R2011-070 - 2011-07-11A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF PEARLAND,
TEXAS, AUTHORIZING THE CITY MANAGER OR HIS DESIGNEE TO
ENTER INTO A CONTRACT FOR AUDIT SERVICES.
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 11 day of july, A.D., 2011.
ATTEST:
APPROVED AS TO FORM:
DARRIN M. COKER
CITY ATTORNEY
RESOLUTION NO. R2011 -70
TOM REID
MAYOR
onl
r
To the Honorable Mayor and
Members of City Council
Pearland, Texas
A CAaMMf
May 26, 2011
Exhibit "A"
Resolution No. R2011 -70
We are pleased to confirm our understanding of the services we are to provide City of Pearland, Texas for
the year ending September 30, 2011. We will audit the financial statements of the governmental activities,
the business -type activities, the aggregate discretely presented component units, each major fund, and the
aggregate remaining fund information, which collectively comprise the basic financial statements, of the
City as of and for the year ending September 30, 2011 that will be included in the City's Comprehensive
Annual Financial Report (CAFR).
Accounting standards generally accepted in the United States provide for certain required supplementary
information (RSI) to accompany the City's basic financial statements. As part of our engagement, we will
apply certain limited procedures to the City's RSI. These limited procedures will consist principally of
inquiries of management regarding the methods of measurement and presentation, which management is
responsible for affirming to us in its representation letter. Unless we encounter problems with the
presentation of the RSI or with procedures relating to it, we will disclaim an opinion on it. The following
RSI is required by generally accepted accounting principles and will be subjected to certain limited
procedures, but will not be audited:
Management's discussion and analysis.
Budgetary schedules
Required supplementary pension information
Supplementary information other than RSI also accompanies the City's basic financial statements. We will
subject the following supplementary information to the auditing procedures applied in our audit of the basic
fmancial statements and will provide an opinion on it in relation to the basic fmancial statements:
Individual and combining fund statements and schedules
Schedule of expenditures of federal awards (issued separately in the City's Federal Single Audit Report
document)
The following additional information accompanying the basic financial statements will not be subjected to
the auditing procedures applied in our audit of the financial statements, and for which our auditor's report
will disclaim an opinion.
Introductory section
Statistical section
3411 Richmond Ave' Suite 5001 Houston, TX 770461 (P) 713.621.15151(F) 713.621.1570
2277 Plaza Drive 1 Suite 2601 Sugar Land, TX 774791 (P) 281.242- 86001(>r) 713.621.1570
www.null-lairson.com
MEMBERS: AMERICAN INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS, TEXAS SOCIETY OF CERTIFIED PUBLIC ACCOUNTANTS
CPA ASSOCIATES INTERNATIONAL, INC. WITH ASSOCIATED OFFICES IN PRINCIPAL U.S. AND INTERNATIONAL CfFIES
To the Honorable Mayor and
Members of City Council
Pearland, Texas
May 26, 2011
Page 2 of 6
Audit Objectives
The objective of our audit is the expression of opinions as to whether your basic financial statements are
fairly presented, in all material respects, in conformity with U.S. generally accepted accounting principles
and to report on the fairness of the additional information referred to in the first paragraph when considered
in relation to the basic financial statements taken as a whole. The objective also includes reporting on
Internal control related to the financial statements and compliance with laws, regulations, and the
provisions of contracts or grant agreements, noncompliance with which could have a material effect on
the financial statements' in accordance with Government Auditing Standards.
Internal control related to major programs and an opinion (or disclaimer of opinion) on compliance
with laws, regulations, and the provisions of contracts or grant agreements that could have a direct and
material effect on each major program in accordance with the Single Audit Act Amendments of 1996
and OMB Circular A -133, Audits of States, Local Governments, and Non Profit Organizations.
The reports on internal control and compliance will each include a statement that the report is intended
solely for the information and use of management, the body or individuals charged with governance, others
within the entity specific legislative or regulatory bodies, federal awarding agencies, and if applicable,
pass through entities and is not intended to be and should not be used by anyone other than these specified
parties.
Our audit will be conducted in accordance with auditing standards generally accepted in the United States
of America; the standards for financial audits contained in Government Auditing Standards, issued by the
Comptroller General of the United States; the Single Audit Act Amendments of 1996; and the provisions of
OMB Circular A -133, and will include tests of accounting records, a determination of major program(s) in
accordance with OMB Circular A -133, and other procedures we consider necessary to enable us to express
such opinions and to render the required reports. If our opinions on the financial statements or the Single
Audit compliance opinions are other than unqualified, we will fully discuss the reasons with you in
advance. If, for any reason, we are unable to complete the audit or are unable to form or have not formed
opinions, we may decline to express opinions or to issue a report as a result of this engagement.
