R-2015-094 2015-06-08RESOLUTION NO. R2015-94
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 with Whitley Penn in the amount of $75,300.00 for
Fiscal Year 2015 .
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 8"' day of June, A.D., 2015.
ATTEST.
APPROVED AS TO FORM:
l
DARRIN M. COKER
CITY ATTORNEY
TOM REID
MAYOR
Resolution No. R2015-94
Exhibit "A"
■1
whitleypenn
May 7, 2015
To the Honorable Mayor, Members
of City Council and City Manager
City of Pearland, Texas
Houston Office
3411 Richmond Avenue
Suite 500
Houston, Texas 77046
713.621.1515 Main
whitleypenn.com
We are pleased to confirm our understanding of the services we are to provide City of Pearland, Texas
(the "City") for the year ended September 30, 2015. We will audit the financial statements of the
govemmental activities, the business -type activities, each major fund, and the aggregate remaining fund
information, including the related notes to the financial statements, which collectively comprise the basic
financial statements, of the City as of and for the year ended September 30, 2015. Accounting standards
generally accepted in the United States of America provide for certain required supplementary
information (RSI), such as management's discussion and analysis (MD&A), to supplement the City's
basic financial statements. Such information, although not a part of the basic financial statements, is
required by the Govemmental 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 City's RSI
in accordance with auditing standards generally accepted in the United States of America. These limited
procedures will consist of inquiries of management regarding 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 obtained 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 do not provide us with sufficient evidence to express an opinion or provide any assurance. The
following RSI is required by generally accepted accounting principles and will be subjected to certain
limited procedures, but will not be audited:
1) Management's discussion and analysis.
2) General fund budgetary comparison schedule.
3) Schedule of funding progress for the City's participation in the Texas Municipal Retirement System
and the City's Other Post -Employment Benefit Plan.
We have also been engaged to report on supplementary information other than RSI that accompanies the
City's financial statements. We will subject the following supplementary information to the auditing
procedures applied in our audit of the financial statements and certain additional procedures, including
comparing and reconciling such 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 auditing standards generally accepted in the United States of America, and
we will provide an opinion on it in relation to the financial statements as a whole, in a report combined
with our auditor's report on the financial statements:
1) Schedule of expenditures of federal awards.
2) Combining and individual fund statements and schedules.
3) Budgetary comparison schedules.
4) Long-term debt amortization schedules.
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To the Honorable Mayor, Members
of City Council and City Manager
City of Pearland, Texas
Page 2
The following other information accompanying the fmancial statements will not be subjected to the
auditing procedures applied in our audit of the fmancial statements, and our auditor's report will not
provide an opinion or any assurance on that other information.
1) Introductory section.
2) Statistical section.
Audit Objectives
The objective of our audit is the expression of opinions as to whether your financial statements are fairly
presented, in all material respects, in conformity with U.S. generally accepted accounting principles and
to report on the faimess of the supplementary information referred to in the second paragraph when
considered in relation to the financial statements as a whole. The objective also includes reporting on—
• Internal control related to the financial statements and compliance with the provisions of laws,
regulations, contracts, and 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 Government Auditing Standards report on internal control over financial reporting and on compliance
and other matters will include a paragraph that states (1) that the purpose of the report is solely to describe
the scope of testing of internal control and compliance and the results of that testing, and not to provide an
opinion on the effectiveness of the entity's internal control or on compliance, and (2) that the report is an
integral part of an audit performed in accordance with Government Auditing Standards in considering the
entity's internal control and compliance. The OMB Circular A-133 report on internal control over
compliance will include a paragraph that states that the purpose of the report on internal control over
compliance is solely to describe the scope of testing of internal control over compliance and the results of
that testing based on the requirements of OMB Circular A-133. Both reports will state that the report is
not suitable for any other purpose.
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. We will issue written reports upon completion of our Single Audit. Our reports
will be addressed to the Honorable Major, Members of City Council, and the City Manager. We cannot
provide assurance that unmodified opinions will be expressed. Circumstances may arise in which it is
necessary for us to modify our opinions or add emphasis -of -matter or other -matter paragraphs. If our
opinions on the financial statements or the Single Audit compliance opinions are other than unmodified,
we will discuss the reasons with you in advance. If circumstances occur related to the condition of your
records, the availability of sufficient, appropriate audit evidence, or the existence of a significant risk of
material misstatement of the financial statements caused by error, fraudulent financial reporting, or
misappropriation of assets, which in our professional judgment prevent us from completing the audit or
forming an opinion on the financial statements, we retain the right to take any course of action permitted
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To the Honorable Mayor, Members
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City of Pearland, Texas
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by professional standards, including declining to express an opinion or issue a report, or withdrawing
from the engagement.
