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HomeMy WebLinkAboutAgenda - 06-22-1998 - 8lORANGE COUNTY BOARD OF COMMISSIONERS ACTION AGENDA ITEM ABSTRACT Meeting Date: June 22, 1998 Action Agenda Item No. R-1 SUBJECT: Audit Contract for the June 30, 1998 Fiscal Year DEPARTMENT: Finance PUBLIC HEARING: (Y/N) BUDGET AMENDMENT: (Y/1) ATTACHMENT(S): Contract Engagement Letter INFORMATION CONTACT: Ken Chavious Ext. 2453 TELEPHONE NUMBERS: Hillsborough 732 -8181 Chapel Hill 968 -4501 Durham 688 -7331 Mebane 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, 1998. BACKGROUND: Last spring County staff pursued a request for proposal process for audit services. Upon completion of the RFP process, staff recommended and the Board approved the proposal submitted by Deloitte and Touche, LLP. Deloitte and Touche performed the audit for the fiscal year ended June 30, 1997 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 three years. The 1998 audit will mark the second year of the three -year term with Deloitte and Touche. The proposed cost of the 1998 audit is $56,300. This is the same amount paid last fiscal year. The proposal accepted by the Board last year contained incremental annual increases, however, the planned increase has been waived by Deloitte and Touche for the 1998 audit. This waiver results from negotiations between the staff the firm related to computer software proposed by the firm but not needed by the County. 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 recouperated through indirect and direct charges to Social Service and Child Support Enforcement grant programs. RECOMMENDATION(S): The Manager recommends that the Board approve audit contract for the fiscal year ending June 30, 1998 with Deloitte & Touche, LLP, in an amount not to exceed $56,300; and authorize the Chair to sign on behalf of the Board. DOC -203 Qtev. 1/111997) CONTRACT TO AUDIT ACCOUNTS File in Triplicate. o Orange County, North Carolina Governmental Unit On this 4th day of June 1998 Deloitte & Touche LLP Auditor Post Office Box 2778, Raleigh, North C=n1inn 77An9_777A Mailing Address Board of County hereinafter referred to as the Auditor, and Commissioners of Orange County hereinafter referred Governing Board Governmental Unit to as the Governmental Unit, agree as follows: 1. The Auditor shall audit all statements and disclosures required by generally accepted accounting principles and additional required legal s te=ens and disclosures of all funds and/or divisions of the Governmental Unit for the period beginning July 1, . 1997 and ending June 30, . 19—aa. 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 statements and an opinion will be rendered in relation to the combined financial statements taken as a whole. 2. At a minimum, the Auditor shall conduct his audit and render his report in accordance with generally accepted auditing standards. The auditor shall perform the audit in 'accordance with Government Auditinr Standards if required by the State Single Audit Implementation Act, as codified in G.S. 159.34. If required by OMB Circular A• 133 and the State Single Audit Implementation Act, the auditor shall perform a Single Audit. 3. The audit shall include such tests of the accounting records and such other auditing procedures as are considered by the Auditor to be necessary in the circumstances, except as follows (See Item 4): 4. This contract contemplates an unqualified opinion being rendered. Any limitations or restrictions in scope which would lead to a qualifiCation should be fully explained in an ottachment to this contract. The audit will have no scope limitations except: None 5. If this audit engagement is subject to the standards for audit as defined in the Government Auditinr Standards, issued by the Comptroller General of the United States, than the Auditor warrants by accepting this engagement that he /she will meet the requirements for a pear review and continuing education as specified in the Government Auditinr Standards. The Auditor agrees to provide a copy of their most recent peer review report to the Governmental Unit and the Secretary of the local Government Commission 2dU 12 the execution of the audit contract. 6. It is agreed that time is of the essence in this contract. All audits are to be performed and the report of audit submitted by October 31, . 19 98 7. It is agreed that generally accepted auditing standards include a review of the Governmental Unit's system of internal control and accounting as same relates to accountability of funds and adherence to budget and law requirements applicable thereto; that the Auditor will make a written report, which may or may not be a part of the written report of audit, to the Governing Board setting forth his findings, together with his recommendations for improvement That written report must include all matters defined as 'reportable conditions' in AU 325 of the AICPA Professional Standards. The Auditor shall file a cony of that reoort with the Secretary of the Local Government Commission. 8. All local government and public authority contracts for annual or special audits, bookkeeping or other assistance necessary to prepare the Unit's records for audit, financial statement preparation, any finance• related investigations, or any other audit related work in the State of North Carolina require the approval of the Secretary of the Local Government Commission. Invoices for services rendered_ under these contracts shall Uovernment Commission. (This also includes any nrorre+s billings.) All invoices should be submitted in triplicate to the Secretary of the Local Government Commission. The original and one copy will be returned to the Auditor. Approval is not required on contracts and invoices for system improvements and similar services of a non auditing nature. In consideration of the satisfactory performance of the provisions of this agreement, the Governmental Unit shall pay to the Auditor, upon approval by the Secretary of the Local Government Commission, the follow•inr In which includes any cost the Auditor may incur from work paper or peer reviews or any other quality assurance program required by third parties (Federal and State agencies or other organizations) as required under the Federal and State Single Audit Acts: $SF,+„'lnn _ (Continued on Reverse) ' — The independent auditors, report of Deloitte & Touche LLP 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 Governing Board a written report of audit. This report shall include, at least, the financial statements of the governmental unit and all of its component units and note thereto prepared in accordance with generally accepted accounting principles, combining and supplementary information requested 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 Board as soon as practical after the close of the accounting Pew 11. The