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HomeMy WebLinkAbout2004 S Finance - Cherry Bekaert & Holland Audit Contract for the June 30, 2004 Fiscal Year} , ; March 31, 2004 Mr. Kenneth T. Chavious, Finance Director Orange County 208 South Cameron Street Hillsborough, North Carolina 27278 Dear Ken: This letter of arrangement between Orange County, North Carolina "the entity" and Cherry, Bekaert & Holland, L.L.P. sets forth the nature and scope of the services we will provide, the entity's required involvement and assistance in support of our services, the related fee arrangements and other terms and conditions designed to assure that our professional services are performed to achieve the mutually agreed upon objectives of the entity. SUMMARY OF SERVICES We will audit the financial statements of the governmental activities, the business type activities, each discretely presented component unit, each major fund, and the aggregate remaining fund information of the entity as of and for the year ended June 30, 2004, which collectively comprise the entity's basic financial statements as listed in the table of contents Our audit will be conducted in accordance with auditing standards generally accepted in the United States of America; Governmental Auditing Standards, issued by the Comptroller General of the United States; the Single Audit Act Amendments of 1996'; the provisions of OMB Circular A-133; and the State Single Audit Implementation Act, and will include test of accounting records, a determination of major programs in accordance with Circular A-133 and the State Single Audit Implementation Act, and other procedures as deemed necessary to enable us to express such an opinion and to render the required reports. The objective of an audit is the expression of our opinion concerning whether the basic financial statements are fairly presented, in all material respects, in conformity with accounting principles generally accepted in the United States of America. In connection with our audit, we will report on the fairness of presentation of the schedules of federal and state financial assistance in relation to the financial statements taken as a whole. We will also perform tests of compliance as required by Government Auditing Standards, the provisions of OMB Circular A-133, and the Audit Manual for Govemmental Auditors in North Carolina, and issue our reports thereon. If any of our opinions resulting from the procedures described above are other than unqualified, we will fully discuss the reasons with you in advance. The reports on internal control and compliance will each include a statement that the report is intended solely for the information and use of the audit committee, management, specific legislative or regulatory bodies, federal and State awarding agencies, and if applicable, pass-through entities and is not intended to be and should not be used by anyone other than these specified parties. As part of our engagement, we will prepare the financial statements and note disclosures from individual fund trial balances that you will provide. However, management is responsible for the financial statements and note disclosures. In your representation to us, you will be asked to acknowledge our role in this regard, and your review, approval, and responsibility for the financial statements and note disclosures. We also anticipate that we will prepare entries to convert your cash based records to accrual based financial statements. However, management is responsible for the accrual adjustments. In your representation to us, you will be asked to acknowledge our role in this regard, and your review, approval, and responsibility for the accrual adjustments. Any additional services that you may request, and that we agree to provide, will be the subject of separate written arrangements. Should the entity wish to include or incorporate by reference these financial statements and our report thereon into any official statement or any other document related to the offering of debt securities at some future date, we would consider our consent to the inclusion of our report into another such document at that time. However, we are required by auditing standards generally accepted in the United States of America to perform certain procedures before we can give our permission as to the inclusion of our report into another such document. You agree that you will not include or incorporate by reference these financial statements and our report thereon into any other document without our prior written consent. I will be responsible for assuring the overall quality, value, and timeliness of our services to you, will lead the engagement. YOUR EXPECTATIONS As part of our planning process, we will discuss with you your expectations of Cherry, Bekaert & Holland, L.L.P., changes that occurred during the year, your views on risks facing you, any relationship issues with Cherry, Bekaert & Holland, L.L.P., and specific engagement arrangements and timing. Our service plan, which includes our audit plan, is designed to provide a foundation for an effective, efficient, and quality-focused approach to accomplish the engagement objectives and to meet or exceed your expectations. Our service plan will be reviewed with you periodically and will. serve as a benchmark against which you will be able to measure our performance. TERMS AND CONDITIONS SUPPORTING FEE As a result of our planning process, the entity and Cherry, Bekaert & Holland, L.L.P. have agreed to a fee, subject to the following conditions. To facilitate meeting our mutual objectives, the