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2011-46 MCDIRMIT /1/ DAVIS CERTIFIED PUBLIC ACCOUNTANTS AND ADVISORS July 14, 2011 Mayor and City Council City of Clermont, Florida P. O Box 120219 Clermont, FL 34712 -0219 We are pleased to confirm our understanding of the services we are to provide the City of Clermont, Florida for the years ending September 30, 2011 through 2013, with three annual renewals for 2014, 2015, and 2016. We will audit the financial statements of the City of Clermont, Florida as of and for the years ending September 30, 2011 through 2013. Accounting standards generally accepted in the United States 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 of Clermont, Florida'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 Pension and OPEB Information We have also been engaged to report on supplementary information other than RSI that accompanies the City of Clermont, Florida'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 will provide an opinion on it in relation to the financial statements as a whole 1 Schedule of Expenditures of Federal Awards 2 Combining Statements 3 Individual Schedules 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 for which our auditor's report will not provide an opinion or any assurance 1 Introductory section of CAFR 2 Statistical section of CAFR MCDIRMIT DAVIS & COMPANY, LLC 605 E ROBINSON STREET, SUITE 635 • ORLANDO, FLORIDA 32801 TELEPHONE 407 -843 -5406 • FAX 407- 649 -9339 • EMAIL INFO @MCDIRMITDA'IS COM MFMRERS PRIVATE COMPANIES PRACTICF SECTION • AMFRI( AN INSTITUTE OF CERTIFIED PI/BI IC ACCOL NTANTS • FLORIDA INSTITUTE OF CERTIFIED PUBLIC ACCOU' 1ANTS City of Clermont, Florida Page 2 Engagement Letter Audit Objectives The objective of our audit is the expression of opinions as to whether your basic financial statements are fairly presented, in all matenal 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 basic financial statements taken as a whole. The objective also includes reporting on— • Internal control related to the financial statements and compliance with laws, regulations, and the provisions of contracts or 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, OMB Circular A -133, Audits of States, Local Governments, and Non - profit Organizations The reports on internal control and compliance will each include a statement that the report is intended solely for the information and use of management, the body or individuals charged with governance, others within the entity specific legislative or regulatory bodies, federal awarding agencies, and if applicable, pass- through entities and is not intended to be and should not be used by anyone other than these specified parties 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; 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 and to render the required reports If our opinions on the financial statements or the Single Audit compliance opinions are other than unqualified, we will fully 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 to issue a report as a result of this engagement Management Responsibilities Management is responsible for the basic financial statements and all accompanying information as well as all representation contained therein Management is also responsible for identifying government award programs and understanding and complying with the compliance requirements, and for preparation of the schedule of expenditures of federal awards in accordance with the requirements of OMB Circular A -133 As part of the audit, we will assist with the preparation of your financial statements, schedule of expenditures of federal awards, and related notes You are responsible for making all management decisions and performing all management functions relating to the financial statements, schedule of expenditures of federal awards, and related notes and for accepting full responsibility for such decisions 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 that you have reviewed and approved the financial statements, schedule of expenditures of federal awards, and related notes prior to their issuance and have accepted responsibility for them Further, you are required to designate an individual with suitable skill, knowledge, or experience City of Clermont, Florida Page 3 Engagement Letter to oversee any nonaudit services we provide and for evaluating the adequacy and results of those services and accepting responsibility for them Management is responsible for establishing and maintaining effective internal controls, including internal controls over compliance, and for monitonng ongoing activities, to help ensure that appropriate goals and objectives are met and that there is reasonable assurance that government programs are administered in compliance with compliance requirements You are also responsible for the selection and application of accounting principles; for the fair presentation in the financial statements of the respective financial position of the business -type activities of the City of Clermont, Florida and the respective changes in financial position and cash flows in conformity with U.S. 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 ensuring that management and financial information is reliable and properly recorded. 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 representation letter that the effects of any uncorrected misstatements aggregated by us during the current engagement and pertaining to the latest penod 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 or illegal acts affecting the City of Clermont, Flonda involving (1) management, (2) employees who have significant roles in internal control, and (3) others where the fraud or illegal acts 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 City of Clermont, Flonda received in communications from employees, former employees, grantors, regulators, or others In addition, you are responsible for identifying and ensunng that the entity complies with applicable laws, regulations, contracts, agreements, and grants. Additionally, as required by OMB Circular A -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. You are responsible for the preparation of the supplementary information 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 present the supplementary information with the audited financial statements Management is responsible for establishing and maintaining a process for tracking the status of audit findings and recommendations Management is also responsible for identifying for us 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 City of Clermont, Florida Page 4 Engagement Letter 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. We will plan and perform the audit to obtain reasonable rather than absolute assurance about whether the financial statements are free of material misstatement, whether from (1) errors, (2) fraudulent financial reporting, ( ) misappropriation of assets, or (4) violations of laws or governmental regulations that are attributable to the entity or to acts by management or employees acting on behalf of the entity Because the determination of abuse is subjective, Government Auditing Standards do not expect auditors to provide reasonable assurance of detecting abuse. Because an audit is designed to provide reasonable, but not absolute assurance and because we will not perform a detailed examination of all transactions, there is a risk that material misstatements or noncompliance may exist and not be detected by us 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 you of any material errors and any fraudulent financial reporting or misappropriation of assets that come to our attention. We will also inform you 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 procedures 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 the financial statements and related matters Audit Procedures - Internal Controls Our audit will include obtaining an understanding of the entity and its environment, including internal control, sufficient to assess the risks of material misstatement of the financial statements and to 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 matters 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 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 City of Clermont, Florida Page 5 Engagement Letter An audit is not designed to provide assurance on internal control or to identify significant deficiencies. 