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R2019-115 2019-05-13 RESOLUTION NO. R2019-115 A Resolution of the City Council of the City of Pearland, Texas, authorizing the City Manager or his designee to renew a contract for audit services with Whitley Penn, in the amount of $75,300.00, for the period of July 7, 2019 through July 6, 2020. BE IT RESOLVED BY THE CITY COUNCIL OF THE CITY OF PEARLAND, TEXAS: Section 1. That engagement letter for audit services, a copy of which is attached hereto as Exhibit "A" and made a part hereof for all purposes, is hereby authorized and approved. Section 2. That the City Manager or his designee is hereby authorized to execute and the City Secretary to attest an engagement letter for audit services. PASSED, APPROVED and ADOPTED this the 13th day of May, A.D., 2019. e-777 / <ft •e) TOM REID MAYOR ATTEST: NG t - I R ci••. %\ : _ Y S'RETA .. APPROVED AS TO FORM: DARRIN M. COKER CITY ATTORNEY Houston Office ,. 3737 Buffalo Speedway Suite 1600 vv h i t l e y p e n n • Houston,Texas 77098 713.621.1515 Main whitleypenn.com April 23,2019 To the Honorable Mayor,Members of City Council and the City Manager City of Pearland,Texas You have requested that we audit the financial statements of the governmental activities,the business-type activities, each major fund, and the aggregate remaining fund information of City of Pearland, Texas (the "City"), as of September 30,2019,and for the year then ended,and the related notes to the financial statements,which collectively comprise the City's basic financial statements as listed in the table of contents.In addition,we will audit the City's compliance over major federal and state award programs for the period ended September 30,2019. We are pleased to confirm our acceptance and our understanding of this audit engagement by means of this letter. Our audits will be conducted with the objectives of our expressing an opinion on each opinion unit and an opinion on compliance regarding the City's major federal and state award programs. Accounting principles generally accepted in the United States of America require that required supplementary information(RSI)be presented to supplement the basic financial statements. Such information,although not a part of the basic fmancial statements,is required the Governmental Accounting Standards Board,who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic,or historical context. As part of our engagement,we will apply certain limited procedures to the RSI in accordance with auditing standards generally accepted in the United States of America. These limited procedures will consist primarily of inquiries of management regarding their methods of measurement and presentation, and comparing the information for consistency with management's responses to our inquiries. We will not express an opinion or provide any form of assurance on the RSI. The following RSI is required by accounting principles generally accepted in the United States of America: 1) Management's Discussion and Analysis 2) General Fund-Budgetary Comparison Information 3) Required Pension Supplementary Information 4) Required Other Post-Employment Benefit Supplementary Information Supplementary information other than RSI will accompany the City's basic financial statements. We will subject the following supplementary information to the auditing procedures applied in our audit of the basic financial statements and certain additional procedures, including comparing and reconciling the supplementary information to the underlying accounting and other records used to prepare the financial statements or to the financial statements themselves,and additional procedures in accordance with auditing standards generally accepted in the United States of America.We intend to provide an opinion on the following supplementary information in relation to the financial statements as a whole: 1) Combining and Individual Fund Statements and Schedules 2) Long-Term Debt Amortization Schedules Also, the document we submit to you will include the following other additional information that will not be subjected to the auditing procedures applied in our audit of the financial statements: A member of Nexia International To the Honorable Mayor,Members of City Council and the City Manager April 23,2019 Page 2 1) Introductory Section 2) Statistical Section Schedule of Expenditures of Federal and State Awards We will subject the schedule of expenditures of federal and state awards to the auditing procedures applied in our audit of the basic financial statements and certain additional procedures, including comparing and reconciling the schedule to the underlying accounting and other records used to prepare the financial statements or to the financial statements themselves, and additional procedures in accordance with auditing standards generally accepted in the United States of America. We intend to provide an opinion on whether the schedule of expenditures of federal and state awards is presented fairly in all material respects in relation to the financial statements as a whole. Data Collection Form Prior to the completion of our engagement, we will complete the sections of the Data Collection Form that are our responsibility. The form will summarize our audit findings, amounts and conclusions. It is management's responsibility to submit a reporting package including financial statements, schedule of expenditure of federal awards, summary schedule of prior audit findings and