9.f Engagement letter for audit of the City's 2016 - 2018 financial statements
Staff Report
Date of Meeting: January 17, 2017
To: City Council
From: Neil Soltis, City Administrator
Re: Engagement Letter for Audit of City Financial Statements
Background: Schlenner Wenner was selected to be the City’s auditor of the 2013 – 2015 financial
statements based on a request for proposal process. The cost of the 2015 audit was 17,450 plus
additional charges based on a required change in governmental accounting standards. The only
other CPA firm to respond to the previous proposal had proposed a fee of $21,475 for the 2015
audit.
Issue: Should the City engage Schlenner Wenner to perform the audit of the City financial
statements for 2016, 2017, and 2018?
Proposal Details: Schlenner Wenner has proposed fees of $17,970 for 2016, $18,510 for 2017, and
19,060 for 2018. These equate to 3% increases for each of the 3 years.
Options:
1. Approve the engagement letter for the 2016 – 2018 audits
2. Approve for a single year and then seek proposals
3. Negotiate changes to the engagement letter
4. Take no action and seek proposals fro other CPA firms with equivalent governmental
experience.
Recommendation:
Option 1 – The work on the 2015 audit was completed in a very professional manner with
minimal need for staff assistance. The proposed cost for the 2018 audit is approximately 12%
less than the cost 2015 proposed by the other firm submitting a proposal for 2013 – 2015.
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Summary of Audit Proposals
City of Scandia, September 2013
Firm: Abdo Eick & Meyers LLP Schlenner Wenner & Co.
Contact: Brad J. Falteysek, CPA
952 715-3004
brad.falteysek@aemcpas.com
Molly Thompson, CPA
320 251-0286
mthompson@swcocpas.com
Cost: 2013 $20,305 $16,300
2014 $20,855 $16,875
2015 $21,475 $17,450
3-year Total $62,635 $50,625
Cost Rank
(1-high to 10-low) 2 1
Hours: 2013 137
(Partner 23, Mgr. 34, Staff 80)
245
(Partner 20, Mgr. 45, Staff 110)
2014 137 245
2015 137 245
Proposal meets
requirements? Yes Yes
Office location: Edina, MN St. Cloud, MN
Size of firm: 90+; 20 in governmental services group 53
Governmental
experience:
35% of business; approx. 175 audits
annually Partner has 20+ years audit experience
Local government
clients:
Chisago City, Elk River, Lindstrom,
Montrose, Rockford
Albany, Bayport, St. Augusta, Stewart,
Holdingford, Little Falls
Notes:
Paperless; able to link to Banyon
financials
Date of external quality review: 2008
Paperless; able to link to Banyon
financials
Date of external quality review: 2010
An Independently Owned Member, RSM US Alliance
RSM US Alliance member firms are separate and independent businesses and legal entities that are responsible for their own acts and omissions, and each are separate and independent from RSM US LLP. RSM US LLP is the U.S. member
firm of RSM International, a global network of independent audit, tax, and consulting firms. Members of RSM US Alliance have access to RSM International resources through RSM US LLP but are not member firms of RSM International.
St. Cloud
320.251.0286
Little Falls
320.632.6311
Albany
320.845.2940
Maple Lake
320.963.5414
Monticello
763.295.5070
www.swcocpas.com
January 3, 2017
Members of Governance
City of Scandia
Scandia, MN
Attention: City Council
The Objective and Scope of the Audit of the Financial Statements
You have requested that we audit the City of Scandia’s (the “City”) governmental activities, business-type
activities, each major fund and aggregate remaining fund information as of and for the years ended December 31,
2016, 2017, and 2018, which collectively comprise the basic financial statements. We are pleased to confirm our
acceptance and our understanding of this audit engagement by means of this letter.
Our audit will be conducted with the objective of our expressing an opinion on the financial statements.
The Responsibilities of the Auditor
We will conduct our audit in accordance with auditing standards generally accepted in the Un ited States of
America (GAAS) and Government Auditing Standards issued by the Comptroller General of the United States
(GAS). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free from material misstatement. An audit involves performing procedures to obtain
audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on
the auditor’s judgment, including the assessment of the risks of material mi sstatement of the financial statements,
whether due to fraud or error. An audit also includes evaluating the appropriateness of accounting policies used
and the reasonableness of significant accounting estimates made by management, as well as evaluating th e overall
presentation of the financial statements.
