2005-163
FILE REFERENCE FORM
2005-163
FILE(S) Date Initials
First Amendment to Contract [original is attached] 02/20/07 )R
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ORDINANCE NO. c:< () () 5 - /6, q
AN ORDINANCE OF THE CITY OF DENTON AUTHORIZING THE CITY MANAGER TO
EXECUTE A PROFESSIONAL SERVICES AGREEMENT BETWEEN THE CITY OF DENTON
AND KPMG LLP FOR INDEPENDENT AUDITS; AUTHORIZING THE EXPENDITURE OF
FUNDS; AND PROVIDING AN EFFECTIVE DATE (RFSP 3325 - AUDIT SERVICES
AWARDED TO KPMG LLP IN AN AMOUNT NOT TO EXCEED $1 05,850 FOR 2005, $105,200
FOR 2006, AND $] ]0,225 FOR 2007. FEES FOR 2008 AND 2009 WILL BE BASED UPON THE
CONSUMER PRICE INDEX FOR THE DALLAS METROPLEX).
WHEREAS, the City's current agreement with Deloitte and Touche expired after the
completion of the firm's audit services for the fiscal year ending September 30, 2004; and
WHEREAS, in response to requests for proposal, KPMG LLP was the best proposal received
for audit services; and
WHEREAS, Chapter 2254 of the Texas Government Code, known as the Professional
Services Procurement Act, generally provides that a city may not select a provider of professional
services on the basis of competitive bids, but must select the provider of professional services on the
basis of demonstrated competence, knowledge, and qualifications, and for a fair and reasonable
price; and
WHEREAS, the City Council hereby finds and concludes that KPMG LLP is appropriately
qualified under the provisions of the law to be retained to provide auditing services and has been
selected on the basis of demonstrated competence, knowledge, and qualifications, and the
compensation to be paid is fair and reasonable; and
WHEREAS, the City Manager recommends and the City Council deems it in the public
interest that the City enter into a professional services agreement for independent auditing services
with KPMG LLP for the fiscal years ending September 30, 2005, September 30, 2006 and September
30, 2007 with the City's option to extent the agreement for two additional fiscal years ending
September 30, 2008 and September 30,2009; NOW, THEREFORE,
THE COUNCIL OF THE CITY OF DENTON HEREBY ORDAINS:
SECTION I. The findings and recitations contained in the preamble of this ordinance are
incorporated herein by reference
SECTION 2. That the City Manager is hereby authorized to execute on behalf ofthe City, a
professional services agreement for auditing services between the City and KPMG LLP for
independent auditing services, in substantially the form of the agreement which is attached hereto
and incorporated by reference herein.
SECTION 3. The City Manager is hereby authorized to expend the funds and to undertake
the obligations as set forth in the attached agreement.
,.
S:IOur DocumentslOrdinanccslO5lAudito, Ordinance. doc
SECTION 4. This ordinance shall become effective immediately upon its passage and
approval.
PASSED AND APPROVED this the ~ / ~/day of ~ 2005.
¿~/L~
EULINE BROCK, MAYOR
ATTEST:
JENNIFER WALTERS, CITY SECRETARY
BY~ ~ ~t\ \ \qW
APPROVED AS TO LEGAL FORM:
EDWIN M. SNYDER, INTERIM CITY ATTORNEY
9~4
BY:
PROFESSIONAL SERVICES AGREEMENT
FOR AUDITING SERVICES
ST A TE OF TEXAS
§
COUNTY OF DENTON §
THIS AGREEMENT, is made and entered into as ofthe;</~ay of Çí};/f.l7L
2005, by and between the City of Denton, a Texas Municipal Corporation, .th its principal
office at 2]5 E. McKinney Street, Denton, Denton County, Texas 76201 (hereinafter referred to
as "CITY") and KPMG LLP, with an office at 717 North Harwood Street, Dallas, Texas 75201
(hereinafter referred to as ("AUDITOR") acting herein, by and through their duly authorized
representatives.
\VHEREAS, CITY desires to engage AUDITOR to provide audit services as herein
defined; and
WHEREAS, AUDITOR is willing to provide such services to CITY;
NOW THEREFORE, in consideration of the promises and mutual undertakings herein
contained, the parties agree as follows:
]
Engagement of Auditor
The CITY hereby contracts with AUDITOR, as an independent contractor, and the AUDITOR
hereby agrees to perform the services herein in connection with the engagement as stated in the
Articles to follow, with diligence and in accordance with the applicable professional standards
customarily obtained for such services in the State of Texas. The professional services to be
performed by AUDITOR are in connection with the engagement described in Article 2 below.
2.
Scope of Services
The AUDITOR shall perform the following services:
A
The AUDITOR will perform the annual audit of CITY's general purpose financial
statements Such audit will be conducted in accordance with generally accepted auditing
standards; Government Auditing Standards, issued by the Comptroller of the United
States; the Single Audit Act of 1996; and the applicable OMB Circular, Audits of State
and Local Governments, and any other applicable regulations as set forth by federal,
state, or local regulating bodies, particularly the Governmental Accounting Standards
Board as they may now read or may hereinafter be amended.
B.
AUDITOR will issue a management letter to CITY reporting any material weaknesses in
CITY's internal accounting controls discovered during the annual audits of CITY's
financial statements.
c.
AUDITOR will perform the annual compliance audit and single audit of CITY's federal
financial assistance programs. Such audit will be conducted in accordance with generally
accepted auditing standards; Government Auditing Standards, issued by the Comptroller
of the United States; OMB's Compliance Supplement for Single Audits of State and
Local Governments; the applicable OMB Circular, Audits of State and Local
Governments; and AICPA Statement on Auditing Standard No. 63, Compliance Auditing
Applicable to Governmental Entities and Other Recipients of Governmental Financial
Assistance, and any other applicable regulations as set forth by federal, state, or local
regulating bodies, particularly the Governmental Accounting Standards Board as they
may now read or hereinafter be amended.
D.
AUDITOR will perform all professional services as defined in the Auditor's Proposal for
Professional Auditing Services document dated April 2] 2005, and in the City's Request
for Sealed Proposals for Audit Services (RFSP #3325) attached hereto as Exhibits "A"
and "B" respectively, and which are incorporated by reference herewith; together with
those professional services outlined in the annual, officially accepted and agreed-upon
Engagement Letters to be attached as Amendments Number One (I) through Two (2)
hereto in the event the City exercises its option years unGer section 3 and 6 of this
agreement. These two (2) amendments will be attached at the beginning of each annual
engagement.
E.
During any fiscal year covered by this Agreement, CITY may request AUDITOR to
provide services in addition to the services provided hereunder. AUDITOR may, at its
option, agree to provide such additional services upon terms and conditions as mutually
agreed upon and outlined in Appendix A. Rates in Appendix A reflect the first fisca1
year (year ending September 30, 2005) rates. These rates will be adjusted annually using
the Consumer Price Index for the Dallas metroplex for March of each year. The March
2005 CPI will be used as the base year.
3.
Duration of Agreement
This Agreement for audit services as specified herein for the financial statements of CITY
pertains to CITY's fiscal years ending September 30, 2005, September 30,2006> and September
30, 2007 and, if CITY exercises its option pursuant to Article 6., CITY's fiscal years ending
September 30, 2008 and September 30, 2009 unless sooner terminated in accordance with
Article 14. This Agreement may be sooner terminated in accordance with the provisions hereof.
If the CITY exercises the two option years, the extension shall be considered part of this
Agreement. This extension will be documented by the CITY's receipt and official written
acceptance of the annual Engagement Letter for the fiscal years ending September 30, 2008 and
September 30, 2009.
4.
Completion of Services
AUDITOR's financial and compliance audit work shall be completed no later than
December 30, after the CITY's fiscal year end. The City's Controller should be able at this time
to begin preparation of the Comprehensive Annual Financial Report ("CAFR"). The CAFR
should be available for print by the 2nd Monday in January following the end of the latest fiscal
year AUDITOR's completion of the compliance and audit work for the CITY is subject to
availability of the CITY's records. The AUDITOR shall make all reasonable efforts to complete
the services set forth herein as expeditiously as possible, and to meet the schedule established by
the CITY, acting through its City Manager or his designee.
5.
Responsibilities of the City
CITY understands that the proper and timely completion of AUDITOR's services hereunder
requires the reasonable cooperation of CITY (including, without limitation, its agencies, and
their respective officers, directors, employees, other personnel and agents). CITY agrees to
provide all such reasonable cooperation requested by AUDITOR, including, without limitation,
the following:
E.
F.
Access to, and/or copies of CITY's books and records;
Access to CITY personnel;
Office space and access to support services such as copying and telephone;
Written representations from CITY's attorney's, both internal and external; the latter may
bill CITY for such services;
Written representations from CITY about the financial statements and other matters; and
Closing of CITY's books and records of account in accordance with laws, regulations and
professional standards applicable to the services provided hereunder
A
B.
C.
D.
If the City exercises its renewal options it will agree with the provisions contained in the
Engagement Letters, if any, for each of the option fiscal years, as will be attached in
Amendments One through Two at the beginning of each annual engagement provided, however,
the Engagement Letters shall be consistent with all the terms and conditions of this Agreement.
If there is any conflict between the terms and conditions of the Engagement Letters and this
Agreement, the terms and conditions of this Agreement shall prevaiL
6.
Renewal
CITY may request renewal of this Agreement for two additional one-year periods for CITY's
fiscal years ending September 30, 2008 and September 30, 2009. CITY shall exercise its
renewal option for the one year period ending September 30, 2008 by March 31, 2008. CITY
shall exercise its renewal option for the one-year period ending September 30, 2009 by March
31,2009. If the CITY does not elect to exercise these options for renewal of this Agreement for
these two additional one year periods, then CITY and AUDITOR agree that CITY may then
issue requests for proposals for the fiscal years ending September 30, 2008 and September 30,
2009.
A
B.
7.
Compensation
CITY shall pay AUDITOR for time charges and expenses incurred. AUDITOR's
standard hourly rate varies according to the degree of responsibility involved and the
experience level of the personnel assigned to CITY's audit. Except as provided
hereunder, AUDITOR's fees for the performance of the services described in Section 2
shall be limited by the not to exceed figures set forth herein and charged at the rates set
forth under Appendix A.
For the fiscal years ending September 30, 2005, 2006, 2007; and if applicable, option
years 2008 and 2009, shall not exceed these respective amounts: $]05,850 for 2005,
$]05200 for 2006, $110,225 for 2007. Should the City choose to exercise its option for
the renewal of this agreement in years 2008 and 2009, Auditor fees will be adjusted
annually using the Consumer Price Index for the Dallas Metroplex and the year ended
September 30, 2007 as the base year.
CITY and AUDITOR recognize that the scope of services and compensation under this
Agreement are predicated upon (i) current audit requirements imposed by laws,
regulations and professional standards relating to such services; (ii) expectations of
reasonable cooperation with AUDITOR by CITY pursuant to this Agreement; and (iii)
the absence of any irregularities or circumstances which might necessitate the extension
of audit services beyond the normal scope of auditing services.
c
Should (i) irregularities; (ii) the absence of such reasonable cooperation; (iii) 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 CITY promptly in writing 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.
D.
CITY and AUDITOR agree to negotiate in good faith to determine an equitable
adjustment in the maximum fee. Should CITY 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 CITY and AUDITOR, either party
may, notwithstanding any other provision in this Agreement, terminate this Agreement
upon thirty (30) days written notice to the other party. CITY shall be liable for time
charges and expenses actually incurred by AUDITOR except for any such additional time
and expense which has been incurred as a result of the circumstances necessitating the
adjustment.
8.
Billing and Payment
A.
AUDITOR shall submit periodic detailed itemized invoices for time charges and
expenses incurred as the services hereunder are performed satisfactorily in accordance
with this Agreement. Such invoices are payable upon presentation. CITY will be in
material breach of this Agreement if CITY'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 CITY of the full amount due AUDITOR which has been
submitted by invoice to CITY.
B.
Partial payments to AUDITOR will be made on the basis of detailed itemized statements
rendered to and approved by the CITY through its City Manager or his designees;
however, under no circumstances shall any statement for services exceed the value of the
work performed by AUDITOR at the time a statement is rendered.
c.
Nothing contained in this Section shall require the CITY to pay for any work which is not
submitted in compliance with the terms of this Agreement. CITY shall not be required to
make any payments to the AUDITOR when AUDITOR is in material default under this
agreement for more than 30 days after receipt of written notice of such default from
CITY.
D.
It is specifically understood and agreed that AUDITOR shall not be authorized to
undertake any work pursuant to this Agreement which would require additional payments
by the CITY for any charge, expense or reimbursement above the maximum not to
exceed fee as stated without first having obtained written authorization from the CITY.
9.
Ownership of Work papers,
Documents, and Property
A.
All workpapers of AUDITOR shall remain 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 CITY shall acquire no right or interest in such
property.
B.
Except for the workpapers and other documentation described in Section 9. A. above, all
documents prepared or furnished by the AUDITOR for delivery to CITY pursuant to this
Agreement are instruments of service and shall become the property of the CITY upon
the termination of this Agreement, and full and final payment of all undisputed amounts
owed AUDITOR hereunder The AUDITOR is entitled to retain copies of all such
documents.
]0.
Independent Contractor
AUDITOR shall provide services to CITY as an independent contractor, not as an employee of
the CITY. AUDITOR shall not have or claim any right arising from employee status.
]]
Indemnity Provision
AUDITOR shall indemnify and save and hold harmless the CITY and its officers, agents, and
employees from and against any and all liability, claims, demands, damages, losses and
expenses, including but not limited to court costs and reasonable attorney fees incurred by the
CITY in each case solely for bodily injury, death and physical damages to real or tangible
personal property to the extent resulting from the negligent acts or omissions of the AUDITOR
or its officers, partners, agents, or employees in the execution, operation, or performance of this
Agreement.
As a condition to the foregoing indemnity obligation, CITY shall provide AUDITOR with
prompt notice of any claim for which indemnification shall be sought hereunder and shall
cooperate in all reasonable respects with AUDITOR in connection with any such claim
AUDITOR shall be entitled to control the handling of any such claim, with full disclosure of any
and all claims, and actions taken thereunder, to the CITY; and AUDITOR shall be entitled to
defend or settle any such claim, in its sole discretion, with counsel of its own choosing.
Nothing in this agreement shall be construed to create a liability to any person who is not a party
to this Agreement and nothing herein shall waive any of the party's defenses, both at law or
equity, to any claim, cause of action or litigation filed by anyone not a party to this Agreement,
including the defense of governmental immunity, which defenses are hereby expressly reserved.
]2.
Insurance
During the performance of the Services under this Agreement, AUDITOR shall maintain,
throughout the duration of this Agreement, the following insurance:
A.
Professional Liability Insurance with policy limits of not less than $],000,000 annual
aggregate, with respect to negligent acts, errors, or omissions in connection with the
professional services performed by AUDITOR pursuant to this Agreement.
B.
AUDITOR shall furnish insurance certificates at CITY's request to evidence such
coverage The insurance policy shall contain a provision that such policy shall not be
cancelled or modified without thirty (30) days prior written notice given by the Insurance
carrier to CITY and AUDITOR. In the event of cancellation or non-renewal of such
coverage, AUDITOR shall, prior to the effective date of the non-renewal or cancellation,
deliver to CITY a Certificate of Insurance evidencing that a substitute policy furnishing
the same coverage is in full force and effect.
13.
Arbitration and Alternate Dispute Resolution
"AUDITOR and the CITY (]) acknowledge that it is in their best interests to resolve any dispute,
claim or controversy arising out of or relating to this engagement letter (any such dispute, claim
or controversy, a "Dispute"), including any Dispute involving any person or entity for whose
benefit the services in question are or were provided, in accordance with the dispute resolution
procedures set forth below and (2) agree to use their best efforts so to resolve any such Dispute.
Without limitation, such efforts shall include mandatory submission of a Dispute to non-binding
mediation as provided below. Should such Dispute not be resolved within 90 days after the
issuance by one of the parties of a written Request for Mediation (or such longer period as the
parties may agree), CITY and AUDITOR may submit the Dispute to arbitration, if both agree to
do so, or seek other legal recourse including, without limitation, litigation. In the event the
parties agree to submit a Dispute to arbitration, the rules below shall govern.
Notwithstanding the agreement to such procedures, either party may seek injunctive relief to
enforce its rights with respect to the use or protection of (i) its confidential or proprietary
information or material or(ii) its names, trademarks, service marks or logos, solely in the courts
of the State of Texas or in the courts of the United States located in the State of Texas. The
parties consent to the personal jurisdiction thereof and to sole venue therein only for such
purposes.
Mediation
Any party may initiate mediation of a dispute by providing a written Request for Mediation to
the other party or parties. The mediator, as well as the time and place of the mediation, which
shall be a location in Denton or Dallas County, shall be selected by agreement of the parties.
Unless one of the parties notifies the other party upon providing or receiving a written Request
for Mediation that the party prefers another procedure for mediation, the parties agree to proceed
in mediation using the CPR Mediation Procedures (effective April], ] 998) issued by the Center
for Public Resources, with the exception of paragraph 2 which shall not apply to any mediation
conducted pursuant to this agreement. As provided in the CPR Mediation Procedures, the
mediation shall be conducted as specified by the mediator and as agreed upon by the parties.
The parties agree to discuss their differences in good faith and to attempt, with facilitation by the
mediator, to reach a consensual resolution of the dispute. The mediation shall be treated as a
settlement discussion and shall be confidential. The mediator may not testify for any party in
any later proceeding related to the dispute. No recording or transcript shall be made of the
mediation proceeding. Each party shall bear its own costs in the mediation. Absent an
agreement to the contrary, the fees and expenses of the mediator shall be shared equally by the
parties. Either party may seek to enforce any written agreement reached by the parties during
mediation in any court of competent jurisdiction.
Arbitration
Arbitration will be conducted either (]) in accordance with the procedures in this document and
the Rules for Non-Administered Arbitration of the CPR Institute for Dispute Resolution ("CPR
Arbitration Rules") as in effect on the date of the engagement letter or contract between the
parties, or (2) in accordance with other rules and procedures as the parties may designate by
mutual agreement. In the event of a conflict, the provisions of this document and the CPR
Arbitration Rules will control.
Arbitration shall take place in either Denton County or Dallas County, Texas. The arbitration
will be conducted before a panel of three arbitrators, two of whom may be designated by the
parties using either the CPR Panels of Distinguished Neutrals or the Arbitration Rosters
maintained by any United States office of the Judicial Arbitration and Mediation Service
(JAMS). If the parties are unable to agree on the composition of the arbitration panel, the parties
shall follow the screened selection process provided in Section B, Rules 5, 6, 7, and 8 ofthe CPR
Arbitration Rules. Any issue concerning the extent to which any dispute is subject to arbitration,
or any dispute concerning the applicability, interpretation, or enforceability of these procedures,
including any contention that all or part of these procedures are invalid or unenforceable, shall be
governed by the Federal Arbitration Act and resolved by the arbitrators. No potential arbitrator
shall be appointed unless he or she has agreed in writing to abide and be bound by these
procedures.
The arbitration panel shall issue its final award in writing. The panel shall have no power to
award non-monetary or equitable relief of any sort. Damages that are inconsistent with any
applicable agreement between the parties, that are punitive in nature, or that are not measured by
the prevailing party's actual damages, shall be unavailable in arbitration or any other forum. In
no event, even if any other portion of these provisions is held to be invalid or unenforceable,
shall the arbitration panel have power to make an award or impose a remedy that could not be
made or imposed by a court deciding the matter in the same jurisdiction.
Discovery shall be permitted in connection with the arbitration only to the extent, if any,
expressly authorized by the arbitration panel upon a showing of substantial need by the party
seeking discovery.
All aspects of the arbitration shall be treated as confidential. The parties and the arbitration
panel may disclose the existence, content or resuIts of the arbitration only as provided in the CPR
Arbitration Rules. Before making any such disclosure, a party shall give written notice to all
other parties and shall afford such parties a reasonable opportunity to protect their interests.
The award reached as a result of the arbitration will be binding on the parties, and confirmation
and enforcement of the arbitration award may be sought in any court having jurisdiction. The
parties agree that the City is a governmental entity subject to the Texas Public Information Act
and that any disclosure of information arising out of the mediation or arbitration or out of this
Agreement which is required by an opinion of the Attorney General of the State of Texas or a
ruling of a Court shall not be considered a breach of this Agreement.
This section shall control over any conflicting arbitration or alternate dispute resolution
provisions in the Engagement Letter
]4.
Termination of Agreement
A.
Notwithstanding any other provision of this Agreement, either party may terminate by
giving thirty (30) days advance written notice to the other party.
B.
This agreement may be terminated in whole or in part in the event of either party
substantially failing to fulfill its obligations under this Agreement. No such termination
will be effected unless the other party is given (I) written notice (delivered by certified
mail, return receipt requested) of intent to terminate and setting forth the reasons
specifying the nonperformance, and not less than 30 days to cure the failure, and (2) an
opportunity for consultation with the terminating party prior to termination
c
The City may cancel the contract should the present or any future City Council not
appropriate funds in any fiscal year for the payment of compensation under the
Agreement No penalty shall attach in the event of such non-appropriation. In the event
of non-appropriation the City shall give the AUDITOR advance written notice before
cancellation of the contract, and the City shall not be obligated to make any payments
beyond the end of the last fiscal year for which funds have been appropriated.
D.
If the agreement is terminated prior to completion of the services to be provided
hereunder, AUDITOR shall immediately cease all services and shall render a final bill for
services to the CITY within 30 days after the date of termination. The CITY shall pay
AUDITOR for all services rendered and satisfactorily performed and for reimbursable
expenses incurred prior to the date of termination in accordance with the terms of this
Agreement Should the CITY subsequently contract with a new AUDITOR for the
continuation of services on the audit engagement, AUDITOR shall reasonably cooperate
in providing information in accordance with, and to the extent required by, applicable
professional standards. The AUDITOR shall turn over all documents prepared or
furnished by AUDITOR for delivery to CITY pursuant to this Agreement to the CITY on
or before date of termination, but may maintain copies of such documents for its own
files.
]5.
Subcontracting
Neither this Agreement, nor the audit services to be provided hereunder may be assigned or
subcontracted without prior written approval of CITY.
16.
Retention Of and Access To Records
For a period of five years after the date of AUDITOR's report on any audit completed hereunder,
upon reasonable written notice to AUDITOR and CITY, 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
five year period to inspect and designate for copying AUDITOR's audit workpapers relating to
such completed audit. Copies will be made at CITY's or requestor's expense by, or under the
control of AUDITOR.
17.
Notices
All notices, communications, and reports required or permitted under this Agreement shall be
personally de1ivered or mailed to the respective parties by depositing same in the United States
mail at the address shown below, certified mail, return receipt requested, unless otherwise
specified herein.
To AUDITOR:
To CITY:
KPMG, LLP
Bill Hanley, Partner
717 North Harwood Street
Dallas, Texas 7520]
City of Denton, Texas
Michael A. Conduff, City Manager
2]5 E. McKinney
Denton, Texas 7620]
All notices shall be deemed effective upon rcceipt by the party to whom such notice is given.
18.
Entire Agreement
This Agreement, including all Exhibits and Amendments 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 representations, 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 authorized in
accordance with this Agreement and attached to and made a part of this Agreement. The
Engagement Letter between the parties, Appendix B, is attached to and is incorporated by
reference, and the parties agree that an Engagement Letter shall be signed annually during the
term of this Agreement. If there is any conflict between the terms and conditions of the
Engagement Letter and this Agreement, the terms and conditions of this Agreement shall prevail.
19.
