R-2013-078-2013-06-10RESOLUTION NO. R2013-78
A 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 10th day of June, A.D., 2013.
)V1')
TOM REID
MAYOR
ATTEST:
APPROVED AS TO FORM:
DARRIN M. COKER
CITY ATTORNEY
GrantThornton
Resolution No. R2013-78
Exhibit "A"
Mr. Bill Eisen
City Manager
The City of Pearland, Texas
June 10, 2013
If because of a change in the City's status or due to any other reason, any provision in this
Engagement letter would be prohibited by, or would impair our independence under, laws,
regulations, or published interpretations by governmental bodies, commissions, or other
regulatory agencies, such provision shall, to that extent, be of no further force and effect and
the Engagement Letter shall consist of the remaining portions.
Dispute resolution
Any controversy or claim arising out of or relating to the services, related fees, or this
Engagement Letter shall first be submitted to mediation. A mediator will be selected by
agreement of the parties, or if the parties cannot agree, a mediator acceptable to all parties will
be appointed by the American Arbitration Association ("AAA"). The mediation will proceed in
accordance with the customary practice of mediation.
Authorization
This Engagement Letter sets forth the entire understanding between the City and Grant
Thornton regarding the services described herein and supersedes any previous proposals,
correspondence, and understandings, whether written or oral. If any portion of this
Engagement Letter is held invalid, it is agreed that such invalidity shall not affect any of the
remaining portions.
Please confirm your acceptance of this Engagement Letter by signing below and returning one
copy to us in the enclosed self-addressed envelope. We appreciate the opportunity to work with
the City and assure you that this engagement will be given our closest attention.
Very truly yours,
GRANT THORNTON LLP
Angela unlap
Partner
Enc:
Matters that can cause work in excess of fee estimate
May 31, 2011 Peer Review Report
Agreed and accepted by:
THE CI OF
40/
ND, TEXAS
Bill isen, City Manager
Grant Thornton LLP
U.S. member firm of Grant Thornton International Ltd
Date:
GrantThornton
Matters that can cause work in excess of
fee estimate
We want you to receive the maximum value for our professional services and to perceive that
our fees are reasonable and fair. However, in seeking to provide you with such value, we find
there are various matters that can cause us to perform work in excess of that contemplated by
our fee estimate. The following explains the matters that arise most frequently.
Changing requirements
Today, there are numerous governmental or rule-making bodies that regularly add or change
various requirements. Although we attempt to plan our work to anticipate the requirements
that will affect our engagement, three types of situations make this difficult. Sometimes, these
new requirements are not communicated in time for us to anticipate their effects in our
preliminary planning. Secondly, in spite of our anticipation and planning, the work necessary to
comply with new requirements may be underestimated. Finally, in some instances, you may
decide that it is advantageous to you to have the new requirements applied immediately.
Incorrect accounting applications or errors in your records
We generally form our fee estimates on the expectation that your accounting records are in
good order so that our work can be completed based upon our normal testing and other
procedures. However, should we find numerous errors, incomplete records or disorganized
bookkeeping methods, we will have to do additional work to determine that the necessary
corrections have been made and properly reflected in the financial statements.
Lack of audit facilitation or timely preparation
To minimize your costs, we plan the means by which your personnel can facilitate the audit (for
example, what schedules they will prepare, how to prepare them, the supporting documents
that need to be provided, and so forth). We also discuss matters such as availability of your key
personnel, deadlines and working conditions. Indeed, the information concerning these matters
that you furnish to us is a key element in our fee quotation. Therefore, if your personnel are
unable, for whatever reasons, to provide these materials on a timely basis, it may substantially
increase the work we must do to complete the engagement within the established deadlines.
Moreover, in some circumstances, this may require a staff withdrawal, as discussed below.
Grant Thornton LLP
U.S. member firm of Grant Thornton International Ltd
GrantThornton
Staff withdrawal
A staff withdrawal consists of our removing one or all staff because the condition of your
records or the inability of your personnel to provide agreed upon materials within the
established timetable, makes it impossible for us to perform our work in a timely, efficient
manner, as established by our engagement plan. Sometimes, a complete staff withdrawal is
necessary to permit an orderly audit approach. A staff withdrawal is not necessarily an adverse
reflection on your personnel. However, it involves additional costs, as we must reschedule our
personnel, incur additional start-up costs, and so forth, to prevent total engagement costs from
increasing significantly.
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Unforeseen events
Even though we communicate frequently with clients and plan our engagement with
management and their staff, unforeseen events can occur. Examples include accounting
problems, litigation, changes in your business or business environment, contractual or other
difficulties with suppliers, third -party service providers, or customers, and so forth. When those
circumstances occur, additional time is needed to provide you with assistance and to complete
our engagement in accordance with professional standards.
