 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, 2) following laws and regulations; and 3) ensuring that there is reasonable assurance that government programs are administered in compliance with compliance requirements; and 4) ensuring that management and financial information is reliable and properly reported. Management is also responsible for implementing systems designed to achieve compliance with applicable laws, regulations, contracts and grant agreements. You are also responsible for the selection and application of accounting principles; for the preparation and fair presentation in the financial statements, schedule of expenditures of federal awards, and all accompanying information 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 2529534.1 City of Columbia Heights Contract for Auditing Services Page 6 properly recorded. You are also responsible for providing us with (1) access to all information of which you are aware that is relevant to the preparation and fair presentation of the financial statements, (2) additional information that we may request for the purpose of the audit, and (3) unrestricted access to persons within the government from whom we determine it necessary to obtain audit evidence. Your responsibilities also include, including identifying significant vendor relationships in which the vendor has responsibility for program compliance and for 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 affecting the government involving (1) management, (2) employees who have significant roles in internal control, and (3) others where the fraud 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. Management is also responsible for taking timely and appropriate steps to remedy fraud and noncompliance with provisions of laws, regulations, contracts, and grant agreements or abuse that we report. Additionally, as required by the Uniform Guidance, it is management's responsibility to evaluate and monitor noncompliance with federal statutes, regulations, and the terms and conditions of federal awards; take prompt action when instances of noncompliance are identified including noncompliance identified in audit findings, promptly 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 identifying all federal awards received and understanding and complying with the compliance requirements and for the preparation of the schedule of expenditures of federal awards in conformity with the Uniform Guidance. You agree to include our report on the schedule of expenditures of federal awards in any document that contains and indicates that we have reported on the schedule of expenditures of federal awards. You also agree to make the audited financial statements readily available to intended users of the schedule of expenditures of federal awards no later than the date the schedule of expenditures of federal awards is issued with our report thereon. Your responsibilities include acknowledging to us in the written representation letter that (1) you are responsible for presentation of the schedule of expenditures of federal awards in accordance with the Uniform Guidance; (2) that you believe the schedule of expenditures of federal awards, 2529534.1 City of Columbia Heights Contract for Auditing Services Page 7 including its form and content, is fairly presented in accordance with the Uniform Guidance; (3) that the methods of measurement or presentation have not changed from those used in the prior period (or, if they have changed, the reasons for such changes); and (4) you have disclosed to us any significant assumptions or interpretations underlying the measurement or presentation of the supplementary information. You are also responsible for the preparation of the other supplementary information, which we have been engaged to report on, in conformity with U.S. generally accepted accounting principles. You agree to include our report on the supplementary information on any document that contains and indicates that we have reported on the supplementary information. You also agree to include the audited financial statements with any presentation of the supplementary information that includes our report thereon. Your responsibilities include acknowledging to us in the written representation letter that (1) you are responsible for presentation of the supplementary information in accordance with GAAP; (2) you believe the supplementary information, including its form and content, is fairly presented in accordance with GAAP; (3) the methods of measurement or presentation have not changed from those used in the prior period (or, if they have changed, the reasons for such changes); and (4) you have disclosed to us any significant assumptions or interpretations underlying the measurement or presentation of 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. You agree to assume all management responsibilities relating to the financial statements, schedule of expenditures of federal awards, related notes, and any other nonaudit services we provide. You will be required to acknowledge in the management representation letter our assistance with preparation of the financial statements, schedule of expenditures of federal awards, and related notes 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 agree to oversee the nonaudit services by designating an individual, preferably from senior management, with suitable skill, knowledge, or experience; evaluate the adequacy and results of those services; and accept responsibility for them. 2529534.1 City of Columbia Heights Contract for Auditing Services Page 8 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. We will provide copies of our reports to the City, however, management is responsible for distribution of the reports and the financial statements. Unless restricted by laws, regulation, or containing privileged and confidential information, copies of our reports are to be made available for public inspection. The audit documentation for this engagement is the property of Redpath and Company, 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 Redpath and Company, 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. David J. Mol, CPA is the engagement partner and is responsible for supervising the engagement and signing the report. We estimate that our fee for these services, including expenses, will be as follows: 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 2529534.1 2016 Financial audit, including copying and binding of CAFR and REAC submission $32,000 Single audit (assumes one major program) $ 3,600 Scope increase for GASB 68 $ 1,000 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 2529534.1 City of Columbia Heights Contract for Auditing Services Page 9 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. Either the City of Columbia Heights or Redpath and Company, Ltd. may cancel this contract at any time by giving written notice to the other party at least thirty (30) calendar days prior to the effective date of the termination. Redpath and Company, Ltd. shall be paid for the work performed prior to the effective date of the termination. 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 2013 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. Sincerely, REDPATH AND COMPANY, LTD. David J. Mol, CPA 2529534.1 Appendix A am MW am UEN4 & COMPANY, PC. AIMMMM Certified Public Accountants & Business Consultants ,,Wvd Mk ANow Awmo Sm w,vA C,11V,.,d System Review Report September 2b, 2013 To the Shareholders of HLB Tairtges Redpath, Ltd. and the Peet Review Committee of the Minnesota Society of CPAs We have reviewed the system of quality control for the accounting and auditing practice of BLB Tautges Redpath, Ltd. (the firm) in effect for the year ended May 31, 2013. 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. As a part of our peer review, we considered reviews by regulatory entities, if applicable, in determining the nature and extent of our procedures. 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/prsununary. As required by the standards, engagements selected for review included engagements performed under Government Auditing Standards and audits of employee benefit plans. In our opinion, the system of quality control for the accounting and auditing practice of HLB Tainges Redpath, Ltd, in effect for the year ended May 31, 2013, 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. Finns can receive a rating of pass, pass with deficiancyfles) or fail. 141,13 Tautgcs Redpath, Ltd. has received a peer review rating ofpass, ��- d C&7'7�' 1,(-. 441,; LZ,,l Girt, r4bat:t, J�UZ,,J Suite E.290 NIONIR ' A,iiona I(Acpho1w (60zi 667.6040 11, Z',2) 6676039 www-liemcpa,aorl 2529534.1 RF=r A N D PCCO MAP N X November 8, 2017 City of Columbia Heights 590 40th Avenue Northeast Columbia Heights, MN 55421 CLIENT COPY RECEIVED NOV 1 1 A.M. City of Columbia Heights Finance Department We are pleased to confirm our understanding of the services we are to provide the City of Columbia Heights (the City) for the year ending December 31, 2017. The scope of services includes the following: Audit and Related Services • We will audit the financial statements of the governmental activities, the business- type activities, each major fund, and the aggregate remaining fund information, including the related notes to the financial statements, which collectively comprise the basic financial statements of the City as of and for the year ending December 31, 2017. Accounting standards generally accepted in the United States of America provide for certain required supplementary information (RSI), such as management's discussion and analysis (MD &A), to supplement the City's basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. As part of our engagement, we will apply certain limited procedures to the City's RSI in accordance with auditing standards generally accepted in the United States of America. These limited procedures will consist of inquiries of management regarding the methods of preparing the information and comparing the information for consistency with