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Ordinance No. 13,267ORDINANCE NO. 13,267 AN ORDINANCE OF THE CITY COUNCIL OF THE CITY OF BAYTOWN, TEXAS, AUTHORIZING AND DIRECTING THE CITY MANAGER TO EXECUTE AND THE CITY CLERK TO ATTEST TO AN AGREEMENT FOR AUDITING SERVICES WITH BELT HARRIS PECHACEK, LLLP; AUTHORIZING PAYMENT IN AN AMOUNT NOT TO EXCEED SEVENTY -SIX THOUSAND SEVENTY -FIVE AND NO /100 DOLLARS ($76,075.00); MAKING OTHER PROVISIONS RELATED THERETO; AND PROVIDING FOR THE EFFECTIVE DATE THEREOF. BE IT ORDAINED BY THE CITY COUNCIL OF THE CITY OF BAYTOWN, TEXAS: Section 1: That the City Council of the City of Baytown, Texas, hereby authorizes and directs the City Manager to execute and the City Clerk to attest to an Agreement for Auditing Services with Belt Harris Pechacek, LLLP. A copy of said Agreement is attached hereto, marked Exhibit "A," and made a part hereof for all intents and purposes. Section 2: That the City Council of the City of Baytown hereby authorizes payment to Belt Harris Pechacek, LLLP, for the first year of the contract in an amount not to exceed SEVENTY -SIX THOUSAND SEVENTY -FIVE AND NO /100 DOLLARS ($76,075.00) pursuant to the agreement authorized in Section 1 hereof. Section 3: That the City Manager is hereby granted general authority to approve a decrease or an increase in costs by FIFTY THOUSAND AND NO 1100 DOLLARS ($50,000.00) or less, provided that the amount authorized in Section 2 hereof may not be increased by more than twenty-five percent (25 %). Section 4: This ordinance shall take effect immediately from and after its passage by the City Council of the City of Baytown. INTRODUCED, READ, and PASSED by the affirmative vote of t/ity oun cil of the City of Baytown, this the 25th day of August, 2016. DONCARLOS, Mayor X T: "BRYSCH, k APPROVED AS TO FORM: NACIO RAMIREZ, SR., Ci ttorney OpYTOW � A. .�v C4)*1*4k-4' y OF �� +P RAKarenTiles\City Council Ordinances\2016\August 25\AuthorizeAuditingContract .doc Exhibit "A" AGREEMENT FOR FINANCIAL AUDITING SERVICES STATE OF TEXAS COUNTY OF HARRIS WHEREAS, the City of Baytown, hereinafter referred to as the "City," desires Belt Harris Pechacek, LLLP, a Texas limited partnership, hereinafter referred to as the "Auditor," to perform the audit of the financial statements of the governmental activities, the business -type activities, each major fund, component units, and the aggregate remaining fund information, which collectively comprise the basic financial statements of the City of Baytown, Texas, the Baytown Area Water Authority (`BAWA ") and all related entities, for the fiscal years ending September 30, 2016, 2017, and 2018, hereinafter the "Agreement "; and WHEREAS, the Auditor desires to perform such services under the terms and conditions specified herein; NOW THEREFORE, for and in consideration of the foregoing premises and the mutual covenants and agreements herein contained, the Parties hereto do hereby mutually agree as follows: I. Auditor's Obligations The Auditor shall diligently perform all services specified in Exhibit "A," which is attached hereto and incorporated herein for all intents and purposes. These services shall be for the fiscal years ending September 30, 2016, 2017, and 2018, and are expressly subject to the contingency specified in Article LX. It is expressly understood and agreed that should there be a conflict between the terms contained in Exhibit "A" and those contained in this Agreement, the terms of this Agreement shall control. The Auditor's services shall include the application of the standards issued by the AICPA Auditing Standards Board (ASB), Statement on Auditing Standards (SAS). The Auditor and the City understand and agree that this Agreement includes an option to renew for an additional three years after the expiration of this Agreement on terms and conditions acceptable to the parties at the time of the renewal. II. Fees The Auditor hereby commits to performing the financial auditing services required herein by the City's Director of Finance at a fee not to exceed the amount stated below for each audit, based upon the actual time spent at the Auditor's standard hourly rate specified, plus travel and other out - of- pocket costs: Aereement for Financial Auditing Services, Page 1 Base Services Financial Audit and CAFR Preparation Single Audit* BAWA Audit and AFR Preparation TIRZBaytown Redevelopment Authority 2016 2017 2018 $ 49,449 $ 49,449 $ 49,449 13,643 13,643 13,643 11,483 11,483 11,483 1,500 -- -- Total $ 76,075 $ 74,575 $ 74,575 • Single audit fees are based on the number of major programs as defined by OMB which may change from year to year. Two major programs are included within this fee. Additional major programs will be at a cost not to exceed $6,000. III. Indemnity THE AUDITOR AGREES TO AND SHALL INDEMNIFY, HOLD HARMLESS AND DEFEND THE CITY, ITS OFFICERS, AGENTS AND EMPLOYEES FROM AND AGAINST ANY AND ALL CLAIMS, LOSSES, DAMAGES, CAUSES OF ACTION, SUITS, AND LIABILITY OF EVERY FIND, INCLUDING ALL EXPENSES OF LITIGATION, COURT COSTS, AND ATTORNEYS' FEES, FOR DAMAGE TO ANY PROPERTY, LOSS OF REVENUE, OR ANY OTHER INJURIES OR DAMAGES ARISING OUT OF OR IN CONNECTION WITH THE SERVICES PERFORMED BY THE AUDITOR PURSUANT TO THIS AGREEMENT, THE CONDUCT OR MANAGEMENT OF THE AUDITOR'S ACTIVITIES, OR FROM ANY ACT OR OMISSION BY THE AUDITOR, ITS AGENTS, EMPLOYEES, OR SUBCONTRACTORS, WHERE SUCH DAMAGES, LOSSES