Auditor shall file with the Local Government Commission three copies of the reporting package, which includes the audit report, (four copies for councils of governments) if a single audit is conducted. If there is a finding in a direct federal program, one additional copy of the audit report must be submitted to the Local Government Commission for each direct federal grantor with a finding. Two copies of the report of audit should be submitted if an audit in accordance with Government Auditing Standards is conducted and one copy if no single audit or audit in accordance with Government Auditing Standards is required. Copies of the report should be filed with the Local Government Commission when (or prior to) submitting the invoice for the services rendered. All copies of the report submitted must be bound. The report of audit, as filed with the Secretary of the Local Government Commission, becomes a matter of public record for inspection and review in the offices of the Secretary by any interested parties. Any subsequent revisions to the" reports must be sent to the Secretary of the Local Govtrnment Commission. The" reports are 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 necessary under ordinary circumstances, the Auditor shall inform the Governing Board in writing of the used for such additional investigation and the additional compensation required therefor. Upon approval by the Secretary of the Local Government Commission, this agreement may be varied or changed to include the increased time and/or compensation as may be agreed upon by 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 writing, signed by both parties, preaudited if necessary, and submitted to the. Secretary of the Local Government Commission for approval. No change shall be effective unless approved by the Secretary of the Local ls. whenever the Auditor uses an engagement letter with the client, Items 9 and 15 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 came of conflict between the terms of the engagement letter and the terms of this contract, the terms of this contract will control, Engagement letter terms are deemed to be void unless the conflicting terms of this contract are specifically deleted in Item 20 of this contract Engagement letters containing indemnification clauses will not be approved by the Local Government Commission. 15. There are no special provisions except: See attached Engagement Letter 16. A separate contract should not be made for each division to be audited or report to be submitted. A separate contract must be executed for each component unit which is a local government and for which a separate audit report is issued. 17. The contract should be executed and submitted in triplicate to the Secretary of the Local Government Commission, 325 North Salisbury Street, Raleigh, North Carolina 27603.1385. 18. Upon approval, the original contract will be returned to the Governmental Unit, a copy will be forwarded to the Auditor, and a copy retained by the Secretary of the Local Government Commission. The audit should not be started before the contract is annmved. 19. There are no other agreements between the parties hereto and no other agreements relative hereto that shall be enforceable unless enured into in accordance with the procedure set out hersin and approved by the Secretary of the Local Government Commission. 20. All of the above paragraphs are understood and shall apply to this agreement, except the following numbered paragraphs shall be deleted: (See Item 15.) Deloitte & Touche LLP Audit Ism Byy Sam w,_�M�?,Nairyr Partner D�FdG�we/� a W . I VL (Sytuture) Approved by the Secretary of the Local Government Commission as provided in Article 3, Chapter 159 of the General Statutes or Article 31, Part 3. Chapter 115C of the General Statutes. For the Se Lary. Loral Government Commieaion (S,gauure) Date Orange County, N.C. Governmental Unit By' Margaret W. Brown, Chair an"" type or prim mane and =ld (Signature tar 3fassr or Chairaram d ssvemiaf board) This instrument has been preauditad in the manner CCoontroldAct orhby the School Budget and FisuldControl Act Kenneth T. Chavious Goveromestal Umit Finance Odor Misses type or prim name) (Signature) Data aenaud.t Ceru —ae man be dated) Deloifte & Touche uP Suite 1800 First Union Capitol Center 150 Fayetteville Street Mall P.O. Box 2778 Raleigh, North Carolina 27602 -2778 June 4, 1998 The Board of County Commissioners Orange County, North Carolina Dear Ladies and Gentlemen: 4 Telephone: (919) 546 -8000 Telex: 4995716 Facsimile: (919) 833 -3276 We are pleased to serve as independent accountants'and auditors for Orange County, North Carolina (the "County") for the year ending June 30, 1998. 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. 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 general purpose financial statements for the year ending June 30, 1998, 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. 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. Audit of General Purpose Financial Statements and Other Reporting We will audit the County's general purpose general purpose financial statements as of and for the year ending June 30, 1998. In addition, we will audit the County's compliance with laws and regulations related to federal awards; and report on the County's Schedule of Expenditures of Federal Awards. DelcitteTouche Tohmatsu 5 June 4, 1998 The Board of County Commissioners Page 2 Our audits will be conducted in accordance with generally accepted auditing standards, standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States and Office of Management and Budget (OMB ") Circular A -133, Audits of States, Local Governments and Non - profit Organizations. 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 Orange 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 general purpose 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. 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 your attorneys as part of the engagement, and they may bill you for responding to this inquiry. 6 June 4, 1998 The Board of County Commissioners Page 3 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 Circular 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 award programs. As required by OMB Circular A -133, our audit of compliance will also include tests of transactions related to federal award 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 Circular 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 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 proprietary fund type of the County in conformity with generally accepted accounting principles, (2) reporting on the internal control relevant to an audit of the general purpose financial statements, (3) reporting on the County's compliance with laws and regulations, which could have a material effect on the general purpose financial statements, (4) reporting on whether the schedule of expenditures of federal awards is fairly stated in all material respects when considered in relation to the basic general purpose 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 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 Circular A -133. 