Management Responsibilities
Management is responsible for the basic financial statements and all accompanying information as well as
all representations contained therein. Management is also responsible for preparation of the schedule of
expenditures of federal awards in accordance with the requirements of OMB Circular A -133. As part of the
audit, we will assist with preparation of your financial statements, schedule of expenditures of federal
awards, and related notes. You are responsible for making all management decisions and performing all
management functions relating to the financial statements, schedule of expenditures of federal awards, and
related notes and for accepting full responsibility for such decisions. You will be required to acknowledge
in the management representation letter our assistance with preparation of the financial statements and the
schedule of expenditures of federal awards and that you have reviewed and approved the financial
statements, schedule of expenditures of federal awards, and related notes prior to their issuance and have
accepted responsibility for them. Further, you are required to designate an individual with suitable skill,
knowledge, or experience to oversee any nonaudit services we provide and for evaluating the adequacy and
results of those services and accepting responsibility for them.
Management is responsible for establishing and maintaining effective internal controls, including internal
controls over compliance, and for monitoring ongoing activities, to help ensure that appropriate goals and
objectives are met. You are also responsible for the selection and application of accounting principles; for
the fair presentation in the financial statements of the respective financial position of the governmental
activities, the business -type activities, the aggregate discretely presented component units, each major fund,
To the Honorable Mayor and
Members of City Council
Pearland, Texas
May 26, 2011
Page 3 of 6
and the aggregate remaining fund information of the City and the respective changes in financial position
and, where applicable, cash flows in conformity with U.S. generally accepted accounting principles; and for
compliance with applicable laws and regulations and the provisions of contracts and grant agreements.
Management is also responsible for making all financial records and related information available to us and
for ensuring that management and financial information is reliable and properly recorded. Your
responsibilities also include, including identifying significant vendor relationships in which the vendor has
responsibility for program compliance and for the accuracy and completeness of that information. Your
responsibilities include adjusting the financial statements to correct material misstatements and confirming
to us in the representation letter that the effects of any uncorrected misstatements aggregated by us during
the current engagement and pertaining to the latest period presented are immaterial, both individually and in
the aggregate, to the financial statements taken as a whole.
You are responsible for the design and implementation of programs and controls to prevent and detect
fraud, and for informing us about all known or suspected fraud or illegal acts affecting the government
involving (1) management, (2) employees who have significant roles in internal control, and (3) others
where the fraud or illegal acts could have a material effect on the financial statements. Your responsibilities
include informing us of your knowledge of any allegations of fraud or suspected fraud affecting the
government received in communications from employees, former employees, grantors, regulators, or
others. In addition, you are responsible for identifying and ensuring that the entity complies with applicable
laws, regulations, contracts, agreements, and grants. Additionally, as required by OMB Circular A -133, it is
management's responsibility to follow up and take corrective action on reported audit findings and to
prepare a summary schedule of prior audit findings and a corrective action plan.
Management is responsible for establishing and maintaining a process for tracking the status of audit
findings and recommendations. Management is also responsible for identifying for us previous financial
audits, attestation engagements, performance audits, or other studies related to the objectives discussed in
the Audit Objectives section of this letter. This responsibility includes relaying to us corrective actions
taken to address significant findings and recommendations resulting from those audits, attestation
engagements, performance audits, or studies. You are also responsible for providing management's views
on our current findings, conclusions, and recommendations, as well as your planned corrective actions, for
the report, and for the timing and format for providing that information.
Audit Procedures General
An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements; therefore, our audit will involve judgment about the number of transactions to be
examined and the areas to be tested. We will plan and perform the audit to obtain reasonable rather than
absolute assurance about whether the financial statements are free of material misstatement, whether from
(1) errors, (2) fraudulent financial reporting, (3) misappropriation of assets, or (4) violations of laws or
governmental regulations that are attributable to the entity or to acts by management or employees acting on
behalf of the entity. Because the determination of abuse is subjective, Government Auditing Standards do
not expect auditors to provide reasonable assurance of detecting abuse.
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 misstatements or
noncompliance may exist and not be detected by us. In addition, an audit is not designed to detect
immaterial misstatements or violations of laws or governmental regulations that do not have a direct and
material effect on the financial statements or major programs. However, we will inform you of any material
errors and any fraudulent financial reporting or misappropriation of assets that come to our attention. We
will also inform you of any violations of laws or governmental regulations that come to our attention, unless
clearly inconsequential. We will include such matters in the reports required for a Single Audit. Our
To the Honorable Mayor and
Members of City Council
Pearland, Texas
May 26, 2011
Page 4 of 6
responsibility as auditors is limited to the period covered by our audit and does not extend to any later
periods for which we are not engaged as auditors.
