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1996-084C \WPDOCS\ORD\TOUCHE ORD ORDINANCE NO ~ AN ORDINANCE OF THE CITY OF DENTON, TEXAS, AUTHORIZING THE CITY MANAGER TO EXECUTE AN AGREEMENT BETWEEN THE CITY OF DENTON AND DELOITTE AND TOUCHE LLP FOR AN INDEPENDENT AUDIT, AUTHORIZING THE EXPENDITURE OF FUNDS THEREFOR, AND PROVIDING AN EFFECTIVE DATE. THE COUNCIL OF THE CITY OF DENTON HEREBY ORDAINS: SECTION I. That the City Manager is hereby authorized to execute, on behalf of the City, an agreement between the City of Denton and Deloitte and Touche LLP for independent auditing services, a copy of which is attached hereto and incorporated by reference herein SECTION II That the expenditure of funds in an amount not to exceed Forty-three Thousand Seven Hundred Dollars ($43,700.00) is hereby authorized SECTION III. That this ordinance shall become effective immediately upon its passage and approval. PASSED AND APPROVED this the ~/U~day of ~ , 1996 BOB CASTLEBERRY, MAY~ ~ / ATTEST' JENNIFER WALTERS, CITY SECRETARY APPROVED AS TO LEGAL FORM: HERBERT L PROUTY, CITY ATTORNEY CONTRACT FOR AUDITING SERVICES ,,~ Thls Agreement is entered into this ~day of ,~~a ~gistere 1996 by and between Deloitte & Touche LLP ("Auditor") limited liability partnership with an office located at Suite 2340, 801 Cherry Street, Fort Worth, Texas 76102-6801, and the City of Denton, Texas ("Client"), a home-rule municipal corporation with administrative offices at 215 East McKlnney, Denton, Texas 76201 WHEREAS, Client desires to engage Auditor to provide audit services as herein defined; and WHEREAS, Auditor is willing to provide such services; NOW, THEREFORE, in consideration of the promises and mutual undertakings herein, the parties agree as follows A sCOPE OF SERVICES Auditor will provide the following services 1. Auditor will perform the annual audit of Client's general purpose financial statements. Such audit w~ll be conducted in accordance with generally accepted auditing standards; Government Audltlna Standards, issued by the Comptroller of the United States, the Single Audit Act of 1994, and OMB Circular A-128, Audits of State and Local Governments 2. Auditor will issue a management letter to Client reporting any material weaknesses in Client's internal accounting controls discovered during the annual audits of Client's financial state- ments. 3 Auditor wlll perform the annual compliance audit of Client's federal financial assistance programs Such audit w~ll be conducted in accordance with generally accepted auditing standards; Government Audltln~ Standards, issued by the Comptroller of the United States; OMB's Compliance Supplement for Sln~le Audits of State add Local Governments, OMB Circular A-128, Audits of State and Local Governments, and AICPA Statement on Auditing Standard No. 63, Compliance Audltln~ APPlicable to Governmental Entitles and Other Recipients of Governmental Financial Assistance. 4. All services set forth in Auditor's letters of March 6, 1996, copies of which are attached hereto as Exhibit "A". B DURATION This Agreement is for audit services by Auditor, as specified herein, for the financial statements of Client, as specified here- in, for Client's fiscal year ending September 30, 1996 Auditor's financial and compliance audit work should be completed no later than ninety (90) days after Client's fiscal year end This wlll allow the Comprehensive Annual Financial Report for each fiscal year to be submitted to the Government Finance Officers Association preferably by December 15, 1996, but no later than January 15, 1997, subject to availability of Client's records C CLIENT RESPONSIBILITIES Client understands that the proper and timely completion of Auditor's services hereunder require the reasonable cooperation of Client (including, without limitation, its agencies, and their respective officers, directors, employees, other personnel and agents) Client agrees to provide all such reasonable cooperation requested by Auditor, including, without limitation, the following Access to, and/or copies of, Client's books and records, Access to Client personnel, Office space and access to support services such as copying and telephone, Written representations from Client's attorneys, both internal and external, the latter may bill Client for such services, Written representations from Client about the financial statements and other matters, and Closing of Client's books and records of account ~n accordance with laws, regulations and professional standards applicable to the services provided hereunder Client understands and agrees with the provisions contained in the engagement letters attached as Exhibit "A" hereto D COMPENSATION Client shall pay Auditor for time charges and expenses incurred Auditor's standard hourly rate vary according to the degree of