7 June 4, 1998 The Board of County Commissioners Page 4 The report on our understanding of the County's internal control and the assessment of control risk made as part of the County's 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. Orange 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. Our ability to express an 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, for any reason, we are unable to complete the audit or are unable to form or have not formed an opinion, we may decline to express an opinion or decline to issue a report as a result of this engagement. If we are unable to complete our audit or if our auditors' reports require modification, the reasons therefor will be discussed with Orange County management and the Members of the Board of County Commissioners. We understand that our reports on the County's internal control, as part of the financial statement audit and on compliance with laws and regulations, are intended for the information of the Members of the Board of County Commissioners, management, and officials of federal and state agencies. Neither our audit of the County's general purpose financial statements for the year ending June 30, 1998, 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 year 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 year 2000, nor will we express any opinion or provide any other assurances with respect to these matters. 8 June 4, 1998 The Board of County Commissioners 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, for properly recording transactions in the accounting records, for making appropriate accounting estimates, for safeguarding assets, for the overall accuracy of the general purpose financial statements and their conformity with generally accepted accounting principles, and for making all financial records and related information available to us. Management is also responsible for compliance with laws, regulations, contracts, and grants and for establishing and maintaining effective internal control to ensure such compliance with those requirements applicable to its activities. 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 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 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 general purpose 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 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 9 June 4, 1998 The Board of County Commissioners Page 6 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 the Members of the Board of County Commissioners. We will report directly to the Members of the Board of County Commissioners 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 Members of the Board of County Commissioners, unless otherwise directed by the Members of the Board of County Commissioners. We will inform the appropriate level of management of the County and ensure that the Members of the Board of County Commissioners 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 Members of the Board of County Commissioners 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 Members of the Board of County Commissioners 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 Members of the Board of County Commissioners and take such actions as are required by state or federal law to report such matters to funding agencies and appropriate legal authorities. 10 June 4, 1998 The Board of County Commissioners Page 7 We will also report directly to Orange County management and the Members of the Board of County Commissioners 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 Members of the Board of County Commissioners 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 general purpose 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 of County Commissioners. 11 June 4, 1998 The Board of County Commissioners Page 8 Coordination of the Audit Our audit is scheduled for performance and completion as follows: Begin Audit Performance Schedule: Interim August 3, 1998 Year -end August 31, 1998 Audit Communications: Report on audit of financial statements Report on reportable conditions, if any Other management comments Scheduled for Completion August 14, 1998 October 2, 1998 October 31, 1998 October 31, 1998 October 31, 1998 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. 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. Access to Working Papers by Regulators In accordance with the requirements of Government Auditing Standards and of the Single Audit Act Amendments of 1996, 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 & 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 are requested, we will mark all information as confidential and maintain control over the duplication of all information. The working papers relating to this audit will be retained by us for a minimum of three years from the date of the reports issued, or such longer period as may be required to satisfy legal and administrative requirements. 12 June 4, 1998 The Board of County Commissioners Page 9 Professional Fees Our fees for these services will be based on the actual time spent at our standard hourly rates, plus travel and other out -of- pocket costs (e.g., report production, typing, and postage). Our standard hourly rates vary according to the degree of responsibility involved and the experience level of the personnel assigned to your audit. Our invoices for these fees will be rendered each month as work progresses and are payable on presentation. Based on our preliminary estimates, the fee should approximate $56,300, including expenses. This estimate is based on anticipated cooperation from your personnel and the assumption that unexpected circumstances will not be encountered during the audit. If significant additional time is necessary, we will discuss it with you and arrive at a tiew fee estimate before we incur the additional costs. We appreciate the opportunity to continue to be of service to Orange County. If you have any questions, please let us know. 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, �VQ�4� Accepted and agreed to by Orange County: Title: Date: HERNST & YOUNfi LLP • 787 Seventh Avenue jr Phone: 212 773 3000 13 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 year 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 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 year ended March 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. New York, New York November 25, 1996 ff� -f Q UP Ernst & Young LLP is a member of Ernst & Young International, Ltd.