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R-94-07-14-9G - 7/14/1994WHEREAS, 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 Mayor is hereby authorized and directed to execute on behalf of the City an engagement letter with Pena Swayze & Co. to conduct said audit, a copy of said letter being attached hereto and incorporated herein for all purposes. RESOLVED this 14th day of July, 19.4. ATTEST: KS /RESOLUTION RS 07144G RESOLUTION NO. /e "94 -07-1`x' '7g. E LAND, City Secretary CHARLES CULPEP!ER' ayor City of Round Ro Texas 1 PE SWAYZE & CO., L.L.P. RR hae�Sway�e C.P.A. 0111 CERTIFIED PUBLIC ACCOUNT Mary H. Bott, C.P.A. Terry L. Hutchens, C.P.A. Steve McKay, C.P A. Honorable Charles C. Culpepper, Mayor Mr. Robert L. Bennett, City Manager Mr. David Kautz, Finance Director City of Round Rock Round Rock, Texas Gentlemen: July 11, 1994 We are pleased to have the opportunity to serve the City of Round Rock as independent auditors for the year ending September 30, 1994. 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, 1994. Also, the document we submit to you will include the following additional information that will be subjected to the audit procedures applied in our audit of the general purpose financial statements. 1. General Fund Statement of Revenues, Expenditures and Changes in Fund Balance - Budget and Actual. 2. Combining Statements for Special Revenue, Capital Projects, Enterprise, and Trust and Agency Funds. 3. Account Group Statements for General Fixed Asset and General Long -Term Debt Account Groups. 4. Employee Retirement Plan Ten -Year Historical Trend Information. MEMBER AMERICAN INSTITUTE AND TEXAS SOCIETY OF CERTIFIED PUBLIC ACCOUNTANTS P.O. BOX 250 ROUND ROCK, TEXAS 78680 512 255 2165 FAX 512 255 2466 /P- 9/1 o7 -i4- Q� The document we submit to you will include a "Statistical Section" that will not be subjected to the audit procedures applied in our audit of the general purpose financial statements. City of Round Rock Page 2 July 11, 1994 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. - Issue the following reports required in a Single Audit: Reports Related to Financial Statements of the Reporting Entity Required by GAO's Government Auditing Standards a. Report identifying the significant internal controls and disclosing reportable conditions and material weaknesses in the internal control structure based solely on the understanding Obtained as part of the audit of the financial statements. b. Report on compliance with laws and regulations that may have a direct and material effect on the financial statements, disclosing all material instances of noncompliance, and expressing positive assurance on items tested and negative assurance on items not tested. Reports Related to Federal Assistance Programs Required by OMB Circulars A -128 and A -133 c. Report on the entity's supplementary schedule of federal financial assistance programs. d. Report identifying the significant internal controls and disclosing reportable conditions and material weaknesses in the controls established to provide reasonable assurance that federal assistance programs are being managed incompliance with laws and regulations. e. Opinion on compliance with specific requirements applicable to major programs. f. Report expressing positive and negative assurance with respect to general requirements applicable to major and nonmajor programs. Report expressing positive and negative assurance with respect to specific requirements applicable to tested nonmajor programs. r PENA SWAYZE & CO., L.L.P. CERTIFIED PUBLIC ACCOUNTANTS g. 1. City of Round Rock Page 3 July 11, 1994 h. Report on fraud or illegal acts, or indications of such acts, including all questioned costs found as a result of thPree acts, if discovered. Our audit will be a Single Audit conducted 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 coverrmnts, 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 Schedule of Federal Financial Assistance 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. Compliance with laws, regulations, contracts, and grants applicable to the City is the responsibility of the City's management. 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 certain provisions of laws, regulations, contracts, and grants. However, our objective is not to provide an opinion on overall cmnpliance with such provisions. 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 responding 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 pro- grams 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 r , PENA SWAYZE & CO., L.L.P. CERnFlED PUBLIC ACCOUNTAN15 City of Round Rock Page 4 July 11, 1994 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 our reports on the internal control structure as part of the financial audit and on compliance with laws and regulations are intended for the information of the audit committee, management, and others within the City and the Texas Department of Housing and Community Affairs. 