entity will provide in a timely manner audit schedules and supporting information, including timely communication of all significant accounting and financial reporting matters, as well as working space and clerical assistance as mutually agreed upon and as is normal and reasonable in the circumstances. When and if for any reason the entity is unable to provide such schedules, information and assistance, Cherry, Bekaert & Holland, L.L.P. and the entity will mutually revise the fee to reflect additional services, if any, required of us to achieve these objectives. In providing our services, we will consult with the entity with respect to matters of accounting, financial reporting, or other significant business issues. Accordingly, time necessary to effect a reasonable amount of such consultation is reflected in our fee. However, should a matter require research, consultation, or audit work beyond that amount, Cherry, Bekaert 8~ Holland, L.L.P. and the entity will agree to an appropriate revision in services and fee. Except for any changes in fees, which may result from the circumstances described above, our fees will be limited to those set forth below. FEE Financial Audit -Our fees for these services will be based upon our customary billing practices at the time of the engagement. Bills for services will be rendered as work progresses and are due within 15 days from invoice date. A service charge will be added to past due accounts equal to 1 1/2% per month (18% annual rate) on the previous month's balance less payments received during the month, with a minimum charge of $2.00 per month. The fee for our audit as described in this letter will not exceed the following: Base Charge for Audit $38,500 Base Charge for Financial Statement Preparation $10,000 Base Charge for Compliance Audit $19,000 (includes 8 major programs) Charge Per Single Audit Program for Additional Compliance Testing $2,000 per program 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 arrive at a new fee estimate before we incur the additional costs. Any modification to the fee shall be in writing and signed by both parties. You agree to pay all costs of collection (including reasonable attorneys' fees) that we may incur in connection with the collection of unpaid invoices. The nature and scope of our audit procedures have changed from the prior year engagement as a result of an auditing standard that has been recently issued by the Auditing Standards Board of the American Institute of Certified Public Accountants (the "AICPA"). Specifically, the AICPA has issued Statement on Auditing Standards ("SAS") No. 99, Consideration of Fraud in a Financial Statement Audit, which is effective for this fiscal year. We have assessed the impact of this auditing standard on the nature, timing and extent of our planned audit procedures and have included our estimates of the additional time and expense for us to complete the new required procedures in our fee estimate. LIMITATIONS OF THE AUDITING PROCESS Our audit will include procedures designed to obtain reasonable, rather than absolute, assurance of detecting misstatements due to errors or fraud that are material to the basic financial statements. As you are aware, however, there are inherent limitations in the auditing process. For example, audits are based on the concept of selective testing of the data being examined and are, therefore, subject to the limitation that material misstatements due to errors or fraud, if they exist, may not be detected. Also, an audit is not designed to detect error or fraud that is immaterial to the basic financial statements. As required by the Single Audit Act Amendments of 1996 and OMB Circular A-133 and the State Single Audit Implementation Act, our audit will include tests of transactions related to major federal and State award programs for compliance with applicable laws and regulations and the provisions of contracts and grant agreements. Because an audit is designed to provide reasonable, but not absolute assurance and because we will not perform a detailed examination of all transactions, there is a risk that material errors, fraud, other illegal acts, or noncompliance may exist and not be detected by us. In addition, an audit is not designed to detect immaterial errors, fraud, or other illegal acts or illegal acts that do not have a direct effect on the basic financial statements or to major programs. It should be recognized that our audit generally provides no assurance that illegal acts will be detected, and only reasonable assurance that illegal acts having a direct and material effect on the determination of financial statement amounts will be detected. However, we will inform you with respect to material errors and fraud, or illegal acts that come to our attention during the course of our audit. We will include such matters in the reports as required for a Single Audit. If, for any reason, we are unable to complete the audit, or are unable to form or have not formed an opinion on the basic financial statements, we may decline to express an opinion or decline to issue a report as a result of the engagement. RESPONSIBILITIES AS TO INTERNAL CONTROLS As a part of our audit, we will consider the entity's internal control structure, as required by auditing standards generally accepted in the United States of America and GovernmentAuditing Standards, sufficient to plan the audit and to determine the nature, timing, and extent of auditing procedures necessary for expressing our opinion concerning the basic financial statements. You recognize that the basic financial statements