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HomeMy WebLinkAboutAgenda - 04-15-2008-4fORANGE COUNTY BOARD OF COMMISSIONERS ACTION AGENDA ITEM ABSTRACT Meeting Date: April 15, 2008 Action Agenda Item No. ~_~ SUBJECT: 2008 Audit Contract DEPARTMENT: Finance PUBLIC HEARING: (Y/N) No ATTACHMENT(S): Audit Engagement Letter and Contract with McGladrey & Pullen INFORMATION CONTACT: Gary Humphreys 245-2453 PURPOSE: To consider approving the contract to perform the annual County audit for the fiscal year ending June 30, 2008. BACKGROUND: Last fiscal year, the County conducted a Request for Proposals (RFP) process for the selection of an audit firm to perform the County audit for the next 3-5 years. The firm of McGladrey & Pullen was awarded the contract. The firm provided quotes for the fiscal years 2007 through 2009. The quoted fee for performing the overall audit for fiscal year 2008 in the original proposal was $82,845: New risk based auditing standards SAS 104-111 have greatly increased the work of both the auditor and. the County. McGladrey & Pullen has proposed a total fee of $93,300 for the audit with the Sportplex to be included within the County statements, an increase of $10,455. This fee is still less than fee of $94,000 which the County paid for the fiscal year 2005/2006 prior to McGladrey & Pullen beginning work on the County's audit. FINANCIAL IMPACT: As stated above, the cost of the audit contract with McGladrey & Pullen to perform the audit is $93,300. Funding for this action was included in the FY2007-08 Central Services professional services account. RECOMMENDATION(S): The Manager recommends that the Board approve the audit contract for fiscal year 2007/2008 with McGladrey & Pullen and authorize the Chair to sign. 0 McGladrey& Pullen Certified Public Accountants March 24, 2008 The Honorable Manager and Members of the County Commissioners Orange County, North Carolina • P.O. Box 8181 Hillsborough, North Carolina 27276 Attention: Mr. Gary Humphreys, Financial Services Director McGladrey lx Pullen, UP 230 North Eini St, 5te.1100, Greensboro, NC 2740I•Z436 P.Q Box 2410, Greensboro, NC Z1402.24T0 0 336273.4461 r 336.274.2519 wwwmcgladreycom This letter is to explain our understanding of the arrangements for the senfices we are to per6orm for Orange County, North Carolina {the °County") for the year ending June 30, 2008. We ask that you either confirm or amend this understanding. Audit Services We win perfomr an audit of the County's governmental activities and major fund as of far the year ended June 30, 2008 which collectively comprise the basic financial statements. We understand that these financial statements will be prepared in at~coniance wtth accounting principles generally accepted in the United States of America. The objective~of an audit of financial statements is to express an opinion on those statements. 'INe will also peffiorm the autlit of the County as of June 30, 2008 so as to satisfy the audit n:gtiirements'impased by the Single Audit Act and the U.S. Office of Management and Budget (°OMB'~ Circular A-133. 1Ne will conducfthe audit"in acconiance with auditing standards gener~7ly accepted9 inlhe't~riititerf States of America and Government Audrfing Standaros issued by the Comptroller General of the United States; the provisions of the Single Audit Act, OMB CircularA-133 and OMB's Compliance Supplamenh, and the State Single Audit implementation Act. Those standards,.circulars, supplements or guides require'that we plan and perform the audit to obtain reasonable, rather than absolute, assurance about whetherthe financial statements are free of material misstatement whether caused by error or fraud. Aexordingiy, a rnateriat misstatement may remain undetected. Also, an audit is not designed to detect errors orftaud that are (mmateriai to the•financiai sfatemerrts. The determination of abuse is subjective; therefore, Government Auditing Standards do not expect us to provide reasonable assurance of detecting abuse. An audit of financrai statements also includes obtaining an understanding of internal control sufficient to plan the audit and to determine the nature, timing, and extent of audit procedures to be parfiarmed. An audit is not designed to .provide assurance on internal control or to identify significant deficiencies or material weaknesses. However, we will communicate tiff you and tD management any significant deficiencies or material weaknesses that become known to us during the course of the audit ' We will also communrcate th the board of county commissioners (a) any fraud involving senior management and fraud (whether caused by senior management or other employees) that causes a material misstatement of the financial statements, (b) any fraud, illegal acts, violations of.provisions of contracts or.grant agreements and abuse that come to our attention (unless they are clearly inconsequential), (c) any disagreements with management and ocher serious difficulties encountered in performing the audit, and (d) various matters related to the entity's accounting policies and financial statements. McGladrey & Pullen, LLP is a member Nnn of RSM Internationai- an aitiliation afseparate and independent legal entities. 