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HomeMy WebLinkAboutAgenda - 05-03-2007-4dORANGE COUNTY BOARD OF COMMISSIONERS ACTION AGENDA ITEM ABSTRACT Meeting Date: May 3, 2007 Action Agenda Item No. q-- -C~ SUBJECT: 2007 Audit Contract DEPARTMENT: Finance PUBLIC HEARING: (Y/N) No ATTACHMENT(S): INFORMATION CONTACT: Audit Engagement Letter and Contract Ken Chavious, 245-2453 PURPOSE: To consider awarding a contract for the provision of audit services for the fiscal year ending June 30, 2007. BACKGROUND: In the spring of 2001,County staff pursued a request for proposal process for selection of an audit firm. The end result of this process was the selection of Cherry Bekaert and Holland as the County's auditors., During the last RFP process staff informed the Board that, in accordance with recommended financial practices, the RFP process, for audit services would be repeated every three to five years. The fiscal year ended June 30, .2006 marked the fith year with Cherry Bekaert, which represented atwo-year extension of the original three year commitment. During the presentation of the audit contract for the 2006 fiscal year last spring, the Board recommended that staff pursue a RFP process for the 2007 audit. Similar to the 2001 auditor selection process, an Audit Committee was formed in early March 2007 for the purpose of assisting the Finance Director in matters related to the selection of the County's auditors. This committee consists of the Finance Director, the Director of Purchasing and Central Services and the Budget Director. It is important to note the RFP process is not necessarily done to make a change, but to insure that the level and quality of services received by the County is adequate when compared to what others firms may have to offer. An RFP was drafted, reviewed and approved by the Committee. The RFP requested responses to various items specifically related to performing audit services for the County. The RFP was sent to 5 firms most noted for the performance of governmental audits. The committee received responses from only one firm. Inquiries of other firms yielded similar responses that included their ability to meet the County's timeframes citing other audit commitments. One of the firms stated that it was moving away from County audits due to the complexity and the level of staffing required and felt that their fees would not be competitive with smaller firms. There is noticeable trend in the audit industry of the larger firms moving away from governmental audits. The incumbent firm also chose not to respond due to similar reasons. The firm that did respond was McGladrey & Pullen, a highly recognized firm in the governmental auditing arena. In fact, the County worked with the McGladrey & Pullen firm in the past on the Y2K project. The committee chose to interview this firm, requesting that the firm bring to the interview those individuals proposed to work on the County's audit. This step was extremely important in determining the quality of service and level of experience to be provided. Evaluation criteria included, but was not limited to: • Experience levels of both the individuals and the firm with County audits; • Audits of Counties of comparable size and program type; • Ability to provide services which are required by the County from time to time and may fall outside the audit process; and • Other factors, such as degree of automation which would provide a more efficient means for producing the audit schedules and work papers, as well as the comprehensive annual financial report document. After interviewing McGladrey & Pullen representatives, the Audit Committee agreed that the firm meets the County's needs and is recommended for the following reasons: • Overall experience with audits of County governments; • The Firm's commitment to governmental accounting and other public finance issues; • This firm demonstrated extensive of knowledge regarding the new and existing GASB pronouncements; and • Further, the firm has demonstrated the ability to provide automation capabilities that will provide more efficient financial statement and audit schedule preparation that will save the County staff time in the production of the Comprehensive Annual Financial Report. The RFP asked for fee quotes on the County Audit as well as a separate audit of the SportsPlex. The fees proposed by McGladrey & Pullen were very competitive. For the 2007 audit, McGladrey & Pullen has proposed $73,500 for the Courity audit and $5,000 for the SportsPlex audit yielding a total cost of $78,500. As a point of comparison, the County paid Cherry Bekaert a total of $94,000 for the 2006 County and SportsPlex audits. The McGladrey & Pullen proposal represents a savings of $15,500 from the 2006 audit. The RFP requested quotes for a three year period. McGladrey & Pullen has proposed $82,425 for 2008 and $86,460 for 2009. Both quotes are below the $94,000 paid for the 2006 audit. The Board is requested to approve a contract for cone-year engagement,.with the intent to renew annually for each of the next three to five years. As a matter of policy, the Audit Committee has recommended that the RFP process be repeated every three (3) to five (5) years, as in the past. FINANCIAL IMPACT: As mentioned above, the first year cost of the audit will be $78,500 which includes the SportsPlex. The amounts proposed for years two and three ($82,425 and $86,460) will require approval by the Board each year for that