Audit Agreement - 2014 4' ..
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MIZE r HOUSER
1QMPANYP.A.
October 16, 2014
City Commission
City of Salina
300 West Ash Street
Salina, KS 67402
We are pleased to confirm our understanding of the services we are to provide the City of Salina, Kansas, (the
City) for the year ended December 31, 2014. We will audit the financial statements of the governmental activities,
the business-type activities, the aggregate discretely presented component units, each major fund, budgetary
comparison schedules and the aggregate remaining fund information, which collectively comprise the basic
financial statements of the City as of and for the year ended December 31, 2014, with the exception of the
discretely presented component units which will be audited by other auditors.
Accounting standards generally accepted in the United States of America provide for certain required
supplementary information (RSI), such as management discussion and analysis (MD&A), to supplement the City's
basic financial statements. Such information, although not a part of the basic financial statements, is required by
the Governmental Accounting Standards Board who considers it to be an essential part of financial reporting for
placing the basic financial statements in an appropriate operational, economic or historical context. As part of our
engagement, we will apply certain limited procedures to the City's RSI in accordance with auditing standards
generally accepted in the United States of America. These limited procedures will consist of inquiries of
management regarding the methods of preparing the information and comparing the information for consistency
with management's responses to our inquiries, the basic financial statements, and other knowledge we obtained
during our audit of the basic financial statements. We will not express an opinion or provide any assurance on the
information because the limited procedures do not provide us with sufficient evidence to express an opinion or
provide any assurance. The following RSI is required by generally accepted accounting principles and will be
subjected to certain limited procedures, but will not be audited: management's discussion and analysis and OPEB
information.
We have also been engaged to report on supplementary information other than RSI that accompanies the City's
financial statements. We will subject the following supplementary information to the auditing procedures applied in
our audit of the basic financial statements and certain additional procedures, including comparing and reconciling
such information directly to the underlying accounting and other records used to prepare the financial statements
or to the financial statements themselves, and other additional procedures in accordance with auditing standards
generally accepted in the United States of America and will provide an opinion on it in relation to the financial
statements as a whole: schedule of expenditures of federal awards, combining statements and individual fund
statements.
The following additional information accompanying the basic financial statements will not be subjected to the
auditing procedures applied in our audit of the financial statements and for which our auditor's report will disclaim
an opinion: introductory and statistical sections.
Audit Objectives
The objective of our audit is the expression of opinions as to whether your basic financial statements are fairly
presented, in all material respects, in conformity with U.S. generally accepted accounting principles and to report
on the fairness of the supplementary information referred to above when considered in relation to the basic
financial statements taken as a whole.
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The objectives also include reporting on:
1. Internal control related to the financial statements and compliance with the provisions of laws, regulations,
contracts, and grant agreements, noncompliance with which could have a material effect on the financial
statements in accordance with Government Auditing Standards.
2. Internal control related to major programs and an opinion (or disclaimer of opinion) on compliance with laws,
regulations, and the provisions of contracts or grant agreements that could have a direct and material effect on
each major program in accordance with the Single Audit Act Amendments of 1996 and OMB Circular A-133,
Audits of States, Local Governments, and Non-Profit Organizations.
The Government Auditing Standards 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 testing of internal control and compliance and the results 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 OMB Circular A-133 report on internal control over compliance will include a paragraph that
states that the purpose of the report on internal control over compliance is solely to describe the scope of testing
of internal control over compliance and the results of that testing based on the requirements of OMB Circular A-
133. Both reports will state that the report is not suitable for any other purpose.
Our audit will be conducted in accordance with auditing standards generally accepted in the United States of
America, the standards for financial audits contained in Government Auditing Standards, issued by the
Comptroller General of the United States; the Single Audit Act Amendments of 1996; and the provisions of OMB
Circular A-133; and the Kansas Municipal Audit and Accounting Guide and will include tests of the accounting
records, a determination of major program(s) in accordance with OMB Circular A-133, and other procedures we
consider necessary to enable us to express such opinions. We will issue written reports upon completion of the
Single Audit. Our reports will be addressed to the governing body of the City. We cannot provide assurance that
unmodified opinions will be expressed. Circumstances may arise in which it is necessary for us to modify our
opinions or add emphasis-of-matter or other-matter paragraphs. If our opinion on the financial statements or the
Single Audit compliance opinions are other than unmodified, we will fully discuss the reasons with you in advance.
If for any reason, we are unable to complete the audit or are unable to form or have not formed opinions, we may
decline to express opinions or issue reports, or may withdraw from this engagement.