responsibility involved and the experience level of the personnel assigned to Client's audit Except as provided hereun- der, Auditor's fees for the performance of the services described in Section A for the fiscal year ending September 30, 1996 shall not exceed Thirty-five Thousand One Hundred Dollars ($35,100 00) These fees are dependent upon Auditor receiving 250 hours of J assistance from the Internal Auditor Without assistance from the Internal Auditor, Auditor's fees shall not exceed Forty-three Thousand Seven Hundred Dollars ($43,700 00) Client and Auditor recognize that the scope of services and compensation under thls Agreement are predicated upon (1) current audit requirements imposed by laws, regulations and professional standards relating to such services, (il) expectations of reason- able cooperation with Auditor by Client pursuant to this Agreement, and (ill) the absence of any irregularities or circumstances which might necessitate the extension of audit services beyond the normal scope of auditing services PAGE 2 Should (1) irregularities; (11) the absence of such reasonable cooperation; (ill) increase in the level of services required under applicable laws, regulations or professional standards; or (iv) other unforeseen conditions be encountered which might necessitate the extension of auditing work beyond the scope of normal auditing procedures, Auditor agrees to advise Client promptly in wrltlng of the circumstances and to request an equitable adjustment in the maximum fee before significant additional time is incurred by Auditor. Any such requests for adjustments shall be in writing and shall contain an explanation of why the adjustments are necessary Client and Auditor agree to negotiate in good faith to determine an equitable ad3ustment in the maximum fee. Should Client and Auditor be unable to agree upon an equitable adjustment within fourteen (14) days of Auditor's written request, or such other time period as agreed upon in writing by Client and Auditor, either party may, notwithstanding any other provision in this Agreement, terminate this Agreement upon seven (7) days notice to the other party. Client shall be liable for time charges and expenses actually incurred by Auditor except for any such addition- al time and expense which has been incurred as a result of the circumstances necessitating the adjustment. E METHOD OF PAYMENT Auditor shall submit periodic invoices for time charges and expenses incurred as the services hereunder are performed Such invoices are payable upon presentation Client will be in material breach of this Agreement if Client's account becomes ninety (90) days or more overdue. Auditor may, at its sole option and without waiver of any rights pursuant to the termination provision In this Agreement or otherwise, suspend its services and resume them upon receipt from Client of the full amount due Auditor F ADDITIONAL PROCEDURES During the contractual period covered by th~s Agreement, Client may request Auditor to provide services ~n addition to the services provided hereunder. Auditor may, at its option, agree to provide such additional services upon terms and condItions mutually agreed upon by Client and Auditor. G RENEWAL Fiscal Year 1995-96 is the final year covered in the five (5) year proposal. The City of Denton will be submitting requests for proposals for a period beginning with Fiscal Year 1996-97. H INSURANCE Upon written request by Cllent, Auditor shall provide Client wlth a certificate evidencing that Auditor has the following insurance: (1) general liability, (ii) automobile liability, and PAGE 3 (111) worker's compensation. I. TERMINATION Either party may terminate this Agreement at any time upon 30 days notice to the other party. Auditor shall be entitled to com- pensation for time charges and expenses for all services properly rendered pursuant to this Agreement prior to its termination pursuant to this Section. J. SUBCONTRACTING Neither this Agreement nor the audit services to be provided hereunder may be assigned or subcontracted without the written approval of Client K. EMPLOYMENT PRACTICES Auditor agrees that in connection with the services provided hereunder, it will comply with applicable laws and regulations regarding equal opportunity and employment discrimination. L. OWNERSHIP OF WORKPAPERS AND PROPERTY All workpapers of Auditor shall remain in the property of Auditor. In addition, to the extent that Auditor utilizes any of its property (including, without limitation, any hardware or software of Auditor or any proprietary or confidential informatIon or trade secrets of Auditor) in performing the services hereunder, such property shall remain the property of Auditor, and Client shall acquire no right or interest in such property M. RETENTION OF AND ACCESS TO RECORDS For a period of