corrective action plan along with the Data Collection Form to the federal audit clearinghouse. The financial reporting package must be text searchable, unencrypted, and unlocked. Otherwise,the reporting package will not be accepted by the federal audit clearinghouse. We will assist you in the electronic submission and certification.You may request from us copies of our report for you to include with the reporting package submitted to pass-through entities. The Data Collection Form is required to be submitted within the earlier of 30 days after receipt of our auditors' reports or nine months after the end of the audit period, unless specifically waived by a federal cognizant or oversight agency for audits.Data Collection Forms submitted untimely are one of the factors in assessing programs at a higher risk. Audit of the Financial Statements We will conduct our audit in accordance with auditing standards generally accepted in the United States of America (U.S. GAAS),the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States of America; the audit requirements of Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance) and the State of Texas Uniform Grant Management Standards (UGMS). Government Auditing Standards,the Uniform Guidance,and the UGMS require that we plan and perform the audit to obtain reasonable assurance about whether the basic financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to error, fraudulent financial reporting, misappropriation of assets, or violations of laws, governmental regulations, grant agreements, or contractual agreements. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management,as well as evaluating the overall presentation of the financial statements. If appropriate, our procedures will therefore include tests of documentary evidence that support the transactions recorded in the accounts,tests of the physical existence of inventories,and direct confirmation of cash, investments, and certain other assets and liabilities by correspondence with creditors and financial institutions. As To the Honorable Mayor,Members of City Council and the City Manager April 23,2019 Page 3 part of our audit process, we will request written representations from your attorneys, and they may bill you for responding.At the conclusion of our audit, we will also request certain written representations from you about the financial statements and related matters. Because of the inherent limitations of an audit, together with the inherent limitations of internal control, an unavoidable risk that some material misstatements or noncompliance(whether caused by errors,fraudulent financial reporting, misappropriation of assets, detected abuse, or violations of laws or governmental regulations) may not be detected exists, even though the audit is properly planned and performed in accordance with U.S. GAAS, Government Auditing Standards of the Comptroller General of the United States of America,the Uniform Guidance and the UGMS.Please note that the determination of abuse is subjective and Government Auditing Standards does not require auditors to detect abuse. In making our risk assessments,we consider internal control relevant to the City's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances,but not for the purpose of expressing an opinion on the effectiveness of the City's internal control. However, we will communicate to you in writing concerning any significant deficiencies or material weaknesses in internal control relevant to the audit of the financial statements that we have identified during the audit. Our responsibility as auditors is,of course,limited to the period covered by our audit and does not extend to any other periods. We will issue a written report upon completion of our audit of the City's basic financial statements. Our report will be addressed to the governing body of the City. We cannot provide assurance that unmodified opinions will be expressed. Circumstances may arise in which it is necessary for us to modify our opinions, add an emphasis-of- matter or other-matter paragraph(s),or withdraw from the engagement. In accordance with the requirements of Government Auditing Standards, we will also issue a written report describing the scope of our testing over internal control over financial reporting and over compliance with laws, regulations, and provisions of grants and contracts, including the results of that testing. However, providing an opinion on internal control and compliance over financial reporting will not be an objective of the audit and, therefore,no such opinion will be expressed. Audit of Major Program Compliance Our audit of the City's major federal and state award program(s)compliance will be conducted in accordance with the requirements of the Single Audit Act,as amended;and the Uniform Guidance,and the UGMS,and will include tests of accounting records, a determination of major programs in accordance with the Uniform Guidance and the UGMS and other procedures we consider necessary to enable us to express such an opinion on major federal and state award program compliance and to render the required reports.We cannot provide assurance that an unmodified opinion on compliance will be expressed. Circumstances may arise in which it is necessary for us to modify our opinion or withdraw from the engagement. The Uniform Guidance and the UGMS requires that we also plan and perform the audit to obtain reasonable assurance about whether the City has complied with