Severability
If any provision of this Agreement is found or deemed by a court of competent jurisdiction to be
invalid or unenforceable, it shall be considered severable from the remainder of this Agreement
and shall not cause the remainder to be invalid or unenforceable. In such event, the parties shall
reform this Agreement to replace such stricken provision with a valid and enforceable provision
which comes as close as possible to expressing the intention of the stricken provision.
20.
Compliance With Laws
The AUDITOR shall comply with all federal, state, and local laws, rules, regulations, and
ordinances applicable to the professional services performed pursuant to this Agreement, as they
may now read or may hereafter be amended.
21.
Employment PracticesIDiscrimination Prohibited
In performing the services required hereunder, AUDITOR shall not discriminate against any
person on the basis of race, color, religion, sex, national origin or ancestry, age, or physical
handicap. AUDITOR agrees that in connection with the services to be provided to CITY
hereunder that it will comply with all applicable laws and regulations regarding employment
discrimination.
22.
Personnel/Conflicts ofInterest
A.
AUDITOR represents that it has or will secure at its own expense all professional and
support personnel required to perform all the services required under this Agreement.
Such personnel shall not be employees or officers of, nor have any contractual relations
with CITY. AUDITOR shall inform the CITY of any conflict of interest under the
professional standards of the AICP A or the Texas State Board of Public Accountancy
that may be discovered or arise during the term of this Agreement.
B.
All services required hereunder will be performed by AUDITOR. All personnel engaged
in work shall be qualified, and shall be authorized and permitted under state and local
laws to perform such services The key persons who will be performing the services
hereunder are William P. Hanley, Engagement Partner; Robert Glickert, Information Risk
Management Partner; Kevin Smith, Concurring Partner; Angela Dunlap, Engagement
Manager; and Karmyn Jeffries, Engagement Senior Staff
23.
Assignability
AUDITOR shall not assign any interest in this Agreement and shall not transfer any interest in
this Agreement (whether by assignment, novation or otherwise) without the prior written consent
ofthe CITY.
24.
Modification or Amendment
A.
No waiver or modification of this Agreement or of any covenant, condition or limitation
herein contained shall be valid unless in writing and duly executed by the party to be
charged therewith and no evidence of any waiver or modification shall be offered or
received in evidence in any proceeding arising between the parties hereto out of or
affecting this Agreement, or the rights or obligations of the parties hereunder, unless such
waiver or modification is in writing, duly executed; and, the parties further agree that the
provisions of this section will not be waived unless as herein set forth.
B.
No amendment of this Agreement shall be valid unless in writing and signed by both
parties.
25.
Force Majeure
Notwithstanding any other provision in this 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 CITY (including, without limitation, entities 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 disputes, war or other violence, or any law, order or
requirement of any governmental agency or authority.
26.
Miscellaneous
A.
Venue of any suit or cause of action under this Agreement shall lie exclusively in Denton
County, Texas. This Agreement shall be governed by and construction accordance with
the laws of the State of Texas.
B.
In accomplishing this engagement, AUDITOR shall take such steps as are appropriate to
coordinate the work involved with related work being carried on by CITY.
c.
D.
E.
CITY shall assist AUDITOR by placing at the AUDITOR's disposal, all available
information pertinent to the engagement, including previous reports, any other data
relative to the engagement, and arranging for the access to, and making all provisions for
the AUDITOR to enter in or upon, public and private property as required for the
AUDITOR to perform services under this Agreement.
The headings of this Agreement are for informational purposes only and shall not in any
way affect the substantive terms or conditions of this Agreement.
Each party represents that it is authorized to enter into this Agreement and that the
individual executing this Agreement on behalf of the party, is authorized to enter into this
Agreement.
IN WITNESS WHEREOF, the City of Denton, Texas has caused this Agreement to be executed
by its duly authorized City Manager; and AUDITOR has executed this Agreeme~by and
through its duly authorized undersigned Engagement Partner on this the ,.;¡ / day of
[j{,l/L/--- ,2005.
"CITY"
~
MICHAEL A CONDUFF
CITY MANAGER
ATTEST:
JENNTFER WALTERS, CITY SECRET AR Y
Ry~,Jt ~~\-" '"
APPROVED AS TO LEGAL FORM
EDWIN M. SNYDER, INTERIM CITY ATTORNEY
BY:
Cf~f d 4df
"AUDITOR"
KPMG LLP
BY~~
WILLIAM P HANLEY
ENGAGEMENT PARTNER
ATTEST
.J11 me.- ~rrn\( ~
Exhibit A
Purchasing Department
901-B Texas 8t.
Denton, TX 76209
(940) 349-7100
RFSP #3325
Request for Sealed Proposals For
Audit Services
PROPOSALS DUE: April 21, 2005
2:00 P.M.
Proposal submitted by:
Company Name
NOTICE TO VENDORS
Proposals will be received by the City of Denton, Texas at the office of the Purchasing
Agent prior to 2:00 p.m., APRIL 21, 2005 for the following:
RFSP #3325 - Audit Services
Pre-proposal conference will be held on FRIDAY, APRIL 8, 2005 at 10:00 a.m. in the
City of Denton, Finance Conference Room at 215 E. McKinney Denton, Texas 76201.
Attendance is not mandatory; however, the deadline for questions regarding this RFSP is
the close of the pre-proposal conference.
Qualified prospective suppliers may obtain copies of the proposal with information at the
office of the Purchasing Agent, located at 901-B Texas Street, Denton, Texas 76209 in
the Service Center complex.
All proposals must be made on the printed forms included in the specifications. The
submitted proposals shall not be altered, withdrawn, or resubmitted within 120 days from
after the date of the proposal opening.
Each proposal must bc accompanied by a cashier's check, certified cheek or acceptable
bidders bond payable without recourse to the City of Denton, Texas in the amount of
$2000.00. Submitted as a guarantee that the bidder will enter into a contract and supply
the required insurance certificate and professional liability policy within fifteen (15) days
after the notification of the award of the contract to the bidder.
The City of Denton, Texas reserves the right to reject or accept any proposal and award
to the most advantageous proposal received.
No officer or employee of the City of Denton shall have a financial interest, direct or
indirect in any contract with the City of Denton.
Minority and small business vendors are encouraged to submit proposals.
CITY OF DENTON, TEXAS
(940) 349-7100
TOM D. SHAW, C.P.M.
PURCHASING AGENT
This advertisement to run: MARCH 31 and APRIL 7, 2005
City of Denton
Request for Proposals No. 3325 for Audit Services
Table of Contents
1.0 General Information
1.1 Purpose
1.2 Inquiries from Proposers
1.3 Pre-proposal Conference
1.4 Costs Incurred in Responding
1.5 Response Instructions
1.6 Proposal Acceptance Period
1. 7 Competitive Selection/Evaluation Factors
1.8 Review Committee/Evaluation Process
1.9 Additional Information
1.1 0 Negotiations
1.11 Release ofInformation
1.12 Contract Incorporation
1.13 Rights and Remedies
1.14 Contract Payment/Compliance Statement
1.15 Progress Reports
1.16 Publicity
2.0 Proposal Format
2.1 Required Sections
2.2 Cover Letter
2.3 Executive Summary
2.4 Table of Contents
2.5 Firm Background, Principal Officers, Prior Experience and
resumes
2.6 Scope and Audit Approach
2.7 Detailed Review of Comprehensive Annual Financial Report for
Government Finance Officers Association's Certificate of
Achievement for Excellence in Financial Reporting
2.8 Proposed Schedule
2.9 Review of Official Statements
2.10 Other References
2.11 Additional Data and Other Information
2.12 Concluding Remarks
2.13 Cost Proposal
2.14 Bid Bond
Page I
City of Denton
Request for Proposals No. 3325 for Audit Services
3.0 Description of the Entity
3.1 General
3.2 Organization of the City's Financial Services Department
3.3 Organization of the City's Accounting Function
3.4 The Accounting System
3.5 Audit Assistance
4.0 Nature of Services Required
4.1 General
4.2 Scope of Work to Be Performed
4.3 Auditing Standards to Be Followed
4.4 Reports to Be Issued
4.5 Preparation of Comprehensive Annual Financial Statement
4.6 Special Considerations
4.7 Review of Official Statements
4.8 Special Projects
4.9 Regulation Updates and CPE Provisions
5.0 Other Information and Requirements
5.1 Auditor Rotation
5.2 Prior Audit
5.3 Work Area
5.4 Audit Work Timing
5.5 Contractual Arrangements
5.6 Working Papers
5.7 Non-appropriation Provision
5.8 Equal Employment Opportunity
5.9 Conflict oflnterest
6.0 Listing of Time Lines and Critical Dates for 2004-2005 Year-End
APPENDICES
Appendix A - 2003-2004 Comprehensive Annual Financial Report
Appendix B - 2003-2004 Single Audit Report
Appendix C - External Audit Contract
Appendix D - Cost Proposal Form
Page 2
City of Denton
Request for Proposals No. 3325 for Audit Services
1.0 General Information
1.1 Purpose
The City of Denton, Texas (hereinafter referred to as the City) seeks proposals in
response to this Request for Proposal (RFP) from qualified and experienced public
accounting firms whose principal officers are independent certified public
accountants (hereinafter referred to as "proposers" or "the proposer," with related
pronouns referencing "he" or "his" to be interpreted without regard to gender). The
objectives of this RFP are:
A. To obtain audit services for performance of the City's annual financial audit
and single audit of state and federal grants for the three fiscal years beginning
October 1,2004 and ending September 30, 2007 (with an option to renew for
two years).
B. To obtain other related services, on a per request basis, as stated herein.
1.2 Inquiries from Proposers
Questions related to this RFP must be submitted verbally at the pre-proposal
conference (Section 1.3), or in writing, no later than April 7, 2005. Written
questions should be directed as follows:
City of Denton
Department of Management and Budget
Accounting Division
Attn.: Stephen Nesbitt, Controller
215 E. McKinney
Denton, TX 76201
Proposals should be received on or before 2:00 p.m., Thursday, April 21, 2005. It is
the proposer's responsibility to ensure that he has received any and all addenda
related to the proposal. It shall be the sole responsibility of the proposer to insure
that his proposal is received by the Purchasing Office within the time limit
indicated. Late proposals will not be considered.
1.3 Pre-proposal Conference
A pre-proposal conference will be held on April 8, 2005, at 10:00 a.m. in City of
Denton Finance Conference Room at 215 East McKinney, Denton, TX 76201.
Attendance is not mandatory; however, the deadline for questions regarding this
RFP is the close of the pre-proposal conference.
Page 3
City of Denton
Request for Proposals No. 3325 for Audit Services
1.4 Costs Incurred in Responding
All costs directly or indirectly related to preparation of a response to this RFP, any
oral presentations required to supplement and/or clarify a proposal, and/or
reasonable demonstrations which may be, at its discretion, required by the City
shall be the sole responsibility of and shall be borne completely by the proposer.
1.5 Response Instructions
Eight copies of your proposal should be returned in a sealed envelope bearing the
name and address of the proposer and the Request for Proposal number. The cost
proposal form should be submitted in a separate envelope attached to the proposal
and bearing the RFP number. Your proposal may be mailed, or hand delivered, as
follows:
City of Denton
Materials Management Office
Attention: Tom Shaw
901-B Texas Street
Denton, Texas 76209
Late proposals will not be considered. Deadline for submission is 2:00 p.m., April
21,2005.
1.6 Proposal Acceptance Period
All proposals must include a statement that they are valid for a minimum period of
90 days, subsequent to the RFP closing date.
1. 7 Competitive Selection/Evaluation Factors
This procurement will comply with the applicable City of Denton Procurement
Policy. The successful proposer will be selected on a rational basis, with both
qualifications and price considered in the selection process. Evaluation factors
outlined below shall be applied to all eligible, responsive proposers when
comparing proposals and selecting the successful proposer. Award of a contract
may be made without discussion with the proposer, after proposals are received.
Proposals should therefore be submitted on the most favorable terms.
Each proposal will be rated on a 100-point scale. Proposal evaluation factors, with
the maximum points awardable shown in parentheses, are as follows:
1. Demonstrated experience, qualifications, and professional activities of the audit
team and the firm, including technical expertise of supervisory staff available to
perform "on-site" work and resources readily available to the firm in key areas
Page 4
City of Denton
Request for Proposals No. 3325 for Audit Services
for the City. These key areas include such specialization as municipal
government and federal funding auditing. (40)
2. Total evaluated cost. (20)
3. Responsiveness of the proposal in clearly stating an understanding of the work
to be performed; responsiveness to terms and conditions, including scheduling;
completeness and thoroughness of the technical data and documentation. (20)
4. Commitment to Governmental Accounting and Auditing - The demonstration
of the firm's commitment to governmental issues by knowledge of current
issues and membership in related organizations such as the Governmental
Accounting Standards Board, Government Finance Officer's Association, Texas
Municipal League, etc. In addition, the firm's ability to communicate to the
client changes in regulations or the environment. This communication should
include the offer of CPE training to client personnel on current or relevant
issues. (20)
Selection and award will be based on demonstrated competence and qualifications
to perform the service requested for a fair and reasonable price.
Fess proposed for the resulting contract must be consistent with, and not higher
than, the recommended practices and fees published by any applicable professional
associations and may not exceed any maximum provided by law.
Oral interviews may be arranged at the discretion of the evaluation team to assist in
making the final selection.
1.8 Review Committee/Evaluation Process
Staff will evaluate the proposals using a matrix based on the factors described
above. Each participant will do a preliminary evaluation independently.
Participants will then meet to discuss their evaluations. After discussion, a final
evaluation will be done by each participant and the total points awarded to each
proposer will be tallied.
A recommendation will be presented for final selection to the City of Denton
Council.
1.9 Additional Information
The City reserves the right to require additional technical and pricing information
during the evaluation period.
Page 5
City of Denton
Request for Proposals No. 3325 for Audit Services
Each proposal must designate a person(s) who will be responsible for answering
technical and contractual questions.
1.1 0 Negotiations
The City reserves the right to negotiate all elements of a proposal to ensure that the
best possible consideration be afforded to all concerned.
The City reserves the right to reject any or all proposals and to re-solicit for
proposals in such an event.
1.11 Release of Information
Submission of information by the proposer shall not be released by the City during
the proposal evaluation process nor prior to contract award.
1.12 Contract Incorporation
Proposers should be aware that the contents of the successful proposal will become
a part of any subsequent contractual document that may arise from this RFP.
Failure of a proposer to accept this obligation may result in the cancellation of any
award.
1.13 Rights and Remedies
The rights and remedies of the City provided herein shall not be exclusive and are
in addition to any other rights and remedies provided by law or under any
subsequent contract.
1.14 Contract Payment/Compliance Statement
The contract shall be prepared under the direction of the City and shall incorporate
all applicable provisions. Payment for all services, other than those described as
"special projects," will be made based on an all-inclusive, not-to-exceed fee
estimate, with progress payments as mutually determined to be appropriate. These
payments shall be based upon completion of phases of the work. A sample contract
should be submitted with the proposal.
1.15 Progress Reports
The successful proposer shall submit progress reports to, or hold periodic meetings
with, the Contract Administrator as agreed upon by the City and the proposer. The
information provided in these reports should be sufficiently detailed to provide
assurance that the audit is on schedule.
Page 6
City of Denton
Request for Proposals No. 3325 for Audit Services
1.16 Publicity
Any publicity, news releases, and/or advertising, pertaining to this RFP and/or the
awarding of any contract relating to the RFP, may not be made without prior
written approval of the City.
2.0 Proposal Format
2.1 Required Sections
Proposals must be submitted containing the following sections ill the order
indicated:
1. Cover Letter
2. Executive Summary
3. Table of Contents
4. Firm Background,
Assigned Staff
Principal Officers, Prior Experience and Resumes of
5. Scope and Audit Approach
6. Detailed Review of Comprehensive Annual Financial Report for Government
Finance Officers Association's Certificate of Achievement for Excellence in
Financial Reporting
7. Proposed Schedule
8. Other References
9. Additional Data and Other Information
10. Concluding Remarks
11. Cost Proposal Form (submitted in separate envelope)
2.2 Cover Letter
This section should contain the name of the proposing firm, the address of the
proposing office, and contact persons authorized to answer technical, price, and/or
contract questions, together with their telephone number and mailing address. A
partner or officer authorized to bind the company must also sign the cover letter.
Page 7
"
.......
City of Denton
Request for Proposals No. 3325 for Audit Services
2.3 Executive Summary
Prefacing the proposal, an executive summary of five pages or less, should be
provided which gives in brief, concise terms a summation of your proposal.
Identify the points that make your firm uniquely qualified for this engagement.
2.4 Table of Contents
The Table of Contents shall include an index of the proposal contents and
attachments.
2.5 Firm Background, Principal Officers, Prior Experience and Resumes
Firm Qualifications and Experience: This section should state:
1. The location of the office from which the work on this engagement is to be
performed.
2. The number and nature of the professional staff to be employed ill this
engagement on a full-time basis.
3. The number and nature of the staff to be employed on a part-time basis.
4. The size of the firm.
5. The size of the firm's governmental audit staff.
6. Resume of each staff member to be employed in this engagement.
If the proposer is a joint venture or consortium, the qualifications of each firm
comprising the joint venture or consortium should be separately identified. In
addition, joint ventures or consortiums must identify a firm to serve as the principal
auditor, and the principal auditor must accept responsibility for resolving all
operational and contractual issues with the City.
The firm is also required to submit a copy of the report on its most recent external
quality control review, with a statement whether that quality control review
included a review of specific government engagements.
The firm shall also provide information on the results of any federal or state desk
reviews or field reviews of its audits during the past three years. In addition, the
firm shall provide information on the circumstances and status of any disciplinary
action taken or pending against the firm during the past three years with state
regulatory bodies or professional organizations.
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City of Denton
Request for Proposals No. 3325 for Audit Services
Partner, Supervisory and Staff Qualifications and Experience: The firm should
identify the principal supervisory and management staff, including engagement
partners, managers, other supervisors and specialists, who will be assigned to the
engagement and indicate whether each person is licensed to practice as a certified
public accountant in Texas. Resumes of each of these individuals should be
provided to the City. The firm should also provide information on the
governmental auditing experience of each person, including information on
relevant continuing professional education for the past three years and membership
in professional organizations relevant to the performance of this audit.
The firm should provide as much information as possible regarding the number,
qualifications, and experience and training (including relevant continuing
professional education) of the staff to be assigned specifically to this engagement.
The firm should also indicate how the quality of staff, over the term of the
agreement, will be assured.
Engagement partners, managers, other supervisory staff, and specialists assigned to
the City's account in a proposal may be removed from the City's account if those
persons leave the firm, are promoted, or are assigned to another office. These
persons may also be changed for other reasons, but only with the express prior
written permission of the City. However, in either case, the City retains the right to
approve or reject replacements.
Other audit personnel may be changed at the discretion of the proposer, provided
that replacements have substantially the same or better qualifications or experience.
Similar Engagements with Other Government Entities: For the firm's office that
will be assigned responsibility for the audit, list the most significant engagements
(maximum of 5) performed in the last five years that are similar to the engagement
described in this RFP. These engagements should be ranked on the basis of
relativity to the current proposal. Indicate the scope of work, date, engagement
partners, total hours, and the name and telephone number of the principal client
contact.
Other: Additional information should be included to describe the office's
capabilities to audit computerized systems. This section should also include a
discussion of your previous experience with the Certificate of Achievement
Program of the Government Finance Officers' Association (GFOA).
2.6 Scope and Audit Approach
The proposal should set forth a work plan, including an explanation of the audit
methodology to be followed, to perform the services required in Sections 4.1 and
4.2 of this RFP. In developing the work plan, reference should be made to such
sources of information as the City's budget and related materials, organizational
Page 9
City of Denton .
Request for Proposals No. 3325 for Audit Services
charts, manuals, and programs, financial and other management information
systems.
Proposers will be required to provide the following information on their audit
approach:
1. Approach to be taken in determining laws and regulations that will be subject to
audit test work.
2. Approach to be taken in drawing audit samples for purposes of tests of
compliance.
3. Approach to be taken to gain and document an understanding of the City's
internal control structure.
4. Extent of use ofEDP software in the engagement.
5. Level of staff and number of hours to be assigned to each proposed segment of
the engagement.
6. Proposed segmentation of the engagement.
7. Sample sizes and the extent to which statistical sampling is to be used in the
engagement.
8. Type and extent of analytical procedures to be used in the engagement.
The proposal should also identify, in this section, any anticipated potential audit
problems, the firm's approach to resolving these problems and any special
assistance that will be requested from the City.
The work plan submitted should include separate time estimates for the financial
audit and single audit work.
A separate statement of the firm's approach to and understanding of the provision
of technical assistance and advice concerning accounting and auditing issues that
may arise during the course of the audit should be included. In addition, a
discussion of the firm's approach to the level and amount of the Controller's
support necessary to complete the work as outlined in the proposal, should be
included.
Page 10
City of Denton
Request for Proposals No. 3325 for Audit Services
2.7 Detailed Review of Comprehensive Annual Financial Report for Government
Finance Officers Association's Certificate of Achievement for Excellence in
Financial Reporting
The City of Denton will send its Comprehensive Annual Financial Report (CAFR)
to the GFOA of the United States and Canada for review in their Certificate of
Achievement for Excellence in Financial Reporting Program. The auditor will be
required to provide assistance to the City, in the form of a detailed review of its
CAFR, to assure accuracy and adherence to the requirements of the program. The
proposal should contain a detailed account of the steps the auditor will take to
ensure the award of the Certificate. .
2.8 Proposed Schedule
Comment on the firm's ability to meet the timelines indicated in the RFP and
present a schedule of when information provided by the City should be available.
Provide any recommended changes that you think are required to enhance the
timelines and quality of the engagement.
2.9 Review of Official Statements
Routinely, the City prepares an official statement for a bond offering that includes
information taken from the most current CAFR. As needed, a review of the official
statement resulting in a "consent and citation of expertise" letter will be required.
2.10 Understanding of Work to Be Performed by Internal Auditor
Up to 200 hours may be provided by the City's Internal Auditor. This time will be
negotiated at the beginning of each contract year. The audit time provided will be
deducted from the amount of the audit fee at a rate negotiated annually (See Cost
Proposal Form, Appendix D). Clearly describe the work the firm proposes that the
Internal Auditor will perform. Include information on specific portions of the audit
and scope of work. Estimate audit hours needed for each segment of work.
Indicate the date work will commence and target dates for completion.
2.11 Other References
Describe recent local and regional office auditing experience similar to the type of
audit requested and give the name(s) and telephone number(s) of client official(s)
responsible for three of the audits listed. These references would be in addition to
those listed in Section 2.5 - Similar Engagements.
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City of Denton
Request for Proposals No. 3325 for Audit Services
2.12 Additional Data and Other Information
Since data not specifically requested must not be included in the foregoing proposal
sections, give any additional information considered essential to the proposal in this
section. If there is no additional information to present, in this section, state:
"There is no additional information we wish to present."
2.13 Concluding Remarks
This section shall contain any final remarks or elaboration which the proposer
believes is important for a clear understanding of the proposed services and/or the
proposer's capabilities.
2.14 Cost Proposal
Payment for all services, other than those described as "special projects," will be
made based on an all-inclusive, not-to-exceed fee estimate, with progress payments
as mutually determined to be appropriate. The contract will be a three-year
contract with the option to renew for a fourth, and fifth subsequent year.
The compensation proposal should be documented by completing, the Cost
Proposal Form, included in this packet as Appendix B, and should be submitted to
the City in a separate sealed envelope bearing the RFP number. As provided for by
the State Board of Public Accountancy rules, the contract award will not
necessarily be made to the firm that provides the lowest cost proposal, but rather to
the firm that submits the most responsive proposal meeting the City's requirements.