OR INJURIES ARE CAUSED BY THE JOINT OR SOLE NEGLIGENCE OF THE AUDITOR. IT IS THE EXPRESSED INTENTION OF THE PARTIES HERETO, BOTH THE AUDITOR AND THE CITY, THAT THE INDEMNITY PROVIDED FOR IN THIS PARAGRAPH IS INDEMNITY BY THE AUDITOR TO INDEMNIFY AND PROTECT THE CITY FROM THE CONSEQUENCES OF THE AUDITOR'S SOLE OR JOINT NEGLIGENCE. FURTHERMORE, THE INDEMNITY PROVIDED FOR IN THIS PARAGRAPH SHALL HAVE NO APPLICATION TO THE CITY FOR ANY CLAIM, LOSS, DAMAGE, CAUSE OF ACTION, SUIT AND LIABILITY WHERE THE INJURY, LOSS OR DAMAGE RESULTS FROM THE SOLE NEGLIGENCE OF THE CITY, UNMIXED WITH THE FAULT OF ANY OTHER PERSON OR ENTITY. In the event that any action or proceeding is brought against the City by reason of any matter from which the City is indemnified herein, the Auditor further agrees and covenants to defend the Agreement for Financial Auditing Services, Page 2 action or proceeding by legal counsel acceptable to the City. This article shall survive the expiration or termination of this Agreement. IV. Payment The Auditor shall invoice the City each month as work progresses. The City shall pay the Auditor only for services actually performed and accepted. Such payment shall be within thirty (30) days after the City's receipt of an invoice for such services or upon receipt and acceptance of the services, whichever is later. Any payment terms provided for in Exhibit "A" are superseded by this Article, regardless of any conflict. V. Release By this Agreement, the City does not consent to litigation or suit, and the City hereby expressly revokes any consent to litigation that it may have granted by the terms of this Agreement or any other contract or agreement, any charter, or applicable state law. Nothing herein shall be construed so as to limit or waive the City's sovereign immunity. The Auditor assumes full responsibility for its work performed hereunder and hereby releases, relinquishes and discharges the City, its officers, agents, and employees from all claims, demands, and causes of action of every kind and character, including the cost of defense thereof, for any injury to or death of any person (whether they be either of the parties hereto, their employees, or other third parties) and any loss of or damage to property (whether the property be that of either of the parties hereto, their employees, or other third parties) that is caused by or alleged to be caused by, arising out of, or in connection with the Auditor's work to be performed hereunder. This release shall apply with respect to the Auditor's work regardless of whether said claims, demands, and causes of action are covered in whole or in part by insurance. VI. Insurance Throughout the term of this Agreement, the Auditor at its own expense shall purchase, maintain and keep in force and effect insurance against claims for injuries to or death of persons or damages to property which may arise out of or result from the Auditor's services, whether such services be by the Auditor, its agents, representatives, volunteers, employees or subcontractors or by anyone directly or indirectly employed by any of them, or by anyone for whose acts any of them may be liable. The Auditor's insurance coverage shall be primary insurance with respect to the City, its officers, agents and employees. Any insurance or self - insurance maintained by the City, its officials, agents and employees shall be considered in excess of the Auditor's insurance and shall not Aereement for Financial Auditing Services, Page 3 contribute to it. All coverage for subcontractors shall be subject to all of the requirements stated herein. The following insurance shall be required under this Agreement and shall meet or exceed the minimum requirements set forth herein: 1. Commercial General Liability • General Aggregate: $2,000,000 • Per Occurrence: $1,000,000 • Coverage shall be broad form. • Waiver of subrogation required. ■ No coverage shall be deleted from standard policy without notification of individual exclusions being attached for review and acceptance. 2. Business Automobile Policy ■ This coverage shall be required only if the Auditor provides vehicles for its employees. • Combined Single Limits: $1,000,000 • Coverage for "Any Auto" • Waiver of subrogation required. 3. Errors and Omissions • Limit $1,000,000 • Claims -made form is acceptable. Coverage will be in force for two years after services are completed and accepted by the City 4. Workers' Compensation • Statutory Limits • Employer's Liability $500,000 • Waiver of Subrogation required. Prior to any services being performed, the Auditor shall file with the City valid Certificates of Insurance and endorsements acceptable to the City. Such Certificates shall contain a provision that coverage afforded under the policies will not be canceled, suspended, voided, or reduced until at least thirty (30) days' prior written notice has been given to the City via certified mail, return receipt requested. The Auditor shall also file with the City valid Certificates of Insurance covering all subcontractors. Agreement for Financial Auditing Services, Page 4 The following are general requirements applicable to all policies: ➢ AM Best Rating of A -; VII or better. ➢ Insurance carriers licensed and admitted to do business in State of Texas will be accepted. ➢ Upon request of and without cost to City of Baytown, certified copies of all insurance policies