three years after the date of Auditor's report on any audit completed hereunder, upon reasonable written notice to Auditor and Client, representatives of the cognizant audit agency (or Its designee), the Texas state auditing agency and the United States General Accounting Office shall be entitled during Auditor's regular business hours during the said three year period to inspect and designate for copying Auditor's audit workpapers relating to such completed audit. Copies will be made at Client's or reques- tot's expense by, or under the control of, Auditor N. MISCELLANEOUS 1. Independent Contractor. Each of the parties hereto is an independent contractor and neither party Is, nor shall be consid- ered to be, an agent, distributor or representative of the other Neither party shall act or represent itself, directly or by implication, as an agent of the other or in any manner assume or create any obligation on behalf of, or in the name of, the other. PAGE 4 2. Amendments. No amendment of this Agreement shall be valid unless in writing and slgned by both parties. 3. ~otice. Unless otherwise provided in this Agreement, any notice to the parties required or permitted hereunder will be deemed to have been duly given as of the date of receipt if in writing and delivered personally, mailed by certified mall, return receipt requested, or sent by overnight delivery by the U.S. Postal Service or other independent carrier, to the following: Client: Auditor. City of Denton Deloitte & Touche LLP ATTN: City Manager ATTN: George Scott 215 E. McKinney 301 Commerce Street, Ste Denton, TX 76201 City Center Tower II Suite 2950 Ft Worth, TX 76102-6801 Either party may change its address for notice by giving the other party prior written notice of the new address in conformity which the foregoing provisions of this Section and the date upon which such new address will become effective 4. Entire Aqreement. This Agreement, including all Exhibits annexed hereto and made a part hereof, constitutes the entire agreement between the parties hereto with respect to the subject matter hereof and supersedes all other oral or written representa- tions, understandings or agreements relating to the subject matter hereof. Neither party shall be bound by the provisions of any pre- printed or other written terms and conditions subsequent to the date of this Agreement relating to the subject matter hereof unless such additional terms and conditions are made effective pursuant to the Amendments subsection of this section 5. Force Maleure. Notwithstanding any other provision in thls Agreement, Auditor shall not be liable or held responsible for any failure to perform or delays in performing its obligations under this Agreement, including but not limited to, the completion of the audit and issuance of its report thereon, which result from circumstances or causes beyond Auditor's reasonable control, Including, without limitation, acts or omissions or the failure to cooperate pursuant to this Agreement by Client (including, without limitation, entitles or individuals under its control, or any of their respective officers, directors, employees, other personnel and agents), fire or casualty, act of God, strike or labor dispute, war or other violence, or any law, order or requirement of any governmental agency or authority. 6. Authority Each party warrants that it is authorized to enter into this Agreement and that the individual executing this Agreement is authorized to enter Into this Agreement PAGE 5 7. Survival. This provisions of the following sections hereof shall survlve the expiration or termination of th~s Agreement. D, I (last sentence), L, M, and N 8. Headings. The headings of th~s Agreement are for the convenlence of reference only and shall not affect ~n any manner any of the terms and conditions of this Agreement. 9 Severabllltv. If any provision of thls Agreement declared or found to be lllegal, unenforceable or void, then such provlslon shall be null and void, but each other provision hereof not so affected shall be enforced to the full extent permitted by applicable law. 10. Governlna Law. This Agreement shall be governed by and construed in accordance with the ~nternal laws of the State of Texas. IN WXTNEBS W~EREOF, Client and Auditor have caused this Agreement to be executed and delivered by their respective duly authorlzed representatives as of the date f~rst set forth above ACTING CITY MANAGER ATTEST: JENNIFER WALTERS, CITY SECRETARY HERBERT L. PROUTY, CITY ATTORNEY DELOITTE & TOUCHE LLP GEORGE ~coT~, PARTNER C \WPDOCS\K\D&T K PAGE 6 Deloitte& Touche LLP Oty Center Tower II Telephone (817) 347 3300 ~ Suite 2950 301 Commerce Street Fort Worth Texas 76102 March 6, 1996 Ms Kathy DuBose Executive Director of Finance City of Denton 215 East McKmney Denton, Texas 76201 Dear Ms