Our procedures will include tests of documentary evidence supporting the transactions recorded in the
accounts, and may include tests of the physical existence of inventories, and direct confirmation of
receivables and certain other assets and liabilities by correspondence with selected individuals, funding
sources, creditors, and financial institutions. We will request written representations from your attorneys as
part of the engagement, and they may bill you for responding to this inquiry. At the conclusion of our audit,
we will require certain written representations from you about the financial statements and related matters.
Audit Procedures Internal Controls
Our audit will include obtaining an understanding of the entity and its enviromnent, including internal
control, sufficient to assess the risks of material misstatement of the financial statements and to design the
nature, timing, and extent of further audit procedures. Tests of controls may be performed to test the
effectiveness of certain controls that we consider relevant to preventing and detecting errors and fraud that
are material to the financial statements and to preventing and detecting misstatements resulting from illegal
acts and other noncompliance matters that have a direct and material effect on the financial statements. Our
tests, if performed, will be less in scope than would be necessary to render an opinion on internal control
and, accordingly, no opinion will be expressed in our report on internal control issued pursuant to
Government Auditing Standards.
As required by OMB Circular A -133, we will perform tests of controls over compliance 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 Circular
A -133.
An audit is not designed to provide assurance on internal control or to identify significant deficiencies.
However, during the audit, we will communicate to management and those charged with governance
internal control related matters that are required to be communicated under AICPA professional standards,
Government Auditing Standards, and OMB Circular A -133. These matters, to the extent they are
applicable, include:
Our views about your significant accounting practices, including accounting policies, accounting
estimates and financial statement disclosures.
Significant difficulties encountered during the audit
Uncorrected misstatements, other than those the auditor believes are trivial
Disagreements with management
Material, corrected misstatements that were brought to the attention of management as a result of audit
procedures (recommended adjustments to financial statements).
Representations we are requesting from management.
Management's consultations with other accountants
Significant issues arising from the audit that were discussed, or the subject of correspondence, with
management
Other findings or issues, if any, arising from the audit that are, in our professional judgment, significant
and relevant to you regarding your oversight of the financial reporting process.
To the Honorable Mayor and
Members of City Council
Pearland, Texas
May 26, 2011
Page 5 of 6
Audit Procedures Compliance
As part of obtaining reasonable assurance about whether the financial statements are free of material
misstatement, we will perform tests of the City'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.
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 major programs. Our procedures will consist of tests of transactions and
other 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 on each of City of Pearland, Texas's
major programs. The purpose of these procedures will be to express an opinion on City of Pearland, Texas's
compliance with requirements applicable to each of its major programs in our report on compliance issued
pursuant to OMB Circular A -133.
Engagement Administration, Fees, and Other
We expect to begin our audit in June and to issue our reports no later than the following March. Christopher
L. Breaux, CPA will be designated as the engagement partner and will be responsible for supervising the
engagement and signing the report.
We understand that your employees will prepare all cash or other confirmations we request and will locate
any documents selected by us for testing.
The audit documentation for this engagement is the property of Null Lairson, P.C. and constitutes
confidential information. However, pursuant to authority given by law or regulation, we may be requested
to make certain audit documentation available to a federal agency providing direct or indirect funding, or
the U.S. Government Accountability Office for purposes of a quality review of the audit, to resolve audit
findings, or to carry out oversight responsibilities. We will notify you of any such request. If requested,
access to such audit documentation will be provided under the supervision of Null Lairson, P.C. personnel.
Furthermore, upon request, we may provide copies of selected audit documentation to the aforementioned
parties. These parties may intend, or decide, to distribute the copies or information contained therein to
others, including other governmental agencies.
Our fee for these services will be at our standard hourly rates plus out-of-pocket costs (such as report
reproduction, word processing, postage, travel, copies, telephone, etc.) except that we agree that our gross
fee, including expenses, will not exceed $66,000. Our standard hourly rates vary according to the degree
of responsibility involved and the experience level of the personnel assigned to your audit. Our invoices for
these fees will be rendered each month as work progresses and are payable on presentation. In accordance
with our firm policies, work may be suspended if your account becomes 60 days or more overdue and may
not be resumed until your account is paid in full. If we elect to terminate our services for nonpayment, our
engagement will be deemed to have been completed upon written notification of termination, even if we
have not completed our report. You will be obligated to compensate us for all time expended and to
reimburse us for all out -of- pocket costs through the date of termination. The above 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.