On the Cost Proposal Form, the firm should include, for each of the three years and
the possible fourth, and fifth subsequent years, the following information:
1. Total estimated hours and all-inclusive, not-to-exceed cost estimate for the
financial and single audit (combined); break down of the total estimated
hours by staff level (e.g. partner, manager, senior, etc.), with associated
billing rates for each level. The option years billing rates will be adjusted
annually for inflation using the Consumer Price Index for the Dallas
Metroplex, of the current fiscal year.
2. Proposed billing rates by staff level for reviews of official statements or
special projects on an as needed basis, as identified in sections 4.7 and 4.8 of
this proposal, or other special projects that may be requested during the initial
year of the contract. The special project billing rates will be adjusted
annually for inflation using the Consumer Price Index for the Dallas
Metroplex, dated March of the current fiscal year.
Page 12
City of Denton
Request for Proposals No. 3325 for Audit Services
3.0 Description of the Entity
3.1 General
The City of Denton, Texas is a municipal corporation incorporated on September
26, 1866. The City operates under a Council-Manager form of government and
provides such services as are authorized by its charter to advance the health,
morals, safety, convenience and welfare of the city or its inhabitants. The City
Council is comprised of a Mayor and six Council Members. The City Manager is
appointed by the Council and as the administrative officer is responsible for
appointing and supervising the heads of the City departments, with the exception of
the City Attorney and Municipal Judge.
The reporting entity for the City of Denton, as defined by GASB Statement 14,
includes all funds and account groups reported in the CAFR for the fiscal year
ended September 30, 2004, as shown in the CAFR - Table of Contents found in
Appendix A. The accounts of the City include each type of account group and all
fund types. The City is not included in any other governmental "reporting entity",
as defined by Statement 14.
Copies of the City's 2004 CAFR have been included in Appendix A of this RFP.
These pages should give the reader additional information on the City's reporting
entity, fund structure, accounting and budgeting policies, and federal and state
financial assistance, etc.
In addition, copes of the 2004 Single Audit Report have been included in Appendix
B. The Supplementary Schedule of Expenditures of Federal and State Awards,
which identifies major programs, can be found in this document.
3.2 Organization of the City's Financial Services
The Controller, who reports directly to the Director of Management and Budget, is
responsible for all financial accounting and reporting activities of the City. The
Controller has overall responsibility for the following functions: Utility
Accounting, General Fund Accounting, Payroll, Accounts Payable, Accounts
Receivable, Fixed Assets, and Grant Reporting.
The Technology Services Director is responsible for all programming and
maintenance for the City's mainframe accounting software, J.D. Edwards, and all
other computer services and systems.
Kathy DuBose - Assistant City Manager
. Accounting . Budget
· Library . Motor Pool
· Municipal Courts . Tax
. Treasury
. Human Resources
· Materials Management
. Technology Services
Page 13
City of Denton
Request for Proposals No. 3325 for Audit Services
Vacant - Director of Management and Budget
· Accounting . Budget
· Materials Management
Stephen Nesbitt - Controller
· Accounts Payable
. Grant Reporting
. Fixed Assets
. Payroll
· General Governmental Accounting
. Utility Accounting
Alex Pettit - Director of Technology Services
. Technology
Services
3.3 Organization of the City's Accounting Function
The accounting records of the City of Denton are maintained by the Controller,
located at 215 East McKinney Street, Denton, Texas. Although maintenance of the
accounting records is centralized within Accounting, the City's accounting function
is partially decentralized. Each City department has the authority to initiate and
submit all input documents (e.g. reports of cash receipts, authorization and requests
for cash disbursements, journal entries) for processing by Accounting. In addition,
a number of departments perform some of their data input for cash collections.
3.4 The Accounting System
Since October I, 2001, the City has utilized the J. D. Edwards, One World
integrated accounting system. The City has installed version 7.3 of One World and
plans to upgrade to version 8.10 by February 2007.
General Description. J. D. Edwards (JOE) is a comprehensive and integrated
Enterprise Software Solution for local governments. It provides for fund
accounting, encumbrance accounting, budgetary development and control, payroll
and human resources, accounts payable, bank reconciliation, work order, job
costing, grant management, purchasing, inventory control and fixed asset
accounting.
There are four subsystems that require a manual interface on a monthly basis
through general journal entry. These subsystems are as follows:
Subsvstem
Fleet (Faster)
Municipal Court (CSI)
Utility Customer Billing (Harris)
Property Tax
FreQuencv of Interface
Monthly
Daily
Daily
Daily
Page 14
City of Denton
Request for Proposals No. 3325 for Audit Services
In addition, fixed assets are maintained in Excel spreadsheets with monthly manual
general journal entries, rather than through the JDE software. Also, the JDE
module is not used during the bank reconciliation process.
Procedures. The Accounting Division has a policy and procedures manual that
incorporates training materials on JDE, administrative bulletins from the City
Manager on financial management matters and other materials that are periodically
disseminated to City departments. The JDE training materials include the policy
and procedure for processing transactions on JDE. Training on JDE is offered on a
regular basis and the training materials are updated frequently.
Data Processinl!: Environment. The computer environment for JDE is an RS6000
running AIX Version 5.2 operating system. JDE data is stored in an Oracle
database version 8.1.7.4. The City uses an OLAP tool called Brio v.6.1 to support
ad-hoc end user query requests and reporting needs. Accounting reports are
available from our internal web server and can be generated through the Crystal
Report system, available through the JDE package, or from the Brio reports
generated by the Brio server.
3.5 Audit Assistance
The Controller's staff will prepare all work papers necessary to prepare the
financial statements for the individual funds. These work papers will include trial
balances, journal entries with back-up documentation, fixed assets and depreciation
schedules, etc. The staff will prepare closing folders for each reportable fund, fund
group, government-wide and investments for use by the auditor. The closing
folders will include CAFR ready financial statements, trial balances, journal
entries, requested prepared by client (PBC) work papers, fund analyses and other
supporting documents to aid in the audit. These folders will be presented to the
auditors at the onset of year-end work.
Personnel will be available to the auditors for the purpose of pulling invoices,
directing auditors to the proper files, or for explaining procedures. PBC's can be
provided; however, these should be coordinated with the Controller. The Auditor
should provide the Controller an advance listing of the required forms and
information required.
The Internal Auditor may provide up to 200 hours of direct assistance for the
annual audit. Audit staff consists of one internal auditor. The use, allocation and
client savings based on the hours the Internal Auditor provides will be negotiated
annually with the selected audit firm. Audit work performed by the Internal
Auditor as part of the annual audit plan will also be available for use by the
external auditor. Audits performed include one or more of the following
accountability objectives: effectiveness, economy and efficiency of operations,
Page 15
City of Denton
Request for Proposals No. 3325 for Audit Services
reliability of performance and financial information, safeguarding of assets, and
compliance.
4.0 Nature of Services Required
4.1 General
The City is requesting proposals from qualified public accounting firms to audit its
financial statements for the fiscal years ending September 30,2005,2006 and 2007,
with the option to audit the City's financial statements for each of the two
subsequent fiscal years. These audits are to be performed in accordance with the
provisions contained in this RFP.
4.2 Scope of Work to Be Performed
The City of Denton desires the auditor to express an opInIOn on the fair
presentation of its general-purpose financial statements in conformity with
generally accepted accounting principles.
The auditor is required to audit the general purpose financial statements, consisting
of the combined statements for all fund types and account groups and the notes to
the financial statements. However, the auditor is to provide an "in-relation-to"
statement on the combining and individual fund financial statements and
supplementary schedules based on the auditing procedures applied during the audit
of the general purpose financial statements. The auditor is not required to audit the
statistical or regulatory sections of the report; these sections will remain unaudited.
The auditor shall also be responsible for performing certain limited procedures
involving required supplementary information required by the GASB, as mandated
by generally accepted auditing standards.
The auditor is required to audit the information contained in the Supplementary
Schedule of Expenditures of Federal and State Awards. This information should be
subjected to the auditing procedures applied in the audit of the general purpose
financial statements and in accordance to Governmental Auditing Standards, the
Single Audit Act as amended in 1996, and U.S. Office of Management and Budget
(OMB) Circular A-133. The auditor is to provide an opinion of the fair
presentation of this schedule in relation to the general-purpose financial statements
taken as a whole.
The scope of the City's annual audit, or any other work for which the proposer is
engaged, can only be broadened with the express written consent of the City. The
City will have the right to negotiate fees for work related to broadening the scope
of any work for which the proposer is engaged.
Page 16
City of Denton
Request for Proposals No. 3325 for Audit Services
4.3 Auditing Standards to Be Followed
To meet the requirements of this RFP, the audit shall be performed in accordance
with generally accepted auditing standards as set forth by the American Institute of
Certified Public Accountants and the GASB, the standards for financial audits set
forth in the U.S. General Accounting Office's Government Auditing Standards, the
provisions of the Single Audit Act of 1996, and the provisions ofOMB Circular A-
133, Audits of State and Local Government, and any other requirements from like
regulatory agencies.
4.4 Reports to Be Issued
Following the completion of the audit of the fiscal year's financial statements, the
auditor shall issue all reports currently required by state and federal grantors and by
such as the American Institute of Certified Public Accountants, the Governmental
Accounting Standards Board, the Government Finance Officers Association of the
United States and Canada, and any other regulatory agencies. The auditor shall
likewise issue any other reports subsequently required by these or similar entities
following completion of the financial or single audit.
The schedule of federal financial assistance and related auditor's reports, as well as
the reports on the internal control structure and compliance, are to be issued
separately.
In the required reports on internal controls, the auditor shall communicate any
reportable conditions found during the audit to the Assistant City Manager, Audit
Committee and the Internal Auditor. A reportable condition shall be defined as a
significant deficiency in the design or operation of the internal control structure,
which could adversely affect the Organization's ability to record, process,
summarize, and report financial data, consistent with the assertions of management
in the financial statements. Reportable conditions, that are also material
weaknesses, shall be identified as such in the report.
Non-reportable conditions discovered by the auditors shall be reported in a separate
letter to management, which shall be referred to in the reports on internal controls.
The report on compliance shall include all instances of noncompliance.
Auditors shall be required to make an immediate written report, of all irregularities
and illegal acts or indications of which they become aware to the following parties:
· Assistant City Manager
. Audit Committee
· Internal Auditor
Page 17
City of Denton
Request for Proposals No. 3325 for Audit Services
Auditors shall assure themselves that the City of Denton's Audit Committee is
informed of each of the following, and any other item, as required by the regulatory
agencies noted above:
1. Difficulties encountered in performing the audit.
2. Disagreements with management.
3. Major issues discussed with management prior to retention.
4. Management consultation with other accountants.
5. Management judgments and accounting estimates.
6. Other information in documents containing audited financial statements.
7. Significant accounting policies.
8. Significant audit adjustments.
9. The auditor's responsibility under generally accepted auditing standards and
government auditing standards.
4.5 Preparation of Comprehensive Annual Financial Report
The Controller's staff prepares all information included in the Comprehensive
Annual Financial Report (CAFR). The auditor reviews this information and
approves it prior to printing. Because the CAFR must be released within six
months after the fiscal year end (March 31) to be eligible for the GFOA Certificate
of Achievement for Excellence in Financial Reporting, coordination of schedules
will be required between the auditor and the Controller during December and
January of each year. A listing of critical dates and the year-end close schedule
has been provided in section 6.0.
4.6 Special Considerations
I. The City of Denton will send its CAFR to the GFOA of the United States and
Canada for review in their Certificate of Achievement for Excellence in
Financial Reporting program. The auditor will be required to provide assistance
to the City to meet the requirements of this program.
2. The City will require the auditor's assistance to comply with reporting
requirements resulting from new GASB pronouncements. The specific level of
training and assistance the auditor will provide should be detailed in the
proposal.
Page 18
City of Denton
Request for Proposals No. 3325 for Audit Services
4.7 Review of Official Statements
The City currently anticipates it will prepare one or more official statements in
connection with issuance of debt that will contain the general-purpose financial
statements and the auditor's report thereon. The auditor shall be required, if
requested by the City, the fiscal advisor and/or the underwriter, to issue a "consent
and citation of expertise" and any necessary "comfort letters."
4.8 Special Projects
Proposers may be requested to provide other types of services, collectively referred
to as "special projects." Examples of such services include additional audits or
reviews, cost studies, and consulting services.
4.9 Regulation Updates and CPE Provisions
The auditor shall provide the City's Accounting staff with information relating to
regulation changes that would affect the City and its operation. Examples would be
timely notification of changes proposed or initiated by GASB, Financial
Accounting Standards Board (FASB), or General Accounting Office (GAO). Some
of the updates should provide the client with continuing professional education
(CPE) credit opportunities. This training can be in either the current issues, or
simply general training. It should provide the client with opportunities to remain
current or increase knowledge in governmental auditing/accounting, or related
areas.
5.0 Other Information and Requirements
5.1 Auditor Rotation
In accordance with City policy on external auditor independence, that is both in fact
and appearance, the City requires that proposals meet the following rotation
guidelines while providing services under this and future contracts:
I) Lead engagement partner, engagement partner and concurring partner will be
rotated off the City audit after seven consecutive years and not reassigned for
at least two years,
2) Audit managers and supervisors will be rotated off the City audit after five
consecutive years and not reassigned for at least two years, and
3) Senior auditors, lead auditors and staff auditors will be rotated off the City
audit after three consecutive years and not reassigned for at least one year.
Page 19
City of Denton
Request for Proposals No. 3325 for Audit Services
The purpose of this policy is not to mandate a regular rotation of audit firms, but to
ensure that auditor objectivity is not compromised through familiarity and to
maintain audit continuity. Proposals may suggest or require a more aggressive
auditor rotation.
5.2 Prior Audit
Subsequent to the contract award, arrangements shall be made, if possible, for a
review of prior year work papers by the firm awarded the contract. Proposers may
have access to prior years' audit reports if they wish, by contacting Stephen Nesbitt,
Controller, at (940) 349-7281.
5.3 Work Area
A separate workspace in close proxImIty to the accounting records will be
provided, as well as photocopy machines, phone and a fax machine. However, long
distance telephone calls or facsimile charges will be billed back to the auditor.
5.4 Audit Work Timing
Preliminary work, prior to closing accounts, must occur and be concluded prior to
August 30th of each year. Post-closing work may commence on or about
November 15th. Completion of fieldwork should be accomplished no later than
December 30th. Fieldwork will be considered complete when the auditor has made
all adjustments and trial balances are returned to the Controller for CAFR
preparation.
The date for release of the report for printing shall be no later than January 15th of
the respective year, after the end of fieldwork. At that same time, a draft
management letter should be delivered.
5.5 Contractual Agreements
The contract to be awarded shall be for the provision of services as requested herein
at the estimated fees submitted in the proposal for the first three and, if extended,
the fourth, and fifth subsequent years of the contract. This is considered an all-
inclusive, not-to-exceed fee estimate. The City shall agree to make interim
payments of the annual fee, based upon a percentage of work performed.
5.6 Working Papers
The firm selected shall maintain all working papers for a period of at least five
years after the auditor's report date. The auditor shall make available all original
working papers for examination by authorized representatives of federal and state
agencies, the City's Controller, the City Internal Auditor, the Public Utility
Page 20
City of Denton
Request for Proposals No. 3325 for Audit Services
Commission, and any other entity to which access has been granted in writing by
the City's Controller. In addition, the firm shall respond to the reasonable inquiries
of successor auditors and allow successor auditors to review working papers
relating to matters of continuing accounting significance.
5.7 Non-appropriation Provision
The City may cancel the contract should the present or any future City Council not
appropriate funds in any fiscal year for the payment of this agreement. No penalty
shall attach in the event of any such non-appropriation. In the event of non-
appropriation, the City shall give the successful proposer advance written notice
before cancellation of the contract, and the City shall not be obligated to make any
payments beyond the end of the fiscal year.
5.8 Equal Employment Opportunity
The proposer agrees that during the performance of its contract, it will:
1. Treat all applicants and employees without discrimination as to race, color,
religion, sex, national origin, marital status, age, or status under the Americans
with Disabilities Act.
2. Identify itself as an "Equal Opportunity Employer" III all help wanted
advertising or req uests.
3. The proposer shall be advised of any complaints filed with the City alleging
that the proposer is not an Equal Opportunity Employer.
In determining whether to terminate any portion of this contract, the City reserves
the right to consider reports from its Director of Human Resources in response to
discrimination complaints. However, the proposer is specifically advised that no
Equal Opportunity Employment complaint will be the basis for cancellation of this
contract.
5.10 Conflict of Interest
The proposer agrees to comply with the conflict of interest provisions of the City of
Denton Charter and Code of Ordinances. The proposer agrees to maintain current,
updated disclosure of information on file with the City of Denton's Materials
Management Office, throughout the term of this contract.
Page 2I
City of Denton
Request for Proposals No. 3325 for Audit Services
6.0 Listing of Timelines and Critical Dates
(Based on 2005 Year-end)
Date or Timeframe Activitv or Deadline
March 28 RFP mailed out
Apri I 8 Pre-proposal conference held
April 21 Deadline for submission of proposals
May 13 Evaluation of proposals; interviews with top firms, if necessary
June 17 Selection of firm and contract award
July Preliminary planning meetings and audit plan development
July - August Interim audit fieldwork
September 30 Fiscal year-end. All preliminary audit work should be
completed and auditors should withdraw from the field
October 14 Start of September close of JDE accounting system
November 14 Audit closing folders are available to auditors
November 14 -17 Auditors begin year-end work
December 16 Interim CAFR exhibits, notes, MD&A, transmittal letter and
statistical section provided to the auditors
December 28 CAFR draft delivered to auditors for review
December 30 All fieldwork should be completed
January 2-3 CAFR draft returned to the Controller with any corrections noted
January 6 Draft management letter, audit committee letter and single audit
reports due
January 10 CAFR taken to Reprographics for printing
January 13 CAFR completed
January 24 Audit reports presented to Audit Committee and Council
Page 22
Exhibit B
.I
¡
Submitted by:
KPMG LLP
717 North Harwood Street
Dallas, TX 75201
Contact:
Bill Hanley, Partner
214-840-2228
April 21, 2005
I
"
~~~
Executive Summary
Cover Letter
Firm Background, Principal Officers, Prior Experience and
Resumes of Assigned Staff
4
Firm Qualifications and Experience
9
Partner, Supervisory and Staff Qualifications and Experience
12
Similar Engagements With Other Governmental Entities
22
Scope and Audit Approach
26
Proposed Schedule
49
Additional Data and Other Information
50
Concluding Remarks
51
Appendix A: Peer Review
52
Appendix B. Sample Engagement Letter
54
Appendix C: Addendum No.1
69
Appendix D: Addendum No.2
72
l!I~~JI
I~:J
KPMG LLP
Suite 3100
717 North Hmwood Street
Dali". TX 75201.6585
Tolopho"e 21' 8402000
Fax 2148402297
lotemot wwwuskpmg,oom
April 21. 2005
Tom Shaw
City of Denton
Materials Management Office
901-B Texas Street
Denton, Texas 76209
Dear Mr. Shaw:
KPMG LLP is very pleased to present am proposal to serve the City of Denton (the City) as its independent auditor in
response to the Request for Proposal #3325. We appreciate the opporrnnity to be considered for this important assignment
and want to affirm our commitment of providing services to the City with the type of professionalism you expect.
We understand from the objectives of work in the Request for Proposal (RFP) that the City requires tbe following:
An audit of the City's Basic Financial Statements for the three fiscal years beginning October 1.2004 and ending
September 30, 2007 (with an option to review for two years).
Om audit will be conducted in accordance with auditing standards generally accepted in the United States of
America as set forth by the American Institute of Certified Pnblic Accountants and the standards applicable to
financial audits contained in Government Auditing Standards issued by the General Accounting Office.
. Perform an organization-wide Single Audit in accordance with OMB Circular A-133 and the Single Audit Act
Amendments, and issuance of all related reports.
. Issuance of a comprehensive management letter.
We have reviewed the level of requested services as discussed in the RFP and are fully committed to provide you with the
highest quality service within the time frarnes as established by the City. As a valued client of om firm, you can expect a
level of service that is second to none.
Outlined below are several key factors that we believe make KPMG the most qualified to serve the City. These factors
include:
. Om firm provides the name recognition and we have the national reputation in government that will give the City,
underwriters, and citizens confidence that it is being served by a leader in providing services to the public sector.
We audit Lubbock, Austin, and San Antonio which is more ciIies "ith electric utilities in Texas than any
other firm.
. An engagement team staffed entirely from om Public Sector line of business in Dallas, who devote 1 00 percent of
their time to the Public Sector.
!~I"~
.our in-depth knowJedge of the issues facing municipalities and utilities will be utilized to offer innovative
solutions to the City in a varicty of areas. KPMG audits eight of the largcst fifteen cities in Texas and five of the
largest ten cities in the U.S., and serves over 2,300 governments nationally.
Our track record of providing effective professional services io a timely manner.
An innovative andit approach that goes beyond the numbers and looks at the significant business processes that
drive the financial reponiag process and provides valuable continuous improvement recommendations
KPMG is the leader in the public services practice dne to our focus on the industry, inclnding the standards-setting
process. KPMG is ready to help the City meet the challenges of the 21st century.
Your proposed engagement partner is an active speaker, participant, and/or board member of key governmental
organizations, including GFOA, GFOAT, Southwest School of Governmental Finance, and North Texas
Commission, among others.
Your proposed engagement partner and manager are GFOA special review committee members in the certiftcate of
excellence program.
We will bring a fresh perspective to the engagement. Additionally, by using experienced governmental auditors
and risk advisory service professionals in the engagement, we will be able to provide recommendations to enhance
internal conttols and to suggest innovative ways for continuing improvement to the City's operations and systems.
Our proposed fee will be a fixed price for the service requested, assuming there are no regulatory scope changes arising
after the proposal is submitted. We commit to performing the scope of services outlined within your request for proposal
within the time period required and our proposal is valid for a minimum period of 90 days, subsequent to the RFP closing
date. If you should have any questions or would like additional information concerning this proposal, please call Bill
Hanley at 214-840-2228. We look forward to the opponunity to serve the City of Denton.
In closing, let us leave no question as to one crucial point: we want your business. We believe the opportunity to serve the
City of Denton - acting as true business partners with the fresh perspective only a new auditing finn can provide
- would be both professionally challenging and mutualJy beneficia! to both organizations. We assure you that KPMG is
eager to commit our incomparabJe resources to bring a new level of coordination, control and ideas to your organization.
Thank you very much for the opportunity to serve the City of Denton.
Very truly yours,
~~.
Bil1 Hanley, Partner
717 North Harwood Street, Suite 3100
Dallas, Texas 75201
2]4-840-2228
Firm Qualifications and Experience
KPMG LLP is the audit, tax, and advisory firm that has maintained a
continuous commitment throughout its history to providing leadership,
integrity, and quality. The major professional services firm with the strongest
growth record over the past decade, KPMG turns knowledge into value for
the benefit of its clients, people, cornmunities, and the capital markets. Its
professionals work together to provide clients access to global support,
industry insights, and a multidisciplinary range of services. KPMG LLP
Iwww.us.kpmg.comi is the U.S. member firm of KPMG International. KPIviG
International's member firms have nearly 100,000 professionals, including
6,800 partners, in 148 countries.
National Qualifications
The U.S. arm of KPMG is organized as a partnership and employs more than
18,000 people directed by 1,585 partners throughout 140 offices nationwide.
