HomeMy WebLinkAboutItem 06.g January 3, 2017 Item No.________
Audit Engagement Letter with CliftonLarsonAllen LLP.
Proposed Action
Staff recommends adoption of the following motion: Move to approve Audit Engagement
Letter with CliftonLarsonAllen LLP (CLA).
Approval of the Audit Engagement Letter will result in CLA providing the audit services for
the fiscal year ending December 31, 2016.
Overview
On November 21, 2016, the City Council approved a professional services agreement with
CliftonLarsonAllen LLP to provide auditing services for fiscal years 2016-2018. The attached
Audit Engagement Letter defines the audit scope, objectives, management responsibilities,
audit procedures, engagement administration and fees for the coming year.
Primary Issues to Consider
• Terms of the Audit Engagement Letter. The terms as described in the Letter are
consistent with those of professional services agreement approved by the City Council in
November, 2016.
• Fees. The audit fees are consistent with those of professional services agreement. The
audit fee was included in the 2017 budget.
Supporting Information
• Audit Engagement Letter
Financial Impact: $ Budgeted: Y☒ N☐ Source:
Related Documents: (CIP, ERP, etc.):
Envision Lakeville Community Values: Good Value for Public Services
Report Completed by: Jerilyn Erickson, Finance Director
29,800 Various
2017 Budget
CliftonLarsonAllen LLP
220 South Sixth Street, Suite 300
Minneapolis, MN 55402-1436
612-376-4500 | fax 612-376-4850
CLAconnect.com
An independent member of Nexia International
December 12, 2016
Honorable Mayor, Members of the City Council and Management
City of Lakeville
20195 Holyoke Avenue
Lakeville, MN 55044
We are pleased to confirm our understanding of the terms and objectives of our engagement and the nature
and limitations of the audit services CliftonLarsonAllen LLP (“CLA,” “we,” “us,” and “our”) will provide for the
City of Lakeville (“you,” “your,” or “the entity”) for the year ended December 31, 2016.
Christopher G. Knopik, CPA, CFE is responsible for the performance of the audit engagement.
Audit services
We will audit the financial statements of the governmental activities, the business‐type activities, each major
fund, and the aggregate remaining fund information, which collectively comprise the basic financial statements
of the City of Lakeville, as of and for the year ended December 31, 2016, and the related notes to the financial
statements.
The Governmental Accounting Standards Board (GASB) provides for certain required supplementary information
(RSI) to accompany the entity’s basic financial statements. The following RSI will be subjected to certain limited
procedures, but will not be audited.
1. Management’s discussion and analysis.
2. Budgetary comparison schedules.
3. Schedules of proportionate share of net pension liability and employer contributions ‐ PERA.
4. Schedule of changes in net pension liability (assets) and related ratios and employer contributions –
Lakeville Fire Relief Association
5. Schedule of funding progress – other post‐employment benefit plan
We will also evaluate and report on the presentation of the supplementary information accompanying the
financial statements in relation to the financial statements as a whole.
1. Combining and individual fund financial statements
2. Schedule of changes in bonded indebtedness
3. Schedule of bonded indebtedness and annual interest payable
4. Combined schedule of bonded indebtedness
December 12, 2016
City of Lakeville
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The following information other than RSI accompanying the financial statements will not be subjected to the
auditing procedures applied in our audit of the financial statements and our auditors’ report will not provide an
opinion or any assurance on that information:
1. Introductory section
2. Statistical section
Audit objectives
The objective of our audit is the expression of opinions about whether your basic financial statements are fairly
presented, in all material respects, in conformity with accounting principles generally accepted in the United
States of America (U.S. GAAP). Our audit will be conducted in accordance with auditing standards generally
accepted in the United States of America (U.S. GAAS) and the standards for financial audits contained in
Government Auditing Standards, issued by the Comptroller General of the United States, and will include tests of
your accounting records and other procedures we consider necessary to enable us to express such opinions. We
will apply certain limited procedures to the RSI in accordance with U.S. GAAS. However, we will not express an
opinion or provide any assurance on the RSI because the limited procedures do not provide us with sufficient
evidence to express an opinion or provide any assurance. We will also perform procedures to enable us to
express an opinion on whether the supplementary information (as identified above) other than RSI
accompanying the financial statements is fairly stated, in all material respects, in relation to the financial
statements as a whole.