and the establishment and maintenance of an effective internal control over financial reporting are the responsibility of management. You also recognize that management is responsible for identifying and ensuring that the entity complies with the laws and regulations applicable to its activities. Appropriate supervisory review procedures are necessary to provide reasonable assurance that adopted policies and prescribed procedures are adhered to and to identify errors, fraud, or illegal acts. An audit is not designed to provide assurance on internal control. As part of our consideration of the entity's internal control structure, however, we will inform you of reportable conditions and other matters that come to our attention that represent significant deficiencies in the design or operation of the internal control structure, if any, as required by OMB Circular A-133 and the State Single Audit Implementation Act. As required by OMB Circular A-133 and the State Single Audit Implementation Act, we will perform tests of controls to evaluate the effectiveness of the design and operation of controls that we consider relevant to preventing or detecting material noncompliance with compliance requirements, applicable to each major federal and State award program. However, our tests will be less in scope than would be necessary to render an opinion on those controls and, accordingly, no opinion will be expressed in our report on internal control issued pursuant to OMB Circular A-133 and the State Single Audit Implementation Act. You are also responsible for the design and implementation of programs and controls to prevent and detect fraud, and for informing us about all known or suspected fraud affecting the entity involving (a) management, (b) employees who have significant roles in internal control, and (c) others where the fraud could have a material effect on the financial statements. You are also responsible for informing us of your knowledge of any allegations of fraud or suspected fraud affecting the entity received in communications from employees, former employees, regulators, or others. RESPONSIBILITIES AS TO COMPLIANCE Our audit will be conducted in accordance with the standards referred to in the section Summary of Services. As part of obtaining reasonable assurance aboutwhether the basic financial statements are free of material misstatement, we will perform tests of the entity's compliance with applicable laws and regulations and the provisions of contracts and agreements, including grant agreements. However, the objective of those procedures will not be to provide an opinion on overall compliance and we will not express such an opinion in our report on compliance issued pursuant to Government Auditing Standards. OMB Circular A-133 and the State Single Audit Implementation Act requires that we also plan and perform the audit to obtain reasonable assurance about whether the entity has complied with applicable laws and regulations and the provisions of contracts and grant agreements applicable to major programs. Our procedures will consist of the applicable procedures described in the OMB Circular A-133 Compliance Supplement and the Audit Manual for Governmental Auditors in North Carolina for the types of compliance requirements that could have a direct and material effect of each of the entity's major programs. The purpose of those procedures will be to express an opinion on the entity's compliance with requirements applicable to major programs in our report on compliance issued pursuant to OMB Circular A-133 and the State Single Audit Implementation Act. REPRESENTATION FROM MANAGEMENT Management is responsible for the fair presentation of the basic financial statements in conformity with accounting principles generally accepted in the United States of America, for making all financial records and related information available to us, and for identifying and ensuring that the entity complies with the laws and regulations applicable to its activities. Management is also responsible for adjusting the financial statements to correct material misstatements. Additionally, as required by OMB Circular A-133 and the State Single Audit Implementation Act, it is management's responsibility to follow up and take corrective action on prior audit findings and to prepare a summary schedule of prior audit findings and a corrective action plan. The summary schedule of prior audit findings and the corrective action plan should be made available to us during the course of our engagement. Management, at the conclusion of the engagement, will provide to us a representation letter that, among other things, addresses these matters and confirms certain representations made during the audit, including, to the best of their knowledge and belief, the absence of fraud involving management or those employees who have significant roles in the entity's internal control, or others where it could have a material effect on the basic financial statements. The representation letter will also affirm to us that management believes that the effects of any uncorrected misstatements aggregated pertaining to the current year financial statements are immaterial, both individually and in the aggregate, to the financial statements taken as a whole. COMMUNICATIONS At the conclusion of the engagement, we will provide management, in a mutually agreeable format, our recommendations designed to help the entity make improvements in its internal control structure and operations, and other matters that may come to our attention (see "Responsibilities as to Internal