KPlvlG professionals distinguish themselves by their abiiity to understand and
solve their clients' unique business problems. Our knowledge is delivered
through lines of business. Like our competitors, KPMG offers clients
assurance, tax and management advisory services. The difference is in our
delivery.
KPMG's Southwest Area, headquartered in Dallas, includes 14 offices across
6 states. More than 180 partners and 2,350 employees serve KPMG clients in
Dallas, Fort Worth, Midland, Oklahoma City, Tulsa, Denver, Albuquerque,
Austin, Baton Rouge, EI Paso, Houston, New Orleans, San Antonio, and
Shreveport The Southwest Area's audit. risk advisory, and tax practices
experienced double-digit growth last year,evidence that KPMG is increasingly
the firm of choice for many of the most prestigious companies headquartered
in the Southwest KPMG's Dallas office opened its doors in 1915 and ranks
among the oldest and largest professional services firms in the city.
The Dallas office has nearly 70 audit and tax partners and more than 600
professionals serving publicly and privately owned businesses throughout the
Southwest. In addition to delivering audit, risk advisory, and tax services
designed to meet clients' needs, our Dallas office also provides assistance in
such areas as mergers and acquisition services, forensic services, private
client advisory services, and compensation and benefits. KPMG does not
offer internal audit outsourcing services to SEC-registered financial statement
audit clients. Your engagement team would be served by our Dallas
government practice.
Our commitment to client service, innovative performance improvement
solutions, quality control, technical research and professional training has
helped our clients improve their operations in several ways including
excellence in financial reporting, risk management, managed competition,
activity-based costing, enhanced service delivery, and reduced expenditures
Commitment to the Industry
KPMG was the first professional services firm to focus its resources on
understanding the unique challenges and issues facing the governmental
industry. Since the early 1960s, we have aligned our people and trained them
in the issues relevant to the industry. We keep them continuously abreast of
the changing regulatory, accounting and auditing developments impacting this
highly specialized and diverse industry through training programs, practice
meetings, and regular firm communications.
Today, our leadership is present in all aspects of the government Industry.
We continually develop innovative ideas that benefit governmental entities.
Our people strive to use their technical and professional competence to
provide our clients with the most value for the dollar. KPMG's experience
with governmental entities is demonstrated by our:
. Strength in government, business, and financial communities
. Recognition and presence in key markets
. Leadership roles in major developments regarding governments
. Visibility as spokespersons
. Extensive knowledge and experience in governmental accounting and
auditing
Our long-standing commitment to governmental entities enables us to
maintain the largest government practice of any Big Four firm, both nationally,
and more important to the City, right here in the Dallas/Fort Worth metroplex.
Our extensive experience in the government arena also enables us to offer
the broadest range of capabilities to meet all of the City's needs.
Leadership in Public Sector Auditing
KPMG's full dedication to serving the public sector is evidenced by its large
corps of skilled, experienced governmental assurance and advisory
professionals. KPMG is the only Big Four professional services firm to
have made government a key focus of our business. Our public sector
practice is one of five broad industry segments into which our firm has
aligned its resources. This means that the professionals in our public
sector practice focus solely on providing assurance and advisory
services to government and not-far-profit clients. In contrast,
professionals at other accounting firms might juggle audit work for a
municipality with audit work for a bank or an insurance company.
Our public sector practice serves more than 2,300 government clients
nationwide. We audit one-third of the nation's billion-dollar governments,
more than any other professional services firm. Last year, KPMG audited five
of the ten largest counties in the US., five of the largest ten cities, and in
Texas we audit five of the largest eight cities.
Cities
Akron Concord Independence Memphis San Antonio
Albuquerque Culver City Irvine Miami San Diego
Anaheim Dallas Juneau Midland San Francisco
Anchorage Detroit Kansas City Newport San Jose
Arlington Denver Knoxville New York Scottsdale
Atlanta Elizabeth Lake Elsinore Pasadena Shreveport
Austin EI Paso Lake Forest Phoenix Starnford
Boston Flint Laredo Pittsburgh Tampa
Burbank Fort Lauderdale Lebanon Plana Trenton
Burlington Fort Smith Lincoln Providence Wilmington
Carlsbad Fort Worth Long Beach Roanoke York
Chesapeake Greenwich Lowell Rochester
Columbus Harrisburg Lubbock SI. Louis
KPMG has long held a leadership role in the evolution of government auditing
(including the Single Audit) and government accounting. Because of our long-
term involvement in government, we can cite the following
accomplishments:
. A KPMG partner currently serves as a member of the American
Institute of Certified Public Accountants (AI CPA) Governmental
Accounting and Auditing Committee.
. A KPMG partner currently serves on the Government Finance Officers
Association's IGFOA) Standing Committee on Accounting, Auditing and
Financial Reporting.
. KPMG has over 40 members on the GFOA Special Review Cornmittee,
including your proposed engagement partner and manager, who are
thoroughly familiar with the most recent requirements of the program
and know the staff of the GFOA.
. KPMG's national task force responded to the GASB's proposed
guidance on the new Government Reporting Model. KPMG's national
team conducted a firmwide initiative to develop a GASB 34
implernentation program, known as GRIP, the Government Reporting
Implementation Process.
. A KPMG partner assisted in the development of the Yellow Book. This
document established generally accepted government auditing
standards. When the Comptroller General of the United States sought
to revise the Yellow Book, he established the Auditing Standards
Advisory Council (ASAC). A KPMG partner was involved in the latest
revision to the Yellow Book as a member of ASAC.
. KPMG Dallas also provides a two-day governmental accounting
and auditing update to its government clients free of charge.
Peer Review
In 1975, leading the way in our profession, KPMG was the first professional
accounting firrn to establish the process of peer reviews, setting the standard
for our profession. KPMG has had nine such reviews since we first undertook
this leadership role. Our most recent review was conducted in 2002.
In each case, KPMG received unqualified opinions, including specific
governmental engagements, on the overall conduct of our audit practice. A
copy of our most recent report on external quality control review is included
as an appendix to our proposal.
Additionally, KPMG has a professional practice program in which a review
team consisting of partners and managers from other offices perform a
review of the local office. As a part of this program, the Dallas office is
reviewed every three years. Our most recent review conducted in 2003 again
confirrned the high quality of our audit practice.
Due to the size of our government practice in Dallas, our government clients
are included each year. In last years peer review, the cities of Dallas and
Arlington were reviewed.
Included in Appendix A is a copy of our most recent peer review report.
Disciplinary Action
For the past three fiscal years, KPMG is not aware of any desk or field review
difficulties arising from the governmental audits performed by our Dallas
office. Accordingly, there has not been any disciplinary action taken, nor is
there any action currently pending against the Dallas office by federal or state
regulatory bodies or professional organizations.
Local Qualifications and Experience
KPMG currently audits five of the eight largest cities in the state of
Texas and eight of the largest fifteen. No other firm, whether National
or Local, audits more than three of the fifteen largest Texas cities. This
experience has allowed us to develop a detailed understanding of what is
required to perform a comprehensive audit for a Texas government. We
understand the complexity of the City's financial structure and its unique
needs. The City provides a full range of services including general
government, public safety (police and fire), streets, parks and recreation,
planning and zoning, code enforcement, and water and sewer and electric
utilities. We have the most relevant experience with governments in Texas.
The Dallas Office Government Practice
Management and execution of the City's audit will be handled from our Dallas
office. We think you will agree that KPMG offers the best overall value. Our
Dallas office public sector practice currently audits the following public
sector clients and has assisted the same local governmental entities in
obtaining their Certificate of Achievement for Excellence in Financial
Reporting from the GFOA as detailed below:
City of Arlington' ^13 years!
Collin County Community College District' ^ 13 years!
City of Carrollton' ^13 years}
Dallas Independent School District'^ 17 years!
City of Dallas' ^ 19 years!
Dalias County' ^ 15 years!
City of Lubbock^ 12 yearsl
City of Midland' ^ (16 yearsl
DFW International Airport' ^ 17 years)
North Texas Tollway Authority 151 years)
City of Frisco' ^ 13 years)
Southern MethodISt University^ 116 years)
City of Piano' ^ 15 years!
State of Arkansas 13 years!
City of Richardson' ^ 13 years)
Worksource for Dallas County^ 19 years)
Dallas HouSIng Authority' ^ 113 years}
. Maintaina Certificate of Achie,ement for Excellence in Financial Reporting Inumber of yea" se"ed as auditorl
^ Single Audit Perlormed
Clients gained in the last three years are noted above.
Current Auditors of the Largest 15 Cities in Texas
Population
Rank City Population Auditor
City of Houston 1,953,631 Deloitte & Touche
2 City of Dallas 1,188,580 KPMG
3 City of San Antonio 1,144,646 KPMG
4 City of Austin 656,562 KPMG
5 City of EI Paso 563,662 KPMG
6 City of Fort Worth 534,694 Deloitte & Touche
7 City of Arlington 332,969 KPMG
8 City of Corpus Christi 277,454 Collier, Johnson and Woods
9 City of Piano 222,030 KPMG
10 City of Garland 215,768 Deloitte & Touche
11 City of Lubbock 199,564 KPMG
12 City of Irving 191,616 KPMG
13 City of Laredo 176,576 Garza, Martinez & Co.
14 City of Amarillo 173,627 Ault & Co.
15 City of Pasadena 141,674 Mosher & Seifert
The Dallas office currently employs 640 professionals with a wide array of experiences
serving all industries. The breakdown by professional for assurance and tax
is as follows:
Assurance Tax Total
Partners 48 20 68
Managers 125 63 188
Staff Accountants 298 .Jill 384
Total Professionals 471 169 640
Our Dallas office public sector practice is comprised of individuals who devote
100% of their time to the local government practice. This practice is comprised of
two partners, seven managers, and twenty professional staff.
KPMG is the only firm to have dedicated partner and manager resources in
our Department of Professional Practice IDPP)in New York devoted solely to
the government practice. KPMG has three partners and four managers
responsible for disseminating current governmental accounting and auditing
issues to the local offices to ensure the quality and consistency in our
government practice. This group is utilized as necessary whenever needed by
the local offices for guidance on issues.
Organizational Structure
For the past several years, we have been asking clients what more can
KPMG provide to help them with their business decisions. We found out that
although the basics were sufficient everyone wanted more industry insight.
Their "businesses" needed and we learned what they wanted:
. Specific industry perspective of how they were performing within their
industry;
. New insights into drivers of better financial performance; and
. More value out of the basic audit process.
KPMG's public sector practice includes federal, state and local governments,
higher education, research centers, and other not-for-profit organizations. We
are the only professional services firm that has targeted these organizations
as a major focus of its business.
KPMG's commitment to government began shortly after our firm was
established. Since then, we have viewed service to government as significant
to the overall success of the firm. Today, government is one of the industries
that has been specifically identified for our continued growth in professional
services. Accordingly, all professionals, from entry-level accountants to
partners, who select government as their line of business are trained to
understand the issues and meet the needs of government entities.
Our leadership in serving government is well recognized and is rooted in our
long-standing commitment to helping government better serve the public.
Our goal is to help governments improve their processes and strategies so
that they can in turn achieve their goal of improving the lives of citizens. This
shared commitment to the goals of our clients has resulted in a significant
state and local government market dominance.
Because of this focus, we can provide a team of professionals who work full-
time with governments, like the City of Denton, and who have a clear
understanding of your public policy, public procurement practices, financial
management and reporting systems and practices, and is prepared for the
inevitable public scrutiny. Our public sector practice includes 120 partners and
managers and more than 900 professional staff who devote 100 percent of
their tirne to our clients. Our nationwide breadth of experience provides
instant access to a broad range of experience.
Our public sector practice is the second largest and the fastest growing area
of business in KPMG. In a highly competitive marketplace, KPMG enjoys a
30% overall market share in the government services industry.
We anticipate during the engagement having an in-charge accountant and
two staff accountants assigned full time for approximately two weeks in July
or August and for six weeks from the middle of November through the end of
December. The engagement partner and manager will spend approximately
20% to 25% of the engagement hours supervising and reviewing the audit,
as well as participating in all key meetings.
Partner, Supervisory and Staff Qualifications and Experience
Working with KPMG means no surprises, constant access to your
engagement team, unrivaled global resources on which to call, and
continuous interaction throughout the year. We pledge incomparable
services, and will deliver.
The quality of our services is directly related to the quality of the
professionals assigned to serve the City. We have selected an outstanding,
well-diversified engagement team with the combination of skills that best fits
the needs of the City. To ensure that our services fully meet your
expectations, we will make every effort to ensure the continuity of all the
professionals on your team.
To deliver our commitment to the City, we have identified and will make
available the full complement of KPMG's resources We have selected an
engagement team that will be responsive to all of the City's needs, consisting
of professionals with skills and experience in dealing with the issues you
face. Your engagement team will provide high-quality audit services and
business advice, and will ensure your service needs are promptly met. With
years of experience auditing municipalities (including the cities of Arlington,
Dallas, Lubbock, Richardson, Piano, Midland, and the state of Arkansas and
the state of Texas Single Audit among others) and knowledge of relevant
'issues, your team knows what needs to be done. As such, they will
expeditiously help to identify financial and operational issues and act on your
concerns. Resumes of the members of your engagement team are included
in the following pages.
Proposed City of Denton Service Team
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Engagement Team Responsibilities
A measure of a firm's ability to provide quality service is the cohesive way
their service teams work together. Every member of the service team has
been hand-picked to serve the City. To the City's benefit, this will translate
into a delivery of services characterized bV ready communication, clear
responsibility and planned coordination. A description of the principal duties
of the key members of the client service team follows:
Engagement Partner
Bill Hanley will serve as the City's engagement partner and has overall
responsibility for ensuring that all services provided are of the highest quality
and meet your needs and expectations. He ensures that proper
communication occurs between all professionals at KPMG and management
of the City.
Mr. Hanley is an audit partner in KPMG's Dallas office with 26 years of
experience serving governments, and is the partner in charge of KPMG's
public service practice in north Texas. Bill will be active in the engagement
supporting his manager with his technical expertise and knowledge of the
industry. He will be available to answer questions and consult on accounting
and reporting issues. The audit engagement partner has overall responsibility
for ensuring that financial audit services provided are of the highest quality
and meet your needs and expectations. Bill has the technical expertise and
ultimate responsibility for the audit engagement. He determines the content
of the accountants' reports to be issued and commits the firm to the reports
by signing the firm name, and is responsible for ascertaining that firm and
professional standards have been followed throughout the engagement. The
audit engagement partner's responsibilities include:
. Identification of critical audit and accounting areas and development of
an audit strategy for these areas.
. Determination of staffing requirements and timing of the various
phases of the engagement.
. Responsibility for resolving auditing and accounting questions
significant to the audit engagement.
. Responsibility for evaluating the adequacy of the audit work performed
which includes: approval of the audit program in the significant audit
areas early in the engagement; review of the key working papers in the
significant auditing and accounting areas; and approval of all other
sections of the audit program during and/or at the completion of the
engagement.
Concurring Review Partner-Quality Assurance
KPMG's quality control system requires that the financial statements be
reviewed by an experienced, industry-knowledgeable partner other than the
audit engagement partner to ensure that the firm, content and disclosures
reflect the latest developments in firm and professional standards. Kevin
Smith, the engagement partner for the Cities of Arlington and Plana, among
others, will serve the City in this capacity. He will be consulted as necessary
during the audit to ensure all requirements are met in an efficient, cost-
effective manner.
Risk and Advisory Services (RAS) Partner
Bob Glickert will serve as the Risk and Advisory Services partner, working
extensively with our assurance service team, gaining an understanding of the
technology risks faced by the City.
KPMG has vast experience evaluating how clients accumulate, distribute and
retain information. Around the world, we assist clients with strategies for
timely and cost-effective access to secure inforrnation.
Audit Engagement Senior Manager
.Angela Dunlap (13 years experience) will serve as the engagement manager
for the City and is responsible for supervising the professional personnel
performing the audit field work. She is also responsible for planning the audit
engagement in cooperation with the engagement partner and the in-charge
auditor, ensuring that all individuals involved in the engagement are cognizant
of the audit plan and supervising the successful execution of the plan. All
audit working papers will be reviewed by the engagementmanager.
In-Charge Auditor
The in-charge auditor, Karlllyn Jeffries, assists in the development of the
overall audit plan and is responsible for directing the day-to-day performance
of the plan. The in-charge auditor also Instructs and supervises the audit staff
assigned to the engagement, evaluates the adequacy of their work, and
reviews all working papers prepared by the audit staff. The in-charge auditor
will be on-site 100 percent of the time during the fieldwork portion of our
engagement. The in-charge and the staff will have attended all firm
government and single audit training.
Staff Auditors
j
Staff auditors work under the direct supervision of the in-charge auditor at all
times. They perform tests of the accounting records and other auditing
procedures as directed by the in-charge auditor. Professional staff members
are an important component of our client solutions team. They will be trained
in governmental accounting, and all assigned staff will have at least one year
of industry-specific experience. This facilitates a more efficient engagement
with less disruptions for your personnel and, accordingly, less" in-house
cost" for the services.
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Detailed resurnes of our engagement team lall are licensed in the state of
Texas or are pursuing their license), including the educational background,
professional licenses, government auditing experience, continuing
professional education and membership in professional organizations held bV
all kev personnel who will participate in the 2005 audit of the CitV follow. All
members of the proposed engagement team have received the required
continuing professional education in governmental accounting and auditing
for the last three vears.
Bill Hanley
Audit Engagement Partner
Position
Bill Hanley is an audit partner in the Public Sector line of business in the
Dallas office of KPMG and is the Partner in Charge of the firm's North Texas
Public Sector practice. He is a member of the firm's Professional Practice
Review team (peer review) and is also a director of the firm's government
local consulting practice, which provides activity-based costing, performance
budgeting, performance audits and indirect cost and user fee consulting
services to state and local governments. He is also a special review
committee member in GFOA's Certificate of Achievement for Excellence In
Financial Reporting program.
Relevant Experience
Bill has rnore than 26 years of professional experience serving such
governmental entities as:
City of Arlington
City of Aurora, CO
City of Azle
City of Carrollton
City and County of Dallas
City of DeSoto
City of Fort Worth
City of Frisco
City of Grand Prairie
City of Irving
City of Lubbock
City of Mansfield
City of Midland
City of Piano
City of University Park
Citv and County of Denver, CO
Collin County
D/FW International Airport
Dallas Housing Authority
Dallas Independent School District
Dallas Urban League
Galveston Housing Authority
Grand Prairie Independent School
District
HEB Independent School District
Irving Independent School District
North Central Texas Council of
Governments
North Texas Tollway Authority
State of Arkansas
State of Texas Single Audit
Washington, D.c. Housing Authority
Worksource for Dallas County
Professional Activities
. American Institute of Certified Public Accountants
. Texas, Arkansas, and Washington Society of Certified Public
Accountants
. Government Finance Officers Association - special review member in
Certificate of Excellence in Financial Reporting Program
. Association of Government Accountants
. GFOA - Certified Governrnent Financial Manager
. Southwest School of Government Finance - Advisory Committee
. Greater Dallas Chamber - Government Relations Advisory Committee
. North Texas Commission Board member
. Various other civic and professional organizations.
Education
Texas Tech University, B.BA, Accounting
Texas Tech Distinguished Accounting Alumnus - 2005
Continuing Professional Education
Bill obtained 192 hours of CPE during the triennial period ended
Deçember31 , 2004. During this period he has attended or instructed
96 hours specific to governmental accounting and auditing.
License
Certified Public Accountant licensed in the states of Texas, Arkansas,
Washington, and Colorado.
Kevin Smith
Audit Partner
Relevant Experience
During his 13 years with KPMG, Kevin has had extensive experience
providing accounting, internal control, and business advice to organizations in
a broad range of industries, with particular ernphasis over the past eight years
to large state and local governrnents, colleges and universities, and not for
profits. Additionally Kevin has provided training to both local and national
clients, as well as serving as a National Instructor within KPMG, as a speaker
for various state GFOA and AGA conferences, as well as an instructor at the
Southwest School of Government.
Dallas County
City of Arlington
City of Carrollton
City of Dallas
City of Frisco
City of Piano
Collin County Community
College District
Dallas/Fort Worth International Airport
Education
Meadows Foundation
North Texas Higher Education
Authority
North Texas Tollway Authority
Oklahoma Christian University of
Science and Arts
State of Arkansas
University of Oklahorna
Kevin received a B.BA from East Central University, Ada, Oklahoma. He is a
member of the American Institute of Certified Public Accountants.
Bob Glickert
Partner, Information Risk Management
Position
Bob Glickert is the partner-in-charge of the Risk Advisory Services (RAS)
practice for KPMG's Southwest Region and is based in the Dallas office. He
has over 28 years of experience in information technology based solutions for
large entities with a primary emphasis on the public services.
Relevant Experience
Bob specializes In the review, design, development and implementation of
large information systems. He has experience in information technology risk
management including business continuity planning, independent quality
assurance, and security.
Bob was responsible for the implementation of the Colorado Department of
Education's School Accountability Report and website. This progressive
project involved evaluating and reporting the performance of all public schools
within the state of Colorado. The website is used to provide this data to the
citizens and has been rated one of the best in the country. In the same way,
he was responsible for a project for the Louisiana Technology Park to develop
the business processes around a new High Technology Business Incubator.
This incubator will serve developing high-technology companies and serve as
a major source of economic development for the state and was also the
partner responsible for the development of web-based applications in
conjûnction with the implementation of financial systems for a large federal
agency. The applications included procurement (requisition submission),
travel processing, and employee time reporting. In addition, served in a
quality assurance role on a number of large system implementation
engagements. In this capacity he reviewed project status, assessed project
plans, and evaluated areas of risk. A representative list of clients follows:
California Department of Transportation
City of Mesquite
Mississippi Department of Transportation
Sacramento County, California
Santa Clara County, California
State of Colorado
State of Oregon
State of Texas
State of Washington
Texas Department of Criminal
Justice
State of Kansas
Texas Legislative Council
Texas Rehabilitation Comrnission
Angela Dunlap
Senior Manager
Position
Angela is a Senior Manager In the Public Sector line of business of KPMG's Dalias
office
Relevant Experience
Angela has more than 13 years of experience serving governmental, higher education
and nonprofit entities such as.
American Heart Association, Inc.
City of Arlington
City of Dalias
City of EI Paso
City of Fort Smith, AR
City of Fort Worth
City of Mesquite
Qualifications
Has taught many government and not-for-profit training prograrns iocaliy
. Reviewed GFOA Certificate of Achievement for Excelience in Financlai
Reporting for CAFR submissions
. Treasurer for national not-for-profit organization
Education
Angela received a B.B.A in Accounting frorn Baylor University.
Continuing Professional Education
Angela obtained 184 hours of CPE during the triennial period ended
Decernber 31,2004. She has completed 86 hours specific to governmental
accounting and auditing.
License
Certified Public Accountant licensed in the state of Texas.
Karmyn Jeffries
Audit Engagement In-Charge
Relevant Experience
Karmyn has been at KPMG for three years working primarily on state and
local governments and not for profits. Karrnyn has also had experience with
healthcare, higher education and retail, including the following clients:
City of Fort Worth
City of Dallas
City of Fort Smith
City of Coppell
City of Desoto
Collin County Community College District
American Heart Association
Dallas Housing Authority
Southwest Diagnostic Imaging Center
Brazos Restaurant Acquisition Corporation
Râve Motion Pictures
Education
Karmyn received a B.BA degree from Prairie View A&M University, Prairie
View, Texas.
Similar Engagements With Other Governmental Entities
The following roster provides a partial list of governmental engagements
reflecting the most significant local audit engagements performed in the last five
years that are similar in nature to the City.