We will issue a written report upon completion of our audit of your financial statements. We cannot provide
assurance that unmodified opinions will be expressed. Circumstances may arise in which it is necessary for us to
modify our opinions, add an emphasis‐of‐matter or other‐matter paragraph(s), or withdraw from the
engagement. If our opinions are other than unmodified, we will discuss the reasons with you in advance. If
circumstances occur related to the condition of your records, the availability of sufficient, appropriate audit
evidence, or the existence of a significant risk of material misstatement of the financial statements caused by
error, fraudulent financial reporting, or misappropriation of assets, which in our professional judgment prevent
us from completing the audit or forming opinions on the financial statements, we retain the right to take any
course of action permitted by professional standards, including declining to express opinions or issue a report,
or withdrawing from the engagement.
We will also provide a report (which does not include an opinion) on internal control related to the financial
statements and on compliance with the provisions of laws, regulations, contracts, and grant agreements,
noncompliance with which could have a material effect on the financial statements, as required by Government
Auditing Standards. The report on internal control over financial reporting and on compliance and other matters
will include a paragraph that states (1) that the purpose of the report is solely to describe the scope of our
testing of internal control and compliance and the result of that testing, and not to provide an opinion on the
effectiveness of the entity’s internal control or on compliance, and (2) that the report is an integral part of an
audit performed in accordance with Government Auditing Standards in considering the entity’s internal control
and compliance. The paragraph will also state that the report is not suitable for any other purpose.
December 12, 2016
City of Lakeville
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If during our audit we become aware that the entity is subject to an audit requirement that is not encompassed
in the terms of this engagement, we will communicate to management and those charged with governance that
an audit conducted in accordance with U.S. GAAS and the standards for financial audits contained in
Government Auditing Standards may not satisfy the relevant legal, regulatory, or contractual requirements.
As part of our audit, we will also perform the procedures and provide the report required by the Minnesota
Legal Compliance Audit Guide for Political Subdivisions.
Auditor responsibilities, procedures, and limitations
We will conduct our audit in accordance with U.S. GAAS and the standards for financial audits contained in
Government Auditing Standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the basic financial statements as a whole are free from material
misstatement, whether due to fraud or error. An audit involves performing procedures to obtain sufficient
appropriate audit evidence about the amounts and disclosures in the basic financial statements. The procedures
selected depend on the auditors’ judgment, including the assessment of the risks of material misstatement 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 the overall presentation of the basic financial statements.
There is an unavoidable risk, because of the inherent limitations of an audit, together with the inherent
limitations of internal control, that some material misstatements may not be detected, even though the audit is
properly planned and performed in accordance with U.S. GAAS and Government Auditing Standards. Because we
will not perform a detailed examination of all transactions, material misstatements, whether from (1) errors,
(2) fraudulent financial reporting, (3) misappropriation of assets, or (4) violations of laws or governmental
regulations that are attributable to the entity or to acts by management or employees acting on behalf of the
entity, may not be detected. Because the determination of abuse is subjective, Government Auditing Standards
do not expect auditors to provide reasonable assurance of detecting abuse.
In addition, an audit is not designed to detect immaterial misstatements or violations of laws or governmental
regulations that do not have a direct and material effect on the financial statements. However, we will inform
the appropriate level of management and those charged with governance of any material errors, fraudulent
financial reporting, or misappropriation of assets that come to our attention. We will also inform the
appropriate level of management and those charged with governance of any violations of laws or governmental
regulations that come to our attention, unless clearly inconsequential, and of any material abuse that comes to
our attention.
In making our risk assessments, we consider internal control relevant to the entity’s preparation and fair
presentation of the basic 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 entity’s internal
control. Tests of controls may be performed to test the effectiveness of certain controls that we consider
relevant to preventing and detecting fraud or errors that are material to the financial statements and to
preventing and detecting misstatements resulting from noncompliance with provisions of laws, regulations,
contracts, and grant agreements that have a material effect on the financial statements. Our tests, if performed,
will be less in scope than would be necessary to render an opinion on internal control and, accordingly, no
opinion will be expressed in our report on internal control issued pursuant to Government Auditing Standards.
December 12, 2016
City of Lakeville
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An audit is not designed to provide assurance on internal control or to identify deficiencies, significant
deficiencies, or material weaknesses in internal control. However, we will communicate to you in writing
significant deficiencies or material weaknesses in internal control relevant to the audit of the basic financial
statements that we identify during the audit that are required to be communicated under AICPA professional
standards and Government Auditing Standards.