applicable laws and regulations and the provisions of contracts and grant agreements applicable to major federal and state award programs. Our procedures will consist of determining major federal and state programs and performing the applicable procedures described in the U.S.Office of Management and Budget OMB Compliance Supplement for the types of compliance requirements that could have a direct and material effect on each of the City's major federal and state programs. The purpose of those procedures will be to express an opinion on the City's compliance with requirements applicable to each of its major federal and state programs in our report on compliance issued pursuant to the Uniform Guidance and the UGMS. To the Honorable Mayor,Members of City Council and the City Manager April 23,2019 Page 4 Also, as required by the Uniform Guidance and the UGMS, 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 of the City's major federal and state award programs. However,our tests will be less in scope than would be necessary to render an opinion on these controls and,accordingly,no opinion will be expressed in our report. We will issue a report on compliance that will include an opinion or disclaimer of opinion regarding the City's major federal and state award programs, and a report on internal controls over compliance that will report any significant deficiencies and material weaknesses identified; however, such report will not express an opinion on internal control. Management's Responsibilities Our audit will be conducted on the basis that management and, when appropriate,those charged with governance acknowledge and understand that they have responsibility: 1. For the preparation and fair presentation of the financial statements in accordance with accounting principles generally accepted in the United States of America; 2. For the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to error fraudulent financial reporting,misappropriation of assets,or violations of laws,governmental regulations, grant agreements,or contractual agreements; 3. For safeguarding assets; 4. For identifying, in its accounts, all federal and state awards expended during the period including federal awards and funding increments received prior to December 26,2014,and those received in accordance with the Uniform Guidance generally received after December 26,2014; 5. For maintaining records that adequately identify the source and application of funds for federal and state funded activities; 6. For preparing the schedule of expenditures of federal and state awards (including notes and noncash assistance received)in accordance with the Uniform Guidance and the UGMS requirements; 7. For the design,implementation, and maintenance of internal control over compliance; 8. For establishing and maintaining effective internal control over federal and state awards that provides reasonable assurance that the nonfederal entity is managing federal and state awards in compliance with federal and state statutes,regulations,and the terms and conditions of the federal and state awards; 9. For disclosing accurately,currently,and completely the financial results of each federal and state award in accordance with the requirements of the award; 10. For identifying and ensuring that the City complies with laws,regulations,grants,and contracts applicable to its activities and its federal and state award programs and implementing systems designed to achieve compliance with applicable laws, regulations, grants, and contracts applicable to activities and its federal and state award programs; 11. For identifying and providing report copies of previous audits, attestation engagements, or other studies that directly relate to the objectives of the audit, including whether related recommendations have been implemented; 12. For taking prompt action when instances of noncompliance are identified; 13. For addressing the findings and recommendations of auditors, for establishing and maintaining a process to track the status of such findings and recommendations and taking corrective action on reported audit findings from prior periods and preparing a summary schedule of prior audit findings; To the Honorable Mayor,Members of City Council and the City Manager April 23,2019 Page 5 14. For following up and taking corrective action on current year audit findings and preparing a corrective action plan for such findings; 15. For submitting the reporting package and data collection form to the appropriate parties; 16. For making the auditor aware of any significant vendor/contractor relationships where the vendor/contractor is responsible for program compliance; 17. To provide us with: a. Access to all information of which management is aware that is relevant to the preparation and fair presentation of the financial statements, and relevant to federal and state award programs, such as records,documentation,and other matters; b. Additional information that we may request from management for the purpose of the audit;and c. Unrestricted access to persons within the City from whom we determine it necessary to obtain audit evidence. 