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R-96-07-25-10G - 7/25/1996WHEREAS, 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 an agreement to provide said audit for the fiscal year ending September 30, 1996, and WHEREAS, the City Council wishes to enter into said agreement, 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 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 25th day of July, 1996. ATTEST: E LAND, City Secretary R \ WPOCCS \RSSOLVII \RSS0]]SG.WPO /ecg RESOLUTION NO. R- 96- 07- 25 -10G CHARLES CULPf�PPER, Mayor City of Round Rock, Texas PENA SWAYZE & CO., L.L.P. CERTIFIED PUBLIC ACCOUNTANTS 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 22, 1996 We are pleased to have the opportunity to serve the City of Round Rock as independent auditors for the year ending September 30, 1996. 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, 1996. 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. Statements of Revenues, Expenditures and Changes in Fund Balances - Budget and Actual - Special Revenue Funds. 4. Account Group Statements for General Fixed Asset and General Long -Term Debt Account Groups. 5. Project - Length Schedule of Construction Projects - Capital Projects Funds. 6. Employee Retirement Plan Ten -Year Historical Trend Information. MEMBER AMERICAN INSTITUTE AND TEXAS SOCIETY OF CERTIFIED PUBLIC ACCOUNTANTS PO. BOX250 ROUND ROCK TEXAS 786130 512 255 2165 FAX 512 255 2466 Steve D. Pena, C.P.A R. Michael Swayze, C.P.A. Steve McKay, C P A Mary H. Bott, C.P.A. Connie S. Behrens, C.P.A. 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 22, 1996 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 in compliance 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. g. Report expressing positive and negative assurance with respect to specific requirements applicable to tested nonmajor programs. City of Round Rock Page 3 July 22, 1996 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 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 Schedule of Federal Financial Assistance and 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. If for any reason, we are unable to complete the Single Audit, we will not issue a report as a result of this engagement. The management of the City is responsible for 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, that transactions are executed in accordance with management's authorizations and recorded properly to permit the preparation of general purpose financial statements in accordance with generally accepted accounting principles, and that federal financial assistance programs are managed in compliance with applicable laws and regulations. In planning and performing our audits for the year ended September 30, 1996, we will consider the internal control structure in order to determine our auditing procedures for the purpose of expressing our opinions on the City's general purpose financial statements and on its compliance with requirements applicable to major programs and to report on the internal control structure in accordance with OMB Circular A -128, and not to provide assurance on the internal control structure. We will obtain an understanding of the design of the relevant policies and procedures and whether they have been placed in operation, and we will assess control risk. Tests of controls may be performed to test the effectiveness of certain policies and procedures that we consider relevant to preventing and detecting error and irregularities that are material to the general purpose financial statements and to preventing and detecting misstatements resulting from illegal acts and other noncompliance matters that have a direct effect on the general purpose financial statements. (Tests of controls are required only if control risk is assessed below the maximum level). Our tests, if performed, will be less in scope than would be necessary to render an opinion on the internal control structure policies and procedures and, accordingly, no opinion will be expressed. City of Round Rock Page 4 July 22, 1996 We will perform tests of controls, as required by OMB Circular A -128, to evaluate the effectiveness of the design and operation of internal control policies and procedures that we consider relevant to preventing or detecting material noncompliance with specific requirements, general requirements, and requirements governing claims for advances and reimbursements and amounts claimed or used for matching that are applicable to each of the City's major federal financial assistance programs. Our tests will be less in scope than would be necessary to render an opinion on the internal control structure policies and procedures and, accordingly, no opinion will be expressed. We will inform you of any matters involving internal control structure and its operation that we consider to be reportable conditions under standards established by the American Institute of Certified Public Accountants. Reportable conditions involve matters coming to our attention relating to significant deficiencies in the design or operation of the internal control structure that, in our judgment, could adversely affect the City's ability to record, process, summarize, and report financial data consistent with the assertions of management in the general purpose financial statements. We will also inform you of any nonreportable conditions or other matters involving the internal control structure, if any, as required by OMB Circular A -128. 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 audit will be conducted in accordance with the standards referred to above. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether material noncompliance with the requirements governing types of services allowed or unallowed; eligibility; matching, level of effort, or earmarking; reporting; special tests and provisions; claims for advances and reimbursements; and amounts claimed or used for matching that are applicable to major programs occurred. The purpose of our audit will be to express an opinion on the City's compliance with the specific requirements applicable to major programs listed in the previous sentence. We will perform certain procedures to test the City's compliance with the general requirements applicable to its federal financial assistance programs as required by OMB Circular A -128. Our procedures will be limited to the applicable procedures described in the OMB's "Compliance Supplement for Single Audits of State and Local Governments ". Our procedures will be substantially less in scope than an audit, the objective of which is the expression of an opinion on the general requirements, and we will not express such an opinion. City of Round Rock Page 5 July 22, 1996 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 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 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 City Council, management, and others within the City and the City's Cognizant Agent or Grantor Agencies. 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. We understand the work papers for this engagement are the property of Pena Swayze & Co., L.L.P. and constitute confidential information. However, we may be requested to make certain work papers available to the City's Cognizant Agent or Grantor Agencies pursuant to authority given to them by law or regulation. If requested, access to such work papers will be provided under the supervision of Pena Swayze & Co., L.L.P. personnel. Furthermore, upon request, we may provide photocopies of selected work papers to the City's Cognizant Agent or Grantor Agencies. Those Agencies may intend, or decide, to distribute the photocopies or information contained therein to others, including other governmental agencies. City of Round Rock Page 6 July 22, 1996 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. 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. We will utilize City staff in the preparation of certain detailed audit schedules which we would format. 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 - Preparation of first draft of the comprehensive annual financial report - Compliance with the audit requirements as directed by the Single Audit Act of 1984. $28,950 $ 5,700 $ 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 650 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. City of Round Rock Page 7 July 22, 1996 Government Auditing Standards -1994 Revision requires that we provide you with a copy of our most recent quality control review report. Our 1994 peer review report accompanies this letter. 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. CONFIRMED BY: Charles C. Culpeppef,/Mayor City Manager David Kautz, Finance Director Robert L. Benn Date rely, VV v PEA W 1 & CO., f.L.P. AICPA Quality Review Program June 16, 1994 American Administered by the Institute Texas Society of CPAs of Certified 1421 W. Mockingbird Lane, 8100 Public Dallas, TX 75247 -4957 Accountants (214) 689-6000 Facsimile: (214) 689 -6075 To the Partners Pena Swayze & Co., L.L.P. We have reviewed the system of quality control for the accounting and auditing practice of Pena Swayze & Co., L.L.P., (the firm) in effect for the year ended April 30, 1994. Our review was conducted in conformity with standards for on -site quality reviews established by the American Institute of Certified Public Accountants. We tested compliance with the firm's quality control policies and procedures to the extent we considered appropriate. These tests included a review of selected accounting and auditing engagements. In performing our review, we have given consideration to the quality control standards issued by the AICPA. Those standards indicate that a firm's system of quality control should be appropriately comprehensive and suitably designed in relation to the firth's size, organizational structure, operating policies, and the nature of its practice. They state that variance in individual performance can affect the degree of compliance with a firm's quality control system and, therefore, recognize that there may not be adherence to all policies and procedures in every case. In our opinion, the system of quality control for the accounting and auditing practice of Pena Swayze & Co., L.L.P., in effect for the year ended April 30, 1994, met the objectives of quality control standards established by the AICPA and was being complied with during the year then ended to provide the firm with reasonable assurance of conforming with professional standards in the conduct of that practice. Jah s . Mobley Certified Public Accountant Team Captain DATE: July 23, 1996 SUBJE City Council Meeting, July 25, 1996 ITEM: 10. G. Consider a resolution authorizing the Mayor to execute an agreement with Pena, Swayze and Company for the annual audit for the fiscal year ended September 30, 1996. STAFF RESOURCE PERSON: David Kautz 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. The cost of the audit will be approximately $39,150 and is included in the proposed operating budget. Staff believes that this firm has the capability and experience to properly perform the audit function. Additionally, the firm has illustrated an ongoing improvement in audit service quality. Mayor Charles Culpepper Mayor Pro-tem Earl Palmer Council Members Robert Stluka Rod Morgan Rick Stewart Martha Chavez !unary Joseph Clty Manager Robert L Bennett Jr. City Attomey Stephan L Sheets CITY OF ROUND ROCK July 29, 1996 Steve D. Pena, C.P.A. Pena Swayze & Co., L.L.P. P.O. Box 250 Round Rock, TX 78680 Dear na: Resolution No. R- 96- 07- 25 -10G was approved by the Round Rock City Council on July 25, 1996. Enclosed is a copy of the resolution and an original agreement for your files. If you have any questions, please do not hesitate to call. O S Joanne Land Assistant City Manager/ City Secretary Enclosure(s) Fax: 512. 218 -7097 1- 800. 735 -2989 TDD 1- 800 - 735 -2988 Voice 221 Fast Main Street Round Rock, Texas 78664 512. 218 -5400