HomeMy WebLinkAboutContracts & Agreements_186-2015_CCv0001.pdf SLOG@ •David E.Hale,CPA,CFP •Deborah A.Harper,CPA
®� •Donald G.Slater,CPA •GaryA.Cates,CPA
•Richard K.Kikuchi,CPA •Michael D.Mangold,CPA
ALA •Susan F.Matz,CPA •David S.Myers,CPA
CERTIFIED PUBLIC ACCOUNTANTS •Bryan S.Gruber.CPA
June 15, 2015
Tina Kundig
Finance Director
City of Redlands
35 Cajon Street, Street 200
Redlands, CA 92373
We are pleased to confirm our understanding of the services we are to provide the City of Redlands
(the City) for the year ended June 30, 2015. We will audit the financial statements of the governmental
activities, the business-type activities, each major fund, and the aggregate remaining fund information,
including the related notes to the financial statements, which collectively comprise the basic financial
statements of the City as of and for the year ended June 30, 2015. Accounting standards generally
accepted in the United States of America provide for certain required supplementary information (RSI),
such as management's discussion and analysis (MD&A), to supplement the City's basic financial
statements. Such information, although not a part of the basic financial statements, is required by the
Governmental Accounting Standards Board who considers it to be an essential part of financial reporting
for placing the basic financial statements in an appropriate operational, economic, or historical context.As
part of our engagement, we will apply certain limited procedures to the City's RSI in accordance with
auditing standards generally accepted in the United States of America. These limited procedures will
consist of inquiries of management regarding the methods of preparing the information and comparing
the information for consistency with management's responses to our inquiries, the basic financial
statements, and other knowledge we obtained during our audit of the basic financial statements. We will
not express an opinion or provide any assurance on the information because the limited procedures do
not provide us with sufficient evidence to express an opinion or provide any assurance. The following RSI
is required by generally accepted accounting principles and will be subjected to certain limited procedures,
but will not be audited:
1) Management's Discussion and Analysis.
2) Budgetary comparison schedules for the general fund and major special revenue funds,
3) Schedule of proportionate share of the Net Pension Liability and schedule of Contributions for the
cost sharing multiple-employer defined benefit pension plan as required by GASB Statement No. 68 -
Accounting and Financial Reporting for Pensions-an amendment of GASB Statement No. 27.
4) Schedule of the net pension liability and schedule of contributions for the agent multiple-employer
defined benefit pension plan as required by GASB Statement No 68 - Accounting and Financial
Reporting for Pensions—an amendment of GASB Statement No. 27,
We have also been engaged to report on supplementary information other than RSI that accompanies the
City's financial statements. We will subject the following supplementary information to the auditing
procedures applied in our audit of the financial statements and certain additional procedures, including
comparing and reconciling such information directly to the underlying accounting and other records used
to prepare the financial statements or to the financial statements themselves, and other additional
procedures in accordance with auditing standards generally accepted in the United States of America,
and we will provide an opinion on it in relation to the financial statements as a whole:
1) Combining statements.
2) Individual fund statements and schedules.
Lance,Sall&Lunghard,LLP 203 North Brea Boulevard • Suite 203• Brea, CA 92821 • TEL 714.672.0022 • Fax 714.672.0331 www.lslcpas.com
Orange County Temecula Valley Silicon Valley
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The following other information accompanying the financial statements will not be subjected to the
auditing procedures applied in our audit of the financial statements, and our auditor's report will not
provide an opinion or any assurance on that other information.
1) Supporting schedules.
2) Statistical schedules.
3) Introductory section.
Audit Objectives
The objective of our audit is the expression of opinions as to whether your financial statements are fairly
presented, in all material respects, in conformity with U.S. generally accepted accounting principles and
to report on the fairness of the supplementary information referred to in the second paragraph when
considered in relation to the financial statements as a whole.The objective also includes reporting on—
• Internal control related to the financial statements and compliance with the provisions of laws,
regulations, contracts, and grant agreements, noncompliance with which could have a material
effect on the financial statements in accordance with Government Auditing,Standards.