management's responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We will not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. The following RSI is required by generally accepted accounting principles and will be subjected to certain limited procedures, but will not be audited: • Management's Discussion and Analysis • Schedule of Funding Progress — OPEB • Schedules of Proportionate Share of Net Pension Liability (GERF and PEPFF) • Schedules of Pension Contributions (GERF And PEPFF) 27110941 4810 White Bear Parkway, St. Paul, MN 55110 651.426.7000 www.redpathcpas.com City of Columbia Heights Contract for Auditing Services Page 2 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: • Combining and Individual Fund Statements and Schedules • Schedule of Expenditures of Federal Awards( if applicable) 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 our auditor's report will not provide an opinion or any assurance on that information: • Introductory section • Statistical section The following other reports will be issued in conjunction with the financial audit: • Audit Management Letter • State Legal Compliance Audit • Federal Single Audit (if applicable), including web -based SFAC • Report on HUD Financial Data Schedule (FDS) Nonaudit Services • Copying and binding of financial statement document (CAFR) Agreed -Upon Procedures Services We will apply the agreed -upon procedure which the U.S. Department of Housing and Urban Development (HUD), Real Estate Assessment Center (REAL) has specified, to the electronic submission and related hard copy documents listed in the attached schedule of the City of Columbia Heights, Minnesota as of and for the year ending December 31, 2017. This engagement is solely to assist the City of Columbia Heights, Minnesota and the U.S. Department of Housing and Urban Development, REAL, in determining whether electronic submission of certain information agrees with the related hard copy documents included within the Uniform Guidance reporting package. Our engagement to apply the agreed -upon procedure will be performed in accordance with attestation standards established by the American Institute of Certified Public Accountants and the standards applicable to attestation engagements contained in Government Auditing Standards issued by the Comptroller 2711094.1 City of Columbia Heights Contract for Auditing Services Page 3 General of the United States. The sufficiency of the procedure is solely the responsibility of those parties specified in the report. Consequently, we make no representation regarding the sufficiency of the procedures either for the purpose for which this report has been requested or for any other purpose. If, for any reason, we are unable to complete the procedure, we will describe any restrictions on the performance of the procedure in our report, or we will not issue a report as a result of this engagement. We will submit a report listing the procedure performed and our findings. This report is intended solely for the use of the City of Columbia Heights, Minnesota and the U.S. Department of Housing and Urban Development, REAC, and is not intended to be and should not be used by anyone other than these specified parties. Our report will include a statement indicating that we have not performed any additional auditing procedures after the date of our reports on the audited financial statements and supplemental information, including a statement indicating that had we performed additional procedures, other matters might have come to our attention that would have been reported to you. Further, we take no responsibility for the security of the information transmitted electronically to the U.S. Department of Housing and Urban Development, REAC. You are 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; following laws and regulations; and ensuring that there is reasonable assurance that government programs are administered in compliance with compliance requirements. Management is also responsible for implementing systems designed to achieve compliance with applicable laws, regulations, contracts, and grant agreements. You are also responsible for the presentation of the electronic submission and related hard copy documents in accordance with the agreed -upon procedure which the U.S. Department of Housing and Urban Development, Real Estate Assessment Center (REAC), has specified; and for selecting the criteria and determining that such criteria are appropriate for your purposes. You agree to assume all management responsibilities relating to the nonaudit services we provide. Further, you agree to oversee the nonaudit services by designating an individual, preferably from senior management, with suitable skill, knowledge, or experience; evaluate the adequacy and results of the services; and accept responsibility for them. You agree to retain a copy of the Uniform Guidance reporting package in its entirety. Audit Ob'ectives 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 supplementary information 2711094.1 City of Columbia Heights Contract for Auditing Services Page 4 referred to in the second paragraph when considered in relation to the financial statements taken as a whole. The objective also includes reporting on: • Internal control over financial reporting and compliance with the provisions of laws, regulations, contracts, and grant agreements, noncompliance with which could have a material effect on the financial statements in accordance with Government Auditing Standards. Internal control over compliance 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 Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance). The Government Auditing Standards report on internal control over financial reporting and on compliance and other matters will include a paragraph that states that (1) the purpose of the report is solely to describe the scope of testing of internal control and compliance and the results of that testing, and not to provide an opinion on the effectiveness of the entity's internal control or on compliance, and (2) the report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the entity's internal control and compliance. The Uniform Guidance report on internal control over compliance will include a paragraph that states that the purpose of the report on internal control over compliance is solely to describe the scope of testing of internal control over compliance and the results of that testing based on the requirements of the Uniform Guidance. Both reports will state that the report is not suitable for any other purpose. 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 the Uniform Guidance, and will include tests of accounting records, a determination of major program(s) in accordance with the Uniform Guidance, and other procedures we consider necessary to enable us to express such opinions. We will issue written reports upon the completion of our Single Audit. Our reports will be addressed to management and the City Council of the City of Columbia Heights, Minnesota. We cannot provide assurance that unmodified opinions will be expressed. Circumstances may arise in which it is necessary for us to modify our opinions or add emphasis -of -matter or other -matter paragraphs. If our opinions are other than unmodified, 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. 2711094.1 City of Columbia Heights Contract for Auditing Services Page 5 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. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. 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 of the inherent limitations of an audit, combined with the inherent limitations of internal control, 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, even though the audit is properly planned and performed in accordance with U.S. generally accepted auditing standards and Government Auditing Standards. 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 the appropriate level of management of any material errors, any fraudulent financial reporting or misappropriation of assets that come to our attention. We will also inform the appropriate level of management 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 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 your responsibilities for the financial statements; schedule of expenditures of federal awards, federal award programs; compliance with laws, regulations, contracts, and grant agreements; and other responsibilities required by generally accepted auditing procedures. 2711094.1 City of Columbia Heights Contract for Auditing Services Page 6 Audit Procedures — Internal Controls Our audit will include obtaining an understanding of the government 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 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 statements. Our tests, if performed, 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 the Uniform Guidance. As required by the Uniform Guidance, 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 the Uniform Guidance. An audit is not designed to provide assurance on internal control or to identify significant deficiencies or material weaknesses. 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 the Uniform Guidance. 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's compliance with the provisions of applicable laws, regulations, contracts, as 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 Uniform Guidance requires that we also plan and perform the audit to obtain reasonable assurance about whether the auditee has complied with regulations, and the terms and conditions of federal awards, applicable to major programs. Our procedures will consist of tests of transactions and other applicable procedures described in the OMB Compliance Supplement for the types of compliance requirements that could have a direct and material effect on each of the City's major programs. The purpose of these procedures will be to express an opinion on the City's compliance with requirements applicable to each of its major programs in our report on compliance issued pursuant to the Uniform Guidance. 