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1989-1002744L NO 39 -100 AN ORDINANCE AUTHORIZING THE MAYOR TO ENTER INTO AN AGREEMENT BETWEEN THE CITY OF DENTON AND DELOITTE, HASKINS, AND SELLS AS AUDITORS FOR THE FISCAL YEAR ENDING SEPTEMBER 30, 1989, AND PROVIDING AN EFFECTIVE DATE THE COUNCIL OF THE CITY OF DENTON HEREBY ORDAINS SECTION I That the City Council of the City of Denton, Texas es res to appoint Deloitte, Haskins and Sells as the auditors for the City of Denton, Texas for the fiscal year ending September 30, 1989 SECTION II That Deloitte, Haskins and Sells is hereby designate as the auditing firm for the City of Denton, Texas for the fiscal year ending September 30, 1989 in accordance with the terms and provisions of the commitment letter of Deloitte, Haskins and Sells dated June 27, 1989, and the conditions set forth in the Proposal to Provide Professional Services, copies of which are attached hereto and made a part hereof for all purposes SECTION III That this ordinance shall imme ate y upon its passage and approval PASSED AND APPROVED this 1989 ATTEST. the I S. day of become effective L f SLCRE RY J RS, CI APPROVED AS TO LEGAL FORM DEBRA ADAMI DRAYOVITCH, CITY ATTORNEY BY Deloc'ae Haskins+Sells 'Lesl 801 Cherry Street Suite 2340 Fort Worth Texas 76102 6801 2531 11 ~ Metr JUN 2 81989 1I LI, # Metr o 336 654 2777 9 9 Cable DEHANDS The Honorable Ray Stephens June 27, 1989 and Members of the City Council City of Denton 215 E McKinney Street Denton, Texas 76201 Dear Mayor Stephens and Council Members This letter will confirm our understanding of the arrangements covering our audit of the financial statements of City of Denton ( City ) for the year ending September 30, 1989 We will audit the City's general purpose financial statements for the year ending September 30, 1989 Our audit will be made in accordance with generally accepted auditing standards and the provisions of Government Auditing Standards, promulgated by the U S Comptroller General, as they pertain to financial audits Accordingly, the audit will include such tests of the accounting records and such other auditing procedures as we consider necessary in the circumstances The objectives of our audit are to express an opinion on the financial statements of the City, as well as render a report on compliance of the City with the terms and requirements of certain Federal laws Our procedures will include, among others, tests of documentary evidence supporting the transactions recorded in the accounts, tests of tax receipts and related assessment rolls, and direct confirmation of receivables, grant receipts and certain other assets and liabilities by correspondence with selected taxpayers, creditors, legal counsel and banks At the conclusion of our examination, we will request certain written representations from you about the financial statements and matters related thereto Before commencing our audit, we would be pleased to meet with you to review and discuss the scope of our audit procedures in more detail The Honorable Ray Stephens and Members of the City Council June 27, 1989 2 The fair presentation of financial position and results of operations in conformity with generally accepted accounting principles is management's responsibility Management is responsible for the development, implementation and maintenance of an adequate system of internal accounting control and for the accuracy of the financial statements Although we may advise you about appropriate accounting principles and their applications, the selection and method of application are responsibilities solely of management Our engagement is subject to the inherent risk that material errors, irregularities or illegal acts, including fraud or defalcations, if they exist, will not be detected However, we will inform you of any such matters that come to our attention Fees for our services are based on per diem rates, plus out-of-pocket expenses, all of which will be billed as our work progresses Our maximum fee for this engagement is $35,700 Should an increase in the scope of our services be required, we would provide you with a change in our fee prior to commencing the work During the course of our engagement, we may observe opportunities for economy in or improved controls over your operations We will bring such matters to the attention of the appropriate level of management in writing if you intend to publish or otherwise reproduce the financial statements and make reference to our Firm, you agree to provide us with printers' proofs or masters for our review and approval before printing You also agree to provide us with a copy of the final reproduced material for our approval before it is distributed Please indicate your agreement to these arrangements by signing the attached copy of this letter and returning it to us The Honorable Ray Stephens and Members of the City Council June 27, 1989 3 We appreciate your confidence in your appointment of us as your certified public accountants and look forward to working with you and your staff Yours very truly, George A Scott Partner Approved By Date APPENDIX A OUR SERVICE PLAN Scope of the Audit The primary ob4ective of our service plan will be to audit the City of Denton s financial statements in order to determine that they are fairly presented Based on our understanding of your requirements we will perform the following activities • Audit the financial statements of all accounts and funds in accordance with generally accepted auditing standards • Perform all required procedures and provide the necessary reports to comply with the Single Audit Act • Perform other audits or reviews as requested, after submitting a separate proposal and proposed fee for approval by City management At the conclusion of each year's audit, Deloitte Haskins & Sells will provide or assist in the preparation of the following documents • Comprehensive Annual Financial Report • A separate management letter reporting on the adequacy of the City's system of internal control (20 copies) • A report on compliance with the requirements of the Single Audit Act (20 copies) • Copies of all work papers requested by the Finance Department Advance Planning and Transition Considerations In all our au it ann ng, we stress individualized attention to our client s needs and requirements our extensive advance planning allows us ample time to coordinate our audit with your personnel and to request appropriate work papers and staff support We will remain sensitive at all times to the current workloads of the City staff We will use the schedules the City staff routinely prepares for the year end audit When we determine that efficiencies can be made in succeeding years, we will discuss any changes with you well in advance so that there will be no last minute surprises - 1 - Our experience has been that in succeedin ears we can reauce t o num er o schedules Prepared our c ent s sta e u y expect i s to be the case w t the city o Denton as it has been with our many other governmental clients our Audit Approach For many years, Deloitte Haskins & Sells has led the accounting profession in developing advanced auditing concepts, approaches and techniques These innovations, included in our unified audit approach known as AuditSCOPE, are designed to deal with the increasing complexities of financial systems, to reduce and control the rising costs of performing audits, and to maintain quality auditing standards This unified system allows us to provide all of our clients, regardless of size, the