Contract - White Nelson Diehl Evans LLP - 2014-06-11June 11, 2014
Mr. Scott Carroll
General Manager
Costa Mesa Sanitary District
628 West 19a' Street
Costa Mesa, CA 92627
Dear Mr. Carroll:
We are pleased to confirm our understanding of the services we are to provide Costa Mesa Sanitary
District (the District) for the year ending June 30, 2014. We will audit the financial statements of the
District, including the related notes to the financial statements, which collectively comprise the basic
financial statements of the District as of and for the year ending June 30, 2014. Accounting standards
generally accepted in the United States of America provide for certain required supplementary
information (RSI), such as management's discussion and analysis (MD &A) and the Other
Post - Employment Benefit Plan schedule of funding progress to supplement the District'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 District'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:
1) Management's Discussion and Analysis.
2) District's Schedule of Funding Progress - Other Post - Employment Benefit Plan.
The following other information 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 other information:
1) Introductory Section.
2) Statistical Section
2873 Michelle Drive, Suite 300, Irvine, CA 92606 • Tel: 714.978 1300 • Fax: 714.978.7893
Ofices located in Orange and San Diego Counties
Mr. Scott Carroll, General Manager
Costa Mesa Sanitary District
June 11, 2014
Page 2
Audit Objectives:
The objective of our audit is the expression of an opinion as to whether your financial statements are
fairly presented, in all material respects, in conformity with U.S. generally accepted accounting
principles. Our audit will be conducted in accordance with auditing standards generally accepted in the
United States of America 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 the
accounting records of the District and other procedures we consider necessary to enable us to express
an opinion. We will issue a written report upon completion of our audit of the District's financial
statements. Our report will be addressed to the Board of Directors of the District. We cannot provide
assurance that an unmodified opinion will be expressed. Circumstances may arise in which it is
necessary for us to modify our opinion or add emphasis -of -matter or other -matter paragraphs. If our
opinion on the financial statements is 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 an opinion on the
financial statements, we retain the 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.
We will also provide a report (that does not include an opinion) on 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 as
required by Government Auditing Standards. The report on internal control 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 District's internal control on compliance, and (2) that the
report is an integral part of an audit performed in accordance with Government Auditing Standards in
considering the District's internal control and compliance. The paragraph will also state that the report
is not suitable for any other purpose. If during our audit we become aware that the District 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 in accordance with U.S. generally
accepted auditing standards and the standards for financial audits contained in Government Auditing
Standards may not satisfy the relevant legal, regulatory, or contractual requirements.
Management Responsibilities:
Management is responsible for the financial statements and all accompanying information as well as
all representations contained therein. As part of the audit, we will assist with preparation of your
financial statements 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 and related notes and any other nonaudit services we provide. You will be
required to acknowledge in the management representation letter our assistance with preparation of the
financial statements and related notes and that you have reviewed and approved the financial
statements 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.
Mr. Scott Carroll, General Manager
Costa Mesa Sanitary District
June 11, 2014
Page 3
Management Responsibilities (Continued):
Management is responsible for establishing and maintaining effective internal controls, including
evaluating and monitoring ongoing activities, to help ensure that appropriate goals and objectives are
met; following laws and regulations; and 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.
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 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 include adjusting the financial statements to correct material misstatements and
for confirming to us in the written 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 affecting the government
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
government received in communications from employees, former employees, grantors, regulators, or
others. In addition, you are responsible for identifying and ensuring that the District complies with
applicable laws, regulations, contracts, agreements, and grants for taking timely and appropriate steps
to remedy fraud and noncompliance with provisions of laws, regulations, contracts or grant
agreements, or abuse that we report.
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. 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.
Mr. Scott Carroll, General Manager
Costa Mesa Sanitary District
June 11, 2014
Page 4
Management Responsibilities (Continued):
With regard to the electronic dissemination of audited financial statements, including financial
statements published electronically on your website, you understand that electronic sites are a means to
distribute information and, therefore, we are not required to read the information contained in these
sites or to consider the consistency of other information in the electronic site with the original
document.
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 policies 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 or governmental regulations that
are attributable to the District or to acts by management or employees acting on behalf of the District.
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 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. 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. Our responsibility as auditors is limited to the period covered by our audit and does not
extend to 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 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; compliance with laws, regulations, contracts, and grant
agreements; and other responsibilities required by generally accepted auditing standards.
Mr. Scott Carroll, General Manager
Costa Mesa Sanitary District
June 11, 2014
Page 5
Audit Procedures - Internal Control:
Our audit will include obtaining an understanding of the District 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.
