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Contract - Diehl, Evans and Co. - 2009-02-04 DDIEHL, EVANS & COMPANY, LLP CERTIFIED PUBLIC ACCOUNTANTS&CONSULTANTS MICHAEL R LUDIN,CPA A PARTNERSHIP INCLUDING ACCOUNTANCY CORPORATIONS CRAIG W SPRAKER.CPA NITIN P PATEL CPA ROBERT I CALLANAN,CPA 5 CORPORATE PARK,SUITE 100 'PHILIP H.HOLTKAMP.CPA-THOMAS M PERLOWSKI.CPA IRVINE,CALIFORNIA 92606-5165 •HARVEY L SCHROEDER.CPA (949)399-0600 FAX(949)399-0610 KENNETH R AMES,CPA •WILLIAM C.PENTZ.CPA www.diehlevans.com February 4, 2009 A PROFESSIONAL CORPORATION Mr Marc Davis, District Treasurer Costa Mesa Sanitary District 628 West 19th Street Costa Mesa, CA 92627 Dear Mr. Davis: 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, 2009 We will audit the financial statements of the District. Scope: We will audit the basic financial statements of the District. Also, the document we submit to you will include the Management s Discussion and Analysis information, which is supplementary information required to be included in the financial statements by accounting principles generally accepted in the United States of America. The Management s Discussion and Analysis will be subjected to certain limited procedures,but will not be audited. Audit Objective: 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 accounting principles generally accepted in the United States of America. Our audit will be conducted in accordance with auditing standards generally accepted in the United States of America and will include tests of the accounting records and other procedures we consider necessary to enable us to express such an opinion. If our opinion on the financial statements is other than unqualified, 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 an opinion, we may decline to express an opinion or to issue a report as a result of this engagement. OTHER OFFICES AT 7965 ROOSEVELT STREET 613 W VALLEY PARKWAY.SUITE 330 CARLSBAD.CALIFORNIA 9200E-1389 ESCONDIDO,CALIFORNIA 2025-7598 (7601729-7343 FAX(7601 729- +34 1760)741-3141 FAX 1760)741-9890 Mr. Marc Davis February 4, 2009 Costa Mesa Sanitary District Page 2 Management Responsibilities: Management is responsible for the basic financial statements and all accompanying information as well as all representations contained therein. You are also responsible for making all management decisions and performing all management functions; for designating an individual with suitable skill, knowledge, or experience to oversee our financial statement preparation services and any other nonattest services we provide; and for evaluating the adequacy and results of those services and accepting responsibility for them. Management is responsible for establishing and maintaining internal controls, including monitoring ongoing activities; for the selection and application of accounting principles; and for the fair presentation in the financial statements of the respective financial position of the District and the respective changes in financial position and where applicable, cash flows, in conformity with accounting principles generally accepted in the United States of America. Management is also responsible for making all financial records and related information available to us and for the accuracy and completeness of that information. Your responsibilities include adjusting the financial statements to correct material misstatements and 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. ou 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 or 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, regulators, or others. In addition, you are responsible for identifying and ensuring that the District complies with applicable laws and regulations. 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. 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. Mr. Marc Davis February 4, 2009 Costa Mesa Sanitary District Page 3 Audit Procedures General (Continued): Because an audit is designed to provide reasonable, but not absolute, assurance 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. 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 you of any material errors that come to our attention, and we will inform you of any fraudulent financial reporting or misappropriation of assets that come to our attention. We will also inform you of any violations of laws or governmental regulations that come to our attention, unless clearly inconsequential. Our responsibility as auditors is limited to the period covered by our audit and does not extend to matters that might arise during 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 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 require certain written representations from you about the financial statements and related matters. 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. An audit is not designed to provide assurance on internal control or to identify deficiencies in internal control. 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. 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 applicable laws and regulations and the provisions of contracts and 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. Mr. Marc Davis February 4, 2009 Costa Mesa Sanitary District Page 4 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 for all funds, after posting of all year end journal entries. 2. Preparation of schedules supporting all major balance sheet accounts, and selected revenue and expenditure accounts. 3 Typing of all confirmation requests. 4 Pulling and refiling of all supporting documents required for audit verification. 5 Preparation of the Management s Discussion and Analysis. Our maximum fee for these services for the year ending June 30, 2009 will be $9,970 The maximum annual fee stipulated herein contemplates that conditions satisfactory to the normal progress and completion of the examination will be encountered and the District 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. You may terminate our services or we may withdraw from this engagement at any time. Any disputes arising under this agreement shall be mediated under the rules of the American Arbitration Association. The workpapers for this engagement are the property of Diehl, Evans and Company LLP and constitute confidential information. However, we may be requested to make certain workpapers available to grantor agencies pursuant to authority given to it by law or regulation. If requested, access to such workpapers will be provided under the supervision of our personnel. Furthermore, upon request, we may provide photocopies of selected workpapers to the grantor agencies. The grantor agencies may intend, or decide, to distribute the photocopies 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 accounting workpaper 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 working papers and files of our firm are not a substitute for your original records. Mr. Marc Davis February 4, 2009 Costa Mesa Sanitary District Page 5 We appreciate the opportunity to be of service to the Costa Mesa Sanitary District and believe this letter accurately summarizes the significant teens of our engagement. If you have questions, please let us know If you agree with the tc uis of our engagement as described in this letter, please sign the enclosed copy and return it to us. Very truly yours, DIEHL, EVANS & COMPANY LLP By Nitin P Patel CPA Engagement Partner RESPONSE. This letter correctly sets forth the understanding of the Costa Mesa Sanitary District. By 41. , Titleesidxrk Date 02 -x.6 09