• Internal control related to major programs and an opinion(or disclaimer of opinion) on compliance
with laws, regulations, and the provisions of contracts or grant agreements that could have a
direct and material effect on each major program in accordance with the Single Audit Act
Amendments of 1996 and OMB Circular A-133, Audits of States, Local Governments, and
Non-Profit Organizations.
The Government Auditing Standards report on internal control over financial reporting and on
compliance and other matters will include a paragraph that states (1) that the purpose of the report is
solely to describe the scope of testing of internal control and compliance and the results of that testing,
and not to provide an opinion on the effectiveness of the entity's internal control or on compliance, and
(2) that the report is an integral part of an audit performed in accordance with Government Auditing
Standards in considering the entity's internal control and compliance. The OMB Circular A-133 report on
internal control over compliance will include a paragraph that states that the purpose of the report on
internal control over compliance is solely to describe the scope of testing of internal control over
compliance and the results of that testing based on the requirements of OMB Circular A-133. Both reports
will state that the report is not suitable for any other purpose.
Our audit will be conducted in accordance with auditing standards generally accepted in the United States
of America; the standards for financial audits contained in Government Auditing Standards, issued by
the Comptroller General of the United States; the Single Audit Act Amendments of 1996; and the
provisions of OMB Circular A-133, and will include tests of accounting records, a determination of major
program(s) in accordance with OMB Circular A-133, and other procedures we consider necessary to
enable us to express such opinions. We will issue written reports upon completion of our Single Audit.
Our reports will be addressed to management and the governing board of the City. We cannot provide
assurance that unmodified opinions will be expressed. Circumstances may arise in which it is necessary
for us to modify our opinions or add emphasis-of-matter or other-matter paragraphs. If our opinions on the
financial statements or the Single Audit compliance opinions are other than unmodified, we will discuss
the reasons with you in advance. If, for any reason, we are unable to complete the audit or are unable to
form or have not formed opinions, we may decline to express opinions or issue reports, or may withdraw
from this engagement.
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Audit Procedures—General
An audit includes examining,; on a test basis, evidence supporting the amounts and disclosures in the
financial statements; therefore, our audit will involve judgment about the number of transactions to be
examined and the areas to be tested: An audit also includes evaluating the appropriateness of accounting
policies used and the reasonableness of significant accounting estimates made by management, as well
as evaluating the overall presentation of the financial statements. We will plan and perform the audit to
obtain reasonable rather than absolute assurance about whether the financial statements< are free o
materialmisstatement,,whether from 11) errors, (2) fraudulent financial reporting, ( ) misappropriation of
assets, or (4) violations of lads or governmental regulations that are attributable to the government or to
acts by management or employees acting on behalf of the government. Because the determination of
abuse is subjective, Governm(a nt Auditing Standards do not expect auditors to provide reasonable
assurance of detecting abuse:
Because of the inherent limitations of an audit, combined with the inherent limitations of internal control,
and because we will net perform a detailed;examination of all transactions, there is a risk that material
misstatements or noncompliance may exist and not be detected by us, even though the audit is properly
planned and performed in accordance with U.S. generally accepted auditing standards and Government
Auditing Standards. In addition, an audit is not designed to detect immaterial misstatements or
violations of laws or governmental regulations that do not have a direct and material effect on the financial
statements or major programs. However, we will inform the appropriate level of management of any
material errors,any fraudulent financial reporting, or misappropriation of assets that come to our attention.