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 preparation 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 diGclose 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. 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. Confirmations Mid September II. Year -end field work Early November III. First report draft Late January IV. Printing of report Early February V. Report delivery Late February f PENA SWAYZE & CO., L.L.P. MIMED PUBLIC ACCOUMAMB PROPOSED AUDIT SCHEDULE City of Round Rock Page 5 July 11, 1994 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. 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 engagement is as follows: - Audit of general purpose financial statements $28,100 - Preparation of first draft of the comprehensive annual financial report - Compliance with the Texas Department of Housing and Community Affairs audit requirements per- taining to Texas Community Development Program funds as directed by the Single Audit Act of 1984. City staff would be responsible for the completion of the report after delivery of the first draft. We would make our typist available to City staff. Our fee estimate includes all typing. We estimate our examination will take approximately 800 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. PENA SWAYZE & CO., L.L.P. GEMMED PUBLIC ACCOUNTANTS $ 5,700 $ 4,500 City of Round Rock Page 6 July 11, 1994 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. Robert David Kautz, Finance Di Manag r PENA SWAYZE & CO., L.L.P. MIMEO PUBLIC ACCOUNTANTS ly PENA SW YZE CO., L.L.P. 1/ 1111 PE SWA & CO., L.L.P. Steve D. Pena, C.P.A. O • R. Michael Swayze, C.PA. CERTIFIED PUBLIC ACCOU[�TA. \T Mary H. Bott, C.P.A. Terry L. Hutchens, C.P.A. Steve McKay, C P.A Honorable Charles C. Culpepper, Mayor Mr. Robert L. Bennett, City Manager Mr. David Kautz, Finance Director City of Round Rock Round Rock, Texas Gen July 11, 1994 We are pleased to have the opportunity to serve the City of Round Rock as independent auditors for the year ending September 30, 1994. 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, 1994. Also, the document we submit to you will include the following additional information that will be subjected to the audit procedures applied in our audit of the general purpose financial statements. 1. General Fund Statement of Revenues, Expenditures and Changes in Fund Balance - Budget and Actual. 2, Cattbining Statements for Special Revenue, capital Projects, Enterprise, and Trust and Agency Funds. 3. Account Group Statements for General Fixed Asset and General Long-Term Debt Aunt Groups. 4. EMployee Retirement Plan Ten -Year Historical Trend Information. The document we submit to you will include a "Statistical Section" that will not be subjected to the audit procedures applied in our audit of the general purpose financial statements. MEMBER AMERICAN INSTITUTE AND TEXAS SOCIETY OF CERTIFIED PUBLIC ACCOUNTANTS P.O. BOX 250 ROUND ROCK, TE \AS:6680 3122552165 FAX 512 255 2466 City of Round Rock Page 2 July 11, 1994 r 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. - Issue the following reports required in a Single Audit: Reports Related to Financial Statements of the Reporting Entity Required by GAO's Government Auditing Standards a. Report identifying the significant internal controls and - 1isclosing reportable conditions and material weaknesses in the internal control structure based solely on the understanding obtained as part of the audit of the financial statements. b. Report on compliance with laws and regulations that may have a direct and material effect on the financial statements, disclosing all material instances of noncompliance, and expressing positive assurance on items tested and negative assurance on items not tested. Reports Related to Federal Assistance Programs Required by OMB Circulars A -128 and A -133 c. Report on the entity's supplementary schedule of federal financial assistance p d. Report identifying the significant internal controls and disclosing reportable conditions and material weaknesses in the controls established to provide reasonable assurance that federal assistance programs are being managed incompliance with laws and regulations. e. Opinion on compliance with specific requirements applicable to major programs. f. Report expressing) positive and negative assurance with respect to general requirements applicable to major and nonmajor programs. Report expressing positive and negative assurance with respect to specific requirements applicable to tested nonmajor programs. g. PENA SWAYZE & CO., L.L.P. CERTIFIED PUBLIC ACCOUNPAMS City of Round Rock Page 3 July 11, 1994 h. Report on fraud or illegal acts, or indications of such acts, including all questioned costs found as a result of these acts, if discovered. Our audit will be a Single Audit conducted in accordance with generally accepted auditing standards; the standards for financial audits contained in Govenment Auditing standazds ;, 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 Inc.? 