You may request that we perform additional services not contemplated by this engagement letter. If this
occurs, we will communicate with you regarding 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
erg
Davis, Kinard Co., P.C.
tIlIcd Put, Ka Aecuuntant5
June 6 ,200S
To the Shareholders of
Null Lairmm, P.C.
and the Center for Public Company .Audi Peer Review Cnmmiltee
We Lave reviewed the system of quality control for the accounting and auditing practice of Null
Lairaon, P.C. (tic firm) applicable to non-SEC ivsue'r. s in effect for the year ended December 31,
2007. The firm has informed us that it did not audit °l:C: 4su415 for the year ended December 31,
2007. A system of quality coutol nrompasscs the firm's organizational suucturc and the policies
adopted and procedures established to provide it with reasonable assurance of complying with
prole sumal standards. Tin elements of quality control are described in the Statements on Quality
Control Standards iasuad by the kmcrium Institute of Certified Public Aeuruntants (the AICPA
Tho design of the system, and compliance with it, aro tho responsibilities of the fitm. Ow'
responsibility is to express an opinion ca the design of the system, and the firm's compliance with
that system based ern cue review.
[her review was c.nnducnad in acorn-dunce with standards cutabl ished by the Peer Review Committee
of the Center for Public Company Audit Firms and included prooadures to plan and perforrn the
review that are summarized in the attached deseriprion of the per review process. Our review would
not me arily disclose all xeaknes5es in the sy±Lran of quality control or all instances of lack of
complisnco with it since it was based on selective testa. Secautte them are inherent Limitations in the
effectiveness of any system of quality control, dopartur, -s from the system may occur and not be
deieuttd. Also, projection of any evaluation of a system of quality control to futtua periods is subject
to the risk that the nystem of quality control may become inadequate because of changes in
conditions, or that the darn of compliance with the pnlieim or prtruedures nay deterium:x.
In our opinion, the sysrem of'quality control for the accounting and awrdieing practice applicable to the
non -SEC iasnem of Null t.airsun, P.C. in effect an the year ended December 31, 211.37 has been
designed to nicer the r of the quality c atanilarda for an accounting and auditing,
practice established by the AICPA, and Was complied with during the year tun ended to provide td,c
lirm with reasonable assurance of complying with applicable. professional standards.
DAVIS, TCINARD Ca, P.C.
Frn1 FnAndnt rink a,iltina
'c9 Ftne &rn 9u49 eau
Akile rig) Au 78681S1 3Q
Oliveira 6Y2 -4aw
FAX 025) M -7648
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To the Honorable Mayor and
Members of City Council
Pearland, Texas
May 26, 2011
Page 6 of 6
written communication from us documenting such additional services, our services will continue to be
governed by the terms of this engagement letter.
At the conclusion of the engagement, we will complete the appropriate sections of and sign the Data
Collection Form that summarizes our audit findings. It is management's responsibility to submit the
reporting package (including fmancial statements, schedule of expenditures of federal awards, summary
schedule of prior audit fmdings, auditors' reports, and a corrective action plan) along with the Data
Collection Form to the designated federal clearinghouse and, if appropriate, to pass- through entities. The
Data Collection Form and the reporting package must be submitted within the earlier of 30 days after
receipt of the auditors' reports or nine months after the end of the audit period, unless a longer period is
agreed to in advance by the cognizant or oversight agency for audits. At the conclusion of the engagement,
we will provide information to management as to where the reporting packages should be submitted and the
number to submit.
Government Auditing Standards require that we provide you with a copy of our most recent external peer
review report and any letter of comment, and any subsequent peer review reports and letters of comment
received during the period of the contract. We have attached our most recent peer review report
We appreciate the opportunity to be of service to the City and believe this letter accurately summarizes the
significant terms of our engagement. If you have any questions, please let us know. If you agree with the
terms of our engagement as described in this letter, please sign the enclosed copy and return it to us.
Very truly yours,
RESPONSE:
This letter correctl sets understanding of the City of Pearland, Texas.
By:
Title:
Date: July 11, 2 011
Bill Eisen, City Manager
CITY COUNCIL
AUDIT QUESTIONNAIRE
Client: City of Pearland for the year ended: 09/30/11
Page 1 of 3
This portion of the questionnaire is designed to provide the auditors with information about the interests of
officers,directors,and other related parties regarding transactions with the City.
1) To your knowledge have you or a relative (see definitions on last page) of yours been involved in any of the
following transactions or pending transactions since October 1, 2010 to which the City of Pearland was, or is
to be,a party? Please explain"Yes"answers in the space below.