We will also inform the appropriate level of management of any violations of laws or governmental'
regulations that come to our attention, unless clearly inconsequential, and of any *material abuse that
comes to our attention. We will include such matters in the reports required for a Single Audit. Our
responsibility as auditors is limited to the period covered by our audit and does not extend to any later
periods for which we are not engaged as auditors;
Our procedure~ will include tests of documentary evidence supporting the transactions recorded in the
accounts, and may include tests of the physical existence of inventories, and direct confirmation of
receivables and certain other assets and liabilities by correspondence with selected individuals, funding
sources, creditors, and financial institutions. We will request written representations from your attorneys
as part of the engagement, and they may bill you for responding to this-inquiry,,At the conclusion of our
.audit, we will require certain written representations from you about your responsibilities for the financial
statements; schedule of expenditures of federal awards, federal award programs; compliance with laves,
regulations, contracts, and grant agreements; and other responsibilities required by generally accepted`
auditing standards:
Audit Procedures—internal Control
Our audit will include obtaining an understanding of the government'and its environment, including
internal control, sufficient to assess the risks of material misstatement of the financial statements and to
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design the nature, timing, and extent of further audit procedures, Tests of controls may be performed to
test the effectiveness of certain controls that we consider relevant to preventing and detecting errors and
fraud that are material to the financial statements and to preventing and detecting misstatements resulting
from illegal acts and other noncompliance natters that have a direct and material effect on the financial
.statements. Our tests, if performed,will be less in scope than would be necessary to render an opinion on
internal control and, accordingly, no opinion will be expressed in our report on internal control issued
pursuant to Government auditing Standards
As required by OMB Circular A-133, we will perform tests of controls over compliance to evaluate the
effectiveness of the design and operation of controls that we consider relevant to preventing or detecting'
material noncompliance with compliance requirements applicable to each major federal award program.
However, our tests will be less in scope than would be necessary to render an opinion on those controls
and, accordingly, no opinion will be expressed in our report on internal control issued pursuant to
OMB Circular A-133.
An audit is not designed to provide assurance on internal control or to identify significant deficiencies or
material weaknesses. however, during the audit, we will communicate to management and those
charged with governance internal control related matters that are required to be communicated under
AICPA professional standards, Government Auditing Standards, and OMB Circular A-133.
Audit Procedures—Compliance
As part of obtaining reasonable assurance about whether the financial statements are free of material
misstatement, we will; perform tests of the City's compliance with provisions of applicable laws,
regulations, contracts, and agreements, including grant agreements. However, the objective of those
procedures will not be to provide an opinion on overall compliance and we will not;express such an
opinion in our report on compliance issued pursuant to Government auditing Standards,
LIMB Circular -133 requires that we also plan and perform the audit to obtain reasonable assurance
about whether the auditee has complied with applicable laws and regulations and the provisions o
contracts, and grant agreements applicable to major programs. Cour procedures will consist of tests of
transactions and other applicable procedures described in the COMB Circular A-133 Compliance
Supplement for the types of compliance requirements that could have a direct and material effect on each
of the City's major programs. The purpose of these procedures will be to express an opinion on the City's
compliance with requirements applicable to each of its major programs in our report on compliance
issued pursuant to OMB Circular A-1 31
Other Services
We will also assist in preparing the financial statements, schedule of expenditures of federal awards, and
related notes of the City in conformity with US. generally accepted accounting principles and
OMB Circular A-133 based on information provided by you: These nonaudit services do not constitute an
audit under Government Auditing Standards and such services will not be conducted in accordance
with Government Auditing Standards.
Management Responsibilities
Management is responsible for (1) establishing and maintaining effective internal controls including'
internal controls over compliance, and for evaluating and monitoring ongoing activities, to help ensure
that appropriate goals and objectives are mete (2)following laws and regulations; (3) ensuring that there i
reasonable assurance that government programs are administered in compliance with compliance
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requirements; and (4); ensuring that management and financial information is reliable and properly
reported. Management is also responsible'.for implementing systems designed to achieve compliance
with applicable laws„ regulations, contracts, and grant agreements. You are also responsible for the
selection and application of accounting principles; for the preparation and fair presentation of the financial
statements, schedule of expenditures of federal awards, and all accompanying information in conformity
with U. . generally accepted accounting principles; and for compliance with applicable laws and
regulations and,the provisions of contracts and grant agreements.