Because of the inherent limitations of an audit, together with the inherent limitations of internal control, an
unavoidable risk that some material misstatements may not be detecte d exists, even though the audit is properly
planned and performed in accordance with GAAS. Also, an audit is not designed to detect errors or fraud that are
immaterial to the financial statements. The determination of abuse is subjective; therefore, GAS does not expect
us to provide reasonable assurance of detecting abuse.
In making our risk assessments, we consider internal control relevant to the City’s preparation and fair
presentation of the financial statements in order to design audit procedures that are appropriate in the
circumstances but not for the purpose of expressing an opinion on the effectiveness of the City’s internal control.
However, we will communicate to you in writing concerning any significant deficiencies or material weaknesses
in internal control relevant to the audit of the financial statements that we have identified during the audit.
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We will also communicate to the Governing Board (a) any fraud involving senior management and fraud
(whether caused by senior management or other employees) that causes a m aterial misstatement of the financial
statements that becomes known to us during the audit, and (b) any instances of noncompliance with laws and
regulations that we become aware of during the audit (unless they are clearly inconsequential).
The funds that you have told us are maintained by the City and that are to b e included as part of our audit are
listed here:
General Fund
Debt Service Funds
Equipment Replacement Fund
Capital Improvement Fund
Park Capital Improvement Fund
Local Road Improvement Fund
Sewer Fund
Sewer Uptown Fund
Non-Major Governmental Funds
Our reports on internal control will include any significant deficiencies and material weaknesses in controls of
which we become aware as a result of obtaining an understanding of internal control an d performing tests of
internal control consistent with requirements of the standards identified above. Our reports on compliance matters
will address material errors, fraud, abuse, violations of compliance obligations, and oth er responsibilities imposed
by state and federal statutes and regulations or assumed by contracts; and any state or federal grant, entitlement or
loan program questioned costs of which we become aware, consistent with requirements of the standards
identified above.
The Responsibilitie s of Management and Identification of the Applicable Financial Reporting Framework
Our audit will be conducted on the basis that management and, when appropriate, those charged with governance
acknowledge and understand that they have responsibility:
a. For the preparation and fair presentation of the financial statements in accordance with accounting
principles generally accepted in the United States of America ;
b. To evaluate subsequent events through the date the financial statements are issued or available to be
issued, and to disclose the date through which subsequent events were evaluated in the financial
statements. Management also agrees that it will not evaluate subsequent events earlier than the date of the
management representation letter referred to below;
c. For the design, implementation, and maintenance of internal control relevant to the preparation and fair
presentation of financial statements that are free from material misstatement, wh ether due to fraud or
error;
d. For establishing and maintainin g effective internal control over financial reporting, and for informing us
of all significant deficiencies and material weaknesses in the design or operation of such controls of
which it has knowledge;
e. For report distribution; and
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f. To provide us with:
1) Access to all information of which management is aware that is relevant to the preparation and
fair presentation of the financial statements such as records, documentation, and other matters;
2) Additional information that we may request from management f or the purpose of the audit; and
3) Unrestricted access to persons within the City from whom we determine it necessary to obtain
audit evidence.
As part of our audit process, we will request from management and, when appropriate, those charged with
governance written confirmation concerning representations made to us in connection with the audit , including
among other items:
a. That management has fulfilled its responsibilities as set out in the terms of this letter; and
b. That it believes the effects of any uncorr ected misstatements aggregated by us during the current
engagement and pertaining to the latest period presented are immaterial, both individually and in the
aggregate, to the financial statements taken as a whole.
Management is responsible for identifyin g and ensuring that the City complies with the laws and regulations
applicable to its activities, and for informing us about all known material violations of such laws or regulations. In
addition, management is responsible for the design and implementation of programs and controls to prevent and
detect fraud or abuse, and for informing us about all known or suspected fraud or abuse affecting the City
involving management, employees who have significant roles in internal control, and others where the fraud or
abuse could have a material effect on the financial statements or compliance. Management is also responsible for
informing us of its knowledge of any allegations of fraud or abuse, or suspected fraud or abuse, affecting the City
received in communication s from employees, former employees, analysts, regulators, or others.
Management is responsible for the preparation of the supplementary information in accordance with accounting
principles generally accepted in the United States of America. Management agrees to include the auditor’s report
on the supplementary information in any document that contains the supplementary information and indicates that
the auditor has reported on such supplementary information. Management also agrees to present the
supplementary information with the audited financial statements or, if the supplementary information will not be
presented with audited financial statements, to make the audited financial statements readily available to the
intended users of the supplementary information no later than the date of issuance of the supplementary
information and the auditor’s report thereon.