DuBose We are pleased to serve as independent certified pubhc accountants for the C~ty of Denton, Texas (the "City") for the year ending September 30, 1996 Mr George Scott will be partner tn charge of all work we perform for you We bebeve that frequent and timely commumcat~on throughout the year reduces the problems that are often associated with an annual audit In addmon, we have found that we can often assist chents on current problems as they arise We hope you will call Mr Scott whenever you feel that he can be of assistance This letter sets forth our understanding of the terms and objectives of our engagement, the nature and scope of the services we will provide, and the related fee arrangements Scope of Services Audit Services We will audit the City's General purpose financial statements as of and for the year ending September 30, 1996 Schedule of Federal Financial Assistance Comphance with laws and regulations related to federal financml assistance Our audit will be conducted in accordance with the following standards Generally accepted auditing standards Government Auditing Standards, 1994 Revision, issued by the Comptroller General of the United States Office of Management and Budget Circular A-128, "Audtt~ of State and Local Governments", dated Aprtl 12, 1985 DaloltteTouche Tohmatsu International Ms Kathy DuBose March 6, 1996 Page 2 The objecttve of an audit carrted out tn accordance wtth these standards and regulattons ts 0) the expression of our oplmon concerumg whether the financial statements present fatrly, tn all matertal respects, the financml positron, results of operations, and cash flows of the orgamzatlon tn conformtty with generally accepted accounting prtnctples, (n) whether the schedule of federal financial asststance ~s presented fatrly tn relation to the financial statements taken as a whole, (m) the reporting on our determmatton whether the internal control structure provtdes reasonable assurance of comphance w~th federal and other laws and regulattons, and 0v) tbe expression of an oplmon on whether the orgamzatton comphed w~th specific terms and condttlons of ~ts major federal financial assistance programs Our audit wdl include tests of the accounting records of the C~ty and such other procedures as we constder necessary to enable us to render the followmg reports Opmton on whether the Ctty's general purpose financtal statements are fairly presented, m all mater~al respects, in conformity wtth generally accepted accounting principles Report on the internal control structure related to our audit of the financial statements Report on comphance w~th laws and regulations with whtch noncomphance may be matertal to the financial statements Report on the schedule of federal financml asststance Report on the mterual control structure used In admlmstermg major federal financial assistance programs Opmlon on comphance w~th the speetfie requtrements related to major federal financial assistance programs tdenttfied tn the schedule of federal financial assistance Report on eomphanee wtth general reqmrements of federal programs Report on comphance w~th specific program requtrements related to nonmajor federal financtal assistance program transactions selected for testing In addition, we wtll render a report on tllegal acts and a report on findings and questioned costs, as required, depenthng on the results of our audtt procedures The management of the C~ty ~s responsible for estabhshmg and maintaining an internal control structure To fulfill this responstb~hty, esttmates and judgments by management are reqmred to assess the expected benefits and related costs for internal control structure to prowde management w~th reasonable, but not absolute, assurance that assets are safeguarded agamst loss from unauthorized use or thsposltlon, and that transactions are executed m accordance w~th management's authorization and recorded properly to permit the preparatmn of financial statements m accordance w~th generally accepted accounttng principles Because of mherent hm~tattons m any internal control structure, errors or ~rregular~ttes may nevertheless occur and not be detected Also, project~on of any evaluation of the structure to future pertods is subject to the r~sk that procedures may become inadequate because of changes mcondtttons, or that the effectiveness of the design and operatton of pohctes and procedures may deteriorate As part of our audit, we wtll eonstder the Ctty's internal control structure and assess control r~sk, as required by generally accepted auditing standards, for the purpose of estabhshmg a basts for determining the nature, t~mmg and extent of audtt~ng procedures necessary for expressing our opm~on Ms Kathy DuBose March 6, 1996 Page 3 concerning the financial statements, and not to prowde assurance on the tnternal control