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HomeMy WebLinkAboutAgenda - 06-05-2001-9bORANGE COUNTY BOARD OF COMMISSIONERS . ACTION AGENDA ITEM ABSTRACT Meeting Date: June 5, 2001 Action Agenda Item No. SUBJECT: Contracts with Cherry, Bekaert 8~ Holland for Financial Auditing Services DEPARTMENT: Finance PUBLIC HEARING: (Y/N) No ATTACHMENT(S): Audit Engagement Letter and Contract GASB 34 Implementation Engagement Letter INFORMATION CONTACT: Ken Chaviaus, ext 2453 TELEPHONE NUMBERS: Hillsborough Chapel Hill Durham Mebane 732-8181 868.4501 - 688-7331 336-227-2031 PURPOSE: To consider approving contracts with Cherry, Bekaert, & Holland, LLP for the provision of audit services for the fiscal year ending June 30, 2001 and for assessment and initial implementation services associated with Governmental Accounting Standards Board (GASB) Statement 34. BACKGROUND: In the spring of 1997, County staff pursued a Request for Proposal (RFP) process far selection of an audit firm. The end result of that process was the BOCC's approval of the selection of Deloitte & Tauche 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 ending June 30, 2000 marked the fourth year with Deloitte & Touche, which represented cone-year extension of the original three-year commitment. After a reassessment. of the past four years, staff decided to pursue a RFP process far the audit for the fiscal year ending June 30, 2001. Similar to the 1997 auditor selection process, an Audit Committee was formed in early March 2001 for the purpose of assisting the Finance Director in matters related to the selection of the County's auditors as well as reviewing other audit related matters throughout the annual audit process. This committee consists of the Finance Director, the Director of Purchasing and Central Services, the Director of Revenue, and the Assistant County Manager. It is importan_ t to note that the RFP process is not necessarily done to make a change in audit firms, but to ensure that the level and quality of services received by the County are adequate when compared to what others firms may have to offer. A RFP was drafted, reviewed and approved by the Committee in early April, 2001. The RFP requested responses to various items specifically related to performing audit services for the County. In addition, audit firms were asked to provide information on auditing services related to the implementation of GASB 34 which would impact the County next fiscal year ending June 30, 2002. The RFP was sent to the top four firms located in this area of the state most noted for the performance of governmental audits. The committee received responses from all four firms with fee quotes ranging from $57,500 to $71,500, exclusive of the charges for GASB 34. The charges for GASB 34 ranged from. a low of $4,500 to a high of $40,000,, depending an the assistance the County would require from the firm in the implementation phase. The committee chose to interview all four firms, requesting that each 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 by each firm in the performance of the County's audit and the GASB 34 initiative. Evaluation criteria included, but were not limited to: • Experience levels of both the individuals and the firm with County audits; • Audits of Counties of comparable size and program type; • GASB 34 implementation and training experience; • 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 audit document. The Audit Committee agreed that the firm of Cherry, Bekaert & Holland would best meet the County's needs and is recommended for the following reasons: • Best overall experience with audits of County governments • The Firm's major focus overall is governmental accounting and other public finance issues • This firm demonstrated extensive knowledge regarding the new standards for GASB 34 implementation and training. In fact, this firm is was the only one of the four that has actually performed a GASB 34 implementation project. • 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. • While cost is not the major consideration in the selection of audit or other professional services, this firm was the low bidder for-audit services at $57,500 for the first year. This amount is approximately $9,000 less than the amount paid for this service for 2000. The Board is requested to approve a contract for cone-year engagement, with the intent to renew annually for three to five years. In addition, the Board is asked to approve an engagement with the firm far the assessment phase and initial implementation phase of GASB 34. 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 cast of the audit will be $57,500. The amounts proposed for years two and three ($64,000 and $64,000) will require approval by the Board each year for that year's audit. The amount proposed for the assessment and initial implementation phases of GASB 34 is $25,000. These amounts have been included in the Central Services Budget for the 2001-2002 fiscal year. RECOMMENDATION(S): The Manager recommends that the Board: 1. Approve a contract for audit services for fiscal year ending June 30, 2001 at a cost not to exceed $57,500 and authorize the Chair to sign it on behalf of the Board; and 2. Authorize the use of Cherry, Bekaert, & Holland to conduct certain assessments related to GASB 34 implementation at a cost not to exceed $25,000, and authorize the Chair to sign the engagement letter on behalf of the Board. 