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 and Government Auditing Standards.
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 District's compliance with the provisions of applicable laws,
regulations, contracts, agreements, and grants. 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.
Audit Administration, Fees and Other:
Noted below is a listing of work required by District staff to assist in the audit
1. Preparation of trial balances, after posting of all year end journal entries.
2. Preparation of schedules supporting all major balance sheet accounts, and selected revenue and
expense accounts.
3. Typing of all confirmation requests.
4. Preparation of the financial statements and notes to the financial statements.
Mr. Nitin. P. Patel is the engagement partner and is responsible for supervising the engagement and
signing the report or authorizing another individual to sign it.
Our maximum annual fees for the year ending June 30, 2014 will be $9,525.
The maximum annual fees stipulated herein contemplate that conditions satisfactory to the normal
progress and completion of the examination will be encountered and the District's accounting
personnel will furnish the agreed upon assistance in connection with the audit. However, if unusual
circumstances are encountered which make it necessary for us to do additional work; we shall report
such conditions to the responsible District officials and provide the District with an estimate of the
additional accounting fees involved.
Mr. Scott Carroll, General Manager
Costa Mesa Sanitary District
June 11, 2014
Page 6
Audit Administration, Fees and Other (Continued):
The audit documentation for this engagement is the property of White Nelson Diehl Evans LLP and
constitutes confidential 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 grantor agencies or their designees, 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 White Nelson
Diehl Evans LLP personnel. Furthermore, upon request, we may provide copies of selected audit
documentation to the aforementioned parties. These parties may intend, or decide, to distribute the
copies or information contained therein to others, including other governmental agencies.
In accordance with our firm's current record retention policy, all of your original records will be
returned to you at the conclusion of this engagement. Our audit documentation files will be kept for a
period of seven years after the issuance of the audit report. All other files will be kept for as long as
you retain us as your accountants. However, upon termination of our service, all records will be
destroyed after a period of seven years. Physical deterioration or catastrophic events may further
shorten the life of these records. The audit documentation files of our firm are not a substitute for your
original records.
Government Auditing Standards require that we provide you with a copy of our most recent external
peer review report and any letters of comment, and any subsequent peer review reports and letters of
comment received during the period of the contract. Our 2012 peer review report accompanies this
letter.
We appreciate the opportunity to be of service to the Costa Mesa Sanitary District and believe this
letter accurately summarizes the significant terms of our engagement. If you have 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,
WHITE NELSON DIEHL EVANS LLP
® to 10,tiL
Nitin P. Patel, CPA
Engagement Partner
RESPONSE:
This letter correctly sets forth the understanding
of the Costa Mesa Sanitary District.
By
i`
Title G PnP m y (oor,_jeS13�r
Date 6 - %0- (�
11 Heidenreich & Heidenreich, CPAs, PLLC
1 1 10201 S. 51" Street, Suite #170
Phoenix, AZ 85044
(480)704 -6301 fax 785 -4619
System Review Report
August 3, 2012
To the Owners of
White Nelson Diehl Evans, LLP
and the Peer Review Committee of the CA Society of CPAs
We have reviewed the system of quality control for the accounting and auditing practice of White
Nelson Diehl Evans, LLP (the firm) in effect for the year ended March 31, 2012. Our peer review was
conducted in accordance with the Standards for Performing and Reporting on Peer Reviews
established by the Peer Review Board of the American Institute of Certified Public Accountants. The
firm is responsible for designing a system of quality control and complying with it to provide the firm
with reasonable assurance of performing and reporting in conformity with applicable professional
standards in all material respects. Our responsibility is to express an opinion on the design of the
system of quality control and the firm's compliance therewith based on our review. The nature,
objectives, scope, limitations of, and the procedures performed in a System Review are described in
the standards at www.aicpa.org /prsummary.
As required by the standards, engagements selected for review included engagements performed
under the Government Auditing Standards and audits of employee benefit plans.
In our opinion, the system of quality control for the accounting and auditing practice of White Nelson
Diehl Evans, LLP in effect for the year ended March 31, 2012, has been suitably designed and
complied with to provide the firm with reasonable assurance of performing and reporting in conformity
with applicable professional standards in all material respects. Firms can receive a rating of pass,
pass with deficiency(ies) or fail. White Nelson Diehl Evans, LLP has received a peer review rating of
pass.
Heidenreich & Heidenreich, CPAs, PLLC