As part of obtaining reasonable assurance about whether the financial statements are free of material
misstatement, we will perform tests of the entity’s compliance with the provisions of laws, regulations,
contracts, and grant agreements that have a material effect on the financial statements. However, the objective
of our audit will not be to provide an opinion on overall compliance and we will not express such an opinion in
our report on compliance issued pursuant to Government Auditing Standards.
We will include in our report on internal control over financial reporting and compliance relevant information
about any fraud; noncompliance with provisions of laws, regulations, contracts, or grant agreements; or abuse
that may have occurred that are required to be communicated under Government Auditing Standards.
Our responsibility as auditors is limited to the period covered by our audit and does not extend to any later
periods for which we are not engaged as auditors.
Management responsibilities
Our audit will be conducted on the basis that you (management and, when appropriate, those charged with
governance) acknowledge and understand that you have certain responsibilities that are fundamental to the
conduct of an audit.
You are responsible for the preparation and fair presentation of the financial statements and RSI in accordance
with U.S. GAAP. Management’s responsibilities include the selection and application of accounting principles;
recording and reflecting all transactions in the financial statements; determining the reasonableness of
significant accounting estimates included in the financial statements; adjusting the financial statements to
correct material misstatements; and confirming to us in the management representation letter that the effects
of any uncorrected misstatements aggregated by us during the current engagement and pertaining to the latest
period presented are immaterial, both individually and in the aggregate, to the financial statements taken as a
whole.
You are responsible for the design, implementation, and maintenance of effective internal control, including
evaluating and monitoring ongoing activities, to help ensure that appropriate goals and objectives are met
relevant to the preparation and fair presentation of financial statements that are free from material
misstatement, whether due to fraud or error. You are responsible for the design, implementation, and
maintenance of internal controls to prevent and detect fraud; assessing the risk that the financial statements
may be materially misstated as a result of fraud; and for informing us about all known or suspected fraud
affecting the entity involving (1) management, (2) employees who have significant roles in internal control, and
(3) others where the fraud could have a material effect on the financial statements. Your responsibilities include
informing us of your knowledge of any allegations of fraud or suspected fraud affecting the entity received in
communications from employees, former employees, grantors, regulators, or others.
December 12, 2016
City of Lakeville
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In addition, you are responsible for implementing systems designed to achieve compliance with applicable laws
and regulations and the provisions of contracts and grant agreements; identifying and ensuring that the entity
complies with applicable laws, regulations, contracts, and grant agreements; and informing us of all instances of
identified or suspected noncompliance whose effects on the financial statements should be considered. You are
responsible for taking timely and appropriate steps to remedy any fraud; noncompliance with provisions of laws,
regulations, contracts, or grant agreements; or abuse that we may report.
You are responsible for ensuring that management is reliable and for providing us with (1) access to all
information of which you are aware that is relevant to the preparation and fair presentation of the financial
statements, such as records, documentation, and other matters, and for the accuracy and completeness of that
information, and for ensuring the information is reliable and properly reported; (2) additional information that
we may request for the purpose of the audit; and (3) unrestricted access to persons within the entity from
whom we determine it necessary to obtain audit evidence. You agree to inform us of events occurring or facts
discovered subsequent to the date of the financial statements that may affect the financial statements.
Management is responsible for the preparation of the supplementary information in accordance with U.S.
GAAP. You agree to include our report on the supplementary information in any document that contains, and
indicates that we have reported on, the supplementary information. You also agree to include the audited
financial statements with any presentation of the supplementary information that includes our report thereon
or make the audited financial statements readily available to users of the supplementary information no later
than the date the supplementary information is issued with our report thereon. You agree to provide us written
representations related to the presentation of the supplementary information.
Management is responsible for providing us with a written confirmation concerning representations made by
you and your staff to us in connection with the audit and the presentation of the basic financial statements and
RSI. During our engagement, we will request information and explanations from you regarding, among other
matters, the entity’s activities, internal control, future plans, specific transactions, and accounting systems and
procedures. The procedures we will perform during our engagement and the conclusions we reach as a basis for
our report will be heavily influenced by the representations that we receive in the representation letter and
otherwise from you.