and/or certificates of insurance shall be furnished to City of Baytown's representative. Certificates of insurance showing evidence of insurance coverage shall be provided to City of Baytown's representative prior to any work being performed at the site. ➢ Liability policies must be on occurrence form. ➢ Each insurance policy shall be endorsed to state that coverage shall not be suspended, voided, canceled or reduced in coverage or in limits except after thirty (30) days' prior written notice by certified mail, return receipt requested, has been given to the City. ➢ The City, its officers, agents and employees are to be added as Additional Insureds to all liability policies. ➢ Upon request and without cost to the City, certified copies of all insurance polices and/or certificates of insurance shall be furnished to the City. ➢ Upon request of and without cost to City of Baytown, loss runs (claims listing) of any and/or all insurance coverage shall be furnished to City of Baytown's representative. VII. No Assignment The Auditor shall not sell, assign, or transfer any of its rights or obligations under this Contract, in whole or in part, without prior written consent of the City. VIII. Termination The City, besides all other rights or remedies it may have, shall have the right to terminate this Agreement with or without cause upon ten (10) days' written notice from the City Manager to the Auditor of the City's election to do so. Furthermore, the City may immediately terminate this Agreement if the Auditor breaches the terms hereof. A breach of this Agreement shall include, but not be limited to, the following: 1. failing to pay insurance premiums, claims or other charges; 2. failing to pay any payments due the City, State or Federal Government from the Auditor or its principals, including, but not limited to, any taxes, fees, assessments, liens, or any payments identified in this Agreement; 3. the institution of voluntary or involuntary bankruptcy proceeding against the Auditor; Agreement for Financial Auditing Services, Page 5 4. the dissolution of the Auditor; 5. the violation of any provision of this Agreement; and/or 6. the abandonment of the Agreement or any portion thereof and discontinuance of the Auditor's services or any portion thereof, as determined by the City Manager. Upon delivery of any notice of termination required herein, the Auditor shall discontinue all services in connection with the performance of the Agreement. Within ten (10) days after receipt of the notice of termination, the Auditor shall submit a final statement showing in detail the services satisfactorily performed and accepted and all other appropriate documentation required herein for payment of services. IX. Contingency It is expressly understood and agreed by both the Auditor and the City that this Agreement for fiscal years 2017 and 2018 are contingent upon funds being appropriated by the City Council of the City of Baytown for financial auditing services. Should funds not be appropriated, this Agreement shall become null and void and both parties shall be relieved of any and all obligations hereunder without liability to the other party or to any other person or entity, with the exception of the liabilities assumed by the Auditor pursuant to Articles III and V hereof. X. Notice Unless otherwise provided in this Contract, any notice provided for or permitted to be given must be in writing and delivered in person or by depositing same in the Unites States mail, postpaid and registered or certified, and addressed to the party to be notified, with return receipt requested, or by delivering the same to an officer of such party. Notice deposited in the mail as described above shall be conclusively deemed to be effective, unless otherwise stated in this Agreement, from and after the expiration of three (3) days after it is so deposited. For the purpose of notice, the addresses of the parties shall be as follows unless properly changed as provided for hereinbelow: CITY OF BAYTOWN Attn: City Manager P. O. Box 424 Baytown, Texas 77522 -0424 Agreement for Financial Auditing Services, Page 6 BELT HARRIS PECHACEK, LLLP Attn: Robert Belt, CPA 3210 Bingle Road, Suite 300 Houston, TX 77055 Each party shall have the right from time to time at any time to change its respective address and each shall have the right to specify a new address, provided that at least fifteen (15) days' written notice is given of such new address to the other party. XI. Non - waiver Failure of either party hereto to insist on the strict performance of any of the agreements herein or to exercise any rights or remedies accruing thereunder upon default or failure of performance shall not be considered a waiver of the right to insist on and to enforce by an appropriate remedy, strict compliance with any other obligation hereunder to exercise any right or remedy occurring as a result of any future default or failure of performance. XII. Choice of Law and Venue This Agreement shall in all respects be interpreted and construed in accordance with and governed by the laws of the State of Texas, regardless of the place of its execution or performance. The place of making and the place of performance for all purposes shall be Baytown, Harris County, Texas. XIII. Severability All parties agree that should any provision of this Agreement be determined to be invalid or unenforceable, such