year's audit. Funding will be included in the 2007-2008 budget to pay the costs of the 2007 audit. RECOMMENDATION(S): The Manager recommends that the Board award the audit contract for the fiscal year ended June 30, 2007 to McGladrey & Pullen and authorize the Chair to sign on behalf of the Board. McGladrey& Pullen Certified Public Accountants April 23, 2007 The Honorable Manager and Members of the County Commissioners Orange County, North Carolina P.O. Box 8181 Hillsborough, North Carolina 27278 McGladrey fi Pullen, LLP 230 North Elm 5t, Ste i10D, Greensboro, NG Z~401-2436 P.O. Box 247D, Greensboro, NC 27402.2470 0 336.273.4461 F 336.2142519 wwwmcgladreycom Attention: Mr. Kenneth T. Chavious, Finance Director This letter is to explain our understanding of the arrangements for the services we are to perform for the Orange County, North Carolina ("County") for the year ending June 30, 2007. We ask that you either confirm or amend this understanding. We will perform an audit of the County's governmental activities, business-type activities, discretely presented component unit, each major fund, and aggregate remaining fund information as of and for the year ending June 30, 20D7 which collectively comprise the basic financial statements. We understand that these financial statements will be prepared in accordance with 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. We will also perform the audit of the County as of June 30, 2007 so as to satisfy the audit requirements imposed by the Single Audit Act and the U.S. Office of Management and Budget ("OMB") Circular No. A-133 and the state of North Carolina Single Audit Implementation Act. We will conduct the audit in accordance with auditing standards generally accepted in the United States of America; GovemmentAuditingStanchrds issued by the Comptroller General of the United States; the provisions of the Single Audit Act, OMB Gircular A-133 and OMB's Compliance Supplement; 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 whether the financial statements are free of material misstatement whether caused by error, fraudulent financial reporting, or misappropriation of assets. Accordingly, a material misstatement, whether caused by error, fraudulent financial reporting, or misappropriation of assets, may remain undetected. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. As a result, an audit is not designed to detect errors or fraud that are immaterial to the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit will provide a reasonable basis for our reports. In addition to our reports on the County's financial 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 State awards for the year ending June 30, 2007. Reports on internal control related to the financial statements, and major programs. These reports will describe the scope of testing of internal control and the results of our tests of internal controls. McGiadrey & Pullen, LLP is a member firm of RSM International - an affiliation of separate and independent legal entities. 3. Orange County, North Carolina April 23, 2007 Page 2 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 financial statements and any noncompliance which could have a direct and material effect on each major program. A schedule of findings and questioned costs. Communication with the County's Board relating to the conduct of the audit as required by Government Auditing Standards. The funds that you have told us are maintained by the County and that are to be included as part of our audit are listed below: General fund Special revenue funds Capital projects funds Proprietary funds Fduciary funds The federal and state financial assistance programs that you have told us that the County participates in and that are to be included as part of the single audit compliance examination are fisted in Attachment 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 will be disclosed through discrete presentation as a component unit, as required by Governmental Accounting Standards Board ("GASB")14. Another CPA Firm will audit the Orange County ABC Board. Our reports on internal control will include any significant deficiencies and material weaknesses in the system of which we become aware as a result of obtaining an understanding of intemal control and performing tests of intemal control consistent with requirements of the standards and circular identfied above. Our reports on compliance will address material errors, fraud, 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 or loan program questioned costs of which we become aware, consistent with requirements of the standards and circulars identified above. If circumstances arise relating to the condition of the County's records, the availability of sufficient, competent evidential matter, or indications of a significant risk of material misstatement of the financial statements because of error, fraudulent financial reporting, misappropriation of assets, or noncompliance which in our professional judgment prevent us from complefing the audit or forming an opinion, we retain the unilateral right to take any course of action permitted by professional standards, including declining to express an opinion or issue a report, or withdrawal from the engagement. As you know, management is responsible for (1) the preparation of the County's financial statements and the schedule of Federal and State awards, (2) establishing and maintaining effective intemal control over