Accordingly, inaccurate, incomplete, or false representations could cause us to expend unnecessary effort or
could cause a material fraud or error to go undetected by our procedures. In view of the foregoing, you agree
that we shall not be responsible for any misstatements in the entity’s financial statements that we may fail to
detect as a result of misrepresentations made to us by you.
Management is responsible for authorizing the predecessor auditor to allow us to review the predecessor
auditor’s workpapers and to respond fully to our inquiries, thereby providing us with information to assist us in
planning and performing the engagement. You will be responsible for any fees billed by the predecessor auditor
related to our review of their workpapers and our inquiries.
Management is responsible for establishing and maintaining a process for tracking the status of audit findings
and recommendations. Management is also responsible for identifying for us previous financial audits,
attestation engagements, performance audits, or other studies related to the objectives discussed in the “Audit
objectives” section of this letter.
December 12, 2016
City of Lakeville
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This responsibility includes relaying to us corrective actions taken to address significant findings and
recommendations resulting from those audits, attestation engagements, performance audits, or other
engagements or studies. You are also responsible for providing management’s views on our current findings,
conclusions, and recommendations, as well as your planned corrective actions for the report, and for the timing
and format for providing that information.
Responsibilities and limitations related to nonaudit services
For all nonaudit services we may provide to you, management agrees to assume all management
responsibilities; oversee the services by designating an individual, preferably within senior management, who
possesses suitable skill, knowledge, and/or experience to understand and oversee the services; evaluate the
adequacy and results of the services; and accept responsibility for the results of the services.
Use of financial
With regard to the electronic dissemination of audited financial statements, including financial statements
published electronically on your website or submitted on a regulator website, you understand that electronic
sites are a means to distribute information and, therefore, we are not required to read the information
contained in those sites or to consider the consistency of other information in the electronic site with the
original document.
We may issue preliminary draft financial statements to you for your review. Any preliminary draft financial
statements should not be relied on or distributed.
Engagement administration and other matters
We expect to begin our audit in January 2017.
We understand that your employees will prepare all confirmations, account analyses, and audit schedules we
request and will locate any documents or invoices selected by us for testing. A list of information we expect to
need for our audit and the dates required will be provided in a separate communication.
We will provide copies of our reports to the entity; however, management is responsible for distribution of the
reports and the financial statements. Unless restricted by law or regulation, or containing privileged and
confidential information, copies of our reports are to be made available for public inspection.
We are available to perform additional procedures with regard to fraud detection and prevention, at your
request, as a separate engagement, subject to completion of our normal engagement acceptance procedures.
The terms and fees of such an engagement would be documented in a separate engagement letter.
The audit documentation for this engagement is the sole and exclusive property of CLA and constitutes
confidential and proprietary information. However, subject to applicable laws and regulations, audit
documentation and appropriate individuals will be made available upon request and in a timely manner to the
Minnesota Office of the State Auditor, or its designee, a federal agency providing direct or indirect funding, or
the U.S. Government Accountability Office for purposes of a quality review of the audit, to resolve audit findings,
or to carry out oversight responsibilities. We will notify you of any such request. If requested, access to such
audit documentation will be provided under the supervision of CLA personnel. Furthermore, upon request, we
may provide copies of selected audit documentation to the aforementioned parties. These parties may intend,
December 12, 2016
City of Lakeville
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or decide, to distribute the copies or information contained therein to others, including other governmental
agencies.
The audit documentation for this engagement will be retained for a minimum of seven years after the report
release date or for any additional period requested by the Minnesota Office of the State Auditor. If we are
aware that a federal awarding agency, pass‐through entity, or auditee is contesting an audit finding, we will
contact the party(ies) contesting the audit finding for guidance prior to destroying the audit documentation.
Professional standards require us to be independent with respect to you in the performance of these services.
Any discussion that you have with our personnel regarding potential employment with you could impair our
independence with respect to this engagement. Therefore, we request that you inform us prior to any such
discussions so that we can implement appropriate safeguards to maintain our independence and objectivity.
Further, any employment offers to any staff members working on this engagement without our prior knowledge
may require substantial additional procedures to ensure our independence. You will be responsible for any
additional costs incurred to perform these procedures.
