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R-90-1505 - 9/13/1990ATTEST: WHEREAS, it is necessary for the City of Round Rock, to conduct an annual audit, and WHEREAS, the accounting firm of Pena Swayze & Co., has submitted a proposal to provide said audit, and, WHEREAS, the City Council wishes to approve the Pena Swayze & Co. proposal, Now Therefore, BE IT RESOLVED BY THE COUNCIL OF THE CITY OF ROUND ROCK, TEXAS, That the is hereby authorized and directed to execute on y . behalf of the City an agreement with Pena Swayze & Co., to conduct said audit, a copy of said agreement being attached hereto and incorporated ° herein for all purposes. RESOLVED this 13th day of September, 1990. JONNE LAND, City Secretary RS09130B RESOLUTION NO. / MIKE ROBINSON, Mayor City of Round Rock, Texas PEr A SWAYZE & CO. CERTIFIED PUBLIC ACCOUNTANTS Hon. Mike Robinson, Mayor Mr. Robert L. Bennett, City Manager Mr. David Kautz, Finance Director City of Round Rock Round Rock, Texas Gentlemen: We are pleased to have the opportunity to serve the City of Round Rock as independent auditors for the year ending September 30, 1990. The purpose of this letter is to confirm our understanding of the scope of our audit. We will audit the City's general purpose financial statements as of and for the year ending September 30, 1990. In addition to the general purpose financial statements, we will: Assist in the preparation of the City's Comprehensive Annual Financial Report for submission to the Government Finance Officers Association under its voluntary program for a Certificate of Achievement for Excellence in Financial Reporting. Report on compliance with laws and regulations. Report on internal control. August 10, 1990 Our audit will be a Single Audit made in accordance with generally accepted auditing standards; the standards for financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States; the Single Audit Act of 1984; and the provisions of OMB Circular A -128, Audits of State and Local Governments, and will include tests of the accounting records of the City and other procedures we consider necessary to enable us to express an unqualified opinion that the financial statements are fairly presented, in all material respects, in conformity with generally accepted accounting principles and to report on the City's compliance with laws and regulations and its internal controls as required for a Single Audit. If our opinion is other than unqualified, we will fully discuss the reasons with you in advance. MEMBER AMERICAN INSTITUTE AND TEXAS SOCIETY OF CERTIFIED PUBLIC ACCOUNTANTS P.O BOX 250 ROUND ROCK, TEXAS 78680 512/255.2165 City of Round Rock Page 2 August 10, 1990 Our procedures will include tests of documentary evidence supporting the transactions in the accounts, and may include tests of the physical existence of inventories, and direct confirmation of receivables and certain other assets and liabilities by correspondence with selected individuals, creditors and financial institutions. We will request written representations from your attorneys as part of the engagement, and they may bill you for respond- ing to this inquiry. At the conclusion of our audit, we will also request certain written representations from you about the financial statements and related matters. 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. Also, we will plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. As required by the Single Audit Act of 1984, our audit will include tests of transactions related to federal assistance programs for compliance with applicable laws and regulations. However, because of the concept of reasonable assurance and because we will not perform a detailed examination of all transactions, there is a risk that material errors, irregularities, or illegal acts, including fraud or defalcations, may exist and not be detected by us. We will advise you, however, of any matters of that nature that come to our attention, and 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 matters that might arise during any later periods for which we are not engaged as auditors. We understand that you will provide us with the basic information required for our audit and that you are responsible for the accuracy and completeness of that information. We will advise you about appropriate accounting principles and their application and will assist in the prepara- tion of your financial statements, but the responsibility for the financial statements remains with you. This responsibility includes the maintenance of adequate records and related internal control structure policies and procedures, the selection and application of accounting principles, and the safeguarding of assets. Our audit is not specifically designed and cannot be relied on to disclose reportable conditions, that is, significant deficiencies in the design or operation of the internal control structure. However, during the audit, if we become aware of such reportable conditions or ways that we believe management practices can be improved, we will communicate them to you in a separate letter. r PE■A SWAYZE Sr CO. CERTIFIED PUBLIC ACCOUNTANTS City