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HomeMy WebLinkAbout5D - Appointment of Abdo, Eick & Meyers Firm for City Financial Audits MEETING DATE: AGENDA #: PREPARED BY: AGENDA ITEM: DISCUSSION: ISSUES: CITY COUNCIL AGENDA REPORT MARCH 3, 2008 5D Ralph Teschner, Finance Director CONSIDER APPROVAL OF A RESOLUTION APPOINTING THE FIRM OF ABDO, EICK AND MEYERS TO PERFORM THE CITY'S FINANCIAL AUDITS FOR FISCAL YEARS 2008 - 2009 Introduction Abdo, Eick and Meyers has prepared the City's financial statements for the past thirteen years (through 2007). At the request of Staff Abdo, Eick & Meyers has submitted a proposal to continue their audit services for the City of Prior Lake for the fiscal years of 2008 and 2009. Staff has requested the proposal from this firm only because: 1) Our experience confirms that their fees are competitive. 2) The two (2) year cost does not exceed the $50,000 bid threshold. 3) The relative small amount of their proposed increase. 4) Auditing is considered a professional service. 5) Continuity and experience of the auditing staff saving City staff time. Current Circumstances Attached to your agenda report is a proposal from Abdo, Eick & Meyers that sets forth the scope of their services according to GAAP (generally accepted auditing standards and the Government Auditing Standards. Their proposed fee schedule for the two-year period is outlined below: General City Audit Fee $24,000 $25,0 nnualS Increase $2000 $1000 The total proposed fees for the preparation of the financial statement audits for the two year period represents an annual increase of 6.8% above this year. The primary influence in the increase is the time associated with new auditing standards that are designed to strengthen and maintain the integrity of the financial reporting process which has added a fair amount of hours above the basic report. They will be obtaining more detailed information in their evaluation of the City's internal operating controls as well as assessing the risks associated with our operating procedures. (see attached Abdo, Eick & Meyers correspondence letter). It is important to maintain a degree of continuity when selecting an accounting firm to prepare the financial audit because of the significant amount of time necessary for the firm to be brought up to speed on the internal operating procedures of the City and for them to become familiar as to the location of all the information Le, files, contract documents, minutes, resolutions etc. www.cityofpriorlake.com Phone 952.447.9800 / Fax 952.447.4245 necessary during the course of their examination of the City's transactions. As a result, the audit examination process these past years has been considerably faster and more efficient from a time perspective than in the beginning. It is Staff's opinion that the firm has done a good job in putting together the financial report that has been in total compliance with State of Minnesota review qualifications. Steve McDonald has been very helpful in completing the TIF reporting forms that have become more and more complex and difficult to administer. Also, their accounting assistance was critical in the successful implementation of GASB Statement 34 that required new accounting formats and the capital cost preparation of major road infrastructure retroactively to January 1, 1980. The Governmental Accounting Standards Board that governs auditing procedures passed a sweeping set of new standards in the past year that must be followed in the preparation of a financial statement audit which involve considerable more time on behalf of the auditors. Included is a much more detailed examination of city internal controls (see attached letter of explanation). In light of these mandated GASB changes Staff believes the proposed cost for the two years is reasonable and represents a total increase of $3000.00 for the general city audit. The City maintains the right to terminate services at any time for any reason. ALTERNATIVES: The following alternatives are available to the City Council: 1. Approve A Resolution Appointing the Firm of Abdo, Eick and Meyers to Perform the City's Financial Audits for Fiscal Years 2008 - 2009. 2. Reject the proposal for a specific Council reason. RECOMMENDED MOTION: Alternative #1. 1. A Resolution Appointing the Firm of Abdo, Eick and Meyers to Perform the City's Financial Audits for Fiscal Years 2008 - 2009. 2. Abdo, Eick & Meyers letter explaining the fee considerations. 3. Abdo, Eick & Meyers' Proposal for Audit Services for the City of Prior Lake for the Years Ending December 31,2008 and 2009. A RESOLUTION APPROVING THE FIRM OF ABDO, EICK AND MEYERS LLP TO PERFORM THE CITY'S FINANCIAL AUDITS FOR FISCAL YEARS 2008 and 2009. MOTION BY: SECOND BY: WHEREAS, The certified public accountant firm of Abdo, Eick and Meyers LLP has been instrumental in improving the administrative controls of the City's financial operation; and WHEREAS, New and comprehensive auditing standards have increased the scope and performance requirements of an independent financial statement audit; and WHEREAS, The financial reports of the City of Prior Lake's fiscal condition has resulted in an unqualified opinion for all past audit years; and WHEREAS, The proposed annual cost for such audit services over the next two years is determined to be reasonable and cost effective. NOW THEREFORE, BE IT RESOLVED BY THE CITY COUNCIL OF PRIOR LAKE that: 1. The recitals set forth above are incorporated herein. 