3q May 23, 2001 Mr. Kenneth T. Chavious, Finance Director Orange County 208 S. Cameron Street P.o. Box 81x1 Hillsborough, North Cazolina 27278 Deaz Mr. Chavious: This letter of arrangement between Orange County (the "County") and Cherry, Bekaert & Holland, L.L.P. sets forth the nature and scope of the services we will provide, the County's required involvement and assistance in support of our services, the related fee arrangements and other terms and conditions designed to assure that our professional services are performed to achieve the mutually agreed upon objectives of the County. SUMMARY OF SERVICES We will audit the general purpose financial statements of the County as of and for the yeaz ending June 30, 2001, in accordance with generally accepted auditing sandazds; Government Auditing Standards, issued by the Comptroller General of the United States; the Single Audit Act of 1996; the provisions of OMB Circulaz A-133; and the State Single Audit Implementation Act, and will include test of accounting records, a determination of Major Programs in accordance with Circulaz A-133 (and the State Single Audit Implementation Act), and other procedures deemed necessary to enable us to express such an opinion and to render the required reports. The objective of an audit is the expression of our opinion concerning whether the general purpose financial statements present fairly, in all material respects, the financial position, results of operations, and cash flows of the County in conformity with generally accepted accounting principles. In connection with our audit, we will report on the fairness of presentation of the schedules of federal and state financial assistance in relation to the general purpose financial statements taken as a whale. We also will perform tests of compliance as required by Government Auditing Standards and the provisions of OMB Circular A-133 (and the State Single Audit Implementation Act), and issue our reports thereon. If any of our opinions resulting from the, procedures described above aze other than unqualified, we will fully discuss the reasons with you in advance. 4 The reports on internal control and compliance will each include a statement that the report is intended for the information and use of the audit committee, management, specific legislative or regulatory bodies, federal awarding agencies, and if applicable, pass-through entities. Any additional services that you may request, and that we agree to provide, will be the subject of sepazate written arrangements. I will lead the engagement and will be responsible for assuring the overall quality, value, and timeliness of our services to you. YOUR EXPECTATIONS As part of our planning process, we will discuss with you your expectations of Cherry, Bekaert & Holland, L.L.P., your concerns about your local government, your views on risks facing you, any relationship issues with Cherry, Bekaert & Holland, L.L.P., and specific engagement arrangements and timing. Our services plan, which includes our audit plan, is designed to provide a foundation far an effective, efficient, and quality-focused approach to accomplish the engagement objectives and meet, and/or exceed, your expectations. Our service plan will be reviewed with you periodically and will serve as a benchmark against which you will be able to measure our performance. LIMITATIONS OF THE AUDITING PROCESS Our audit will include procedures designed to obtain reasonable, rather than absolute, assurance of detecting misstatements due to errors or fraud that are material to the general purpose financial statements. As you are aware, however, there aze inherent limitations in the auditing process. For example, audits are based on the concept of selective testing of the data being examined and are, therefore, subject to the limitation that material misstatements due to errors or fraud, if they exist, may not be detected. Also, an audit is not designed to detect error or fraud that is immaterial to the general purpose financial statements. As required by the Single Audit Act Amendments of 1996 and OMB Circulaz A-133 (and the State Single Audit Implementation Act), our audit will include tests of transactions related to major federal and state awazd programs for compliance with applicable laws and regulations and the provisions of contracts and grant agreements. Because an audit is designed to provide reasonable, but not absolute assurance and because we will not perform a detailed examination of all transactions, there is a risk that material errors, fraud, other illegal acts, or noncompliance may exist and not be detected by us. In addition, an audit is not designed to detect immaterial errors, fraud, or other illegal acts or illegal acts that do not have a direct effect on the general purpose financial statements or to major programs. It should be recognized that our audit generally provides no assurance that illegal acts will be detected, and only reasonable assurance that illegal acts having a direct and material effect an the determination of fmancial statement amounts will be detected. However, we will inform you with respect to material errors and fraud, or illegal acts that come to our attention during the course of our audit. We will include such matters in the reports as required for a Single Audit. 