financial reporting and safeguarding assets and internal control over compliance, including monitoring ongoing activities, and for informing us of all significant deficiencies in the design or operation of such controls of which it has knowledge (3) properly recording transactions in the records, (4) identifying and ensuring that the County complies with the laws and regulations applicable to its activities, and for informing us about ail known material violations of such laws or regulations, (5) the design and implementation of programs 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 intemal control and others where the fraud could have a material effect on the financial statements, (6) informing us of its knowledge of any allegations of fraud or suspected fraud affecting the entity 5 LGC-205 (Rev. i/112006) FRe in Triplicate. ~ ~ 23th CONTRACT TO AUDIT ACCOUNTS of Orange Conniy, North Cazolina Gover®earal Uai[ ~y of April 2007 McGladrey & Pullen, I.L1' P. O. Box 2470, Greensboro, NC 27402-2470 Anartnr Mnrlmg Address hereinaSer referred to as the Auditor, and the Commissioners o f Orange Colmty, NC hereinafter refeued Governing Board Governmental Unit to as the Crovemmental 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 tha Gover~ental Unit for the period beginning Jury 1 2006 and ending Sune 30 2007 .The, management's discussion and analysis, non-major combining, and individual fund statements and schedules shall be subjected to the auditing procedures applied in the audit of the basic financial statements and an opinion wiIl be rendered in mlation to (as applicable) the governmental activities, the business-type activities, the aggregate discretely presented component units, each major governmental and enterprise fiord, and the aggregate remaining fund information (nonmajor government and enterprise fiords, the internal service fund type, and tha fiduciary fund types). 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 Avditine Standards if required by the 9tata Single Audit hnplementation Act, as codified in G.S. 159-34. If requited by OMB Circular A-133 and the State Single Audit Implementation Ant, the auditor shall perform a Single Audit 3. This contract contemplates an unqual~ed opinion being rendered. If financial statements are not prepared in accordance with generally accepted accounting principles (GAAP), or the statements fa>7 to include all disclosures required by GAAP, explain that departure from GAAP in the space below: No deparhues are contemplated 4. This contract contemplates an unqual~ed opinion being rendered. The audit shall include such tests of the accounting records and such ether auditing gmcedurrs as are considered by the Auditor to be necessary in the churmtsiances. rltry limitations or restrictions in scope which would lead to a goal fr~tian should be fully explained in an attachment to this contrncr. The audit will have no scope limitations except: No limitations are contemphtted. 5. If this audit engagement is subject to the standards for audit as defined in Government Auditing Standards, issued by the ComptroIler 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 continrimg education as specified in Government Auditing Standards. The Auditor agrees to provide a copy of their most recent peer review report to the Governmental Unit and the Secretary of the Local Government Commission prior to the execution of the audit contrack (Sea Item 20.) 6. It is agreed that lima is of the essence in this contrack All audits are to be performed and the report of audit submitted by October 31 2007 7. It is agreed that generally accepted auditing standards include a review of the Governmental Unit's system of internal control and accosting as same relates to acceuntability 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 recommendntfons for impmvemenk That written report must include all matters defined as "reportable conditions" fn AU 325 of the AICPA Professional Standards. The Auditor shall file a copy of that report with the Secretary of Ore Loral Government Commission. 8. All IoCal government. and public authority contracts far annual or special audits, bookkeeping or oOrer assistance necessary to prepare Ore Unit's records for audit, financial statement preparation, any finance-related investigations, or any oOer 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 Ore Governmental Unit untitOre invoice bas been acamved by the Secretary of the Local Government Commission. (This also includes any empress biliinps.l [G.S. 159-34 and 115C-447] All invoices should be submitted in triplicate to Ore Secretary of the Local Government Commission. The original and one copy will be returned to the Auditor. Approval is not required an contracts and 'invoices for system improvements and similar services of a non-auditing nalm'e. 9. In consideration of the satisfactory performance of the provisions of this agreement, the Gover~ental Unit shell )ray to tha Auditor, upon approval by the Secretary of rho Local Government Commission, Ore following which includes arty cost the Auditor may incur from work paper or peer reviews or any other quality assurance program regrdred by third parties (Federal and State grantor and oversight agencies or oOer organizations) as required under Ora Federal and State Single Audit Acks: Year-end bookkeeping assistance - [For audits subject to Government AudrtingStandards, t/ds is limited to bookkeeping services permitted byrerdsedlndependenceStandards] NOS"~'^~D.