2711094 1 City of Columbia Heights Contract for Auditing Services Page 7 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. Management Responsibilities Management is responsible for (1) designing, implementing, and maintaining effective internal controls, including internal controls over federal controls over federal awards, and for evaluating and monitoring ongoing activities to help ensure that appropriate goals and objectives are met; (2) following laws and regulations; (3) ensuring that there is reasonable assurance that government programs are administered in compliance with compliance requirements; and (4) ensuring that management and financial information is reliable and properly reported. Management is also responsible for implementing systems designed to achieve compliance with applicable laws, regulations, contracts, and grant agreements. You are also responsible for the selection and application of accounting principles; for the preparation and fair presentation in the financial statements, schedule of expenditures of federal awards, and all accompanying information in conformity with U.S. generally accepted accounting principles; and for compliance with applicable laws and regulations (including federal statutes) and the provisions of contracts and grant agreements (including award agreements). Your responsibilities also include identifying significant contractor relationships in which the contractor has responsibility for program compliance and for the accuracy and completeness of that information. Management is also responsible for making all financial records and related information available to us and for the accuracy and completeness of that information. You are also responsible for providing us with (1) access to all information of which you are aware that is relevant to the preparation and fair presentation of the financial statements, (2) access to personnel accounts, books, records, supporting documentation and other information as needed to perform an audit under the Uniform Guidance, (3) additional information that we may request for the purpose of the audit, and (4) unrestricted access to persons within the government from whom we determine it necessary to obtain audit evidence. 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. Your responsibilities also include identifying significant vendor relationships in which the vendor has responsibility for program compliance and for the accuracy and completeness of that information. Your responsibilities include adjusting the financial statements to correct material misstatements and for confirming to us in the written representation letter that the effects of any uncorrected misstatements aggregated by us during the current 2711094.1 City of Columbia Heights Contract for Auditing Services Page 8 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 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. Management is also responsible for taking timely and appropriate steps to remedy fraud and noncompliance with provisions of laws, regulations, contracts, and grant agreements, or abuse that we report. Additionally, as required by the Uniform Guidance, it is management's responsibility to evaluate and monitor noncompliance with federal statutes, regulations, and the terms and conditions of federal awards; take prompt action when instances of noncompliance are identified, including noncompliance identified in audit findings; promptly 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. You are responsible for identifying all federal awards received and understanding and complying with the compliance requirements and for preparation of the schedule of expenditures of federal awards in conformity with the Uniform Guidance. You agree to include our report on the schedule of expenditures of federal awards in any document that contains and indicates that we have reported on the schedule of expenditures of federal awards. You also agree to make the audited financial statements readily available to intended users of the schedule of expenditures of federal awards no later than the date the schedule of expenditures of federal awards is issued with our report thereon. Your responsibilities include acknowledging to us in the written representation letter that (1) you are responsible for presentation of the schedule of expenditures of federal awards in accordance with the Uniform Guidance; (2) that you believe the schedule of expenditures of federal awards, including its form and content, is fairly presented in accordance with the Uniform Guidance; (3) that the methods of measurement or presentation have not changed from those used in the prior period (or, if they have changed, the reasons for such changes); and (4) you have disclosed to us any significant assumptions or interpretations underlying the measurement or presentation of the schedule of expenditures of federal awards. You are also responsible for the preparation of the other supplementary information, which we have been engaged to report on, 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. You also agree to make the audited financial statements readily available to 2711094.1 City of Columbia Heights Contract for Auditing Services Page 9 users of the supplementary information no later than the date the supplementary information is issued with our report thereon. Your responsibilities include acknowledging to us in the written representation letter that (1) you are responsible for presentation of the supplementary information in accordance with GAAP; (2) that you believe the supplementary information, including its form and content, is fairly presented in accordance with GAAP; (3) that the methods of measurement or presentation have not changed from those used in the prior period (or, if they have changed, the reasons for such changes); and (4) you have disclosed to us any significant assumptions or interpretations underlying the measurement or presentation of 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 and providing report copies of 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 management's views on our current findings, conclusions, and recommendations, as well as your planned corrective actions, for the report, and for the timing and format for providing that information. You agree to assume all management responsibilities relating to the financial statements, schedule of expenditures of federal awards, and related notes, and any other nonaudit services we provide. You will be required to acknowledge in the management representation letter our assistance with preparation of the financial statements, schedule of expenditures of federal awards, and related notes 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 agree to oversee the nonaudit services by designating an individual, preferably from senior management, with suitable skill, knowledge, or experience; evaluate the adequacy and results of those services; and accept responsibility for them. Engagement Administration, Fees and Other We may from time to time, and depending on the circumstances, use third -party service providers in serving your account. We may share confidential information about you with these service providers, but remain committed to maintaining the confidentiality and security of your information. Accordingly, we maintain internal policies, procedures, and safeguards to protect the confidentiality of your personal information. In addition, we will secure confidentiality agreements with all service providers to maintain the confidentiality of your information and we will take reasonable precautions to determine that they have appropriate procedures in place to prevent the unauthorized release of your confidential information to others. In the event that we are unable to secure an appropriate confidentiality agreement, you will be asked to provide your consent prior to the sharing of your confidential 2711094.1 City of Columbia Heights Contract for Auditing Services Page 10 information with the third -party service provider. Furthermore, we will remain responsible for the work provided by any such third -party service providers. 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. 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 federal audit clearinghouse. We will coordinate with you the electronic submission and certification. If applicable, we will provide copies of our report for you to include with the reporting package you will submit 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. The audit documentation for this engagement is the property of Redpath and Company, 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 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 Redpath and Company, 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 will be retained for a minimum of five years after the report release date or for any additional period requested by the federal agency. If we are aware that a federal awarding agency or auditee is contesting a finding, we will contact the party(ies) contesting the audit finding for guidance prior to destroying the audit documentation. David J. Mol, CPA is the engagement partner and is responsible for supervising the engagement and signing the report. 