0 Orange County, North Carolina March 24, 2008 Page 2 In addition to our reports on the County's financaal statements, we will also issue the following reports or types of reports: A report on the fairness of the presentation of the County's schedule of expenditures of Federal and Stabs awarcls for the year ending June 30, 2008. Reports on internal control related to the financaal statements and major programs. These reports will describe the scope oftesting of internal control and the results of our bests of internal controls. ~ . Reports on compliance with laws, regulations, and the provision of contracts or grant agreements. We will report on any noncompliance which could have a material effect on the financaal statements and any nor~ompiiance which could have a material effect, as defined by OMB Circular A 133, on each major program. A schedule of findings, responses, and questioned costs. Communication with the Counl)r's Board relating th the conduct of the audit as required by GovemmentAuditirrg Standards. The funds thatyou have told us are maintained by the County and that are fio be included as.part of our audit are listed below: General fund Special revenue funds Capital projects funds Proprietary funds . Fiduciary funds . The federal and state financial assistance programs thatyou have told us that the County participates in and chat are th be included as part of the single audit compliance examination are i(sted in Attachmerrt A. The component unit whose financial statements you have told us are to be combined with and included as part of the County's basic financial statements is the Orange County'ABC Board. The Orange County ABC Board wi11 be disclosed through' discrete presentation as a component unit, as required by Governmental Accounting Standards Board ("GASB714. Another CPA Firm will audit the Orange County ABC Board. Our reports on internal control wfil include any significant deficiencies and material weaknesses in the system of whkh we become aware as a result of obtaining an understanding of internal control and performing tests of internal control consistent wish requirements of the standards and circular identifed above. Our reports on compliance wdl address material errors, fraud, abuse, violations of compliance requirements, and other responsibilities imposed by state and federal statutes and regulations and assumed by contracts; and any state or federal grant, entitlement of loan program questioned costs of which we become aware, consistent with requirements of the standards and circulars identified above. 0 Orange County, North Carolina Marcfi 24, 2008 Page 3 Orange County, North Carolina's Responsibilities Management is responsible for the financial statements, including adjusting the financial statements to correct material misstatements, and for making all financial records and related information available to us. Management is responsble for provid'mg us with a written management representation letter confirming certain representations made during the course of our audit of the financial statements and affirming to us that it believes the effects of any uncorrected misstatements aggregated by us during the current engagement and pertaining to the latest period presented are immaterial, both individually and in the aggregate, to the financial statements taken as a whole and to the opinion units of the financial statements. Management is responsible for establishing and maintaining effective Internal control over financial reporting and far informing us of all significant deficiencies and material weaknesses in the design or operation of such controls of which it has knowledge. Management is responsible far identifying and ensuring that the entity complies wrth the laws and regulations applicable to i[s activities, and for informing us about ail known material violations of such laws or regulations. In .addition, management is responsible for the design and implementation of,ptograms and controls to prevent and detect fraud, and for informing us about ail known or suspected fraud affecting the entity involving management employees who have significant roles in internal control and others where the fraud cauid have a material effect on -- -the financial statements. Management is also responsble far informing us of its knowledge of any aliegatians of fraud or suspected fraud affecting the entity received in communications from employees, former employees, analysts, regulators, orothers. . Management is atsa responsible for (a}making us aware of sign'~ftcant vendor relationships where the vender is responsible for program compliance, (b) following up and taking corrective action ~on audit findings, including the preparation of a summary schedule of prior audit findings, and a corrective action plan, and (c) report distribution ~inciuding submitting the reporting packages. The Board of County Commissioners are responsible far informing us of its views abaut the risks of fraud within the entity, and its knowledge of any fraud or suspected fraud affecting the entity. The County agrees that our report on the financial statements will not to be included in an official statement or other document invohred with the sale of debt instruments wdhout our prior consent. Additionally, if the County intends to publish or otherwise reproduce the financial statements and/or make reference to us or our audit, you agree to provide us wrth printer's proofs or a maste"r for our review and consent before reproduction and/or release occurs. 