Our relationship with you is limited to that described in this letter and subject to all provisions of the
Professional Services Agreement dated November 16, 2016. In the event of conflict among the provisions of this
engagement letter and the Professional Services Agreement, the Professional Services Agreement shall have the
highest priority. As such, you understand and agree that we are acting solely as independent accountants. We
are not acting in any way as a fiduciary or assuming any fiduciary responsibilities for you. We are not responsible
for the preparation of any report to any governmental agency, or any other form, return, or report or for
providing advice or any other service not specifically recited in this letter.
Our engagement and responsibility end on delivery of our signed report. Any additional services that might be
requested will be a separate, new engagement. The terms and conditions of that new engagement will be
governed by a new, specific engagement letter for that service.
Government Auditing Standards require that we make our most recent external peer review report publicly
available. The report is posted on our website at www.CLAconnect.com/Aboutus/.
Mediation
Any disagreement, controversy, or claim (“Dispute”) that may arise out of any aspect of our services or
relationship with you, including this engagement, shall be submitted to non‐binding mediation by written notice
(“Mediation Notice”) to the other party. In mediation, we will work with you to resolve any differences
voluntarily with the aid of an impartial mediator.
The mediation will be conducted as specified by the mediator and agreed upon by the parties. The parties agree
to discuss their differences in good faith and to attempt, with the assistance of the mediator, to reach an
amicable resolution of the Dispute.
Each party will bear its own costs in the mediation. The fees and expenses of the mediator will be shared equally
by the parties.
December 12, 2016
City of Lakeville
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Any Dispute will be governed by the laws of the state of Minnesota, without giving effect to choice of law
principles.
Fees
We estimate that our fees for these services will be $29,800 for the City’s basic financial statements. These fees
also include travel and other out‐of‐pocket costs, such as report production, word processing, postage, etc.
These fees are in accordance with our proposal dated October 25, 2016 and our contract dated November 16,
2016. The fee estimate is based on anticipated cooperation from your personnel and their assistance with
preparing confirmations and requested schedules. If the requested items are not available on the dates required
or are not accurate, the estimated fee for services will likely be higher.
If unexpected circumstances require significant additional time, we will advise you before undertaking work that
would require a substantial increase in the fee estimate. Our invoices for these fees will be rendered each
month as work progresses and are payable on presentation. In accordance with our firm policies, work may be
suspended if your account becomes 60 days or more overdue and will not be resumed until your account is paid
in full. If we elect to terminate our services for nonpayment, our engagement will be deemed to have been
completed even if we have not issued our reports. You will be obligated to compensate us for all time expended
and to reimburse us for all out‐of‐pocket expenditures through the date of termination.
Other fees
You also agree to compensate us for any time and expenses, including time and expenses of legal counsel, we
may incur in responding to discovery requests or participating as a witness or otherwise in any legal, regulatory,
or other proceedings that we are asked to respond to on your behalf, except for legal actions where we are a
party to the action.
Finance charges and collection expenses
You agree that if any statement is not paid within 30 days from its billing date, the unpaid balance shall accrue
interest at the monthly rate of one and one‐quarter percent (1.25%), which is an annual percentage rate of 15%.
In the event that any collection action is required to collect unpaid balances due us, reasonable attorney fees
and expenses shall be recoverable.
Consent
Consent to use financial information
Annually, we assemble a variety of benchmarking analyses using client data obtained through our audit and
other engagements. Some of this benchmarking information is published and released publicly. However, the
information that we obtain is confidential, as required by the AICPA Code of Professional Conduct. Your
acceptance of this engagement letter will serve as your consent to use of City of Lakeville’s information in these
cost comparison, performance indicator, and/or benchmarking reports.
December 12, 2016
City of Lakeville
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Agreement
We appreciate the opportunity to be of service to you and believe this letter accurately summarizes the
significant terms of our engagement. This letter constitutes the entire agreement regarding these services and
supersedes all prior agreements (whether oral or written), understandings, negotiations, and discussions
between you and CLA. If you have any questions, please let us know. Please sign, date, and return a copy of this
letter to us to indicate your acknowledgment and understanding of, and agreement with, the arrangements for
our audit of your financial statements including the terms of our engagement and the parties’ respective
responsibilities.
Sincerely,
CliftonLarsonAllen LLP
Christopher G. Knopik, CPA, CFE
Principal
612‐397‐3266
christopher.knopik@CLAconnect.com
Response:
This letter correctly sets forth the understanding of the City of Lakeville.
Authorized governance signature:
Title:
Date:
Authorized management signature:
Title:
Date: