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HomeMy WebLinkAboutAgenda - 06-01-1999 - 8mORANGE COUNTY BOARD OF COMMISSIONERS ACTION AGENDA ITEM ABSTRACT Meeting Date: June 1, 1999 Action Agenda Item No. ~W~ SUBJECT: Audit Contract for the June 30, 1999 Fiscal Year DEPARTMENT: Finance PUBLIC HEARING: (Y/N) No ATTACHMENT(S): INFORMATION CONTACT: Contract and Engagement Letter Ken Chavious, ext 2453 TELEPHONE NUMBERS: Hillsborough 732-8181 Chapel Hill 968-4501 Durham 688-7331 Mebane 336-227-2031 PURPOSE: To consider awarding a contract to Deloitte and Touche, LLP, for the provision of audit services for the fiscal year ending June 30, 1999. BACKGROUND: During the spring of 1997, County staff pursued a request for proposal (RFP) process for financial audit services. Staff recommended, and the Board approved, the proposal submitted by Deloitte and Touche, LLP. Subsequent to the Board's approval, Deloitte and Touche performed the audits for 1997 and 1998 and staff is very pleased with the services provided. The RFP stated that the County would contract with the successful firm for a period of at least three years. The 1999 audit will mark the third year of this commitment. FINANCIAL IMPACT: The proposal accepted by the Board in 1997 contained incremental increases in audit fees. The fee for the 1999 audit, $60,300, is the same fee as quoted for the third year in the RFP. Approximately one half of the audit costs can be attributed to the "Single Audit" of grant funds. Audit Costs associated with the "Single Audit" are partially recouped through indirect and direct charges to Social Service and Child Support Enforcement grant programs. RECOMMENDATION(S): The Manager recommends that the Board approve the contract with Deloitte &Touche for FY 1998-99 audit services, and authorize the Chair to sign it. LGC-205 (Rev. UI/1999) GUi11 KAI..I 1 U AUUI 1 AIa.UUi~ r ~ tilt in Triplicate. of Orange County, North Carolina Goccrnmcntal Unit 2 On this 26th day of April , 19 99 Deloitte & TOL7Cf1P r.r.p Auditor Post Office Box 2778, Raleigh. North Caro1'na ~7t;n~_~7?g Alailing Address . hereinafter referred to as oun y the Auditor, and Cotttmissioners of Orange County ,hereinafter referred GoveminE Doted Go+•cmnxntal Unit to as the Governmental Unit, agree as follo++•s: I. The Auditor shall audit all statcmcnts and disclosures r~-quired by generally accepted accounting principles and additional rcquircd Icgal statements and diselosuros of all funds and/or di+•isions of the Governmental Unit for the period beginning July 1, , 19 98 ,and ending June 30, , 19s~. The combining, indi+•idual fund, and account group financial statements and schedules shall be subjected to the auditing procedures applied in the audit of the combined financial statcmcnts and an opinion ++ill be rendered in relation to tltc combined financial statements taken as a ++•hole. 2. At a minimum, the Auditor shall conduct his audit and rcndw his rcpon in accordance +vith generally acceptrd auditing standards. 1'hc auditor shall perl'urm the audit in accordance with Government Auditine Standards if required by the State Single Audit Itnpletnentation Act, as codified in G.S. 159-34. lC required by O~tI3 Circular A-133 and the State Single Audit Implcmcntation Act, llte auditor shall perform a Single Audit. 3. This contract contemplates an +u+y+ralified opinion being tendered. If financial statements arc not prepared in accordance ++•itlt gcncrall~ accepted accnuming principtes (GAAP). r+r Ute statcntents fail to include all disclosures rcquircd by GAAP, explain that departure Gom GAAI' in the space t+elo+c: • a. ]•hn cunnuct contenrp/atcs on nay+mlifirrl opir,ia+ i'xiug tendered. The audit shall include such tests of the accounting records mtJ such other auditing procedures as arc considered h;• the Auditor to he necessaq• in the circumstances.. d-q• limitatians or +r.tvictions in scope ul+icl+ uo++IJ /earl m a yual+frcanon shon/rl be jrl/t• agrlained in an auaclnnenr to tl+is contract. The audit ++ill have no scope limitations except: 5. If this audit engagement is suhject to the standards far audit as defined in the Cn+•crnmcnt Auditine Ct:tndards. issued by tltc Contptrullw General of Utc United States. then the Auditor +~arrants hj• accepting this cngrgentent that he/she has met the rcyuircntents for a peer rc+ie++ and continuing cducatimt as specified in the Cmernmcnt Auditine Standards. 1'hc Auditor agrees t.. pm+ide a enp. t+rd-eir most rceetu peer reyie++ repot to the Gc,+ernmcntal lJnit and the Secretary of the Local Guvennnem Cuuunis.iun tint t~+ the execution ul'the audit contract. (Seo Rent 2U.) G. It is a_rr.~l that time is nl'the essence in this contact. All audits are to he performedrnd the report of audit submitted by October 31, _ Iq 99, 7. It is screed that gcncralh acccpt.d auditing standards include a rc+•ie+v of the Goyernmental Unit's system of internal contml and accounting as same relates to accountability of funds and adherence to budget and lae• requirements applicable thereto: that the Audior ++iU make a ++riucn rcpon, a hich may or may not he a part of the +vrittt:rt report of audit, to -the Go+•cming Doard setting litnh his lindings, together ++ith his recommendations for improvement. That written report must include all matters defined as "rcponahle conditions" in AU 323 of the AICPA I'rofessinnal Standards. The Auditor shall file a con+• of that rennrt ++•itlt the ~ecr~han• of tltc I_ncal C,o+•emment Commission. S. All lugs/ go+•crnntcnt and public authoriq• contracts for annual or special audits, bookkeeping or other assistance necessary to prepare the Unit's records for audit, financial swtcrr-ent preparation, any finance-related investigations, or any other audit-related er~rk in the State of Nonh Carolina require the approval of the Secretaq• of the Local Government Commission. Im•oices for scrvic~K rendered. under these contracts shall not be naid by the Governmental Unit until the invoice has been aooroved by the Cccretan• of the Local Go+•eromcnt Commission. (This also includes an+• nrnnrcss billint!s.l All invoices should be submitted in triplicate to the Sccretaq• of the Local Go+•eroment Commission. The original and one copy ++•ill be rctumtd to the Auditor. :\ppmyal is not rcquircd an contracts and in+•oiccs for system improvements and similar services of anon-auditing nature. ~J. In consiJcration oC the satisfacton• pcrformancc of the provisions of this agreement. the Governmental Unit shall pay to the :\uditor. upon approval by the Secrctan• of the Local Government Commission, the follrn+•ine fee ++•hich includes any cost Ute :1udilnr may incur from +cork paper or pew rc+•iea•s or any other quality assurance program required h.• third parries (I'edwal and State agencies or other organizations) as rcquircd under the Federal and State Single Audit Acts: \'car-end bookkeeping assistance - See attached engagement letter :\udit - See attached enctaaement letter Preparation of the financial statements SPP attarheA an~gement ~ Qtt0,r (Crnninucd on Reverse) * -The independent auditors' report of Deloitte &Touche I,I.P should not be included or incorporated by reference in any client prepared docua-ent without the express written permission of Deloitte &Touche I+LP. 10. After completing his audit. the Auditor shall wbmit to the Governing Bosh a written report of audit This report shall include, at Icast. the financial statements of the governmental unit and all of its component units and notes thereto prepared in seeoManee ++ith generall;• accepted accounting principles, combining and supplementary information rtxluested by the client or required for full disclosure under the law, and the auditor's opinion on the material presented. The Auditor shall furnish the required number of copies of the report of audit to the Governing Boats as soon as practical after the close of the aecoundng period. l I. The Auditor shall file with the Loal Govcrnmrnt Commission twro copies of the report of sudi4 including one copy of the federal Data Collection Form, if a kdcral single audit is eonducttd. Twro copies of the report of audit should be wbmittexl if on audit is required to be performed only under the tt:quircments oC the State Single Audit lmplcmentation As or a financial audit is required to be performed in aaoMana with Government Auditine ShndaMs. Otherwise. one copy shall be wbmittt:d. Copies of the report shall be filed with the Loaf Government Commission when (or prior to) wbmitting the invoice for the seniees rrndered. All copies of the report wbmitted must be bound. The report of audit, as filed with the Setxetary of the Loaf Government Commission, becomes a matter of public record for inspection and review in the offices of the Seerctaq• by any interested panics. Any subsequent revisions to these rcporu must be sent to the Seeraary of the Lotatl Government Commission. These audited financial statemea+u arc used in the preparation of Official Sutements for debt offerings, by municipal bond rating services, and to fulfill secondaq• market disclosure requiremenu of the Securities and Exchange Commission. 