5 If, for any reason, we are unable to complete the audit, or are unable to farm or have not formed an opinion on the general purpose financial statements, we may decline to express an opinion or decline to issue a report as a result of the engagement. RESPONSIBILITIES AS TO INTERNAL CONTROLS As a part of our audit, we will consider Orange County's internal control structure, as required by generally accepted auditing standards and Governmental Auditing Standards,. sufficient to plan the audit and to determine the nature, timing, and extent of auditing procedures necessary for expressing our opinion concerning the general purpose financial statements. You recognize that the general purpose financial statements and the establishment and maintenance of an effective internal control over financial reporting aze the responsibility of management. You also recognize that management is responsible for identifying and ensuring that the entity complies with the laws and regulations applicable to its activities. Appropriate supervisory review procedures aze necessary to provide reasonable assurance that adopted policies and prescribed procedures are adhered to and to identify errors, fraud, or illegal acts. An audit is not designed to provide assurance on internal control. As part of our consideration of Orange County's internal control structure, however, we will inform you ofnon-reportable conditions and other matters that come to our attention that represent significant deficiencies in the design or operation of the internal control structure, if any, as required by OMB Circulaz A-133. As required by OMB Circulaz A-133, we will perform tests of controls to evaluate the effectiveness of the design and operation of controls that we consider relevant to preventing or detecting material noncompliance with compliance requirements, applicable to each major federal award program. However, our tests will be less in scope than would be necessary to render an opinion on those controls and, accordingly, no opinion will be expressed in our report on internal control issued pursuant to OMB Circulaz A-133. We aze prepared at your request to perform a more in-depth assessment of Orange County's internal control structure and report our t'indings and recommendations; or to conduct an examination engagement on the effectiveness of your internal control structure. We would be pleased to discuss fees for these services, which depend on their scope. RESPONSIBILITIES AS TO COMPLIANCE Our.audit will be conducted in accordance with the standazds referred to in the section Summary of Services. 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 applicable laws and regulations and the provisions of contracts and agreements, including grant agreements. However, the objective of those procedures will not be ~to provide an opinion on overall compliance and we will not express such an opinion in our report on compliance issued pursuant to Government Auditing Standards. 6 OMB Circular A-133 requires that we also plan and perform the audit to obtain reasonable assurance about whether the auditee has complied with applicable laws and regulations and the provisions of contracts and grant agreements applicable to maj or programs. Our procedures will consist of the applicable procedures described in the OMB Circular A-133 Compliance Supplement for the types of compliance requirements that could have a direct and material effect of each of Orange County's major programs. The purpose of those procedures will be to express an opinion on Orange County's compliance with requirements applicable to major programs in our report on compliance issued pursuant to OMB Circulaz A-133. REPRESENTATION FROM MANAGEMENT Management is responsible for the fair presentation of the general purpose financial statements in conformity with generally accepted accounting principles, for making all financial records and related information available to us, for ensuring that all material information is disclosed to us, and for identifying and ensuring that the entity complies with the laws and regulations applicable to its activities. Additionally, as required by OMB Circulaz A-133, it is management's responsibility to follow up and take corrective action on prior audit findings and to prepare a summary schedule of prior audit findings and a con: ective action plan. The summary schedule of prior audit findings and the corrective action plan should be made available to us during the course of our engagement. Management is also responsible for adjusting the general purpose financial statements to correct material misstatements. At the conclusion of the engagement, the County's management will provide to us a representation letter that, among other things, addresses these matters and confirms certain representations made during the audit, including, to the best of their knowledge and belief, the absence of fraud involving management or those employees who have significant roles in the entity's internal control, or other fraud where it could have a material effect on the general purpose financial statements. The representation letter will also affirm to us that management believes that the effects of any uncorrected misstatements aggregated pertaining to the current yeaz general purpose financial statements are immaterial, both individually and in the aggregate, to the general purpose financial statements taken