Management is also responsible for making all financial records and related information available to us
and for the accuracy and completeness of that information. You are also responsible for providing us with
(1) access to all information of which you are aware that is relevant to the preparation and fair
presentation,of the financial statements, (2)additional information that we may request for the purpose of
the audit, and (3) unrestricted access to persons within the government from whom we determine it
necessary to obtain audit evidence:
Your responsibilities also include identifying significant vendor relationships in which the vendor has
responsibility for program compliance and for the accuracy and completeness of that information. Your
responsibilities include adjusting the financial statements to correct material misstatements and
confirming to us in the management representation letter that the effects of any uncorrected
misstatements aggregated by us during the current engagement and; pertaining to the latest period
presented are immaterial, both individually and in the aggregate, to the financial statements taken as a
whole_
You are responsible for the design and implementation of programs and controls to prevent and detect;
fraud, and for informing us about all known or suspected fraud affecting the government involving
(1') management, ( ) employees who have significant roles in internal control, and (3) others where the
fraud could have a material effect on the financial statements. Your responsibilities Include informing us of
your knowledge of any allegations of fraud or suspected fraud affecting the government received in
communications from employees, former employees, grantors, regulators, or others. In addition, you are
responsible for identifying and ensuring that the government complies with applicable laws, regulations„
contracts, agreements, and grants. ;Management is also; responsible for taking timely and appropriate
steps to remedy fraud and noncompliance with provisions of laws, regulations, contracts, and grant
agreements, or abuse that we report:,Additionally, as required by OMB Circular -133, it is management's
responsibility to follow up and take corrective action on reported audit findings and to prepare a summary
schedule of prior audit findings and a corrective action plan. The summary schedule of prior audit findings
should be available for our review on the first day of fieldwork,
You are responsible for identifying all federal awards received and understanding and complying with the
compliance requirements and for the preparation of the schedule of expenditures of federal awards
(including notes and noncash assistance received);in conformity with OMB CircuIar -133. You agree to
include our report on the schedule of expenditures of federal awards in any document that contains and
indicates that we have reported on the schedule of expenditures of federal awards. You also agree to
include the audited financial statements with any presentation of the schedule of expenditures of federal
awards that includes our report thereon or make the audited financial" statements readily available to
intended users of the schedule of expenditures of federal:awards no later than the date the schedule of
expenditures of federal awards is issued with our report thereon; Your responsibilities include
acknowledging to us in the written representation letter that(1)you are responsible for presentation of the
schedule of expenditures of federal awards in accordance with OMB Circular -133; ( ) you believe the
schedule of expenditures of federal awards, including its form and :content, is fairly presented in
accordance with OMB CircularA-133; (3) the methods of measurement or presentation have not changed
from those used in the prior period (or, if they have changed, the reasons for such changes); and (4) you
have disclosed to us any significant assumptions or interpretations underlying the measurement or
presentation of the schedule of expenditures of federal awards:
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You are also responsible for the preparation of the other supplementary information, which we have been
engaged to report on, in conformity with U.S. generally accepted accounting principles. You agree to
include our report on the supplementary information in any document that contains and indicates that we
have reported on the supplementary information. You also agree to include the audited financial
statements with any presentation of the supplementary information that includes our report thereon or
make the audited financial statements readily available to users of the supplementary information no later
than the date the supplementary information is issued with our report thereon, Your responsibilities
include acknowledging to us in the written representation letter that (1) you are responsible for
presentation of the supplementary; information in accordance with GAAP; ( ) you believe the
supplementary information, including its form and content, is fairly presented in accordance with P;
( ) the methods of measurement or presentation have not changed from those used in the prior period
(or„ if they have changed, the reasons for such changes); and (4)you have disclosed to us any significant
assumptions or interpretations underlying the measurement or presentation of the supplementary`
information:
Management t is responsible for establishing and maintaining a process for tracking the status of audit
findings and recommendations. Management is also responsible for identifying and providing report
copies of previous financial audits, attestation engagements, performance audits, or other studies related
to the objectives discussed in the Audit Objectives section of this letter. This responsibility includes
relaying to us corrective actions taken to address significant findings and recommendations resulting from
those audits, attestation engagements, performance audits, or studies. You are also responsible for
providing: management's views on our current findings, conclusions, and recommendations, as well as
your planned corrective actions,for the report, and for the timing and format for providing that information.
You agree to assume all management responsibilities relating to the financial statements, schedule of
expenditures of federal awards, related notes, and any other nonaudit services we provide. You will be
required to acknowledge in the management representation letter our assistance with preparation of the
financial 'statements, schedule of expenditures of federal awards, and related nates and that you have
reviewed and approved the financial statements, schedule of expenditures of federal awards, and related
mates prior to their issuance and have accepted responsibility for therm. Further, you agree to oversee the
nonaudit services by designating an individual, preferably from senior management, with suitable skill,
knowledge, or experience; evaluate the adequacy and results of those services; and accept responsibility
for them;
With regard to using the auditor's report, you understand that you roust obtain our prior written consent to
reproduce or use our report in bond offering official statements or other documents.