12. Should circumstance disclosed by the audit all for a more detailed investigation by the Auditor than nacssary under ordinary circumstances. the Auditor shall inform the Governing Boats in writing of the need for wch additional im•estigation and the additional compensation required therefor. Upon approval by the Seerctuy of the Loal Governmrnt Commission, this a,recment may be varied or changed to include the increased time and/or compensuion as may be agreed upon by the Governing Boud and the Auditor. 13. If an approved e:ontraa nods to be varied or changed for any reason, the change must be reduced to writing, signed by both panic, prcaudited if necessaq•, and wbmitted to the Seeeetary of the Local Governmrnt Commission for approval. 'n n shall he effcsi+e unless annmved M• the Sccrctan• of the 1 excel Government Commiccinn the Gm•emine RnaM and the A r I~. N'heneer the Auditor uses an engagement khter with the client. Items 9 and IS may be completed by referencing the engagement later and attaching a copy of the engagemeat Inter to the contract to incorporate the engagement letter imo the contras. In ease of eemAis henvexn the terms of the engagement later and the terms of this contract. the terms of this contract will cnntml. Gnga,ctncnt Icner tcrnts arc deemed to he told unless the conflicting terms of this eontms arc sp+xifieally dclscd in Item 21 of this contras. l:ngagemcr+t fellers containing inden+nifiation clauus will not be approved by the Local Govemttkttt Commission. 1 S. Tltcre arc m+ special provisions except: See attached engagement letter Ifs. A separrtc eontnct should tint be made for taeh division to be audited or report to be wbmiUCd. A separate contras must be c~eeuted for each component unit which is a local government and for which a separate audit report is issued 17. 1'he contras should be executed sod submitted in trinlieate to the Secrctar)• of the Local Government Commission. 323 North Salisbury Street. Raleigh. North Carolina 27603.13g3. Ig. upon approval, the original contras will be rctumrd to the Govcmntenwl Unit. a copy will be fontaMed to tho Auditor. and a copy retained by the Seerctan• of the Local Goveroet><m Commission. Thc audit should ntu he staved before the eemtms is arnrm•ed. 19. llt.re err. no ntluv a=r~titttrnts helaaro the panics hcrso and no other agrmnents relative hereto that shall he cnforccahlc unless entered into in arcnrdancc eeidt the procedure set out ht.7cin and appro+cd M~ the Sarctaq• of the Letal Ga+~Kttnxrtt Contmixxinn. 10. If this audit cngagt.•+nrnt ix nee suhjes to Gn.cmttnnt Auditine Standards, then hem S shall he listed at a ddetcd provision in hem 21. An ~~planatiat muxt he givrn Fitt dclsing this pros ision. .1. All of the shove paragraphs arc undcrxtetod and shall apply to this agrcctttcttt. e~ccpt the following numht:rcd parogmphs slwll be Deloitte &Touche LLP Aad+fan tt.• K. Alan Lonbome Partner ~ 1lkWhlKerMN+we1 _~~/jy/ 1 !)ate -/ Al+pnwKd M• the Seeraary of the Local Govanttttan Commissar u prm•ided in Aside 3. Chapter 159 of Wes General Statutes or Aniek 31. Pan 3. Chapter 11 SC of the Cameral Stutttes. Fa the aee+eta7. toed enttaea Cawiedea (4aaaurel I )ate Orange Countye North Carolina a ntt ey Alice M. Gordon, Chair (1'kaet types x ptiat awe led it (Sipeatre of atrnr tr i of po.Yminp btntd) Due This inswment has been preaudited in the tttamta required b)• The (.sal Government Budges and Final Control Aa a bg dte School Dudga and Final Control Aa. Kenneth T. Chavious GeaentatenW Unit Fiawee Officer IPleae +Ype err pries aaatel (Siptuttrel Dare pheaudit CMilia9la' m~a to J,tteJ.I 3 Deloitte & Touche ~\ Apri126, 1999 The Board of County Commissioners Orange County, North Carolina Dear Ladies and Gentlemen: 4 Deloitte &Touche LLP Telephone: (919) 546-8000 Suite 1800 Tetex: 4995716 First Union Capital Center Facsimile: (9191833-3276 150 Fayetteville Street Mall P.O. Box 2778 Raleigh, North C3ro!ina 27602-2778 We are pleased to serve as independent accountants and auditors for Orange County (the "County's for the year ended June 30, 1999. This letter reaffirms our contract with you dated April 26, 1999 Mr. K. Alan Lonbom will be responsible for the services that we perform for the County. It will be the responsibility of Mr. Lonbom to ensure that the County receives quality service. He will be assisted by Mr. Thomas Moore, audit manager. Mr. Lonbom will, as he considers necessary, call on other individuals with specialized knowledge, either in this office or elsewhere in our Firm, to assist in the performance of our services. While auditing and reporting on the County's general purpose financial statements for the year ending June 30, 1999, is the service that we are to provide under this engagement letter, we would also be pleased to assist the County on issues as they arise throughout the year. Hence, we hope that the County will call Mr. Lonbom whenever management believes he can be of assistance. It is our usual practice to have a second partner act as a consulting partner on each client assignment. The purpose of this arrangement is to have another partner, known to you, who is familiar with your operations and who can substitute for Alan in his absence or work with him when a second viewpoint is desired. Mr. Sam McNairy will be consulting partner for your engagement. This letter sets forth our understanding of the terms and objectives of our engagement, the nature and scope of the services we will provide, and the related fee arrangements. D~eit6eToud~e Tohnatsu 5 Apri126, 1999 Orange County, North Carolina Page 2 Audit of General Purpose Financial Statements We will audit the County's general purpose financial statements as of and for the year ending June 30, 1999. In addition, we will audit the County's compliance with laws and regulations related to federal and state awards; and report on the County's Schedule of Expenditures of Federal and State Awards. Our audits will be conducted in accordance with Government Auditing Standards, issued by the Comptroller General of the United States, Office of Management and Budget ("OMB's Circular A-133, Audits of States, Local Governments and Non profit Institutions, and the State Single Audit Implementation Act. We will plan and perform our audit to obtain reasonable assurance about whether the general purpose financial statements are free of material misstatement, whether caused by error or fraud, and we will perform tests of the County's compliance with certain provisions of laws, regulations, contracts and grants. However, because of the characteristics of fraud, particularly those involving concealment and falsified documentation (including forgery), a properly planned and performed audit may not detect a material misstatement. Therefore, an audit conducted in accordance with generally accepted auditing standards is designed to obtain reasonable, rather than absolute, assurance that the general purpose financial statements are free of material misstatement. An audit is not designed to detect error or fraud that is immaterial to the general purpose financial statements or to detect immaterial instances of noncompliance. As part of our audit, we will consider the County's internal control and assess control risk, as required by generally accepted auditing standards and Government Auditing Standards, for the purpose of establishing a basis for determining the nature, timing, and extent of auditing procedures necessary for expressing an opinion on the general purpose financial statements, and not to provide assurance on the County's internal control or to identify reportable conditions. 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 assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. 