New award programs or program non-compliance
Our fee estimates assume that award programs audited as major will remain relatively consistent
with prior years. When new awards are received, it may require us to audit additional programs
to achieve the appropriate testing coverage. In such circumstances, additional fees may be
incurred beyond what was previously contemplated. Furthermore, if the results of our
procedures identify material program noncompliance or internal control deficiencies, which
require extensive research or discussions with the cognizant, oversight agency or funding
agency, an expansion of our audit scope and additional audit fees may result.
Again, we emphasize that we strive to give you optimum value for our professional services.
Fee quotations are provided based upon the facts and circumstances that you describe to us.
However, unlike the sale of products, the performance of professional services is affected by
many variables, such as the foregoing, which may cause fee estimates to change.
Grant Thornton LLP
U.S. member firm of Grant Thornton International Ltd
BKD..
CPAs & Advisors
910 E. St. Louis Street, Suite 200
PO. Box 1190
Springfield, MO 65801-1190
417.865.8701 Fax 417.865.0682 www.bkd.com
System Review Report
To the Partners of
Grant Thornton LLP
and the National Peer Review Committee
of the American Institute of Certified
Public Accountants Peer Review Board
We have reviewed the system of quality control for the accounting and auditing practice of Grant
Thornton LLP (the firm) applicable to non -SEC issuers in effect for the year ended May 31, 2011. 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.
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. 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. The nature, objectives,
scope, limitations of and the procedures performed in a System Review are described in the standards at
www.aicpa.org/prsummary.
As required by the standards, engagements selected for review included engagements performed under
Government Auditing Standards, audits of employee benefit plans, audits performed under FDICIA and
audits of carrying broker-dealers.
In our opinion, the system of quality control for the accounting and auditing practice of Grant Thornton
LLP applicable to non -SEC issuers in effect for the year ended May 31, 2011, has been suitably designed
and complied with to provide the firm with reasonable assurance of performing and reporting in
conformity with applicable professional standards in all material respects. Firms can receive a rating of
pass, pass with deficiency(ies) or fail. Grant Thornton LLP has received a peer review rating of pass.
SLP
November 30, 2011
experience BKD
Praxi ty:
MEMBER •'
GLOBAL ALLIANCE OF
INDEPENDENT FIRMS
- - - - - -- _ _
• `` Grantlhornton Resolution No. R2013-78
Exhibit "A"
June 10,2013
Mr. Bill Eisen Grant Thornton LLP
City Manager 700 Milam Street,Suite 300
Houston,TX 77002-2848
The City of Pearland,Texas
3519 Liberty Drive T 832.476.3600
F 713.655.8741
Pearland,Texas 77581 GrantThornton.com
linkd.in/GrantThorntonUS
twitter.com/GrantThorntonUS
Dear Mr. Eisen:
Thank you for discussing with us the requirements of our forthcoming engagement.This letter
(the"Engagement Letter—') documents-our-mutual-understanding-of-the-arrangements-for-the
services described herein. Our engagement is subject to the satisfactory completion of a
background investigation on the City,the City's key decision makers,and other key personnel.
Scope of services
Grant Thornton LLP ("Grant Thornton")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 entity's basic financial statements ("financial statements") of The City
of Pearland,Texas (collectively,the"City"),as of and for the year ended September 30,2013.
Our financial statement audit will be conducted in accordance with auditing standards generally
accepted in the United States of America ("US GAAS") established by the American Institute
of Certified Public Accountants ("AICPA") and the standards for financial audits of the U.S.
Government Accountability Office's ("GAO") Government Auditing Standards("GAGAS")
issued by the Comptroller General of the United States.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
fraud or error.An audit also includes evaluating the appropriateness of the accounting policies
used and the reasonableness of significant accounting estimates made by management,as well
as evaluating the overall financial statement presentation.
In assessing the risks of material misstatement,an auditor considers 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 circumstance. GAGAS further requires us to perform
tests of the City's compliance with laws,regulations and provisions of contracts or grant
agreements,in which noncompliance could have a direct and material effect on the
Grant Thornton LLP
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• { .: GrantThornton
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Mr.Bill Eisen
City Manager
The City of Pearland,Texas
June 10,2013
determination of financial statement amounts.However,a financial statement audit is not
designed to provide assurance on compliance or internal control over financial reporting or to
identify immaterial instances of noncompliance or internal control deficiencies.
