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HomeMy WebLinkAboutAgenda - 06-26-1996 - VIII-C r 1 ORANGE COUNTY BOARD OF COMMISSIONERS Action Agenda Item No._V.M7--G ACTION AGENDA ITEM ABSTRACT Meeting Date: June 26, 1996 SUBJECT: 1995-96 Audit Contract DEPARTMENT: Finance PUBLIC HEARING: YES: NO: X ATTACHMENT(S): INFORMATION CONTACT: Contract Ken Chavious Ext. 2453 Engagement Letter TELEPHONE NUMBER: Hillsborough 732-8181 Chapel Hill 968-4501 Mebane 227-2031 Durham 688-7331 - PURPOSE: To consider awarding a contract for the annual audit for the fiscal year ending June 30, 1996. BACKGROUND: Local Governments are required by G.S. 159-34 to have an annual audit of their financial records by an independent auditor. The audit for the fiscal year ended June 30, 1995 was performed by Deloitte and Touche, an international accounting firm with an excellent reputation in the field of governmental accounting and auditing. Deloitte and Touche has proposed a contract to perform the 1996 audit for a fee of$58,250. The audit costs consist of$33,250 for the regular audit of the financial statements,procedures, and certification of tax levies,and$25,000 for the single audit required by the Federal and State Governments for grant funds. The cost of the regular audit reflects an increase of $750 over the previous year while the cost of the single audit increased$3,000. The increased costs in the single audit area are the result of funding increases in grant programs,such as Smart Start,as well as,new grant funds received in other human services areas. The additional costs associated with the single audit will be paid by administrative funds associated with each grant and indirect cost reimbursements from the grantors. There will be no additional cost to the County except for the$750 mentioned above for the regular audit. Deloitte and Touche have done excellent work for the County in recent years,and staff strongly recommend approval of the proposed contract for the audit for the fiscal year ended June 30, 1996. Staff also believe that it is prudent to periodically assess alternatives for required audit services, and to that end, staff intend to solicit requests for proposals for audit services for the next fiscal year. Staff will prepare and distribute RFPs in late Fall 1996, evaluate responses from auditing firms,and make recommendations to the Board of Commissioners in Spring 1997 concerning which firm should perform audit services for the fiscal year that will end June 30, 1997. RECOMMENDATION(S): The Manager recommends that the Board approve the Contract with Deloitte and Touche for the fiscal year ending June 30, 1996 and authorize the Chair to Sign. LGC•205(Rev.In/19m) CONTRACT TO AUDIT ACCOUNTS 2 Pilo in Triplicate. of 1 Governmental tut On this 31st day of May 19 66. Del'litte & TouchE LLP Auditor Post Office Box 2778 , Raleigh , NC 27602-2778 )Lading Address hereinafter referred to as Board of County the Auditor,and r n m m i c c i n n P r e of Qrangp County her_einafter referred Governing Hoard Governmental Unit to as the Governmental Unit,agree as follows: I. 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 . 192, and ending June 30 . 19 6 The combining, individual fund, and account group financial statements and schedule& 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. The audit will have no scope limitations except: 2. The Auditor shall conduct his audit and reader his report in accordance with generally accepted auditing standards.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 12.) 3. 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 stall fie a cony of that report with the Secretary of the Local Government Commission. 4. 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 notes thereto prepared in accordance with generally accepted accounting principles,-combining and supplementary information requested by the ebout or required for !Sill disclosure under the law, and the auditor's opinion on the materiel 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. (See Item 15.) 5. 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 19-2-6. 6. 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 compensation as may be agreed upon by the Governing Board and the Auditor. 7. The Auditor shall perform a amp lianos audit for all federal and State financial assistance programs is accordance with the Single Audit Act of 1984 rub.L No.98302 and G.S. 159.34).The Auditor will fie the required number of copies of all reports reaoired_under the Fed" and State Single Audit Acts with the Secretary of the iAcal Government Cmmission. ('Ibis includes the lopott required is hem 8.)($ee Items 15 and 18.) 8. 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 [a 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: $58,250 9. All local government and public authority contracts for annual or special audits, financial statement preparation, any finance-related investigations, or any audit-related work in the State of North Caroline require the approval of the Secretary of the Local Government Commission. invoices for services rendered under these contracts shell not be paid br the Governmental Unit until the invoice has been apprised Im the Secreterr of the Local Government Commission. (This also includes any prowess bi lines)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 eonmwu and invoices for system improvements and similar services of a non-auditing nature. (Continued on Reverse) 10. The contract should be executed and submitted is triplicate to the Bern 3 trip racy of the Local Government A Commission,325 North Salisbury Street,Raleigh,North Carolina 27603-1385. 