as a whole. COMMUNICATIONS At the conclusion of the engagement, we will provide management, in a mutually agreeable format, our recommendations designed to help the County make improvements in its internal control structure and operations, and other matters that may come to our attention (see "Responsibilities as to Internal Controls" above). As part of this engagement we will ensure that certain additional matters aze communicated to the appropriate members of management and the County Commissioners. Such matters include (1) the initial selection of and changes in significant accounting policies and their application; (2) the process used by management in formulating particularly sensitive accounting estimates and the basis for our conclusion regazding the reasonableness of those estimates; (3) audit adjustments that could, in our judgement, either individually or in the aggregate be significant to the general purpose financial statements or our report; (4) any disagreements with management concerning a financial accounting, reporting or auditing matter that could be significant to the general purpose financial statements; (5) our views about matters that were the subject of management's consultation with other accountants about auditing and accounting matters; (6) major issues that were discussed with management in connection with the retention of our services, including, among other matters, any discussions regarding the application of accounting principles and auditing sandazds; (7) serious difficulties that we encountered in dealing with management related to the performance of the audit; and (8) total fees for management advisory services during the year under audit, including a description of the types of such services rendered. Government Auditing Standards require that we provide you with a copy of our most recent quality control review report. Our October '7, 1998 peer review report accompanies this letter. ACCESS TO WORKING PAPERS The working papers for the engagement are the property of Cherry, Bekaert & Holland, L.L.P. and constitute confidential information. Except as discussed below, any requests for access to our working papers will be discussed with you prior to making them available to requesting parties. The workpapers for this engagement will be retained for a minimum of three yeazs after the date the auditors' report is issued or for any additional period requested by Orange County. If we are awaze that a federal awazding agency, pass-through entity, or auditee is contesting an audit finding, we will contact the pariy(ies) contesting the audit fmding for guidance prior to destroying the workpapers. Our Firm; as well as all other major accounting firms, participates in a `deer review" program, covering our audit and accounting practices. This program requires that once every three yeazs we subject our quality assurance practices to an examination by another accounting firm. As part of the process, the other firm will review a sample of our work. It is possible that the work we perform for you may be selected by the other firm for their review. If it is, they aze bound by professional sandazds to keep all information confidential. If you object to having the work we do for you reviewed by our peer reviewer, please notify us in writing. SUBPOENAS In the event we are requested or authorized by you or required by government regulation, subpoena, or other legal process to produce our working papers or our personnel as witnesses with respect to our engagement for you, you will, so long as we aze not a party to the proceeding in which the information is sought, reimburse us for our professional time and expense, as well as the fees and expenses of our counsel, incurred in responding to such a request. OTHER MATTERS If any dispute, controversy or claim arises in connection with the performance or breach of this agreement, ,either party may, on written notice to the other party, request that the matter be mediated. Such mediation would be conducted by a mediator appointed by and pursuant to the Rules of the American Arbitration Association (AAA) or such other neutral facilitator acceptable to bath parties. Both parties would exert their best efforts to discuss with each other in goad faith their respective positions in an attempt to finally resolve such dispute or controversy. If any dispute, controversy, or claim arising out of or in connection with the gerforimance or breach of this agreement cannot be resolved by mediation, then the dispute, controversy, or claim would be settled by arbitration in accordance with the rules of the American Arbitration Association for the Resolution of 8 Accounting Firm Disputes. The award issued by the arbitration panel maybe confirmed in a judgment by any federal or state court of competent jurisdiction. TERMS AND CONDITIONS SUPPORTING FEE The County and Cherry, Bekaert & Holland, L.L.P. have agreed to a fee, subject to the following conditions. To facilitate meeting our mutual objectives, the County will provide in a timely manner audit schedules and supporting information, including timely communication of all significant accounting and financial reporting matters, as well as working space and clerical assistance as mutually agreed upon and as is normal and reasonable in the circumstances. When and if for any reason the County is unable to provide such ,schedules, information and assistance, Cherry, Bekaert & Holland, L.L.P. and the County will mutually revise the fee to reflect additional services, if any, required of us to achieve these objectives. In providing our services, we will consult with the County with respect to matters of accounting, financial reporting or other significant business issues. Accordingly, time necessary to effect a reasonable amount of such consultation is reflected in our fee. However, should a matter require research, consultation or audit work beyond that amount, Cherry, Bekaert & Holland, L.L.P. and the County will agree to an appropriate revision in services and fee. Except for any changes in fees which may result from the circumstances described above, our fees will be limited to those set forth below. FEES Our fees for the services described above aze based upon our standard billing practices at the time of the engagement. Bills for services will be rendered as work progresses and are due within 15 days from invoice date. A service charge will be added to past due accounts equal to 1-1/2% per month (18% annually) on the previous month's balance less payments received during the month, with a minimum Chazge of $2.00 per month. Based on our contract to audit accounts, the fee will be as follows: Base Charge -Financial Audit Base Chazge -Compliance Audit Chazge per Program for Additional Compliance Testing $40,000 17,500 (includes 8 major programs) 1,800 This fee is based on anticipated cooperation from your personnel and the assumption that unexpected circumstances will not be encountered during the audit. If significant additional time is necessary, we will discuss it with you and arrive at a new fee estimate before we incur the additional costs. Any modification to the fee shall be in writing and signed by both parties. 9 If the foregoing is in accordance with your understanding, please sign a copy of this letter in the space provided and return it to~ us. If you have any questions, please call me at 483-7131. Very truly yours, CHERRY, BEKAERT & HOLLAND, L.L.P. Eddie Burke, CPA Partner ACCEPTED BY TITLE io LGC-nos (Rev. lnrzooll CONTRACT TO AUDTT ACCOUNTS ltile 1n Triplicate. of ~ana_e County. North Catalina Governmer:tal lhdt -• Oa this 2~ ~~ day of ~y , ~QQ1 Chi. Bekaert & Holhmd. LLP Auditor _P.O.1]rawer 47. Fayetteville. Ng)s~, Carolina 28302 .._.._..,__....._,------.,,~,_._.,,..~,. Mailing Address hereinafter referred rA as the Auditor, and ~ ounty Commi~C~ig~ of Oran a Coun hereinafter referred Govertung Hoard (lovemrr~ntal [lair to as the Governmental Unit, agree as follows: ... 1. The Auditor shall audit all statements and disclosures required by generally accepted accounting principles and additional' - required legal statements and disclosures of all fiords and/or divisions of the Governmental Unit far the period beginning 7„ ulv 1 ~1 ~ and ending J~me~O ,x2001 _, The combining, individual fund, and account group financial statements and schedules shall be subjected to the auditing procedures applied in the audit of the combined financial statements and an opinion will be rendered in relation to the combined 5nancial statements taken as a whole. • 2. At a minimum, the Auditor shall conduct his audit and render his report in accordance with generally accepted auditing standards. The sudiror shall perform the audit in accordance with ~pvemment Auditine Standards if required by the State Single Audit Implementation Act, as codifed in G.S. 159-34. If required by OMB Circular A-133 and the State Single Audit Implementation Act, the auditor shall perform a Single Audit 3. 7ikts contract contemplates an ungual j~od opinion being rendered. Tf financial statements are not prepared in accordance with generally accepted accounting principles (GAAP), or the statements fail to include all disclosures required by GAAP, explain that depazture from GAAP in the space below: 4, This connect contemplates an unqual~ opinion being rrndered. The audit shall include such tests of the accounting records and such other auditing procedures as are considered by the Audiror to be necessary in the circutttsrsnces.. Any limitations or r~ctrictions in scope which would lead to a qu4llJlcation should be fully explained in as attachment to this rontract. The audit will have no scope limitations except: 5. If this audit engagement is subject to the standards for audit as defined in the Government Auditi Standards. issued by the Comptroller General of the United States, then the Audimr warrants by accepting this engagement that he/she has met the requirements for a peer review and continuing education as specified in the Gov .The Auditor agrees ro provide a copy of their most rectrrt peer review report to the Governmental Uait and the Secretary of the Local Government Commission rnior to the execution of the audit contract. (See Item 20.) - 6. It is agreed that time is of the essence in this evntraet. All audits are to be performed and the report of audit submitted by ' Octo ~. 