When conducting an audit,the auditor is required to obtain reasonable assurance about
whether the financial statements are free from material misstatement,whether due to fraud or
error,to enable the auditor to express an opinion on whether the financial statements are
presented fairly,in all material respects,in accordance with accounting principles generally
accepted in the United States of America.Although not absolute assurance,reasonable
assurance is,nevertheless, a high level of assurance.However,an audit is not a guarantee of the
accuracy of the financial statements.Even though the audit is properly planned and performed
in accordance with professional standards,an unavoidable risk exists that some material
misstatements or noncompliance with laws,regulations,and provisions of contracts or grant
agreements may not be detected due to the inherent limitations of an audit,together with the
inherent limitations of internal control.Also,an audit is not designed to detect errors or fraud
that is immaterial to the financial statements.
It should be noted that because the determination of abuse is subjective,we have no
responsibility to design the audit to provide reasonable assurance of detecting abuse.Abuse is
distinct from fraud and noncompliance.Abuse involves behavior that is deficient or improper
when compared with behavior that a prudent person would consider reasonable and necessary
business practice given the facts and circumstances.
Pursuant to the Single Audit Act Amendments of 1996 and the provisions of U.S. Office of
Management and Budget Circular A-133,Audits of States,Local Governments, and Non Profit
Organizations("OMB Circular A-133"),we will also audit the City's compliance with the types of
compliance requirements described in the OMB CircularA-133 Compliance Supplement that could
have a direct and material effect on each of its major federal programs for the year ended
September 30,2013.We will conduct our compliance audit in accordance with US GAAS,
GALAS, and OMB Circular A-133.Those standards and OI\4B Circular a-133 require the
auditor to plan and perform the compliance audit to obtain reasonable assurance about whether
noncompliance with the types of compliance requirements that could have a direct and material
effect on each major federal program occurred, to enable the auditor to express-an opinion on
the City's compliance with these requirements in all material respects.A compliance audit
includes determining major programs, examining, on a test basis,evidence about the City's
compliance with those requirements,and performing such other procedures as we considered
necessary in the circumstances,including performing tests of internal control to evaluate the
.effectiveness of the design and operation of controls considered relevant to preventing, or
detecting and correcting material noncompliance with requirements applicable to major
programs.Absolute assurance is not attainable because the compliance audit is conducted on a
test basis and compliance with the specific program requirements is subject to the inherent
limitations of internal control over compliance,which may not prevent or detect intentional or
unintentional noncompliance.Accordingly,material noncompliance may remain undetected.
Grant Thornton LLP
e. GrantThornton 3
Mr.Bill Eisen
City Manager
The City of Pearland,Texas
June 10,2013
Also,a compliance audit is not designed to detect noncompliance,whether intentional or
unintentional, that is immaterial. Our compliance audit does not provide a legal determination
of the City's compliance with those requirements.
Upon the completion of the foregoing financial statement and compliance audits and subject to
their findings,we will render our reports on the City's financial statements and on the City's
compliance with the requirements referred to above that are applicable to each of its major
federal programs and will communicate our findings in accordance with US GAAS, GAGAS,
and OMB Circular A-133. Our report on the City's compliance will include our findings on
internal control over compliance;however,no opinion will be expressed on internal control
over compliance.
As required by GAGAS,we will also render a report that includes our findings on the City's
internal control over finanrial reporting and conipH nre with laws, rern,laat+nnc anand provisions
of contracts or grants,and other matters based on our financial statement audit. Such report
will be considered integral to the basic financial statements and will be referred to in our report
thereon.However,providing an opinion on internal control over financial reporting or on
compliance with those provisions is not an objective of our financial statement audit,and
accordingly,we will not express such an opinion.
It is possible that circumstances may arise in which our reports may differ from their expected
form and content,resulting in a modified report or disclaimer of opinion. Further,if in our
professional judgment the circumstances necessitate,we may resign from the engagement prior
to completion.
Required supplementary information
Accounting principles generally accepted in the United States of America require that the
management's discussion and analysis,budgetary comparison information,and pension
information be presented to supplement the basic financial statements. Such information,
although not a required part of the basic financial statements,is required by 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.This required supplementary information is the responsibility of management.We will
apply certain limited procedures to the required supplementary information in accordance with
US GAAS.These limited procedures consist of inquiries of management about the methods of
preparing the information and comparing the information for consistency with management's
responses to our inquiries,the basic financial statements, and other knowledge we obtain
during our audit of the basic financial statements.We will not express an opinion or provide
any assurance on the information because the limited procedures will not provide us with
sufficient evidence to express an opinion or provide any assurance.