Yes No
Sale,purchase,exchange, or leasing of property?
Receiving or providing of goods,services,or facilities?
Transfer or receipt of the City's earnings or assets
(not including salaries and regular pay)?
Other transactions?(please explain in the space below)
2) To your knowledge have you or a relative of yours been indebted to or had a receivable from the City of
Pearland any time since October 1, 2010? Please exclude amounts due for ordinary travel, expense advances
property taxes, water bills and other transactions in the normal course of business with the City. Please
explain"Yes"answers in the space below.
Yes No
3) To your knowledge has a relative of yours been employed by the City of Pearland during your tenure with the
city?Please explain"Yes"answers in the space below.
Yes No
4) Has the City done business with or paid compensation directly to you or any business entity in which you
have a direct financial interest(an entity of which you own 10% or more or which provides for 10% or more
of your annual income) other than companies in which you hold publicly held stock?Please note this does not
include compensation as a council member)Please explain"Yes"answers in the space below.
Yes No
CITY COUNCIL
AUDIT QUESTIONNAIRE
Client: City of Pearland for the year ended: 09/30/11
Page 2 of 3
The portion of the questionnaire is designed to help the auditors with assessing the risks that impact the
City's financial statements including error,noncompliance and fraud risk.
5) Are you aware of any violations by the City of Pearland of laws or policies as listed below which could
require disclosure in or adjustment of the financial statements: nepotism,pecuniary interest, competitive
bidding,gifts of public funds, any other laws or policies?Please explain"Yes"answers in the space below.
Yes No
Are you aware of any specific instances where: Yes No
Accounts(e.g., cash,receivables,inventory,property and equipment,
and other assets and liabilities)were or are at a high risk of being
stolen or misused? •
Transactions(e.g.,revenues such as federal,state, etc. or expenditures
such as payro11,.capital outlays,supplies,etc.)pose a high risk of being
misstated in the financial statements?
Please explain"Yes"answers in the space below.
6) Do you have knowledge of any fraud(see definitions page)or misstatement of city financial statements that
have occurred? Do you have knowledge of any suspected or alleged fraud or misstatement?Please explain
"Yes"answers in the space below.
Yes No
Please forward this document to:
Null-Lairson
3411 Richmond Ave.Suite 500
Houston,TX 77046
Note: if you have any questions about or feel uncomfortable addressing any of the items noted above,in
this format,please feel free to contact Christopher Breaux at Cbreaux@null-lairson.com.
The answers to the foregoing questions are correctly stated to the best of my knowledge and belief.
Signature Date
Printed Name
CITY COUNCIL
AUDIT QUESTIONNAIRE
Client: City of Pearland for the year ended: 09/30/11
Page 3 of 3
DEFINITIONS
FRAUD
_Fraud generally involves a willful or deliberate act with the intention of obtaining unauthorized benefits,such as
money or property,by deception or other unethical means. Dishonest or fraudulent activities include,but are not
limited to:
• Forgery or alteration of documents (checks,time sheets,contractor agreements,purchase orders,
securities,etc.)
• Misrepresentation of information on documents
• Misappropriation of funds, securities,supplies, furniture,fixtures, and equipment,or any other asset
• Authorizing or receiving payment for goods not received or services not performed
• Authorizing or receiving payments for hours not worked with the exception of those allowed under City
policy.
• Unauthorized use or misuse of City property,equipment,materials records
• Improprieties in the handling or reporting of money transactions
• Theft or destruction of any asset
• Embezzlement
• Seeking or accepting anything of material value from vendors,consultants, or contractors doing business
with the City in violation of the City's policy
• Any claim for reimbursement of expenses that are not made for the exclusive benefit of the City.
• Any computer related activity involving the alteration,destruction, forgery, sale, or manipulation or
misappropriation/misuse of data for fraudulent purposes
• Misstatement and other.irregularities of City records,including misstatement of the City's financial
statements,and reports.
• Any violation of Federal, State, or local laws related to dishonest activities or fraud
• Any similar or related activity/irregularity
RELATIVE
For purposes of these questionnaires a relative is anyone related to you within either a:
• Up to a third degree by consanguinity(blood relation) [i.e., spouse,child,parent(first degree),
brother/sister grandchild,grandparent(second degree), great grandchild, great grandparent,uncles/aunts,
nephews/nieces(third degree)]
• Or up to a second degree by affinity(marriage)(i.e.,step children or parents,mother and father in-law,
step brothers/sisters,brother/sister in-law,step grandchildren and step grandparents)