6 Apri126, 1999 Orange County, North Carolina Page 3 Our auditing 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, creditors and financial institutions. We will make audit inquiries and request written responses from the County's attorneys as part of the engagement, and they may bill the County for responding to this inquiry. As part of our audit of compliance with the requirements of major federal programs, we will obtain an understanding of the County's internal control related to administering major federal programs and we will assess risk as required by OMB Circulaz A-133 for the purpose of establishing the nature, timing, and extent of auditing procedures necessary for expressing an opinion concenung compliance with laws and regulations related to major federal and state award programs. As required by OMB Circulaz A-133 and the State Single Audit Implementation Act, our audit of compliance will also include tests of transactions related to federal and state awazd programs for compliance with applicable laws and regulations. However, because of the concept of reasonable assurance and because we will not perform a detailed examination of all transactions, there is a risk that material errors, fraud or illegal acts may exist and not be detected by us. We will advise you, however, of any matters of that nature that come to our attention, and will include such matters in the reports required for an audit in accordance with OMB Circulaz A-133. Our responsibility as auditors is limited to the period covered by our audit and does not extend to matters that arise during any subsequent periods for which we have not been engaged as auditors or for which we have performed no substantive auditing procedures. The report on our understanding of the County's internal control and the assessment of control risk made as part of the County's general purpose financial statement audit will include (1) the scope of our work in obtaining an understanding of the County's internal control and in assessing the control risk and (2) the reportable conditions, including the identification of material weaknesses identified as a result of our work in understanding and assessing the control risk. In addition, we will render a report on illegal acts, as required, depending on the results of our audit procedures. We will complete and sign one copy of the auditor's information section of the Data Collection Form. County management must prepare all other sections of the form and sign the form prior to its submission to the Federal Bureau of the Census. Apri126, 1999 Orange County, North Cazolina Page 4 The objective of an audit carried out in accordance with the standards described above is (1) the expression of an opinion concerning whether the general purpose financial statements present fairly, in all material respects the financial position, results of operations, and cash flows of the County in conformity with generally accepted accounting principles, (2) reporting on the internal control relevant to an audit of the financial statements, (3) reporting on the County's compliance with laws and regulations, which could have a material effect on the financial statements, (4) reporting on whether the schedule of expenditures of federal and state awards is fairly stated in all material respects when considered in relation to the basic financial statements taken as a whole, (5) the reporting on .our determination as to whether the County's internal control provides reasonable assurance of compliance with federal laws and other laws and regulations, (6) the expression of an opinion on whether the County complied with specific terms and conditions of its major federal and state programs and (7) preparation of a schedule of findings and questioned costs to summarize the results o€the audit in accordance with the requirements of OMB Circulaz A-133. Our ability to express that opinion and render those reports, acid the wording of our opinion and reports, will, of course, be dependent on the facts and circumstances at the date of such reports. If we are unable to complete our audit or if our auditors' reports require modification, the reasons therefor will be discussed with County management and the Boazd of Commissioners. Neither our audit of the County's general purpose financial statements for the yeaz ending June 30, 1999, nor any other services provided pursuant to this engagement letter, will provide any assurances, nor will we express any opinion, that the County's systems or any other systems, such as those of the County's vendors, service providers, customers, component units, unconsolidated subsidiaries or joint ventures in which the County has an investment or other third parties, are yeaz 2000 compliant. In addition, we are not engaged to perform, nor will we perform as part of this engagement, any procedures to test whether the County's systems or any other systems are year 2000 compliant or whether the plans and activities of the County or any third parties are sufficient to address and correct system or any other problems that might arise because of the yeaz 2000, nor will we express any opinion or provide any other assurances with respect to these matters. We understand that our reports on the County's internal control, as part of the general purpose financial statement audit and on compliance with laws and regulations, are intended for the information of the County Manager, members of the Board of County Commissioners (the "Boazd'~, management and officials of federal and state awarding agencies and pass-thmugh entities and the Local Government Commission. 8 Apri126, 1999 Orange County, North Carolina Page 5 Management's Responsibility The general purpose financial statements are the responsibility of management. In this regard, management has the responsibility for, among other things, establishing and maintaining effective internal control over financial reporting, identifying and ensuring compliance with laws, regulations, contracts and grants and establishing and maintaining effective internal control to assure such compliance with those requirements applicable to its activities for properly recording transactions in the accounting records, for making appropriate accounting estimates, for safeguarding assets, for the overall accuracy of the financial statements and their conformity with generally accepted accounting principles and for making all financial records and related information available to us. In addition, management is responsible for implementing the requirements of any applicable Government Accounting Standards Board ("GASB'~ Statements effective this fiscal year. We will advise you about accounting principles and their application and will assist in the preparation of your general purpose financial statements, but the responsibility for the general purpose financial statements remains with you. We will make specific inquiries of management about the representations embodied in the general purpose financial statements. As part of our audit procedures, we will request that management provide us with a representation letter acknowledging management's responsibility for the preparation of the general purpose financial statements and for compliance with laws and regulations applicable to federal and state award programs, and confirming certain representations made to us during our audit. The responses to those inquiries and related written representations of management required by generally accepted auditing standards are part of the evidential matter that we will rely on as auditors in forming our opinion on the County's general purpose financial statements. Because of the importance of management's representations, the County agrees to release and indemnify Deloitte & Touche LLP and its personnel fiom all claims, liabilities and expenses relating to our services under this engagement letter attributable to any misrepresentation by management, If the County intends to publish or otherwise reproduce in any document our report on the County's general purpose financial statements, or otherwise make reference to Deloitte & Touche LLP in a docwnent that contains other information in addition to the audited financial statements (e.g., in a debt or equity offering circular or in a private placement memorandum); the County agrees that prior to making any such use of our report, or reference to Deloitte & Touche LLP, Orange County management will provide us with a draft of the document to read and obtain our approval for the inclusion or incorporation by reference of our report, or the 9 Apri126, 1999 Orange County, North Carolina Page 6 reference to Deloitte &Touche LLP, in such document before the document is printed and distributed. The inclusion or incorporation by reference of our report in any such document would constitute the reissuance of our report and any request by the County to reissue our report or to consent to its inclusion or incorporation by reference in an offering or other document will be considered based on the facts and circumstances existing at the time of such request. The estimated fees outlined herein do not include any services that would need to be performed in connection with any such request to make use of our report, or reference to Deloitte &Touche LLP; fees for such services (and their scope) would be subject to our mutual agreement at such time and would be described in a separate engagement letter. Other Communications Arising From the Audit In connection with the planning and the performance of our audit, generally accepted auditing standards and Government Auditing Standards require that we ensure that certain matters are communicated to management and members of the Board. We will