271 1094.1 City of Columbia Heights Contract for Auditing Services Page 11 Our fee for these services will be at our standard government audit hourly rates plus out - of- pocket costs (such as report reproduction, typing, postage, travel, copies, telephone, etc.). Our invoices for these fees will be rendered each month as work progresses and are payable on presentation. Unless additional work is requested, or circumstances require additional work, we estimate the basic audit fees will be as follows: The above fee is based on the anticipated scope of services. An increase in the scope of service will necessitate an addendum (change order) to this agreement. Examples of items that may result in an increase in the scope of service include additional audit procedures resulting from certain accounting issues or events, significant change in the level of activity /number of transactions, if there is an indication of misappropriation or misuse of public funds, or difficulties encountered due to lack of accounting records, incomplete records, inaccurate records or turnover in the City's staff. Either the City of Columbia Heights or Redpath and Company, Ltd. may cancel this contract at any time by giving written notice to the other party at least thirty (30) calendar days prior to the effective date of the termination. Redpath and Company, Ltd. shall be paid for the work performed prior to the effective date of the termination. Government Auditing Standards requires 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 or letters of comment received during the period of contract. Our 2016 peer review report accompanies this letter as Appendix A. We are pleased to report that we did not receive a letter of comment. 2711094 1 2017 Financial audit, including copying and binding of CAFR and REAC submission $32,000 Single audit (assumes one major program) $ 3,600 Scope increase for GASB 68 $ 1,000 The above fee is based on the anticipated scope of services. An increase in the scope of service will necessitate an addendum (change order) to this agreement. Examples of items that may result in an increase in the scope of service include additional audit procedures resulting from certain accounting issues or events, significant change in the level of activity /number of transactions, if there is an indication of misappropriation or misuse of public funds, or difficulties encountered due to lack of accounting records, incomplete records, inaccurate records or turnover in the City's staff. Either the City of Columbia Heights or Redpath and Company, Ltd. may cancel this contract at any time by giving written notice to the other party at least thirty (30) calendar days prior to the effective date of the termination. Redpath and Company, Ltd. shall be paid for the work performed prior to the effective date of the termination. Government Auditing Standards requires 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 or letters of comment received during the period of contract. Our 2016 peer review report accompanies this letter as Appendix A. We are pleased to report that we did not receive a letter of comment. 2711094 1 City of Columbia Heights Contract for Auditing Services Page 12 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. Sincerely, REDPATH AND COMPANY, LTD. ��M' � 1011 David J. Mol, CPA RESPONSE This letter correctly sets forth the understanding of the City of Columbia Heights, Minnesota: Title: y r-- Ilva✓CI ' G Date: Z16 By :, Title: 6-ki wwG9� Date: NONAUDIT SERVICES The employee(s) assigned to oversee the nonaudit services is as follows: IK Finance Director IR- Assistant Finance Director ❑ Other employee (name and title) 2711094.1 Appendix A Heidenreich & Heidenreich, CPAs, PLLC 102015. Sid street, Suite 0170 PhceryK AZ 85044 (490)704 -6901 W 785-4619 System Review Report September 22, 2016 To the Owners of Redpath and Company, Ltd. and the Peer Review Committee of the Minnesota Society of CPAs We have reviewed the system of quality control for the accounting and auditing practice of Redpath and Company, Ltd. (the firm) in effect for the year ended May 31, 2016- 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. As a part of our peer review, we considered reviews by regulatory entities, if applicable, in determining the nature and extent of our procedures. The firm is responsible for designing a system of quality control and complying with it to provide the firm with reasonable assurance of perfomtiing 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 /prsummary. As required by the standards, engagements selected for review included engagements performed under the Gouemment Auditing Standards and audits of employee benefit plans_ In our opinion, the system of quality control for the accounting and auditing practice of Redpath and Company, Ltd. in effect for the year ended May 31, 2016, has been suitably designed and complied with to provide the fire 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 Wth detciency(res) or fail. Redpath and Company, Ltd_ has received a peer review rating of pass_ Heidenreich & Heidenreich, CPAs, PLLC 2711094.1 11R� A CLIENT COPY AT H September 17, 2018 City of Columbia Heights 590 40th Avenue Northeast Columbia Heights, MN 55421 We are pleased to confirm our understanding of the services we are to provide the City of Columbia Heights (the City) for the year ending December 31, 2018. The scope of services includes the following: Audit and Related Services • We will audit the financial statements of the governmental activities, the business -type activities, aggregate discretely presented component units, each major fund, and the aggregate remaining fund information, including the related notes to the financial statements, which collectively comprise the basic financial statements of the City as of and for the year ending December 31, 2018. Accounting standards generally accepted in the United States of America provide for certain required supplementary information (RSI), such as management's discussion and analysis (MD &A), to supplement the City's basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. As part of our engagement, we will apply certain limited procedures to the City's RSI in accordance with auditing standards generally accepted in the United States of America. These limited procedures will consist of inquiries of management regarding the methods of preparing the information and comparing the information for consistency with management's responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We will not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. The following RSI is required by generally accepted accounting principles and will be subjected to certain limited procedures, but will not be audited: • Management's Discussion and Analysis • Schedule of Changes in OPEB Liability and Related Ratios • Schedules of Proportionate Share of Net Pension Liability (GERF and PEPFF) • Schedules of Pension Contributions (GERF And PEPFF) • Budgetary Comparison Schedule 2895792 4810 White Bear Parkway, St. Paul, MN 55110 651.426.7000 www.redpathcpas.com City of Columbia Heights Contract for Auditing Services Page 2 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: • Combining and Individual Fund Statements and Schedules • Schedule of Expenditures of Federal Awards( if applicable) 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 our auditor's report will not provide an opinion or any assurance on that information: Introductory section Statistical section The following other reports will be issued in conjunction with the financial audit: • Audit Management Letter • State Legal Compliance Audit • Federal Single Audit (if applicable), including web -based SFAC Nonaudit Services • Copying and binding of financial statement document (CAFR) Audit OWectives 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 supplementary information referred to in the second paragraph when considered in relation to the financial statements taken as a whole. The objective also includes reporting on: • Internal control over financial reporting and compliance with the provisions of laws, regulations, contracts, and grant agreements, noncompliance with which could have a material effect on the financial statements in accordance with Government Auditing Standards. Internal control over compliance 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 2895792 City of Columbia Heights Contract for Auditing Services Page 3 accordance with the Single Audit Act Amendments of 1996 and Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance). The Government Auditing Standards report on internal control over financial reporting and on compliance and other matters will include a paragraph that states that (1) the purpose of the report is solely to describe the scope of testing of internal control and compliance and the results of that testing, and not to provide an opinion on the effectiveness of the entity's internal control or on compliance, and (2) the report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the entity's internal control and compliance. The Uniform Guidance report on internal control over compliance will include a paragraph that states that the purpose of the report on internal control over compliance is solely to describe the scope of testing of internal control over compliance and the results of that testing based on the requirements of the Uniform Guidance. Both reports will state that the report is not suitable for any other purpose. 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 the Uniform Guidance, and will include tests of accounting records, a determination of major program(s) in accordance with the Uniform Guidance, and other procedures we consider necessary to enable us to express such opinions. We will issue written reports upon the completion of our Single Audit. Our reports will be addressed to management and the City Council of the City of Columbia Heights, Minnesota. We cannot provide assurance that unmodified opinions will be expressed. Circumstances may arise in which it is necessary for us to modify our opinions or add emphasis -of- matter or other - matter paragraphs. If our opinions are other than unmodified, 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. 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. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. 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 2895792 City of Columbia Heights Contract for Auditing Services Page 4 subjective, Government Auditing Standards do not expect auditors to provide reasonable assurance of detecting abuse. Because of the inherent limitations of an audit, combined with the inherent limitations of internal control, 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, even though the audit is properly planned and performed in accordance with U.S. generally accepted auditing standards and Government Auditing Standards. 