11. 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 approved. 12. This contract contemplates an unqualified opinion being rendered Any limitations or restrictions in ape which would lead to a qualification should be fully explained in an attachment to this contract. Contracts with such limitations will not be approved unless satisfactory explanation is made. 13. If an approved contract needs to be varied or changed,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 Government Commission, the Governing Board,and the Auditor. 14. A separate contract should not be made for each division to be audited or report to be submitted.The scope of the audit and the fee for the audit should be clearly stated. A separate contract must be executed for each component unit which is a local government and for which a separate audit report is issued. 15. The Auditor shall file three copies of the report of audit(four copies for councils of governments,one copy if no single audit is required) with the Secretary of the Local Government Commission when (or prior to) submitting the invoice for the services rendered.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 Government Commission. These 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. 16. There are no special provisions except: See attached engagement letter 17. Whenever the Auditor uses an engagement letter with the client, Items 8 and 16 should 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 w deemed to be void unless the conflicting terms of this contract are specifically deleted in Item 21 of this contract. 18. A Governmental Unit not having a single audit an federal and Stue funds woold list Item 7 in Item 21 of the contract as being a deleted provision.An explanation must be riven in Item 21 for any Governmental Unit not recei%ing s single audit on federal and State funds(e.g.,a single audit is not required under the Federal and State Single Audit Acts and is not being performed). 19. If this audit engagement is subject to the standards for audit as defined in the Government Auditing Standards, issued by the Comptroller General of the United States,then the Auditor warrants by accepting this engagement that he/she will meet the requirements for an extornal quality control review and continuing education requirements specified in the Government Auditing Standards. The Auditor agrees to provide a copy of their most recent external quality control review report to the Governmental Unit and the Secretary of the Local Government Commission. 20. 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. 21. AU of the above paragraphs are understood and shall apply to this agreement,eaoept the following numbered paragraphs shall be deleted.(See Items 17 and 18.) D l oitte f: Touche L.L•P Orange County Am"fire Gs.aamsaW Uait By K. Alan Lonbom BY Moses Carey, Jr., Chairman ie castaa .) ',plee..trye.ryamta,m..adyiltl roved M tae erhe Ideal Government This hwa%rent has been pnandited In the oved rovitide 9, tar 159 of required by The Ion) Government Budget sad Fiscal the General statwes or Article 31.Part ,Chapter Coatrd Ant or by the school Budget and Fisnl Control 115C of the General statutes. Act. Kenneth T. Chavious Far the Smw-ry,lm W osaeramew C n mimoa oerasonew Uaa Fmsaw onew O%w type er pram. ctiKs.tun) t8igaraty) Date Date 4 Deloiffe & ToucheLLP Suite 1800 Telephone:(919)546-8000 A,m. First Union Capitol Center Telex:4995716 150 Fayetteville Street Mall Facsimile: (919)833-3276 P.O.Box 2778 Raleigh,North Carolina 27602-2778 May 31, 1996 The Board of County Commissioners Orange County,North Carolina Dear Ladies and Gentlemen: We are pleased to serve as independent accountants and auditors for Orange County,North Carolina for the year ending June 30, 1996. This letter reaffirms our contract with you dated May 31, 1996. Mr. K. Alan Lonbom will be the partner in charge of all work we perform for you. Wg believe that frequent and timely communication throughout the year reduces the problems that are often associated with an annual audit. In addition,we have found that we can often assist clients on current problems as they arise. We hope you will call Mr. Lonbom whenever you feel that 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 Mr. Lonbom in his absence or work with him when a second viewpoint is desired. Mr. Sam McNairy will be the consulting partner for your engagement. This letter sets forth our understanding of the terms and objective of our engagement, the nature and scope of the services we will provide, and the related fee arrangements. - We will audit Orange County's: • General purpose financial statements as of and for the year ending June 30, 1996 • Schedule of Federal and State Financial Assistance • Compliance with laws and regulations