Controls" above). As part of this engagement we will ensure that certain additional matters are communicated to the appropriate members of management and to the elected officials of the entity. Such matters include (7) our responsibility under auditing standards generally accepted in the United States of America; (2) the initial selection of and changes in significant accounting policies and their application; (3) our independence with respect to the entity; (4) the process used by management in formulating particularly sensitive accounting estimates and the basis for our conclusion regarding the reasonableness of those estimates; (5) audit adjustments that could, in our judgment, either individually or in the aggregate be significant to the financial statements or our report; (6) any disagreements with management concerning a financial accounting, reporting or auditing matter that could be significant to the financial statements; {7) our views about matters that were the subject of management's consultation with other accountants about auditing and accounting matters; (8) major issues that were discussed with management in connection with the retention of our services, including, among other matters, any discussions regarding the application of accounting principles and auditing standards; and (9) serious difficulties that we encountered in dealing with management related to the performance of the audit. ACCESS TO WORKING PAPERS The working papers for the engagement are the property of Cherry, Bekaert & Holland, L.L.P. and constitute confidential information. Except as discussed below, any requests for access to our working papers will be discussed with you prior to making them available to requesting parties. The work papers for this engagement will be retained for a minimum of three years after the date the auditors' report is issued or for any additional period requested by the entity. If we are aware that a federal and State awarding agency, pass-through entity, or auditee is contesting an audit finding, we will contact the party(ies) contesting the audit finding for guidance prior to destroying the work papers. Our Firm, as well as all other major accounting firms, participates in a "peer review" program, covering our audit and accounting practices. This program requires that once every three years we subject our quality assurance practices to an examination by another accounting firm. As part of the process, the other firm will review a sample of ourwork. It is possible that the other firm for their review may select the work we perform for you. If it is, they are bound by professional standards to keep all information confidential. If you object to having the work we do for you reviewed by our peer reviewer, please notify us in writing. SUBPOENAS In the event we are requested or authorized by you or required by government regulation, subpoena, or other legal process to produce our working papers or our personnel as witnesses with respect to our engagement for you, you will, so long as we are not a party to the proceeding in which the information is sought, reimburse us for our professional time and expense, as well as the fees and expenses of our counsel, incurred in responding to such a request. OTHER MATTERS If any dispute, controversy or claim arises in connection with the performance or breach of this agreement, either party may, on written notice to the other party, request that the matter be mediated. Such mediation would be conducted by a mediator appointed by and pursuant to the Rules of the American Arbitration Association or such other neutral facilitator acceptable to both parties. Both parties would exert their best efforts to discuss with each other in good faith their respective positions in an attempt to finally resolve such dispute or controversy. If any dispute, controversy, or claim arising out of or in connection with the performance or breach of this agreement cannot be resolved by mediation, then you agree that such dispute, controversy, or claim would be settled by arbitration in accordance with the rules of the American Arbitration Association (AAA) for the Resolution of the Accounting Firm Disputes. The award issued by the arbitration panel may be confirmed in a judgment by any federal or state court of competent jurisdiction. tf the foregoing is in accordance with your understanding, please sign a copy of this letter in the space provided and return it to us. If you have any questions, please feel free to give me a call at (919) 982-1040. Very truly yours, HERBY, BEKAERT & HOLLAND, L.L.P. Eddi Burke, CP Partner Enclosure RESPONSE: This lette correctly sets forth the understanding of the entity. By: ~~ ~~~~ LGC-205 (Rev. 1/1/2003) File in Triplicate. CONTRACT TO AUDIT ACCOUNTS _~ :} MAY ~ ~. 20041 Orange County, North Carolina L~A~ ~~~~.tQa°~1l~lE~~ On this 31st day of March, 2004, Cherry, Bekaert & Holland, L.L.P., 2626 Glenwood Aven~`,~Ii1~~'6lYR~A~h, NC 27608, hereinafter referred to as the Auditor, and the Board of County Commissioners of Orange County, North Carolina hereinafter referred 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 statements and disclosures of all funds and/or divisions of the Governmental Unit for the period beginning July 1, 2003 and ending June 30, 2004. 