2. The City of Prior Lake hereby authorizes Abdo, Eick and Meyers LLP to perform the audit services for the following years and cost from the General Fund Operating Budget: Fiscal Year 2008 2009 General Audit Fee $24,000.00 $25,000.00 3. The Mayor and City Manager are hereby authorized to execute the agreement letter for auditing services on behalf of the City of Prior Lake: Passed and adopted this 3rd day of March, 2008. YES NO Haugen Erickson Hedberg LeMair Millar Haugen Erickson Hedberg LeMair Millar {Seal} City Manager City of Prior Lake www.cityofpriorlake.com H:\AUDITlRes200Saudit.doc Phone 952.447.9800 / Fax 952.447.4245 Certified PuhZk Accountants & Consultants January 23, 2008 11 Civic Center Plaza Suite 300 P. O. Box 3166 Mankato, MN 56002-3166 Dear Client: I am writing to make you aware of significant changes in the auditing profession that undoubtedly will impact how Abdo, Eick & Meyers, LLP (the Firm) performs your annual financial statement audit. Four years ago, in the wake of the Enron scandal and other business failures, Congress enacted the Sarbanes-Oxley Act. This legislation had a profound effect on both your management and the audit profession; however, the law was applicable only to publicly traded companies and so our Firm's clients were unaffected. Earlier this year, the standards-setting body that governs auditors of non-public entities passed a sweeping set of new standards that rewrite many of the fundamental principles of a financial statement audit. Though less in scope than the rules for public companies, these new standards parallel many of the key themes ofSarbanes-Oxley, including (but not limited to) new requirements that - . Auditors gain a more thorough understanding of their clients' internal controls . Auditors obtain more detailed information about their clients' operations, their business objectives and strategies, and the risks of achieving these objectives . Client management clearly accepts responsibility for preparing all financial information and financial statements The main objective of the new auditing standards is to strengthen and maintain the integrity of the independent financial statement audit. We support this objective. We also believe that the new standards will benefit all stakeholders in the financial reporting process - those who prepare [mancial information, those of us who provide assurance on the reliability of that information, and those who use the information to make decisions about your organization. Because these standards demand a higher level of performance, there will be changes to the way we perform audits. The new standards require us to perform more extensive procedures than we have in the past. In many cases these new procedures will result in higher audit fees. 507.625.2727 . Fax 507.388.9139 www.aemcpas.com Page Two The new rules will go into effect beginning with the 2007 audit and the effect will continue in the following years audits. Ongoing, our Firm will be investing significant resources to re-design our audit process and train our engagement teams so they are able to perform their audits as effectively and efficiently as possible. If you or any other employee would like additional information on the new standards, please contact your Abdo, Eick & Meyers representative. Sincerely, ABDO, EICK & MEYERS, LLP Certified Public Accountants & Consultants ~M~ Steven R. McDonald, CPA Managing Partner 507.625.2727 . Fax 507.388.9139 www.aemcpas.com ABDO EICK & MEYERS LLP Cerl(fll.'d Hiblic .4ClYIlUl/(lfl!" &- Om.lultallH January 21, 2008 Crand\iew Sfluan.. ;;20 I Ed,.u An-uu,' ~lIil" ;\70 Edina. ,,'\ 551;\6 Honorable Mayor and Council City of Prior Lake 16200 Eagle Creek Avenue Southeast Prior Lake, Minnesota 55372 The following sets forth the engagement of our services for the certified audit ofthe accounts of the City of Prior Lake, Minnesota (the City). We will audit the financial statements of the City of Prior Lake for the years ending December 31, 2008 and 2009 in accordance with auditing standards generally accepted in the United States of America. Our audit will include tests of the accounting records and other procedures we consider necessary to enable us to express an opinion that the financial statements are fairly presented, in all material respects, in conformity with accounting principles generally accepted in the United States of America. 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 caused by error or fraud. Because of the concept ofreasonable assurance and because we will not perform a detailed examination of all transactions, there is a risk that a material misstatement may exist and not be detected by us. In addition, an audit is not designed to detect errors, fraud, or other illegal acts that are immaterial to the financial statements. However, we will inform you of any material errors and any fraud that comes to our attention. We will also inform you of any other illegal acts 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 of which we are not engaged as auditors. We will perform the auditing services discussed above for the calendar years 2008 and 2009. If at any time during this period the Council is dissatisfied with our services for any reason whatsoever, our services may be terminated by so informing us. Our Firm, however, shall be obligated at your continuing discretion to perform the audit services for the two-year period at the following fees: Year City Audit 2008 2009 $ 24,000 25,000 . Our fee for services quoted is a "not to exceed" fee. You will be billed at our normal per diem rates and in all cases will not exceed the schedule fees, which include out-of-pocket expenses. . Our fee includes the City audit, the Management Advisory Letter, and general consulting related to the audit. 9.;2.fnS.9090 . ~;,x %2.aaS.:l26I \\\\w.ueuh'l)as.("urn City of Prior Lake January 21,2008 Page Two It is our belief that the proposed two-year audit engagement is in the best interest of the City. Our Finn can provide the City with a fixed two-year fee schedule to facilitate the budgeting process. Further, our ability to provide meaningful assistance through our Management Advisory Letter will improve with each year of continued audit involvement. It is the policy of our Finn to issue a Management Advisory Letter. As independent auditors, we are in a position to acquire a detailed knowledge of client financial and administrative procedures; the Management Advisory Letter serves to summarize our recommendations toward improving the accounting and administrative controls, strengthening financial structure and developing a more efficient business operation. Abdo, Eick & Meyers, LLP recognizes that its most important product is prompt and effective service of the highest quality. We will serve the City to its complete satisfaction and will apply the highest level of skills available in our finn to that end. Sincerely, ABDO, EICK & MEYERS, LLP Certified Public Accountants & Consultants ~ /VJ~ Steven R. McDonald, CPA Managing Partner RESPONSE: This letter correctly sets forth the understanding of the City of Prior Lake. Signature: Mayor Date: Signature City Manager Date: 9:J2.1.l:l:J.')o90 . ~:l\ 952.U:l:J.:l26I \\ \\ \\" .Ht'tI1CIJas.("tUH