of Round Rock Page 3 August 10, 1990 Additionally, we will study the City's operations in order to make recommendations regarding the economy and efficiency with which you conduct your affairs. In order for our firm to complete our work in a timely manner and to maintain the level of fees we propose, our firm and the City must closely coordinate the audit work so that City staff disruption is minimized, and we receive timely City prepared reports, information and support. We feel that an efficient audit and timely report can be accomplished with the following schedule. PHASE OF WORK TIMING I. Interim field work Mid September II. Confirmations Mid September III. Year -end field work Late October IV. Review of report draft Early December V. Printing of report Mid December VI. Report delivery Mid January The City is to furnish the necessary and customary clerical staff to assist us in preparing detail trial balances and supporting schedules. We also understand that City staff will assist us by locating and submitting to us invoices, cancelled checks and other documents and records which we request. Prior to beginning each phase of the audit process, we would utilize City staff in the preparation of certain detailed audit schedules which we would format. In order for us to complete our work efficiently within the proposed time schedule and to stay within the proposed range of audit fees, all City prepared schedules must be completed at the start of each phase. In conjunction with all phases of our examination, we will review the City's system of internal accounting controls. If we observe any material weaknesses, we will report them to you with recommendations for correcting those weaknesses. We will try to initiate ideas or observations that we believe will help achieve the objectives of the City. We will also be pleased to respond to inquiries you might have about financial or other business matters. PENA SWAYZE & CO. CERTIFIED PUBLIC ACCOUNTANTS PROPOSED AUDIT SCHEDULE City of Round Rock Page 4 August 10, 1990 Our fees are based on the time our personnel require to complete the engagement plus direct expenses. Individual hourly rates vary in accordance with the degree of responsibility and skill of those assigned to the audit. Our estimated fee for this examination is $25,000 for the general purpose financial statements. We anticipate that preparation of the comprehensive annual financial report would cost $4,000 - $6,000, inclusive of typing. We estimate our examination will take approximately 900 manhours to complete. If unforeseen complications arise during the audit making it likely that the fee will exceed this amount, we will discuss the increase before proceeding. If you intend to publish or otherwise reproduce the financial statements and make reference to our firm name, you agree to provide us with printers' proofs or masters for our review and approval before printing. You also agree to provide us with a copy of the final reproduced material for our approval before it is distributed. We appreciate the opportunity to be of service to the City 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. CONF� B/ 4 Ro David Kautz, Finafrce Director /990 Date PE1VA SWAYZE & CO. CERTIFIED PUBLIC ACCOUNTANTS } S i ncerely, PENA SWAYZE /IZO. DATE: September 11, 1990 SUBJECT: City Council Meeting, September 13, 1990 ITEM: 14. B. Consider a resolution authorizing the Mayor to enter into an agreement with Pena Swayze & Company for the annual City Audit. STAFF RESOURCE PERSON: David Kautz STAFF RECOMMENDATION: The City's charter requires an annual audit of the financial records to be performed by an independent certified public accountant. Staff recommends that Pena Swayze and Co. (PS &C) be retained for this purpose. The cost will be approximately $31,000 and is included in the proposed operating budget. If selected, this will be the sixth year PS &C has performed the audit. Staff feels that, due to the current conversion of computer systems and records, it is extremely important PS &C perform this audit. Their familiarity with the old computer systems eliminates the need to spend significant money and time learning the system. As the City phases out the old system this issue will become less significant in future years. PENA SWAYZE & CO. CERTIFIED PUBLIC ACCOUNTANTS CITY OF ROUND ROCK, TEXAS MANAGEMENT REPORT SEPTEMBER 30, 1990 1 1 r , PElSTA SWAYZE & CO. CERTIFIED PUBLIC ACCOUNTANTS 1 1 January 18, 1991 1 1 Honorable Mayor, Members of the City Council, City Manager and Finance Director City of Round Rock, Teams We have audited the general purpose financial statements of the City 1 of Round Rock, Texas, for the year ended September 30, 1990, and have issued our report thereon dated January 18, 1991. ' standards. Those standards We conducted our audit in accordance with generally accepted auditing that we plan and perform the audit to require p Obtain reasonable assurance about whether the general purpose financial statements are free of material misstatement 1 In planning and performing our audit of the general purpose financial statements of the City of Round Rock, Texas, for the year