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 Auditing 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. This contract contemplates an unqualifed opinion being rendered. If financial statements are not prepared in accordance with generally accepted accounting principles (GAAP), or the statements fail to include all disclosures required by GAAP, explain that departure from GAAP in the space below: None 4. This contract contemplates an unqualified 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 be necessary in the circumstances.. Any limitations or restrictions in scope which would lead to a qualification should be fully explained in an attachment 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 Auditine Standards, issued by the Comptroller General of the United States, then the Auditor warrants by accepting this engagement that he/she has met the requirements for a peer review and continuing education as specified in the Government Auditing Standards. The Auditor agrees to provide a copy of their most recent peer review report to the Govemmental Unit and the Secretary of the Local Government Commission prior to the execution of the audit contract. (See Item 20.) 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, 2004 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 al] matters defined as "reportable conditions" in AU 325 of the AICPA Professional Standards. The Auditor shall file a copy of that report 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 not be paid by the Governmental Unit until the invoice has been approved by the Secretary of the Local Government Commission. (This also includes any progress 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 anon-auditing nature. 9. 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 following fee 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 grantor and oversight agencies or other organizations) as required under the Federal and Siate Single Audit Acts: Base Charge for Audit $38,500 Base Charge for Financial Statement Preparation $10,000 Base Charge for Compliance Audit $19,000 (includes 8 major programs) Charge Per Single Audit Program for Additional Compliance Testing $2,000 per program Bookkeeping None 10. ABer 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 notes 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 period. 11. The Auditor shall file with the Local Government Commission two copies of the report of audit, including one copy of the federal Data Collection Form, if a federal single audit is conducted. Two copies of the report of audit should be submitted if an audit is required to be performed only under the requirements of the State Single Audit Implementation Act or a financial audit is required to be performed in accordance with Government Auditing Standards. Otherwise, one copy shall be submitted. Copies of the report shall 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 these reports must be sent to the Secretary of the Local iiovernment Commission. These audited financial statements 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 Goveming Board in writing of the need for such additional investigation and the additional compensation required therefore. 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 Goveming 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, pre-audited if necessary, and submitted Yo the Secretary of the Local Govemment Commission for approval. No change shall be effective unless anproved by the Secretary of the Local Government Commission, the Governing Board, and the Auditor. 14. Whenever the Auditor uses an engagement letter with the client, Item ] 5 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 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 21 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. l 8. 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 anproved. 19. There are no other agreements between the parties hereto and no other agreements relative hereto that shall be enforceable unless entered into in accordance with the procedure set out herein and approved by the Secretary of the Local Government Commission. 20. If this audit engagement is not subject to Govemment Auditing_Standards, then Item 5 shall be fisted as a deleted provision in Item 21. An explanation must be given for deleting this provision. 2l. All of the above paragraphs are understood and shall apply to this agreement, except the following numbered paragraphs shall be deleted: (See Item 14.) None . '. 22. Will the audited financial statements be prepared in accordance with GASB Statement No. 34? YES If the audited financial statements are prepared in accordance with GASB Statement No. 34 the references in Item 1 to the combining, individual fund, and account group statements shall mean the basic financial statements, management's discussion and analysis, and required supplementary statements as defined in GASB Statement No. 34. Auditing procedures applicable to other supplementary schedules are not changed by the implementation of GASB Statement No. 34. By Che Bekaert & Holland L.L.P (Please type or print name) (Signature of authorized audit firm representative) 3 ~ 3~. ~-~ 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. ~/A~i~E ~ ~ n~d~ For the Secretary, Local ovemmen o m on (Signature) A Date fdI AV 1 ~~ZU~4 sy ~~ ~h'L/`S ~..~,~(P ease type or pri t i e and or C i er n of governing board) Date / ~ J~~~J ~d By ~ ~~ (Chairperson of Au it Committee (Please type or print name) ~/r~ (Signature of A'u/dit Committee Chairperson) Date ~/ /t/ (If unit does not have an audit committee, this section should be mazked "N/A.") This instrument has been preaudited in the manner required by The Local Government Budget and Fiscal Control Act or by the School Budget and Fiscal Control Act. 1~ (Please ty~r print name) ~~ (Signature) Date s'~~/~ (Pre-audit Certificate must be dated.)