report directly to the members of the Board any fraud of which we-become aware that involves senior management, and any fraud (whether caused by senior management or other employees) of which we become aware that causes a material misstatement of the general purpose financial statements. We will report to senior management any fraud perpetrated by lower level employees of which we become aware that does not cause a material misstatement of the general purpose financial statements; however, we will not report such matters directly to the Board, unless otherwise directed by the Board. We will inform the appropriate level of management of the County and ensure that the Board is adequately informed with respect to illegal acts that have been detected or have otherwise come to our attention in the course of our audit, unless the illegal act is clearly inconsequential. If, after determining that the Board has been adequately informed of an illegal act that has been detected or which has otherwise come to our attention in the course of our audit, we conclude that (1) the illegal act has a material effect on the general purpose financial statements; (2) senior management has not taken, and the Board has not caused senior management to take, timely and appropriate remedial actions with respect to the illegal act; and (3) the failure to take appropriate remedial actions is likely to result in a departure from the standazd auditors' report or warrant our resignation from the audit engagement, we will directly report our conclusions to the Board and take such actions as are required by state or federal law to report such matters to funding agencies and appropriate legal authorities. 10 Apri126, 1999 Orange County, North Carolina Page 7 We will also report directly to County management and the Board matters coming to our attention during the course of our audit that we believe are reportable conditions. Reportable conditions are significant deficiencies in the design or operation of internal control that could adversely affect the County's ability to record, process, summarize and report financial data consistent with the assertions of management in the general purpose financial statements. In addition we will communicate to the Boazd certain other matters relating to the conduct of our audit, including, when applicable: • Our responsibility as auditors under generally accepted auditing Sandazds, GovernmentAuditing Standards and OMB Circulaz A-133 • Significant accounting policies • Management judgments and accounting estimates • Significant audit adjustments (recorded and unrecorded) • Other information in documents containing audited financial statements • Disagreements with management • Consultation by management with other accountants on significant matters • Difficulties encountered in performing the audit • Major issues discussed with management prior to our retention as auditors. We may also have other comments for management on matters we have observed and possible ways to impmve the efficiency of the County's operations or other recommendations concerning internal control. With respect to these other communications, it is our practice to discuss all comments, if appropriate, with the level of management responsible for the matters, prior to their communication to senior management and/or the Members of the Board. 11 April 26, 1999 Orange County, North Carolina Page 8 Coordination of the Audit Our audit is scheduled for performance and completion as follows: Schedule for Begin Completion Audit Performance Schedule: Planning August 1999 August 1999 Year-end September 1999 October 1999 Audit Communications - Report on audit of financial statements November 15, 1999 Other Communications: Report of reportable conditions, if any November 15, 1999 Other management comments - November 1 S, 1999 We understand that the County's employees will type all cash or other confirmations that we request and will locate any invoices selected by us for testing. Assistance to be supplied by your personnel, including preparation of schedules and analyses of accounts as will be coordinated with Ken Chavious, Finance Director. Other assistance to be supplied by your personnel, including preparation of schedules and analyses of accounts, is described in a separate attachment. Timely completion of this work will facilitate the conclusion of our audit. We are, of course, available to assist you in other areas that might arise. Record Retention We will maintain the working papers for a minimum of three years from the date of the audit report. These working papers will be made available to representatives of the United States General Accounting Office or other government audit staffs upon their request and after they have properly notified you of their request to review the working papers. 12 April 26, 1999 Orange County, North Carolina Page 9 Access to Working Papers by Regulators In accordance with the requirements of Government Auditing Standards, we are required to provide access to our working papers and photocopies thereof to a federal agency or the Comptroller General of the United States upon their request for their regulatory oversight purposes. If such a request is made, we will inform you prior to providing such access. The working papers for this engagement are the property of Deloitte dt Touche t,lx and constitute confidential information. Access to the requested working papers will be provided to representatives of the United States General Accounting Office or other appropriate government audit staffs under the supervision of Deloitte &Touche L1.P audit personnel and at a location designated by our Firm. If photocopies are requested, we will mark all information as confidential and maintain control over the duplication of all information. All professional and administrative services relating to such access (including photocopying) will be charged as an additional expense to the engagement. Professional Fees Our fees for these services will be based on the actual time spent at various levels of responsibility, plus travel and other expense (e.g., report production, typing, communication and postage). We estimate that our total fees for this audit will be 560,300 (for the general audit and the single audit), including expenses. This fee is based on anticipated cooperation from your personnel and the assumption that unexpected circumstances will not be encountered during the audit. If sigtificant additional time is necessary, we will discuss it with you and arrive at a new fee estimate before we incur the additional costs. Fees for additional services including implementation of new accounting pronouncements, not outlined above will be mutually agreed upon prior to beginning such work. We appreciate this opportunity to be of service to Orange County, and we believe this letter accurately summarizes the significant terms of our engagement. If you have any questions, please let us kaow. 13 Apri126, 1999 Orange County-, North Carolina Page 10 If the above terms are acceptable to Orange County and the services outlined are in accordance with your understanding, please sign the enclosed copy of this letter in the space provided and return it to us. Yours truly, Response: This Ietter correctly sets forth the understanding of Orange County: By: Title: Date• °~ FRNST &YOUNG LLP ~ 787 Seventh Avenue ~ Phone: 212 773 3000 New York, New York 10019 14 Deloitte &Touche LLP We have reviewed the system of quality control for the accounting and auditing practice of Deloitte &Touche LLP (the Firm) in effect for the yeaz ended March 31, 1996.Our review was conducted in conformity with standards for peer reviews promulgated by the Peer Review Committee of the SEC Practice Section of the AICPA Division for CPA Firms (the Section). We tested compliance with the Firm's quality control policies and procedures at the Firm's National office and at selected practice offices in the United States and with the membership requirements of the Section to the extent we considered appropriate. These tests included the application of the Firm's policies and procedures on selected accounting and auditing engagements. We tested the supervision and control of portions of engagements performed outside the United States. In performing our review, we have given consideration to the general characteristics of a system of quality control as described in quality control standards issued by the AICPA. Such a system should be appropriately comprehensive and suitably designed in.relation to the firm's organizational structure, its policies, and the nature of its practice. Variance in individual performance can affect the degree of compliance with a firm's prescribed quality contml policies and procedures. Therefore, adherence to all. policies and procedures in every case may not be possible. As is