7. It is agreed that generally accepted auditing standards include a review of the Governmental Unit's system of internal control and accounting as same relates to accountability of fiords 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 tho 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 w' th t mini ' 8. All local government and public authority contracts for annual or special audits, bookkeeping a other assistance necessary to prepare the Unit's records fur audit, financial statement preparation, any finance-related investigations, or any other audit-related work in the State of North Carolina require the approval of the Secretary of the Lora! Government Corntnission. Invoices for services reedered_undec these contracts shall not be trg by the Fvernrnental Unit until the invoice has been roved by the - e t 'ss on. .All invoices should be submitted in triplicate to the Secretary of the Local Government Commission. The original and one wpy will be returned ro the Auditor. Approval is not required on contracts and invoices for system improvements and similar services of anon-auditing stature. 9. In consideration of the satisfactory performance of the provisions of this agreement, the Governmental Unit shall pay ro the Auditor, upon approval by the Secretary of the Local Gvvemment Cormnission, the~ollowine_fee which includes any wst the - Auditor may incur from work paper or peer reviews or any ocher quality assurance prognvn retlttired by third parties (Federal and State grantor and oversight agencies or other organizations) as required undo the Federal and State Single Audit Acls: Year~d bookkeeping assistance - Audit - 35 0 0 _ S le Aud't r trio 1 Audi Preparatipn pf the financial sixtemeafs 5 10. After completing his audit, the Auditor shall submit to the Governing Board a written report of audit. This report shall include, at least, the financial ~*9~»+~ts of the gvvemmental unit and all of its componeet units and notes thereto prepared in accordance with generally accepted accounting principles, combining and supplementary infomiatioa requested by the client or required for full disclosure under the law, and the auditor's opinion on the tttaterial presented. The Auditor shall famish the required number of copies of the report of audit ro the Governing Board as soon as practical after the close of the acoountng period. 11. The Auditor shall the with the Local Govemmatt Commission twv copies of the report of audit, including one copy of the federal Data Collection Form, if a federel single audit is conducted. Two copies of the report of audit should be submitted if an audit is required tv be performed only under the requirements of the Stan Single Audit Implementation Act or a financial audit is .. ~ .wn.;rni to h~ n.rrn..nnA :.. o.......rle.,na ...:Fl. (:......~.,»..... A...7:H.... C«....t....i- rbi.s.....ea ....n ..,..... ~1.A11 Le n..t.....~.d !^..........C _: ':; lI the report shall be filed with the Local Govermneat Commission when (or prior to) submitting dte invoice for the services rendered. All copies of the report submitted ~. The report of audit as Bled with the Secretary of the Local Government Commission, becomes a matter of public record for inspection and revieatr in the offices of the Secretary by any interested parties. Any subsequent revisions to these reports must be sent to the Secretory of the Local Government Commission. ' These audited £nancial statements aro used in She preparation of Official Statements far debt offerings, by municipal bond rating services, and to fulfill secondary market disclosure requirements of the Securities and Exchange Commission. 12. Should circum6lance5 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 need for such additional investigation and the additional compensation required therefor. Upon approval by the Secretary of the Local Government Commission, this agreement may be varied or changed to include the increased time and/or compensation as maybe agreed upon by the Governing Board and the Auditor. 13. If an approved contract needs m be varied or changed for any reason, the change must be reduced m writing, signed by both parties, preaudited if necessary, and submitted m the Secretary of the Local Government Commission far approval. 14. Whenever the Auditor uses an engagement letter with the client, Item 15 may be completed by referencing the engagemWrt letter and attaching a copy of the cngagrunent letter to the wntract m inanrporate the engagement letter into the contract, In case of conflict between the terms of the engagement letter and the terms of this contract, the terms of this contract will control. Engagement letter terms are deemed m 6e void unless the conflicting terms of this contract are specifically deleted in Item 21 of this contract. Engagement letters containing indemnification clauses will not be approved by the Local Govemtttent Commission. 15.. There are no special provisions except: Attachments A&B 16. A separate contract sh°uld not be made for eavh division m be audited or report to be submitted. A separate contract must be executed for each component unit which is a local government and for which a separate audit report is issued. 17. The wntract §Itvuld be executed and submitted in Licata to the Seta'etary of the Local Govettunent Commission, 325 North • Salisbury Street, Raleigh, North Carolina 27603-1385. 18. Upon approval, the original contract will be returned to the Govenunental Uni; a copy will be forwarded to the Audimr, and a copy retained by the Secretary aF the Local Government Commission. 't d the con is SDDiOVed. 19. There are no other agreements between the parties herein and no other agreements relative hereto that shall be enforceable unless entered tern in accordance with the procedure net out herein and approved by the Secretary of the Local Government Cotranission. 