Management Responsibilities
Management is responsible for the basic financial statements, schedule of expenditures of federal awards, and all
accompanying information as well as all representations contained therein. Management is also responsible for
identifying all federal awards received and understanding and complying with the compliance requirements, and
for the preparation of the schedule of expenditures of federal awards (including notes and noncash assistance
received) in accordance with the requirements of OMB Circular A-133. As part of the audit, we will assist with
preparation of your financial statements, schedule of expenditures of federal awards, and related notes. These
nonaudit services do not constitute an audit under Government Auditing Standards and such services will not be
conducted in accordance with Government Auditing Standards. You agree to assume all management
responsibilities relating to the financial statements, schedule of expenditures of federal awards, related notes, and
any other nonaudit services we provide. You will be required to acknowledge in the written representation letter
our assistance with preparation of the financial statements, schedule of expenditures of federal awards, and
related notes and that you have reviewed and approved the financial statements, schedule of expenditures of
federal awards, and related notes prior to their issuance and have accepted responsibility for them. Further, you
agree to oversee the nonaudit services by designating an individual, preferably from senior management, who
possesses suitable skill, knowledge, or experience; evaluate the adequacy and results of those services; and
accept responsibility for them.
Management is responsible for (a) establishing and maintaining effective internal controls, including internal
controls over compliance, and for evaluating and monitoring ongoing activities, to help ensure that appropriate
goals and objectives are met; (b) following laws and regulations; (c) ensuring that there is reasonable assurance
that government programs are administered in compliance with compliance requirements; and (d) ensuring that
management is reliable and financial information is reliable and properly reported. Management is also
responsible for implementing systems designed to achieve compliance with applicable laws, regulations,
contracts, and grant agreements. You are also responsible for the selection and application of accounting
principles; for the preparation and fair presentation of the financial statements in conformity with U.S. generally
accepted accounting principles; and for compliance with applicable laws and regulations and the provisions of
contracts and grant agreements.
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Management is also responsible for making all financial records and related information available to us and for the
accuracy and completeness of that information. You are also responsible 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, (2) additional information that we may request for the purpose of the audit, and (3) unrestricted
access to persons within the government from whom we determine it necessary to obtain audit evidence.
Your responsibilities also include, identifying significant vendor relationships in which the vendor has responsibility
for program compliance and for the accuracy and completeness of that information. Management is responsible
for adjusting the financial statements to correct material misstatements and for confirming 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 taken as a whole.
You are responsible for the design and implementation of programs and controls to prevent and detect fraud, and
for informing us about all known or suspected fraud and illegal acts affecting the government involving (1)
management, (2) employees who have significant roles in internal control, and (3) others where the fraud and
illegal acts 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 government received in
communications from employees, former employees, grantors, regulators, or others. In addition, you are
responsible for identifying and ensuring that the government complies with applicable laws, regulations, contracts,
agreements, and grants. Management is also responsible for taking timely and appropriate steps to remedy fraud
and noncompliance with provisions of laws, regulations, contracts, and grant agreements, or abuse that we
report. Additionally, as required by OMB Circular A-133, it is management's responsibility to follow up and take
corrective action on reported audit findings and to prepare a summary schedule of prior audit findings and a
corrective action plan.
You are also responsible for preparation of the schedule of expenditures of federal awards (including notes and
noncash assistance received) in conformity with OMB Circular A-133. You agree to include our report on the
schedule of expenditures of federal awards in any document that contains and indicates that we have reported on
the schedule of expenditures of federal awards. You also agree to include the audited financial statements with
any presentation of the schedule of expenditures of federal awards that includes our report thereon. Your
responsibilities include acknowledging to us in the representation letter that (a) you are responsible for
presentation of the schedule of expenditures of federal awards in accordance with OMB Circular A-133; (b) that
you believe the schedule of expenditures of federal awards, including its form and content, is fairly presented in
accordance with OMB Circular A-133, (c) that the methods of measurement or presentation have not changed
from those used in the prior period; and (d) you have disclosed to us any significant assumptions or
interpretations underlying the measurement or presentation of the schedule of expenditures of federal awards.
You are responsible for the preparation of the other supplementary information, which we have been engaged to
report on, in conformity with U.S. generally accepted accounting principles. 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 present the supplementary information with the audited financial
statements. Your responsibilities include acknowledging to us in the written representation letter that (a) you are
responsible for presentation of the supplementary information in accordance with GAAP; (b) that you believe the
supplementary information, including its form and content, is fairly presented in accordance with GAAP; (c) that
the methods of measurement or presentation have not changed from those used in the prior period; and (d) you
have disclosed to us any significant assumptions or interpretations underlying the measurement or presentation of
the supplementary information.
Management is responsible for establishment and maintenance of 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. 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 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.