Grant Thornton LLP
GrantThornton 4
Mr.Bill Eisen
City Manager
The City of Pearland,Texas
June 10,2013 -
i
Other information
Management is responsible for providing us with other information that will be included in an
annual report or similar document containing audited financial statements and our auditor's
report thereon,including the introductory and statistical sections presented to fulfill the
requirements of the Government Finance Officers'Association Comprehensive Annual
Financial Report("CAFR").Management should provide the information prior to the release
of our auditor's report. Our responsibility for such information does not extend beyond the
financial information identified in our report.We do not perform any procedures to
corroborate the other information contained in these documents.Professional standards
require us to read the other information and consider whether the other information,or the
manner of its presentation,is materially inconsistent with information appearing in the financial
statements.We will bring to management's attention any information that we believe is a
material misstatement of fact.
Responsibilities of those charged with governance
Effective two-way communication with the City Council(referred to as "those charged with
governance") assists us in obtaining information relevant to the audit and also assists those
charged with governance in fulfilling their responsibility to oversee the financial reporting
process.Those charged with governance play an important role in the City's internal control
over financial reporting by setting a positive tone at the top and challenging the City's activities
in the financial arena.Accordingly,it is important for those charged with governance to
communicate to us matters they believe are relevant to our engagement.As indicated below,
management also has a responsibility to communicate certain matters to those charged with
governance and to Grant Thornton.
In connection with our engagement,professional standards require us to communicate certain
matters that come to our attention to those charged with governance,such as the following:
• fraud involving senior management and fraud that causes a material misstatement
• illegal acts,unless clearly inconsequential
• violations of provisions of contracts or grant agreements and abuse that causes a material
misstatement
• non-compliance with the provisions of a major federal financial assistance program.
• • failure to report fraud,illegal acts,violations of provisions of contracts or grant agreements,
or abuse to specified external parties when required by law or regulation.We may also be
required to report such matters directly to the external party.
• significant deficiencies and material weaknesses in internal control over financial reporting
and federal financial assistance
• disagreements with management and other serious difficulties encountered
• qualitative aspects of significant accounting practices,including accounting policies,
estimates, and disclosures
• audit adjustments and uncorrected misstatements,including missing disclosures
•
Grant Thornton LLP
I GrantThornton 5
Mr.Bill Eisen
City Manager
The.City of Pearland,Texas
June 10,2013
Management responsibilities
As you are aware,the financial statements are the responsibility of management.Management is
responsible for preparing and fairly presenting the financial statements in accordance with
accounting principles generally accepted in the United States of America,which includes
adopting sound accounting practices and complying with changes in accounting principles and
related guidance.Management is also responsible for:
• providing us with access to all information of which they are aware that is relevant to the
preparation and fair presentation of the financial statements,including all financial records,
documentation of internal control over financial reporting and federal financial assistance
and related information,and any additional information that we may request for audit
purposes
• providing us with unrestricted access to persons within the City from whom we determine it
necessary to obtain audit evidence
• making us aware of any significant vendor relationships in which the vendor has the
responsibility for program compliance
• ensuring that the City identifies and complies with all laws,regulations, contracts and grants
applicable to its activities and for informing us of any known violations.The City should
identify and disclose to us all laws,regulations and provisions of contracts and grant
agreements that have a direct and material effect on the determination of financial statement
amounts or other significant financial data.
• taking timely and appropriate steps to remedy fraud,illegal acts,violations of contracts or
grant agreements, or abuse that we may report
• designing,implementing,and maintaining effective internal control over financial reporting
and federal financial assistance,which includes adequate accounting records and procedures
to safeguard the City's assets,and for informing us of all known significant deficiencies and
material weaknesses in,and significant changes in,internal control over financial reporting
and federal financial assistance
• • informing us of their views about the risk of fraud within the City and their awareness of any
known or suspected fraud and the related corrective action proposed
• adjusting the financial statements,including disclosures, to correct material misstatements
and for affirming to us in a representation letter that the effects of any uncorrected
misstatements,including missing disclosures,aggregated by us during the current
engagement,including those pertaining to the latest period presented,are immaterial,both
individually and in the aggregate, to the financial statements as a whole
GrantThornton6
Mr.Bill Eisen
City Manager
The City of Pearland,Texas
June 10,.2013
• establishing and maintaining a process to address and track the status of our findings,
conclusions,and recommendations,including providing management's views on such
matters as well as planned corrective actions to be included in the report,in a timely
manner.This includes informing us of findings and recommendations from previous audits,
attestation engagements,or other studies that could have a material effect on the financial
statements and whether any related recommendations were implemented
• informing us of any events occurring subsequent to the date of the financial statements
through the date of our auditor's report that may affect the financial statements or the
related disclosures
• • informing us of any subsequent discovery of facts that may have existed at the date of our
auditor's report that may have affected the financial statements or the related disclosures
• taking corrective action on any reported findings or questioned costs reported to them and
preparing a summary schedule of prior audit findings and a corrective action plan,if
applicable, as required by OMB Circular A-133
• submitting the reporting package(including financial statements,schedule of expenditures of
federal awards,auditor's reports and,if applicable,a summary schedule of prior audit
findings 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
auditor's 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 the audit.