Audit Partner! Principal Client Telephone
Engagement Manager Contact Number
(includes Single Audit)
City of Dallas Bill Hanley Dave Cook (214) 670-3659
1991-1995and Angie Dunlap Chief Financial
1998 to present 12,800 hours) Officer
City of Fort Worth Bill Hanley Judy Walton (817) 871-8334
1993 to 2003 12,000 hours) Angie Dunlap Chief Accounting
Officer
City of Lubbock Bill Hanley Jefí Snyder (806) 775-2161
2003 to present 11,600 hours) Travis Hunter Controller
City of Arlington Kevin Srnith Donna Swarb (817) 459-6301
2002 to present (1,000 hours) Chris Lane Finance Director
DFW Airport Kevin Smith Rob Darby (214)574-1211
1999 to present (900 hours) Angie Dunlap Director of Audit
Services
City of Piano Kevin Srnith John McGrane 1972) 941-5233
2000 to present Debbie Rollins Chief Financial
Officer
City of Richardson 8ill Haniey Rosie Vela (972) 744-4144
2002 to present 1650 hrs) An9ie Dunlap Director of Finance
City of Frisco Kevin Smith Nell Lange (972) 335-1695
2002 to present 1400 hrs) Chris Lane Director of
Finance
City of Carrollton Kevin Smith Parn Hodges (972) 46&3113
2003 to present (400 hrs) Chris Lane Controller
Assignment of Auditing Staff and Changes in Assigned Staff
While we understand our clients' concerns about continuity, we also
recognize that we have a responsibility to ensure that all professionals
serving our clients remain independent and motivated. Therefore, KPMG has
established length-of-service guidelines for all of our clients. Currently, length
of service for professionals serving our clients is limited by level of
responsibility, as follows:
Maximum Years of SelVice
Engagement Partner 10
Engagernent Manager 7
In-Charge Accountant 3
Every effort will be made to preserve staff continuity and to provide for a
smooth transition when individuals are promoted or if they leave our employ.
Accordingly, when change is unavoidable, new professionals will be
introduced to you as far in advance of the change as possible, so that the
transition can be made without disruption and with no loss of audit efficiency.
We will present any proposed substitutions to the Controller for the City's
approval.
We offer our assurance that, in Dallas, there is a strong resource base of
KPMG public services professionals, each with qualifications similar to those
of your service team members. You can be assured of being served by only
experienced public sector professionals. As such, if necessary, any of your
team members could be replaced by these highly skilled professionals over
the term of the agreement, yet the quality of the team members and service
provided will not change. Because of the depth of our government
experience, the City is assured of having qualified professionals serving your
engagement through the term of the contract.
KPMG rotation policies for the City of Denton will conform to those
recommended by the City in Addendum 2 to the proposal.
Scope and Audit Approach
Scope of Service
We understand that the objectives of work include the following:
. Audit of the City's Comprehensive Annual Financial Report (CAFRI
and issuance of an independent auditors' report to be printed in
January.
. Performance of an organization-wide single audit, in accordance with
Single Audit Act Amendments of 1996 and OMS Circular A-133,
"Audits of State and Local Governments, and Non-Profit
Organizations," delivered no later than the middle of January.
. Development of a comprehensive management letter, delivered no
later than the middle of January.
. Performance of agreed-upon procedures related to coverage
requirements in connection with the sale of debt securities, as
requested.
. Discussion of findings and recommendations with appropriate City
officials and staff.
. Submission of the final audit report and management letter directly to
management and the Audit Committee, including all requirements of
Statement on Auditing Standards No. 61
The scope of our work will include:
. Conducting the audit in accordance with auditing standards generally
accepted in the United States of America (GAAPI and the standards
applicable to financial audits contained in Government Auditing
Standards issued by the Comptroller General of the United States
(GAGASI
. All matters relating to the fiscal affairs of the City within the framework
of the accounting and legal requirements for the City of Garland
. A review, analysis, and evaluation of the City's financial accounting
systems and internal control and a management letter on findings and
events of noncompliance
. A determination of year-end plan of work, including the preparation of
audit programs identifying year-end audit procedures
In accordance with the auditing standards of the cognizant federal or state
agency or in accordance with other applicable standards, we will select the
necessary procedures to test compliance and to disclose noncompliance with
specified laws, regulations and contracts.
Of course, the primary purpose of an audit is to report (express an opinion! on
the fair presentation of the CAFR in accordance with GAAP. Such an audit is
subject to the inherent risk that errors or irregularities that indicate material
errors or defalcations or significant noncompliance may exist, which would
require extended audit services. KPMG would immediately notify the
Controller todetermine what further procedures or direction is required.
Risk-Based Audit Approach - A Solid Foundation
Business Measurement Process (BMP) is KPMG's proprietary audit
methodology and serves as the foundation of our financial statement audit It
is designed to swiftly incorporate all relevant regulatory developments as
they emerge. BMP takes the focus of an audit from the balance sheet and
places it where it needs to be-on your business objectives and strategies, the
significant risks that impact them, and the key processes that manage those
risks. We take a top-to-bottom look at your entire business and the market
and regulatory environments in which it operates.
An Audit for Today's Business
Our audit approach is based on one simple premise: in order to assure the
viability of key financial information, as your business responds to a rapidly
changing environment, so too should your auditor. Audit risk is no longer
found solely within the confines of a financiál statement. It is now often
found in the form of business risks that threaten an organization's ability to
meet its goals. To be valuable to the City's rnanagement, an audit should
consider forward-looking trends in order to properly attest to the City's
financial statements.
KPMG's audit approach addresses the City's risk environment in the context
of its businesses. The process is designed to move information strategically
through an engagement-not just perform audit tasks to merely validate
client-generated numbers. Our audit is forward-looking because it assesses
the financial and nonfinancial performance indicators that drive your business.
And our audit adds value because we are in a position to offer ideas for
improvement.
Why a BMP Audit is Better
BMP transforms the traditional, cornpliance-driven audit process by creating a
framework to assess how a client's business risks are managed. You benefit
from BMP because this approach allows us to gain a thorough understanding
of the City's business, including its strategies, business risks, and the
process that manage them - resulting in an effective and efficient audit for
you. BMP focuses on critical success factors and key performance indicators
that drive your organization, and positions us to add value through the audit.
----
Traditional Audit vs. KPMG Audit Approach
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Focus Bottom-Up Look at Top-Down Look at
Financial Statement Total Business
Approach Transaction Based. Risk-Based with Year-
Year-Elld Auditing Round Service
Cornmunication Periodic, Mostly Formai Frequent. Formal and
Informal
Team Functional. Pmnanly Integrated and
Assurance Multidisciplinary
KPMG clients have consistently praised our risk-based approach. In fact,
several of our clients, including General Electric, have embraced this
methodology in developing their own internal audit strategies and
approaches
City of Denton Business Model Profile
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To leverage our knowledge, we focus on the strategies, processes, and
controls related to the City's business, updating and analyzing your. business
model which represents the foundation for a value-added audit. This model,
shown above, enables us to help identify and assess risks that may threaten
the City's objectives and suggest ways to strengthen your control
environment and leverage improvement opportunities The model is a tool for
assessing risk and ensuring the efficient flow of client-specific information
throughout the audit process.
Our ability to deliver our risk-based audit is directly related to the skills of the
team members. Without the structure of an industry-focused firm, we could
not have created our audit approach. We have taken our industry focus one
step further by creating a new team structure. Audit teams are
interdisciplinary and each attends formal team training as they prepare for an
engagement. We work smarter by eliminating low-value work and focusing
on areas with greater risk and potential rewards. Your engagement team will
bring capability, knowledge, insight. and technology to the City's audit.
The Benefits of a Risk-Based Audit
As a result of our Industry focus and our technology-enabled access to relevant
information on a timely basis, the City can expect the following benefits through the
audit process.
Business risk focus - The risks and regulatory exposures that affect a business
- and should influence management's decisions - can have a significant
irnpact on your financial statements and financial reporting controls. Thus, It is
crucial that we understand these risks and how they are managed as part of
our audit Our approach identifies, documents, and analyzes the key processes
you have put in piace to manage those strategic business risks that are relevant
to the audit. By considering the risks inherent in those processes, and testing
the effectiveness of the substantive components of your internal controls that
should be in place to rnanage them, the audit can provide valuable feedback to
you.
. Value-added advice - Our approach enables us to offer sound business advice
based on best practices and industry-specific knowiedge. Using a cornbination
of technology tools and our Iine-of-business structure that focuses on key
industries, our teams are armed with relevant buSIness information. During our
audit, we look at your markets, products and services, alliances, business
structure, philosophy and operating style, communications, information
systems, regulatory compliance posture, and financial reporting environment,
as well as your objectives and strategies. We can provide feedback and
guidance on best practices and industry trends to the City by leveraging our
industry knowledge and experience as we perform our audit.
. Efficient, effective audit -In order to help auditors in attestation procedures,
you often have to expend time and resources on activities such as pulling
invoices or answering detailed historical questions that are of Ilrnited benefit to
you in terms of cost-efficiency. Since our approach focuses on a business's
wealth-creating processes and the potential risks and regulatory exposures that
stand in the way, rnany of our procedures are directed to those processes that
have strategic importance to your operations.
KPMG's Audit Methodology
The elements of our specific, risk-based audit are outlined below:
. Strategic analysis - Using our industry experience and knowledge of
best practices, our multidisciplinary engagement team gains a thorough
understanding of your business, the external forces that influence your
business, and your internal business processes to consider what might
impact your business strategies. The starting point of this analysis is
understanding the risks and processes associated with the City's
Strategic Plan. Working with you, we evaluate strategic business risks
and regulatory challenges in order to assess their significance to your
business and their potential financial statement effects. We then
analyze both of the key processes you have in place to manage these
risks and the procedures used to record significant classes of
transactions.
. Process analysis - We document and understand your key business
processes by evaluating the risks embedded in these processes and
the business and financial controls in place to manage them. These'
controls not only include the traditional, such as segregation of duties,
approvals, authorizations, and reconciliations, but also may include EDP
based controls and higher level controls. We decide on audit objectives
associated with these process level risks and assess the risk of
significant misstatement in your financial statements for each audit
objective. We test controls throughout the period under audit to help
eliminate last minute surprises and help to reduce the amount of
period-end auditing required.
. Substantive procedures, evaluation and reporting our findings - In this
phase, we perform detailed, substantive audit procedures as planned,
identify and investigate audit differences; evaluate findings; forrn our
audit opinion, and report our findings.
Rather than being a rigid, linear process, our audit workflow serves as a guide
to our approach, allowing our engagement team the flexibility and creativity to
use their professional judgment as to how best to complete the audit. In this
manner, our engagernent team develops audit objectives and performs audit
procedures that are the most efficient and effective use of our time - and
yours.
What differentiates our approach?
First. it evaluates processes rather than transactions. Second, it is based on
our in-depth understanding of the City, which encompasses the information
you use to operate and manage. With our fresh approach, we will continually
reevaluate your business and adapt our audit processes to assist the City in
meeting its goals. In addition, technology and benchmarking data will
continue to provide us with new methodologies Our approach can be
summarized as:
. Increased reliance on higher level management controls
. Increased utilization of technology
. Understanding of the numbers leading to reduced examination of
documents
. Extensive review of computer systems and internal controls
. Keyed on business/industry issues and solutions
. Utilization of high assurance analytical review procedures
As auditors and business advisors, we must be aware of all activities that
relate to your business plans and we must understand how internal and
external forces affect those plans and your financial statements. With this
knowledge, KPMG is able to view the engagement frorn your perspective,
focusing on the issues that have operational significance and extend to your
financial reporting.
Harnessing Knowledge to Benefit the City
Our ability to analyze your business dynamics and offer meaningful insight
and advice is rooted in our industry knowledge and experience, KPMG's 100.
plus year history serving governments and our extensive experience serving
multiple North Texas governments have culminated in a thorough
understanding of an entity's financial situation similar to the City's,
A Snapshot of KPMG's Audit Methodology
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With its digitized, connected workspace, Vector provides Qur engagement
team with a technology tool that makes our service delivery more effective
and elirninates distance as a barrier to the completion of an efficient,
consistent, and highly effective financial statement audit
Vector also provides value for the City with the integration of industry
business models and industry analysis reports prepared by Standard &
Poor's. This helps us understand the City's business environment and
external forces as well as leverage this knowledge into the audit workflow.
The benefits are:
. the delivery of relevant best practice industry information against which
to measure the City's performance in the context of the audit activity
being performed
. the ability to leverage KPMG's experience in the City's industry and
place it in the hands of the professionals who are providing the
services.
With Vector, the City will receive exceptional, consistent service as well as
the added value expected from a world class, international organization like
KPMG.
KPMG Sampling Techniques
Audit sampling involves the application of audit procedures to less than 100%
of the items within an account balance or class of transactions to enable the
auditor to obtain and evaluate audit evidence about some characteristic of the
items selected to form or assist in forming a conclusion concerning the
population.
KPMG Sampling Plan
When planning a particular sample for a substantive test, we consider the:
. Relationship of the sample to the relevant audit objective
. Preliminary judgments about materiality levels
. Our allowable risk of incorrect acceptance
. Characteristics of the population
The KPMG Sampling Plan is a nonstatistical representative sampling
approach. The main features include:
. Selecting physical items, such as receivables balances or individual
invoice amounts
. Selecting the sample in a haphazard manner
. Setting an expected misstatement in the population of one third of our
planned audit precision
. Projecting the known misstatement on a nonstatistical basis
The above relates to audit sampling for substantive tests. KPMG has
additional guidance On sampling Sizes for Single Audits, as discussed on
pages 42 through 43, which do meet compliance with federal and state
agencies. Our sampling methodology has been reviewed by federal and state
agencies and has been determined to be acceptable.
In addition, KPMG has developed sample sizes for controls testing, which
vary depending on how often the controls being tested occur and how
effective the controls are operating. For example, a daily manual control
requires a sample size of thirty items and a monthly control requires a sample
size of two. To the extent that the controls are not being followed by the City,
the sample size is required to be expanded and additional work is required to
be performed.
Analytical Procedures
We apply analytical procedures:
. To assist in planning the nature, timing, and extent of other auditing
procedures
. As an overall review of the financial information in the final review
stage of the audit
Analytical procedures may also be applied as a substantive test to obtain
evidential rnatter about a particular audit objective.
Analytical procedures are the analysis of plausible relationships among both
financial and nonfinancial information. They include the investigation of
fluctuations and relationships that are inconsistent with our expectations.
Analytical procedures are the application of one or more of the following
techniques:
. Inspecti,?n
. Observation
. Enquiry and confirmation
. Computation
In the KPMG audit, we perform analytical procedures to:
. Obtain an understanding of the potential financial statement effects of
business risks and classes of transactions
. Develop audit objectives
. Make preliminary assessments of the risk of significant misstatement
for each audit objective
. Obtain audit evidence, by performing the analytical procedures as
substantive procedures, as appropriate
. Help form an overall conclusion as to whether the financial statements
as a whole are consistent with our knowledge of the business
During the 2005 audit, our analytical procedures will conform to the Analytical
Review Procedure Audit Guide issued by the AICPA.
Internal Control Structure
KPMG will take a systems-based approach and during our strategic and
process analysis will identify and document the City's internal controls over
its core processes through discussions with key personnel familiar with the
core processes. KPMG will identify within each core process the process
level business risks iPLBRs) and significant classes of transactions (SCOTs!
and identify and document the controls around the PLBRs and SCOTs. KPMG
will then test controls to ensure that they are appropriate and functioning as
designed.
Reporting Matters
The following steps ensure that the reports issued by KPMG and the City are
professional, accurate, and appropriate:
. Review drafts of the financial statements and compare amounts and
disclosures to audited information.
. Complete the firm's required disclosure checklist for review of
completeness of the financial statements and complete GFOA review
for Certificate of Achievement for Excellence in Financial Reporting.
. Accumulate comments for management letter.
. Continue to evaluate the financial reporting entity to ensure the proper
identification of all component units under Governmental Accounting
Standards Board Statements No. 14 and 39.
. Second partner concurring review performed an all attest reports
issued and in-depth review of the Single Audit workpapers by a second
partner.
The Single Audit
We also recognize the unique attributes and the significance of related
testing for federal and state grant funds. In this segment, we will perform the
procedures required by OMB Circular A-133 and the State of Texas Uniform
Grant Management Standards. We will build on the procedures already
performed during the internal control and financial audit segments.
We have developed a tailored approach to meet the requirements of the
Singie Audit Act, an approach that is the result of experience and learning.
Our firm has completed the largest single audits since the single audit
requirements were enacted in 1984. Our experience includes the statewide
single audits of Texas, New York, Vermont, and South Carolina, and the cities
of Dallas, Fort Worth, New York, Los Angeles, Chicago, and San Francisco.
Compliance Requirements
The Compliance Supplement identified the following 14 types of compliance
requirements that the auditor's opinion on compliance will address for each
rnajor program.
. Activities allowed or unallowed
. Allowable costs/cost principles
. Cash rnanagement
. Davis-Bacon Act
. Eligibility
. Equipment and real property management
. Matching level of effort, earmarking
. Period of availability of federal funds
. Procurement and suspension and debarment
. Program income
. Real property acquisition/relocation assistance
. Reporting
. Subrecipient monitoring
. Special tests and provisions
In performing the single audit, the focus is on testing those compliance
requirements that are material to the program. A compliance requirement is
considered material if failure to comply could result in financial sanctions
which are rnaterial to the program. Material compliance requirements are
identified in the OMB Compliance Supplement. Other requirements are
obtained through review of grant agreements, the Code of Federal
Regulations, and other sources. Only those requirements considered to be
material are subject to testwork. The requirements applicable to each major
program will be documented and tested using our five-step approach
described on the following pages. We are the only firm that has this highly
tailored approach to documenting single audit testwork.
Step 1: Obtain an Understanding. We will obtain an understanding of the
procedures and controls in place to ensure compliance with the requirernent
by performing the following:
. Interviewing key department/program personnel responsible for
administering the program in relation to the requirement.
. Performing a walk-through of a sample of transactions through the
system to determine the operation of the system and controls.
. Reviewing existing department-prepared system documentation and
manuals, if applicable
Step 2: Document Our Understanding. After completing Step 1, we will
document the process and controls identified through the use of narratives.
Directed narratives are a proprietary format developed by KPMG specifically
for the single audit. Our extensive use of microcomputers for preparation
and storage of all documentation reduces the effort necessary in this
process.
Our experience in preparing directed narratives enables us to focus on
procedures and controls relative to the compliance requirements being
tested.
Step 3: Conclude on the Adequacy of the System Design. This is the most
subjective of the steps in our process. Based on the information obtained
and documented in Steps 1 and 2, a conclusion is reached as to whether the
effectiveness of the design of the internal controls is sufficient to ensure
compliance. If the design of the controls is considered sufficient, Step 4 is
performed. If the controls are not sufficient, the reportabie condition is
documented, Step 4 is bypassed and Step 5 is performed.
Step 4: Test Established Controls. If the design of the internal control
structure is considered adequate, we are required to obtain evidence about
the effectiveness of the controls. The evidence will be obtained from
interviews, observations, inspections of documents, records and reports,
and/or performance of control procedures.
Step 5: Test for Compliance with the Requirement. The final step is to
test for actual compliance with federal regulations. Even if internal controls
are determined to be adequate and functioning properly in Steps 1 through 4,
instances of noncompliance may need to be included in our Single Audit
report.
in recognition that testing of internal controls and compliance is often
interrelated, we have also implemented a procedure called "dual purpose
testing" to utilize one sample of transactions to test for both compliance and
operation of internal controls.
In determining sample sizes for testing, we have implemented a tailored
approach to our testwork. In determining the number of items to be tested,
we consider such factors as the dollar value of the total population, the
number and size of individual transactions, inherent risk and internal control
risk. By carefully considering all of these factors, optimal sample sizes can be
determined. Our sampling technique can also be used for testing compliance
requirements that do not have a related monetary value. Substantive sample
sizes are selected utilizing KPMG's methodology, which considers the
internal control structure and results of other audit tests.
Inherent in the use of sampling is ensuring sample items are selected in a
manner that results in the sample being representative of the population. It is
essential all items in the sample have an opportunity to be selected. Once our
sample size has been determined and our population has been defined, the
sample will be selected. Based on the characteristics of the population, the
sample will be selected in one of the following three general categories of
representative selection methods: haphazard, systematic and random. Our
sampling methodology has been reviewed by federal agencies and has been
determined acceptable.
KPMG's Single Audit Tool
The KPMG Single Audit Tool (KSAT) further enhances our single audit
approach. KSAT is a Microsoft Excel-based tool which automates the
planning of a single audit by leading the user through a process designed to
assist in determining the following:
. Low-risk auditee status
. First-year audit status
. Type A and Type B programs (with and without loans!
. Clusters
. Risk assessments for Type A and Type B programs
. Major programs
. Percentage of audit coverage
. Compliance requirements that could have a direct and material effect
on each major program.
KSAT also has several built-in validation features designed to eliminate certain
"fatal flaws" in planning a single audit. In addition, KSAT's standardized
documentation easily facilitates manager and partner review of single audit
workpapers.
KPMG's Single Audit Manual
One Df the key differentiators of KPMG's approach to single audit
engagements was the creation of the Single Audit Manual, which defines for
KPMG professionals the policies for single audits and program-specific audits
performed in accordance with Office of Management and Budget 10MB)
Circular A-13], Audits of States, Local Governments and NDn-Profit
Organizations, and provides guidance on applYing those policies.
Federal Financial Reports
Because the federal government relies on reports submitted by local
governments, the testing Df federal financial reports is Dne of the most critical
procedures performed in the course of the single audit. Procedures for
reviewing federal financial reports include'
. Determining the process for preparing the reports and identifying
sources Df expenditure data included on the reports
. Testing the reports for mathematical accuracy
. Tracing significant amounts included in federal financial reports to
supporting documentation to test for accuracy of preparation
. Concluding on whether source documentation appears appropriate.
. This testwork also serves as a control to help ensure that we have
appropriately subjected sources of expenditures reported to allowability
testing.
Transaction Testing
In performing our audit, we are required to gain evidence that expenditures
charged to programs are allowable under federal regulations Departments
generally have unique systems to determine the amount of costs to be
charged to federal programs. Therefore, in testing for allowability, we will
develop tailored procedures at each department/program to test program
costs.
Personnel Services~ The common objective of these procedures at all
departments is to determine that costs were charged to the appropriate
benefiting programs, and that the individual time records are maintained in
accordance with OMS Circular A-87. We will select a sample of employees
and test the supporting records for each major program.
Other than Personnel Services -In order to determine the allowability of
direct costs other than personnel services charged to individual programs, we
will select a sample of such charges claimed as allowable for each major
program. A sample of items will be selected from each major program. Each
item will be tested for allowability under OMS Circular A-87 and any specific
program requirements that may apply.
Payments to Recipients -These payments will be tested to ensure
compliance with eligibility and allowability in accordance with applicable
requirements.
KPMG is clearly the leader in single audits. Our leadership is evidenced not
only by our experience but also by the commitment of our professionals and
the results of federal Quality Control Reviews (QCRs) completed for our
single audit clients.
Every single audit conducted by the firm is required to have an in-depth
review of the single audit workpapers by a designated OMS Circular A-133
reviewing partner unaffiliated with the audit. KPMG is the only firm with
this requirement and this shows the importance KPMG places on
maintaining compliance with laws and regulations.
Our estimate of level of staff and numbers of hours to be assigned to the
single audit is as follows:
Total Partner Manager In-Charge Staff &
Asst.