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In connection with this engagement, we may communicate with you or others via email transmission. As emails
can be intercepted and read, disclosed, or otherwise used or communicated by an unintended third party, or may
not be delivered to each of the parties to whom they are directed and only to such parties, we cannot guarantee
or warrant that emails from us will be properly delivered and read only by the addressee. To mitigate these risks,
we offer a method for you to send sensitive information to us securely and also one for us to securely send
sensitive information to you. We strongly encourage the use of these secure methods, particularly for the
transmission of Personally Identifiable Information (PII).
Audit Procedures-General
An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial
statements; therefore, our audit will involve judgment about the number of transactions to be examined and the
areas to be tested. An audit also includes evaluating the appropriateness of accounting principles used and the
reasonableness of significant accounting estimates made by management, as well as evaluating the overall
presentation of the financial statements. We will plan and perform the audit to obtain reasonable rather than
absolute assurance about whether the financial statements are free of material misstatement, whether from (1)
errors, (2) fraudulent financial reporting, (3) misappropriation of assets, or(4) violations of laws and governmental
regulations that are attributable to the entity or to acts by management or employees acting on behalf of the
entity. Because the determination of abuse is subjective, Government Auditing Standards do not expect auditors
to provide reasonable assurance of detecting abuse.
Because of the inherent limitations of an audit, combined with the inherent limitations of internal control, and
because we will not perform a detailed examination of all transactions, there is a risk that material misstatements
or noncompliance may exist and not be detected by us, even though the audit is properly planned and performed
in accordance with U.S. generally accepted auditing standards and Government Auditing Standards. 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 or major programs. However, we will inform
the appropriate level of management of any material errors or any fraudulent financial reporting or
misappropriation of assets that come to our attention. We will also inform the appropriate level of management 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. We will include such matters in the reports required for a Single
Audit. 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.
Our procedures will include tests of documentary evidence supporting the transactions recorded in the accounts,
and may include tests of the physical existence of inventories, and direct confirmation of receivables and certain
other assets and liabilities by correspondence with selected individuals, funding sources, creditors, and financial
institutions. We will request written representations from your attorneys as part of the engagement, and they may
bill you for responding to this inquiry. At the conclusion of our audit, we will require certain written representations
from you about your responsibilities for the financial statements; schedule of expenditures of federal awards;
federal award programs; compliance with laws, regulations, contracts, and grant agreements; and other
responsibilities required by generally accepted auditing standards.
Audit Procedures-Internal Control
Our audit will include obtaining an understanding of the entity and its environment, including internal control,
sufficient to assess the risks of material misstatement of the financial statements and to design the nature, timing,
and extent of further audit procedures. Tests of controls may be performed to test the effectiveness of certain
controls that we consider relevant to preventing and detecting errors and fraud that are material to the financial
statements and to preventing and detecting misstatements resulting from illegal acts and other noncompliance
matters that have a direct and 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.
As required by OMB Circular A-133, we will perform tests of controls over compliance to evaluate the
effectiveness of the design and operation of controls that we consider relevant to preventing or detecting material
noncompliance with compliance requirements applicable to each major federal award program. However, our
tests will be less in scope than would be necessary to render an opinion on those controls and, accordingly, no
opinion will be expressed in our report on internal control issued pursuant to OMB Circular A-133.
An audit is not designed to provide assurance on internal control or to identify significant deficiencies or material
weaknesses. However, during the audit, we will communicate to management and those charged with
governance internal control related matters that are required to be communicated under AICPA professional
standards, Government Auditing Standards and OMB Circular A-133.
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Audit Procedures-Compliance
As part of obtaining reasonable assurance about whether the financial statements are free of material
misstatement, we will perform tests of the City's compliance with applicable laws and regulations and the
provisions of contracts and agreements, including grant agreements. 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.
OMB Circular A-133 requires that we also plan and perform the audit to obtain reasonable assurance about
whether the auditee has complied with applicable laws and regulations and the provisions of contracts and grant
agreements applicable to major programs. Our procedures will consist of test of transactions and other applicable
procedures described in the OMB Circular A-133 Compliance Supplement and related addenda for the types of
compliance requirements that could have a direct and material effect on each of the City's major programs. The
purpose of those procedures will be to express an opinion on the City's compliance with requirements applicable
to each of its major programs in our report on compliance issued pursuant to OMB Circular A-133.