determination shall not affect any other term of this Agreement, which shall continue in full force and effect. XIV. No Third -Party Beneficiaries This Agreement shall not bestow any rights upon any third party, but rather, shall bind and benefit the Auditor and the City only. XV. Entire Agreement This Agreement contains all the agreements of the parties relating to the subject matter hereof and is the full and final expression of the agreement between the parties. Agreement for Financial Auditing Services, Page 7 XVI. Ambiguity In the event of any ambiguity in any of the terms of this Agreement, it shall not be construed for or against any party hereto on the basis that such party did or did not author the same. XVII. Authority The officers executing this Agreement on behalf of the parties hereby represent that such officers have full authority to execute this Agreement and to bind the party he represents. IN WITNESS WHEREOF, the parties hereto have executed this Agreement in multiple copies, each of which shall be deemed to be an original, but all of which shall constitute but one and the same agreement, this day of _ 52016. CITY OF BAYTOWN, TEXAS RICHARD L. DAVIS, City Manager ATTEST: LETICIA BRYSCH, City Clerk APPROVED AS TO FORM: IGNACIO RAMIREZ, SR., City Attorney BELT HARRIS PECHACEK, LLLP, a Texas Limited Partnership Agreement for Financial Auditing Services, Page 8 ROBERT BELT, CPA General Partner STATE OF TEXAS § COUNTY OF HARRIS § Before me on this day personally appeared Robert Belt, in his capacity as the General Partner of Belt Harris Pechacek, LLLP, on behalf of such limited partnership, known to me to be the person whose name is subscribed to the foregoing instrument and acknowledged to me that he executed the same for the purposes and consideration therein expressed. SUBSCRIBED AND SWORN before me this day of 92016. Notary Public in and for the State of Texas R:UCazen\Files.Contracts\Auditing Services'.Belt Harris Auditing Services Agreement 2016- 18.doc Agreement for Financial Auditing Services, Page 9 Exhibit "A" The Auditor shall provide the following services for and on behalf of the City of Baytown, Texas (the "City ") for the years ended September 30, 2016, 2017, and 2018. Specifically, the Auditor shall audit the financial statements of the governmental activities, the business -type activities, the aggregate discretely presented component units activities, each major fund, and the aggregate remaining fund information, including the related notes to the financial statements, which collectively comprise the basic financial statements of the City as of and for the years ended September 30, 2016, 2017, and 2018. The component units will be audited as part of the audit of the financial statements of the City as noted below: 1. Baytown Area Water Authority: Discretely Presented, Separate Financial Statements; 2. Baytown Municipal Development District: Discretely Presented, No Separate Financial Statements; 3. Baytown Crime Control and Prevention District: Blended, No Separate Financial Statements 4. Baytown Fire Control, Prevention, and Emergency Medical Services District: Blended, No Separate Financial Statements 5. Tax Increment Reinvestment Zone No. One, City of Baytown, Texas: Blended, No Separate Financial Statements 6. Baytown Redevelopment Authority: Blended, No Separate Financial Statements The Auditor shall provide for certain Required Supplementary Information (RSI), such as Management's Discussion and Analysis (MD &A), to supplement the City's basic financial statements as may be required by generally accepted accounting standards. The Auditor will apply certain limited procedures to the City'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 the Auditor's inquiries, the basic financial statements, and other knowledge the Auditor obtained during our audit of the basic financial statements. The Auditor will not be required, however, to express an opinion or provide any assurance on the information because the limited procedures do not provide 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. Budgetary Comparison Schedule(s); 3. Net Pension Liability and Contribution Schedule(s); and 4. Schedule(s) of Funding Progress The Auditor shall also report on supplementary information other than RSI that accompanies the Exhibit "A," Page 1 City's financial statements. The Auditor will subject the following supplementary information to the auditing procedures applied in the audit of the financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the financial statements or to the financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. The Auditor will provide an opinion on it in relation to the financial statements as a whole in a separate written report accompanying our auditors' report on the financial statements or in a report combined with the Auditors' report on the financial statements: 1. Schedule of Federal Expenditures and Awards and 2. Combining Statements and Schedules. The following other information accompanying the financial statements will not be subjected to the auditing procedures applied in the Auditor's audit of the financial statements, and the Auditor's report will not provide an opinion or any assurance on that other information: 1. Introductory Section and 2. Statistical Section. In addition to these services and included in the fees specified in Article II of the Agreement, the