~°~`tl"~~`~r°~6r'°p1s00~`aCVO'~~"~r'°`~` .r~,oooramecaa~~m.ssoinr~raxs~uera(~~remmmm~c~,r~cu. kn ~~~ i~woa~w,o,ero~<~~e~s~~nxmv„rmsaaoaea~. Audit - Preparation of the financial statements -s+.yvara<me wrn~~ arxaeawes orpA~ay~,~tvunw rorukTe,~orcmrd tor. Cm,bmn ~r trnr:n~en. 10. After completing his audit, the Auditor shall submit to the Governing Board a written mport of audik This mport shall include, at least, Management's Discussion and Analysis, the financial statements of the governmental unit and aIl of its component units and notes Orereto prepared in accordance wiOr generally accepted accounting principles, combining and supplementary information requested by Ore client or requtred for fitll disclosure under Ore law, and the Auditor's opinion on the malarial presented. The Auditor shall furnish Ore requaed mrmber of copies of the mport of audit to Ore Governing Board as soon as practical after the close of Oie 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 CoIlection Form, if a federal single audit is conducted. In addition, if the North Carolina Office of ffie State Auditor designates certain programs to tie audited as major programs, a one page turnaround document and a reptesentntion letter addressed to the State Auditor shaIl be subffitted to the Local Government Commission. Two copies of the report of audit should be submitted if the audit is performed only under the provisions of the State Single Audit Implementation Act or a financial audit is required to be performed in accordance with Government Auditing,Standards. Three copies of the audit should be submitted for CouncIls of Governments. OOrerwise, 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 dre services rendered. All copies of the report submitted must be bound. The report of audit, as filed widr ttre Secretary of the Loral 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 audited financial statements are used m the preparation of Official Statements for debt offerings (the auditors' opinion is not included), by muoicipai bond rating services, to fulfill secondary market disclosure requirements of the Semui6es and Exchange Commission, and other htwful purposes of the government, widrout subsequent consent of Ore auditor. 12. Should chcumstances disclosed by the audit call for a more detailed investigation by the Auditor bran necessary under ordinary circumstances, the Auditor shall inform the Governing Board in writing of the need for such additional investigation end 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 Govtnning Board and the Auditor. 13. If an approved contract needs to ba varied or changed for any reason, the change must be reduced to writing, signed by both parties, preaudited if necessary, and submitted m fire Secretary of the Local Government Comm+c:ion for approval. No change 14. Whenever the Auditor uses an engagement lettes with the client,. Item 15 may be completed by referencing the engagement letter and attaching a copy of the engagement letter to the contract to incorporate fire engagement letter into the contract In case of conflict between the te®s 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 connect are specifically deleted in Item 21 of this connect Engagement letters containing indemnification clauses wiIl not be approved by ffie Local Goverment Commission. 15. There are no special provisions except: The ouncLcd m*+~e_mlcaer is iu inmgal pmtoCWis connect andshould bo teld is hs cudtctY whmr id'ing this eanaacL 16. A separate wnnact should not be made for each division to be audited or report to tie 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 Loral Government Commission. The mailing address is 325 North Salisbury Street, Rateigh, North Carolina. 27603-1385. The ghysit~l address is 4505 Fair Meadow Lane, Suite 102, Raleigb, North Carolina 27607-6449. 18. Upon approval, the original contract wIll be returned to the Governmental Unit, a copy will be forwarded to the Auditor, and a copy retained by fire Secretary of the Local Government Cora**++~~+on The audit should not tie started befdre the contract is approved. 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 Government Auditing: Standards, then Item 5 shall be listed as a deleted provision in Item 21. An explanation must be given for deleting this provision 21. All of the above paragraphs are understood and shall apply to this agreement, except the following numbered paragraphs shall be deleted: (See Item 14.) Firm McGladrey & Pullen, T •T ,p By ,Sdhn Jam, V`1 /O~Y`TfJ. ~w~~nrr (Please~~t'y~p'e"'o~r~p'ri-nt~arne) "~ (Si~~~fma o~ oL~ audit Srm represeotativa) Hate ~{~.~.~/u Approved by the Secretary of the Local Government Commission as provided m Article 3, Chaper 159 of the t3eneml Statutes or Article 31, Part 3, Chapter I15C of the General Statutes. For the Secretary, Locat Government Commission Date (Signanue) By (Please type or print name and fide (Signahue of Mavor or Chairperson of governing boatel) Date By (Chnhpetson of Audit Committee (Please type or print name) (Signature of Audit Committee Chairperson) Date (If trait does nothave an audit commitia, this section should be marked "N/A'~ This instrument has been preaudited m the mavncr regdved by The Local Government Budget and Fiscal Connvl Act ar by the School Budget and Fiscal Coanel Act Govemmeatal TJnit Finance l';d§cer (Please type ar print name) (Signanue) Date (Preandit Cerf>ficate most be dated.) ~l/