Single Audit 250 20 30 40 160
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Management Letter
The management letter should be considered one of the most important
services that should be provided to the City. The development of quality
comments IS an integral part of the audit process. The letter embodies
continuous improvement. It serves to explain weaknesses and or ideas for
improvement identified during the audit. If any conditions are discovered
which meet the definition of material weaknesses or reportable conditions,
KPMG will immediately report these conditions to the appropriate
representatives of the City and Audit Committee..
Commitment of Personal Time
The partner and manager will have significant involvement in the planning and
completion of the audit along with the supervision of personnel during the
audit. Senior and staff time will be distributed throughout all segments of the
audit.
Our Approach Emphasizes "No Surprises"
We believe KPMG's commitment to ongoing communication drives client
satisfaction. Through straightforward and continuous contact, we are able to
continually tailor our service, address critical issues quickly, and share timely
information about best practices and industry trends. And through a
combination of scheduled and informal dialogue, we will help ensure that you
encounter no surprises.
In order to provide a high level of service, we will follow a formal
communication plan. Some elements of this plan include quarterly meetings
with management, and updates on relevant accounting developments as they
arise. Some informal elements include our regular, on-site presence and
frequent interaction with your key people throughout the year. Moreover, we
encourage you to call us with any questions - at no charge.
Government CPE Training for City Staff
KPMG annually provides a two-day training seminar covering current
accounting and auditing changes at no cost to city employees.
Identification of Anticipated Potential Audit Problems
Other than additional refinements related to GASB Staternents Nos. 34, 37
and 38, we foresee no other difficulties in conducting the audit at this time.
This is based on our discussions with management regarding an adequate
internal control system, timely client-prepared schedules and reconciliations
and financial statements, and closing of the books by the City. During the
interim fieldwork, a schedule would be prepared by the City and agreed to by
KPMG to ensure no difficulties in our audit.
As a first-year client with KPMG, your first year financial statements will also
be reviewed by our Department of Professional Practice to provide additional
assurance that the financial statements conform to GASB 34.
Implementation of recent GASB's 40 through 45 are expected to take
additional time and those requirements and implementation issues will be
discussed with the City during our interim work.
Understanding of Work to be Periormed by Internal Audit
I KPMG proposes to utilize internal audit assistance for 200 hours in testing of
internal controls and slI1g]e audit testwork. However, we are willing to
discuss with internal audit what areas are the best fit for their assistance. We
anticipate the estimated hours for each segment of work will be 50-70 hours
for testing of internal controls in the areas of cash receipts, cash
disbursements, and 130-150 hours for Single Audit testwork for two major
programs. Controls testwork should begin around July 15 and conclude no
later than July 30. The single audit should begin around October 1 and
conclude no later than November 14.
We will review reports completed by internal audit and evaluate the amount
of reliance that can be placed on their work to allow us to determine the
nature, timing and extent of our work. To the extent possible, we will utilize
applicable work performed by internal audit during the year.
KPMG Continuous Audit Process Equals Continual Support
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We will make the process a continuous audit. Interim procedures would
begin as the previous audit ends with follow-up meetings to review status of
the findings and recommendations from the previous audit. The time
commitment on the audit of the City by classification is as follows:
~ Partners 9%
Managers 15%
II In-charge 32%
g Staff/Others 44%
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Proposed Time Frame
The following is an estimated time frame for the performance of the required
audits. We fully understand the flexibility required in working with you to
determine a mutually convenient time frame for conducting our audit
procedures. It is our intent to meet the timelines indicated in the RFP. The
dates listed below are in accordance with the RFP.
City's Audit
Contract Award
June 17, 2005
Preliminary planning meetings and audit plan
development
July 6, 2005
Interim Fieldwork - including singie audit
Final Fieldwork - Financial Audit
Completed by August 31, 2005
November 14,2005 to December 3D, 2005
Interim CAFR Components provided by City
Draft CAFR provided by City
December 16, 2005
January 2-3, 2006
Comments on draft CAFR, management letter audit
committee letter and single audit reports
January 6, 2006
CAFR Completed
January 13, 2006
Audit reports presented to Audit Committee and City
Council
January 24, 2006
Tirne Estimate by Segment
Fieldwork 70%
Reporting 20%
~ Planning 10%
Additional data and other information
Prospective Client Evaluation
In connection with the appointment to serve a new client, we are required,
under firm and professional policies, to conduct client acceptance evaluation
procedures prior to entering into a working arrangement. Such procedures,
which will vary depending on the circumstances, may involve requests for
references and inquiries with attorney or banking relationships and final
agreement on contract terms. We will accept appointment as your auditors
upon conclusion of these formalities.
Concluding Remarks
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Benefits to the City of Denton
:-1
In summary, we want to add the City to our distinguished client base and
below is a summary of the strengths that we believe KPMG brings to the City
of Denton.
11
, ;
. The City of Denton will receive excellent service from a focused team.
KPMG received "top honors in overall client satisfaction among Big
Four firms" according to a recent Independent study.
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, .
. The City of Denton will benefit from the experience of a national firm
committed to the government practice. KPMG is the market leader in
most public sector categories.
. The City of Denton will benefit from early problem identification and
resolution due to the heavy involvement of two partners and a senior
manager on the team. Your core engagement team brings more than
70 years of experience in local governments and are committed to a
20% to 25% partner and manager share of the total team level of
effort
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. The City of Denton will benefit from KPMG's insight and perspective
gained through auditing your peers in Texas. KPMG is the market
leader in serving Texas governments.
. The City of Denton will benefit from KPMG's proven responsiveness
throughout the year to your telephone calls and in resolving issues in a
tirnely manner. Your engagement partner and manager devote 100% of
their time to the public sector. They are available to meet your needs
throughout the year.
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f>R!CtWATfRHousE( OJPERS ri
PciccwaterhouseCoopers LLP
500 Campus Drive
P.O. Box 805
Flmh,m p"..;, NJ 07932
Telephone 1973) 236 7000
Facsimile 1973) 236 7200
To the Partners ofKPMG LLP
and the SEC Practice Section Peer Rcview Committee:
We have reviewed the system of quality control for the aceountmg and auditing practice of
KPMG LLP (the fiIl11) in effect for the year ended March 31, 2002. A system of quality control
encompasses the firm's organizational structure and the policies adopted and procedures
estabhshed to provide it with reasonable assurance of complying with professional standards.
The elements of quahty control are described in the Statements on Quahty Control Standards
issued by the American Institute of Certified Public Accountants (the AlCPA). The design of the
system, and comphance with it, are the responsibilities of the firm. In addition, the finn has
agreed to comply with the membership requirements of thc SEC Practice Section of the A]CPA
Division for CPA Firms (the Section). Our responsibility is to express an opinion on the design
of the system, and the nrm's compliance with that system and the Section's membership
requirements based on our review.
Our review was conducted in accordance with standards established by the Peer Revicw
ConTInittee of the Section and includcd procedures to plan and perform thc review that are
summarized in the attached description of the peer review process. Our review would not
necessarily disclose a11 wealmesses in the system of quality control or a11 instances of lack of
compliance with it or with the membership requirements of the Section since it was based on
selective tests. Because there are inherent limitations in the effectiveness of any system of quality
contr01, departures from the system may occur and not be detected. Also, projection of any
evaluation of a system of quality control to future periods is subject to the risk that the system of
quality control may become inadequate because of changes in conditions, or that the degree of
compliance with the pohcies or procedures may deteriorate.
In our opinion, .the system of quality control for the accounting and auditing practice of KPMG
LLP in effect for the year ended March 31, 2002, has been designed to meet the requirements of
the quality control standards for an accounting and auditing practice established by the A1CPA,
and was complied with during the year then ended to provide the fiIl11 with reasonable assurance
of complying with professional standards. Also, in our opinion, the firm comphed during that
year with the membership requirements of the Section in a11 material respects.
As is customary in a peer review, we have issued a Jetter under this date that sets forth comments
relating to certain policies and procedures or compliance with them. The matters described in the
letter were not considered to be of sufficient significance to affect the opinion expressed in this
report.
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October 28,2002
Description of the Peer Review Process
Overview
Member finns of the AlCPA SEC Practice Section (the Section) must have their system of
quality canITal periodically reviewed by independent peers. These reviews are system and
compliance oriented with the objective of eva1uating whether:
.
The reviewed finn' s system of quality control for its accounting and auditing practice has
been designed to meet the requirements of the Qua1ity Control Standards established by
the AICPA.
The reviewed finn's quality contTO1 policies and procedures were bcing complied with to
provide thc fIrm with reasonable assurance of comp1ying with professional standards.
.
The reviewed fmn was complying with the membership requirements of the Section in
all material respects.
The Section's Peer Review Committee (PRe) cstablishes and maintains review standards. At
regular meetings and through report evaluation task forces, the PRC considers each peer review,
evaluates the reviewer's competence and perfonnance, and examines every report, letter of
comments, and accompanying response from the reviewed fiTIn that states its conective action
p1an before the peer review is finalized. The Transition Oversight Staff (fOlmerly the staff of the
Public Oversight Board), an independent oversight body, p1ays a key role in overseeing the
performance of peer re,iews workillg closely with the peer review teams and the PRe.
Once the PRC accepts the peer review reports, letters of comments, and reviewed firms'
responses, they are maintained in a fi1e availab1e to the public. In some situations, the public file
a1so includes a signed undertakillg by the fiml agreeing to specific follow-up action requested by
the PRC. That file also includes the firm's annual report which contains information regarding
the number of firm offices, finll professiona1s, and SEC clients for which the fiJ111 is principal
auditor-of-record.
Planning the Review
To plan the review of KPMG LLP, we obtained an understanding of (1) the nature and extent of
the firm's accounting and auditing practice, and (2) the design of the firm's system of q;rality
contr01 sufficient to assess the inherent and contra! risks implicit in its practice. Inherent risks
were assessed by obtaining an understanding of the firm's practice, such as the industries of its
clients and other factors of complexity in serving those clients, and the organization of the finn's'
personnel into practice units. Control risks were assessed by obtaining an understanding of the
design of the finn's system of quality conlT01, including its audit methodology, and monitoring
procedures. Assessing contr01 rIsk is the process of eva1liaJing the effectiveness of the reviewed
finn's quality control system in preventing the pcrfonnance of engagements that do not comply
with professional standards.
Perfor,ming the Review
Based on our assessment of the combined level of inherent and control risks, we identified
practice units and selected engagements within those units to test for compliance with the finn's
quality control system. The engagements selected for review included audits of clients that are
SEC registrants, audits perfonned undcr the Government Auditing Standards, audits performed
under FDICL<\, multi-office audits, and aud¡(s of emp1oyee henefit plans. The engagements
sclected for review represented a cross-scction ofthe firm's accounting and auditing practice with
emphasis on higher-risk engagements. The engagement reviews included examining work paper
fi1es and reports and interviewing cngagement personnel. Vie also reviewed the supervision and
conh'o] of pOliions of engagements performed outside the United States.
The scope of the peer review a1so included examining selected administrative and personnel files
to determine compliance with the firm's policies and procedures for the elements of quality
control pertaining to indopendence, integrity, and objectivity; personne1 management; and
acceptance and continuance of clients and engagements. In add¡(ion, we tested compliance with
the membersliip requirements of the Section, including those pertaining to independence quality
conh'ols, concU1Ting partner review, and foreign associated firms.
Prior ta concluding the review, we reassessed the adequacy of scope and conducted an exit
conference with fmn management to discuss our findings and recommendations.
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(Sample Engagement Letter)
City of
AddressLinel
AddressLine2
AddressLine3
AddressLine4
Date
Attention:
, Chief Financia1 Officer
Financial Statement Au
Dear
This letter will confinn our understanding 0 '"
the City of , Texas (the.
We wil1 issue a written r
Appendix I.
on our audit of the City's financial statements as set forth in
We have a responsibi]jty to conduct and wiH conduct the audit of the financial statements in
accordance with auditiug standards generally accepted in the United States of America and the
standards for financial audits contained in Government Auditing Standards, issued by the
Comptrol1er General of the United States, with the objective of expressing an opinion as to
whether the presentation of the financial statements, confonns with accounting princip1es '
general1y accepted in the Uniled States of America.
In conducting the audit, we wil1 perfonn tests of the accounting records and such other
procedures, as we consider necessary in the circumstances, to provide a reasonable basis for our
opinion on the financial statements. We also wil1 assess the accounting principles used and
significant estimates made by management, and evaluate the overall financial statement
presentation.
Our alldit of the financial statements is planned and perfOlmed to obtain reasonable, but not
absolute, assurance about whether the financial statements are free of maleria1 misstatement,
whether caused by error or fraud. Absolute assurance is not attainable because of the nature of
audit evidence and the characteristics of fraud. Therefore, there is a risk that material errors,
fraud (including fraud that may be an illegal act), and other illega1 acts may exist and not be
detected by an audit of financia1 statements performed in accordance with the auditing standards
generally accepted in the United States of America. Also, an audit is not designed to detect
matters that are immaterial to the financial slatements.
Our report will be addressed to the City Council of the City. We cannot provide assurance that
an unquaJified opinion will be rendered. Circumstances may arise in which it is necessary for us
to modify our report or withdraw from the engagement.
Internal Control Over Financial Reporting
In planning and perfornling our audit of the financial statements, we will consider the City's
internal control in order to determine the nature, timing and extent of our audit procedures for the
purpose of expressing an opinion on the financial statements and not to provide assurance on
internal control. In accordance with Govemmellt Auditing Standards, we arc required to
communicate that the limited purpose of our consideration of inJe1'¥îal control may not meet the
needs of some users who require additiona1 information about~fiY ")11 contro1. We can provide
other services to provide you with additional informatio n i ~trol which we would be
happy to discuss with you at your convenience.
As part of obtaining reasonable assuranc
material misstatement, we will perform tes
1aws, regulations, contracts and gra
effect on the financial statement
compliance with such provision
. ~~.. . .
In accordance wIth Gov~r/l,'Pt:'JJ;, wltlllg Standards, we w¡]l prepare a wntten report, Report on
Compliance and InternÌJ.I"'Cor;jPo! Over Financial Reporting Based on an Audit of Financial
Statements PerfOimed in~~irrdance With Government Auditing Standards (GAS report), on
our consideration of internal control and tests of compliance made as part of our audit of the
financial statements. While the objective of our audit of the financia1 statements is not to report
on Client's intema1 control and we are not obligated to search for reportable conditions as part of
our audit of the financial statements, this report wi]] include any reportable conditions to the
extent they come to our attention. Reportable conditions are significant deficiencies in the
design or operation of interna1 contro1 that could adversely affect the City's ability to record, ,
process, summarize and report financial data consistent with the assertions of management in the
financial statements. The definition of reportable conditions does not include polentia! future
interna1 contro1 prob1ems, thaI is, control problems coming to our attention that do not affect the
preparation of financia1 statements for the period under audit. This report will also include all
illega1 acts and fraud and material violations of graots and contracts, and abuse. It wi]] indicate
that it is intended so1ely for the information and use of the audit committee and management of
e financial statements are free of
y's compliance with certain provisions of
. which could have a direct and material
"<,,cÓbjective is not to provide an opinion on overa]]
the City and federal awarding agencies and pass-through entities and that it is not intended to be
and should not be used by anyone other than these specified parties.
In acêordance with Governmelll Auditing Standards we will also issue a management letter to
eommunicate other deficiencies in internal contr01s that are not reportab1e conditions and other
violations of grants and contraets, and abuse that comes to our attention unless clearly
inconsequential.
In accordance with Government Auditing Standards, we are also required in certain
circumstances to report fraud or illegal acts directly to parties outside the auditee.
OMB Circular A-J 33 Audit Services
We will also perfonn audit procedures with respect to the City's major federal programs in
accordance with the provisions of OMB Circular A-133 Audits of States, Local Governments,
and Non-Profit Organizations (OMB Circular A-133). OMB Circular A-133 includes specific
audit requirements, main1y in the areas of internal control and compliance with laws, regulations,
contracts and grants that exceed those required by Government Auditing Standards.
As part of our audit procedures perfonned in accordance with the provisions of OMB Circular A-
133, we will perfonn tests to evaluate the effectiveness of the design and operation of internal
contr01s that we consider relevant to preventing or detecting materia1 noncompliance with laws,
regulations, contracts and grants applicable to each of the Cit ' 'or programs. The tests of
internal control perfom1ed in accordance with OMB Circular less in scope than would
be necessary to render an opinion on interna1 control.
Compliance with laws, regu1ations, contracts
responsibility of management. We will 11
provisions of laws, regulations, contract§ a
OMB Circular A-133 Compliance s'ð"'c
outlined in the Compliance Sup
cover all areas of regulations gov
identify additional insta
1e to federal programs is the
of'írtr City's compliance with certain
detennine to be necessary based on the
pliance Supplemelll). The procedures
suggested by each federal agency and do not
rogram. Program reviews by federal agencies may
iance.
As required by OMB 1 - 33, we wi1l prepare a written report which (1) provides our
opinion on the schedule penditures of federal awards in re1ation to the City's financial
statements, (2) provides our opinion on compliance with 1aws, regu1ations, contracts and grant
that cou1d have a direct and material effect on a major federal program and (3) communicates our
consideration of intema1 control over major federa1 programs. It will indicate that it is inténded
solely for the infonnation and use of the audit committee and management of the City and federal
awarding agencies and pass-through entities and Ihat it is not intended to be and shou1d not be
used by anyone other than these specified parties.
Offering Documents
Should the City wish to include or incorporate by reference these financial statements and our
audit report(s) thereon into an exempt offering, prior to our consenting to include or incorporate
by reference our report(s) on such financial statements, we would consider our consent to the
inclusion of our report and the tenns thereof at that time. We will be required to perfonn
procedures as required by the standards of the American Institute of Certified Public
Accountants, including, but not limited to, reading other infonnation incorporated by reference in
the offering document and performing subsequent event procedures. Our reading of the other
infonnation included or incorporated by reference in the offering document will consider
whether such infonnation, or the manner of its presentation, is materially inconsistent with
infonnation, or the manner of its presentation, appearing in the financial statements. However,
we will n¿t perfonn procedures to corroborate such other infonnation (including forward-100king
statements). The specific telms of our future services with respect to future offering documents
will be detennined at the time the services are to be perfonned.
Our responsibility to communicate with the Audit Committee
We will report to you, in writing, the following matters:
. Audit adjustments arising from the audit that could, in our judgment, either individually or in
aggregate, have a significant effect on the City's financial repo . ng process. In this context,
audit adjustments, whether or not recorded by the entity, posed corrections of the
financial statements that, in our judgment, may not have cted except through the
auditing procedures perfonned.
. Uncorrected misstatements aggregated duri
latest period presented that were dete'
individually and in aggregate.
. Other matters requi
United States of Arne :
- municated by generally accepted auditing standards in the
We will also read minutes, if any, of audit committee meetings for consistency with our
understanding of the communications made to you and determine that you have received copies
of all material written communications between ourselves and management. We win also
detennine that you have been infonned of i) the initial selection of, or the reasons for any change
in, significant accounting policies or their application during the period under audit, ii) the
methods used by management to account for significant unusual transactions and iii) the effect of .
significant accounting policies in controversia1 or emerging areas for which there is a lack of
authoritative guidance or consensus.
If, in perfonnance of our audit procedures, circumstances arise which make it necessary to
modify our report or withdraw from the engagement, we will communicate to you our reasons for
withdrawa1.
Management responsibilities
The management of the City is responsible for the fair presentation, in accordance with
accounting plinciples genera1ly accepted in the United States of America, of the financial
statements and a1l representations contained therein. Management also is responsib1e for
identifying and ensuring that Client complies with laws, regulations, contracts and grants
appJicable to its activities, and for informing us of any known material violations of such laws
and regulations. Management also is responsible for preventing and detecting fraud, includiug
the design and impJementation of programs and contro1s to prevent and detect fraud, for adopting
sound accounting poJicies, and for estabJishing and maintaining effective internal controls and
procedures for financial reporting to maintaiu the reliabiJity of the financia1 statements and to
provide reasonable assurance against the possibiJity of misstatements that are material to the
financial statements. Management is also responsible for infonning us, of which it has
knowledge, of a1l reportabJe conditions in the design or operation of such controls.
Management of the City also agrees that all records, documentation, and infonnation we request
in connection with our audit wi1l be made availab1c to us, that a1l material infonnation wi1l be
disclosed to us, and that we wi1l have the fu1l cooperation of the City's personnel. As required
by the auditing standards generally accepted in the United States of America, we wi1l make
specific inquiries of management about the representations embodied in the financial statements
and the effectiveness of internal contro1, and obtain a repre ([lion letter from management
about these matters. The responses to our inquiries, the writ 'sentations, and the results
of audit tests, among other things, comprise the evidential ma "",j,JjfreJy upon in fonning an
opinion on the financia1 statements. .~
.
In addition to the OMB Circu1ar A-133 re
with provisious of 1aws, regulations, c
discussed above, OMB Circu1ar A-13
tain internal contro1 and comp1y
rants appJicable to federal programs as
e City to prepare a:
.
. Data col1ectian fann (Part 1).
Whi1e we may be separately engaged to assist you in the preparation of these items, preparation
is the respansibiJity of the City.
Certain provisions of OMB Circular A-133 a1l0w a granting agency to request that a specific'
program be seJected as a major program provided that the federal grantiug agency is willing to
pay the incremental audit coSI arising from such selection. The City agrees to notify KPMG of
any such request by a granting agency and to work with KPMG to modify the tenns of this letter
as necessary to accommodate such a request.
In accordance with GovernmelJl Auditing Standards, as part or our planning of the audit we will
consider the results of previous audits and follow up on known significant findings and
recommendations that directly relate to the objectives of the audit. To assist us, management
agrees (0 identify previous financial audits, attestation engagements, perfonnance audits, or other
studies related lO the objectives of the audit being undertaken and to identify con'ective actions
taken to address significant findings and recommendations prior lO the commencement of final
ficldwork
Management is responsible for adjusting the financial statements to correct material
c misstatements and for affirming to us in the representation 1etter that Ihe 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 being reported upon, Because of the importance of management's representations to
the effective perfonnance of our services, the City wi]] re1ease KPMG LLP and its personne1
from any claims, liabilities, costs and expenses re1ating to our services under this letter
attributable to any misrepresentations in the representation 1etter referred to above,
Management is also responsible for providing us with written responses in accordance with
Government Auditing Standards to the findings included in the GAS report within 10 days of
being provided with draft findings,
Management is responsible for the distribution of the reports issued by KPMG. In accordance
with Government Auditing Standards, the reports issued citing "~" rnment Auditing Standards
are to be made available for public inspection. .
Dispute Resolution
Any dispute or c1aim arising out of or re1 ngagement 1etter between the parties, the
services provided thereunder, or any d . vided by or on behalf of KPMG or any of
its subcontractors or agents to th' . c~~est (inc1uding any dispute or c1aim involving
any person or entity for whose rvices in question are or were provided) shall be
resolved in accordance ." he"" es01ution procedures set forth in Appendix IT, which
constitute the sole me lss!!or the resolution of a11 such disputes. By operation of this
provision, the parties agr~~",9lJorego litigation over such disputes in any court of competent
jurisdiction. Mediation, if'seIected, may take p1ace at a place to be designated by the parties.
Arbitration shall take place in New York, New York. Either party may seek to enforce any
written agreement reached by the parties during mediation, or to confinn and enforce any final
award entered in arbitration, in any court of competent jurisdiction.
Notwithstanding the agreement to such procedures, either party may seek injunctive relief to
enforce its rights with respect to the use or protection of (i) its confidential or proprietary
infonnation or material or (ii) its names, trademarks, service marks or 10gos, sole1y in the courts
of the State of New York or in the courts of the United States located in the State of New York.