'You also agree to provide us with a copy of the final reproduced material for our consent'befor~e it'is distn'buted or released. Our fees for any additional services that may be required under our quality assurance system as a result of the above wilt be established with you at the time such services are determined to be necessary. In the event our auditor/client n;lationstiip has'been'temiinated when the Organization seeks such consent, we wr"fi ~be under na obligation to grant such consent or approval. Our professional standards require that we perform certain additional procedures, on current and previous years' engagements, whenever a partner or professional employee leaves the firm and is subsequently employed by or associated with a client. Accordingly, the County agrees it will compensate McGladrey & Pullen, LLP for any additional costs incurred as a result ofthe employmerd of a partner or professional employee ofi~rlcGladrey'8~'Puilen, LLP. 0 Orange County, North Carolina March 24, 2008 Page 4 . During the course of our engagement, we may accumulate records containing data which should be reflected in your books and records. You will determine that all such data, if necessary, will be so reflected. Aa:ordingly, you will not expect us m maintain copies of such retards in our possession. The assistance to be supplied by organization personnel, including the preparation of schedules and analyses of accounts, has been discussed and cx~ordinated with Mr. Gary Humphreys, Fscai Agent. The timely and accurate completion of this work is an essential condition to our completion of the audit and issuance of our audit report. Other Terms of our Engagement Our fees are based on the time required by the individuals assigned to the engagemerrt,,plus direct expenses. Infiertm billings will be submitted as work progresses and as expenses are incurned. We will submit our bill for these services prompNy upon delivering the reports. Billings an: due upon submission. Our fee far the services described in this letter wi11 not exceed $88,300 and $5.,000 for the.pn±paration of schedules of.property tax receivables for the Towns of Chapel Hili, Cartboro and Hillsborough unless the scope of the engagement is changed, the assistance which the County has agreed to furnish is not provided, or unexpected conditions an=encountered, in which case we wBl discuss the situation withyou before.ptoceeding, if agreed to by the County by an amendment to the Contract. Any senrices performed in addition to normal audit procedures will be charged at standani rates. Any additional major programs above the four (4) major programs Hnll be billed at $4,000 each. All other provisions of this fetter will survive any fee adjustment. . The working papers for this engagement an: the property of McGladrey ~ Pullen, LLP. However, you acknowledge and grant your assent that representatives of the cognrzant or oversight agency or their designee, other govemment audit staffs, and the t7.S. Government Accountability Office shall have access to the audit working papers upon their request; and that we shall maintain the working papers for a period of at least three years after the date of the report, or far a longer period if we are requested to do so by the cognizant or oversight agency. Access to requested working papers wtil be provided under the supervision of McGladrey & Pullen, LLP audit personnel and at a location designated by our >=trm. in the event we are requested or authorized by the County or an: required by govemment regulation, subpoena, or other legal process to produce our documents or our personnel as witnesses with respect tQ our engagements for the County, the County wiq, so long as we are not a party to the proceeding in which the information is sought, reimburse . us for our professional time and expenses, as well as the fees and expenses of our counsel, incurred in responding to such requests. From time to time and depending upon the circumstances, we may use thud-party service providers to assist us in providing professional services to you. in such circumstances, it may be necessary for us to disclose confidential client information to them. We enter into confldentialityagreementswith alithird-party service provider; and we are satisfied that they have appropriate procedures in place th prevent the unauthorized retease of your confidential information to others. If circumstances arise relating to the .conditions of your reconis, the availability of sufficient, competent evidential matter, ar indications ofi a sign~icant risk of ma6erial m'~sstatement of the financial statements because ofi error, fraudulent financial reporting, misappropriation ofassets, or noncompiiancewhich inour professional judgment prevent us from completing the audit or forming an opinion, we retain the unilateral right to take any course of action penriittedby profiessional standards;'including dectiriing to express an opinion or'issue a report, or vr"~rawal from the engagement 0 Orange County, North Carolina . ~ March 24, 2008 Page 5 Any claim arising out of services renden:d pursuant to this agreement shall be resolved in accordance with the taws of the State of North Carolina. It is agreed by the County and McGiadrey & Pullen, LLP or anysuccessors in interest that no claim arising out of services rendered pursuant to this agreement by or on behalf of the County shall be~ asserted more than two years after the date of the last audit report issued by McGladrey & Pullen, IlP. You have informed us that you intend to prepare~a comprehensive annual financial report (°CAFR°) and submit itfor evaluation by the Government Finance Officers Association's Certificate of Achievement for Excellence in Financial Reporting. Our participation in the preparation of the CAFR is th consist of having the financial statement report reviewed by a person who is also a reviewer for the GFOA Certificate Program and have him involved in the resolution of arty accounting or reporting questions that arise during the engagement. We will assist in drafting the County's financial statements and preparation of schedules of property tax receivables for the Towns of Ghapef Hiil, Carrboro and Hillsborough, ail of which are reviewed and approved 6y management. The draft and schedules are the responsibility of management. The two overarching principles of the independence standards of the Government Audrt<ng Standards issued by the Comptroller General of the United States provide that management is responsible for the substantive outcomes of the work, and therefore, has a responsibility and is able th make any informed judgment on the results of the services described above. Accordingly, the Gountyr agrees bo the following: Mc Gary Humphreys, Financial 5ervrces Director, will tie accountable and responsible~for overseeing the draft of the County'sfinancial statements and preparation of schedules df properly tax receivables fortheTowns of Chapel Hiil, Carrboro and Hillsborough. The County will establish and mon'rtar'the ~peiformance of~the draft of~the ~Courit~s financial statements and preparation of schedules of properly tax receivables for the Towns of Chapel Hill, Carboro and Hillsborough to ensure that they meet management's objectives. The County will make any decisions that involve management functions related to the draft of the County's financial statements and preparation of schedules of property tax receivables forthe Towns of Chapel Hili, Carrboro and Hillsborough and will accept full responsibility for such decisions. The County will evaluate the adequaey of services performed and any findings that result. This letter constitutes the complete and exclusive statement of agreement between McGladrey 8~ Pullen, LAP and Orange County, North Carol'ma, superseding all proposals oral or written and all other communication, with respect to the terms of the engagement between the parties. in accordance with GovemmentAudrdng Standards, a copy of our most recent peer review report and applicable letter of comment is enclosed for your irrfornration. 0 Orange County, North Carolina March 24, 2006 Page 6 If this letter defines the arrangements as the County understands them, please sign and date the enclosed copy, and return it.to us. McGladrey & Pullen, LLP ~~~~n . John J. G I~erto, Parbrer Confirmed on behalf of Orange County, North Carolina: County Manager ..2008 This instrument has been preaudited in the manner required by the Local Government Budget and Fiscal Control Act Financial Services Director ' 2008 ®• Orange County, North Carolina March 24, 2008 Page 7 Attachment A Orange County's Federal and State Assistance Programs for the June 30; 20D8 Audit CFDA Numbed Federal GraMorlProgram Tltle Grant Number • Federal Awards: U. S. DepartmentofAgriculture: Direct Program: Soil And Water Conservation 10.902 Passed=Through N. C. Department of'Heatttr and Human Services: Division of Social Services: Food Stamp Cluster. ' Food Stamps -direct benefit payments 10.561 Food Stamps Administration ~ 10.561 Food~Stamp Fraud Admin 10.561 Food Stamps E&T & Depend Care 10.561 U. S. Department of Housing and Urban Development; Uit!ectPtggrams: lower income Housing Assistance: Section 8 Vouchers 14.182 Home Investment Partnership Program 14.239 • Cooperative Fair Housing Assistance Program ~ ' 14.401 Passed-T~rrnugh~N:G. Depar#ment•of Comme-ce: Division of Community Assistance: . Community Development Block Grant- Small Cities 14.219 l1. S. Department of Justice - Ott'ice of Justice'Programs: ' Passed through N.C. Department of Justice: Local law Enforcement Block Grant ~ ~ 16,592 COPS More 16.710 COPS in School 16.710 Passed-Through•1he City of~Durtram: ' COPS Overtime Program Grant ~ 16.710 U. S. Department of Transportation: Passed Through N. G. Department ofiTransportation: Governor's Highway Safety Program 20.600 U.S. Election Assistance Gommission: Passed Through N.C. State Board of Elections: . HAVA Grant 90.401 . U. S. Department•of~lealth~and~Human~Servirrys: Passed-Through N. C. Department of Health and Human Services or Triangle J Council of Governments or Admiriisttaitionfor Ctrildrenand Families: Division of Aging and Adult Services: DevelopmentAgingCtuster. ' Grants for Supportive Services and Senior Centers 93.044 ' 0 Orange County, North Carolina March 24, 2008 Page 8 Division of Child Development: Subsidrzed Child Care Cluster. Child Dare •Development Fund-Administration 93.596 Ghiid Cate and Development Fund -Discretionary 93.575• Child Care and Development Fund -Mandatory 93.596 ~ Chiitl Gare and Development'Fund -March 93.596 Social Services Block Grant ~ 93.667 Temporary Assistance for Needy Families 93.558 State Appropriations TANF-MOE Division of Medical Assistance: Medical Assistance Ciustec Medical