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1f. Audit service contract 1991-1994 Doloitte and Touche . 1� 1 . CITYOF 1 � „' ,, 690 COULTER DRIVE • P.O. BOX 147 • CHANHASSEN, MINNESOTA 55317 1 (612) 937 -1900 • FAX (612) 937 -5739 MEMORANDUM . I TO: Mayor and City Council 1 FROM: Don Ashworth, City Manager DATE: July 13, 1992 111 SUBJ: Audit Service Contrac t, 1992 -94 , Deloitte and Touche Audit services for the City of Chanhassen were completed by Voto, Taut and Red path Y P A Y � es g� P (VTR ) for the years 1981 through 1988. In early 1989, the City Council asked that audit service proposals be received from other firms. Staff developed the RFP, including minimum criteria and following Council approval, distributed such to recognized auditing firms within the I metropolitan area. Staff reviewed the proposals received (typically 100 -200 pages in length), and interviewed 7 -8 firms. The list was then reduced to 3-4, with the City Council interviewing those 3 -4 firms. The process took approximately 4-5 months from start to finish, with the City I Council acting to select Deloitte & Touche as city auditors for the 3 year contract period of 1989 -91. As the audit report presented to the City Council this past month represented the last year of the three year contract, I have requested Deloitte to submit a proposal for 1992 -94. I am I in hopes that the City Council will not request that proposals from other firms be solicited as the time and effort required to do such is quite consunting. On the other side, I do not believe that the city should go for more than a 10 year period using the same auditor. [Note: The time I frame to consider soliciting service proposals is proposed to be one of the items included in the "financial policies" as recommended by Deloitte during this past years audit review. That document is rather extensive, and will not be completed prior to the end of this year and probably 1 not until early 1993.] . The quotes submitted by Deloitte & Touche three years ago and currently are as follows: I DELO1TTE PROPOSAL IN 1989 DELOl r E - CURRENT PROPOSAL 1 Year Not To Exceed Year Not To Exceed 1989 $25,320 1992 $27,500 1 1990 $26,600 1993 $28,400 1991 $27,950 1994 $29,500 t o PRINTED ON RECYCLED PAPER 1 1 Mayor and City Council July 13, 1992 I Page 2 I Staff has taken over a larger amount of the audit responsibilities since 1989. These work efforts have been offset by changes in state and federal laws mandating inclusions of tax increment audits as part of the general audit, federal single audit, and our own decision to tackle the fixed I assets in 1991. The fixed asset audit is estimated to have cost approximately $2,500 to $3,000, which was not billed as Deloitte was able to stay within the $27,950 originally proposed. Deloitte has taken into consideration the additional staff efforts in making their proposal for 1 1992 -94, and such is the reason that the 1992 bid is less than the actual costs for 1991. Staff would recommend that the City Council approve the attached three year contract with 1 Deloitte & Touche for auditing services for the years 1992 -94. 1 1 1 1 1 1 1 1 1 1 1 Deloitte & Touche /\ 900 Pillsbury Center Telephone (612) 333 -2301 111 Minneapolis, Minnesota 55402 -1483 Facsimile (612) 375 -5418 1 June 5, 1992 ' City Council of the City of Chanhassen Mr. Donald Ashworth, Finance Director City of Chanhassen Dear Mr. Ashworth: We are pleased to serve as independent certified public accountants for the City of Chanhassen (the City) for the three years ending December 31,1992 through 1994. Mr. Cliff Hoffman will be the Partner in charge of all work we perform for you. He will be assisted by Mr. Dan Mayleben, Senior Manager, in the performance of our services. We believe that frequent and timely communication throughout the year reduces the problems that are often associated with an annual audit. In addition, we have found that we can often assist clients on current problems as they arise. We hope you will call Mr. Hoffman or Mr. Mayleben whenever you feel that they can be of assistance. Audit of Financial Statements; 1 The purpose of our current -year engagement is to audit the general purpose fmancial statements of the City of Chanhassen as of and for the year ending December 31, 1992. In addition, the Combining and Individual Fund and Account Group Financial Statements and various schedules included in the Comprehensive Annual Financial Report accompanying the general purpose financial statements will be subjected to the auditing procedures applied in our audit of the general purpose financial statements. ' Our auditing 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, 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 also request certain written representations from you about the financial statements and related matters. Such representations will include matters relating to both compliance with state and local laws and regulations. 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. Also, we will plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. However, because of the concept of reasonable assurance and because we will not perform a detailed examination of all transactions, there is a risk that material errors, irregularities, or illegal acts, including fraud or defalcations, may exist and not be detected by us. We will advise you, however, of any matters of that , Member � JUN 0 8 1992 D R � i; International CITY OF CHANHASSE. 