18. For adjusting the financial statements to correct material misstatements and confirming to us in the management representation letter that the effects of any uncorrected misstatements aggregated by us during the current engagement and pertaining to the current year period(s) under audit are immaterial, both individually and in the aggregate,to the financial statements as a whole; 19. For acceptance of nonattest services,including identifying the proper party to oversee nonattest work; 20. For maintaining adequate records, selecting and applying accounting principles, and safeguarding assets; and 21. For informing us of any known or suspected fraud affecting the entity involving management, employees with significant role in internal control and others where fraud could have a material effect on compliance; 22. For the accuracy and completeness of all information provided; 23. For taking reasonable measures to safeguard protected personally identifiable and other sensitive information;and 24. For confirming your understanding of your responsibilities as defined in this letter to us in your management representation letter. With regard to the supplementary information referred to above, you acknowledge and understand your responsibility (a) for the preparation of the supplementary information in accordance with the applicable criteria, (b)to provide us with the appropriate written representations regarding supplementary information, (c)to include our report on the supplementary information in any document that contains the supplementary information and that indicates that we have reported on such supplementary information, and (d) to present the supplementary information with the audited financial statements, or if the supplementary information will not be presented with the audited financial statements,to make the audited fmancial statements readily available to the intended users of the supplementary information no later than the date of issuance by you of the supplementary information and our report thereon. With respect to any nonattest services we perform,City management is responsible for(a)making all management decisions and performing all management functions; (b) assigning a competent individual to oversee the services; (c)evaluating the adequacy of the services performed;(d)evaluating and accepting responsibility for the results of the services performed; and (e) establishing and maintaining internal controls, including monitoring ongoing activities. Nonattest services could include assistance with the preparation of financial statements including the government-wide journal entries and note disclosures, assistance with the preparation of the schedule of expenditures of federal and state awards and related notes,and assistance with the preparation of the data collection form and submission to the federal audit clearinghouse. As part of our audit process, we will request from management and, when appropriate, those charged with governance,written confirmation concerning representations made to us in connection with the audit. To the Honorable Mayor,Members of City Council and the City Manager April 23,2019 Page 6 We understand that your employees will prepare all confirmations we request and will locate any documents or invoices selected by us for testing. If you intend to publish or otherwise reproduce the financial statements and make reference to our firm,you agree to provide us with printers'proofs or masters for our review and approval before printing.You also agree to provide us with a copy of the final reproduced material for our approval before it is distributed. Fees and Timing The timing of our audit will be scheduled for performance and completion as follows: Document internal control and preliminary tests June/July 2019 Perform year-end audit procedures November/December 2019 Issue audit reports March 2020 Guadalupe R. Garcia, CPA is the engagement partner for the audit services specified in this letter. His responsibilities include supervising Whitley Penn,LLP's services performed as part of this engagement and signing or authorizing another qualified firm representative to sign the audit report. Our fee for the audit services will be based on the amount of time required and the difficulty of the work involved which will not exceed those fees set out in the following schedule: Financial statement audit fee $65,500 Base single audit fee $5,500 Fee for each major program $4,300 The fee estimate for the audit is based on anticipated cooperation from the City's personnel and the assumption that unexpected circumstances will not be encountered during the audit. If significant additional time is necessary,we will keep you informed of any problems we encounter and our fees will be adjusted accordingly. Our invoices for these fees will be rendered each month as work progresses and are payable on presentation and payment is due in Tarrant County. You agree to pay reasonable attorney fees and collection costs incurred relating to collection of fees for services performed under the terms of this engagement. In accordance with Whitley Penn, LLP policy,work may be suspended if your account becomes 30 days or more past due and will not resume until your account is paid in full.In addition,invoices not paid in full by the last day of the month will be assessed interest at a rate of one percent per month. If we elect to terminate our services for nonpayment, our engagement will be deemed to have been complete even if we have not issued our report. You will be obligated to compensate us for all time expended and to reimburse us for all out-of-pocket expenditures through the date of termination.Our final auditors' report will be released upon final payment of any outstanding invoices. You may request that we perform additional services not addressed in this engagement