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 of Clermont, Flonda's compliance with applicable laws and regulations and the provisions of 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. OMB Circular A -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 of contracts and grant agreements applicable to major programs. Our procedures will consist of tests of transactions and other applicable procedures described in the OMB Circular A -133 Compliance Supplement for the types of compliance requirements that could have a direct and material effect on each of the City of Clermont, Flonda's major programs The purpose of these procedures will be to express an opinion on the City of Clermont, Florida's compliance with requirements applicable to each of its major programs in our report on compliance issued pursuant to OMB Circular A -133 Audit Administration, Fees and Other We understand that your employees will prepare all cash and other confirmations we request and will locate any invoices selected by us for testing Also, we will submit a letter outlining schedules to be prepared by your employees 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, auditor's reports, and corrective action plan ) along with the Data Collection Form to the federal audit clearinghouse We will coordinate with 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 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 McDirmit Davis and Company, LLC and constitutes confidential information. However, pursuant to authority given by law or regulation, we may be requested to make certain audit documentation available to a federal or state agency providing direct or indirect funding, or the U S 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 McDirmit Davis and Company, LLC 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 City of Clermont, Florda Page 6 Engagement Letter The audit documentation for this engagement will be retained for a minimum of five years after the report release or for any additional penod requested by a federal or state agency If we are aware we will contact the parrttyacontesti pass-through the ud finding is for guidance prior to desttroying the finding, we P audit documentation We expect to begin our 2011 audit in September, 2011 and to issue our report no later than February 1, 2012 Kelly Leary is the engagement partner and is responsible for supervising the engagement and signing the reports or authorizing another individual to sign them The Auditing Services Contract, effective July 14, 2011, covers the City's fiscal years ending September 30, 2011 through 2013 with a renewal option for each of three (3) subsequent years. We agree to the fees as follows: Fee with Year Audit Fee Single Audit 2011 $24,000 $27,000 2012 24,000 27,000 2013 24,700 27,800 2014 25,450 28,600 2015 26,200 29,500 2016 27,000 30,300 Government Auditing Standards require that we provide you with a copy of our most recent external peer review report and any letter of comment, and any subsequent peer review reports and letters of comment received during the period of the contract. Our 2008 peer review report accompanies this letter We appreciate this opportunity to be of service to the City of Clermont, Florida 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 Sincerely, McDIRMIT DAVIS & COMPANY, LLC / Lam/ ,A _. KellyD Le/,CPA City of Clermont, Florida Page 7 Engagement Letter RESPONSE This letter correctly sets forth the understanding of the City of Clermont, Flonda. Title 3 2 4, o\ \ Date Davidson, Jamieson & Cristini, P.L. Certified Public Accountants 1956 Bayshore Boulevard Dunedin, Florida 34698 -2503 (727)734 -5437 or 736 -0771 FAX (727) 733 -3487 Member Members of the Firm American Institute of John N. Davidson, CPA *, CVA Certified Public Accountants Harry B. Jamieson, CPA* Florida Institute of Richard A. Cristini, CPA *, CPPT, CGFM Certified Public Accountants *Regulated by the State of Florida September 25, 2008 To the Shareholders McDirmit Davis & Company, LLC We have reviewed the system of quality control for the accounting and auditing practice of McDirmit Davis & Company, LLC (the firm) in effect for the year ended June 30, 2008. A system of quality control encompasses the firm's organizational structure, the policies adopted and procedures established to provide it with reasonable assurance of conforming with professional standards. The elements of quality control are described in the Statements on Quality Control Standards issued by the American Institute of CPAs (AICPA). The firm is responsible for designing a system of quality control and complying with it to provide the firm reasonable assurance of conforming with professional standards in all material respects. Our responsibility is to express an opinion on the design of the system of quality control and the firm's compliance with its system of quality control based on our review. Our review was conducted in accordance with standards established by the Peer Review Board of the AICPA. During our review, we read required representations from the firm, interviewed firm personnel and obtained an understanding of the nature of the firm's accounting and auditing practice, and the design of the firm's system of quality control sufficient to assess the risks implicit in its practice. Based on our assessments, we selected engagements and administrative files to test for conformity with professional standards and compliance with the firms' system of quality control. The engagements selected represented a reasonable cross - section of the firm's accounting and auditing practice with emphasis on higher -risk engagements. The engagements selected included among others, audits of Employee Benefit Plans and engagements performed under Government Auditing Standards. Prior to concluding the review, we reassessed the adequacy of the scope of the peer review procedures and met with firm management to discuss the results of our review. We believe that the procedures we performed provide a reasonable basis for our opinion. In performing our review, we obtained an understanding of the system of quality control for the firm's accounting and auditing practice. In addition, we tested compliance with the firm's quality control policies and procedures to the extent we considered appropriate. These tests covered the application of the firm's policies and procedures on selected engagements. Our review was based on selected tests therefore it would not necessarily detect all weaknesses in the system of quality control or all instances of noncompliance with it. There are inherent limitations in the effectiveness of any system of quality control and therefore noncompliance with the system of quality control may occur and not be detected. Projection 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 because 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 of McDirmit Davis & Company, LLC in effect for the year ended June 30, 2008, 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 conforming with professional standards. (?) 01.01.1.1dati 641.6;‘;-',