• distributing the report(s),including the financial statements, any supplementary information,
and the report(s) thereon,to those officials and organizations requiring them.
To assist those charged with governance in fulfilling their responsibility to oversee the financial
reporting process,management should discuss with those charged with governance the:
• adequacy of internal control over financial reporting and federal financial assistance and the
identification of any significant deficiencies or material weaknesses,including the related
•
corrective action proposed -
• significant accounting policies,alternative treatments,and the reasons for the initial selection
or change in significant accounting policies
• process used by management in formulating particularly sensitive accounting judgments and
estimates and whether the possibility exists that future events affecting these estimates may
differ markedly from current judgments
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Mr.Bill Eisen
City Manager
The City of Pearland,Texas
June 10,2013
• basis used by management in determining that uncorrected misstatements,including missing
disclosures,are immaterial,both individually and in the aggregate,including whether any of
these uncorrected misstatements could potentially cause future financial statements to be
materially misstated.
We will require management's cooperation to complete our services. In addition,we will
obtain,in accordance with professional standards, certain written representations from
management,which we will rely upon.
Use of our reports
The inclusion,publication,or reproduction by the City of any of our reports in documents such
as bond offerings,regulatory filings,and OMB Circular A-133 Data Collection Forms
containing information in addition to financial statements may require us to perform additional
procedures to fulfill our professional or legal responsibilities.Accordingly, our reports-slhould
not be_used for_any such_purposes_without_our_prior-permission.In-addition,-to-avoid
unnecessary delay or misunderstanding,it is important that the City give us timely notice of its
intention to issue any such document.
The report on compliance with laws,regulations,and provisions of contracts or grant
agreements and internal control over financial reporting and the report on compliance and
internal control over compliance related to major programs issued in accordance with OMB
Circular A-133 will each include a statement that describes the purpose of the communication,
which is to describe the scope of our testing of internal control over financial reporting,
internal control over compliance,and compliance,and the result of that testing.Accordingly,
these reports are not suitable for any other purpose.
Other services
Supplementary information
Management is responsible for separately preparing the schedule of expenditures of federal
awards for the year ended September 30,2013 in accordance with OMB Circular A-133 and the
combining statements,individual fund statements and schedules in accordance with the
requirements of the Government Finance Officers'Association Comprehensive Annual
Financial Report("CAFR"). Such supplementary information,which will be presented for
purposes of additional analysis and is not a required part of the financial statements,will be
subjected to the auditing procedures applied in the audit of the financial statements and certain
additional procedures.These procedures will include comparing and reconciling the
supplementary information directly to the underlying accounting and other records used to
prepare the financial statements or to the financial statements themselves,and other additional
procedures in accordance with US GAAS.The purpose of our procedures will be to form and
express an opinion as to whether the supplementary information is fairly stated,in all material
respects,in relation to the financial statements as a whole.
Li ' GrantThornton 8
Mr.Bill Eisen
City Manager
The City of Pearland,Texas
June 10,2013
In connection with our procedures,management is responsible for informing us about:
• the methods of measurement and presentation of the supplementary information
• whether those methods have changed from the methods used in the prior period and the
reasons for the change,if any
• any significant assumptions or interpretations underlying the measurement or presentation of
the supplementary information.
Management will present certain supplementary information with the audited financial
statements. Since the supplementary information related to the schedule of expenditures of
federal awards is not expected to be presented with the audited financial statements,
management will make the audited financial statements readily available to the intended users of
the supplementary information no later than the date of issuance by the City of the
supplementary-information and-the auditor's report--thereon.Being available upon request is not considered to be readily available. Management is responsible for including our report on
the supplementary information in any document that contains the supplementary information
and that indicates we reported on it.
We will require management to provide us with certain written representations related to their
responsibilities described above,including whether management believes the supplementary
information (including its form and content)is fairly presented in accordance with OMB
Circular A-133 and CAFR and/or the applicable criteria,as appropriate.
Related non-audit services
We will also perform certain bookkeeping services for the City.The objective of such services
will be to draft the City's financial statements and the related disclosures based on information
in the trial balance and other information to be provided to us that is approved by you.
As mentioned previously, the financial statements,including the data and information set forth
therein,are the responsibility of management.With respect to our bookkeeping services,
however,management is also responsible for:
• making all management decisions and performing all management functions
• designating an individual who possesses suitable skills,knowledge or experience,preferably
within senior management, to oversee the services
• evaluating the adequacy and the results of the services performed
• accepting responsibility for the results of the services.