20. if this audit engagement is not subject to Govemmtrrt Auditin~Standardg, then Item 5 shall be listed as a deleted provision in Item 21. An explanation must be given for deleting this provision. 21. Ail of the above paragraphs are nndersmod and shall apply to this agreement, except the following numbered paragraphs shall be deleted: (See item 14.) 22. Will the audited flaeatdal sffitements be prepared in accordance with GASB Statement No. 34? XES~i NO If the audited flnaacial sffitemmts are prepared ffi accordance with GAS$ Statement No. 34 the references in Item 1 m tiro combining, individual fund, and account group statements shall mean the basic tlnaacial statements, management's discussion and analysis, and required snpplemenffiry statements as defined in GASB Sffitement No. 34. Audltlag procedures applitable to other supplemenffiry schedules are not changed by the lmplementat[oa of GASB Statement No. 34. By Stephen Halkiatis HY_~;~die T• Sgil~ (Please type or print nsme and 't r - (Please type or print name) (Signature of authariaed audit firm represonSativo) bate Approved by the Secromry of the Low] Gavemmeot Corratdssion as provided in Article 3, Chapter 159 of the General 5ffitutes or Artcle 31, Pan 3, Chapter 11 SG of the Gerteral Stanrtcs. (Signature of Mawr or Qp of governing board) Date By l (l'~tairpersan of Audit Corrtmittee (Please type or print name) (Signature Of Audit Cormnittee Chairperson) Fer the Secretary,,Lor:ai Govemmettt Commission (Signature) Date Date / (lf unit does not Nava an audit eommtetae, this seetlon should be rrmrkad "N/A.") This instnmtent has been presudited in the manner required by The Laval Government Budget and fiiswl Control Act or by the School Budget and, Fiscal Con0o1 Act. Governmental Unit Firumce Officer (Please type m print name) (Signature) Date 12 Orange County, North Carolina CONTRACT TO AUDIT ACCOUNTS For the eriod be innin Jul 1, 2000 and endin Tune 30, 2001 Attachxxaent A The funds and accounts which make up the 2000-2001 budget are as follows: General Government: General Fund Special Revenue Funds Capital Projects Funds Proprietary Funds: Enterprise Funds Internal Service Fund Fiduciary Funds: Trust and Agency Funds Account Groups: General Fixed Assets General Long-term Debt Obligations Attachment S Time being of the essence, it is agreed that adequate records, schedules and the general ledger(s) necessary to the audit, shall be provided to the auditors by a future agreed upon date. Additionally, the Town shall provide the auditors with work space and facilities adequate for the conduct of the examination and timely assistance in the retrieval of any required documentation. 13 May 23, 2001 Mr. Ken Chavious; Finance Director Orange County 208 S. Cameron Street P.O. Box 8181 Hillsborough, North Carolina 27278 Deaz Mr. Chavious: This letter of arrangement between Orange County (the "County"), and Cherry; Bekaert & Holland, L.L.P. sets forth the nature and scope of the services we will provide, the Caunty's required involvement and assistance in support of our services, the related fee arrangements, and other terms and conditions designed to assure that our professional services are performed to achieve the mutually agreed upan objectives of the County. SiJ1VIl~IARY OF SERVICES We will assess the County's financial management processes, systems, organizational structures, and inventory resources to determine whether the County has the necessary features to effectively implement GASB 34. Areas of strengths and weaknesses will be identified, specific tasks will be designed, and the resulting report will serve as a "blueprint" for adoption of the new standard. Systems and structures Fund Structure. We will review the County's fund and sub-fund structure in order to: • Identify the purpose and type of activity of each fund/sub-fund and make recommendations for any changes that would be either required by GASB 34, or facilitate implementation of the standard without compromising the County's ability to manage its resources. • Make an initial major fund determination. • Review significant non-major funds to determine if any should be designated as a major fund. • Review general ledger system and reports to determine whether the necessary information can be generated from available reports. 1~ Chart of Accounts. We will review the County's chart of accounts to determine whether GASB 34 requirements will be met. We will specifically: • Evaluate short-term solutions under the current system and identify potential long-term solutions that maybe incorporated when the County purchases its new system. + Provide guidance to ensure that an account structure is established so that program revenue is propeirly segregated from general revenue, and easily assigned to a functional expense. Capital Assets We will evaluate the current capital asset management system to determine whether it provides the necessary features to create and maintain a depreciation system that will be required under GASB 34. For capital assets other than infrastructure we will: • Evaluate the capabilities of the existing fixed assets software to determine if it: - effectively calculates depreciatian for general fixed assets - will allocate cost on a functional basis - allows for the various methods of