related to federal and state financial assistance. DToelel�To�he InUmafional 5 May 31, 1996 The Board of County Commissioners Page 2 Our audit will be conducted in accordance with the following standards: • Generally accepted auditing standards • Government Auditing Standards, issued by the Comptroller General of the United States • Office of Management and Budget Circular A-128,Audits of State and Local Governments dated April 12, 1985 • State Single Audit Implementation Act. The objective of an audit carried out in accordance with these standards and regulations is (i)the expression of our 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 organization in conformity with generally accepted accounting principles, (ii) whether the schedule of federal and state financial assistance is presented fairly in relation to the general purpose financial statements taken as a whole, (iii)the reporting on our determination whether the internal control structure provides reasonable assurance of compliance with federal and other laws and regulations; and (iv) the expression of an opinion on whether the organization complied with specific terms and conditions of its major federal and state award programs. Our audit will include tests of the accounting records of Orange County and such other procedures as we consider necessary to enable us to render the following reports: • Opinion on whether Orange County's general purpose financial statements are fairly presented, in all material respects, in conformity with generally accepted accounting principles • Report on the internal control structure related to our audit of the general purpose financial statements • Report on compliance with laws and regulations with which noncompliance may be material to the general purpose financial statements • Report on the Schedule of Federal and State Financial Assistance • Report on the internal control structure used in administering federal and state financial assistance programs 6 May 31, 1996 The Board of County Commissioners Page 3 • Opinion on compliance with the specific requirements related to major federal and state programs identified in the Schedule of Federal and State Financial Assistance • Report on compliance with general requirements of federal financial assistance programs • Report on compliance with specific program requirements related to nonmajor federal financial assistance program transactions selected for testing, if any. In addition, we will render a report on illegal acts and a report on findings and questioned costs, as required, depending on the results of our audit procedures. The management of Orange County is responsible for establishing and maintaining an internal control structure. To fulfill this responsibility, estimates and judgments by management are required to assess the expected benefits and related costs for internal control structure to provide management with reasonable, but not absolute, assurance that assets are safeguarded against loss from unauthorized use or disposition, and that transactions are executed in accordance with management's authorization and recorded properly to permit the preparation of financial statements in accordance with generally accepted accounting principles. Because of inherent limitations in any internal control structure, errors or irregularities may nevertheless occur and not be detected. Also, projection of any evaluation of the structure to future periods is subject to the risk that procedures may become inadequate because of changes in conditions, or that the effectiveness of the design and operation of policies and procedures may deteriorate. As part of our audit, we will consider the organization's internal control structure and assess control risk, as required by Government Auditing Standards and generally accepted auditing standards, for the purpose of establishing a basis for determining the nature,timing, and extent of auditing procedures necessary for expressing our opinion concerning the general purpose financial statements, and not to provide assurance on the internal control structure. The report on our understanding of the organization's internal control structure and the assessment of control risk made as part of the general purpose financial statement audit will include(1)the scope of our work in obtaining an understanding of the internal control structure and in assessing the control risk; (2)the organization's significant internal controls or control structure,including the controls established to ensure compliance with laws and regulations that have a material impact on the general purpose financial statements;and(3)the reportable conditions,if any, including the identification of material weaknesses identified as a result of our work in understanding and assessing the control risk. 7 May 31, 1996 The Board of County Commissioners Page 4 An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the general purpose financial statements and the schedule of federal and state financial assistance; therefore, our audit will involve judgment about the number of transactions to be examined and the areas to be tested. Also, we will plan and perform the audit to obtain reasonable assurance about whether the general purpose financial statements are free of material misstatement. 