structure The report on our understanding of the City's internal control structure and the assessment of control risk made as part of the financial statement audit will include (1) the scope of our work In obtaining an understanding of the tnternal control structure and m assessing the control risk, (2) the C~ty's s~gmficant internal controls or control structure, including the controls estabhshed to ensure compliance with laws and regulations that have a material ~mpact on the financtal statements, and (3) the reportable cond~tions, ~ncludmg the ~dentfficat~on of materml weaknesses ~dentffied as a result of our work in understandmg and assessing the control risk, ff applicable An audit includes examining, on a test basts, evidence supporting the amounts and dtsclosures ~n the financml statements and the schedule of federal financml assistance, therefore, our audit will revolve judgment about the number of transactions to be examined and the areas to be tested Also, we will plan and perform the audit to obtain reasonable assurance about whether the finanmal statements are free of material m~sstatement However, because of the concept of reasonable assurance and because we will not perform a detailed exam~nation of all transactions, there ~s a risk that materml errors, irregularities or illegal acts, ~nclud~ng fraud or defalcations, may ernst and not be detected by us Management ~s also responmble for comphance w~th laws, regulations, contracts and grants, and for estabhshmg and malntalmng an internal control structure to assure such comphanee with federal award requirements As part of obtaining reasonable assurance about whether the financml statements are free of material misstatement, we will perform tests of the City's comphance with certain prowslons of laws, regulations, contracts and grants However, our object~ve ~s not to provide aa optmon on overall compliance with such provis~ons As part of our audit of comphance w~th the general reqmrements of federal financml asststance and specific requirements of major programs, we will obtain an understanding of the C~ty's ~nternal control structure related to adm~mstenng major federal finanmal assistance programs and we will assess control risk as reqmred by OMB CtrcularA-128 for the purpose of estabhshlng the nature, timing and extent of auditing procedures necessary for expressing our opinion concerning comphance w~th laws and regulations related to major federal programs and for expressing positive assurance as to ~tems tested and negative assurance as to items not tested for general comphance requirements As reqmred by OMB CtrcularA-128, our audit will also ~nclude tests of transactmns related to federal assistance programs for comphance with applicable laws and regulations However, because of the concept of reasonable assurance and because we will not perform a detailed examination of all transactions, there is a risk that materml errors, ~rregularlt~es or illegal acts, ~nclud~ng fraud or defalcations, may exist and not be detected by us We will adwse you, however, of any matters of that nature that come to our attention, and will include such matters ~n the reports reqmred for an audit m accordance w~th OMB CtrcularA-128 Our responsibility as auditors is hm~ted to the period covered by our audit and does not extend to matters that arise dunng any later periods for which we have not been engaged as auditors and for whtch we have performed no auditing procedures Similarly, m performing our audit we will be aware of the possibility that illegal acts may have occurred However, it should be recogmzed that our audit provides no assurance that illegal acts generally will be detected, and only reasonable assurance that dlegal acts hawng a d~rect and material effect on the determination of financial statements amounts wdl be detected Our auditing procedures will include tests of documentary ewdence supporting the transactions recorded In the accounts, and may include tests of the physical existence of ~nventones and d~rect confirmation of receivables and certain other assets and habfl~tles by correspondence with selected Ms Kathy DuBose March 6, 1996 Page 4 lndtvtduals, 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 Management's Responsibility It Is our understanding that you will provide us with the basic information reqmred for our audit and that you are responsible for the accuracy and completeness of that information We will advise you about accounting pnneiples and their appheation and wdl assist m the preparation of your financial statements, but the responsibthty for the financial statements remains with you This responslbdity includes the maintenance of adequate records and related internal control structure policies and procedures, the selection and application of appropriate accounting