Assistance Program -direct benefit payments 93.778 Adult Care~Home Case7aanagement 93.778 Medicaid Expansion 93.778 Medical Assistance Administration 93.778 Medical Transportation Administration 93.778 Medical Transportation Services 93.778 Division•ofPublicfiealth: • Family Planning 93.217 Immunization ProgramlAid to County Funding ~ 93.268 Biotetrorism Grant 93.283 Center for Disease Control and Prevention ~ 93.283 Temporary Assistance for Needy Families 93.558 HIV State Funds -Sexually Transmitted Diseases Communicable Disease Expansion Budget , 93.944 Statewide Health Promotion Program 93.991 Matemai and Child Health Services Block Grant 93.994 Division of Social Services: 5ocral Services Block Grant 93.667 Social Services Block Grant - In Home Services 93.667 Social Services Block Grant -Adult Daycare 93.6ti7 7ANF•Domestic Valence ~ 93.558 TANF Work FirstAdmin 93.558 TANF- Work•First Service 93.558 TANF Payments tii Penalties 93.558 AFDC Payments &•Penalties 93.560 Crisis Intervention Payments 93.568 Low Income Energy Administration ~ 93.568 • Energy Assistance Payment ~ 93.568 Refugee Assistance Payment 93.566 Adolescent Parenting 83.645 •Permanency Planning -Regular 93.645 Permanency Planning -Spec 93.645 N B Adopt Guardianship 93.645 I© Orange County, Narth Carolina Maroh 24, 2008 Page 9 • NC Health Choice 93.767 Independent Living -LINKS 93.674 Links Transitional Funds •93.674 Links 93.674 IV D Administration 93.563 'N D Offset Fees -Esc ~ 93.563 11/ D Offset Fees -Federal 93.563 Foster Care and Adoption Cluster. N E CPS 93.658 IV E Foster Care/OErTm ~ 93.658 •IV-E FosterCare/ Off Tm 93:658 IV-E Waiver 93.658 IV E Admin County Paid to CC) 93.658 IV=E Foster Care 93.658 Foster Care 93.658 IV E Foster Care in Excess 93.658 IV E Waiver Foster Care 93.658 IV E Optional Adoption 93.659 i ~/ E Adopt Guardianship 93:659 N-E Adopt Subsidy &Vendor ~ 93.659 11/ E Adoption Training 93.659 Corrlieoration forNational and Commuri'dy Senrics: Direct Programs: Aging Action Retired Senior Volunteer Program ~ 94.002 U. S. Department of Homeland Security: • Passed-Through N. C. Department of Crime Control and Public Safety Emergency Management Emergency~Management Performance Grant 97.042 Hazard Mitigation Grant 97.039 Passed Through fhe City ofDuiham: CERT Program Grant 97.054 State Awards: N. C. Department of Health and Human Services: Division of Social Services: AFDC incent/Prog Integrity TANF Incent/Prog integrity CPS Expansion CWS Adopt Subsidy &Vendor State/County Special Assistance Domiciliary Care Payment F/C at risk maximization State Foster Home State Aid to Counties Static County Special Assistance tl Orange County, North Carolina March 24, 2008 Page 10 Work First Non Reimbursable Non-Allocating County Cost County Funded Programs Office of Juvenile Justice: Community Based Alternatives 536920 D'nn5ion of Public Flealth; General Communicable Disease Tuberculosis Risk ReductioNHealth Promotion TB Medical SeNICeS N. C. Department of Transportation: Rural Operating Assistance Program Cluster . 'human SeniiceTransportationNlanagementProgram N. C. Department of Cultural Resources: State Arts Grant 0010410 Division of State Library: Passed Through Hyconeechee Regional Library: . State Aid to Public Libraries N. C. Department of Crime Control and Public Safety: Bioterrorism State Funds 536961: 4514 - 4517 N. C. Division of Health Services: Biotemarism State Funds N. C. Departmentof Public Instruction: Public School Building Capital Fund:' N.C. Education Lottery Proceeds Corporate income tax collections ~a Orange County, North Carolina Mach 24, 2008 Page 11 To the Partners of McGladrey & Pullen, LLP ' and the Center for Public Company Audit F'nms Pees•lteview Committee We have reviewed the system ofgnality control for the accaunting•and auditing practice of McGladrey8c•Pullea, LLP•(the•Firm)•applicable~to •naa-SEC-issnecs•in•effect forthe yearended Apri130, 2007. The Fmn'.s accounting and auditing practice applicable to SEC issuers was not reviewed by us, since the Public Compmry Accounting Oversight Bomd (PCAOB) is responsrble ..for inspecting thatportion of the•Fimr's accounting and auditing piraotice in accordance wikh PCAOB requirements. A system of quality control encompasses the Fnm's organizational structure and the policies adopted and procedures established to provide it with reasonable assurance of complying with professional•standards. The elements of quality control are described in the Statements on Quality Control Standards issued by the American Institute of Certified Public Accountants (the AICPA). The desiga of the system, and compliance with it, are the responsibr7itien of the Firm. Our respansibilityis to express•an opinion on•the desiga of the system, and the Firm's compliance with that system based on our review. •Our review was conducted in accordance with atandards~established by tliePeer3s,~eview Committee of the Center for Public Company Audit Firms and included procedmes to plan and perform the review that ere summarized in the attached description of the peen review process. Onr review would not necessarily disclose aU weakae.9ses is the system of quality, control or all instances of lack of compliance with it since it was based on selective tests. Because there are inherent limitations in the effectiveness of any systan of gaaiity control, departares from the system may occur and not