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, irregularities, or illegal acts, including fraud or defalcations,may exist and not be detected by us. Management is also responsible for compliance with laws, regulations, contracts, and grants, and for establishing and maintaining an internal control structure to assure such compliance with federal and state financial assistance program requirements. As part of obtaining reasonable assurance about whether the general purpose financial statements are free of material misstatement, we will perform tests of Orange County's compliance with certain provisions of laws,regulations, contracts and grants. However, our objective is not to provide an opinion on overall compliance with such provisions. As part of our audit of compliance with the general requirements of federal financial assistance programs and specific requirements of major federal and state programs, we will obtain an understanding of the organization's internal control structure related to administering major federal and state financial assistance programs and we will assess control risk as required by OMB Circular A-128 and the State Single Audit Implementation Act for the purpose of establishing the nature, timing, and extent of auditing procedures necessary for expressing our opinion concerning compliance with laws and regulations related to major federal,and state financial assistance programs and for expressing positive assurance as to items tested and negative assurance as to items not tested for general compliance requirements. As required by OMB Circular A-128,our audit will also include tests of transactions related to federal assistance 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, irregularities, or illegal acts,including fraud or defalcations,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-128. Our responsibility as auditors is limited to the period covered by our audit and does not extend to matters that arise during any later periods for which we have not been engaged as auditors and for which we have performed no auditing procedures. 8 ' May 31, 1996 The Board of County Commissioners Page 5 Similarly, in performing our audit we will be aware of the possibility that illegal acts may have occurred. However, it should be recognized that our audit provides no assurance that illegal acts generally will be detected, and only reasonable assurance that illegal acts having a direct and material effect on the determination of general purpose financial statements amounts will be detected. 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 request written representations from your attorneys as part of the engagement, and they may bill you for responding to this inquiry. It is our understanding that you will provide us with the basic information required for our audit and that you are responsible for the accuracy and completeness of that information. It also is our understanding that you are responsible for implementing the requirements of applicable 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. This responsibility includes the maintenance of adequate records and related internal control structure policies and procedures, the selection and application of appropriate accounting principles, and the safeguarding of assets. We understand that your employees will type all cash or other confirmations that we request and will locate any invoices selected by us for testing. As required by Government Auditing Standards, our report on our tests of compliance with applicable laws and regulations related to our audit of the general purpose financial statements will contain a statement of positive assurance on those items that were tested for compliance,negative assurance on those items not tested, and a description of all material instances of noncompliance. As required by OMB Circular A-128 and the State Single Audit Implementation Act, our report on compliance will contain our opinion on Orange County's compliance,in all material respects,with the laws and regulations that apply to its major federal and state financial assistance programs. With regard to transactions selected from nonmajor programs and with our procedures related to general requirements of federal financial assistance,our report on compliance will contain a statement of positive and negative assurance, as discussed above. 