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CR 95-199 Deisgnate Auditors For The Year 1995October 31, 1995 Proposed Action. Staff recommends adoption of the following motion: Move that KPMG Peat Marwick be designated as the City's auditors for the reporting year 1995. Adoption of this motion now will allow the audit firm to begin preliminary reviews and prepare audit schedules and confirmations beginning in November, 1995. Overview. The Council has designated Peat Marwick as the City's auditors since 1983. Our working relationship has been very good over the past years. The audits have been thorough and different areas of the City's financial records have received emphasis in succeeding years. Primary Issues to Consider. o Has the City's required audit function been well served by Peat Marwick? o Are the proposed fees reasonable? Supporting Information. o Peat Marwick engagement letter. E. Schedler, Finance Director DESIGNATE AUDITORS FOR THE YEAR 1995 Council Report #95 -199 Designate Auditors For The Year 1995 Report 95 -199 Page 2 Analysis of Issues Pear Marwick's fees have remained the same during the past four years. The current proposal for 1995 is a modest increase of $500 (2.5 %). The quality of the audit has remained high over the years. Peat Marwick has always been willing and helpful when questions arise between audits. Proposed 1995 fees: Financial Statements $18,300 HRA Audit 1,550 Single Audit 750 $20,600 • k k , -i Peat Marwick LLP October 30, 1995 Mr. John E. Schedler Finance Director City of Hopkins 1010 First Street South Hopkins, MN 55343 Dear John: For the City: 4200 Norwest Center 90 South Seventh Street Minneapolis, MN 55402 We are pleased to submit our engagement letter for our audit of the accounts of City of Hopkins (the City) for the year ended December 31, 1995. We will conduct our audit in accordance with generally accepted auditing standards; 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, with the objective of issuing reports addressed to the Mayor and members of the City Council for the year ended December 31, 1995 as follows: • A report on the general purpose financial statements; • A report on the internal control structure based on an audit of the general purpose financial statements performed in accordance with Government Auditing Standards; and • A report on compliance based on an audit of the general purpose fmancial statements performed in accordance with Government Auditing Standards. For the City's federal financial assistance programs: • A report on the supplementary schedule of the Client's federal financial assistance programs; • A report on the internal control structure used in administering federal financial assistance programs; • A report on compliance with general requirements applicable to federal financial assistance programs; • A report on compliance with specific requirements applicable to nonmajor federal financial assistance program transactions; • A report on Minnesota legal compliance; and • A report on fraud, abuse, or illegal acts, if necessary. Member Firm 01 Klynveld Peat Marwick Goerdeler KPMG Peat Marwick LLP Mr. John E. Schedler October 30, 1995 Page 2 In conducting the audit, we will perform tests of the accounting records and such other procedures as we consider necessary in the circumstances to provide a reasonable basis for our opinion about whether the general purpose financial statements, taken as a whole, conform with generally accepted accounting principles. We also will assess the accounting principles used and significant estimates made by management, as well as evaluate the overall financial statement presentation. The tests of internal controls and compliance with laws and regulations performed as a part of our financial statement audit contribute to the evidence supporting our opinion on the financial statements. However, they do not provide a basis for opining on the internal control structure or compliance with laws and regulations. The limited purpose of these tests may not meet the needs of some users of audit reports who require additional information on the internal control structure and on compliance with laws and regulations. OMB Circular A -128 includes specific audit requirements, mainly in the areas of the internal control structure and compliance with laws and regulations, that exceed those required by Government Auditing Standards. We will perform the procedures we determine to be necessary under the OMB Circular A -128 and report the results to you. The City agrees that all records, documentation, and information we request in connection with our audit will be made available to us, that all material information will be disclosed to us, and that we will have the full cooperation of The City's personnel. As required by generally accepted auditing standards, we will make specific inquiries of management about the representations embodied in the financial statements, the effectiveness of the internal control structure and the City's compliance with certain laws and regulations, and obtain a representation letter from management about these matters. The responses to our inquiries, the written representations, and the results of audit tests comprise the evidential matter we will rely upon in forming an opinion on the financial statements. Because of the importance of management's representations to the effective performance of our services, the City will release KPMG Peat Marwick LLP and its personnel from any claims, liabilities, costs, and expenses relating to our services under this letter attributable to any misrepresentations in the representation letter referred to above. The management of the City has responsibility for the financial statements and all representations contained therein. Management also has responsibility for the adoption of sound accounting policies and the implementation of record keeping and internal control structure to maintain the reliability of the financial statements and to provide reasonable assurance against the possibility of errors and irregularities or noncompliance with laws and regulations that are material to the general purpose financial statements or federal financial assistance program. • KPMG Peat Marwick LLP Mr. John E. Schedler October 30, 1995 Page 3 • An audit is designed to provide reasonable assurance about whether the fmancial statements are free of material misstatement or any material noncompliance with laws and regulations resulting from errors or irregularities. However, even a material misstatement or material noncompliance may remain undetected by an audit performed in accordance with standards described above. It should be understood that our audit may not reveal all errors, irregularities, or illegal acts which may have occurred during the year. However, it is our responsibility to ensure that the City Council is informed of any significant illegal acts that we become aware of during our audit. If the illegal act involves funds from governmental entities, it is The City's responsibility to inform the governmental entities of these acts. If the City's management and audit committee are involved in the illegal act or do not report to these governmental entities on a timely basis, we, as auditors, will be obligated to report the illegal acts to these governmental entities. For your information, we have attached a copy of KPMG Peat Marwick LLP's most recent Peer Review Report. It should be understood the work papers for the engagement are the property of KPMG Peat Marwick LLP and constitute confidential information. However, pursuant to Government Auditing Standards, we are required to make certain work papers available to federal regulatory agencies upon request for their reviews of audit quality and use by their auditors. Access to the requested work papers will be provided to the regulators under supervision of KPMG personnel. Costs incurred to comply with any such requests to review our work papers will be billed directly to you. Our professional fees are based upon our standard hourly rates plus reimbursement of our expenses. It is understood that neither our fees nor the payment thereof will be contingent upon the results of our engagement. We estimate our fees and expenses will not exceed the following: Description Amount Financial Statement Audit $18,300 Single Audit 750 HRA Audit 1,550 Total $20,600 These fees represent an inflationary increase of approximately 2.5% over last year's fee of $20,100. r"F "'•Er KPMG Peat Marwick LLP Mr. John E. Schedler October 30, 1995 Page 4 Our professional fees are also based on the following: • The City will prepare required account analyses, audit schedules, financial statements, and footnotes in accordance with our prescribed formats and locate documents by agreed upon times. We will provide you in advance with a detailed listing of the information we will need. • No significant changes in the City's operations will occur or unusual accounting problems will arise that would impact the 1995 financial statements. • Areas subject to considerable management judgment will be clearly supported with detailed workpapers describing the nature of the accounts, how ending balances were determined (i.e., information sources and other backup to support the balances), and clear documentation on why management believes ending balances are reasonable. New arrangements which the City has entered into in 1995 will be analyzed for appropriate accounting considerations under generally accepted accounting principles and clearly supported with detailed workpapers. The City will have available those individuals necessary to answer questions, prepare analyses, etc., that will arise during the course of the work. Our estimate contemplates that no additional work will be required to satisfy ourselves on significant accounting problems that may unexpectedly arise during the course of our audit. Should such a situation arise, we would discuss it with you before undertaking any additional work. Our professional fees will be billed as the work progresses in accordance with the following schedule: Billing Date Amount December 1, 1995 $5,000 March 18, 1996 6,000 April 1, 1996 6,000 April 22, 1996 3,600 Total $20,600 We appreciate this opportunity to serve you and will be happy to review this letter with you or members of the City Council at your convenience. • KPMG Peat Marwick LAP Mr. John E. Schedler October 30, 1995 Page 5 Please indicate your acceptance and understanding of the contents of this letter by signing and returning the enclosed copy. Very truly yours, KPMG Peat Marwick Steven W. Laible Partner SWL:ccb CC: Jeff Norris, KPMG Enclosure