bedetected. Also; projection of any evahration of a system of quality control to future periods is subject to the risk that the system of quality control may became inadequate because of changes in conditions, ar that the degree of compliance with the policies or procedures may deteriorate. In our opinion, the system of quality control for the accounting and auditing practice applicable . to the ace-SEC issuers of McGladtey & Pullen, L•LP in effect for the year eroded Apri130, 2007, has been designed to meet the requirements of the quality control standards for an accounting and auditing practice established by the AICPA, and was• complied with during the year then • ended to provide the~Firm with reasonable assurance of complying with applicable professional standards. * ~ ~ As is customary in a peer review, we have issued a letter ender this date that sets forth comme~s relating td curtain policies and procedures or compliance with them. The matters described in the letter were not considered to be afsnfficient significanee to affect the opinion expressed~in.this report. ~~-~~y`~ November 30, 2009 • wemF~c~ rnoou,~,s~as„na,wo ~~a, Praacl~V. 3D388f151fi Fra3'Da42f'f't05 ~ppmetpp.' 6kd.cant tleyssd Yom Nsmbera aNGEPE110E11TNF14Y6 13 Orange County, North Carolina March 24, 2006 Page 11 '. To the Partners ofMcGladrey & Pullen, I.1;].' and•dre~Center for Rubliat"ompany Audit•Firms Peer•lteview•Conumttee We have reviewedi the system of gnelity control for the accomrting and auditing practice of McGladrey.c~ •Paliea, LLP•(the Rirm).epplicable.to •non-SEC issueas in•effeet forthe yearended Apri130, 2007. The Firm's accounting and auditing practice applicable to SEC issaers was not reviewed by us, since the Public Company Accounting Oversight Board (PCAOB) is responsible •for inspecting that•gortion of the Firm's accounting and auditing praetice•in acxvrdance with PCAOB regair+ementa. A system of gaality control earoompasses the F'un's organizational structure and the policies adopted and procedures established to provide it with reasonab]e assurance of complying with professional•standatds. The elements of gnality•eantrol•are described in the Statements on Quality Control Standards issued by the American lnstitate of Certified Public Accountants (the AICPA). The design of the system, and compliance with it, are the nrsponsibr7ities ofthe Firm. Our respansibilityis to express•an opinion onthe design of the system, and the Finn's compliance with that system based on burr review. Uur review was conducted in. accordance with standards•established by the Peer iteview Committee of the Center for Public Company Audit Fhms and included procedares to plan and perform the review that ate summarized in the attached description ofthe peer review process. Oar review would not nexssarily disclose aU weaknesses in the system of quality control or all instances of lack of compliance with it since it was based an selective testa. Becaase there are inherent limitations in the offectiveness of any system of quality control, depatlnres from the system may oeaa and not be detected. Also,•projectioa ofany evahurtion of asystem of quality control to future periods is subject to the risk that the system of quality control may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriarate.• In our opinion, the system of quality control for the accounting and auditing practice applicable to the non-SEC isstrats of McGladrey & Pullen, LLP in effect for the year ended Apri130, 2007, has been designed to meet the requirements of the quality control standards for an accounting and auditing practice established by the AICPA, and was complied with during the year then ended W provide the•Fimr with reasonable assurance of rwmplyurg with applicabIa pmfessiondl standards. ~ # As is customary in a peer review, we have issued a letter under this date chat sets forth comments relatirrg'to certain policies and procedures ar compliance with them. The matters described in the letter were not considered to be ofsnfficientsigaiiicaace to affect the opinion expressed•in this report. November 30, 2007 '~~'0•r` ~a~~' ~~' ,coeoaa~s7+ PPcAAlxt ~Y.p 61pl.~m BeYSm1 Yost tt[diibera /MUEPEliP~~UT FIflMB i4 Lcc-ws (tzCr. uttzoa7l CONTRACT TO AUDTT ACCOUNTS F!leiaTrtpllata. Orange County, North Carolina of Govenmtmtd Gait On ~ 24th day of March , 2DD8 McGiadtEy & Pullen, l1P Auditor P.O. Box 2470, Greensboro, NC 27402-2470 Mm7ing Addtas .hereineftareferred toes the Autiito ,and the Commissioners of Orange County, NorRi Carolina , here'ineRer refetred GoverningHoerd GovemmentntUnit to as the Governmental Unit, egtee as follows: t. The Auditor (:ball audit all statements and disclosures squired by geaemlly accepted accounting principles end additional re9titred legal statements and disclosures of all fonds andlor dfvisians of tho Govcrnmrntal Unit far tho period beginning .tyr 7DO7 . and ending .~.so . ~ The nonrnajor combining, and individual fend statemrnts and schedules shall be subjected to the auditing procedures applied in the audit of the basic financial atatemrnts and an opinion will be readered in relation to (as applicablo) the govermnentel nctivides, tits business-typo activi6cs, the aggsgate discretely presented componrnt ratite, each tmjar governmental and rntegrrise Sand, and the aggregate remaining fiord information (nomnajor government and enterprise fiends, the internal service [imd type, and the fiduciary fund types). 