customary in a peer review, we are issuing a letter under this date that sets forth comments relating to certain policies and procedures or compliance with them. These matters were not considered to be of sufficient significance to affect the opinion expressed in this report. In our opinion, the system of quality control for the accounting and auditing practice of Deloitte &Touche LLP in effect for the yeaz ended Macch 31, 1996 met the objectives of quality control standards established by the AICPA, and was being complied with during the year then ended to provide the Firm with reasonable assurance of conforming with professional standards. Also, in our opinion, the Firm was in conformity with the membership requirements of the Section in all material respects. ~«~ t u~ New York, New York November 25, 1996 Ernst &Young uv is a member of Ernst bYoung International, Ltd. CONTRACT TO AUDIT ACCOUNTS ~-~ 9 j/~ t rate. of Orange County , A, y ~ - . SUN 9 ~qgg Govcmmental ut RETURN THIS COPY TO THE CLERK'S OFFICE FOR THE PERMANENT AGENDA FILE On his ~ 6 h day of April , 19 99 Deloitte & mo ~ hP r r p Auditor Post Office Box 2778, Raleicrh. NoYth carol;na ~7tim X778 Alailing Address 0 oun y hereinafter referred to as the Auditor, and Commissioners of Orange County hereinafter referred Governing Doard to as the Governmental Unit, agree as follo~~•s: Govcmmental Unit I. The Auditor shall audit all statements and disclosures rcquircd by gtnerally accepted accounting principles and additional required legrl statemenu :utd disclosures of all funds and/or divisions of the Govenunental Unit for the perind beginning July 1, , 19 98 ,and ending June 30, . 19g~. The combining, individual fund, and account group financial statements and schedules shall be subjected to the auditing procedures applied in the audit of the combined financial uatements and an opinion v~ ill be rendered in relation to the combined financial statements taken as a whole. 2. At a minimum, the Auditor shall conduct his audit and reader his report in accordance with generally accepted auditing Standards. "hhe auditor shall perlurm the audit in accordance with Government Auditine Standards if require) by the Stale Single Audit Irnpletttcntation Act, as codified in G.S. 159-3~. If rcquircd by 0~1D Circular A-133 and the State Single Audit Implcmcntation Act, the auditor shall perform a Single Audit. 3. Tlus conrracr conrenrplares an ruryualified opinion being rendered. If financial statements arc not prepared in accordance with cenerall+ accepted accountinc principles (GAAP). or the statcn,ents fail to include all disclosures rcquircd by G.AAP, explain that deparwro liom GAAI' in the .p,tcc helu+v: ~ 7lus runvucr coruewplares un nnyualified opinion being rendered. The audit shall include such tests of the accounting records and such other auditing procedures as are considered by the Auditor to he ncecssary• in the circumstanccs...lnr lLnirnrions or rrorricrions in scope Ulrich a ordJ lead ro a qualrficanon slrorrld be firllt' explained in an arrocluucnl ro this coruracl. The audit a ill have no scope limitations cxccpC S. II this audit engagement is suhject to the standards for audit as defined in the Gm•crnmcnt Auditine Standards, issued by the Comptroller General of the lMited States, then the Auditor x+arrants by accepting this cngagentcnt that he/she has met the rcyuircn,ents for a peer re. ie++ and continuing education as specified in the Government Auditine Standards. 'I'hc Auditor agrees to pruxide a copy nl'their most recent peer review report to the Gr+xemmemal Unit and the Sel'relarx' of the Local Government Cununis>iun riot to the execution ul the :urJit contract. (See Item 2U.) G It is aped that Ilnte is of the es<ence in this contract. All audits are to be pcrlornted and the rcpon of audit suhmitted by October 31, . Iq 99_ 7. It i> agreed that grnrralh accepted Auditine standards include a rex•iety of the Governmental Unit's s~•stem of internal control and accuumin~ as same relates to accountability of funds and adhercnee to budget and law requirements applicable thereto: that the Auditor „ill make a t+rinen report. txhich may or may not be a pan of the xvritten report of audit. to the Governing Doard setting litrth hi: findings, utgether with his rcconunendations for improvement. That written report must include all matters delined as "reportable conditions" in AU 325 of the AICPA Professional Standards. The Auditor shall file a rnnv of that report with the Cecrctan• of the Local Government Commission. S. ,\II local government and public autl,oriq• contracts for annual or special audits, bookkeeping or other assistance necessary to prepare tl,c Unit's records for audit, financial statement preparation, any finance-related investigations, or any other audit-related ++urk in the Stag of 1;onh Carolina require the approval of the Secretary• of the Local Govrrnmcnt Commission. Invoices for services rendered under these contracts shall not be paid by the Governmental Unit until the invoice has been anaroved by the Secretan of the Local Government Commission (This 11co includes anv nroerea billines) All invoices should be submitted in uiplicatc to the Secrctary• of the Local Government Commission. The original and one copy will be returned to the Auditor. A~proxal is not rcquircd on contracts and invoices for system improvements and similar services of anon-auditing nature. 9. In aa,>idention of the satisfactory performance of the provisions of this agreement, the Governmental Unit shall pay to the :\uditor, upon approval by the Secretan• of the Local Government Commission, the folloxx•ine fee which includes anv cost the Auditor may incur from work paper or peer rcvieo s or any other quality assurance program rcquircd b.• third parties (federal and Stag agencies or other organizations) as rcquircd under the Federal and State Single Audit Acts: 1'car-end bookkeeping assistance- ~;~r~ ,}+-~ t^ a - ---- - ~- ~ ~} N/A :~utlit - r $60 300 Preparation of the financial statements G~.-w I I w+ 9 i,~,l-s+ ~~ sas+r ~ N/A (Continued on Reverse) * -The independent auditors' report of Deloitte &Touche I,I,P should not be included or incorporated by reference in any client prepared document without the express written permission of Deloitte &Touche LLP. 10. After completing his audit, the Auditor shall submit to the Govcming Board a ++•ritten report of audit. This report shall include, at least, the financial statements of the go+•emmental unit and all of its component units and notes thereto prepared in accordance +cith generally accepted accounting principles, combining and supplementary information requested by the client or required for full disclosure under the la+v, and the auditor's opinion on the material presented. The Auditor shall fumislt the rcquircd number of copies of the report of audit to the Govcming Board tts soon az practical after the close of the accounting period. I I. Tltc Auditnr shall file ++•itlt the i.ocal Govcmment Commission t++•o copies of the report of audit, including one copy of the federal Data Collection Form, if a federal single audit is conducted. T+vo copies of the report of audit should be submitted if an audit is rcquircd to be performed only under the requirements of the State Single Audit Implcmcntation Act or a financial audit is required to be performed in accordance with Govcmment Auditnn¢ Standards. Otherwise, one copy shall be submitted. Copies of the report shall be filed ++•ith the Local Government Commission ++•hen (or prior to) submitting the invoice for the sen•ices rendered. All copies of the report submitted must be bound. The report of audit, az filed ++•ith the Secretap• of the Local Government Commission, becomes a matter of public record for inspection and revie++• in the offices of the Secretary by any interested panics. Any subsequent revisions -o these reports must be sent to the Secretary of the Local Govcmment Commission. These audited financial statements arc used in the preparation of Official Statements for debt offerings, by municipal bond rating services. and to fulfill secondary market disclosure requirements of the Securities and Exchange Commission. 12. Should circumstances disclosed by the audit call for a more detailed investigation by the Auditor than neccssaq• under ordinap• circumstances, the Auditor shall inform the Govcming Board in ++•riting of the need for such additional investigation and the additional compensation rcquircd therefor. Upon approval by the Secretary of the Local Go+•emmcnt Commission. this agreement may be +aricd or changed to include the increased time andlor compensation as may be agreed upon M• the Governing Board and the Auditor. 13. If an approved contract needs to be varied or changed for any reason, the change must be reduced to +vriting, signed by both parties, preaudited if necessary, and submitted to the Secretary of the Local Government Commission for approval. No chan¢e shall he efTenivc unless anrtmvcd h+• the Sccrctan• of the Local Gm•crnment Commission. the Go+•crninr Roard. and the Auditor. I~. \~'hcnt+•cr the Auditor uses an engagement latter ++ith the client, hems 9 and IS may be completed by referencing the engagement letter and attaching a copy of the engagement letter to the contract to incorporate the engagement letter into the contract. In case of conflict benceen the terms of the engagement Ieuer and the terms of this contract, the terms of this contract will rnntrol. hn,artnrcnt Itucr arms arc deemed to he +oid unless the conflicting terms of this contract arc specifically deleted in Item 21 of this contract. Gtgagcmtnt )cotes containing indcmnilication clauses +vill not be approved by the Local Government Crnnmission. I5. Tltcrc are nn special provisions cacept: See attached engagement letter 16. A separate contract should nm be made for oath di+ision to be audited or report to be submiUCd. A scparetc contract must bt c~txutcd for cash component unit Which is a local government and for ++hich a scparatc audit report is issued. 17. 7~hc contract should be ececutcd and submiucd in trinlicatc to the Secretary of the Local Government Commission, 325 North Salisbury Street, Raleigh. Nosh Carolina 27603-1385. I8. upon approval, the original contract ++ill be returned to the GovcnnncnWl )Joie, a copy +cill be foncarded Io dtc Auditnr, and a tope retained by the Secretan• of the Local Government Commission. Tttc audit should na he started heforc the rnntnct is art•mved. 19. 1'htre arc nn other aeretnunts hct~~ttn the panics hereto and no other agreements rclaticc hereto that shall he tnforttahlt unless tnrtred into in aaordantt With the procedure set out herein and appro+td by the Saretary of the Local Go+tnuntnt Cmnmissimt. 20 I1•this audit cna,tmrnt is not ntt?tcet to Go+crnntcnt Auditing gandards. than Item S shall he listed as a deleted provision in Item 2 L ~\n c~planation nutst he given lift deleting this pro+ision. I . All of the abort para. raphs are understood anJ shall apply to this aerecment. c~ecpt the follon ing numbered paragraphs shall be deleted: (tits Item 13.) / Deloitte & Touche LLP / Audit fine _V// It+. K. Alan Lonbom, Partner 11`I.acr t; pe or print name) ~~-s ~SiEmature) Uate ~ Approved by the Scerctap• of the Loeat Govcmment Commission as pmvidcd in Aniclc 3, Chapter 159 of Ute Gcnerat Statutes or Article 31. Part 3. Chapter t I5C of the TER~e~A BORDEAUX f ~/dte S/aYrctan~,~l.~/cal Go, ,ment Car scion (~i( ~~L/l. ~~ J~~ta nrcr Date Orange County, North Carolina n+•crnmcntal ml It>~ Alice M. Gordon, Chair ~1 Icast type or print name and title C~.Q~.~. lit ,~~..~ (Si@nature or Alaror or Chai npmt of goq.•emin_ board) Date ~t.G~[. ~ . ~ ! ! This instrument has been preaudited in the manner rcquircd by Thc Local Govcmment Budget and Fiscal Control Act or b)• the School Budget and Fiscal Control Aet. Kenneth T. Chavious Goremmenul Unit Finance Oniiccr Qh au y1k or prim name) ~~~~~ Dare `+~/~~ ~~ -~Ihcaud'n-Crniticatc n+nu b, d:neJ.l Deloitte & Touche ~~ Apri126, 1999 The Boazd of County Commissioners Orange County, North Cazolina Deaz Ladies and Gentlemen: .x £~ ~~_"" Deloitte & Tou~he LLP .- . -.Te~epho+a~~{ 19) 546-8000 Suite 1800 Telex: 4995716 First Union Capital Center Facsimile: (919) 833-3276 150 Fayetteville Street Mall P.O. Box 2778 Raleigh, North Carolina 27602-2778 We aze pleased to serve as independent accountants and auditors for Orange County (the "County") for the yeaz ended June 30, 1999. This letter reaffirms our contract with you dated Apri126, 1999 Mr. K. Alan Lonbom will be responsible for the services that we perform for the County. It will be the responsibility of Mr. Lonbom to ensure that the County receives quality service. He will be assisted by Mr. Thomas Moore, audit manager. Mr. Lonbom will, as he considers necessary, call on other individuals with specialized knowledge, either in this office or elsewhere in our Firm, to assist in the performance of our services. While auditing and reporting on the County's general purpose financial statements for the yeaz ending June 30, 1999, is the service that we aze to provide under this engagement letter, we would also be pleased to assist the County on issues as they arise throughout the year. Hence, we hope that the County will call Mr. Lonbom whenever management believes he can be of assistance. It is our usual practice to have a second partner act as a consulting partner on each client assignment. The purpose of this arrangement is to have another partner, known to you, who is familiaz with your operations and who can substitute for Alan in his absence or work with him when a second viewpoint is desired. Mr. Sam McNairy will be consulting partner for your engagement. This letter sets forth our understanding of the terms and objectives of our engagement, the nature and scope of the services we will provide, and the related fee arrangements. DeloitteTouche Tohmatsu Apri126, 1999 Orange County, North Cazolina Page 2 Audit of General Purpose Financial Statements We will audit the County's general purpose fmancial statements as of and for the yeaz ending June 30, 1999. In addition, we will audit the County's compliance with laws and regulations related to federal and state awazds; and report on the County's Schedule of Expenditures of Federal and State Awards. Our audits will be conducted in accordance with Government Auditing Standards, issued by the Comptroller General of the United States, Office of Management and Budget ("OMB") Circulaz A-133, Audits of States, Local Governments and Non profit Institutions, and the State Single Audit Implementation Act. We will plan and perform our audit to obtain reasonable assurance about whether the general purpose financial statements aze free of material misstatement, whether caused by error or fraud, and we will perform tests of the County's compliance with certain provisions of laws, regulations, contracts and grants. However, because of the chazacteristics of fraud, particulazly those involving concealment and falsified documentation (including forgery), a properly planned and performed audit may not detect a material misstatement. Therefore, an audit conducted in accordance with generally accepted auditing sandazds is designed to obtain reasonable, rather than absolute, assurance that the general purpose financial statements aze free of material misstatement. An audit is not designed to detect error or fraud that is immaterial to the general purpose financial statements or to detect immaterial instances of noncompliance. As part of our audit, we will consider the County's internal control and assess control risk, as required by generally accepted auditing sandazds and Government Auditing Standards, for the purpose of establishing a basis for determining the nature, timing, and extent of auditing procedures necessary for expressing an opinion on the general purpose fmancial statements, and not to provide assurance on the County's internal control or to identify reportable conditions. 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 azeas to be tested. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. April 26, 1999 Orange County, North Carolina Page 3 Our auditing 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, creditors and financial institutions. We will make audit inquiries and request written responses from the County's attorneys as part of the engagement, and they may bill the County for responding to this inquiry. As part of our audit of compliance with the requirements of major federal programs, we will obtain an understanding of the County's internal control related to administering major federal programs and we will assess risk as required by OMB Circulaz A-133 for the purpose of establishing the nature, timing, and extent of auditing procedures necessary for expressing an opinion concerning compliance with laws and regulations related to major federal and state award programs. As required by OMB Circulaz A-133 and the State Single Audit Implementation Act, our audit of compliance will also include tests of transactions related to federal and state awazd programs for compliance with applicable laws and regulations. However, because of the concept of reasonable assurance and because we will not perform a detailed examination of all transactions, there is a risk that material errors, fraud or illegal acts may exist and not be detected by us. We will advise you, however, of any matters of that nature that come to our attention, and will include such matters in the reports required for an audit in accordance with OMB Circulaz A-133. Our responsibility as auditors is limited to the period covered by our audit and does not extend to matters that arise during any