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CR 08-004 Approve Contract for Audit Services December 21, 2007 � Council Report 2008-004 � APPROVE CONTRACT FOR AUDIT SERVICES Proposed Action Staff recommends adoption of the following motion: .To a�prove a contract with LarsonAllen, LLP for audit services for the vears 2007-2010. Overview The City of Hopkins has had the audit firm KPMG for over 20 years and this year decided it was in our best interests to re-bid audit services. A request for proposals (RFP) was prepared and sent to �ve firms. We received three proposals from excellent firms all of which have long term relationships with various Minnesota cities. After carefully reviewing the proposals and conducting reference checks staff is recommending the firm of LarsonAllen. Factors that influenced our decision were depth of governmental auditor staffing, previous and current client cities, ease in transition from previous auditor firm to new audit firm, and comments from current clients. Audit costs for the 2006 audit totaled $38,000. LarsonAllen's proposal for the 2007 audit totals $34,500. � Our current audit �rm, KPMG declined to submit a proposaL Primary Issues to Consider � • Reputation of firm • Depth of Governmental Services Division of the Firm • Staffing and Specific Auditors assigned to the Hopkins Audit Supportin� Information • LarsonAllen proposal ' � ;� _ /�s � . � Christine M. Harkess. CPA, CGFM Finance Director Financial Impact: $ 34.500 Budgeted: Y/N X N Source: General, Special Revenue and Enterprise Fund Bud�ets Related Documents (CIP, ERP, etc.): none Notes: PROPOS'�'DF�'E,SFORA UDIT,SERVICES' � FOR THE �ITY OF HOPKINS, 1VIINNESOTA Schedule of Professional Fees and Expenses Audit for the City of Hopkins, Minnesota 2007 Hourl Rates Hours Standard Quoted Total Partners 35 225 170 $ 5,950 Managers 80 145 120 9,600 Senior 100 125 100 10,000 Staff 95 105 75 7,125 Secretarial 40 80 40 1,600 Subtotal 350 98 34,275 Out of Pocket Expenses: 225 Other: None - �• Total All-Inclusive Maximum -- 2007 $ 34,500 Completion of a Single Audit (if necessary) will be at the above quoted hourly rates Total All-Inclusive Maximum -- 2008 $ 35,500 Total All-Inclusive Maximum -- 2009 $ 36,500 Total All-Inclusive Maximum -- 2010 $ 37,500 Brock Geyen, CPA, Principal, is entitled to represent the firm, empowered to submit the bid, and authorized to sign a contract with the City of Hopkins, Minnesota. � Lars � nl�lleri LLP CPAs, Cansultants & Ad�isors www.larsonallen.com '� LarsonAllen LLP � _-:, ;, _i CITYOF HDPKI�S, MINNESOTA Submitted by: Lars�� nAlleri LLP I CPAs, Consultants & Advisors � www.larsonallen.com -,-, _� Minneapolis, Minnesota �. Brock Geyen, CPA - bgeyen@larsonallen. com Tom %oop, CPA --' tkoop@larsonallen. com Principals Public Service Group ,. 220 South Si.xth Street, Suite 300 Minneapolis, Minnesota 55402-1436 612.376.4500 = ex� 3070 for Brock Geyen — exx 2903 for Tom %op ';i December 6, 2007 i ::; '• , TABLE OF COI'VTENTS � LETTER TRANSMITTAL ....................................................................................................1 , : I. INDEPENDENCE c� LICENSING .........................................................................................3 . II. ABOUT LARSONALLEN ....................................................................................................4 - : Ill. YoUx SExvICE TE� ....................................................................................................8 i � IY. SIMILAR ENGAGEMENTS WITH OTHER GOVERNMENT ENTITIES ...............................12 ' Y. SPECIFICAUDITAPPROACH ........................................................................................... ; � VI. THE LARSONALLENAPPROACH ....................................................................................17 >:; _> � VII. PROPOSER WARR 4NTIES ..............................................................................................21 APPENDICES: � ^ A: PEER REVIEW REPORT .................................................................................................... --, : i B: REPORT FORMATS ........................................................................................................... _::. J . � j � I � ,. ,j • :.:=:j 1 � - - 11 � , � � -.�• �1 � . • • � 11 • • �' � " December 6, 2007 Ms. Christine Harkess Finance Director City of Hopkins 1010 First Street South - Hopkins, MN 55343 Dear Ms. Harkess: ;=:i Thank you for including us in your request for proposals. We are very excited about the opportunity to provide the City of Hopkins, Minnesota (the "City") a proposal for professional auditing services --- for the years ending December 31, 2007 through 2010. This proposal is a firm and irrevocable offer � for the four year period of December 31, 2007 — 2010. �.-� We believe we have resources that no other competitor can match, and we bring a unique approach to your audit. The following key points summarize why you would be an important client to us and -�" why we would be the best choice as your new auditor. '• ♦ We have substantial depth within our Minneapolis office to provide you with experienced staff and continuity for a smooth transition. LarsonAllen has seven principals in our Minnesota practice who are equally qualified to serve you. �� Further, two of our principals — Tom Koop and I— will serve your account. Further your audit team has significant experience in managing the transition of new clients to - LarsonAllen. Some of the recent client transitions we have completed include: the City of Cottage Grove, the City of Delano, Minnesota Housing Finance Agency, the University of Minnesota, and Minneapolis Public Schools. Further, the team members on this engagement are familiar with your -- issues and work with similar governmental organizations year-round. Our annual turnover rate within our Public Service Group has averaged approximately 7% over the past three years, which is I significantly less than the industry standard of 15-20%, so you can plan on seeing familiar faces on :: _ � each year's audit. ; j , , : i �� 1• CITY OF HOPKINS PAGE 1 Selection Committee - City of Hopkins Page 2 `� ♦ The City of Hopkins will benefit from our ezperience as a leader in serving governmental organizations in Minnesota and we can effectively serve all your needs. We are a regional firm with a growing national reputation and are currently ranked in the top 20 CPA firms nationwide. At LarsonAllen, we have segregated our services into industry specialties. Our firm's second largest industry specialty is the Public Service Group which serves the governmental _ industry. LarsonAllen serves approxirnately 200 governmental entities in Minnesota including: fourteen counties, 40 cities and 160 school districts in various capacities. In addition, we provide OMB A-133 audits to over 200 clients. With the number of OMB A-133 compliance audits that we conduct as well as yellow book audits, we are well versed in OMB cost -- circulars pertaining to state and local governments, if that should apply to the City in the future. Several of our clients receive the GFOA Certificate of Excellence in Financial Reporting each year _-- and becausa of tbis, we are experienced with the GFOA Certificate program, its requirements, and checklists. We are members of GFOA, attending the Minnesota Chapter's annual conference in Alexandria, the annual national conference, the Certificate Program update and other functions. '' ♦ The City ofHopkins will gain value-added operational advice as an outcome of our audit. � We understand that we have a unique opporiunity to assist your organization. Aside from our '�'; extensive governmental audit experience, we have professionals in many other areas that will be able '=' to provide recommendations and opportunities for your organization. Much of this advice is built into .� our audit process. For example, as part of our audit we will utilize our information technology specialists to evaluate the design and operation of your computer-related controls that impact the financial reporting process. We also have several professionals who are well-versed in tax compliance matters including payroll and benefits taxation and sales & use tax regulations. Any of these professionals are available to answer any questions you might have or provide any guidance that you need. We know that you have many options in selecting an auditor and we believe one of our competitiva _: advantages is our value-added approach to serving you. ?; Thank you for this opporiunity to share our qualifications with you and please feel free to call if you have any further questions. Our team would be happy to answer any questions your management and selection team might have. This proposal is a furn and irrevocable affer for 60 days. ;:>i =i Sincerely, - LarsonAIlen LLP � : j CPAs, Consultants & Advisors -� N ' � Brock Geyen, CPA Principal . 