Accordingly, our bookkeeping services will not include management functions or making
management decisions. However,we may provide advice,research materials,and
recommendations to assist you in performing your responsibilities.
e GrantThornton 9
Mr. Bill Eisen
City Manager
The City of Pearland,Texas
June 10,2013
Other services
Any other services that you request will constitute a separate engagement that will be subject to
our acceptance procedures.Professional standards,laws,and regulations may prescribe
limitations on non-audit services we may perform without impairing our independence.
Fees
Standard billings
Our billings for the services set forth in this Engagement Letter,which we have estimated will
total$69,250. Our billings,which are payable within 20 days of receipt will be rendered as
follows:
Billing date Fees
August 15,2013 $22,000
November15;2013 — $20,000
December 15,2013 $14,000
January 30,2014 $13,250
If it appears that the estimated fee will be exceeded,we will bring this to your attention.
Additional billings
Of course, circumstances may arise that will require us to do more work. Some of the more
common circumstances include: changing auditing,accounting,and reporting requirements
from professional and regulatory bodies,incorrect accounting applications or errors in City
records,restatements, failure to furnish accurate and complete information to us on a timely
basis and unforeseen events,including legal and regulatory changes.We are enclosing an
explanation of various matters that can cause us to perform work in excess of that
contemplated by our fee estimate.At Grant Thornton,we pride ourselves on our ability to
provide outstanding service and meet our clients'deadlines.To help accomplish this goal,we
work hard to have the right professionals available. This involves complex scheduling models
to balance the needs of our clients and the utilization of our people,particularly during peak
periods of the year.Last minute client requested scheduling changes result in costly downtime
due to our inability to make alternate arrangements for our professional staff.
We will coordinate a convenient time for Grant Thornton to begin work. If,after scheduling
our work,you do not provide proper notice,which we consider to be one week,of your
inability to meet the agreed-upon date(s) for any reason,or do not provide us with sufficient
information required to complete the work in a timely manner,additional billings will be
rendered for any downtime of our professional staff.
Adoption of new accounting standards
Professional and regulatory bodies frequently issue new accounting standards and guidance.
Sometimes,standards are issued and become effective in the same period,providing a limited
GrantThornton 10
Mr.Bill Eisen
City Manager
The City of Pearland,Texas
June_10,2013
implementation phase and preventing us from including the impact in our estimated fees. In
such circumstances,we will discuss with you the additional audit procedures and related fees,
including matters such as the retrospective application of accounting changes and changes in
classification.
Other costs
Except with respect to a dispute or litigation between Grant Thornton and the City,our costs
and time spent in legal and regulatory matters or proceedings arising from our engagement,
such as subpoenas,testimony,or consultation involving private litigation,arbitration,industry
or government regulatory inquiries,whether made at the City's request or by subpoena,will be
billed to the City separately.
Professional standards impose additional responsibilities regarding the reporting of illegal acts
that have or may have°mitred To fulfill our responsibilities,we may need to consult with City
counsel or counsel of our choosing about any illegal acts that we become_aware of.,Additional
fees,including legal fees,will be billed to the City.The City agrees to ensure full cooperation
with any procedures that we may deem necessary to perform.
Right to terminate services for nonpayment
In the event of nonpayment,we retain the right to (a) suspend the performance of our services,
(b) change the payment conditions under this Engagement Letter,or(c) terminate our services.
If we elect to suspend our services, such services will not be resumed until your account is paid
as agreed.Alternatively,if we elect to terminate our,services for nonpayment, the City will be
obligated to compensate us for all time expended and to reimburse us for all expenses through
the date of termination.
Other matters
Relationship to Grant Thornton International Ltd
Grant Thornton is the U.S. member firm of Grant Thornton International Ltd ("Grant
Thornton International"),an organization of independently owned and managed accounting
and consulting firms.References to Grant Thornton International are to Grant Thornton
International Ltd. Grant Thornton International and the member firms are not a worldwide
partnership. Services are delivered independently by the member firms.These firms are not
members of one international partnership or otherwise legal partners with each other
internationally,nor is any one firm responsible for the services or activities of any other firm.
Use of third-party service providers
Grant Thornton may use third-party service providers,such as independent contractors,
specialists or vendors,to assist in providing our professional services.The partners and staff of
the member firms of Grant Thornton International or other accounting firms are also
considered third-patty service providers.
0.4 Grant Thornton
Mr.Bill Eisen
City Manager
The City of Pearland,Texas
June 10,2013
Grant Thornton intends to engage the following third-party service provider(s) to assist us as
follows:
• Capital Confirmation,Inc.—electronic bank confirmation services
• Harvest Investments,Ltd.—valuation of investment portfolio
You hereby authorize us to disclose City information to the above named third-party service
providers.