9 May 31, 1996 The Board of County Commissioners Page 6 Because, in addition to our report on the general purpose financial statements, the scope of the engagement includes an audit in accordance with Government Auditing Standards, the requirements of OMB Circular A-128 and the State Single Audit Implementation Act, our reports on compliance with laws and regulations, including legal compliance and reports on your systems of internal control may be accompanied by observations (findings) on your compliance or on your systems of internal control and a'schedule of questioned costs, if the results of our audit procedures require such observations or questioned costs. If any observations or findings are reported to you, you must provide a written corrective action plan under the requirements of the OMB Circular A-128 and the State Single Audit Implementation Act. Our audit is not specifically designed and cannot be relied on to disclose all reportable conditions (that is, significant deficiencies in the design or operation of the internal control structure). However, during the audit, if we become aware of such reportable conditions that affect the financial internal control systems or of ways that we believe management practices can be improved, we will communicate them to you in a separate letter. At the conclusion of the audit,we will request Orange County's management to provide us a representation letter that, among other things, will confirm management's responsibility for the preparation of the general purpose financial statements in conformity with generally accepted accounting principles, and availability of financial records and related data,the completeness and availability of all minutes of County Commissioners (and Committee)meetings, the absence of irregularities involving management or those employees who have significant roles in the control structure and, further, to confirm management's responsibility for compliance with laws and regulations, applicable to federal and state financial assistance programs. We understand that our reports on the internal control structure 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 and Members of the Board of County Commissioners, management, and officials of federal and state agencies. As required by Government Auditing Standards and OMB Circular A-128,we will maintain the working papers for a minimum of three years from the date of our reports. These working papers will be made available to representatives of the cognizant audit agency(or its designee), other government audit staffs,and/or the United States General Accounting Office upon their request and after they have properly notified you of their request to review the working papers. 10 i May 31, 1996 The Board of County Commissioners Page 7 Full Disclosure Under the Law Publications from the following organizations are considered by us in determining whether the Orange County financial statements include full disclosure under the law as required by the Local Government Commission Contract to Audit Accounts. Organization Publication United States Government Single Audit Act of 1984 OMB Circulars A-128 and A-133 Government Auditing Standards - Yellow Book State of North Carolina North Carolina G.S. 159.34 Annual Independent Audit; Rules and Regulations North Carolina Single Audit Implementation Act Government Accounting Standards Board Financial Reporting Standards National Council on Governmental Accounting Financial Reporting Standards American Institute of Certified Public Accountants Statement of Position 92-7 Financial Accounting Standards Board SFAS � 11 May 31, 1996 The Board of County Commissioners Page 8 Schedule of the Audit Our audit is scheduled for performance and completion as follows: Begin Complete Audit Performance.Schedule: Interim June 10, 1996 June 21, 1996 Year-end August 5, 1996 September 20, 1996 Audit Communications: Report on Audit of Financial Statements October, 1996 Other Communications Reportable Conditions, if any October, 1996 The fees indicated below anticipate assistance to be supplied by your personnel, including the preparation of schedules,analyses of accounts, and drafting of the comprehensive annual financial report(incorporating appropriate GASB pronouncements), which have been discussed with Mr. Ken Chavious, Finance Director. Meeting the dates for preparation of schedules and the report, as outlined on your client participation schedule, is crucial to our timely completion of the audit. If, for any reason, any of these items will not be completed by the due dates, you should notify us immediately to determine how to proceed, if our assistance will be needed, and to discuss any additional fees that may be necessary. We are, of course, available to assist you in other areas that might arise. Our fees are based on the amount of time required at various levels of responsibility,plus actual out- of-pocket expenses (travel,typing,telephone, etc.). We estimate that our total fees for this audit, including out-of-pocket costs,will be$58,250. We will notify you immediately of any circumstances we encounter which could significantly affect our estimate. We appreciate this opportunity to continue to serve Orange County and trust that our association will be a long and pleasant one. Yours trul , Q•� - L L� =� ERNST& YOUNG . 797 Seventh Avenue • Phone 212 m 3= . . Ne» York. 4ew York 10019 12 r To the Partners of Deloitte & Touche We have reviewed the system of quality control for the accountingg and auditing practice of Deloitte & Touche (the Firm) in effect for the year ended March 31, 1993. 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 Finn'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 a comment relating to certain policies and procedures or compliance with them. This matter was 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 in effect for the year ended March 31, 1993 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 22, 1993