letter. If this occurs, we will communicate with you concerning the scope of the additional services and the estimated fees. We also may issue a separate engagement letter covering the additional services. In the absence of any other written communication from us documenting such additional services, our services will continue to be governed by the terms of this engagement letter. To the Honorable Mayor,Members of City Council and the City Manager April 23,2019 Page 7 We would like to make the following comments regarding the fee estimates: 1) Our fee estimates have not considered the effects of any changes to auditing standards and accounting principles,which may be promulgated by the AICPA,Congress,or any other regulatory body in the future and are unknown to us at this time. If significant additional time is necessary resulting in increased fees, we will endeavor to notify you of any such circumstances as they are assessed. 2) The City's personnel are responsible for the preparation of all items requested in the Prepared by Client ("PBC") listing and received by the date requested. Any delays caused by not preparing the items when requested may result in additional fees, as well as the possibility of postponing our fieldwork. The PBC listing will be provided to you during the planning process of the engagement. 3) Time incurred for audit adjustments identified during our audit and the related additional testing required has not been considered in our fee estimates. Prior to performing any additional testing,we will notify you of the exceptions and obtain approval for any additional fees which may be incurred. 4) Our fee estimates are based on all general ledger sub ledgers being reconciled to the general ledger balance and any adjustment necessary should be recorded to the general ledger prior to our fieldwork start date. The ethics of our profession prohibit the rendering of professional services where the fee for such services is contingent,or has the appearance of being contingent,upon the results of such services.Accordingly,it is important that our bills be paid promptly when received. If a situation arises in which it may appear that our independence would be questioned because of significant unpaid bills,we may be prohibited from issuing our auditors' report. In the unlikely event that differences concerning our services or fees should arise that are not resolved by mutual agreement,to facilitate judicial resolution and save time and expense of both parties, the City and Whitley Penn, LLP agree not to demand a trial by jury in any action, proceeding or counterclaim arising out of or relating to our services and fees for this engagement. Any controversy,dispute,or questions arising out of or in connection with this agreement or our engagement shall be determined by arbitration conducted in accordance with the rules of the American Arbitration Association, and any decision rendered by the American Arbitration Association shall be binding on both parties to this agreement. The costs of any arbitration shall be borne equally by the parties. Any and all claims in arbitration relating to or arising out of this contract/agreement shall be governed by the laws of the State of Texas and to the extent any issue regarding the arbitration is submitted to a court,including the appointment of arbitrators or confirmation of an award,the District courts in Tarrant County shall have exclusive jurisdiction. Any action arising out of this agreement or the services provided shall be initiated within two years of the service provided. This letter replaces and supersedes any previous proposals, correspondence and understanding,whether written or oral. The agreements contained in this engagement letter shall survive the completion or termination of this engagement. To ensure that Whitley Penn,LLP's independence is not impaired under the AICPA Code of Professional Conduct, you agree to inform the engagement partner before entering into any substantive employment discussions with any of our personnel. To the Honorable Mayor,Members of City Council and the City Manager April 23,2019 Page 8 Other Matters During the course of the engagement,we may communicate with you or your personnel via fax or e-mail,and you should be aware that communication in those mediums contains a risk of misdirected or intercepted communications. The audit documentation for this engagement is the property of Whitley Penn, LLP and constitutes confidential information. However, we may be requested to make certain audit documentation available to your pass-through regulatory entity,federal and state agencies, and the U.S. Government Accountability Office pursuant to authority given to it by law or regulation, or to peer reviewers. If requested, access to such audit documentation will be provided under the supervision Whitley Penn,LLP's personnel.Furthermore,upon request,we may provide copies of selected audit documentation to these agencies and regulators.The regulators and agencies may intend,or decide, to distribute the copies of information contained therein to others,including other governmental agencies.We agree to retain our audit documentation or work papers for a period of at least five years from the date of our report. Further,we will be available during the year to consult with you on fmancial management and accounting matters of a routine nature. During the course of the audit, we may observe opportunities for economy in, or improved controls