612-397-3070 � ` �� CITY OF HOPKINS PAGE 2 I. INDEPENDENC'E & LICENSIN� � AUDITOR INDEPENDENCE While our primary purpose is to serve as your independent auditor, LarsonAllen offers many other services that you may find useful. Requests by the City for such services, will be considered on a project by project basis to insure compliance with the following requirements of our independence standards and Government Auditing Standards Amendment No. 3, Independence: � ♦ auditors should not perform management functions or make management decisions; and ♦ auditors should not audit their own work or provide non-audit services in situations where the amounts or services involved are significant/material to the subject matter of the audit INDEPENDENCE STATEMENT LarsonAllen LLP hereby certifies that it is independent with respect to the City of Hopkins as defined by Government Auditing Standar-ds and generally accepted auditing standards. . PROFESSIONAL RELATIONSHIPS The firm has had no professional relationships with the City of Hopkins. FUTURE PROFESSIONAL RELATIONSHIPS If LarsonAllen LLP becomes involved with the City of Hopkins during the period of this agreement, LarsonAllen LLP will provide written notice of this situation. MINNESOTA LICENSE STATEMENT LarsonAllen LLP is Minnesota-based and appropriately licensed. All of the firm's Minnesota CPAs are licensed to practice public accounting in Minnesota and meet or exceed requirements of the • Minnesota State Board of Accountancy for continuing education. Those who perform Yellow Book and A-133 audits meet all related continuing education requirements. � CITY OF HOPKINS PAGE 3 ?: j _� ,I -� CITY OF � HOPI�IIYS,IV�INNESOTA ;; Submitted by: Lars � nAllen LLP �; i CPAs, C�nsultants & Advisors ? www.larsonallen.com ':� Minneapolis, Minnesota `,� Brock Geyen, CPA bgeyen@larsonallen. com Tom %oop, CPA "-' tkoop@larsonallen. com � Principals Public Service Group 220 South Sixth Street, Suite 300 Minneapolis, Minnesota 55402-1436 6I2.376.4500 - ext 3070 for Brock Geyen ex� 2903 for Tom Koop December 6, 2007 ;; ';1 , ;� TABLE OF CONTENTS ��._ � �� !, LET'T'ER OF TRANSMITTAL .................................................................................................... j I. INDEPEIVDENCE c� LICENSING .............:........................................................................... , II. ABOUTLA.RSONALLEN .................................................................................................... Ili. You�SERVICE TE� ....................................................................................................8 IY. SIMILAR ENGAGEMENTS WITH OTHER GOVERNMENT ENTITIES ...............................12 Y . SPECIFICAUDITAPPROACH ........................................................................................... VI. THE LARSONALLENAPPROACH .................................................................................... Vll PROPOSER WARRANTIES .............................................................................................. APPENDICES: A: PEER REVIEW REPORT ........:........................................................................................... ' B: REPORT FORMATS ........................................................................................................... �„,,,�� i ; � r�;� - -- _ _ : - i � �- � 1 • - 11 ' . � • .�• �1 � • • . � 11 . . �: 1 � ^'' December 6, 2007 Ms. Christine Harkess Finance Director _- City of Hopkins 1010 First Street South Hopkins, MN 55343 Dear Ms. Harkess: Thank you for including us in your request for proposals. We are very excited about the opportunity to provide the City of Hopkins, Minnesota (the "City") a proposal for professional auditing services for the years ending December 31, 2007 through 2010. This proposal is a firm and irrevocable offer � for the four year period of December3l, 2007 — 2010. -- We believe we have resources that no other competitor can match, and we bring a unique approach to �; your audit. The following key points suminarize why you would be an important client to us and -� why we wauld be the best choice as your new auditor. . ♦ We have substantial depth within our Minneapolis office to provide you with experienced staff and continuity for a smooth transition. LarsonAllen has seven principals in our Minnesota practice who are equally qualified to serve you. �-� Further, two of our principals — Tom Koop and I— will serve your account. Further your audit team has significant experience in managing the transition of new clients to LarsonAllen. Some of the recent client transitions we have completed include: the City of Cottage Grove, the City of Delano, Minnesota Housing Finance Agency, the University of Minnesota, and Minneapolis Public Schools. Further, the team members on this engagement are familiar with your --- issues and work with similar governmental organizations year-round. Our annual turnover rate within our Public Service Group has averaged appro�mately 7% over the past three years, which is `' significantly less than the industry standard of 15-20%, so you can plan on seeing familiar faces on _ each year's audit. � ; - = CITY OF HOPKINS PAGE 1 Selection Committee City of Hopkins Page 2 ♦ The City of Hopkins will benefit from our egperience as a leader in serving governmental � organizations in Minnesota and we can effectively serve all your needs. We are a regional firm with a growing national reputation and are currently ranked in the top 20 CPA firms nationwide. At LarsonAllen, we have segregated our services into industry specialties. Our firm's second largest industry specialty is the Public Service Group which serves the governmental industry. LarsonAllen serves approximately 200 governmental entities in Minnesota including: fourteen counties, 40 cities and 160 school districts in various capacities. In addition, we provide OMB A-133 audits to over 200 clients. With the number of OMB A-133 compliance audits that we conduct as well as yellow book audits, we are well versed in OMB cost circulars pertaining to state and local governments, if that should apply to the City in the future. � Several of our clients receive the GFOA Certificate of Excellence in Financial Reporting each year and because of this, we are experienced with the GFOA Certificate program, its requirements, and checklists. We are members of GFOA, attending the Minnesota Chapter's annual conference in Alexandria, the annual national conference, the Certificate Program update and other functions. ♦ The City ofHopkins will gain value-added operational advice as an outcome of our audit. We understand that we have a unique opportunity to assist your organization. Aside from our extensive governmental audit experience, we have professionals in many other areas that will be able to provide recoxnmendations and opportunities for your organization. Much of this advice is built into our audit process. For example, as part of our audit we will utilize our information technology specialists to evaluate the design and operation of your computer-related controls that impact the � financial reporting process. We also have several professionals who are well-versed in tax "' compliance matters including payroll and benefits taxation and sales & use tax regulations. Any of these professionals are available to answer any questions you might have or provide any guidance that you need. We know that you have many options in selecting an auditor and we believe one of our competitive advantages is our value-added approach to serving you. , I Thank you for this opportunity to share our qualifications with you and please feel free to call if you ' have any further questions. Our team would be happy to answer any questions your management and �i selection team might have. This proposal is a firm and irrevocable offer for 60 days. I Sincerely, I � � LarsonAllen LLP CPAs, Consultants & Advisors �` Brock Geyen, CPA Principal 612-397-3070 F= _ ,, +,,,,i i CITY OF HOPKINS PAGE 2 � � € G i - - � - - --- - _ ___ � � _ : - I. INDEPENDENCE & LICENSING . AUDITOR INDEPENDENCE While our primary purpose is to serve as your independent auditor, LarsonAllen offers many other - services that you may find useful. Requests by the City for such services, will be considered on a project by project basis to insure compliance with the following requirements of our independence standards and Government Auditing Standards Amendment No. 3, Independence: -- ♦ auditors should not perform management functions or make management decisions; and ♦ auditors should not audit their own work or provide non-audit services in situations where the _ amounts or services involved are significant/material to the subject matter of the audit INDEPENDENCE STATEMENT LarsonAllen LLP hereby certifies that it is independent with respect to the City of Hopkins as defined by Government Auditing Standards and generally accepted auditing standards. = PROFESSIONAL RELATIONSHIPS The firm has had no professional relationships with the City of Hopkins. FUTURE PROFESSIONAL RELATIONSHIPS If LarsonAllen LLP becomes involved with the City of Hopkins during the period of this agreement, =� LarsonAllen LLP will provide written notice of this situation. MINNESOTA LICENSE STATEMENT - LarsonAllen LLP is Minnesota-based and appropriately licensed. All of the firm's Minnesota CPAs • are licensed to practice public accounting in Minnesota and meet or exceed requirements of the Minnesota State Board of Accountancy for continuing education. Those who perform Yellow Book .. and A-133 audits meet all related continuing education requirements. :; ,;;::; :_; ;_.; >. � :=:=; �,--• ` " CITY OF HOPKINS PAGE 3 II. ABOU7'LARSONALLEN FOCUS ON CLIENT SERVICE �� . At LarsonAllen, our mission statement is "to help our ctients achieve their financial goals." Our � commitment to client service is implemented through: � Providing timely service (rneeting requested deadlines) ♦ Being proactive (helping you throughout the year by providing more than just the basic audit) ♦ Building strong client relationships ♦ Being available and responsive (all calls or e-mails returned in one day or less) � ♦ Quality and integrity in evexythiiig we do This philosophy is ingrained.throughout our firm and is clearly evident when observing our day-to- i day work habits. FIRM AND INDUSTRY SPECIALIZATION _ -- - - __. _ ' - - -- LarsonAllen LLP was founded in 1953, and is ---- �- ` currently comprised of over 1,200 employees, and - `` �' '_, estimated revenues of $172,000,000 ranking us as � - - - rn;,�ae�,N�a - ` � . _ __ the 18�' largest accounting firm in the U.S. � -___ ---wash? a:� _. � (source: Public Accounting Report, Attgust 2005 - - -_ ___ . SL �o��$� ` � � - - - and Au ust 2006 . Our main offices are located �'-�'_�.