2. At a minimtmt, the Auditor shell conduct hiUhar audit and render bisTher report in accordance with generally accepted wd[ting staadetds. The Auditor shell perform the audit is accordance with Govemme Avdittn¢ Stendmds if required by the State Single Audit Implementation Act, as codified in G.S. I59-34. If squtsd by OMB Circular A-133 and the Stato Singio Audit Implementation Act, the auditor shall perform a Single Audit. 3. Thin contract wntempfares an unqualifred opinion being rendered If financial smtcmrnts are not prepared in nccordwce with getterally accepted accounting principles (GAAP), or Ilse statemrnls fail to include all d(sclosmca rcqu'tsd by GAAP, explain that departure from GAAF in the space below: No doparwrns rem cantomplntad 4. This connract contemplarra an unguafified opinion bdng rendered lira audit shall include such torts of tare accounting scords and each other auditing procultues ns ns cottsttiered by the Auditor to be necessary in tho citcumstancos. Arty IhnUatians or rrstrietions la scope tvhieh would lead to a guai~callan shmdd be fully esplafned to an attachment to This contract. The audit wiD have no scope limitations except: ~No Ilmitations are tmntempielad s. IF thiv wdit engagement is subject to the standards for audit as defined in Government Auditing Standards. issued by the Comptroller Grncrnt of tho United Status, titer the Aadittu warrants by accepting this engagement that he has met the requiroments for a peer review and continuing education as specified in Government Auditine Standatds. Tho Auditor agrees to provide a copy of Choir most recent peer sview report to tiro Govormnental Unit and dro Secretary of We Local Government Commission prior L the execution of the audit contract. (See Item TA.) 6. It is agreed that time is of the esseatx in this contract. AU audits are to 6e performed and the sport of audit submitted by October31 2008 7. it is agreed that grneraliy accepted auditing standazda include a review of the Gavetnmentnl Unit's system of internal control and aewuniing as earn( slates to accatmtnbSliry of funds mtd atiherrntx to budget and law regniremrnts applitatble Westo; that the Auditorwill mako a tvrincn report, which tray ar may not bo a part of the written sport of andiy to the Governing Board setting forth his findings, togadter with his scommendntions For improvemeat. 'that carillon report most include all matters defined as "sigtdficont deficiencies and material weaimesses" in AU 3Z5 of the p1CPA Professiennl Standntds. The Auditor shall file a cony gjjfiet report with tho Secretory of theJ.ocnl Government Commission. 6. Alt local govermnent and public authority eotrtracts for annual or special audits, bookkeoping or odtor assistance necessary to prepare the Unit's records for oudit, fimtncisl slntemem pspamtion, nay fmanon-slated investigntioas, or any other audit-sintod work in the State of North Carolina require ttte approval of the Secretary of the Local Government Commission. Invoices for carYl£a° rendered tmdaf these comracts shalt not be acid by the Govemmenlni Unit anti( the invoice }ras been naaroved 6v the e ~ of the Local Governmrnt Commission. (Ttus also mcindes any omarcss 6dhnasl [G.S..159 34 and IISC-447) All imrottxs shwld be submitted in triplicate w the Secretary of the Loca! Gavernmeat Commissioa. The original and one copy wUl be rehuaed to the Auditor. Approval is not required on contends and invoices for system improvemems sad similar services of a non-nnditiognnttue. 9. Tn considerntion of the antisfadory perfatmnnce of the provisions of (Iris egreemrnt, the Governmental Unit shaD pay m the Auditor, ttpon approval by the Secstary of the Local Goverrunrnt Commission, the fa0otvine Foe which includes any cost the Auditor tray inwr from work paper or peer reviews or arty other quality assurance program required by third Parties (Patera! and Stau grantor and oversight agrncies or other orgnn'vntions) as required under the Fedorai'and Stato Singlo Aud'u Acts: Year=sad bookkeeping assistance-(For audits subfeet to Goterturtent Auditing Standards, Jbis is limited to boahkerping ecru/cespermiNedbgrevLredfndcpendrnceSYaadardsJ ~°nr'"'~"'~°""°"'dd'°"'°"d"m"'°""`°aw.pdaw,~wam. Andtt- a~mit4+m~^7rmm.W>»dY,gi~rraG6W~/eYnf NrlaE,bMiWM~IrpM,INr1M,k~.N7+~Iwbrp~panf t0a,lerNl~bbCmMNl~wc0. Ftreparatlonofthefianncialetalaments- ~~°0°t"a"P"P°rte"a'a'w"°w°v"'rr`r"°w'°u'r«a"T°""`accam.ru°'n`ot~o"mawaaa'wn ID. Ails completing his audit, the Auditor shall submit to the Governing Hoard o wrinrn sport of audit. This sport shall include, at least, Mmtagemrnt's Discussion and Analysis, dto financial statements of the governmental unit and all of i1a component units and notes dtetcto ptepmed in accordance with generally accepted aceounting Principles, combining and supplemrntary infommtion requested by Ute clieot of requited for full disclosure undo Cho law, and the Auditor's opinion on the mntedat prrsrnttxl. The Avtlitor shall huaish the legated mtmber of copies of the report of audit to the Governing Hoard as soon as pendicat aRa the close of dte accounting period. ' 15 lL The And[tor shall IIle with flu Local Gwer~eat Commission two copies of Ute repari of audit, iacludiog one copy of the federal Data Collection Form, if a Cedernt single audit is wnducted in addition, if the North