Management Responsibilities
Management is responsible for the financial statements, schedule of expenditures of federal awards, and
all accompanying information as well as all representations contained therein. Management is also
responsible for identifying all federal awards received and understanding and complying with the
compliance requirements, and for preparation of the schedule of expenditures of federal awards (including
notes and noncash assistance received) 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. These nonaudit services do not constitute an audit under Government
Auditing Standards and such services will not be conducted in accordance with Government Auditing
Standards. You agree to assume all management responsibilities relating to the financial statements,
schedule of expenditures of federal awards, related notes, and any other nonaudit services we provide.
You will be required to acknowledge in the management representation letter our assistance with
preparation of the financial statements, schedule of expenditures of federal awards, and related notes 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 agree to
oversee the nonaudit services by designating an individual, preferably from senior management, who
possesses suitable skill, knowledge, or experience; evaluate the adequacy and results of those services;
and accept responsibility for them.
Management is responsible for (a) establishing and maintaining effective internal controls, including
internal controls over compliance, and for evaluating and monitoring ongoing activities, to help ensure
that appropriate goals and objectives are met; (b) following laws and regulations; (c) ensuring that there is
reasonable assurance that government programs are administered in compliance with compliance
requirements; and (d) ensuring that management is reliable and financial information is reliable and
properly reported. Management is also responsible for implementing systems designed to achieve
compliance with applicable laws, regulations, contracts, and grant agreements. You are also responsible
for the selection and application of accounting principles; for the preparation and fair presentation of the
financial statements 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 the accuracy and completeness of that information. You are also responsible for providing us with
(1) access to all information of which you are aware that is relevant to the preparation and fair
presentation of the financial statements, (2) additional information that we may request for the purpose of
the audit, and (3) unrestricted access to persons within the government from whom we determine it
necessary to obtain audit evidence.
Your responsibilities also include 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 management 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 affecting the government involving (1)
management, (2) employees who have significant roles in internal control, and (3) others where the fraud
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To the Honorable Mayor, Members
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City of Pearland, Texas
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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 government complies with applicable laws, regulations,
contracts, agreements, and grants. Management is also responsible for taking timely and appropriate steps
to remedy fraud and noncompliance with provisions of laws, regulations, contracts, and grant agreements,
or abuse that we report. 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.
You are responsible for preparation of the schedule of expenditures of federal awards (including notes
and noncash assistance received) in conformity with OMB Circular A-133. You agree to include our
report on the schedule of expenditures of federal awards in any document that contains and indicates that
we have reported on the schedule of expenditures of federal awards. You also agree to [include the
audited financial statements with any presentation of the schedule of expenditures of federal awards that
includes our report thereon OR make the audited financial statements readily available to intended users
of the schedule of expenditures of federal awards no later than the date the schedule of expenditures of
federal awards is issued with our report thereon]. Your responsibilities include acknowledging to us in the
written representation letter that (1) you are responsible for presentation of the schedule of expenditures
of federal awards in accordance with OMB Circular A-133; (2) you believe the schedule of expenditures
of federal awards, including its form and content, is fairly presented in accordance with OMB Circular A-
133; (3) the methods of measurement or presentation have not changed from those used in the prior
period (or, if they have changed, the reasons for such changes); and (4) you have disclosed to us any
significant assumptions or interpretations underlying the measurement or presentation of the schedule of
expenditures of federal awards.
You are also responsible for the preparation of the other supplementary information, which we have been
engaged to report on, in conformity with U.S. generally accepted accounting principles. You agree to
include our report on the supplementary information in any document that contains and indicates that we
have reported on the supplementary information. You also agree to include the audited financial
statements with any presentation of the supplementary information that includes our report thereon or
make the audited financial statements readily available to users of the supplementary information no later
than the date the supplementary information is issued with our report thereon. Your responsibilities
include acknowledging to us in the written representation letter that (1) you are responsible for
presentation of the supplementary information in accordance with GAAP; (2) you believe the
supplementary information, including its form and content, is fairly presented in accordance with GAAP;
(3) the methods of measurement or presentation have not changed from those used in the prior period (or,
if they have changed, the reasons for such changes); and (4) you have disclosed to us any significant
assumptions or interpretations underlying the measurement or presentation of the supplementary
information.
