LETTER UNDERSTANDING TERMS OBJECTIVES
Coopers
& Lybrand
cltified public accountants
Suite 1500 I
101 E. Kennedy Blvd.
Tampa, Florida 33602-5194
in principal areas of the world
Tampa (813) 229-0221
Pinellas (813) 461-1580
Fax (813) 229-3646
September 30, 1991
Mr. Michael J. Wright
City Manager
City of Clearwater
Post Office Box 4748
Clearwater, FL 34618-4748
This letter sets forth our understanding of the terms and obj ectives of our
engagement and the nature and scope of the services we will provide to City of
Clearwater, Florida (the City).
We will audit the City's general purpose financial statements, as well as the
combining and individual fund and account group financial statements and
schedules, as of and for the year ended September 30, 1991, in accordance with
generally accepted auditing standards, the standards for financial audits
contained in Government Auditing Standards, issued by the Comptroller General of
the United States, the Single Audit Act of 1984, and the provisions of OMB
Circular A-128, Audits of State and Local Governments. The objective of an audit
is the expression of our opinion, concerning whether the financial statements
present fairly, in all material respects, the financial position of the City and
the results of operations and cash flows of its Proprietary Funds in conformity
with generally accepted accounting principles.
As a part of our audit, we will consider the City's internal control structure, as
required by generally accepted auditing standards and Government Auditin~
Standards. These standards require us to obtain an understanding of the control
struc ture and assess risk as a basis for determining the nature, timing, and
extent of auditing procedures necessary for expressing our opinion on the
financial statements.
You recognize that the financial statements and the establishment and maintenance
of an internal control structure are the responsibility of the City's management.
Appropriate supervisory review procedures are necessary to provide reasonable
assurance that adopted policies and prescribed procedures are adhered to and to
identify errors and irregularities or illegal acts. As part of our aforementioned
consideration of the City's internal control structure, we will inform you of
matters that come to our attention that represent significant deficiencies in the
design or operation of the internal control structure.
As required by Government Auditin~ Standards, we will prepare a separate written
report on our understanding of the City's internal control structure and the
assessment of control risk made as part of the financial statement audit. Our
report will include: (1) the scope of our work in obtaining an understanding of
the internal control structure and in assessing the control risk, (2) the City's
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Mr. Michael J. Wright
City Manager
City of Clearwater
September 30, 1991
Page 2
significant internal controls or control structure including the controls
established to insure compliance with laws and regulations that have a material
impact on the general purpose financial statements, and (3) the reportable
conditions, including the identification of material weaknesses, identified as a
result of our work in understanding and assessing control risk.
Our audit will include procedures designed to provide reasonable assurance of
detecting errors and irregularities that are material to the general purpose
financial statements. As you are aware, however, there are inherent limitations
in the auditing proces s. For example, audi ts are based on the concept of
selective testing of the data being examined and are, therefore, subject to the
limitation that such matters, if they exist, may not be detected. Also, because
of the characteristics of irregularities, including attempts at concealment
through collusion and forgery, a properly designed and executed audit may not
detect a material irregularity.
Similarly, in performing our audit we will be aware of the possibility that
illegal acts may have occurred. However, it should be recognized that our audit
provides no assurance that illegal acts generally will be detected, and only
reasonable assurance that illegal acts having a direct and material effect on the
determination of general purpose financial statement amounts will be detected. We
will inform you with respect to illegal acts or material errors that come to our
attention during the course of our audit.
Compliance with laws, regulations, contracts, and grants applicable to the City is
the responsibility of the City's management. As part of obtaining reasonable
as surance about whe ther the financial s ta tements are free of material
misstatement, we will perform tests of City's compliance with certain provisions
of laws, regulations, contracts, and grants. However, except for maj or federal
financial assistance programs, our objective is not to provide an opinion on
overall compliance with such provisions.