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 the appropriate level of management of any material errors, any fraudulent financial reporting or misappropriation of assets that come to our attention. We will also inform the appropriate level of management 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 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 your responsibilities for the financial statements; schedule of expenditures of federal awards, federal award programs; compliance with laws, regulations, contracts, and grant agreements; and other responsibilities required by generally accepted auditing procedures. Audit Procedures — Internal Controls Our audit will include obtaining an understanding of the government 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 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 statements. Our tests, if performed, 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 the Uniform Guidance. As required by the Uniform Guidance, we will perform tests of controls over compliance to evaluate the effectiveness of the design and operation of controls that we consider relevant to 2895792 City of Columbia Heights Contract for Auditing Services Page 5 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 the Uniform Guidance. An audit is not designed to provide assurance on internal control or to identify significant deficiencies or material weaknesses. Accordingly, we will express no such opinion. 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 the Uniform Guidance. 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's compliance with the provisions of applicable laws, regulations, contracts, as 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 Uniform Guidance requires that we also plan and perform the audit to obtain reasonable assurance about whether the auditee has complied with regulations, and the terms and conditions of federal awards, applicable to major programs. Our procedures will consist of tests of transactions and other applicable procedures described in the OMB Compliance Supplement for the types of compliance requirements that could have a direct and material effect on each of the City's major programs. The purpose of these procedures will be to express an opinion on the City's compliance with requirements applicable to each of its major programs in our report on compliance issued pursuant to the Uniform Guidance. 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. Other Services We will also assist in preparing the financial statements and related notes of City's in conformity with U.S. generally accepted accounting principles based on information provided by you. These nonaudit services do not constitute an audit under Government Auditing Standards and such services will not be conducted in accordance with Government Auditing standards. We will perform the services in accordance with applicable professional standards. The other services are limited to the financial statement services previously defined. We, in our sole professional judgment, reserve the right to refuse to perform any procedure or take any action that could be construed as assuming management responsibilities. 2895792 City of Columbia Heights Contract for Auditing Services Page 6 Management Responsibilities Management is responsible for (1) designing, implementing, establishing, and maintaining effective internal controls, relevant to the preparation and fair presentation of financials statements that are free from material misstatement, whether due to fraud or error, including internal controls over federal controls over federal awards, and for evaluating and monitoring ongoing activities to help ensure that appropriate goals and objectives are met; (2) following laws and regulations; (3) ensuring that there is reasonable assurance that government programs are administered in compliance with compliance requirements; and (4) ensuring that management and financial information is reliable and properly reported. Management is also responsible for implementing systems designed to achieve compliance with applicable laws, regulations, contracts, and grant agreements. You are also responsible for the selection and application of accounting principles; for the preparation and fair presentation in the financial statements, schedule of expenditures of federal awards, and all accompanying information in conformity with U.S. generally accepted accounting principles; and for compliance with applicable laws and regulations (including federal statutes) and the provisions of contracts and grant agreements (including award agreements). Your responsibilities also include identifying significant contractor relationships in which the contractor has responsibility for program compliance and for the accuracy and completeness of that information. Management is also responsible for making all financial records and related information available to us and for the accuracy and completeness of that information. You are also responsible for providing us with (1) access to all information of which you are aware that is relevant to the preparation and fair presentation of the financial statements, (2) access to personnel accounts, books, records, supporting documentation and other information as needed to perform an audit under the Uniform Guidance, (3) additional information that we may request for the purpose of the audit, and (4) unrestricted access to persons within the government from whom we determine it necessary to obtain audit evidence. 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. Your responsibilities also include identifying significant vendor relationships in which the vendor has responsibility for program compliance and for the accuracy and completeness of that information. Your responsibilities include adjusting the financial statements to correct material misstatements and for confirming to us in the written 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. 2895792 City of Columbia Heights Contract for Auditing Services Page 7 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 (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. Management is also responsible for taking timely and appropriate steps to remedy fraud and noncompliance with provisions of laws, regulations, contracts, and grant agreements, or abuse that we report. Additionally, as required by the Uniform Guidance, it is management's responsibility to evaluate and monitor noncompliance with federal statutes, regulations, and the terms and conditions of federal awards; take prompt action when instances of noncompliance are identified, including noncompliance identified in audit findings; promptly 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. You are responsible for identifying all federal awards received and understanding and complying with the compliance requirements and for preparation of the schedule of expenditures of federal awards in conformity with the Uniform Guidance. You agree to include our report on the schedule of expenditures of federal awards in any document that contains and indicates that we have reported on the schedule of expenditures of federal awards. You also agree to make the audited financial statements readily available to intended users of the schedule of expenditures of federal awards no later than the date the schedule of expenditures of federal awards is issued with our report thereon. Your responsibilities include acknowledging to us in the written representation letter that (1) you are responsible for presentation of the schedule of expenditures of federal awards in accordance with the Uniform Guidance; (2) that you believe the schedule of expenditures of federal awards, including its form and content, is fairly presented in accordance with the Uniform Guidance; (3) that the methods of measurement or presentation have not changed from those used in the prior period (or, if they have changed, the reasons for such changes); and (4) you have disclosed to us any significant assumptions or interpretations underlying the measurement or presentation of the schedule of expenditures of federal awards. You are also responsible for the preparation of the other supplementary information, which we have been engaged to report on, 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. You also agree to make the audited financial statements readily available to users of the supplementary information no later than the date the supplementary information is issued with our report thereon. Your responsibilities include acknowledging to us in the written representation letter that (1) you are responsible for presentation of the supplementary information in accordance with GAAP; (2) that you believe the supplementary information, including its form and content, is fairly presented in accordance with GAAP; (3) that the methods of measurement or presentation 2895792 City of Columbia Heights Contract for Auditing Services Page 8 have not changed from those used in the prior period (or, if they have changed, the reasons for such changes); and (4) you have disclosed to us any significant assumptions or interpretations underlying the measurement or presentation of 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 and providing report copies of 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 management's views on our current findings, conclusions, and recommendations, as well as your planned corrective actions, for the report, and for the timing and format for providing that information. You agree to assume all management responsibilities relating to the financial statements, schedule of expenditures of federal awards, and related notes, and any other nonaudit services we provide. You will be required to acknowledge in the management representation letter our assistance with preparation of the financial statements, schedule of expenditures of federal awards, and related notes 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 agree to oversee the nonaudit services by designating an individual, preferably from senior management, with suitable skill, knowledge, or experience; evaluate the adequacy and results of those services; and accept responsibility for them. Engagement Administration, Fees and Other We may from time to time, and depending on the circumstances, use third -party service providers in serving your account. We may share confidential information about you with these service providers, but remain committed to maintaining the confidentiality and security of your information. Accordingly, we maintain internal policies, procedures, and safeguards to protect the confidentiality of your personal information. In addition, we will secure confidentiality agreements with all service providers to maintain the confidentiality of your information and we will take reasonable precautions to determine that they have appropriate procedures in place to prevent the unauthorized release of your confidential information to others. In the event that we are unable to secure an appropriate confidentiality agreement, you will be asked to provide your consent prior to the sharing of your confidential information with the third -party service provider. Furthermore, we will remain responsible for the work provided by any such third -party service providers. 