�!QLie g ) �, � _ in: Phoenix, AZ; Naples and Orlando, FL; Austin, Phoe��x- � �� - t ' �. --- � _.._- � Brainerd, Minneapolis and St. Cloud Minnesota; _ -- � , _ ,,. St. Louis, MO; Charlotte, NC; Philadelphia, PA; NaP�es � ' Eau Claire, WI and Washington, DC. The audit team serving the City will be staffed from our Minneapolis office, which is our corporate headquarters with over 350 pxofessionals. LarsonAllen has the most professionals based in j Minnesota with a variety of services available locally. One of the best features of LarsonAllen is our belief in industry specialization. LarsonAllen's employees and principals choose one of our nine niche industries as their primary focus which I provides our clients with extensive knowledge of the industry accounting and auditing requirements, the risks and concerns of our clients and tha new and exciting opportunities that may be available now and in the fulure. We dedicate ourselves to the industry in client services and training. The Public Service Group, which includes government, educational, non profit, association and foundation institutions, is the second largest industry group within the firm. The nine industry groups are as follows: Public Service Construction and Real Estate Health Care Agri-business • Manufacturing and Distribution Auto Dealers Hospitality Trucking and Transportation Financial Institutions �� CITY OF HOPKINS PAGE 4 _ - i _ ; - i - -_ _ I --- II. A&O UT LARSONALLEIV . OUR PUBLIC SERVICE GROUP � The LarsonAllen Public Service Group provides audit, consulting, training and accounting services to educational institutions, government entities, nonprofits, associations and foundations. Our national Public Service Group has 30 principals and approximately 160 professionals who spend between 80 and 100 percent of their time serving these clients. We perform over 2,000 annual fmancial statement audits. Our Minnesota-based Public Service Group has 16 principals and approximately 70 professionals strictly dedicated to serving over 1,000 public sector clients. In addition to the types of Organizations we serve, we provide OMB A-133 audits to over 200 clients. Our audit teams are extremely knowledgeable of the requirements within the OMB Circulars (laws and regulations concerning the expending of federal funds). We also audit over 200 government institutions with yellow book requirements which broadens our staff's knowledge of the federal laws and regulations. LarsonAllen is very proud to be one of the original members of the Governmental Audit Quality Center. LEADERS Cut.TU� There is no doubt that one of the keys to our success is our people and our culture. That is why a - culture strategy is an integral part of our firm's strategic direction. The goal of our culture strategy is - to maintain the underlying philosophies that have been in place since our Firm's inception: quality, integrity and total client service. We have articulated the core values and support those beliefs into - the acronym LEADERS, which stands for: ♦ Lead by Example >_� ♦ Expect Excellence - ♦ Assume Positive Intent ♦ Do the Right Thing ♦ Embrace Intellectual Curiosity :__� ♦ Respect Others ♦ Stretch your Comfort Zone The LEA.DERS culture provides guidance to our service team members on how to perform their duties and tasks. The LEADERS culture allows our staff to have a mental framework to make the best decisions for our clients. The LEADERS Culture is explained in more detail in __, Appendix C. -- OUR EXPERIENCE WITH INFORMATION TECHNOLOGY LarsonAllen Information Security Services is the consulting division within LarsonAllen that specializes in information security assessments and consulting services. The resources within this group are certified securiry professionals that have significant experience related to the protection of information that is either electronic or on printed documents. For over ten years, the Information � J Security Services Group has provided IT audit and security consulting services in virtually all industry vertical markets we serve. _ :.• -- CITY OF HOPKINS � PAGE 5 i � � , � II. ABOUT LARSONALLEIV ; � � ; OUR EXPERIENCE WITH INFORMATION TECHNOLOGY (CONTINUED� ,� � Focusing on information security can be a competitive advantage in the marketplace and minimize ,,,, ; potential legal risks to any organization. Making information security a priority within the � organization also demonstrates to employees that management understands the importance of ; protecting its most valuable asset - customer information. As a result, LarsonAllen provides several i security-focused consulting services that can be customized to specific requirements. LarsonAllen �; Information Security Services has significant experience and expertise related to identifying exposures and risks to assist arganizations in implementing the proper controls and procedures to , mitigate or eliminate the various risks. , j � OUR EXPERIENCE IN PROVIDING TAX SERVICES TO OUR TAX EXEMPT INDUSTRY I In today's fast-paced, changing world of foreign, federal, state and local taxes, your organization � needs to assure compliance with the changing rules and regulations. Our tax experts provide a wide !, range of services to clients when reviewing the overall tax posture for exempt organizations. These ', services are undertaken to assure that you are both in compliance with existing tax regulations and ', your exemption, in addition to taking advantage of all the planning opportunities. With the increased ' scrutiny by regulatory agencies on tax exempt organizations and public awareness on accountability, ', LarsonAllen can assist in managing your exposure in these areas. '� Our experience with exempt organizations has yielded a team of individuals who bring together a �', variety of disciplines and focus areas. We have a significant practice related to consulting on various related tax issues. Some of the recent tax issues we have assisted our clients with include: ', • Sales / use taxation — The State of Minnesota has been very active in auditing organizations' compliance with state sales and use tax regulations, often resulting in significant assessments ' and penalties. Our Minneapolis office has a team of professionals who specialize in multi- """ state sales and use taxation. We have involved these specialists to assist clients in negotiating with state auditors to mitigate significant portions of sales / use tax assessments and I penalties, and in filing for sales tax refunds. Further, these specialists are very � knowledgeable on sales / use tax as it relates to construction activities, and can provide � guidance on structuring construction contracts such that payment of sales /use tax is avoided. • Payroll and benefits tazation — Another "hot topid' in recent years has been compliance with reporting and documentation of expense reimbursements to employees. Our tax specialists have been very involved with reviewing findings of payroll audits conducted by the Internal Revenue Service, and in guiding clients as to the proper recording and documentation of employee expenses. We also have a group of specialists who process payroll for our non-audit clients, and we can tap into the knowledge of these specialists at any time to answer any questions you might have regarding taxability components of payroll and related benefits. � i � CITY OF HOPKINS PAGE 6 - - - -- -- _ -- - - -- - __ _ _ _ � _ , �_ _ � i II. ABOUT LARSDIVALLEN �� ORGAIVIZATION, SIZE, AND STRUCTURE A suinmary of our Minnesota practice is as follows: Number Providing Number of Number of 500+ hrs. of - ; Employees CPAs Governmental Svcs. — — - Principals 126 111 30 Managers 129 101 29 Seniors 110 58 29 Staff 130 13 56 Support Staff / Other 169 - 2 Total 664 283 146 EXPERIENCE SERVING GOVERNMENTS We have four principals — Craig Popenhagen, Rachel Flanders, Brock Geyen, and Harold Parsons — in our Minneapolis Public Service Group who are equally qualified to serve you and who are eager to expand our presence in serving cities in and near the Twin Cities metro area. Having four equally- �� qualifi�d principals serving cities in and near the Twin Cities metro area means that you will � receive timely and responsive service in all aspects of our relationship with you. � The four principals noted above all have experience with cities who receive the GFOA's Certificate of Achievement in Financial Reporting, with Rachel Flanders performing reviews for the Certificate • program. Currently, LarsonAllen has twelve city and county audit clients who participate in the GFOA's certificate program, as well as a number of other governmental entities. We would be happy to assist the City of Hopkins in obtaining the GFOA certificate. In addition to traditional audit and accounting professionals, the Minneapolis office of LarsonAllen also has a team of 8 information technology specialists, some of whom we will utilize on your audit. The involvement of information technology professionals is further discussed in the section titled "The LarsonAllen Approach". ;; � CITY OF HOPKINS PAGE � III. YQUR SERVICE TEANI QUALITY CONTROL , LarsonAllen is quality conscious, maintaining a high level of quality control throughout the Firm. �,,,, Our firm is a member of the Private Companies Practice Section of the Division of Firms of the American Institute of Certified Public Accountants. We continue to participate in the profession's program of self-regulation through peer review. Our most recent peer review resulted in an unqualified opinion with no additional comments and is attached. Our peer review included a review i of specific government (Yellow Book) engagements. FEDERAL OR STATE DESK REVIEWS OF OUR AUDITS II � No findings. ,� PAST (OR THREATENED� DISCIPLINARY ACTION BY REGULATORY AGENCIES i None. NEW AUDITOR TRANSITION � Our goal is to make your first experience with LarsonAllen a good one, and our Minneapolis office � offers you the depth of resources to accomplish that goal. For this reason, we have chosen two of our � four Minneapolis principals — Harold Parsons and Brock Geyen — to serve your account. No other � firm in the Twin Cities metro area can make that level of commitment. � i � Further, our process in staffmg client engagements is to use staff with greater experience to ensure high qualiiy, even more so in the year of transition to a new audit firm. For this reason, we have chosen Terra Penny to serve as your fmancial statement audit manager, and we have chosen Nancy Kaplan to supplement the information technology aspect of our audit services. Other personnel assigned to your account will specialize in the area they are to complete and will have experience � serving clients with similar issues. ;'"' Harold, Brock, Terra, and Nancy are very experienced in transitioning new clients to LarsonAllen. A short list of those clients includes the City of Delano, Minneapolis Public Schools, Volunteers of ', American of Minnesota, and Minnesota Housing Finance Agency. I, j Engaging new auditors can be a strenuous task, but having an experienced team such as ours will i minimize the burden on the City's personnel during the transition year. ; i ; I ; i ... , ' �i 1 � CITY OF HOPKINS ! PAGE 8 ': � - •.. i - - I - i - - - III. YOUR SEIZVICE TEAM � CPE in Minnesota Govt. Audit the past 3 Member Licence Egperience y�_ Position --? Brock Geyen, CPA l, 2, 3 Yes 11 years 270 Principal ' Tom Koop, CPA 1, 2, 3 Yes 29 years 176 Advisory Principal Terra Penny, CPA 2, 3 Yes 7 years 158 Manager Michelle Bruley NA No 1 year N/A Audit Staff 1) Member of Minnesota GFOA 2) American Institute of CPAs ._ 3) Minnesota Society of CPAs — Two additional staff will be added at a later date and they will have governmental and/or information systems experience. The engagement team members listed above have not received any state or regulatory agency � complaints against them. STAFF TURNOVER We have been very fortunate in our division and our firm to possess a very low turnover ratio of our staff. Our average annual turnover in our Minneapolis Public Service Group has been 7% over the • past 3 years which is significantly less than industry averages. The opportunity to specialize and grow culminates in a group of professionals who enjoy their work. As a result, our firm benefits by having low turnover — so low that many of our clients have had the same returning audit team for three consecutive years. Even in the event of staff turnover, the depth of our staff will provide us with appropriately experienced personnel to serve you. The reasons for our success in retaining the best employees is due to the opportunity to be a part of an organization that believes in serving their clients and providing quality and integrity to those chosen to be a part of our client portfolio. This translates to two cultural influences our firm and those working within it have embraced including Emotional Ownership and our LEADERS culture. ; • CITY OF HOPKINS � PAGE 9 i � III. YOUR SERVICE TEAM This service team is one of several audit teams that work with governments. All of the individuals � selected for the government audits have experience working on similar engagements and will bring a � wealth of knowledge to your engagement. Since our staff is dedicated to the industry, we take pride in the fact that we do not compete for staff with SEC audits or other industry audits. In other words, we will not be utilizing people that work on government audits for only a few months out of the year while focusing most of their hours on for-profit clients the rest of the year (unless we are in need of a specialist such as fmancial service or information technology dedicated individuals). How does this affect you—the staff on the team will be knowledgeable of not only the accounting and audit issues, but also the risks and concerns within your industry. This allows our staff to be in a better position to i answer questions throughout the year and plan and complete your audits in a very efficient, effective ! and value added manner. BROCK GEYEN, CPA - PRINCIPAL i Brock is a Principal out of our Minneapolis office and has served local governmental entities for over 11 years. Brock has significant experience assisting clients obtain and retain certification for � fmancial reporting programs (GFOA and ASBO). Brock is significantly involved in our audits of other governmental entities, including the City of Cottage Grove, White Bear Township, City of Lino Lakes, City of Stillwater, and Washington County. He is licensed by the Minnesota State Board of Accountancy and is a member of the American Institute of Certified Public Accountants (AICPA). Brock is also a member of the Minnesota Government Finance Officers Association (GFOA), the Minnesota Association of School Business Officials (MASBO), and the Minnesota Society of Certified Public Accountants (MNCPA). Brock earned a Bachelar of Science degree in accounting from St. Cloud State University. TOMSOOP, CPA —ADVISORYPRINCIPAL Tom is a principal in our Public Service Group with 28 years experience in serving Minnesota "" government agencies including cities, counties, school districts, state universities and special districts. Tom focuses 100% of his time serving clients whose financial statements are prepared in accordance with guidance of the Government Accounting Standards Board (GASB). Tom has I, worked with government fmancial statement presentation, audits of government agencies, and i government internal controls going back to 1979 when Statement No. 1 was released by the National I Council on Government Accounting (NCGA). He has led several training sessions on GASB �, pronouncements and has spoken to the Minnesota County Treasurers Association, the Minnesota � Municipal Clerks and Finance Officers Association, and other government organizations. Over the I past 22 years, Tom has performed numerous audits under the Single Audit Act of 1984 under OMB '; A-133 (formerly A-128). Tom graduated from St John's University with a B.S. degree in accounting in 1977. He is also a member of the American Institute of Certified Public Accountants and the Minnesota Society of Certified Public Accountants. Tom holds the AICPA's Certificate of Educational Achievement in Government and Nonprofit Accounting and Financial Reporting. He also recently attended the GFOA's 20 hour "Advanced Government Financial Reporting" continuing education course. Tom is a member of the Minnesota and National Government Finance Officers Association (GFOA). i � CITY OF HOPKINS PAGE 10 - ._ -. ,- -- -- __ � - - - � - III. YOUR SERVICE TEAM :,.;; . TERRAPENNY-AZIDITMANAGER Terra has seven years of experience in public accounting and is a manager in our Public Service Group. Terra is a hands-on Manager who has lead on-site fieldwork for several recent new clients. = Terra has a B.A. degree in accounting from Gustavus Adolphus College, and currently belongs to the - Minnesota Society of Certified Public Accountants and the American Institute of Certified Public — Accountants. Terra also serves on the fmance comxnittee for a local nonprofit organization. :;� � MICHELLE BRULEY- STAFFAUDITOR Michelle recently joined LarsonAllen as a staff auditor out of our Minneapolis office. Previous =- employment included the City of Arden Hills where she held a number of roles. Responsibilities at the City included annual budget preparation, monthly reconciling, and other fmance and adtninistrative tasks. Michelle is a graduate of Metropolitan State University. � ; `; �;� I .,. r-: ;; i,-,: "'� j'.` i i:%:.! I` � i`::_' d, . l '?'i ' �',` i � � CITY OF HOPKINS � .:; PAGE 11 IV. SIM�LAR Eti�GAGE1VfENTS' T'T�ITH (?T�IER Gf1VE.RN�VIENT ��VTl7'IES CURRENTLY CLIENT REFERENCE ENGAGEMENT TOTAL BEING NAME PHUNE NQ. CLIENT PRINCIPAL FIOURS AUDITED SCOPE 4�' SERVICES �ity flf Cottag� Grove Brock Geyen 400 I'ES CAFR, Ron Hedberg, Finance Director 651-45$-2832 Audit, Single Audit under OMB A-133, and Minnesota Legal Carnpliance City of Lino Lakes Brock Geyen 350 I'ES CAFR, Alan Rolek, Finance Directar 6S 1-9$2-2410 Audit, Minnesota Legal Compl'zance, and financial statement preparation City af Stillwater Brock Geyen/Tom 32S YES CAFR, Larry Hanson, Finance Directar 651-430-8800 Koop Audit, an� Minnesota Legal ; Compliance Wlaite Bear Township Brack Geyen/Tom 350 YES CA�R, Jessie Hart, Finance Director 651-429-5546 Koop Audit, Minn�sota Legal ; Cornpliance, and financial statement preparation City of Brairnerd Tam Koop 375 YES CAFR, Theresa Goble, Finance 21$-828-�3�7 Audit, Single Audit under ��tor �MB A-133, Minnesota Legal � Compliance and financial statement prepararion _.�.r� �� 12 �� - Y. SPECIFICA UI)�T APPROAC'H ;'`j %� The following scope of services are those noted within your request for proposal and the additional services included in reaching our goal of attaining the highest quality services we can provide your - City. Basic Financial Statements see point (1) below Compliance and internal control over fmancial reporting see point (1) below Report on compliance with Minnesota. Legal Compliance see point (2) below Management letter see point (3) below Required Communications letter see point (4) below -� 1) We will audit the financial statements of the City of Hopkins, Minnesota (the "City") in accordance with auditing standards generally accepted in the United Sta.tes of America (generally accepted auditing standards) and Government Auditing. Standards. Our opinion will be expressed on the fair presentation of the City's financial statements. We will not provide an audit opinion on introductory information or management's discussion and analysis in the City's fmancial statements. We will provide an "in relation to" opinion on combining and individual fund �� financial statements which are presented as supplementary information in the City's fmancial statements. '' We will provide a report on compliance and internal control over fmancial reporting as required i by Government Auditing Standards. • 2) We will perform compliance audit procedures in accordance with the State of Minnesota Legal Compliance ManuaL 3) We will deliver a management letter of our comments and recommendations regarding internal control and other matters observed during the course of our engagement. �' 4) We will deliver a letter in regards to the information required to be communicated under generally accepted auditing standards. We understand that we are to make an immediate written report of all irregularities and illegal acts or indications of illegal acts of which we become aware to the Finance Director, the City Administrator and the Mayor. We are also willing to meet with management and council representatives on an interim basis --- to provide support for the City and to setve as a resource to your staff throughout the year. --; �� i • CITY OF HOPKINS PAGE 13 Y. SFECIFICAUDITAPPRQACH WORgPLANSUMMARY ' We have studied the City's time schedule for the audit in the Request for Proposal (RFP) and will ��. !, fully comply with those requirements. ', For our audit of fiscal year 2007, we anticipate a January interim field work start date for audit ' planning, and an April start date for fmal fieldwork. We will meet with City's management and/or I, City Council to design the exact audit schedule, including the pre-audit planning meeting which we I request to take place by December 31, 2007. ' Our delivery of services mcludes the development of a work plan wluch will consist of: Pre-audit: ♦ We will complete our client acceptance procedures and will review the j Dec. 2007 predecessor auditor's working papers. I� Planning: ♦ A planning meeting with your management and staff. The purpose of this � Jan. 2008 meeting is to develop an understanding of the exact audit time lines and expectations of both teams and to complete fraud risk assessment procedures (SAS 99 — required for all audits). ♦ Provide a client assistance letter specifying the items that management will need to prepare or make available for our audit team, thus maximizing the efficiency or our services and ultimately minimizing the cost to your organization. Communication: ♦ We will plan to touch base with the City finance department about two Early Jan. 2008 weeks prior to the start of our interim fieldwork. This meeting provides a „�� venue for the City and us to ask additional questions regarding any aspect of the audit work, information to be provided, and reasonableness of timing for interim fieldwork. Interim ♦ We will request documents such as contracts, minutes and bylaws. We will Fieldwork: begin to assess your internal control structure and gather file documentation Mid-to late during interim fieldwork (estimated at one week). We may perform January substantive procedures on transactions and accounts, as deemed necessary. Examples would be testing journal entries, property and equipment and debt. ♦ We will test your internal controls over financial reporting. � � � � � f [ 1 "ii! CITY OF HOPKINS ' PAGE 14 ', i -- ; - - i _ � _ _ - - .I Tl SPECIFIeAUDITAPPRQACH � Communication: ♦ We will touch base with the City finance department about two weeks prior March 2008 to the start of our final fieldwork. During this meeting we will share - information about the status of audit confirmation letters and whether any confirmation letters remain to be received by us. This meeting provides a venue for the City and us to ask additional questions regarding any aspect of the audit work, information to be provided, and reasonableness of timing for fmal fieldwork. Fieldwork: ♦ Fieldwork for the audit or review will include completing the assessment of April 2008 your internal controls and performing the majority of our tests of accounting records that we consider necessary in order to enable us to express an opinion on your fmancial statements. Total fieldwork time is estimated at two continuous weeks during our first year. '.— Communication: ♦ We will touch base with the City fmance director on at least a weekly basis During final to share information about the status of our fmal fieldwork. We will also fieldwork share any potential management letter comments with the City. �� ♦ In the last week of fieldwork, we will hold an exit meeting with the City's fmance deparhnent and provide a list of any additional follow questions or -- information needed to conclude our audit procedures. We will also discuss , logistics for issuing our final reports — for example, the number of copies to issue, to whom our reports will be mailed, the method for presenting � information to the city council, etc. Reporting: ♦ We will review the financial statements and prepare a letter of May 2008 recommendation and a communication letter for the City Council. ♦ Delivery of final fmancial statements and letters We can assure you of our ability to meet your time deadlines. I>;::i i ``i i CITY OF HOPKINS , - PAGE 15 T� SPECIFICAUDITAP�"�tOACH � j Engagement Planning, Administration (including SAS 99) 34 All levels Boarc3 Minutes 6 Manager � Cash and Investrnents 20 Senior / Staff Prepaid Items/Inventory 6 Staff Receivables and Revenues 30 Manager / Staff Expenditures and Payables 30 Senior / Staff i Payroll and Related Liabilities 16 Staff � Equipment and Infrastructure 16 Senior/Staff i Minnesota Legal Compliance 10 Senior Debt 16 Staff Fund Equity 6 Senior Internal Control Testing 32 Senior/Staff Analytical Procedures 20 Manager Financial Statement Review 56 Manager/Principal Management Letter/Exit Meeting 12 Manager/Principal Field, Principal, and Quality Review 40 Manager/Principal Total -- audit fieldwork 350 � , I i,::�� CITY OF HOPKINS PAGE 16 i ; --- - -- - _. � -- -, - . -- . _ _ _ � VI. T�E LARSONALLENAPPROACH ! AuniT Focus Some of the significant areas we have noted based on a preliminary study of City's fiscal year 2006 audit reports are as follows: REVENUE RECOGIVITION AND PRESENTATION - We will evaluate the City's revenue recognition procedures, particularly when determining the amount of revenue earned vs. deferred. We will confirm with the State/County the amount of properly taxes, state aids, and special assessments earned and deferred, and the amount receivable at - December 3 L We will perform predictive tests of water utility revenue based on gallons sold and the unit price charged per gallon. � We will perform predictive tests of sanitary sewer revenue based on gallons processed and the unit price charged per gallon. PAYROLL EXPENSE . As with all governmental clients, payroll comprises a significant amou.nt of overall operating expense. Our audit procedures will include sampling of payroll transactions and testing internal � controls over the processing of payroll specific to our sample. We will also perform predictive tests on payroll accruals and payroll expense based on such factors as changes in full-time equivalents and pay rate increases over the prior year. • NON-PAYROLL EXPENSE We will select a sample of non-payroll disbursements to evaluate the City's account coding, - supporting documentation and authorization for payment. CASH AND CASH EQUIVALENTS We will confirm 100% of your bank and investment balances, and we will also obtain confirmations of collateral held to secure bank deposit balances and investment balances. Portfolio managers in our -- Financial Services Group will assist us in verifying market values and credit quality ratings of your investment securities. We will also tie out your investment income to Form 1099's received by the City <: PROPERTY� PLANT AND EQUIPMENT We will consider the predecessor auditors' work on the valuation of infrastructure balances as of -- January 1, 2007. We will also audit additions and disposals of property, plant and equipment assets during the year based on our respective by-fund materialities. We will also perform a predictive test of depreciation expense based on the historical trend of depreciation expense and the respective ;1 average net book values of property, plant and equipment balances. �° We will evaluate the completeness of your recorded balances of infrastructure assets, such as streets ,_ _; and roads, based on records available from the Minnesota Department of Transportation. � . "-' CITY OF HOPKINS PAGE 17 � I VI. T�IE LARSONALLENAPPROACH ' � , BONDS AND NOTES PAYABLE �,,� �; I, The City has significant amounts of bonds payable for which we will mail letters of confirmation. �'�� We will also evaluate and test the City's process for monitoring compliance with any covenants and � the amount of any arbitrage rebate liability. i We will also perform a predictive test of bond interest expense based on the weighted average interest rate of bonds outstanding and the average bond liability. MINNESOTA LEGAL COMPLIANCE Our audit procedures over Minnesota Legal Compliance will be intertwined with our audit procedures as described above. USE OF EDP SOFTWARE IN THE ENGAGEMENT � We utilize engagement software to manage a"paperless" audit process. All year-end account analysis schedules as prepared by the organization's financial staff are easily imported to enhance audit efficiency and personnel time commitment. Additionally, the individual laptop computers of our entire audit team are electronically linked via a portable network "hub" and each audit team is equipped with portable scanners for audit evidence that is not in an "ExceUWord/Adobe" format. This approach maYimizes efficiency for our audit team and the organization's financial staff. We also obtain much of our accounting and auditing guidance on-line via a secure Internet Web site. � This is a comprehensive source for technical accounting and auditing publications and guidance which is routinely updated. In this manner, your client service team has ready access to current authoritative text for the ever-changing audit environment. �-�, �i�n Recogtiizing Hopkins's computer environment, we may utilize file interrogation software to facilitate an efficient audit of large volumes of transactions. Our file interrogation software is able to read electronic downloads of transactions in many different formats, including text files, spreadsheet files,- and database files. Potential applications for file interrogation may include the following: ♦ Sampling for testing of internal controls ♦ Sampling for confirmation of receivables ♦ Sampling of disbursements e Selection of journal entries related to identified fraud risks ♦ Suinmation of large volumes of similar transactions or sub-ledgers to deterirune agreement to the general ledger ♦ Recalculation of depreciation expense per individual capital asset INTERNAL CONTROLS LarsonAllen views internal controls as being critical to a City's business processes. Accordingly, we test internal controls over general disbursements and payroll disbursements on an annual basis. We also test internal controls on other business cycles, such as cash receipting, on a rotational basis (not necessary every year). E To facilitate our testing, we will share with you our checklists of internal controls over significant � � business cycles as part of our audit pre-planning work. These checklists provide several examples of ; "best practices" for internal controls, and you will be able to identify from the checklists the internal E control proceduxes that the City currently utilizes. This will guide our audit team on selecting , �;,: ;� specific internal controls to test at the City of Hopkins. � € CITY OF HOPKINS � PAGE 18 , _ i -- - � - - -- _ i - _ _ _ ; - _ -� VI. THE LARSONALLENAPPROACH • INTERNAL CONTROLS �CONTINUED� During the audit process, we will be alert for areas where the City may need to alter their procedures in order to strengthen your internal control environment. These types of suggestions typically are included in our management letters, which we issue at the end of our audit process. We will accumulate any such suggestions and review them with you prior to writing our management letter. _ We anticipate that most cities in the Twin Cities area are experiencing growth in population and thus growth in the scale of their operations. Growth drives the need to bring more formality and depth to any internal control process from high-level concepts such as business policies down to the simplest of tasks such as opening the mail. Over the years, LarsonAllen has worked with many growth-stage clients, and we are very experienced in sharing "best practices" for managing operational growth. INFORMATION TECHNOLOGY SPECIALISTS � We will involve our information technology sp�cialists to document and evaluate the "soft" aspects -, of the City's information systems that are significant for financial accounting and reporting. Our IT specialists will look at the City's disaster recovery plans / procedures, information back-up and � storage plans / procedures, logical access to systems (i.e. passwords, user profiles, etc.), and physical access to servers. Our highly skilled IT specialists can generally complete these procedures within � one to two days. t� Information is valuable, and controlling access to it is critical. Involving our highly-skilled IT specialists in our services is a significant value-added option available with the LarsonAllen audit i • GFOA CERTIFICATION We understand that the City applies for the GFOA's Certi�cate of Achievement for Excellence in Financial Reporting. Our audit team will be able to assist you with the process of readying your financial statements and assisting you in applying for the GFOA certificate. _ NEW ACCOUNTING STANDARDS The Governmental Accounting Standards Board (GASB) has issued several new accounting -- standards for which we will monitor implementation and application within the City: � ♦ GASB STATEMENT NO 45: requires the recording of a liability for any "unfunded" portion of other post-employment benefits. This standard is effective for the year ending December 31, 2009. ♦ GASB STATEMENT NO 47: clarifies the accounting for termination benefits. This standard is -- effective for the year ending December 31, 2006 (except for those offered as other post- employment benefits, in which cash the effective date is consistent the City's implementation of GASB Statement No. 45, as described above). i'' `; ;_ -� , , . , _• -' CITY OF HOPKINS PAGE 19 VL THE LARSONA�LENAPPRQACl� - NEW ACCOUNTING STANDARDS (CONTINUED� �' �!� ♦ GASB STATEMENT NO 49: This statement addresses accounting and financial reporting standards for pollution remediation obligations associated with existing pollution. This standard is effective for the year ending December 31, 2008. ♦ GASB STATEMENT No. 50: This statement amends the note disclosures and required supplementary information in GASB Statement No. 27 to more closely align with disclosure requirements for other post-employment benefits under GASB Statement No. 45. GASB Statement No. 50 is effective for the year ending December 31, 2008. ♦ GASB STATEMENT NO 51: The purpose of this statement is to eliminate the inconsistencies in accounting � and reporting between governmental entities related to intangible items such as easements, rights, patents, trademarks, software, and donated assets. GASB Statement No. 51 is effective for the year ending December 31, 2010. NEW AUDITING STANDARDS The American Institute of Certified Public Accountants has issued ten new auditing standards during 2005/2006 which will affect the audit for the year ending December 31, 2007. In general, the new auditing standards are a result of an initiative to converge the auditing requirements for non-SEC organizations with those of the Public Company Oversight Board (i.e. SEC companies) and those of the international auditing standards boards. These new auditing standards will require a more rigorous assessment of risks related to financial reporting and a � . significantly enhanced linking of perceived risk areas to the auditing procedures performed. Under the new standards, auditors will be required not only to evaluate the effectiveness of internal controls over significant aspects of financial reporting but also to document and evaluate the design of internal controls. This documentation will involve the performance of "walkthroughs" of internal controls for all audits. Areas of the audit where we anticipate performing wallc-throughs include: ♦ Taxes, special assessments, and state aids ♦ Charges for services in the Water and Sanitary Sewer funds ♦ Payroll ♦ Accounts payable ♦ Capital assets ♦ Budgeting � ♦ Financial reporting . - � f Accounting and auditing principles are rapidly changing, and our experienced service team will j assist you in keeping pace by keeping you informed. j I E E � [` E t E [ r.�:.f !11_ CITY OF HOPKINS . PAGE 20 - - - - - - . --- -- - - - --- . � � � -- _ _ - - - - _ __ - - VII. PROPOSER WARRANTIES � PROPOSER GUARANTEES A. The Proposer certifies it can and will provide and make available, as a mi.nimum, 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 willfiil 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. _�; D. Proposer warrants that all information provided by it in connection with this proposal is true and accurate. -- :/ ��a��" - 6 :_:. Signature of Official: Name (Typed): Brock Geyen, CPA _ Title: Principal � F�: LarsonAllen LLP Date: December 6, 2007 Telephone Number: 612-397-3070 "; ; � CITY OF HOPKINS • - PAGE 21 APPENDIX A- PEER REV�EW REPORT � , , Crowe Growe Chizek and Company LlC � Member Honvath International . ��. October 1, 2004 ' j To the Principals of II � Larson, Allen, Weishair & Co., LLP � �I and the Center for Public Company Audit Firms Peer Review Committee � � We have reviewed the system of quality control for the accounting and auditing prac�ice ; of Larson, Allen, Weishair & Co., LLP (the firm) appiicable to non-SEC issuers in effect j for the year ended March 31, 2004. The firm has informed us thaE it did not audit SEC I issuers for the.year ended March 31, 2004. A system o# quality control encompasses the ; firm s organizational structure and the policies adopted and procedures established to i provide it with reasonable assurance of complying with professional standards. The elements of quality control are described in the Statements on Quality Control Standards i issued by the American Institute of Certified Public Accountants (the AICPAj. The i design of the system, and compliance with it, are the responsibilities of the firm. Our responsibility is ta express an opinion on the design of the system, and the firm s � compliance with that system, based on our review. �' � j ,� ( Our review was conducEed in accordance with standards established by the Peer Review Committee of the Center for Public Company Audit Firms and included procedures tv plan and perform the review that are summarized in the attached description of the peer review process. Our review would not necessarily disclose all weaknesses in the system of quality control or all instances of lack of compliance with it since it was based on selective tests. Because there are inherent limitadons in the effectiveness of any system of quality control, departures from the system may occur and not be detected. Also, projeciion of any evaluation of a system of quality control to future periods is subject to the risk that the system of quality control may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. In our opinion, the system of quality control for the accounting and auditing practice applicable to the non-SEC issuers o# Larson, Allen, Weishair & Co., LLP in effect for the year ended March 31, 2004, has been designed to meet the requirements of the quality control standards for an accounting and auditing practice established by the AICPA, and was complied with during the year then ended to provide the firm with reasonable assurance of complying with applicable professional standards. � G� C.�'� �C ,�,�� 5�''l E E Crowe Chizek and Company LLC ; � CITY OF HOPKINS PAGE 22 i - -: ; - _ _ . � -- i - -- - - _ _ _ _ API'EN.DIX A- PEER REVIEW REPQRT . Attachxnent to the Peer Review Report of Larson, Allen, Weishair & Co., LLP - Description of the Peer Review Process Overview Firms enrolled in the AICPA Center for Public Company Audit Firms (the Center) Peer Review Program have their system of quality conErol periodically reviewed by independent peers. These reviews are system and compliance oriented with the o3�jectives of evaIuating whether: The reviewed firni s system of qualiiy control for its accounting and auditing practice applicable to non-SEC issuers has been designed to meet the requirements of the Quality ControI Standards established by the AICPA. - The reviewed firm's quality conirol policies and procedures applicable to non-SEC �: issuers were being complied with to provide the firm with reasonable assurance of complying with professional standards. � � A peer review is based on selective tests and directed at assessing whether the design of and compliance with the firm s system of quality control for its accounting and auditing . practzce applicable to non-SEC issuers provides the firm with reasonable, not absolute, assurance of compIying with professional standards. Consequently, a peer review on the - firm's system of quality control is not intended to, and does not, provide assurance with • respect to any individual engagement conducted by the firm or that none of the financial ' statements audited by the firm should be restated. The Center s Peer Review CoinmitEee (PRC) establishes and maintains peer review standards. At regular meetings and through report evaluation task forces, the PRC considers each peer review, evaIuates the reviewer s competence and performance, and examines every report, letter of comments, and accompanying response from fihe reviewed firm that states its corrective action plan before the peer review is finalized. The Center s staff pIays a kQy role in overseeing the performance of peer reviews �: working closely with the peer review teams and the PRC. � Once the PRC accepts the peer review report, let�er of comments (if any), and the reviewed firFri s responses, these documents are maintained in a file avaiIable to the • public. In some situaHons, the public file also incIudes a signed undertaking by the firm agreeing to specific follow-up action requested by the PRC. ; Firms that perform audits or play a substanfial role in the audit �f one or more SEC ' issuers, as defined by the Public Company Accounting Oversight Board (PCAOB}, are required to be registered with and have their accounting and auditing practice '; applicable to SEC issuers inspected by the PCAOB. The firm indicated that it did not audit SEC issuers for the year ended March 31, 2004. • CITY OF HOPKINS PAGE 23 AFPENDIX A - PEER .REVIEW REPORT �. :; Planning the Review for the Firm's AccounHng and Auditing Practice Applicable to ,,,,_ Non-SEC Issuers To pIan the review of Larson, Allen, Weishair & Co., LLP, we obtained an understanding of (1) the nature and extent of the firm's accounting and auditing practice, and (2) the design of the firm's system of quality control sufficient to assess the inherent and control risks implicit in its practice. Inherent risks were assessed by obtaining an understancling of the fixm s practice, such as the indushries of its clients and other factors of complexity in serving those clients, and the organization of the firm s personnel into practice units. Control risks were assessed by obt�aining an understanding of the design of the firm's system of qualiry control, including its audit methodology and monitoring procedures. Assessing control risk is the process of evaluahing the effectiveness of the revie�ved firm's system of quality control in preventing the performance of engagements that do not comply with professional standazds. Perforrnin the Review for ' the Firm s Accountin and Auditin Practice A licable t $ o g g PP Non-SEC Issuers , Based on our assessment of the combined level of inherent and control risks, we � idenfified practice units and selected engagements within those units to test for j compliance with the fum's system of quality controI. The engagements selected for review included engagements performed under the Government Audifing Standards, audits performed under FDICIA, multi audits, and audits of Bmployee Benefit Plans. The engagements selected for review were ta represent a cross-secHon of the � ��, irm s accounting and auditing practice with emphasis on higher-risk engagements. The engagement reviews included exam;ni„g working paper files and reports and � interviewing engagement personnel. The scope of the peer review also included examining seIected administrative and personnel files to deterrnine compliance with the firm's policies and procedures for the elements of quality control pertaining Eo independence, integrity, and objectivity; personnel management; and acceptance and continuance of clients and engagements. Prior to concluding the review, we reassessed the adequacy of scope and conducted a meeting with firm management to discuss our findings and recommendations. y �:__sl Iit'1 CITY OF HOPKTNS e PAGE 24 i - - , � � - - - -- - I - - - _ - - -- APPENDIX B- SAMPLE REPORTS :=� -� INDEPENDENT AUDITORS' REPORT � City Council City of XYZ, Minnesota � We have audited the accompanying financial statements of the governmental activities, the business- i type activities, each major fund, and the aggregate remaining fund information of City of XYZ, � Minnesota (the City) as of and for the year ended December 31, 2006, which collectively comprise • the City's basic fmancial statements, as listed in the table of contents. These financial statements are the responsibility of City of XYZ's management. Our responsibility is to express opinions on these financiaT statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to fmancial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinions. '. In our opinion, based upon our audit, the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities, the business-type activities, the discretely presented component unit, each major fund, and the aggregate remaining fund information of City of XYZ, Minnesota, as of December 31, 2006, and the respective changes in fmancial position and cash flows, where applicable, thereof for the year then ended in confornuty with accounting principles generally accepted in the United States of America. l, ' • ` CITY OF HOPKINS Page 25 APPENDIX B- SAMPLE REPORTS � The Management's Discussion and Analysis and budgetary comparison information are � not a ""' required part of the basic financial statements but are supplementary information required by accounting principles generally accepted in the United States of America. We have applied certain limited procedures, which consist primarily of inquiries of management regarding the methods of measurement and presentation of the required supplementary information. However, we did not audit the information and express no opinion on it. Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise City of XYZ's basic financial statements. The combining and individual fund statements and schedules, and supplementary information listed in the table of contents is presented for purposes of additional analysis and is not a required part of the basic financial statements. 5uch information has been subjected to the auditing procedures applied in the basic financial statements and, in our opinion, is fairly stated in all material respects in relation to the basic financial statements taken as a whole. The introductory section and statistical information listed in the table of contents is presented for purposes of additional analysis and is not a required part of the basic fmancial statements of City of XYZ. Such information has not been subjected to the audit procedures applied in the audit of the basic fmancial statements and, accordingly, we express no opinion on it. In accordance with Government Auditing Standards, we have also issued our report dated April _, 2007, on our consideration of City of Cambridge's internal control over fmancial reporting and our tests of its compliance with certain provisions of laws, regulations, contracts, grant agreements and ,�.- other matters. The purpose of that report is to describe the scope of our audit of internal control over G� fmancial reporting and compliance and the results of that testing, and not to provide an opinion on the internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards and should be considered in assessing the results of our audit. LARSONALLEN LLP Minneapolis, Minnesota April _, 2008 ,,,,,' CITY OF HOPKINS Page 26 - - i --- ,- - - - --- i -, - - :: APPENDIX B- SAMPLE REPORTS � INDEPENDENT AUDITORS' 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 City Council � ; City of XYZ, Minnesota We have audited the financial statements of the governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information of the City of XYZ, Minnesota (the ' City) as of and for the year ended December 31, 2007, which collectively comprise the City's basic financial statements and have issued our report thereon dated April , 2008. We conducted our audit in accordance with U.S. generally accepted auditing standards and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. - Internal Control Over Financial Reportin� In planning and perforniulg our audit, we considered City's internal control over financial reporting as a basis for designing our auditing procedures for the purpose of expressing our opinions on the � financial statements, but not for the purpose of expressing an opinion on the effectiveness of the City's internal control over financial reporting.' Accordingly, we do not express an opinion on the `' effectiveness of the City's internal control over financial reporting. A control deficiency exists when the design or operation of a control does not allow management or � employees, in the normal course of performing their assigned functions, to prevent or detect misstatements on a timely basis. A significant deficiency is a control deficiency, or combination of control, deficiencies, that adversely affects the City's ability to initiate, authorize, record, process, or report financial data reliably in accordance with generally accepted accounting principles such that there is more than a remote likelihood that a misstatement of the City's fmancial statements that is more than inconsequential will not be prevented or detected by the City's internal control. A material weakness is a significant deficiency, or combination of significant deficiencies, that � results in more than a remote likelihood that a material misstatement of the financial statements will ,:, not be prevented or detected by the City's internal control. Our consideration of internal control over fmancial reporting was far the limited purpose described in the first paragraph of this section and would not necessarily identify all deficiencies in internal control that might be significant deficiencies or material weaknesses. We did not identify any �' deficiencies in internal control over financial reporting that we consider to be material weaknesses, as _ defined above. However, we noted other matters involving the internal control over fmancial �`' ' reporting, which we have reported to management of the City. in a separate letter dated April , �-- 2008. i' `; ;;;".; �:.: � CITY OF HOPKINS i : PAGE 27 ' APPEND�X &- SAMPLE REPORTS Compliance and Other Matters r �� ' As part of obtaining reasonable assurance about whether the City's fmancial statements are free of material misstatement,, we performed tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements, noncompliance with which could kave a direct and material effect on the deternunation of fmancial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit and, accordingly, we do not express such an opinion. The results of our test disclosed no instances of noncompliance or other i matters that are required to be reported urider Government Auditing Standards. i This report is intended solely for the information