With regard to the electronic dissemination of audited financial statements, including financial statements
published electronically on your website, you understand that electronic sites are a means to distribute
information and, therefore, we are not required to read the information contained in these sites or to
consider the consistency of other information in the electronic site with the original document.
During the course of our engagement, we will request information and explanations from management=
regarding theCity's operations, internal controls, future plans, specific transactions, and accounting
systems and procedures. At the conclusion of our engagement we will require, as a precondition to the
issuance of our report, that management provide certain representations in a written representation letter.
The procedureswe will perform in our engagement and the conclusions we reach as a basis for our
report will be heavily influenced by the written and oral representations that we receive from management.
Accordingly„ false representation could cause us to expend`unnecessary efforts or could cause a material
error or a fraud to go undetected by our procedures. In view of the foregoing, you agree that we shall not
be responsible for any misstatements in the City's financial statements that we may fail to detect as a
result of knowing misrepresentations that are made to us by management:
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In addition, the City further agrees to indemnify and hold us harmless for any liability and all reasonable,
costs, including legal fees, that we may incur as a result of the services performed under this engagement'
in the event there are knowing misrepresentations made to us by any member of the City's management
Because there are inherent difficulties in recalling or preserving information as the period after an
engagement increases; you agree that, notwithstanding the statute of limitations of the State of California,
any claim based on this engagement mustbe commenced within 12 months after performance of;our
service, unless you have previously provided us with a written notice of a specific defect in our services
that forms the basis of the claim.
You acknowledge that as a condition of our agreement to perform an audit, you agree to the best of your
knowledge and belief to be truthful, accurate, and complete in the representations you make to us during
the course of the audit and in the written representations provided to us at the completion of the audit,
Engagement Administration Fees,and Other
You may request that we perform additional services not addressed in this engagement letter. If this:
occurs, we will communicate with you regarding the .scope of the additional services and the estimated
fees. We also may issue a separate engagement letter covering the additional services: In the absence of
any other written communication from us documenting such additional services, our services will continue
to be governed by the terms of this engagement letter;
We may from time to time, and depending on the circumstances, use third-party service providers' in
serving your account. We may share confidential information about you with these service providers, but
remain committed to maintaining the confidentiality and security of your information. ,Accordingly, we
maintain internal policies, procedures, and safeguards to protect the confidentiality of your personal
information. In addition, we will secure confidentiality agreements with all service providers to maintain
the confidentiality of your information and we will take reasonable precautions to determine that they have
appropriate procedures in place to prevent the unauthorized release of your confidential information to
others. In the event that we are unable to secure an appropriate confidentiality agreement, you will be
asked to provide your consent prior to the sharing of your confidential information with the third-party
service provider.. Furthermore;,we will remain responsible for the work provided by any such third-party
service providers.
We understand that your employees will prepare all cash, accounts receivable, or other confirmations we
request and will locate any documents selected by us for testing, We will schedule the engagement
based in part on the availability of your key personnel, deadlines; and working conditions. We will plan
the engagement based on the assumption that your personnel will cooperate and provide assistance by
performing tasks such as preparing requested schedules, retrieving supporting documents, and preparing
confirmations. If for whatever reason your personnel are unavailable to provide the necessary assistance
in a timely manner, it may substantially increase the work we have to do to complete=the engagement
within the established deadlines, resulting in an increase in fees over our original fee estimate,
At the conclusion of the engagement, we will complete the appropriate sections of the data Collection
Form that summarizes our audit findings. It is management's responsibility to submit the reporting
package (including financial statements, schedule of expenditures of federal awards, summary schedule
of prior audit findings, auditors' reports, and corrective action plan) along with the Data Collection Form to
the federal audit clearinghouse. We will coordinate w.rith you the electronic submission and certification. If
applicable, we will provide copies of our report for you to include with the reporting package you will
submit to pass-through entities. The Data Collection Form;and the reporting package must be submitted
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within the earlier of 30 days after receipt of the auditors" reports or nine months after the end of the audit
period, unless a longer period is agreed to in advance by the cognizant or oversight agency for audits.
The audit documentation for this engagement is the property of Lance, Soil & Lunghard LLP and
constitutes confidential information,, However, subject to applicable laws and regulations„ audit
documentation and appropriate individuals will be made available upon request and in a timely manner to
the California Society of Certified Public Accountants or the American Institute of Certified Public
Accountants or its designee, a federal agency providing direct or indirect funding, or the US, Government
Accountability Office for purposes of a quality review of the audit, to resolve audit findings, or to carry out
oversight responsibilities. We will notify you of any such request. If requested, access to such audit
documentation will be provided under the supervision of Lance, Soil & Lun hard LLP' personnel.
Furthermore, upon request, we may provide copies of selected audit documentation to the
aforementioned parties. These parties may intend, or decide; to distribute the copies or information
contained therein to others, including other governmental agencies.
The audit documentation for this engagement will be retained for a minimum of seven years after the
report release date or for any additional period requested by the California Society of Certified Public;
Accountants or the American=Institute of Certified Public Accountants, or Pass-through Entity. If we are
aware that a federal awarding agency„ pass-through entity., or auditee is contesting an audit finding,:we
will contact the party(les) contesting the audit finding for guidance prior to destroying,the audit
documentation.
We expect to issue our reports by the date previously agreed to by management Richard Kikuchi, CPA is
the engagement partner and is responsible for supervising the engagement and signing the reports or
authorizing another individual to sign them. Our fees for these services are outlined ler our contract with
you. Our standard hourly rates vary according to the degree of responsibility involved and the experience:
level of the personnel assigned to your audit'. Our invoices for these fees will be rendered each month as
work progresses and are payable on presentation. In accordance with;our firm policies, work may be
suspended if your account becomes gg days or more overdue and may not be resumed until your
account is paid in full. If we elect to terminate our services for nonpayment, our engagement will be
deemed to have been completed upon written notification of termination, even if we have not completed'
our report(s). You will be obligated to compensate us for all time expended and to reimburse us for all
out-of-pocket costs through the date of termination. The above fee is based on anticipated cooperation
from your personnel and the assumption that unexpected circumstances will not be encountered during
the audit. If significant additional time is necessary, we will discuss it with you and arrive at a new fee
estimate before we incur the additional costs.
GASB 68Implementation
For fiscal year 2014-2015, the implementation of GASB 68 has brought a new audit approach to the
pension liability testing and increases the scope of our procedures, Pricing for these additional`
procedures is guided by the additional hours required for testing your local government's pension
plans. The additional hours are directly related to the sampling of the population (the number of
employees within your local government) and the number of plans. Our fee for the increase in the
audit scope related to the implementation of GASB 66 is$4,600:
If at any time during the testing, variances are noted, Gouemment Auditing Standards require us to
assess the:need for a specialist, such as an actuary. A specialist will need to be used to value the
variance noted for the financial statements. This value will be required for us to provide an opinion on
the financial statements, Any cost for an actuary will be passed to your local government and we will
discuss this additional cost ahead of time.
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Government Auditing Standards require audit organizations to provide a copy of their most recent
external peer review report and any subsequent review reports during the period of the contract. Our
2013 peer review accompanies this letter.
Our audit engagement ends on delivery of our audit report. Any follow-up services that might be required
will be a separate, new engagement. The terms and conditions of that new engagement will be governed
by a new, specific engagement letter for that service.
We appreciate the opportunity to be of service to the City and believe this letter accurately summarizes
the significant terms of our engagement. If you have any questions, please let us know. If you agree with
the terms of our engagement as described in this letter, please sign the enclosed copy and return it to us.
Very truly yours,
4 '*�W.0
RESPONSE:
This letter correctly sets forth the understanding of the City of Redlands.
Management signature: —�- -� `` J,
Title: VN" _ r r C_A;C C-
Date:
ATTEST:
am Ir ' , qKty Clerk