subsequent periods for which we have not been engaged as auditors or for which we have performed no substantive auditing procedures. The report on our understanding of the County's internal control and the assessment of control risk made as part of the County's general purpose financial statement audit will include (1) the scope of our work in obtaining an understanding of the County's internal control and in assessing the control risk and (2) the reportable conditions, including the identification of material weaknesses identified as a result of our work in understanding and assessing the control risk. In addition, we will render a report on illegal acts, as required, depending on the results of our audit procedures. We will complete and sign one copy of the auditor's information section of the Data Collection Form. County management must prepaze all other sections of the form and sign the form prior to its submission to the Federal Bureau of the Census. Apri126, 1999 Orange County, North Cazolina Page 4 The objective of an audit carried out in accordance with the standards described above is (1) the expression of an opinion concerning whether the general purpose financial statements present fairly, in all material respects the financial position, results of operations, and cash flows of the County in conformity with generally accepted accounting principles, (2) reporting on the internal control relevant to an audit of the financial statements, (3) reporting on the County's compliance with laws and regulations, which could have a material effect on the financial statements, (4) reporting on whether the schedule of expenditures of federal and state awazds is fairly stated in all material respects when considered in relation to the basic financial statements taken as a whole, (5) the reporting on our determination as to whether the County's internal control provides reasonable assurance of compliance with federal laws and other laws and regulations, (6) the expression of an opinion on whether the County complied with specific terms and conditions of its major federal and state programs and (7) preparation of a schedule of findings and questioned costs to summarize the results of the audit in accordance with the requirements of OMB Circulaz A-133. Our ability to express that opinion and render those reports, and the wording of our opinion and reports, will, of course, be dependent on the facts and circumstances at the date of such reports. If we aze unable to complete our audit or if our auditors' reports require modification, the reasons therefor will be discussed with County management and the Boazd of Commissioners. Neither our audit of the County's general purpose financial statements for the yeaz ending June 30, 1999, nor any other services provided pursuant to this engagement letter, will provide any assurances, nor will we express any opinion, that the County's systems or any other systems, such as those of the County's vendors, service providers, customers, component units, unconsolidated subsidiaries or joint ventures in which the County has an investment or other third parties, are yeaz 2000 compliant. In addition, we are not engaged to perform, nor will we perform as part of this engagement, any procedures to test whether the County's systems or any other systems aze yeaz 2000 compliant or whether the plans and activities of the County or any third parties aze sufficient to address and correct system or any other problems that might arise because of the yeaz 2000, nor will we express any opinion or provide any other assurances with respect to these matters. We understand that our reports on the County's internal control, as part of the general purpose financial statement audit and on compliance with laws and regulations, aze intended for the information of the County Manager, members of the Boazd of County Commissioners (the "Boazd"), management and officials of federal and state awazding agencies and pass-through entities and the Local Government Commission. Apri126, 1999 Orange County, North Cazolina Page 5 Management's Responsibility The general purpose financial statements aze the responsibility of management. In this regazd, management has the responsibility for, among other things, establishing and maintaining effective internal control over financial reporting, identifying and ensuring compliance with laws, regulations, contracts and grants and establishing and maintaining effective internal control to assure such compliance with those requirements applicable to its activities for properly recording transactions in the accounting records, for making appropriate accounting estimates, for safeguazding assets, for the overall accuracy of the financial statements and their conformity with generally accepted accounting principles and for making all financial records and related information available to us. In addition, management is responsible for implementing the requirements of any applicable Government Accounting Standazds Boazd ("GASB") Statements effective this fiscal yeaz. We will advise you about accounting principles and their application and will assist in the preparation of your general purpose financial statements, but the responsibility for the general purpose financial statements remains with you. We will make specific inquiries of management about the representations embodied in the general purpose financial statements. As part of our audit procedures, we will request that management provide us with a representation letter acknowledging management's responsibility for the preparation of the general purpose financial statements and for compliance with laws and regulations applicable to federal and state awazd programs, and confirming certain representations made to us during our audit. The responses to those inquiries and related written representations of management required by generally accepted auditing standazds aze part of the evidential matter that we will rely on as auditors in forming our opinion on the County's general purpose financial statements. Because of the importance of management's representations, the County agrees to release and indemnify Deloitte & Touche LLP and its personnel from all claims, liabilities and expenses relating to our services under this engagement letter attributable to any misrepresentation by management. If the County intends to publish or otherwise reproduce in any document our report on the County's general purpose financial statements, or otherwise make reference to Deloitte & Touche LLP in a document that contains other information in addition to the audited financial statements (e.g., in a debt or equity offering circulaz or in a private placement memorandum), the County agrees that prior to making any such use of our report, or reference to Deloitte & Touche LLP, Orange County management will provide us with a draft of the document to read and obtain our approval for the inclusion or incorporation by reference of our report, or the Apri126, 1999 Orange County, North Cazolina Page 6 reference to Deloitte &Touche LLP, in such document before the document is printed and distributed. The inclusion or incorporation by reference of our report in any such document would constitute the reissuance of our report and any request by the County to reissue our report or to consent to its inclusion or incorporation by reference in an offering or other document will be considered based on the facts and circumstances existing at the time of such request. The estimated fees outlined herein do not include any services that would need to be performed in connection with any such request to make use of our report, or reference to Deloitte &Touche LLP; fees for such services (and their scope) would be subject to our mutual agreement at such time and would be described in a separate engagement letter. Othcr Communications Arising From the Audit In connection with the planning and the performance of our audit, generally accepted auditing standards and Government Auditing Standards require that we ensure that certain matters are communicated to management and members of the Boazd. We will report directly to the members of the Boazd any fraud of which we become awaze that involves senior management, and any fraud (whether caused by senior management or other employees) of which we become awaze that causes a material misstatement of the general purpose financial statements. We will report to senior management any fraud perpetrated by lower level employees of which we become awaze that does not cause a material misstatement of the general purpose financial statements; however, we will not report such matters directly to the Boazd, unless otherwise directed by the Boazd. We will inform the appropriate level of management of the County and ensure that the Boazd is adequately informed with respect to