benefits of our most advanced techniques AuditSCOPE includes such advanced approaches and techniques as 0 A pinpoint approach to evaluating internal control and correlating the results with the extent of detail testing necessary • Advanced statistical techniques which incorporate predetermined reliability and precision levels • Computer audit programs which speed selection and evaluation of sample items • Standardized audit work programs for each account group and special industry audit programs Constructive Service Approach We take an objective, business approach to au t services so that we can be an effective resource to your management Our audit team will keep your objectives in mind and will be alert for ways in which we can assist you in optimizing the effectiveness of your operations While performing the audits, we will develop constructive, practical suggestions on opportunities for improving internal controls and accounting procedures as well as for strengthening overall management controls We combine our technical expertise with business insight and specialized knowledge in each of your areas of operation Thus, we can assist you in strengthening your financial structure This constructive service approach is an integral part of our audit and does not involve any special studies In most cases, it is a natural by-product of our audit procedures assigning experienced people whose functional and industry knowledge is most relevant to the audit areas in which they are working - 2 - Year-Round Service is the Key Timely communication of information y affect your operations is one of the most important services we offer Our work plan, outlined below, includes provisions to communicate with your personnel We are available to meet, when needed, with members of the City Council to discuss our progress and to keep them apprised of our progress so that problems can be avoided We are also available throughout the year Frequent and individualized communications with each of our governmental clients is an important part of our ongoing support program In addition, we will contact you when new developments affect your operations Advanced Auditing Techniques Our approach to audit service for the City of Denton will emphasize and take advantage of advanced auditing concepts to increase the efficiency and cost effectiveness of our services Use of Personal Com uters At Deloitte Haskins & Sells we rely extens ve y on t e use o microcomputers to perform many routine tasks Personal computers ("PC's") promote audit efficiencies and we use them extensively on our audit engagements to prepare schedules, to make complex calculations and to analyze account fluctuations The PC is particularly useful to prepare trial balances and summarize report groupings All of our management and staff routinely use PC's and are trained on Lotus 1-2-3 software We make extensive use of portable PC's at client locations to speed the audit process We will make available to the City the Lotus Templates we develop an use on t e City's au t y ma ng our temp ates available to you, we feel t at we can increase the efficiency of the City staff in routine matters and in preparing for each year's audit Audit Sampling Statistical parameters are essential for exerc~s ng rigid control over the quantity and scope of audit tests Our Audit Sampling Plan is recognized as the most efficient and effective application of statistical methods in auditing because, unlike traditional judgment samples where sample reliability tends to vary from application to application, our sampling plan is based on predetermined reliability and precision levels Therefore, the sample size is directly proportionate to the materiality of individual items and degree of internal accounting control - 3 - Our Approach to EDP Auditing We have developed an objective approach and related program to determine the audit features of internal controls which are unique to electronic data processing systems The features of this program are directed to all computer applications of accounting significance including, but not limited to, adequate procedural documentation, input and output controls, security controls and emergency procedures This program specifies procedures for the study and evaluation of internal accounting controls It is completed for each significant accounting application (e g , revenues, cash receipts, purchases, cash disbursements, payroll, accounts receivable, general ledger, etc ) during the early stages of our field work The program focuses on the evaluation of those accounting controls on which we plan to place reliance or which are of importance to management The following EDP control objectives are comprehended in the program • Controls should provide reasonable assurance that accounting application programs or systems are initially designed and implemented to process in accordance with management's general or specific authorizations • Controls should provide reasonable assurance that changes to programs are made only with proper management authorization and that, upon implementation of the changes, the programs continue to process in accordance with management's general or specific authorizations • Controls should provide reasonable assurance that all authorized data, and only authorized data, is correctly entered into the EDP system • Controls should provide reasonable assurance that authorized data, once entered into the system, is protected from unauthorized deletion or modification • Controls should provide reasonable assurance that intended EDP output is delivered intact to the authorized users only • Controls should provide reasonable assurance that the EDP hardware and support software (e g , operating systems and data base systems) are functioning properly Proposed Work Plan To assist the City of Denton in preparing for our audit, we are committed to meet all timing and report deadlines stipulated by City Council and management - 4 - Professional Fees Professional Fees Our professional fee will be based on the actual time requ red to perform our examinations at hourly rates based on the experience levels of the professionals serving the City of Denton We estimate our maximum fee for the year ending September 30, 1989 will be $35,700 including the printing cost to prepare the annual financial report This fee estimate is based on approximately 1,000 staff hours excluding start-up time Our fees for subsequent years would remain at this level except for increases based on the percentage increase in the National Consumer Price Index The fee quoted is an estimate and under the Rules of Professional Conduct an accounting firm cannot be bound to provide services for an estimated amount if our independence would be impaired However, we do not render a fee estimate without serious consideration and deliberation A schedule of the billing rates for each classification of personnel assigned to the engagement is as follows Rate Estimated Per Hour Hours Partners $180 5805 Managers 45 315 Senior accountants 30 550 Staff accountants Our reputation as a quality professional firm is our most valuable asset We will never compromise the quality of our work in order to complete a job within the number of hours estimated You can be sure that we will do as much work as is necessary in our professional ,judgment to determine that our reports are well documented and responsive to your needs This Appendix is to be attached to our original engagement letter dated June 27, 1989 / Al-_. George A Scott - 5 -