Auditor shall: 1. provide routine advisory services through phone calls, conferences or otherwise in connection with incidental matters arising during the year; 2. draft the financial statements, including the Management's Discussion and Analysis with input from Management; 3. print and bind the financial reports, and provide an electronic PDF of all reports; 4. handle normal correspondence from grantor, regulatory, or oversight agencies related to the audit; and 5. perform procedures to comply with the Public Funds Investment Act (Chapter 2256 of the Texas Government Code). Other Services The Auditor shall also assist in preparing the financial statements, schedule of expenditures of federal awards, and related notes of the City in conformity with U.S. generally accepted accounting principles and the Uniform Guidance based on information provided by the City. These non -audit services do not constitute an audit under Government Auditing Standards and such services will not be conducted in accordance with Government Auditing Standards but will be performed in accordance with applicable professional standards. The other services are limited to the financial statements, schedule of expenditures of federal awards, and related notes services previously defined. The Auditor shall not be required, however, to perform any procedure or take any action that could be reasonably construed as assuming management responsibilities. Management Responsibilities Exhibit "A," Page 2 Management is responsible for (i) establishing and maintaining effective internal controls, including internal controls over federal awards and for evaluating and monitoring ongoing activities to help ensure that appropriate goals and objectives are met; (ii) following laws and regulations; (iii) ensuring that there is reasonable assurance that government programs are administered in compliance with compliance requirements and (iv) ensuring that management is reliable and financial information is reliable and properly reported. Management is responsible for the selection and application of accounting principles; for the preparation and fair presentation of the financial statements, schedule of expenditures of federal awards, and all accompanying information in conformity with U.S. generally accepted accounting principles; and for compliance with applicable laws and regulations (including federal statutes) and the provisions of contracts and grant agreements (including award agreements). Managements' responsibilities also include identifying significant contractor relationships in which the contractor has responsibility for program compliance and for accuracy and completeness of that information. Management is also responsible for making all financial records and related information available to the Auditor and for the accuracy and completeness of that information. Management shall provide the Auditor with (i) access to all information that is relevant to the preparation and fair presentation of the financial statements, (ii) access to personnel, accounts, books, records, supporting documentation, and other information as needed to perform an audit under the Uniform Guidance, (iii) additional information that may be reasonably requested for the purpose of the audit, and (iv) access to persons within the City government from whom the Auditor deems it necessary to obtain audit evidence. The selection and application of accounting principles; for the fair presentation in the financial statements of the respective financial position of the governmental activities, the business -type activities, the aggregate discretely presented component units, each major fund, and the aggregate remaining fund information of the City and the respective changes in financial position and, where applicable, cash flows in conformity with U.S. generally accepted accounting principles; and for federal award program compliance with applicable laws and regulations and the provisions of contracts and grant agreements. Management is responsible for the basic financial statements and all accompanying information as well as all representations contained therein. Management is responsible for management decisions and functions. As part of the audit, the auditor will prepare a draft of the financial statements, schedule of expenditures of federal awards, and related notes. In accordance with Government Auditing Standards, the City will be required to review and approve those financial statements prior to their issuance and have a responsibility to be in a position in fact and appearance to make an informed judgment on those financial statements. Further, the City is required to designate a qualified management -level individual to be responsible and accountable for overseeing the Auditor's services. Management's responsibilities include adjusting the financial statements to correct material misstatements and for confirming to the Auditor in the management representation letter that the effects of any uncorrected misstatements aggregated by the Auditor during the current engagement and pertaining to the latest period presented are immaterial, both individually and in the aggregate, to the financial statements as a whole. Exhibit "A," Page 3 Management is responsible for the design and implementation of programs and controls to prevent and detect fraud, and for informing the Auditor about all