The parties consent to the personal jurisdiction thereof and to s01e venne therein only for such
purposes.
Other matters
This letter shall serve as the City's authorization for the use of e-mai1 and other electronic
methods to transmit and receive information, including confidential infonnation, between KPMG
LLP (KPMG) and the City and between KPMG and outside specialists or other entities engaged
by either KPMG or the City. The City acknow1edges that e-mail travels over the public Internet,
which is not a secure means of communication and, thus, confidentiality of the transmitted
infonnation cou1d be compromised through no fault of KPMG. KPMG will employ
commercial1y reasonable effons and take appropriate precautions to protect the privacy and
confidentiality of transmitted infornlation.
Further, for purposes of the services described in this letter on1y, the City hereby grants to KPMG
a limited, revocable, non-exclusive, non-transferable, paid up and royalty-free license, without
right of sublicense, to use all names, logos, trademarks and service marks of the City solely for
presentations or reports to the City or for internal KPMG presentations and intranet sites.
KPMG is a limited 1iability partnership comprising both certified public accountants and certain
principals who are not licensed as certified public accountants. Such principals may participate
in the engagements to provide the services described in this letter.
****
In the event KPMG is
documents relating to
which KPMG is not a
professional time and expen
such requests.
,,¡!.
. G., Pursuant to Government
lable in a ful1 and time1y
. ty and for use by their
papers available to certain
. . Access to the requested work
. Furthennore, upon request, we
regu1atory agencies. These regu1atory
? ocopies or infonnation contained tberein to
The work papers for this engagement are the property of
Auditing Standards, we are required to make certain work p
manner to regulatory agencies upon request for their reyj,¡¡ws
auditors. In addition, we may be requested to ,"",.
regulators pursuant to authority given to it by
papers will be provided under supervision
may provide photocopies of selecte
agencies may intend, or decide, to dis
others, induding other governm
nt to subpoena or other 1egal process to produce its
ent for Client in judicial or administrative proceedings to
e City shall reimburse KPMG at standard bil1ing rates for its
s, induding reasonable attorney's fees, incurred in responding to
Other Government Auditing Standards Matters
As required by Government Auditing Standards, we have attached a copy of KPMG's most
recent peer review report and letter of comments.
We wil1 also assist management in drafting the financia1 statements and notes. In accordance
with Government Auditing Standards, we are required to confirm that management accepts
responsibility for the financial statements and notes and, therefore, has a responsibility to be in a
position in fact and appearance to make an infonned judgment about them and that management
wil1)
. Designate a quaJified management-level individual to be responsib1e and accountable for
o"erseeing the drafting of the financia1 statements.
. Establish and monitor the perfonnance of the engagement to ensure that it meets
management's objectives.
. Make any decisions that inv01ve management functions related to the engagement and accept
full responsihility for such decisions.
. Evaluate the adequacy of the financial statements and notes.
Additional Reports and Fees for Services
Appendix] to this letter lists the additional reports we will issue as part of this engagement and
our fees for professional services to be perfonned per this letter.
In addition, fees for any specia1 audit-re1ated projects, such as research and/or consultation on
special business or financial issues, will be billed separately from the audit fees for professional
services set forth in Appendix I and may be subject to written arrangements supplemental to
those in this 1etter.
Pursuant to our arrangement as reflected in this
Appeudix ] for each of its subsequent fiscalye
agreement, or mutually agree to the modifi ,,","
will be annually subject to negotiation ".
*****
vide the services set forth in
anagement or we tenninate this
tenus. The fees for each subsequent year
the Management.
letter with you at any time. For your convenience in
e enc1ose a copy of Ihis letter. Please sign and return it to us,
Very truly yours,
KPMG LLP
William P. Hanley
Partner
ACCEPTED:
City.of
Authorized Signature
Title
Date
Appendix]
Fees for Services
Based upon our discussions with and representations of management, our fees for services we
will perform are estimated as follows:
Audit offinancial statements of
Client as of and for the years ended
September 30, 2005 (induding management letter)
$XXX.xxx
Other Reports:
The reports that we will issue as part of this engagement are as follows:
Report
Fee
Reports issued in connection with OMB Circu1ar A-133
$XXX
The above estimates are based on the leve1 of experi
services. In addition, expenses are billed for re'
such as travel, telephone, postage, and typi
are estimated at $-, Circumsta
services that warrant additional time
within the above estimates. We
arc assessed,
, als who will perfonn the
urred. Expenses for items
roduction of financial statements
during the performance of these
cause us to be unab1e to deliver them
'w
notify you of any such circumstances as they
Where KPMG is reimb nses, it is KPMG's policy to bill dients the amount
incurred at the time the g rvice is purchased, If KPMG subsequent1y receives a volume
rebate or other incentive pa ent from a vendor re1ating to such expenses, KPMG does not
credit such payment 10 the dient. Instead, KPMG applies such payments to reduce its overhead
costs, which costs are taken into account in detennining KPMG's standard billing rates and
certain transaction charges which may be charged to clients,
Appendix n
Dispute Resolution Procedures
The following procedures are the sole methodologies 10 be used to resolve any controversy or
c1aim ("dispute"). If any of these provisions are detennined to be invalid or unenforceab1e, the
remaining provisions shall remain in effect and binding on the parties to the fullesl extent
pennitted by 1aw.
Mediation
Any party may request mediation of a dispute by providing a written Request for Mediation to
the other party or parties. The mediator, as wel1 as the time and 'ce of the mediation, shal1 be
selected by agreement of the parties. Absent any other agr 0 the contrary, the parties
agree to proceed in mediation using the CPR Mediation Pr ective April ], 1998)
issued by the Center for Public Resources, with the etôÿpti graph 2 which shal1 not
apply to any mediation conducted pursuant to"<;itlll~~~¡'~f?'",' As provided in the CPR
Mediation Procedures, the mediation shal1 .,ro#" "iiled l"$þecified by the mediator and as
agreed upon by the parties. The parties a ss their differences in good faith and to
attempt, with facilitatiou by the media onsensual resolution of the dispute. The
mediation shal1 be treated as a on and shal1 be confidential. The mediator
may not testify for any party in eeding related to the dispute. No recording or
transcript shal1 be made m roceeding. Each party shall bear its own costs in Ihe
mediation. Absent an a he contrary, the fees and expenses of the mediator sha]] be
shared equal1y by the pa .
Arbitration
Arbitration shall be used to settle the following disputes: (I) any dispute not resolved by
mediation 90 days after the issuance by one of the parties of a written Request for Mediation (or,
if the parties have agreed to enter or extend the mediation, for such longer period as the parties
may agree) or (2) any dispute in which a party declares, more than 30 days after receipt of a
written Request for Mediation, mediation to be inappropriate to resolve that dispute and initiates
a Requesl for Arbitration. Once commenced, the arbitration will be conducled either (I) in
accordance with the procedures in this document and the Rules for Non-Administered
Arbitration of the CPR Institute for Dispute Res01ution ("CPR Arbitration Rules") as in effect on
the date of the engagement letter or contract between the parties, or (2) in accordance with other
Page 12
rules and procedures as the parties may designate by mutual agreement. In the event of a
conflict, the provisions of this document and the CPR Arbitration Rules will control,
The arbitration will be conducted before a pane1 of three arbitrators, two of whom may be
designated by the parties using either the CPR Panels of Distinguished Neutrals or the
Arbitration Rosters maintained by any Uuited States office of the Judicial Arbitration and
Mediation Service (1/\11S), If the parties are unab1e tn agree on the composition of the
arbitration panc1, the parties shall follow the screened seJection process provided in Section B,
Rules S, 6, 7, and 8 of the CPR Arbitration Ru1es, Any issue concerning the extent to which any
dispute is subject to arbitration, or any dispute concerning the applicability, interpretation, or
enforceability of these procedures, including any contention that all or part of these procedures
are invaJid or unenforceabJe, shall be governed by the Federal Arbitration Act and resolved by
the arbitrators, No potential arbitrator shall be appointed unless he or she has agreed in writing
to abide and be bound by these procedures,
All aspects of the arbitrati hall be treated as confidentia1. The parties and the arbitration
pane1 may disc1ose the existence, content or results of the arbitration only as provided in the CPR
Arbitration Rules, Before making any such disc1osure, a party shall give written notice to all
other parties and shall afford such parties a reasonable opportunity to protect their interests"
el shall have no power to
ar~, inconsistent with any
- r that are not measured by
¡tration or any other forum, In
to be invalid or unenforceab1e,
or impose a remedy that could'not be
me jurisdiction.
The arbitration pauel shall issue its final award in writing.
award non-monetary or equitable reJief of any sort, ~amag
applicabJe agreement between the parties, that are puniC- '
the prevaiJing party's actual damages, shall be
no event, even if any other portion of these
shan the arbitration panel have power to
made or imposed by a court deciding th"""
Discovery shall be pennitted i""
express1y authorized by
seeking discovery.
- with the arbitration only to the extent, if any,
nol upon a showing of substantia1 need by the party
The award reached as a result of the arbitration will be binding on the parties, and confirmation
of the arbitration award may be sought in any court having jurisdiction.
JJJWI
Materials Management
901-8 Texas St.
Denton, TX 76209
(940) 349.7100
ADDENDUM #1
RFSP # 3325
Audit Services
PROPOSALS DUE: April 21,2005
2:00 P.M.
Proposal submitted by:
\...\"M \c \.-.L'?
Company Name
BID #3325 -Audit Services
Addendum #1 to be signed and returned with Bid Proposal
The documents listed below are provided as supplementary infornlation. Please sign alld rdum this
sìb~lature page along with your proposallo ackl1l1\vledge receipI of Addendum I.
Documents attached to Addendum I are:
1
)
Internal Audit Reviews Fiscal Year 2003-2004
Report to Management
Prior Contract
hior Year Fees
Revised Request for Proposal
3.
4.
5.
NO OTHER CHANGES AT THIS TIME.
ThÚ l;mll shalt be siglled alld rerun",d with YOIIl" bid.
Name:
~,~ w.cw\~
Sigllmlll"e: ~O ì;;\-a~
Compall.\': '
"/---\>'IV\~ \....\S'
Till",
'ì>"'",-,¡OER
'-1l1'\loÇ"
Dale:
'J!~'
Materials Management
901-B Texas St.
Denton, TX 76209
(940) 349-7100
ADDENDUM #2
RFSP # 3325
Audit Services
PROPOSALS DUE: April 21 2005
2:00 P.M.
Proposal submitted by:
y-~\,.., lD LLV
Company Name
Addendum #2 to be signed and returned with Bid Proposal
Replace Section 5.1 Auditor Rotation with the revised wording as attached.
Please sign ill1d return this signature page along with your proposal to acknowledge receipt of
Addendum :..
NO OTHER CHANGES AT THIS TIME.
TilisJorm shall he si¡:"ed (1/1(/ relllTlled ...ith yollr hit!.
Name:
~,~'-- \-\"'>J\e.,-\
Sigll{ (JIre: ~.\::\\},-" ~
~ ~- (f'-
Company: ¥.. 'Ç)I¥'>. L. L.L~
Title:
\:> ... Q \.::>e£..
'-\ \ \ a, kõ
ÐlIIe:
:>.
BID #3325 -Audit Services
5.1
Auditor Rotation
In accord,mce with City policy on external aLlditor independence, that is both in fact and
appearance, the City requires that proposa1s meel the following rotation guidelines while
providing serviees under this and future contracts:
I) Lead engagement partner, engagement partner and concurring partner will be rotated off
the City audit after fi\'e eonsecutive years and not reassigned for at least two years,
2) Audit managers and supervisors will be rotated off the City audit after three consecutive
years and not reassigned for at least two ycars, and
3) Senior auditors. lead auditors and staff auditors will be rotated 011 the City audit
after three consecutive years and not reassigned for at least one year.
The purpose of this policy is not to mandate a regular rotation of audit firms, but to ensure that
auditor objectivity is not compromised through familiarity and to maintain audit continuity.
Proposals may suggest or require a more aggressive auditor rotation.
APPENDIX A
Review of Official Statement and Special Project Rates
Hourly Rimn!! Rate
Partners
$310.00
Managers
$23000
Senior Staff
$185.00
Staff
$] 15.00
CITY OF DENTON
INSURANCE REQUIREMENTS FOR CONTRACTORS
Bidder's allention is directed to the insurance requirements below. It is highly
recommended that bidders crmfer with their respective insurance carriers or brokers to
determine in advance of Bid submission the availability of insurance certificates and
endorsements as prescribed and provided herein. If an apparent low bidder fails to
comply strictly with the illSurance requirements, that bidder'may be disqllalifiedfrom
award of the contract. Upon bid award. all insurance requirements shall become
contractual obligations, which the successful bidder shall have a duty to maintain
throughout the course of this contract.
STANDARD PROVISIONS:
Without limiting any of the other obligations or liabilities of the Contractor, the
Contractor shall provide and maintain until the contracted work has been completed
and accepted by the City of Denton, Owner, the minimum insurance coverage as
indicated hereinafter,
As soon as practicable after notification of bid award, Contractor shall.file with the
Purchasing Department satisfactory certificates of insurance, containing the bid
number and title of the project. Contractor may, upon written request to the
Purchasing Department, ask for clarification of any insurance requirement,ç at any
time; however, Contractors are strongly advised to make such requests prior to bid
opening, since the insurance requirements may not be modified or waived after bid
opening unless a written exception has been submitted with the bÜL Contractor shall
not commence any work or deliver any material until he or she receives notification that
the contract has been accepted, approved, and signed by the City of Denton.
All insurance policies proposed or obtained in sati~raction of these requirements shall
comply with the following general specifications, and shall be maintained in
compliance with these general specifications throughout the duration of the Contract,
or longer, /f,w noted:
Each policy shall be issued by a company authorized to do business in the
State of Texas with an A,M, Best Company rating of at least A.
Liability policies shall be endorsed to provide the following:
Name. as additional insured the City of Denton, its Officials, Agents,
Employees and volunteers.
That such insurance is primary to any other insurance available to the
additional insured with respect to claims covered under the policy and
that this insurance applies separately to each insured against whom
claim is made or suit is brought. The inclusion of more than one
insured shall not operate to increase the insurer's limit of liability.
All policies shall be endorsed to read:
"SAID POLICY SHALL NOT BE CANCELLED, NONRENEWED OR
MATERIALLY CHANGE WITHOUT 30 DAYS ADVANCED WRITTEN
NOTICE BEING GIVEN TO THE OWNER (CITY) EXCEPT WHEN
THE POLICY IS BEING CANCELLED FOR NONPAYMENT OF
PREMIUM IN WHICH CASE 10 DAYS ADVANCE WRITTEN NOTICE
IS REQUIRED".
Should any of the required insurance be provided under a claims-made form,
Contractor shall maintain such coverage continuously throughout the term of
this contract and, without lapse, for a period of three years beyond the
contract expiration, such that occurrences arising during the contract term
which give rise to claims made after expiration of the contract shall be
covered.
Should any of the required insurance be provided under a form of coverage
that includes a general annual aggregate limit providing for claims
investigation or legal defense costs to be included in the general annual
aggregate limit, the Contractor shall either double the occurrence limits or
obtain Owners and Contractors Protective Liability Insurance.
Should any required insurance lapse during the contract term, requests for
payments originating after such lapse shall not be processed until the City
receives satisfactory evidence of reinstated coverage as required by this
contract, effective as of the lapse date If insurance is not reinstated, City
may, at its sole option, terminate this agreement effective on the date of the
lapse.
SPECIFIC ADDITIONAL INSURANCE REQUIREMENTS:
All insurance policies proposed or obtained in satisfaction of this Contract shall
additionally comply with thefollmving marked specifications, and shall be maintained
in compliance with these additional specifications throughout the duration of the
Contract, or longer, if so noted:
[]
A. General Liability Insurance:
General Liability insurance with combined single limits of not less than
$500,000 shall be provided and maintained by the Contractor. The policy
shall be written on an occurrence basis either in a single policy or in a
combination of underlying and umbrella or excess policies.
Coverage A shall include premises, operations, products, and
completed operations, independent contractors, contractual liability
covering this contract and broad form property damage coverage.
Coverage B shal1 include personal injury.
Coverage C, medical payments, is not required.
Bodily injury and Property Damage Liability for premises, operations,
products and completed operations, independent contractors and property damage
resulting from explosion, col1apse or underground (XCU) exposures.
Broad form contractual liability (preferably by endorsement) covering
this contract, personal injury liability and broad form property damage liability.
[]
Automobile Liability Insurance:
Contractor shal1 provide Commercial Automobile Liability insurance with
Combined Single Limits (CSL) of not less than $300,000 either in a single
policy or in a combination of basic and umbrella or excess policies. The policy
wil1 include bodily injury and property damage liability arising out of the
operation, maintenance and use of al1 automobiles and mobile equipment used in
conjunction with this contract.
any auto, or
al1 owned, hired and non-owned autos.
[]
Workers Compensation Insurance
Contractor shall purchase and maintain Worker's Compensation insurance which,
in addition to meeting the minimum statutory requirements for issuance of such
insurance, has Employer's Liability limits of at least $100,000 for each accident,
$]00,000 per each employee, and a $500,000 policy limit for occupational
disease. The City need not be named as an "Additional Insured" but the insurer
shall agree to waive all rights of subrogation against the City, its officials, agents,
employees and volunteers for any work performed for the City by the Named
Insured. For building or construction projects, the Contractor shall comply with
the provisions of Attachment] in accordance with §406.096 of the Texas Labor
Code and rule 28T AC ] ] 0] 1 0 of the Texas Worker's Compensation Commission
(TWCC).
[]
Owner's and Contractor's Protective Liability Insurance
The Contractor shall obtain, pay for and maintain at all times during the
prosecution of the work under this contract, an Owner's and Contractor's
Protective Liability insurance policy naming the City as insured for property
damage and bodi1y injury which may arise in the prosecution of the work or
Contractor's operations under this contract. Coverage shall be on an "occurrence"
basis, and the policy shall be issued by the same insurance company that carries
the Contractor's liability insurance. Policy limits will be at least
combined bodily injury and property damage per occurrence with a
aggregate.
[]
Fire Damage Legal Liability Insurance
Coverage is required if Broad form General Liability is not provided or is
unavailable to the contractor or if a contractor leases or rents a portion of a City
building. Limits of not less than - each occurrence are required.
[X]
Professional Liability Insurance
Professional liability insurance with limits not less than $1,000,000 per claim with
respect to negligent acts, errors or omissions in connection with professional
services is required under this Agreement.
[]
Builders' Risk Insurance
Builders' Risk Insurance, on an All-Risk form for] 00% of the completed value
shall be provided. Such policy shall include as "Named Insured" the City of
Denton and all subcontractors as their interests may appear.
[]
Commercial Crime
Provides coverage for the theft or disappearance of cash or checks, robbery
inside/outside the premises, burglary of the premises, and employee fidelity. The
employee fidelity portion of this coverage should be written on a "blanket" basis
to cover all employees, including new hires. This type insurance should be
required if the contractor has access to City funds. Limits of not less than
each occurrence are required.
[]
Additional Insurance
Other insurance may be required on an individual basis for extra hazardous
contracts and specific service agreements. If such additional insurance is required
for a specific contract, that requirement will be described in the "Specific
Conditions" of the contract specifications.
A TT ACHMENT 1
[]
Worker's Compensation Coverage for Building or Construction Projects for
Governmental Entities
A. Definitions:
Certificate of coverage ("certificate")-A copy of a certificate of insurance, a
certificate of authority to self-insure issued by the commission, or a coverage
agreement (TWCC-81, TWCC-82, TWCC-83, or TWCC-84), showing
statutory workers' compensation insurance coverage for the person's or
entity's employees providing services on a project, for the duration 9f the
project.
Duration of the project - includes the time from the beginning of the work on
the project until the contractor's/person's work on the project has been
completed and accepted by the governmental entity.
Persons providing services on the project ("subcontractor" in §406.096) -
includes all persons or entities performing all or part of the services the
contractor has undertaken to perform on the project, regardless of whether
that person contracted directly with the contractor and regardless of whether
that person has employees. This includes, without limitation, independent
contractors, subcontractors, leasing companies, motor carriers, owner-
operators, employees of any such entity, or employees of any entity which
furnishes persons to provide services on the project. "Services" include,
without limitation, providing, hauling, or delivering equipment or .materials,
or providing labor, transportation, or other service related to a project.
"Services" does not include activities unrelated to the project, such as
food/beverage vendors, office supply deliveries, and delivery of portable
toilets.
B.
The contractor shall provide coverage, based on proper reporting of
classification codes and payroll amounts and filing of any overage
agreements, which meets the statutory requirements of Texas Labor Code,
Section 401.011 (44) for all employees of the Contractor providing services
on the project, for the duration of the project.
C. The Contractor must provide a certificate of coverage to the governmental
entity prior to being awarded the contract.
D. If the coverage period shown on the contractor's current certificate of
coverage ends during the duration of the project, the contractor must, prior to
the end of the coverage period, file a new certificate of coverage with the
governmental entity showing that coverage has been extended.
E. The contractor shall obtain from each person providing services on a project,
and provide to the governmental entity:
F.
G.
H.
L
(1 )
a certificate of coverage, prior to that person beginning work on the
project, so the governmental entity will have on file certificates of
coverage showing coverage for all persons providing services on the
project; and
(2)
no later than seven days after receipt by the contractor, a new certificate
of coverage showing extension of coverage, if the coverage period
shown on the current certificate of coverage ends during the duration of
the project.
The contractor shall retain all required certificates of coverage for the
duration of the project and for one year thereafter.
The contractor shall notify the governmental entity in writing by certified
mail or personal delivery, within] 0 days after the contractor knew or should
have known, of any change that materially affects the provision of coverage
of any person providing services on the project.
The contractor shall post on each project site a notice, in the text, form and
manner prescribed by the Texas Workers' Compensation Commission,
informing all persons providing services on the project that they are required
to be covered, and stating how a person may verify coverage and report lack
of coverage.
The contractor shall contractually require each person with whom it contracts
to provide services on a project, to:
(1)
provide coverage, based on proper reporting of classification codes and
payroll amounts and filing of any coverage agreements, which meets
the statutory requirements of Texas Labor Code, Section 401.011(44)
for all of its employees providing services on the project, for the
duration of the project;
(2)
provide to the contractor, prior to that person beginning work on the
project, a certificate of coverage showing that coverage is being
provided for all employees of the person providing services on the
project, for the duration of the project;
(3)
provide the contractor, prior to the end of the coverage period, a new
certificate of coverage showing extension of coverage, if the coverage
period shown on the current certificate of coverage ends during the
duration of the project;
(4)
obtain from each other person with whom it contracts, and provide to
the contractor:
(a)
a certificate of coverage, prior to the other person beginning work
on the project; and
(b)
a new certificate of coverage showing extension of coverage,
prior to the end of the coverage period, if the coverage period
shown on the current certificate of coverage ends during the
duration of the project;
(5)
retain all required certificates of coverage on file for the duration of the
project and for one year thereafter;
(6)
notify the governmental entity in writing by certified mail or personal
delivery, within] 0 days after the person knew or should have known,
of any change that materially affects the provision of coverage of any
person providing services on the project; and
(7)
contractually require each person with whom it contracts, to perform as
required by paragraphs (]) - (7), with the certificates of coverage to be
provided to the person for whom they are providing services.
1.
By signing this contract or providing or causing to be provided a certificate
of coverage, the contractor is representing to the governmental entity that all
employees of the contractor who will provide services on the project will be
covered by workers' compensation coverage for the duration of the project,
that the coverage will be based on proper reporting of classification codes
and payroll amounts, and that all coverage agreements will be filed with the
appropriate insurance carrier or, in the case of a self-insured, with the
commission's Division of Self-Insurance Regulation. Providing false or
misleading information may subject the contractor to administrative
penalties, criminal penalties, civil penalties, or other civil actions.