illegal acts that have been detected or have otherwise come to our attention in the course of our audit, unless the illegal act is cleazly inconsequential. If, after determining that the Boazd has been adequately informed of an illegal act that has been detected or which has otherwise come to our attention in the course of our audit, we conclude that (1) the illegal act has a material effect on the general purpose financial statements; (2) senior management has not taken, and the Boazd has not caused senior management to take, timely and appropriate remedial actions with respect to the illegal act; and (3) the failure to take appropriate remedial actions is likely to result in a departure from the standard auditors' report or warrant our resignation from the audit engagement, we will directly report our conclusions to the Boazd and take such actions as are required by state or federal law to report such matters to funding agencies and appropriate legal authorities. Apri126, 1999 Orange County, North Carolina Page 7 We will also report directly to County management and the Board matters coming to our attention during the course of our audit that we believe are reportable conditions. Reportable conditions are significant deficiencies in the design or operation of internal control that could adversely affect the County's ability to record, process, summarize and report financial data consistent with the assertions of management in the general purpose financial statements. In addition we will communicate to the Board certain other matters relating to the conduct of our audit, including, when applicable: • Our responsibility as auditors under generally accepted auditing standards, Government Auditing Standards and OMB Circular A-133 • Significant accounting policies • Management judgments and accounting estimates • Significant audit adjustments (recorded and unrecorded) • Other information in documents containing audited financial statements • Disagreements with management • Consultation by management with other accountants on significant matters • Difficulties encountered in performing the audit • Major issues discussed with management prior to our retention as auditors. We may also have other comments for management on matters we have observed and possible ways to improve the efficiency of the County's operations or other recommendations concerning internal control. With respect to these other communications, it is our practice to discuss all comments, if appropriate, with the level of management responsible for the matters, prior to their communication to senior management and/or the Members of the Board. Apri126, 1999 Orange County, North Cazolina Page 8 Coordination of the Audit Our audit is scheduled for performance and completion as follows: Begin Audit Performance Schedule: Planning August 1999 Yeaz-end September 1999 Audit Communications - Report on audit of financial statements Other Communications: Report of reportable conditions, if any Other management comments Schedule for Completion August 1999 October 1999 November 15, 1999 November 15, 1999 November 15, 1999 We understand that the County's employees will type all cash or other confirmations that we request and will locate any invoices selected by us for testing. Assistance to be supplied by your personnel, including prepazation of schedules and analyses of accounts as will be coordinated with Ken Chavious, Finance Director. Other assistance to be supplied by your personnel, including prepazation of schedules and analyses of accounts, is described in a sepazate attachment. Timely completion of this work will facilitate the conclusion of our audit. We are, of course, available to assist you in other azeas that might arise. Record Retention We will maintain the working papers for a minimum of three yeazs from the date of the audit report. These working papers will be made available to representatives of the United States General Accounting Office or other government audit staffs upon their request and after they have properly notified you of their request to review the working papers. April 26, 1999 Orange County, North Cazolina Page 9 Access to Working Papers by Regulators In accordance with the requirements of Government Auditing Standards, we aze required to provide access to our working papers and photocopies thereof to a federal agency or the Comptroller General of the United States upon their request for their regulatory oversight purposes. If such a request is made, we will inform you prior to providing such access. The working papers for this engagement aze the property of Deloitte &Touche LLP and constitute confidential information. Access to the requested working papers will be provided to representatives of the United States General Accounting OfFice or other appropriate government audit staffs under the supervision of Deloitte &Touche LLP audit personnel and at a location designated by our Firm. If photocopies aze requested, we will mark all information as confidential and maintain control over the duplication of all information. All professional and administrative services relating to such access (including photocopying) will be chazged as an additional expense to the engagement. Professional Fees Our fees for these services will be based on the actual time spent at various levels of responsibility, plus travel and other expense (e.g., report production, typing, communication and postage). We estimate that our total fees for this audit will be $60,300 (for the general audit and the single audit), including expenses. This 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 amve at a new fee estimate before we incur the additional costs. Fees for additional services including implementation of new accounting pronouncements, not outlined above will be mutually agreed upon prior to beginning such work. We appreciate this opportunity to be of service to Orange County, and we believe this letter accurately summarizes the significant terms of our engagement. If you have any questions, please let us know. Apri126, 1999 Orange County, North Cazolina Page 10 If the above terms aze acceptable to Orange County and the services outlined are in accordance with your understanding, please sign the enclosed copy of this letter in the space provided and return it to us, Yours truly, IJ~Q,~t~r~r+~t- Lc.t Response: This letter correctly sets forth the understanding of Orange County: By: Title: Date: ~~ ERNST & YOUNG LLP ^ 787 Seventh Avenue ^ Phone: 212 773 3000 ' New York, New York 10019 Deloitte &Touche LLP We have reviewed the system of quality control for the accounting and auditing practice of Deloitte &Touche LLP (the Firm) in effect for the yeaz ended Mazch 31, 1996. Our review was conducted in conformity with standards for peer reviews promulgated by the Peer Review Committee of the SEC Practice Section of the AICPA Division for CPA Firms (the Section). We tested compliance with the Firm's quality control policies and procedures at the Firm's National office and at selected practice offices in the United States and with the membership requirements of the Section to the extent we considered appropriate. These tests included the application of the Firm's policies and procedures on selected accounting and auditing engagements. We tested the supervision and control of portions of engagements performed outside the United States. In performing our review, we have given consideration to the general chazacteristics of a system of quality control as described in quality control standards issued by the AICPA. Such a system should be appropriately comprehensive and suitably designed in relation to the fir-n's organizational structure, its policies, and the nature of its practice. Variance in individual performance can affect the degree of compliance with a firm's prescribed quality control policies and procedures. Therefore, adherence to all policies and procedures in every case may not be possible. As is customary in a peer review, we are issuing a letter under this date that sets forth comments relating to certain policies and procedures or compliance with them. These matters were not considered to be of sufficient significance to affect the opinion expressed in this report. In our opinion, the system of quality control for the accounting and auditing practice of Deloitte &Touche LLP in effect for the yeaz ended Mazch 31, 1996 met the objectives of quality control standards established by the AICPA, and was being complied with during the year then ended to provide the Firm with reasonable assurance of conforming with professional standards. Also, in our opinion, the Firm was in conformity with the membership requirements of the Section in all material respects. ~vrc~ y Z~u~.~yLLP U a New York, New York November 25, 1996 Ernst & Young uP is a member of Ernst & Young International, Ltd.