known or suspected fraud affecting the government involving (i) management, (ii) employees who have significant roles in internal control, and (iii) others where the fraud could have a material effect on the financial statements. The City's responsibilities include informing the Auditor of the City's 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, the City is responsible for identifying and ensuring that the government complies with applicable laws, regulations, contracts, agreements, and grants. The City is also responsible for taking timely and appropriate steps to remedy fraud and noncompliance with the provisions of laws, regulations, contract and grant agreements, or abuse that Auditor reports. Additionally, as required by the Uniform Guidance, it is Management's responsibility to evaluate and monitor noncompliance with federal statutes, regulations, and the terms and conditions of federal awards; take prompt action when instances of noncompliance are identified including noncompliance identified in audit findings; promptly follow -up and take corrective action on reported audit findings; and prepare a summary schedule of prior audit findings and a separate corrective action plan. The summary schedule of prior audit findings should be available for the Auditor's review prior to the beginning of the Auditor's audit fieldwork. Management is responsible for identifying all federal awards received and understanding and complying with the compliance requirements and for the preparation of the schedule of expenditures of federal awards (including notes and noncash assistance received) in conformity with the Uniform Guidance. The City shall include the Auditor's report on the schedule of expenditures of federal awards in any document that contains and indicates that the Auditor has reported on the schedule of expenditures of federal awards. The City shall make the audited financial statements readily available to intended users of the schedule of expenditures of federal awards no later than the date the schedule of expenditures of federal awards is issued with the Auditor's report thereon. Management's responsibilities include acknowledging to the Auditor in the written representation letter that (i) Management is responsible for presentation of the schedule of expenditures of federal awards in accordance with the Uniform Guidance; (ii) Management believes the schedule of expenditures of federal awards, including its form and content, is stated fairly in accordance with the Uniform Guidance; (iii) the methods of measurement or presentation have not changed from those used in the prior period (or, if they have changed, the reasons for such changes); and (iv) Management has disclosed to the Auditor any significant assumptions or interpretations underlying the measurement or presentation of the schedule of expenditures of federal awards. Management is responsible for establishing and maintaining of a process for tracking the status of audit findings and recommendations. Management is also responsible for identifying and providing report copies of previous financial audits, attestations engagements performance audits, or other studies related to the objectives discussed in the Audit Objectives identified herein. This responsibility includes relaying to the Auditor corrective actions taken to address significant findings and recommendations resulting from those audits or other engagements or studies. This responsibility includes relaying to the Auditor corrective actions taken to address significant findings and recommendations resulting from those audits, attestations engagements, performance audits or studies. The City is also responsible for providing Management's views on Exhibit "A," Page 4 the Auditor's current findings, conclusions, and recommendations, as well as its planned corrective actions, for the report, and for the timing and format for providing that information. The City assumes all management responsibilities relating to the financial statements, schedule of expenditures of federal awards, related notes, and any other nonaudit services we provide. The City will acknowledge in the management representation letter (i) the Auditor's assistance with the preparation of the financial statements, schedule of expenditures of federal awards, and related notes and (ii) that it has reviewed and approved the financial statements, schedule of expenditures of federal awards, and related notes prior to their issuance. Further, The City shall oversee the nonaudit services by designating an individual, preferably from senior management, with suitable skill, knowledge, or experience and shall evaluate the adequacy and results of those services. Audit Objectives The objective of the audit is the expression of an opinion as to whether the financial statements are fairly presented, in all material respects, in conformity with U.S. generally accepted accounting principles and to report on the fairness of the supplementary information referred to herein when considered in relation to the financial statements taken as a whole. The objective also includes reporting on the following: a. Internal control over financial reporting and compliance with laws, regulations, and the provisions of contracts or grant agreements, noncompliance with which could have a material effect on the financial statements in accordance with Government Auditing Standards; and b. Internal control related to major programs and an opinion (or disclaimer of opinion) on compliance with federal statutes, regulations and terms and conditions of federal awards that could have a direct and material effect on each major program in accordance with the Single Audit Act Amendments of 1996 and Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, cost principles and Audit Requirements for Federal Awards (Uniform Guidance). The Government Auditing Standards report on internal control over financial reporting and on compliance and other matters will include a paragraph that states that (i) 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 entity's internal control or on compliance, and (ii) the report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the entity's internal control and compliance. The Uniform Guidance report on internal control over compliance will include a paragraph that states that the purpose of the report on internal control over compliance is solely to describe the scope of testing of internal control over compliance and the results of that testing based on the requirements of the Uniform Guidance. Both reports will state that the report is not suitable for any other purpose. The Auditor's Audit will be conducted in accordance with auditing standards generally accepted in the United States of America; the standards for financial audits contained in Government Exhibit "A," Page 5 Auditing Standards, issued by the Comptroller General of the United States; the Single Audit Act Amendments of 1996; and the provisions of the Uniform Guidance and will include tests of accounting records, a determination of major program(s) in accordance with the Uniform Guidance and other procedures the Auditor considers necessary to enable the Auditor to express such an opinion. The Auditor shall issue written reports upon completion of the Single Audit. The reports will be addressed to Management and members of the appropriate governing body. The Auditor cannot provide assurance that an unmodified opinion will be expressed. Circumstances may arise in which it is necessary for the Auditor to modify its opinion or an add emphasis -of -matter or other -matter paragraph. If our opinions are other than unmodified, the Auditor will discuss the reasons with Management in advance. If, for any reason, the Auditor is unable to complete the audit or are unable to form or have not formed an opinion, the Auditor may decline to express an opinion or to issue a report as a result of this contract. Audit Procedures General An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements; therefore, the 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. The Auditor 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 (i) errors, (ii) fraudulent financial reporting, (iii) misappropriation of assets, or (iv) violations of laws or governmental regulations that are attributable to the entity or to acts by Management or employees acting on behalf of the entity. Because the determination of abuse is subjective, Government Auditing Standards do not expect auditors to provide reasonable assurance of detecting abuse. Because of inherent limitations of an audit, combined with the inherent limitation of internal control, and because the Auditor will not perform a detailed examination of all transactions, there is a risk that material misstatements or noncompliance may exist and not be detected by the Auditor, 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 designed to provide reasonable, but not absolute assurance and because the Auditor will not perform a detailed examination of all transactions, there is a risk that material misstatements or noncompliance may exist and not be detected. 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 or major programs. However, the Auditor will inform the City and/or its component units of any material errors and any fraudulent financial reporting or misappropriation of assets that comes to the Auditor's attention. The Auditor will also inform the City and/or its component units of any violations of laws or governmental regulations that come to the Auditor's attention, unless clearly inconsequential, and of any material abuse that comes to the Auditor's attention. The Auditor will include such matters in the reports required for a Single Audit. The Auditor's responsibility is limited to the period covered by the audit and does not extend to any later periods for which the Auditor is not engaged as auditors. Exhibit "A," Page 6 The Auditor's 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. The Auditor will request written representations from the City's attorneys as part of the engagement through the City Attorney and they may bill you for responding to this inquiry. At the conclusion of the audit, the Auditor will also require certain written representations from Management about the financial statements and related matters representations from the City and/or its component units. Audit Procedures - Internal Controls The audit will include obtaining an understanding of the entity and its environment, including internal control, sufficient to assess the risks of material misstatement of the financial statements and design the nature, timing, and extent of further audit procedures. Tests of controls may be performed to test the effectiveness of certain controls that the Auditor considers 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. The 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 the report on internal control issued pursuant to Government Auditing Standards. As required by OMB Circular A -133, the Auditor will perform tests of controls to evaluate the effectiveness of the design and operation of controls that the Auditor considers relevant to preventing or detecting material noncompliance with compliance requirements applicable to each major federal award program. However, the tests will be less in scope than would be necessary to render an opinion on those controls and, accordingly, no opinion will be expressed in the Auditor's report on internal control issued pursuant to Uniform Guidance. An audit is not designed to provide assurance on internal control or to identify significant deficiencies. However, during the audit, the Auditor will communicate to Management and those charged with governance internal control related matters that are required to be communicated under AICPA professional standards, Government Auditing Standards and the Uniform Guidance. Audit Procedures - Compliance As part of obtaining reasonable assurance about whether the financial statements are free of material misstatement, the Auditor will perform tests of the compliance of the City and its component units with applicable laws and regulations and the provisions of contracts and agreements, including grant agreements. However, the objective of those procedures will not be to provide an opinion on overall compliance and the Auditor will not express such an opinion in its report on compliance issued pursuant to Government Auditing Standards. Pursuant to the Uniform Guidance, the Auditor shall plan and perform the audit to obtain reasonable assurance about whether the City and its component units have complied with applicable laws and regulations and the provisions of contracts and grant agreements applicable to major programs. The Auditor's procedures will consist of test of transactions and other applicable procedures described in the OMB Compliance Supplement for the types of compliance Exhibit "A," Page 7 requirements that could have a direct and material effect on each of the City's major programs. The purpose of those procedures will be to express an opinion on the City's compliance with requirements applicable to each of its major programs in the report on compliance issued pursuant to the Uniform Guidance. Audit Administration. The Auditor will complete the appropriate sections of and sign the Data Collection Form that summarizes the audit findings. The Auditor will provide copies of its reports to the City; however, it is Management's responsibility to electronically submit the reporting package (including financial statements, schedule of expenditures of federal awards, summary schedule of prior audit findings, auditors' reports, and a corrective action plan) along with the Data Collection Form to the designated federal clearinghouse and, if appropriate, to pass - through entities. The Auditor will coordinate with the City the electronic submissions and certifications. The Data Collection Form and the reporting package must be submitted within the earlier of 30 days after receipt of the Auditors' reports or nine months after the end of the audit period. The Auditor will provide information to Management as to where the reporting packages should be submitted and the number to submit. The Auditor will provide copies of its reports to the City and the component units; however, management is responsible for distribution of the reports and the financial statements. Unless restricted by law or regulation, or containing privileged or confidential information, copies of the reports are to be made available for public inspection. The audit documentation which the Auditor generates for the audits to be performed pursuant to this agreement shall be the property of the Auditor and constitutes confidential information. However, subject to applicable laws and regulations, audit documentation and appropriate individuals will be made available upon request in a timely manner to any oversight agency or its designee, 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. The Auditor shall notify the City of any such request. If requested access to such audit document will be provided under the supervision of the Auditor's personnel. Furthermore, upon request, the Auditor may provide copies of selected audit information contained therein to others, including other governmental agencies. However, it is expressly understood and agreed that all work papers generated by the City and/or its component units in conjunction with the audit shall remain property of the City and /or its component units and shall not be disclosed without the express written consent of the City. The Auditor shall retain the audit documentation under this Agreement for a minimum of five years after the report release or for any additional period requested by the oversight agency. If the Auditor is aware that a federal awarding agency, pass - through entity, or auditee is contesting an audit finding, the Auditor will contact the parties contesting the audit finding for guidance prior to destroying the audit documentation. Exhibit "A," Page 8 R: \Karen\Files,Contracts\Auditing Services'. Exhibit2016.doc Exhibit "A," Page 9