Carolina Office of the State Andikr dosignnke attain programs to be audited as raajorprogratav, a one page tumamtmd doatarem and a ropreseatation lean addrossed to the State Auditor shall be, submiaed to the Loca! Gwemmeat Commission. Two copies of the report of audit should be submitted if the audit is performed only undo the provisions of the Stale Slagle Audit Implementation Act or a financial audit is tequlrat to be paimmed in eaordanx with Gwunment uditytg Standards. Thrrx copies of the audit should tie snbroiued for Cotmcps of Govetnmenu. Two copies ottere nadir should tie submiaed for tax levying MttnicipalBica. Otherwise, sae copy shill tie submiaed. Copies of the report shell be Tiled with the Local GwanmeW Camrnission when (or prior to) submiaing the invoice for the services rendered. All copies of Ote report submitted toast be bennd The report of audit, ac &led with the Secictmy of the Local Government Commission, becomes a maser of public record For iaspcctlon and review in the a[Sces of We Secrdary by airy interested pMies. Any subsequent revisions to these reports wmt be acrt m the Secretary of the Local Gwanmau Commission These aut8ted fannitdnl stetemems are ared is the preparation of Official Statements for deM offerings (tire auditors' opimoa is not incinded), by anmicipal bond mtiag sorviast k fidfdl secondary market disclosuro rcgiriremema of the SxariGea and Exchange Commission, and other Lrwfui purposes oftlte govemmeat, without aubcequent concern ofthe auditor. !2. Should c'veumstmccs disclosed by Iho nudu call for a mots detafled investigation by the Auditor rhea necessary undo ordinary cim®tatmas, the Auditor sits!! inform the Gwetning Hoard in writing otthe neat for sack nddiGonal investigation and the additiomt emnpensation cequiitd thercforc. Upon approval by the Secretary of rho Locd Govtxnmeat Commission,this agreement may bo varied or changai to inchule the increased time md/or compeosetion es may tie agreed upon by the Gweming Hoard and the Auditor. l3. If an approval watroct mails to be varied or changed for any mason, the chmge most tie rcdnrxd to wining, signed by both posties, prtmtidited if necessary, aced submitted to the StxTaery of the Loco! Gwanmertt Co>mnissioa for approval c a shall be effea(v~tsal_~ etmroved by the Secrctarvof aieLocal Gwemment Commission. the Govemina Homd and the Auditor. l4. Wheaeva rho Andikr uses an ettgngemeat later with the client, Item LS may be comph:ted by rcfereaeing the rngagement letter and attaching n copy of the engngtmwt totter to the contract to incorpomk the engagement letter lino the contract In case of conflict between the krms of Cht: erigagemont lolls and the terms oC ails wntract, the forms of tide wntraet wiU conceal. Engagement letter tams arc da:med k be void unless the conflictwg terms of lids twntmet me speaGarlly delekd is Item 2I of this connaot Engagemem lepers conkining indemnification cianseswilt not be approved by the Local Government CotamIssion. 15. lhnrenrenospeciatprovisionsexcept: n,.w„iwt,v,.~,m.,tw.,t<.ot~yartarteomeanu,o.n«ne.nnhe,«~re.ryww,neuosoamm+n Ili. A separate coatmet Id n t be mods for each division ro be audied or report to ba submitted. A sepamk wntract must bo executed for each componeal tmft which is n local govemmeat and iorwbich a separate audit report ie issued 17. Tho watratri should be exccutcd and submitted in trio8cak w tlic Seaetary of die Local Gwcrnmcm Commission. Thu mailing address is 325 North Selisbmy Street, Raleigh, Nonh Carolina 27603-1385. The physical address is 4505 Fair Meadow Leae, Suite I02, Raleigh, Notch Carolina 27607-6449. 18. Upon approval, rho original contract will be returned to the Govemmmud Uait, a copy wA16e forwarded to the Audits ,and a wpy rcteinai 6y the Secretary of the Local Gwernmrnt Commission. The audit shoal not tie started~Foro the contrnd_is a v l9. ?here arc no other egreemcnis betareen the parties boas and no other ogreemenis relative hereto that shall be enfottxablc unless colored into in accordance widr the procedure set om herein end approved by the Secretary of Oie Local Government Commission. 20. If this audit engagement is not subject m Owomment Auditing Standerds, ihrn Item 5 shall be listed es a deleted provision in Item 2I. An expiaaatian must be gives for deleting this provision 21. All of the above pamgmphs are tmderstaod aced shall apply to this agtcemeat, except the iollawing mrnbeied pamgtapha shall be deleted: (Sao Ikm l4.) ~~ McGladrey & Pullen, LIP HY ' (Please type or print rt®te and 11~ Hy John J. Gilberto, Partr-er 1 type r nt' ' ) Signature authorized audit firm mpresemmive) nak March 24, 2008 Approved by We Secretary of We t.oeal Goveromrnt Commluioa u providal in Aside 3, Chapter t59 at fix Clweml Stanna or Ankle 31, Put 3, Chapter I ISC of the Geaeal Staaoes. For the Seeretary, Local Gwemmmt Commission (Sigmture} Date (Sigaatore of Mawr or~,an of governing board) Dale Hy (Cha'uperaon o[AUdit Committee (Please type orpriat name) (Signature of Audit Committee Cfinirpason) Dale (If strut does eat bsve as audit wmoiritx, this aectim should be ntat3red "N/A.'~ 'This imtrumeN !ms Fiem prr~idired is the menace required by Taa Iacot Doveraoxat Btidga aced Ftseat Como! Aa or hY the Sctual Budget and Fiscal Control Act l3ovaammiai Unit Fmenee Otgew(Pleou typo of punt n>onr)' (Sigmture) Date (Preandlt Cettillcate must be dated.)