Peer review report
GAGAS requires that we provide you with a copy of our most recent triennial quality control
review report.Accordingly,our May 31,2011 Peer Review Report accompanies the
Engagement Letter.
Fmployment of Grant Thornton personnel
When we lose a valued member of our engagement team,we not onlyincu.rsignificant
expenses in hiring and training replacement personnel,but employment by the City may raise
independence threats,which could cause us to terminate our engagement.During the term of
this engagement and for one year after the services are completed, the City agrees not to solicit,
directly or indirectly, or hire any of our personnel participating in the engagement without our
express written consent. If the City violates this provision, the City will pay Grant Thornton a
fee equal to the hired person's annual salary in effect at the time of the violation to reimburse
us for the estimated costs of hiring and training replacement personnel.
Privacy
Grant Thornton is committed to protecting personal information.We will maintain such
information in confidence in accordance with professional standards and governing laws.
Therefore,any personal information provided to us by the City will be kept confidential and
not disclosed to any third party unless expressly permitted by the City or required by law,
regulation,legal process,or professional standards.The City is responsible for obtaining,
pursuant to law or regulation, consents from parties that provided the City with their personal
information,which will be obtained,used,and disclosed by Grant Thornton for its required
purposes.
Documentation
The documentation for this engagement is the property of Grant Thornton and constitutes
confidential information.We have a responsibility to retain the documentation for a period of
time sufficient to satisfy any applicable legal or regulatory requirements for records retention.
Pursuant to law or regulation,we may be requested to make certain documentation available to
regulators,governmental agencies,or their representatives ("Regulators"). If requested,access
to the documentation will be provided to the Regulators under our supervision.We may also
GrantThornton 12
Mr.Bill Eisen
City Manager
The City of Pearland,Texas
June 10,2013
provide copies of selected documentation,which the Regulators may distribute to other
governmental agencies or third parties.You hereby acknowledge we will allow and authorize us
to allow the Regulators access to,and copies of,the documentation in this manner.
Electronic communications
During the course of our engagement,we may need to electronically transmit confidential
information to each other and to third-party service providers or other entities engaged by
either Grant Thornton or the City.Electronic methods include telephones,cell phones,e-mail,
and fax.These technologies provide a fast and convenient way to communicate.However,all
forms of electronic communication have inherent security weaknesses, and the risk of
compromised confidentiality cannot be eliminated.The City agrees to the use of electronic
methods to transmit and receive information,including confidential information.
Standards of performance
We will perform our services in conformity with the terms expressly set forth in this
Engagement letter,including all applicable professional standards.Accordingly, our services
shall be evaluated solely on our substantial conformance with such terms and standards.Any
claim of nonconformance must be clearly and convincingly shown.
With respect to the services and this Engagement Letter,in no event shall the liability of Grant
Thornton and its present,future,and former partners,principals,directors,employees,agents,
and contractors for any claim,including but not limited to Grant Thornton's own negligence,
exceed the fees it receives for the portion of the work giving rise to such liability.This
limitation shall not apply to the extent that it is finally determined that any claims,losses, or
damages are the result of Grant Thornton's gross negligence or willful misconduct.In addition,
Grant Thornton shall not be liable for any special, consequential,incidental, or exemplary
damages or loss (nor any lost profits,interest, taxes,penalties,loss of savings, or lost business
opportunity) even if Grant Thornton was advised in advance of such potential damages.This
paragraph and the paragraph directly below shall apply to any type of claim asserted,including
contract, statute, tort, or strict liability,whether by the City, Grant Thornton, or others.
Further, the City shall,upon receipt of written notice,indemnify,defend,and hold harmless
Grant Thornton and its present, future,and former partners,principals,directors, employees,
agents,and contractors from and against any liability and damages (including punitive
damages), fees, expenses,losses, demands,and costs (including defense costs) associated with
any claim arising from or relating to the City's knowing misrepresentations or false or
incomplete information provided to Grant Thornton.In the event of any controversy or claim
against Grant Thornton arising from or related to the services described herein, Grant
Thornton shall be entitled,at its option,to defend itself from such controversy or claim and to
participate in any settlement,administrative, or judicial proceedings.
C.�nt Th I I P
• e. GrantThornton 13
Mr.Bill Eisen
City Manager
The City of Pearland,Texas
June 10,2013
If because of a change in the City's status or due to any other reason,any provision in this
Engagement letter would be prohibited by,or would impair our independence under,laws,
regulations, or published interpretations by governmental bodies,commissions, or other
regulatory agencies,such provision shall,to that extent,be of no further force and effect and
the Engagement Letter shall consist of the remaining portions.