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, inconformity with generally accepted accounting principles and to report on the Schedule of Federal Financial Assistance 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. Compliance with laws, regulations, contracts, and grants applicable to the City is the responsibility of the City's management. 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 certain provisions of laws, regulations, contracts, and grants. However, our objective is not to provide an opinion on overall compliance with such provisions. 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 responding to this inquiry. At the conclusion of our audit, we will also request certain written representations flap 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 pro- grams for compliance with applicable laws and regulations. However, becalm= 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 PENA SWAYZE & CO., L.L.P. CERTIFIED I'UBIJC ACCOUNTANTS City of Round Rock Page 4 July 11, 1994 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 our reports on the internal control structure as part of the financial audit and on compliance with laws and regulations are intended for the information of the audit committee, management, and others within the City and the Texas Department of Housing and Community Affairs. We understand that you will provide us with the basic information required for our audit and that you are responsible for the accuracy and co pletenegc of that information. We will advise you about appropriate accounting principles and their application and will assist in the preparation of your financial statements, but the responsibility for the financial statements remains with you. 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. 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 minimi 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. PROPOSED AUDIT SCHEDULE PRASE OF FORK . TIC I. Confirmations Mid September II. Year -end field work Early November III. First report draft Late January IV. Printing of report Early February V. Report delivery Late February r PENA SWAYZE & CO., L.L.P. CERTIFIED PDULFC ACCOUNTANTS City of Round Rock Page 5 July 11, 1994 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 a of audit fees, all City prepared schedules must be completed at the tart 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 reconm enthtions 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 atout financial or other business matters. 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 engagement is as follows: - Audit of general purpose financial statements $28,100 - Preparation of first draft of the comprehensive annual financial report $ 5,700 - Compliance with the Texas Department of Housing and Community Affairs audit requirements per- taining to Texas Comsunity Development Program funds as directed by the Single Audit Act of 1984. $ 4,500 City staff would be responsible for the completion of the report after delivery of the first draft. We would make our typist available to City staff. Our fee estimate includes all typing. We estimate our examination will take approximately 800 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. r PENA SWAYZE & CO., L.L.P. CERTIFIED PUBLIC ACCOUNTANTS City of Round Rock Page 6 July 11, 1994 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, plaace. 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. CONFIRMED BY: Charles C. Culpepper, Mayor Robert L. Bennett, City Manager David Kautz, Finance Director Date r FERIA SWAYZE & CO., L.L.P. CERTIFIED ruouc AccouwrANIS DATE: July 12, 1994 SUBJECT: City Council Meeting, July 14, 1994 ITEM: 9. G. Consider a resolution authorizing the Mayor to enter into an agreement with Pena, Swayze and Company for the annual audit for the fiscal year ended September 30, 1994. 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 Company be retained for this purpose. Cost of the audit will be approximately $38,300 and is included in the proposed operating budget. The cost also includes compliance with additional audit requirements of the Dell Computer state grant. Staff believes that this firm has the capability and experience to properly perform the audit function. Additionally, the firm has illustrated a continuing improvement in audit service quality. If retained, this would be the tenth audit conducted by the firm for the City. Mayor Charles Culpepper Mayor Pro -tem Robert &Wm Council Members Rod Morgan Rick Stewart Far! Palmer Marsha Chavez Jimmy Joseph City Manager Robert L. Bermes!, Jr City Attorney Stephan L. Sheets July 26, 1994 Pena Swayze & Co., L.L.P. ATTN: Mr. Michael Swayze P.O. Box 250 Round Rock, TX 78680 Dear I4 y e: Resolution No. R- 94- 07 -14 -9G was approved by the Round Rock City Council on July 14, 1994. Enclosed is a copy of the resolution and the original agreement for your files. If you have any questions, please do not hesitate to call. Sincerely, Joanne Land Assistant City Manager/ City Secretary Enclosures THE CITY OF ROUND ROCK 221 East Main Street Round Rock, Texas 78664 512- 255 -3612 Fax 512-255-6676 1-800-735-2989 (TDD) 1-800-735-2988 (Voice)