depreciation - allows for the use of composite depreciation methods for various classes of assets - adequately updates general fixed assets for current year additions and disposals - allows for the initial recording of accumulated depreciation • Review general fixed assets data to determine: - what the various capitalization thresholds are - the sufficiency of asset detail for cast segregation and depreciation (land, structures, improvements, equipment) - what the asset class breakdown is - if the detail records contain suff dent information to calculate depreciation `useful lives, date in service, salvage value, and functional allocation" • Provide both short-term and long-term solutions to any problems identified during this analysis. Far infrastructure capital assets we will: • Perform an evaluation of potential infrastructure and make recommendations to ensure compliance with GASB 34. We will obtain the information outlined in this letter by reviewing source documentation and discussions with appropriate County personnel. We request that the County provide a contact person for the project who can assist us in retrieving documents and setting up appointments -and meetings. 15 Work .product At the conclusion of the engagement we will prepare a written report of our findings and recommendations. The report will contain the following information: • Identify any significant impediments to. GASB 34 implementation • Identify specific tasks that must be completed to implement the standard • Estimate the effort needed to complete each task and set timelines for completion • Prioritize tasks as well as identify which tasks are critical and which can be deferred • Prepare a Gantt chart outlining tasks, due dates and responsible persons • Identify areas where financial policies should be written to drive process improvements We will meet with the implementation oversight committee to go over the draft report, and' obtain agreement from the committee before issuing the final report. ACCESS TO WORKING PAPERS The working papers for the engagement are the property of Cherry, Bekaert & Holland, L.L.P. and constitute confidential information. Except as discussed below, any requests for access to our working papers will be discussed with you prior to making them available to requesting parties. Qur Firm, as well as all other major accounting firms, participates in a `peer review" program, covering our audit and accounting practices. This program requires that once every three years we subject our quality assurance practices to an examination by another accounting firm. As part of the process; the other firm will review a sample of our work. It is possible that the work we perform for you maybe selected by the other firm for their review. If it is, they are bound by professional standards to keep all information confidential. If you object to having the work we do for you reviewed by our peer reviewer, please notify us in writing. SUBPOENAS In the event we are requested or authorized by you or required by government regulation, subpoena, or other legal process to produce our working papers or our personnel as witnesses with respect to our engagement for you, you will, so long as we are not a party to the proceeding in which the information is sought, reimburse us for our professional time and expense, as well as the fees and expenses of our. counsel, incurred in responding to such a request. OTHER MATTERS If any dispute, controversy or claim arises in connection with the performance or breach of this agreement, either party may, on written notice to the other party, request that the matter be mediated. Such mediation would be conducted by a mediator appointed by and pursuant to the Rules of the American Arbitration Association or such other neutral facilitator acceptable to both parties. Both parties would exert their best efforts to discuss with each other in good faith their respective positions in an attempt to finally resolve such dispute or controversy. 1f If any dispute, controversy, or claim arising out of or in connection with the performance or breach of this agreement cannot be resolved by mediation, then the dispute, controversy, or claim would be settled by arbitration in accordance with the rules of the American Arbitration Association (AAA) for the Resolution of the Accounting Firm Disputes. The awazd issued by the azbitration panel may be confirmed in a judgment by any federal or state court of competent jurisdiction. FEE The chazges for our work are based on the time spent, and calculated at our regulaz hourly rates in effect, from time to time, plus direct expenses. Our rates vary according to the degree of responsibility involved and the skill required. Our fee for services, including out of pocket expenses is estimated to be $ 15,000. All invoices aze payable within thirty days from invoice date. A service charge will be added to past due accounts equal to 1-1/2% per month (18% annually) on the previous month's balance less payments received during the month, with a minimum charge of $2.00 per month. If the foregoing is in accordance with your understanding, please sign the original of this letter in the space provided and return it to us. Very truly yours, CHERRY, BEKAERT & HOLLAND, L.L.P. Eddie T. Burke, CPA Partner RESPONSE: This letter correctly sets forth the understanding of Orange County Signature: Title: