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Contract - Diehl, Evans and Co. - 2006-03-30 D DIEHL, 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 1.CALLANAN,CPA H 2121 ALTON PARKWAY,SUITE 100 'PHILIP HOLTKAMP CPA',THOMAS M PERLOWSKI,CPA IRVINE,CALIFORNIA 92606-4956 *HARVEY I.SCHROEDER,CPA (949)399-0600 FAX(949)399-0610 KENNETH R AMES.CPA www.diehlevans.com A PROFESSIONAL CORPORATION March 30, 2006 Ms. Wendy Davis, District Treasurer Costa Mesa Sanitary District 628 West 19th Street Costa Mesa, CA 92627 Dear Ms. Davis: We are pleased to confirm our understanding of the services we are to provide Costa Mesa Sanitary District for the three years ending June 30, 2005, 2006 and 2007 We will audit the financial statements of the Costa Mesa Sanitary District (the District) as of and for the years ending June 30, 2005 2006 and 2007 Also, the document we submit to you will include Management s Discussion and Analysis, as supplementary information required by accounting principles generally accepted in the United States of America. The Management's Discussion and Analysis will be subject to 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, and to report on the fairness of the additional information referred to in the first paragraph when considered in relation to the financial statements taken as a whole. 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 2965 ROOSEVELT STREET 613 W VALLEY PARKWAY SUITE 330 CARLSBAD,CALIFORNIA 92008-2389 ESCONDIDO,CALIFORNIA 92025-7598 (760)729-7343 FAX 1760)729- 734 (760)741-3141 FAX(760)741-9890 Ms. Wendy Davis March 30, 2006 Costa Mesa Sanitary District Page 2 Management Responsibilities Management is responsible for making all financial records and related information available to us. We understand that you will provide us with such information required for our audit and that you are responsible for the accuracy and completeness of that information. We will advise you about appropriate 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. You are responsible for making all management decisions, performing all management functions, and designating a management employee with sufficient skills, knowledge, or experience to oversee our financial statement preparation services and to evaluate the adequacy and results of those services. As part of our engagement, we may propose standard, adjusting, or correcting journal entries to your financial statements. You are responsible for reviewing the entries and understanding the nature of any proposed entries and the impact they have on the financial statements. That responsibility includes the establishment and maintenance of adequate records and effective internal control over financial reporting, the selection and application of accounting principles, and the safeguarding of assets. 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 affecting the government involving (a) management, (b) employees who have significant roles in internal control, and (c) others where the fraud could have a material effect on the financial statements. You are also responsible for 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 and for taking timely and appropriate steps to remedy any fraud, illegal acts or violations in grant agreements that we may report. 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 errors, fraudulent financial reporting, misappropriation of assets, or 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 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. Ms. Wendy Davis March 30, 2006 Costa Mesa Sanitary District Page 3 Audit Procedures General (Continued) 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. Identifying and ensuring that the Costa Mesa Sanitary District complies with laws, regulations, contracts, and agreements is the responsibility of management. As part of obtaining reasonable assurance about whether the financial statements are free of material misstatement, we will perform tests of the Costa Mesa Sanitary 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. Audit Procedures Internal Control In planning and performing our audits, we will consider the internal control sufficient to plan the audit in order to determine the nature, timing, and extent of our auditing procedures for the purpose of expressing our opinion on the Costa Mesa Sanitary District's financial statements. An audit is not designed to provide assurance on internal control or to identify reportable conditions. However, we will inform the governing body of any matters involving internal control and its operation that we consider to be reportable conditions under standards established by the American Institute of Certified Public Accountants. Reportable conditions involve matters coming to our attention relating to significant deficiencies in the design or operation of the internal control that, in our judgment, could adversely affect the District s ability to record, process, summarize, and report financial data consistent with the assertions of management in the financial statements. 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 supporting schedules for all material 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. Ms. Wendy Davis March 30, 2006 Costa Mesa Sanitary District Page 4 Audit Administration, Fees, and Other (Continued) Our maximum annual fees for the three years ending June 30, 2005, 2006 and 2007 will be as follows. 2005 2006 2007 District Audit and Management Letter $ 8,900 $ 9 167 $ 9 442 Gann Limit Report 250 258 265 Total $ 9.150 $ 9.425 $ 9.707 The maximum annual fees stipulated herein contemplate that conditions satisfactory to the normal progress and completion of the audits 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. 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. Ms. Wendy Davis March 30, 2006 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 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, DIEHL, EVANS & COMPANY LLP By P A Q. Nitin P Patel CPA Engagement Partner APPROVED- COSTA MESA SANITARY DISTRICT By • • Title \\tA-1/4 / \V 1 CV,1 u(of.itA I ht4dkL Date x`74°\(X4