Dispute resolution
Any controversy or claim arising out of or relating to the services,related fees, or this
Engagement Letter shall first be submitted to mediation.A mediator will be selected by
agreement of the parties,or if the parties cannot agree,a mediator acceptable to all parties will
be appointed by the American Arbitration Association ("AAA"). The mediation will proceed in
accordance with the customary practice of mediation.
Authorization
This Engagement Letter sets forth the entire understanding between the City and Grant
Thornton regarding the services described herein and supersedes any previous proposals,
correspondence,and understandings,whether written or oral. If any portion of this
Engagement Letter is held invalid,it is agreed that such invalidity shall not affect any of the
remaining portions.
Please confirm your acceptance of this Engagement Letter by signing below and returning one
copy to us in the enclosed self-addressed envelope.We appreciate the opportunity to work with
the City and assure you that this engagement will be given our closest attention.
Very truly yours,
GRANT THORNTON LLP
uQatc
Angela unlap
Partner
Enc:
Matters that can cause work in excess of fee estimate
May 31,2011 Peer Review Report
Agreed and accepted by:
THE CITY OF ND,TEXAS
Date: /4 -h
Bill Eisen, City Manager
tyrant Thornton LLP
• ;o GrantThornton
Matters that can cause work in excess of
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fee estimate
We want you to receive the maximum value for our professional services and to perceive that
our fees are reasonable and fair. However,in seeking to provide you with such val„v e find
there are various matters that can cause us to perform work in excess of that contemplated by
our fee estimate.The following explains the matters that arise most frequently.
Changing requirements
Today,there are numerous governmental or rule-making bodies that regularly add or change
various requirements.Although we attempt to plan our work to anticipate the requirements
that will affect our engagement, three types of situations make this difficult.Sometimes,these
new requirements are not communicated in time for us to anticipate their effects in our
preliminary planning. Secondly,in spite of our anticipation and planning, the work necessary to
comply with new requirements may be underestimated.Finally,in some instances,you may
decide that it is advantageous to you to have the new requirements applied immediately.
Incorrect accounting applications or errors in your records
We generally form our fee estimates on the expectation that your accounting records are in
good order so that our work can be completed based upon our normal testing and other
procedures.However, should we find numerous errors,incomplete records or disorganized
bookkeeping methods,we will have to do additional work to determine that the necessary
corrections have been made and properly reflected in the financial statements.
Lack of audit facilitation or timely preparation
To minimize your costs,we plan the means by which your personnel can facilitate the audit(for
example,what schedules they will prepare,how to prepare them,the supporting documents
that need to be provided,and so forth).We also discuss matters such as availability of your key
personnel, deadlines and working conditions.Indeed,the information concerning these matters
that you furnish to us is a key element in our fee quotation.Therefore,if your personnel are
unable,for whatever reasons, to provide these materials on a timely basis,it may substantially
increase the work we must do to complete the engagement within the established deadlines.
Moreover,in some circumstances, this may require a staff withdrawal, as discussed below.
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Staff withdrawal
A staff withdrawal consists of our removing one or all staff because the condition of your
records or the inability of your personnel to provide agreed upon materials within the
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established timetable,makes it impossible for us to perform our work in a timely,efficient
manner,as established by our engagement plan. Sometimes,a complete staff withdrawal is
necessary to permit an orderly audit approach.A staff withdrawal is not necessarily an adverse
reflection on your personnel. However,it involves additional costs,as we must reschedule our
personnel,incur additional start-up costs,and so forth, to prevent total engagement costs from
increasing significantly.
Unforeseen events
Even though we communicate frequently with clients and plan our engagement with
management and their staff,unforeseen events can occur. Examples include accounting
problems,litigation, changes in your business or business environment,contractual or other
difficulties with suppliers,third-party service providers,or customers,and so forth.When those
circumstances occur,additional time is needed to provide you with assistance and to complete
our engagement in accordance with professional standards.
New award programs or program non-compliance
Our fee estimates assume that award programs audited as major will remain relatively consistent
with prior years. When new awards are received,it may require us to audit additional programs
to achieve the appropriate testing coverage.In such circumstances,additional fees may be
incurred beyond what was previously contemplated. Furthermore,if the results of our
procedures identify material program noncompliance or internal control deficiencies,which
require extensive research or discussions with the cognizant,oversight agency or funding
agency,an expansion of our audit scope and additional audit fees may result.
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Again,we emphasize that we strive to give you optimum value for our professional services.
Fee quotations are provided based upon the facts and circumstances that you describe to us.
However,unlike the sale of products,the performance of professional services is affected by
many variables, such as the foregoing,which may cause fee estimates to change.
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