over, your operations. We will bring such matters to the attention of the appropriate level of management, either orally or in writing. You agree to inform us of facts that may affect the financial statements of which you may become aware during the period from the date of the auditor's report to the date the financial statements are issued. At the conclusion of our audit engagement, we will communicate to the Honorable Mayor and Members of City Council the following significant findings from the audit: • Our view about the qualitative aspects of the City's significant accounting practices; • Significant difficulties, if any,encountered during the audit; • Uncorrected misstatements,other than those we believe are trivial, if any; • Disagreements with management, if any; • Other findings or issues,if any,arising from the audit that are,in our professional judgment,significant and relevant to those charged with governance regarding their oversight of the financial reporting process; • Material,corrected misstatements that were brought to the attention of management as a result of our audit procedures; • Representations we requested from management; • Management's consultations with other accountants,if any;and • Significant issues,if any,arising from the audit that were discussed,or the subject of correspondence,with management. In accordance with the requirements of Government Auditing Standards, we have attached a copy of our latest external peer review report of our firm for your consideration and files. Please sign and return the attached copy of this letter to indicate your acknowledgment of,and agreement with,the arrangements for our audit of the financial statements compliance over major federal and state award programs including our respective responsibilities. To the Honorable Mayor, Members of City Council and the City Manager April 23, 2019 Page 10 CJ'Olsenlhielen & Coe, Ltd. 0.11 Report on the Firm's System of Quality Control July 19, 2018 To the Partners of Whitley Penn LLP and the National Peer Review Committee. We have reviewed the system of quality control for the accounting and auditing practice of Whitley Penn LLP(the firm)applicable to engagements not subject to PCAOB permanent inspection in effect for the year ended April 30, 2018. Our peer review was conducted in accordance with the Standards for Performing and Reporting on Peer Reviews established by the Peer Review Board of the American Institute of Certified Public Accountants(Standards). A summary of the nature,objectives,scope,limitations of,and the procedures perfomied in a System Review as described in the Standards may be found at v.^ntw.aicpa.orgrprsummary. The summary also includes an explanation of how engagements identified as not performed or reported in conformity with applicable professional standards, if any, are evaluated by a peer reviewer to determine a peer review rating. Firm's Responsibility The firm is responsible for designing a system of quality control and complying with it to provide the firm with reasonable assurance of performing and reporting in conformity with applicable professional standards in all material respects. The firm is also responsible for evaluating actions to promptly remediate engagements deemed as not performed or reported in conformity with professional standards,when appropriate, and for remediating weaknesses in its system of quality control, if any. Peer Reviewer's Responsibility Our responsibility is to express an opinion on the design of the system of quality control and the firm's compliance therewith based on our review. Required Selections and Considerations Engagements selected for review included engagements performed under Government Auditing Standards, including compliance audits under the Single Audit Act,audits of employee benefit plans, audits performed under FDICIA,an audit of a broker-dealer,and examination of service organization (SOC 1 engagement). As a part of our peer review, we considered reviews by regulatory entities as communicated by the firm, if applicable, in determining the nature and extent of our procedures. Opinion In our opinion, the system of quality control for the accounting and auditing practice of Whitley Penn LLP applicable to engagements not subject to PCAOB permanent inspection in effect for the year ended April 30, 2018, has been suitably designed and complied with to provide the firm with reasonable assurance of performing and reporting in confomiity with applicable professional standards in all material respects. Firms can receive a rating of pass,pass with deficiencyt'ies)or fail. Whitley Penn LLP has received a peer review rating of pass. // /�������� ! 61,1141 �./'�i til l,o� �-" • Olsen Thielen &Co.,Ltd. IPS Long Lan*Aced I R,oxAlk,Mirr,eata 155113-11171651-4934521 651-48]-2461FAX I ceccom JUL,Franc Center Drive,Suns 7C0 Eden Fra:itc.Minr,e.Dta 155344-79Ce 1952-4414242 :952941-0577 FAY To the Honorable Mayor,Members of City Council and the City Manager April 23,2019 Page 9 We appreciate the opportunity to be your financial statement auditors and look forward to working with you and your staff. Respectfully, yZ L LP *************************************************************** RESPONSE: This letter correctly sets forth our understanding. Acknowledged and agreed on behalf of City of Pearland,Texas by: Governance Signature: �----z___)( Title: UaL or Date: (1/I l 1 i q Management Signature: ,1-,„„__....- Title: r.-1) /7.,::. `i (r-l' Date: /.-- if ( 1