The Governing Board is responsible for informing us of its views about the risks of fraud or abuse within the City,
and its knowledge of any fraud or abuse or suspected fraud or abuse affecting the City.
Our association with an official statement is a matter for which separate arrangements will be necessary. The City
of Scandia agrees to provide us with printer's proofs or masters of such offering documents for our review and
approval before printing and with a copy of the final reproduced material for our approval before it is distributed.
In the event our auditor/client relationship has been terminate d when the City of Scandia seeks such consent, we
will be under no obligation to grant such consent or approval.
The City of Scandia agrees that it will not associate us with any public or private securities offering without first
obtaining our consent. Therefore, the City of Scandia agrees to contact us before it includes our reports, or
otherwise makes reference to us, in any public or private securities offering.
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Because Schlenner Wenner & Co. will rely on the City of Scandia and its management and the Governing Board
to discharge the foregoing responsibilities, the City of Scandia holds harmless and releases Schlenner Wenner &
Co. and its partners and employees from all claims, liabilities, losses, and costs arising in circumstances where
there has been a knowing misrepresentation by a member of the City of Scandia’s management that has caused, in
any respect, Schlenner Wenner & Co.’s breach of contract or negligence. This provision shall survive the
termination of this arrangement for services.
Records and Assistance
If circumstances arise relating to the condition of the City's records, the availability of appropriate audit evidence
or indications of a significant risk of material misstatement of the financial statements because of error, fraudulent
financial reporting or misappropriation of assets which, in our professional judgment, prevent us from completing
the audit or forming an opinion, we retain the unilateral right to take any course of action permitted by
professional standards, including declining to express an opinion or issue a report, or withdrawing from the
engagement.
During the course of our engagement, we may accumulate records containing data that should be reflected in the
City's books and records. The City will determine that all such data, if necessary, will be so reflected.
Accordingly, the City will not expect us to maintain copies of such records in our possession.
The assistance to be supplied by City personnel, including the preparation of schedules and analyses of accounts,
has been discussed and coordinated with Colleen Firkus, Treasurer . The timely and accurate completion of this
work is an essential condition to our completion of the audit and issuance of our audit report.
In connection with our audit, you have requested us to perform certain non-audit services, including (a)
preparation of the financial statements, all note disclosures, and supplemental schedules, (b) various year-end
bookkeeping adjustments (if necessary), (c) preparation of the annual state report, and (d) depreciation schedules.
The GAS independence standards require that the auditor maintain independence so that opinion s, findings,
conclusions, judgments and recommendations will be impartial and viewed as impartial by reasonable and
informed third parties. Before we agree to provide a non -audit service to the City of Scandia, we determine
whether providing such a service would create a significant threat to our independence for GAS audit purposes,
either by itself or in aggregate with other non -audit services provided. A critical component of our determination
is consideration of management’s ability to effectively oversee the non-audit services to be performed. The City
of Scandia has agreed that Colleen Firkus, Treasurer, possesses suitable skill, knowledge or experience and that
the individual understands the non-audit services to be performed sufficiently to oversee them. Accordingly, the
management of the City of Scandia agrees to the following:
a. The City of Scandia has designated Colleen Firkus, Treasurer , as a senior member of management who
possesses suitable skill, knowledge and experience to oversee the services;
b. Colleen Firkus, Treasurer, will assume all management responsibilities for subject matter an d scope of the
non-audit services described above;
c. The City of Scandia will evaluate the adequacy and results of the services performed; and
d. The City of Scandia accepts responsibility for the results and ultimate use of the services.
GAS further requires that we establish an understanding with the City of Scandia’s management and those
charged with governance of the objectives of the non -audit services, the services to be performed, the entity’s
acceptance of its responsibilities, the auditor’s responsibilities and any limitations of the non -audit services. We
believe this letter documents that understanding.
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Other Relevant Information
Schlenner Wenner & Co. may mention the City’s name and provide a general description of the engagement in
Schlenner Wenner & Co.’s client lists and marketing materials.
From time to time and depending upon the circumstances, we may utilize fina ncial information you have provided
to us in connection with this engagement for purposes of creating benchmarking data to be used by Schlenner
Wenner & Co. professionals and other clients. This benchmarking da ta is aggregated with data from a minimum
of five other entities so that users of the data are unable to associate the data with any single entity in the database.
In accordance with GAS, a copy of our most recent peer review report is enclosed for your i nformation.
Fees, Costs, and Access to Workpapers
Our fees for the services described above are based upon the value of the services performed and the time
required by the individuals assigned to the engagement, plus direct expenses. Our fee estima te and completion of
our work are based upon the following criteria:
a. Anticipated cooperation from City personnel
b. Timely responses to our inquiries
c. Timely completion and delivery o f client assistance requests
d. Timely communication of all significant accounting and financial reporting matters
e. The assumption that unexpected circumstances will not be en countered during the engagement
If any of the aforementioned criteria are not met, then fees may increase. Interim billings will be submitted as
work progresses and as expenses are incurred. We will submit our bill for these services promptly upon rendering
the report. Billings are due upon submission. Our estimated fees for the services described in this letter will
approximate the following amounts each year:
Year Ended
December 31,
Amount
2016 $17,970
2017 $18,510
2018 $19,060
Our professional standards require that we perform certain additional procedures, on current and previous years’
engagements, whenever a partner or professional employee leaves the firm and is subsequently employed by or
associated with a client in a key position. Accordingly, the City agrees it will compensate Schlenner Wenner &
Co. for any additional costs incurred as a resu lt of the City's employment of a partner or professional employee of
Schlenner Wenner & Co.
In the event we are requested or authorized by the City of Scandia or are required by government regulation,
subpoena, or other legal process to produce our documents or our personnel as witnesses with respect to our
engagements for the City of Scandia, the City of Scandia will, so long as we are not a party to the proceeding in
which the information is sought, reimburse us for our professional time and expenses, as well as the fees and
expenses of our counsel, incurred in responding to such requests.
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The documentation for this engagement is the property of the City of Scandia. However, you acknowledge and
grant your assent that representatives of the cognizant or oversight agency or their designee, other government
audit staffs, and the U.S. Government Accountability Office shall have access to the audit documentation upon
their request and that we shall maintain the audit documentation for a period of at least three years after the date
of the report, or for a longer period if we are requested to do so by the cognizant or oversight agency. Access to
requested documentation will be provided under the supervision of the City of Scandia audit personnel and at a
location designated by our firm.
Claim Resolution
The City of Scandia and Schlenner Wenner & Co. agree that no claim arising out of services rendered pursuant to
this agreement shall be filed more than two years after the date of the audit report issued by Schlenner Wenner &
Co. or the date of th is arrangement letter if no report has been issued. The City of Scandia waives any claim for
punitive damages. Schlenner Wenner & Co.’s liability for all claims, damages and costs of the City of Scandia
arising from this engagement is limited to the amount of fees paid by the City of Scandia to Schlenner Wenner &
Co. for the services rendered under this arrangement letter.
If any term or provision of this Agreement is determined to be invalid or unenforceable, such term or pr ovision
will be deemed stricken and all other terms and provisions will remain in full force and effect.
Reporting
We will issue a written report upon completion of our audit of the City of Scandia’s financial statements. Our
report will be addressed to the Governing Board of the City of Scandia. We cannot provide assurance that an
unmodified opinion will be expressed. Circumstances may arise in which it is neces sary for us to modify our
opinion, add an emphasis-of-matter or other-matter paragraph(s), or withdraw from the engagement.
In addition to our report on the City of Scandia’s financial statements, we will also issue the following types of
reports:
a. Reports on internal control related to the financial statements. The se reports will describe the scope of
testing of internal control and the results of our tests of internal control;
b. A report as to whether anything came to our attention in relation to the City's compliance with the
provisions of the Minnesota Legal Compliance Audit Guide for Cities, promulgated by the State Auditor
pursuant to Minnesota Statute Section 6.65.
This letter constitutes the complete and exclusive statement of agreement between Schlenner Wenner & Co. and
the City of Scandia, superseding all proposals, oral or written, and all other communications with respect to the
terms of the engagement between the parties.
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Please sign and return a copy of this letter to indicate your acknowledgment of, and agreement with, the
arrangements for our audit of the financial statements, including our respective responsibilities.
Jonathan S. Archer, CPA
Partner
SCHLENNER WENNER & CO.
St. Cloud, Minnesota
Confirmed on behalf of the City of Scandia:
______________________________________________________