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 fmdings 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.
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To the Honorable Mayor, Members
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City of Pearland, Texas
Page 5
With regard to using the auditor's report, you understand that you must obtain our prior written consent to
reproduce or use our report in bond offering official statements or other documents.
With regard to the electronic dissemination of audited financial statements, including financial statements
published electronically on your website, you understand that electronic sites are a means to distribute
information and, therefore, we are not required to read the information contained in these sites or to
consider the consistency of other information in the electronic site with the original document.
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. 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. 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 government or to
acts by management or employees acting on behalf of the government. Because the determination of
abuse is subjective, Government Auditing Standards do not expect auditors to provide reasonable
assurance of detecting abuse.
Because of the inherent limitations of an audit, combined with the inherent limitations of internal control,
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, even though the audit is properly
planned and performed in accordance with U.S. generally accepted auditing standards and Government
Auditing Standards. 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 the appropriate level of management of any
material errors, any fraudulent financial reporting, or misappropriation of assets that come to our attention.
We will also inform the appropriate level of management of any violations of laws or governmental
regulations that come to our attention, unless clearly inconsequential, and of any material abuse that
comes to our attention. We will include such matters in the reports required for a Single Audit. Our
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 your responsibilities for the financial
statements; schedule of expenditures of federal awards; federal award programs; compliance with laws,
regulations, contracts, and grant agreements; and other responsibilities required by generally accepted
auditing standards.
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To the Honorable Mayor, Members
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City of Pearland, Texas
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Audit Procedures—Internal Control
Our audit will include obtaining an understanding of the government and its environment, 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 or
material weaknesses. 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.
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 provisions of applicable laws,
regulations, 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 the City's major programs. The purpose of these procedures will be to express an opinion on the City'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 understand that your employees will prepare all cash, accounts receivable, or other confirmations and
schedules we request and will locate any documents selected by us for testing.
At the conclusion of the engagement, we will complete the appropriate sections of the Data Collection
Form that summarizes our audit findings. It is management's responsibility to submit the reporting
package (including financial statements, schedule of expenditures of federal awards, summary schedule of
prior audit findings, auditors' reports, and corrective action plan) along with the Data Collection Form to
the federal audit clearinghouse. We will coordinate with you the electronic submission and certification.
If applicable, we will provide copies of our report for you to include with the reporting package you will
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To the Honorable Mayor, Members
of City Council and City Manager
City of Pearland, Texas
Page 7
submit 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.
We will provide copies of our reports to the City; however, management is responsible for distribution of
the reports and the financial statements. Unless restricted by law or regulation, or containing privileged
and confidential information, copies of our reports are to be made available for public inspection.
The audit documentation for this engagement is the property of Whitley Penn, LLP and constitutes
confidential information. However, subject to applicable laws and regulations, audit documentation and
appropriate individuals will be made available upon request and in a timely manner 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 Whitley Penn, LLP 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.
The audit documentation for this engagement will be retained for a minimum of five years after the report
release date or for any additional period requested by to cognizant agency, oversight agency for audit, or
pass-through entity. If we are aware that a federal awarding agency, pass-through entity, or auditee is
contesting an audit finding, we will contact the party(ies) contesting the audit finding for guidance prior
to destroying the audit documentation.
We expect to begin our audit in May 2015 and to issue our reports no later than February 2016. Thomas
Pedersen, CPA is the engagement partner and is responsible for supervising the engagement and signing
the reports or authorizing another individual to sign them.
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 $75,300 as described below.
Financial statement audit and assistance with
Comprehensive Annual Financial Report (CAFR) preparation $65,500
Federal single audit base fee (one major program) 5,500
Each additional major program 4,300
Maximum all-inclusive fee estimate $75,300
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 30 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(s). 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.
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To the Honorable Mayor, Members
of City Council and City Manager
City of Pearland, Texas
Page 8
We would like to make the following comments regarding fee estimates:
1) 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.
2) Any deficiencies noted in internal control may affect the nature, timing, and extent of our procedures
and accordingly our fees will be adjusted to reflect such changes.
3) 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.
4) The City's staff is responsible for the preparation of all items requested in the "PBC List" and
received by the date requested. Any delays caused by not preparing the items when requested may
result in additional fees.
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.
You have requested that we provide you with a copy of our most recent external peer review report and
any subsequent reports received during the contract period. Accordingly, our 2012 peer review report
accompanies this letter.
Very truly yours,
t.C�l,;fi��• .�.� LLP
RESPONSE:
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