and use of management, City Council, and state and federal grantor agencies and is not intended to be and should not be used by anyone other than those specified parties. LARSONALl.EN !LP Minneapolis, Minnesota April _, 2008 �-! , ,:::�, � CITY OF HOPKINS PAGE 28 - - i - _ ; ; . - � - , APPENUIX B- SANfPLE Ii�FORTS � INDEPENDENT AUDITORS' REPORT ON MINNESOTA LEGAL COMPLIANCE City Council City of XYZ, Minnesota -- We have audited the basic financial sfatements of City of XYZ, Minnesota, as of and for the year , ended December 31, 2007, and have issued our report thereon dated April _, 2008. - We conducted our audit in accordance with U.S. generally accepted auditing standards and the provisions of the Minnesota Legal Compliance Audit Guide for Local Government, promulgated by the State Auditor pursuant to Minn. Stat. Section 6.65. Accordingly, the audit included such tests of . the accounting records and such other auditing procedures as we considered necessary in the :i circumstances. � The Minnesota Legal Compliance Audit Guide for Local Government covers seven main categories of �' compliance to be tested: contracting and bidding, deposits and inveshnents, conflicts of interest, ,� public indebtedness, claims and disbursements, miscellaneous provisions, and tax increment � financing. Our study included all of the listed categories. The results of our tests indicate that for the items tested, the City complied with the material terms and conditions of applicable legal provisions. , This report is intended solely for the information and use of management, City Council, and the Office of the State Auditor of Minnesota and is not intended to be and should not be used by anyone other than those specified parties. LARSONALLEN LLP Minneapolis, Minnesota _. April � 2008 �: � CITY OF HOPKINS ; ; Page 29 APPENDIX B- SAMPLE REPORTS ,. _, �� '; i I FORMAL REQUIRED COMMUNICATIONS Honorable Mayor and ;' Members of the City Counczl � City of XYZ, Minnesota We have audited the fmancial statements of the governmental activities, business-type activities, the discretely presented component unit, each major fund, and the aggregate remaining fund information of the City of XYZ, Minnesota as of and for tlze year ended December 31, 2007, which collectively comprise the City's basic financial statements and have issued our report thereon dated April XX, 2006. Professional standards require that we provide you with the following information related to our audit. OUR RESPONSIBILITY UNDER ZI.S. GENERALLYACCEPTED AUDITING STANDARDSAND OMB CIRCULAR A-133 i ' As stated in our engagement letter dated April 17, 2006, our responsibility, as described by professional � standards, is to plan and perform our audit to obtain reasonable, but not absolute, assurance about whether the � fmancial statements are free of material misstatement and are fairly presented in accordance with U.S. getterally accepted accounting standards. Because an audit is designed to provide xeasonable but not absolute assurance and because we did not perform a detailed examination of all transactions, there is a risk that material xnisstatements may exist and not be detected by us. In planning and performing our audit, we considered the City's internal control over financial reporting in order to detex�mine our auditing procedures for the purpose of expressing our opinion on the fmancial ,,:,; statements and not to provide assurance on the internal control over fmancial reporting. We also considered , internal control over compliance with requirements that could have a direct and material effect on a major federal program in order to determine our auditing procedures for the purpose of expressing our opinion on compliance and to test and report on internal control over compliance in accordance with OMB Circular A- 133. As part of obtaining reasonable assurance about whether the City's fmancial statements are free of material xnisstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts and grants, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit. Also, in accordance with OMB Circular A-133, we examined, on a test basis, evidence about the City's compliance with the types of compliance requirements described in the U.S. Off ce of Management and Budget (OMB) Circular A-133 Compliance Supplement applicable to its major federal program for the purpose of expressing an opinion on the City's compliance with those requirements. While our audit provides a reasonable basis for our opinion, it does not provide a legal determination on the City's compliance with those requirements. OTHER INFORMATIONINDOCUMENTS CONTAININGAUDITED FINANCIAL STATEMENTS � We provide no opinion or assurance on any information prepared by management that accompanies the City's audited fmancial statements. ,: .,,� 'r,,1 . CITY OF HOPKINS Page 30 i - , - - _ ::._ -- i -- _. -,- APPEIVDIX ]3- SA1t�PLE REPORTS �::<i � SIGNIFICANT ACCOUNTING POLICIES Management has the responsibility for selection and use of appropriate accounting policies. In accordance - with the terms of our engagement letter, we will advise management about the appropriateness of accounting policies and their application. The significant accounting policies used by the City are described in Note 1 to - the fmancial statements. No new accounting policies were adopted and the application of existing policies was not changed during the year audited. We noted no transactions entered into by the City during the year that ' were both significant and unusual, and of which, under professional standards, we are required to inform you, , or transactions for which there is a lack of authoritative guidance or consensus. ACCOUNTING ESTIMATES AND MANAGEMENT JUDGMENTS `, Accounting estimates are an integral part of the fmancial statements prepared by management and are based on - management's laiowledge and experience about past and current events and assumptions about future events. Certain accounting estimates are particularly sensitive because of their significance to the financial statements - and because of the possibility that future events affecting them may differ significantly from those expected. The most sensitive estimates affecting the fmancials statements were: Estimated useful lives of depreciable capital assets - Management's estimate of useful lives for depreciable �i assets is based on guidance recommended by authoritative accounting literature. The useful life of a depreciable asset deternunes the amount of depreciation that will be recorded in any given reporting period as well as the amount of accumulated depreciation that is reported at the end of a reporting period. , Estimated year-end valuation of investments at fair value — Management's estimate of the fair value of `� investments is based on published market values at December 31, 2007. =- � Estimated current portion of compensated absences payable — Management's estimate of the amount of the year-end compensated absences payable balance to be taken by employees within one year of December �' 31, 2007 is based on historical trends and anticipated leave time activity. =:� We reviewed and tested management's procedures and underlying supporting docuxnentation in the areas discussed above and evaluated the key factors and assumptions used to develop the estimates noted above in deternuning that they are reasonable in relation to the fmancial statements taken as a whole. We concluded that the accounting estimates and management judgxnents appeared to � consider all significant factors and resulted in appropriate accounting recognition. AUDIT ADJUSTMENTS For purposes of this letter, professional standards define an audit adjustment as a proposed correction of the fmancial statements that, in our judgment, may not have been detected except through our auditing procedures. These adjustments may include those proposed by us, but not recorded by the City, which could potentially cause future financial statements to be materially misstated. In our judgment, none of the adjustments we proposed, whether recorded or unrecorded by the City, either individually or in the aggregate, indicate matters that could have a significant effect on the City's fmancial reporting process. DISAGREEMENTS WITHMANAGEMENT i:- ; For purposes of this letter, professional standards define a disagreement with management as a matter, whether � �::';; or not resolved to our satisfaction, concerning a financial accounting, reporting, or auditing matter that could be significant to the fmancial statements or the auditor's report. We are pleased to report that no such �::;, disagreements arose during the course of our audit. '• CITY OF HOPKINS ;: PAGE 31 I: ` APPENDIX B- SAMPL.E REPORTS . � '� ,,:, CONSULTATIONS WITH OTHER INDEPENDENT ACCOUNTANTS In some cases, management may decide to consult with other accountants about auditing and accounting matters, sixnilar to obtaining a"second opinion" on certain situations. If a consultation involves application of an accounting principle to the City's fmancial statements or a determination of the type of auditor's opinion that may be expressed on those statements, our professional standards require the consulting accountant to check with us to determine that the I �i consultant has all the relevant facts. To our knowledge, there were no such consultations with other accountants. I � ISSUES DISCUSSED PRIOR TO RETENTION OF INDEPENDENT AUDITORS � We generally discuss a variety of matters, including the application.of accounting principles and auditing standards, � with management each year prior to retention as the City's auditors. However, these discussions occurred in the normal course of our professional relationship and our responses were not a condition to our retention. DIFFICULTIES ENCOUNTERED IN PERFORMING THE AUDIT There were no significant difficulties encountered during the course of the audit. This report is intended solely for the information and use of the City Council and the management of the City, and is not intended to be and should not be used by anyone other than these specified parties. LARSONALLEN LLP � Minneapolis, Minnesota I April XX, 2008 �:� ::, 1� ,� ' i ; � � � I ��,;°.� City of Hopkins Page 32 i ,; _ __ _ _ ___ � _ � , -- _ ___