Audit Administration, Fees and Other
When delivered to the City, the audit reports and financial statements produced in connection with this
engagement letter are public records and may be used (a) to fulfill the requirements of continuing disclosure
under SEC Rule 15c2-12, (b) as inserts or incorporated by reference in offering documents issued by the City,
and (c) for any lawful purpose of the City, all without subsequent consent from us. Any official statements in
connection with debt issuances which include the above mentioned audit reports and financial statements shall
contain the following: "Our independent auditor has not been engaged to perform and has not performed, since
the date of its report included herein, any procedures on the financial statements addressed in that report. The
independent auditor also has not performed any procedures relating to this official statement."
At the conclusion of this engagement, we will complete the appropriate sections of the Data Collection Form that
summarizes our audit findings. It is management's responsibility to submit the reporting package (including
financial statements, schedule of expenditures of federal awards, summary schedule of prior auditing findings,
auditor's reports and a corrective action plan) along with the Data Collection Form to the federal audit
clearinghouse. We will coordinate with you the electronic submission and certification. If applicable, we will
provide copies of our report for you to include with the reporting package you will submit to pass-through entities.
The Data Collection Form and the reporting package must be submitted with in the earlier of 30 days after receipt
of the auditors' reports or nine months after the end of the audit period, unless a longer period is agreed to in
advance by the cognizant or oversight agency for audits.
We may prepare a general ledger trial balance for use during the audit. Our preparation of the trial balance will be
limited to formatting information in the general ledger into a working trial balance.
Our audit engagement ends on delivery of our audit report. Any follow-up services that might be required 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.
The workpapers for this engagement are our property and constitute confidential information. However, we may
be requested to make certain workpapers available to others pursuant to authority given by law, regulation or
other legal process. If requested, access to such workpapers will be provided under the supervision of firm
personnel. Furthermore, upon request, we may provide photocopies of selected workpapers to governmental
agencies who may intend or decide to distribute the photocopies or information contained therein to others,
including other governmental agencies. You agree to reimburse us for our personnel and other costs associated
with our compliance with such requests. Our policy is to retain workpapers for five years after the engagement. If
we are aware of 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. During
the term of this engagement, we agree to comply with the provisions of K.S.A. 44-1030.
You agree that the term "those charged with governance", as used in Statement on Auditing Standards No. 114
for defining our communication responsibilities under that standard, consists of the mayor, city commission, and
the city manager.
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•
It is understood that the services provided by our firm necessarily rely, to some extent, on information provided by
your organization, including management representations, as well as information and documents. Accordingly,
your organization indemnifies our firm and its owners and employees, and holds them harmless from all claims,
liabilities, losses or costs in connection with services provided by our firm that are affected in any way by
erroneous, misleading, or incomplete information furnished by your organization. This indemnification will survive
any terminations under this letter.
•Mize Houser & Company P.A. and the City agree that any dispute arising hereunder (other than our efforts'to
collect unpaid fees and expenses)will, prior to resorting to litigation, be submitted to mediation by the parties. The
parties will engage in the mediation process in good faith and such process shall be commenced by the written
request by either party to the other to mediate any such dispute or alleged breach of this Agreement. Any
mediation initiated as a result shall be administered within the state and county of the Mize Houser & Company
P.A. office servicing the City by a mutually agreed-upon mediator in accordance with generally accepted
mediation rules. Such mediation shall be binding on both parties only after execution of a written agreement
setting forth the terms and conditions agreed to pursuant to such mediation. Any and all costs of mediation shall
be divided equally between the parties hereto.
Audrey M. Odermann, CPA is the engagement partner and is responsible for supervising the engagement and
signing the reports or authorizing another individual to sign them. We agree that our gross fee, including all
expenses, for the above services shall not exceed $39,155, except as noted above and below. 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 overdue and may 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 upon written notification of termination, even if we have not completed our report. You will
be obligated to compensate us for all time expended and to reimburse us for all out-of-pocket costs through the
date of termination. The above fee is based on anticipated cooperation from your personnel and the assumption
that unexpected circumstances will not be encountered during the audit, including delays resulting from the
untimely delivery of and incomplete preparation of schedules and questionnaires we have requested from your
staff. If significant additional time is necessary, we will discuss it with you and arrive at a new fee estimate before
we incur the additional costs.
Government Auditing Standards require that we provide you with a copy of our most recent external peer review
report. Our 2012 peer review report accompanies this letter.
We appreciate the opportunity to be of service to the City of Salina, Kansas and believe this letter accurately
summarized the significant terms of our engagement. If you have any questions, please let us know. If you agree
with the terms of our engagement as described in this letter, please sign the enclosed copy and return it to us.
Very truly yours,
MIZE HOUSER &COMPANY P.A.
Certified Public Accountants
By
Audrey M. Odermann, CPA
RESPONSE:
This lette : re y sets forth the understanding of the City of Salina, Kansas.
By:
CI■
Date: KIM Mb? 2q , ZoIL
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