ended September ' 30, 1990, we considered its internal control structure in order to determine our auditing procedures for the purpose of expressing our opinion on the general purpose financial statements and not to provide assurance on the internal control structure. The management of the City of Round Rock, Texas is responsible for 1 establishing and maintaining an internal control structure. In fulfilling this responsibility, estimates and judgments by management are required to assess the expected benefits and related costs of internal control structure policies and procedures. The objectives of an internal control structure are to provide management with reasonable, but not absolute, assurance that assets are safeguarded against loss from unauthorized use or disposition, and that transactions are executed in accordance with management's authorization and recorded properly to permit the presentation of financial statements in accordance with generally accepted accounting principles. Because of inherent limitations in any control structure, errors or irregularities may nevertheless occur and not be detected. Also, projection 1 1 MEMBER AMERICAN INSTITUTE AND TEXAS SOCIETY OF CERTIFIED PUBLIC ACCOUNTANTS P.O. BOX 250 ROUND ROCK, TEXAS 78680 512/255 - 2165 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 City of Round -Rock, Texas Page 2 January 18, 1991 of any evaluation of the structure to future periods is subject to the risk that procedures may become inadequate because of changes in conditions or that the effectiveness of the design and operation of policies and procedures may deteriorate. Our consideration of the internal control structure would not necessarily disclose all matters in the internal control structure that might be material weaknesses under standards established by the American Institute of Certified Public Accountants. A material weakness is a reportable condition in which the design or operation of the specific internal control structure elements does not reduce to a relatively low level the risk that errors or irregularities in amounts 'that would be material in relation to the general purpose financial statements being audited may occur and not be detected within a timely period by management in the normal course of performing their assigned functions. We noted no matters involving the internal control structure and its operation that we consider to be material weaknesses as defined above. However, during our audit we became aware of certain matters that provide opportunities for strengthening internl controls and operating efficiency. IWEER AL CONTROL STRUCI'tIRE This past year has been a transition year for the internal control structure of the City as certain job responsibilities were shifted to accon¢modate the new computer system Because of the timing of the changes, we recwmnend an interim internal review by in -house staff of the internal controls to assure that an adequate control environment and segregation of duties exists after the computer conversion. Our review of the internal control structure did point out one potential lack of motion of duties that has occurred as the result of these changes. Mail is opened in the data processing department which creates a lack of segregation of duties since this department has access to all data processing functions. DONATED ASSETS Assets received by the City from developers or others are to be recorded on the accounts at fair market value at the time received. Currently the recording of such donations is deferred until the annual audit. The City staff should record these donations at the time they are received to provide more accurate interim financial statements. r PENA SWAYZE & CO. CLRTInEO PUBLIC ACCOUNTANTS City of Round Rock, Terns Page 3 January 18, 1991 UTILITY FUND AUCOUNPING The Utility Fund of the City is required under generally accepted accounting principles to report on the result of its operations similar to any private enterprise. This requires the recording of certain items such as depreciation expense which are not required for other governmental funds. In addition, assets purchased are capitalized as opposed to recording as capital outlay. Currently the financial records of the Utility Fund are maintained on the same basis as other governmental funds in accordance with budgetary requirements. As a result, a significant number of adjustments are made at year end as a part of the annual audit. It is our recommendation that the City staff consider maintaining reconciliations to convert from the budgetary basis to the enterprise basis for this fund in order to provide interim financial information consistent with the year end financial presentation. TECHNICAL ACODUNPIN3 ISSUES From time to time throughout the year various technical accounting issues arise from changes in laws, changes in accounting pronouncements, and occurrence of certain transactions. We recommend that the City's financial staff identify and record such issues when they occur to help insure proper interim financial reporting and to minimize significant year end adjustments. PENA SWAYZE & CO. CERTIFIED PUBLIC ACCOUNTANTS