principles, and the safeguarding of assets We understand that your employees will type all cash or other confirmations that we request and will help locate any invoices selected by us for testing Other Communications Arising from the Audit As required by Government .4udttmg Standards, our report on our tests of compliance with applicable laws and regulations related to our audit of the financial statements will describe all instances of noncompliance reportable under Government`4udttmg Standards As required by OMB Circular.4-128, our report on comphance will contain our opinion on the City's compliance, in all material respects, with the laws and regulations that apply to its major federal financial assistance programs With regard to transactions selected from nonmaJor programs and with our procedures related to general requirements of federal awards, our report on compliance will contain a statement of positive and negative assurance, as discussed above Because, in addition to our report on the finanmal statements, the scope of the engagement includes an audit in aecordmlce with Government.4udttmg Standards and thc requirements of OMB Circular A-128, our reports on compliance with laws and regulations, including legal compliance and reports on your systems of mternal control may be accompanied by observations (findings) on your compliance or on your systems of internal control and a schedule of questioned costs, if the results of our audit procedures reqmre such observations or questioned costs If any observations or findings are reported to you, you must provide a written corrective aet~on plan under the requirements of the OMB Circular .4-128 Our audit is not specffically designed and cannot be relied on to disclose all reportable conditions (that is, sigmfleant deficiencies in the design or operation of the Internal control structure) However, during the audit, if we become aware of such reportable conditions that affect the financial internal control systems or of ways that we believe management practices can be improved, we will commumcate them to you in a separate letter At the conclusion of the audit, we will request the City's management to provide us a representation letter that, among other things, will confirm management's responsibility for the preparation of the financial statements in conformity with generally accepted accounting pnnciples, and availability of financial records and related data, the completeness and availability of all minutes of City Council (and committee) meetings, the absence of irregularities involving management or those employees who have significant roles m the control structure and, further, to confirm management's responsibility for eomphanee with laws and regulations, applicable to federal financial assistance programs Ms Kathy DuBose March 6, 1996 Page 5 We understand that our reports on the internal control structure as part of the financial statement audit and on comphance with laws and regulattons are intended for the information of the audit committee, management and appropriate federal agencies As required by Government Auditing Standards and OMB Ctrcular A-128, we will maintain the working papers for a m~mmum of three years from the date of our reports These working papers will be made avatlable to representattves of the cognizant audit agency (or ~ts designee), other government audit staffs, and/or the Umted States General Accounting Office upon their request and after they have properly notffied you of their request to rewew the working papers Fees Fees for our services are based on per d~em rates, plus out-of-pocket expenses, all ofwhmh will be balled as our work progresses Our professional fee for the audit of the general purpose financial statements for the fiscal year ending September 30, 1996, wdl be $35,100 which reflects the annual inflation adjustment Should an increase m the scope of our services be required, we would provide you with a change m our fee prior to commencing the work These fees are dependent upon our receiving 250 hours of assistance from the Internal Auditor W~thout assistance from the Internal Auditor, our fee will increase to $43,700 During the course of our engagement, we may observe opportunities for economy m or improved controls over your operations We will bring such matters to the attention of the appropriate level of management ~n writing We appreciate the opportumty to be of service to the City, and we believe th~s letter accurately summarizes the slgmfieant terms of our engagement If you have any questions, please let us know If you agree with the terms of our engagement as descrtbed In this letter, please s~gn the enclosed copy and return it to us Yours very truly, RESPONSE This letter correctly sets forth the understanding of the City of Denton, Texas Date