K
The contractor's failure to comply with any of these provisions is a breach of
contract by the contractor which entitles the governmental entity to declare
the contract void if the contractor does not remedy the breach within ten days
after receipt of notice of breach from the governmental entity.
Appendix B
18
KPMG LLP
Suite 3100
717 North Harwood Street
Dallas, TX 75201-6585
Telephone 2148402000
Fax 2148402297
Internet www,us.kprng.corn
Mr. Michael A. Conduff
City of Denton, Texas
2]5 E, McKinney Street
Denton, TX 7620]
June 15, 2005
Dear Mr. Conduff:
This letter will confirm our understanding of our engagement to provide professional services to
the City of Denton, Texas (the "City"),
Objectives and limitations of services
Financial Statement Audit Services
We will issue a written report upon our audit of The City's financial statements as set forth in
Appendix L '
We have a responsibility to conduct and will conduct the audit of the financial statements in
accordance with auditing standards generally accepted in the United States of America and the
standards for [mancial audits contained iu Government Auditing Standards, issued by the
Comptroller General of the United States, with the objective of expressing an opinion as to
whether the presentation of the financial statements conforms with accounting principles generally
acceptcd in the United States of America,
In conducting the audit, we will perform tests of the accounting records and such other
procedures, as we consider necessary in the circumstances, to provide a reasonable basis for our
opinion on the financial statements. We also will assess the accounting principles used and
significant estimates made by management, and evaluate the overall financial statement
presentation,
Our audit of the [mancial statements is planned and performed to obtain reasonable, but not
absolute, assurance about whether the financial statements arc free of material misstatement,
whether caused by error or fraud, Absolute assurance is not attainable because of the nature of
KPMG LLP,' u.s. 11m"" """", p","",",P. "'he u.s
memb" firm of KPMG "","";"". . Swi" ,oop""",
~~~J
Mr. Michael A. Conduff
City of Denton, Texas
June 15, 2005
Page 2
audit evidence and the characteristics of fraud. Therefore, there is a risk that material errors,
fraud (including fraud that may be an illegal act), and other illega1 acts may exist and not be
detected by an audit of financial statements perfonned in accordance with the auditing standards
generally accepted in the United States of America. Also, an audit is not designed to detect
matters that are immaterial to the financial statements.
Our report will be addressed to the audit committee of the City. We cannot provide assurance
that an unqualified opinion will be rendered. Circumstances may arise in which it is necessary for
us to modify our report or withdraw from the engagement.
Internal Control Over Financial Reporting
]n planning and performing our audit of the financial statements, we will consider the City's
intemal control in order to detennine the nature, timing and e"ient of our audit procedures for the
purpose of expressing an opinion on the fmancial statements and not to provide assurance on
internal control. In accordance with Government Auditing Standards, we are required to
communicate that the limited purpose of our consideration of internal control may not meet the
needs of some users who require additional infonnation about intemal control. We can provide
other services to provide you with additional infonnation on internal control, which we would be
happy to discuss with you at your convenience.
As part of obtaining reasonable assurance about whether the financial statements are free of
material misstatement, we will perfonn tests of the City's compliance with certain provisions of
laws, regulations, contracts and grants, violations of which could have a direct and material effect
on the financial statements. However, our objective is not to provide an opinion on overall
compliance with such provisions.
In accordance with Government Auditing Standards, we will prepare a written report, Report on
Internal Control Over Financial Reporting and on Compliance and Other Matters Based on an
Audit of Financial Statements Performed in Accordance With Government Auditing Standards
(GAS report), on our consideration of internal control and tests of compliance made as part of our
audit of the financial statements. While the objective of our audit of the financial statements is
not to report on The City's intemal control and we are not ob1igated to search for reportable
conditions as part of our audit of the financial statements, this report will include any reportable
conditions to the extent they come to our attention. Reportable conditions arc significant
deficiencies in the design or operation of intemal control that could adversely affect the City's
ability to record, process, summarize and report financial data consistent with the assertions of
management in the financial statements. The defmition of reportable conditions docs not include
potential future internal control problems, that is, control problems coming to our attention that do
not affect the preparation of financial statements for the period under audit. This report will also
~.1'
Mr. Michael A. Conduff
City of Denton, Texas
June 15,2005
Page 3
include all illegal acts and fraud and material violations of grants and contracts, and abuse. It will
indicate that it is intended solely for the' information and use of the audit conunittee and
management of the City and federal awarding agencies and pass-through entities and that it is not
intended to be and should not be used by anyone other than these specified parties.
In accordance with Government Auditing Standards we will also issue a management letter to
communicate other deficiencies in intemal controls that are not reportable conditions and other
violations of grant agreements and contracts, and abuse that comes to our attention unless clearly
inconsequential.
In accordance with Government Auditing Standards, we are also required in certain
circumstances to report fraud or illegal acts directly to parties outside the auditee.
OMB Circular A-i33 Audit Services
We will also perform audit procedures with respect to the City's major federal programs in
accordance with the provisions of OMB Circular A-B3 Audits of States, Local Governments,
and Non-Profit Organizations (OMB Circular A-133). OMB Circular A-133 includes specific
audit requirements, mainly in the areas of intemal control and compliance with laws, regulations,
contracts and grant agreements that exceed those required by Government Auditing Standards.
As part of our audit procedures performed in accordance with the provisions of OMB Circular A-
133, we will perform tests to evaluate the effectiveness of the design and operation of internal
controls that we consider relevant to preventing or detecting material noncompliance with laws,
regulations, contracts and grants applicable to each of the City's major programs. The tests of
internal control performed in accordance with OMB Circular A-B3 arc less in scope than would
be necessary to render an opinion on intemal control.
Compliance with laws, regulations, contracts and grants applicable to federal programs is the
responsibility of management. We will perform tests of the City's compliance with certain
provisions of laws, regulations, contracts and grants we determine to be necessary based on the
OMB Circular A-133 Compliance Supplement (Compliance Supplement). The procedures
outlined in the Compliance Supplement are those suggested by each federal agency and do not
cover all areas of regulations governing each program. Program reviews by federal agencies may
identify additional instances of noncompliance.
As reqùired by OMB Circular A-B3, we will prepare a written report which (I) provides our
opinion on the schedule of expenditures of federal awards in relation to the City's financial
statements taken as a whole, (2) provides our opinion on compliance with laws, regulations,
contracts and grant agreements that could have a direct and material effect on a major federal
~~1'
Mr. Michael A. Conduff
City of Denton, Texas
June 15, 2005
Page 4
program and (3) communicates our consideration ofintemal control over major federal programs.
It will indicate that it is intended solely for the information and use of the audit committee and
management of the City and federal awarding agencies and pass-through entities and that it is not
intended to be and should not be used by anyone other than these specified parties.
Offering Documents
Should City wish to include or incorporate by reference these financial statements and our audit
report(s) thereon into an exempt offering, prior to our consenting to include or incorporate by
reference our report(s) on such financial statements, we would consider our consent to the
inclusion of our report and the terms thereof at that time. We will be required to perform
procedures as required by the standards of the American Institute of Certified Public Accountants,
including, but not limited to, reading other information incorporated by reference in the offering
document and performing subsequent event procedures. Our reading of the other information
included or incorporated by reference in the offering document will consider whether such
information, or the manner of its presentation, is materially inconsistent with information, or the
manner of its presentation, appearing in the financial statements. However, we will not perform
procedures to corroborate such other information (including forward-looking statements). The
specific terms of our future services \vith respect to future offering documents will be determined
at the time the services are to be performed.
Our responsibility to communicate with the Audit Committee
We wiU report to you, in writing, the following matters:
. Audit adjustments arising from the audit that could, in our judgment, either individually or in
aggregate, have a significant effect on the City's financial reporting process. In this conteÀ1,
audit adjustments, whether or not recorded by the entity, are proposed corrections of the
financial statements that, in our judgment, may not have been detected except through the
auditing procedures performed.
. Uncorrected misstatements aggregated during the current engagement and pertaining to the
latest period presented that were determined by management to be immaterial, both
individuaUy and in aggregate.
. Any disagreements with management or other serious difficulties encountered in performance
of our audit.
l'A~JI
Mr. Michael A. Conduff
City of Denton, Texas
June 15,2005
Page 5
. Other matters required to be communicated by generally accepted auditing standards in the
United States of America
We will also read minutes, if any, of audit committce meetings for consistency with our
understanding of the communications made to you and determine that you have received copies of
all material written communications between ourselves and management. We will also determine
that you have been informed of i) the initial selection of, or the reasons for any change in,
significant accounting policies or their application during the period under audit, ii) the methods
used by management to account for significant unusual transactions and iii) the effect of
significant aceounting policies in controversial or emerging areas for which there is a lack of
authoritative guidance or consensus.
If, in performance of our audit procedures, circumstances arise which make it necessary to modify
our report or withdraw from the engagement, we will communicate to you our reasons for
withdrawal.
Management responsibilities
The management of the City is responsible for the fair presentation, in accordance with
accounting principles generally accepted in the United States of America, of the financial
statements and all representations contained therein. Management also is responsible for
identifying and ensuring that The City complies with laws, regulations, contracts and grants
applicable to its activities, and for informing us of any known material violations of such laws and
regulations. Management also is responsible for preventing and detecting fraud, including the
design and implementation of programs and controls to prevent and detect fraud, for adopting
sound accounting policies, and for establishing and maintaining effective internal controls and
procedures for financial reporting to maintain the reliability of the financial statements and to
provide reasonable assurance against the possibility of misstatements that are material to the
financial statements. Management is also responsible for informing us, of which it has
knowledge, of all reportable conditions in the design or operation of such controls.
Management of the City also agrees that all records, documentation, and information we request
in connection with our audit will be made available to us, that all material information will be
disclosed to us, and that we will have the full cooperation of the City's personnel. As required by
the auditing standards generally accepted in the United States of America, we will make specific
inquiries of management about the representations embodied in the financial statements and the
effectiveness of internal control, and obtain a representation letter from management about these
matters. The responses to our inquiries, the written representations, and the results of audit tests,
I!!IJ'
Mr. Michael A. Conduff
City of Denton, Texas
June 15,2005
Page 6
among other things, comprise the evidential matter we will rely upon in fonning an opinion on the
financial statements.
In addition to the OMB Circular A-133 requirements to maintain internal control and comply with
provisions of laws, regulations, contracts and grants applicable to federal programs as discussed
above, OMB Circular A-133 also requires the City to prepare a:
. Schedule of expenditures of federal awards;
. Summary schedule of prior audit findings;
.
Corrective action plan; and
. Data collection fonn (Part I).
While we may be separately engaged to assist you in the preparation of these items, preparation is
the responsibility of the City.
Certain provisions of OMB Circular A-133 allow a granting agency to request that a specific
program be selected as a major program provided that the federal granting agency is willing to
pay the incremental audit cost arising from such selection. The City agrees to notify KPMG of
any such request by a granting agency and to work with KPMG to modify the tcnns of this letter
as necessary to accommodate such a request.
In accordance with Government Auditing Standards, as part of our planning of the audit we will
consider the results of previous audits and follow up on known significant findings and
recommendations that directly relate to the objectives of the audit. To assist us, management
agrees to identify previous financial audits, attestation engagements, perfonnance audits, or other
studies related to the objectives of the audit being undertaken and to identify corrective actions
taken to address significant findings and recommendations prior to January 31,2005.
Management is responsible for adjusting the financial statements to correct material misstatements
and for affinning to us in the representation letter that the effects of any uncorrected
misstatements aggregated by us during the current engagement and pertaining to the latest period
presented are immaterial, both individually and in the aggregate, to the financial statements being
reported upon taken as a whole. Because ofthe importance of management's representations to
the effective perfonnance of our services, the City will release KPMG LLP and its personnel from
any elaims, liabilities, costs and expenses relating to our services under this letter attributable to
any misrepresentations in the representation letter referred to above.
I~J
Mr. Michael A. Conduff
City of Denton, Texas
June 15,2005
Page 7
Management is also responsible for providing us with written responses in accordance with
Government Auditing Standards to the findings included in the GAS report within 10 business
days of being provided with draft findings.
Management is responsible for the distribution of the reports issued by KPMG. In accordance
with Government Auditing Standards, the reports issued citing Government Auditing Standards
arc to be made available for public inspection.
Other matters
This letter shall serve as the City's authorization for the use of e-mail and other electronic
methods to transmit and receive infonnation, including confidential infonnation, betwcen KPMG
LLP (KPMG) and the City and between KPMG and outside specialists or other entities engaged
by either KPMG or the City. The City acknowledges that e-mail travels over the public Internet,
which is not a secure means of communication and, thus, confidentiality of the transmitted
infonnation could be compromised through no fault ofKPMG. KPMG will employ commercially
reasonable efforts and take appropriate precautions to protect the privacy and confidentiality of
transmitted infonnation.
Further, for purposes of the services described in this letter only, the City hereby grants to KPMG
a limited, revocable, non-exclusive, non-transferable, paid up and royalty-free license, without
right of sublicense, to use all names, logos, trademarks and service marks of the City solely for
presentations or reports to the City or for intemal KPMG presentations and intranet sites.
KPMG is a limited liability partnership comprising both certified public accountants and certain
principals who are not licensed as certified public accountants. Such principa1s may participate in
the engagements to provide the services described in this letter.
The work papers for this engagement are the property of KPMG. Pursuant to Government
Auditing Standards, we are required to make certain work papers available in a full and timely
manner to regulatory agencies upon request for their reviews of audit quality and for use by their
auditors. In addition, we may be requested to make certain work papers available to regulatory
agencies pursuant to authority given to it by law or regulation. Access to the requested work
papers will be provided under supervision of KPMG personnel. Furthennore, upon request, we
may provide photocopies of selected work papers to regulatory agencies. These regulatory
L~~J'
Mr. Michael A. Conduff
City of Denton, Texas
June 15,2005
Page 8
agencies may intend, or decide, to distribute the photocopies or infonuation contained therein to
others, including other govemment agencies.
In the event KPMG is requested pursuant to subpoena or other legal process to produce its
documents relating to this engagement for the City injudieial or administrative proceedings to
which KPMG is not a party, the City shall reimburse KPMG at standard billing rates for its
professional time and expenses, including reasonable attomey's fees, incurred in responding to
such requests.
Other Government Auditing Standards Matters
As required by Government Auditing Standards, we have attached a copy of KPMG's most
recent peer review report and letter of comments.
Additional Reports and }èes for Services
Appendix I to this letter lists the additional reports we will issue as part of this engagement and
our fees for professional services to be perfonued per this letter.
]n addition, fees for any specia1 audit-related projects, such as research and/or consultation on
special business or financial issues, will be billed separately from the audit fees for professional
services set forth in Appendix I and may be subject to written arrangements supplemental to those
in this letter.
*****
Pursuant to our arrangement as reflected in this letter we will provide the services set forth in
Appendix] for each of its subsequent fiscal years until either Management or we tenuinate this
agreement, or mutually agree to the modification of its tenus. The fees for each subsequent year
will be annually subject to negotiation and approval by the Audit Committee.
tJJJBJJ
Mr. Michael A. Conduff
City of Denton, Texas
June 15, 2005
Page 9
We shall be pleased to discuss this letter with you at any time. For your convenience in
confinning these arrangements, we enclose a copy of this letter. Please sign and return it to us.
Very truly yours,
KPMG LLP
~~
Bill Hanley
Partner
ACCEPTED:
City of Denton, Texas
Authorized Signature
Title
Date
Appendix I
Fees for Services
Based upon our discussions with and representations of management, our fees for services we will
perfom1 arc estimated as follows:
Audit of financial statements of
the City as of and for the years ended
September 30, 2005 assuming no intemal
audit assistance
$115,350
Fees assuming 130 hours ofintemal audit
assistance
$]05,850
The above estimates are based on the level of experience of the individuals who will perfonn the
services. In addition, expenses are billed for reimbursement as incurred. Expenses for items such
as travel (including mileage), telephone, postage, and typing, printing, and reproduction of
financial statements are estimated at $3,500. Circumstances cncountered during the perfonnance
of these services that warrant additional time or expense could cause us to be unable to deliver
them within the above estimates. We will endeavor to notify you of any such circumstances as
they are assessed.
Where KPMG is reimbursed for expenses, it is KPMG's policy to bill clients the amount incurred
at the time the good or service is purchased. IfKPMG subsequently receives a volume rebate or
other incentive payment from a vendor relating to such expenses, KPMG does not credit such
payment to the client. Instead, KPMG applies such payments to reduce its overhead costs, which
costs are taken into account in detennining KPMG's standard billing rates and certain transaction
charges which may be charged to clients.
PWCl:WA7fRHousE( roPERS I
P,;cewate,hous.Coopm LLr
500 Ca"'~us D,;"e
r.o. Bm flOS
floch"" Pa,k NJ 07'112
felephuce 19731236 7000
Fmi",ile (9731216 7200
To the Partners ofKPMG LLP
and the SEC Practice Section Peer Revicw Committee:
We have reviewed the system of quality control for the accounting and auditing practice of
KPMG LLP (the fim1) in effect for thc ycar ended March 31, 2002. A system of quality control
encompasscs the firm's organizational structure and the policies adopted and procedures
established to provide it with reasonable assurance of complying with profcsslOnal standards.
The elements of quahty control are deSCIibed in the Statements on Quality Control Standards
issued by thc American lnsIitu\e of Certified Public Accountants (the AlCP A). The desih'Tl of the
system, and compliance with it, are the responsibilities of the finn. ln addition, the finn has
agreed to comply with the membership rcquirements of the SEC Practice Section of the AlCP A
Division for CPA Finns (the Section). Our responsibihty is to express an opinion on the design
of the system, and the finn's compliance with Ihat system and the Section's membership
requirements based on our review.
Our review was conducted in accordance with standards established by the Peer Review
Committce of the Section and included procedures to plan and perfonn the rcview that are
summarized in the attached description of the peer review process. Our review would not
necessarily disclose all weaknesses in Ihe system of quality control or a11 instances of lack of
compliancc wiIh it or with the membership requirements of the Section since it was bascd on
selective tests. Because thcrc are inherent limitations in Ihc effectiveness of any system of quality
control, departures from the system may occur and not be detected. Also, projection of any
evaluation of a system of quality control to future periods is subject to Ihe risk that the system of
quality contr01 may become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.
In our opinion, Ihe system of quality control for the accounling and auditing practice of KPMU
LLP in effecI for Ihe year ended March 3], 2002, has been designed to meet the requirements of
the quality control standards for an accounting and auditing practice established by the AlCPA,
and was complied with dunng the year then ended to provide the finn with reasonable assurance
of complying with professional standards. Also, in our opmion, the finn complied during that
year with the membership requirements of the Section in an material respects.
As is customary in a peer review, we have issued a letter under this dale that sets forth comments
relating to certain policies and procedures or compliance with Ihem. The matters described in the
letter were not considered to be of sufficient significance to affect the opinion expressed in Ihis
report.
-p~~ LLf
October 28,2002
fR¡CIWA1ËRHousE[ roPERS I
October 28, 2002
PrlcewaterhouseCoopers ttp
500 Campus Drive
P.O. Box 805
Florh,m Pork NJ 07932
Telephone 197)) 236 7000
F,cslmlle 197)) 236 7200
To the Partners ofKPMG LLP
and the SEC Practice Section Peer Review Committee:
We have reviewed the system of quaJity control for the accounting and auditing practice of
KPMG LLP (the firm) in effect for the year ended March 31, 2002, and have issued our report
thereon dated October 28, 2002. The matters described below were not considered to be of
sufficient significance to affect the opinion expressed in that report, which should be read in
conjunction with this letter.
Engagement Performance
Comment - The finn has comprehensive policies and procedures regarding the supervision of
engagement personnel and review of their work, including assuring that procedures perfonned
and findings and conclusions have been adequately documented. It was noted in our review, as
well as in the firm's internal inspection, that the review and supervision process on some
engagements did not identify instances where (i) the audit work perfonned and the related
conclusions were not fully documented, (ii) minor perfonnance issues related to the execution
of the engagement were not detected, or (iii) minor fmancial s(¡¡tement disclosures were
overlooked. There were certain areas in which these observations were more prevalent than
others, including income taxes (principally the consideration of key accounting issues and the
testing of certain tax-related items), analytical procedures (principally the development and
documentation of expectations), and the quaJifications of external experts. Through discussion
with finn personnel and the review of documentation on Ihe engagements that led to this
comment, we were satisfied that the nature and significance of each instance would not have
altered the conclusions reached or impacted the financial statements taken as a whole.
Recommendation - We recommend that the finn reinforce its review and supervision policies
and procedures Ihrough enhanced training and coaching, and consider other practices aimed at
continually improving the consistency of their perfonnance. Particular emphasis should be
placed on the specific areas described above.
Per$onnel Management
Comment - The firm's policies for perfonnance management include processes for goal-setting,
individual evaluation and interim and annual assessments. Our testing identified instances
where these processes were not documented in a timely manner, including instances where
annual evaluations were not on file prior to announcing promotions.
Recommendation - We recommend fonna] communications to all professional staff
emphasizing the importance of timely and meaningful feedback to the development of
personnel, and more rigorous monitoring and follow-up on untimely or missing documentation.
-:P~(~ Llf
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S:\Our Documcnts\Contracts\07\KPMGservicccompcnsation Amendment.doc
STATE OF TEXAS
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COUNTY OF DENTON
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FIRST AMENDMENT TO CONTRACT FOR AUDITING SERVICES
THIS FIRST AMENDMENT TO THAT CONTRACT made and entered into the 21st
day of June, 2005, ("Base Contract") by and between KPMG LLP with an office at 717 North
Harwood Street, Dallas, Texas 75201, hereinafter referred to as "AUDITOR", and the City of
Denton, Texas, a Texas Municipal Corporation, 215 East McKinney, Denton, Texas 76201,
hereinafter referred to as "OWNER"
WITNESSETH
SECTION 1. ARTICLE 2 - "SCOPE OF SERVICES", of the Base Contract, is hereby
amended to add thereto a new Paragraph F which shall read as follows:
F. As provided in Paragraph D of this Article, the AUDITOR shall perform additional
services which shall consist of the examination of two additional grant programs as outlined in
the Engagement Letter attached as Amendment Number 1 to the Base Contract. For and
inconsideration of the additional services to be performed, CITY agrees to pay AUDITOR
compensation not to exceed Twenty One Thousand and No/IOO Dollars ($21,000.00) which
amount shall be in addition to the amount of compensation specified in the Base Contract.
SECTION 2. Save and except as amended hereby, all the remammg sections,
paragraphs, sentences, clauses, and phrases of the Base Agreement shall remain in full force and
effect.
SECTION 3. This First Amendment to the Base Contract shall be deemed effective
from and after September 15, 2006.
IN WITNESS WHEREOF, the City of Denton, Texas has caused this First Amendment
to be executed by its duly authorized City Manager; and Auditor has executed on this the
20th dayof t-ebrn..arj ,2007.
ATTEST:
JENNIFER WALTERS, CITY SECRETARY
By: C{t1J1J f2{-dttUdun, tua.
APPROVED AS TO LEGAL FORM:
EDWIN M. SNYDER, CITY ATTORNEY
By: ~~ ~
/' .
ATTEST:
"OWNER"
CITY OF DENTON, TEXAS
A Municipal Corporation
Byff6:-~
eorge C. Campbell, CIty Manager
"AUDITOR"
KPMG LLP
By:
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Dee A. Niles, Engagement Partner
Date: J113)QJ
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