1 1 Mr. Donald Ashworth City Council of the City of Chanhassen 1 June 5, 1992 Page 2 I nature that come to our attention. Our responsibility as auditors is limited to the period covered by our audit and does not extend to matters that arise during any later periods for which we have not been 1 engaged as auditors and for which we have performed no auditing procedures. Management's Responsibility: I It is our understanding that you will provide us with the basic information required for our audit and that you are responsible for the accuracy and completeness of that information. We will advise you about I accounting principles and their application and will assist in the preparation of your financial statements, but the responsibility for the financial statements remains with you. This responsibility includes the maintenance of adequate records and related internal control structure policies and procedures, the I selection and application of appropriate accounting principles, and the safeguarding of assets. Because, in addition to our report on the general purpose financial statements, the scope of the I engagement includes an audit in accordance with Government Auditing Standards, we are required to issue reports on compliance with federal and state/local laws and regulations, including legal compliance and reports on your systems of internal control. These reports may be accompanied by observations on 1 your compliance or on your systems of internal control, if the results of our audit procedures require such observations. Communications: '' Our audit is not specifically designed and cannot be relied upon to disclose all reportable conditions (that is, significant deficiencies in the design or operation of the internal control structure). However, during 1 the audit, if we become aware of such reportable conditions that affect the financial internal control systems or of ways that we believe management practices can be improved, we will communicate them to you in a separate letter. I As required by Government Auditing Standards, we will maintain the working papers for a minimum of three years from the date of our reports. These working papers will be made available to representatives I of the cognizant audit agency, other government audit staffs, and/or the United States General Accounting Office upon their request and after they have properly notified you of their request to review the working papers. 1 Independence: I Our relationship to the City of Chanhassen is that of an independent contractor. None of our partners, managers, or staff have any direct or indirect financial interest in city contracts, and no one assigned to the audit of the City is related to any employee of the City. In addition, it is our policy that staff I accountants may not be assigned to the audit engagement for more than three consecutive years and that the partner and manager may not be assigned to the audit for more than seven consecutive years. This policy not only assures professional independence, but also brings fresh ideas to the audit engagement. Mr. Donald Ashworth 0 I City Council of the City of Chanhassen June 5, 1992 1 Page 3 Quality Control: 1 As part of our ongoing program of quality control, Deloitte & Touche provides that: 1 • The individuals who will be responsible for planning, directing, and reporting on the audit and who will be spending a substantial portion of the hours expended for the audit will have completed a minimum of 24 hours of continuing professional education programs in state and local government accounting, auditing, financial reporting, and related subjects during the past two years. • As a charter member of the SEC Practice Section of the AICPA Division for CPA firms, Deloitte & 1 Touche submits to regular peer reviews of our accounting and auditing practice. Prior reviews have culminated in unqualified opinions regarding our quality control system. These reviews do include a I representative sample of audits of governmental units performed by Deloitte & Touche. • Deloitte & Touche agrees to permit a reporting to you by a professional society or licensing I organization of the status and disposition of any investigation of our audits of the City requested by a federal inspector general or other appropriate official. Professional Fees: 1 Our professional fees are based on the actual time spent on the engagement at hourly rates related to the 1 experience of the individual assigned, plus travel and other out -of- pocket costs (such as report production, typing, and postage). Our standard hourly rates vary according to the degree of responsibility involved and the experience level of the personnel assigned to your audit. Our invoices for these fees will be rendered each month as work progresses and are payable upon presentation. On this basis, the proposed 1 fees for the next three years are as follows: Report 1 Services production 1991 Actual $ 27,950 $ 2,500 1 1992 Estimated 27,500 2,900 1993 Estimated 28,400 2,900 I 1994 Estimated 29,500 2,900 If the City decides to submit the Comprehensive Annual Financial Report to the Government Finance I Officers Association for the Certificate of Achievement for Excellence in Financial Reporting, our fees in the initial year of submission would be $3,000 higher. We have quoted rates for recurring services for which we can reasonably estimate the time required to 1 render the services. Our estimate of professional fees assumes that the City will provide all necessary information and that there will be no significant changes in the extent of the City's financial operations or 1 Mr. Donald Ashworth City Council of the City of Chanhassen 1 June 5, 1992 Page 4 the scope of our audit work. It is our policy to request no additional fees for budget overruns unless such overruns are due to extensions of work requested by the City or because of circumstances not within our ' control. In these situations, we would discuss the condition with management prior to incurring any additional time. In future years, the implementation of new government accounting standards will require additional work which we will also need to bill separately. If the City decides to produce the comprehensive annual report internally, all of the report production cost would be eliminated. It is our desire to closely control audit time and fees. This is best accomplished by good communication with your personnel during the planning phase of the audit. This allows us to jointly determine requirements, assign tasks, and minimize overlapping and duplicate work. ' We are very proud of our association with the City of Chanhassen and the following cities: Bloomington I Blaine Brooklyn Center Brooklyn Park Eagan Minnetonka Robbinsdale Winona ' It has been a privilege to serve as auditors for the City of Chanhassen in the past, and we look forward to continuing that relationship. We believe this letter accurately summarizes 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. Yours truly, �I, /1 1 Accepted on behalf of the City of Chanhassen by: 1 Signature Date 1 1