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. 2895792 City of Columbia Heights Contract for Auditing Services Page 9 At the conclusion of the engagement, we will complete the appropriate sections of the Data Collection Form that summarizes our audit findings. 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 federal audit clearinghouse. We will coordinate with you the electronic submission and certification. If applicable, we will provide copies of our report for you to include with the reporting package you will submit 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. We will provide copies of our reports to the City's, however, management is responsible for distribution of the reports and the financial statements. Unless restricted by law or regulation, or containing privileged and confidential information, copies of our reports are to be made available for public inspection. The audit documentation for this engagement is the property of Redpath and Company, 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 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 Redpath and Company, 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. 2895792 City of Columbia Heights Contract for Auditing Services Page 10 The audit documentation will be retained for a minimum of five years after the report release date or for any additional period requested by the federal agency. If we are aware that a federal awarding agency or auditee is contesting a finding, we will contact the party(ies) contesting the audit finding for guidance prior to destroying the audit documentation. We expect to begin our audit in April and to issue our reports no later than June 30, 2019, David J. Mol, CPA is the engagement partner and is responsible for supervising the engagement and signing the report. Our fee for these services will be at our standard government audit hourly rates plus out -of- pocket costs (such as report reproduction, typing, postage, travel, copies, telephone, etc.). Our invoices for these fees will be rendered each month as work progresses and are payable on presentation. Unless additional work is requested, or circumstances require additional work, we estimate the basic audit fees will be as follows: The above fee is based on the anticipated scope of services. An increase in the scope of service will necessitate an addendum (change order) to this agreement. Examples of items that may result in an increase in the scope of service include additional audit procedures resulting from certain accounting issues or events, significant change in the level of activity /number of transactions, if there is an indication of misappropriation or misuse of public funds, or difficulties encountered due to lack of accounting records, incomplete records, inaccurate records or turnover in the City's staff. Either the City of Columbia Heights or Redpath and Company, Ltd. may cancel this contract at any time by giving written notice to the other party at least thirty (30) calendar days prior to the effective date of the termination. Redpath and Company, Ltd. shall be paid for the work performed prior to the effective date of the termination. Government Auditing Standards requires 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 or letters of comment received during the period of contract. Our 2016 peer review report accompanies this letter as Appendix A. We are pleased to report that we did not receive a letter of comment. 2895792 2018 Financial audit, including copying and binding of CAFR $32,000 Single audit (assumes one rn 'or program) $ 3,600 Scope increase for GASB 68 $ 1,000 Scope increase for GASB 75 Implementation $ 1,000 The above fee is based on the anticipated scope of services. An increase in the scope of service will necessitate an addendum (change order) to this agreement. Examples of items that may result in an increase in the scope of service include additional audit procedures resulting from certain accounting issues or events, significant change in the level of activity /number of transactions, if there is an indication of misappropriation or misuse of public funds, or difficulties encountered due to lack of accounting records, incomplete records, inaccurate records or turnover in the City's staff. Either the City of Columbia Heights or Redpath and Company, Ltd. may cancel this contract at any time by giving written notice to the other party at least thirty (30) calendar days prior to the effective date of the termination. Redpath and Company, Ltd. shall be paid for the work performed prior to the effective date of the termination. Government Auditing Standards requires 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 or letters of comment received during the period of contract. Our 2016 peer review report accompanies this letter as Appendix A. We are pleased to report that we did not receive a letter of comment. 2895792 City of Columbia Heights Contract for Auditing Services Page 11 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. Sincerely, REDPATH AND COMPANY, LTD. A3"7;>X� David J. Mol, CPA RESPONSE This letter correctly sets forth the By: - ,.- Title:"i'��' Date: of the City of Columbia Heights, Minnesota: By: Title: 4 or Date: NONAUDIT SERVICES The employee(s) assigned to oversee the nonaudit services is as follows: ❑ Finance Director R Assistant Finance Director ❑ Other employee (name and title) 2895792 Appendix A Heidenreich & Heidenreich, CPAs, PLLC 10201 S. 5111 Street, Suite #170 Phoenix, A2 85044 (480)704 -6301 fax 785 -4619 System Review Report September 22, 2016 To the Owners of Redpath and Company, Ltd. and the Peer Review Committee of the Minnesota Society of CPAs We have reviewed the system of quality control for the accounting and auditing practice of Redpath and Company, Ltd_ (the firm) in effect for the year ended May 31, 20'16. 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. As a part of our peer review, we considered reviews by regulatory entities, if applicable, in determining the nature and extent of our procedures_ 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/prsumniary- As required by the standards, engagements selected for review included engagements performed under the Government Auclifing Standards and audits of employee benefit plans. In our opinion, the system of quality control for the accounting and auditing practice of Redpath and Company, Ltd. in effect for the year ended May 31, 20,16, 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 fail. Redpath and Company, Ltd. has received a peer review rating of pass. ; Heidenreich & Heidenreich, CPAs, PLLC 55 5th Street East, Suite 1400, St. Paul, MN, 55101 www.redpathcpas.com November 4, 2020 Joe Kloiber City of Columbia Heights 590 40th Avenue Northeast Columbia Heights, MN 55421 Dear Joe: Enclosed are two copies of the audit engagement letter for the year ending December 31, 2020. If you have any questions, don’t hesitate to call me. Please return one copy to our office and retain the other copy for your files. If you have any questions, please call. We look forward to continuing our relationship. Sincerely, REDPATH AND COMPANY, LTD. David J. Mol, CPA DJM/ajf Enclosure 55 5th Street East, Suite 1400, St. Paul, MN, 55101 www.redpathcpas.com November 4, 2020 City of Columbia Heights 590 40th Avenue Northeast Columbia Heights, MN 55421 We are pleased to confirm our understanding of the services we are to provide the City of Columbia Heights (the City) for the year ending December 31, 2020. The scope of services includes the following: Audit and Related Services  We will audit the financial statements of the governmental activities, the business-type activities, aggregate discretely presented component units, each major fund, and the aggregate remaining fund information, including the related notes to the financial statements, which collectively comprise the basic financial statements of the City as of and for the year ending December 31, 2020. Accounting standards generally accepted in the United States of America provide for certain required supplementary information (RSI), such as management’s discussion and analysis (MD&A), to supplement the City’s basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. As part of our engagement, we will apply certain limited procedures to the City’s RSI in accordance with auditing standards generally accepted in the United States of America. These limited procedures will consist of inquiries of management regarding the methods of preparing the information and comparing the information for consistency with management’s responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We will not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. The following RSI is required by U.S. generally accepted accounting principles and will be subjected to certain limited procedures, but will not be audited: o Management’s Discussion and Analysis o Schedule of Changes in OPEB Liability and Related Ratios o Schedules of Proportionate Share of Net Pension Liability (GERF and PEPFF) o Schedules of Pension Contributions (GERF and PEPFF) o Budgetary Comparison Schedule City of Columbia Heights Contract for Auditing Services Page 2 3290892 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 in a report combined with our auditor’s report on the financial statements. o Combining and Individual Fund Statements and Schedules o Schedule of Expenditures of Federal Awards (if applicable) 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 our auditor’s report will not provide an opinion or any assurance on that other information:  Introductory section  Statistical section The following other reports will be issued in conjunction with the financial audit: o Audit Management Letter o State Legal Compliance Audit o Federal Single Audit, including web based SFAC Nonaudit Services  Copying and binding of financial statement document (CAFR)  GASB 68 pensions calculations  GASB 75 OPEB assistance 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 supplementary information referred to in the second paragraph when considered in relation to the financial statements taken as a whole. The objective also includes reporting on:  Internal control over financial reporting and compliance with the provisions of laws, regulations, contracts, and award agreements, noncompliance with which could have a material effect on the financial statements in accordance with Government Auditing Standards.  Internal control over compliance related to major programs and an opinion (or disclaimer of opinion) on compliance with federal statutes, regulations, and the terms and City of Columbia Heights Contract for Auditing Services Page 3 3290892 conditions of federal awards that could have a direct and material effect on each major program in accordance with the Single Audit Act Amendments of 1996 and Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance). The Government Auditing Standards report on internal control over financial reporting and on compliance and other matters will include a paragraph that states that (1) the purpose of the report is solely to describe the scope of testing of internal control and compliance and the results of that testing, and not to provide an opinion on the effectiveness of the entity’s internal control or on compliance, and (2) the report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the entity’s internal control and compliance. The Uniform Guidance report on internal control over compliance will include a paragraph that states that the purpose of the report on internal control over compliance is solely to describe the scope of testing of internal control over compliance and the results of that testing based on the requirements of the Uniform Guidance. Both reports will state that the report is not suitable for any other purpose. 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 the Uniform Guidance, and will include tests of accounting records, a determination of major program(s) in accordance with the Uniform Guidance, and other procedures we consider necessary to enable us to express such opinions. We will issue written reports upon the completion of our Single Audit. Our reports will be addressed to management and the City Council of the City of Columbia Heights, Minnesota. We cannot provide assurance that unmodified opinions will be expressed. Circumstances may arise in which it is necessary for us to modify our opinions or add emphasis-of-matter or other-matter paragraphs. If our opinions are other than unmodified, 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 issue report, or we may withdraw from this engagement. 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. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. 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. City of Columbia Heights Contract for Auditing Services Page 4 3290892 Because of the inherent limitations of an audit, combined with the inherent limitations of internal control, 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, even though the audit is properly planned and performed in accordance with U.S. generally accepted auditing standards and Government Auditing Standards. 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 the appropriate level of management of any material errors, any fraudulent financial reporting or misappropriation of assets that come to our attention. We will also inform the appropriate level of management 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 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, 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 your responsibilities for the financial statements; schedule of expenditures of federal awards, federal award programs; compliance with laws, regulations, contracts, and grant agreements; and other responsibilities required by generally accepted auditing standards. Audit Procedures – Internal Control Our audit will include obtaining an understanding of the government 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 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 statements. Our tests, if performed, 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 the Government Auditing Standards. As required by the Uniform Guidance, 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 the Uniform Guidance. City of Columbia Heights Contract for Auditing Services Page 5 3290892 An audit is not designed to provide assurance on internal control or to identify significant deficiencies or material weaknesses. Accordingly, we will express no such opinion. 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 the Uniform Guidance. 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’s compliance with the provisions of applicable laws, regulations, contracts, as 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 Uniform Guidance requires that we also plan and perform the audit to obtain reasonable assurance about whether the auditee has complied federal statutes with regulations, and the terms and conditions of federal awards, applicable to major programs. Our procedures will consist of tests of transactions and other applicable procedures described in the OMB Compliance Supplement for the types of compliance requirements that could have a direct and material effect on each of the City’s major programs. For federal programs that are included in the 2019 Compliance Supplement, our compliance and internal control procedures will relate to the compliance requirements that the 2019 Compliance Supplement identifies as being subject to audit The purpose of these procedures will be to express an opinion on the City’s compliance with requirements applicable to each of its major programs in our report on compliance issued pursuant to the Uniform Guidance. Other Services We will also assist in preparing the financial statements, and related notes of City’s in conformity with U.S. generally accepted accounting principles and the Uniform Guidance based on information provided by you. These nonaudit services do not constitute an audit under Government Auditing Standards and such services will not be conducted in accordance with Government Auditing standards. We will perform the services in accordance with applicable professional standards. The other services are limited to the financial statements, schedule of expenditures of federal awards, and related notes services previously defined. We, in our sole professional judgment, reserve the right to refuse to perform any procedure or take any action that could be construed as assuming management responsibilities. Management Responsibilities Management is responsible for (1) designing, implementing, establishing, and maintaining effective internal controls, relevant to the preparation and fair presentation of financials statements that are free from material misstatement, whether due to fraud or error, including internal controls over federal controls over federal awards, and for evaluating and monitoring ongoing activities to help ensure that appropriate goals and objectives are met; (2) following laws and regulations; (3) ensuring that there is reasonable assurance that government programs are administered in compliance with compliance requirements; and (4) ensuring that management and financial information is reliable and properly reported. Management is also City of Columbia Heights Contract for Auditing Services Page 6 3290892 responsible for implementing systems designed to achieve compliance with applicable laws, regulations, contracts, and grant agreements. You are also responsible for the selection and application of accounting principles; for the preparation and fair presentation in the financial statements, schedule of expenditures of federal awards, and all accompanying information in conformity with U.S. generally accepted accounting principles; and for compliance with applicable laws and regulations (including federal statutes) and the provisions of contracts and grant agreements (including award agreements). Your responsibilities also include identifying significant contractor relationships in which the contractor has responsibility for program compliance and for the accuracy and completeness of that information. Management is also responsible for making all financial records and related information available to us and for the accuracy and completeness of that information. You are also responsible for providing us with (1) access to all information of which you are aware that is relevant to the preparation and fair presentation of the financial statements, (2) access to personnel accounts, books, records, supporting documentation and other information as needed to perform an audit under the Uniform Guidance, (3) additional information that we may request for the purpose of the audit, and (4) unrestricted access to persons within the government from whom we determine it necessary to obtain audit evidence. 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 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 (1) management, (2) employees who have significant roles in internal control, and (3) others where the fraud 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. Management is also responsible for taking timely and appropriate steps to remedy fraud and noncompliance with provisions of laws, regulations, contracts, and grant agreements, or abuse that we report. Additionally, as required by the Uniform Guidance, it is management’s responsibility to evaluate and monitor noncompliance with federal statutes, regulations, and the terms and conditions of federal awards; take prompt action when instances of noncompliance are identified, including noncompliance identified in audit findings; promptly 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. You are responsible for identifying all federal awards received and understanding and complying with the compliance requirements and for the preparation of the schedule of expenditures of federal awards (including notes and noncash assistance received) in conformity with the Uniform Guidance. You agree to include our report on the schedule of expenditures of City of Columbia Heights Contract for Auditing Services Page 7 3290892 federal awards in any document that contains and indicates that we have reported on the schedule of expenditures of federal awards. You also agree to make the audited financial statements readily available to intended users of the schedule of expenditures of federal awards no later than the date the schedule of expenditures of federal awards is issued with our report thereon. Your responsibilities include acknowledging to us in the written representation letter that (1) you are responsible for presentation of the schedule of expenditures of federal awards in accordance with the Uniform Guidance; (2) that you believe the schedule of expenditures of federal awards, including its form and content, is fairly presented in accordance with the Uniform Guidance; (3) that the methods of measurement or presentation have not changed from those used in the prior period (or, if they have changed, the reasons for such changes); and (4) you have disclosed to us any significant assumptions or interpretations underlying the measurement or presentation of the schedule of expenditures of federal awards. You are also responsible for the preparation of the other supplementary information, which we have been engaged to report on, 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. You also agree to make the audited financial statements readily available to users of the supplementary information no later than the date the supplementary information is issued with our report thereon. Your responsibilities include acknowledging to us in the written representation letter that (1) you are responsible for presentation of the supplementary information in accordance with GAAP; (2) you believe the supplementary information, including its form and content, is fairly presented in accordance with GAAP; (3) the methods of measurement or presentation have not changed from those used in the prior period (or, if they have changed, the reasons for such changes); and (4) you have disclosed to us any significant assumptions or interpretations underlying the measurement or presentation of 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 and providing report copies of 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 management’s views on our current findings, conclusions, and recommendations, as well as your planned corrective actions, for the report, and for the timing and format for providing that information. You agree to assume all management responsibilities relating to the financial statements, schedule of expenditures of federal awards, and related notes, and any other nonaudit services we provide. You will be required to acknowledge in the management representation letter our assistance with preparation of the financial statements, schedule of expenditures of federal awards, and related notes 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 agree to oversee the nonaudit services by designating an individual, preferably from senior management, with suitable skill, knowledge, or City of Columbia Heights Contract for Auditing Services Page 8 3290892 experience; evaluate the adequacy and results of those services; and accept responsibility for them. Engagement Administration, Fees and Other We may from time to time, and depending on the circumstances, use third-party service providers in serving your account. We may share confidential information about you with these service providers but remain committed to maintaining the confidentiality and security of your information. Accordingly, we maintain internal policies, procedures, and safeguards to protect the confidentiality of your personal information. In addition, we will secure confidentiality agreements with all service providers to maintain the confidentiality of your information and we will take reasonable precautions to determine that they have appropriate procedures in place to prevent the unauthorized release of your confidential information to others. In the event that we are unable to secure an appropriate confidentiality agreement, you will be asked to provide your consent prior to the sharing of your confidential information with the third-party service provider. Furthermore, we will remain responsible for the work provided by any such third-party service providers. 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. It is management’s responsibility to electronically 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 federal audit clearinghouse. We will coordinate with you the electronic submission and certification. If applicable, we will provide copies of our report for you to include with the reporting package you will submit to pass-through entities. The Data Collection Form and the reporting package must be submitted within the earlier of 30 calendar 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. We will provide copies of our reports to the City’s; however, management is responsible for distribution of the reports and the financial statements. Unless restricted by law or regulation, or containing privileged and confidential information, copies of our reports are to be made available for public inspection. The audit documentation for this engagement is the property of Redpath and Company, Ltd. and constitutes confidential information. However, subject to applicable laws and regulations, audit documentation and appropriate individuals will be made available upon request and in a timely manner to a Federal Oversight Agency or its designee 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 Redpath and Company, Ltd. personnel. Furthermore, upon request, we may provide copies of selected audit documentation to the aforementioned parties. These parties may City of Columbia Heights Contract for Auditing Services Page 9 3290892 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 date or for any additional period requested by the federal agency. If we are aware that a federal awarding agency or auditee is contesting a finding, we will contact the party(ies) contesting the audit finding for guidance prior to destroying the audit documentation. We expect to begin our audit on a mutually agreed upon date and to issue our reports no later than June 30, 2021. David J. Mol, CPA is the engagement partner and is responsible for supervising the engagement and signing the report. Our fee for these services will be at our standard hourly rates plus out-of-pocket costs (such as report reproduction, word processing, postage, travel, copies, telephone, etc.) except that we agree that our gross fee, including expenses, we estimate the basic audit fees will be as follows: 2020 Financial audit, including copying and binding of CAFR $32,000 Single audit (assumes one major program)$ 3,600 Expanded single audit scope for CARES Act funding $700 Nonaudit services related to GASB 68 and 75 disclosures/calculations $ 2,500 The above fees are based on the anticipated scope of service, anticipated cooperation from your personnel and the assumption that unexpected circumstances will not be encountered. The City acknowledges that the following circumstances may result in an increase in fees:  New accounting standards  Failure by the City to complete the preparation work by the applicable due dates.  Inaccurate records,  Turnover in your staff.  Significant unanticipated or undisclosed transactions, issues or other such unforeseeable circumstances.  Delays by the City causing scheduling changes or disruptions of previously schedule timing of work (fieldwork).  Circumstances requiring revisions to work previously completed or delays in resolution of issues that extend the period of time necessary to complete the audit.  Significant change in the level of activity/number of transactions.  There is an indication of misappropriations or misuse of public funds. Either the City of Columbia Heights or Redpath and Company, Ltd. may cancel this contract at any time by giving written notice to the other party at least thirty (30) calendar days prior to the effective date of the termination. Redpath and Company, Ltd. shall be paid for the work performed prior to the effective date of termination. City of Columbia Heights Contract for Auditing Services Page 10 3290892 Government Auditing Standards requires 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 or letters of comment received during the period of contract. Our 2019 peer review report accompanies this letter as Appendix A. 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. Sincerely, REDPATH AND COMPANY, LTD. David J. Mol, CPA DJM/ajf Appendix A