As required by Government Auditin~ Standards, we will prepare a separate written
report on our test of compliance with applicable laws and regulations. This
report will contain a statement of positive assurance on those items which were
tested for compliance, negative assurance on those items not tested, and a
description of all material instances of noncompliance.
In accordance with OMB Circular A-128, we will prepare the following separate
written reports:
Report of Schedule of Federal Financial Assistance
Report of Internal Control Structure Relevant to Federal Financial
Assistance Programs
Report of Compliance with Specific Requirements of Major Federal Financial
Assistance Programs
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Mr. Michael J. Wright
City Manager
City of Clearwater
September 30, 1991
Page 3
Report on Compliance with General Requirements of Major Federal Financial
Assistance Programs
Report of Compliance with Requirements of Nonmaj or Federal Financial
Assistance Programs for Items Tested and Negative Assurance About Items
Not Tested.
As required by OMB Circular A-128 we will consider and test the City's internal
control structure policies and procedures used in administering federal financial
assistance programs. Based on this consideration and these tests, we will assess
risk and determine the nature, timing, and extent of tests of compliance with
requirements that, if not complied with, could have a material effect on a major
federal financial assistance program. Also, in connection with our audit of the
financial statements or our consideration of the internal control structure over
federal financial assistance programs, if we select a transaction for testing that
is applicable to a nonmajor program, we will also test it generally for compliance
with laws and regulations.
In addition to the issuance of the aforementioned, our engagement shall include
the following:
Report to Management required by the Rules of the Auditor General, Chapter
lO.550, Florida Administrative Code.
Actuarial analysis of the City's general and automobile liability accruals
as specified in Item 7 of our audit contract.
Other services specified in Items 2 through 7 of our audit contract.
Generally accepted auditing standards require that we communicate certain
additional matters to you or, alternatively, assure ourselves that management has
appropriately made you aware of those matters. Such matters specifically include
(1) the initial selection of and changes in significant accounting policies and
their application; (2) the process used by management in formulating particularly
sensitive accounting estimates and the basis for our conclusions regarding the
reasonableness of those estimates; (3) audit adjustments that could, in our
judgment, either individually or in the aggregate, have a significant effect on
your financial reporting process; (4) any disagreements with management, whether
or not satisfactorily resolved, about matters that individually or in the
aggregate could be significant to the financial statements or our report; (5) our
views about matters that were the subject of management's consultation with other
accountants about auditing and accounting matters; (6) major issues that were
discussed with management in connection with the retention of our services,
including, among other matters, any discussions regarding the application of
accounting principles and auditing standards; and (7) serious difficulties that we
encountered in dealing with management related to the performance of the audit.
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Mr. Michael J. Wright
City Manager
City of Clearwater
September 30, 1991
Page 4
At the conclusion of the engagement, the City's management will provide to us a
representation letter that, among other things, will confirm management's
responsibility for the preparation of the financial statements in conformity with
generally accepted accounting principles, the availability of financial records
and related data, the completeness and availability of all minutes of City
Commission meetings, and absence of irregularities involving management or those
employees who have significant roles in the control structure.
Our firm, as well as all other major accounting firms, participates in a peer
review program, covering our audit and accounting practices. This program
requires that once every three years we subject our quality assurance practices to
an examination by another accounting firm. As part of the process, the other firm
will review a sample of our work. It is possible that the work we perform for you
may be selected by the other firm for their review. If it is, they are bound by
professional standards to keep all information confidential. If you obj ect to
having the work we do for you reviewed by our peer reviewer, please notify us in
writing.
Our fees for the audit of the City's general purpose financial statements,
performance of the Single Audit of Federal Financial Assistance Programs, and
other work specified in our audit contract, including out-of-pocket expenses, for
the year ended September 30, 1991 will be $86,500. Monthly progress billings will
be generated on the basis of hours of work completed and will be subject to
retainage of ten percent.
We shall be pleased to discuss this letter with you at any time. Please sign and
re turn one copy of this letter to indicate acceptance. We appreciate the
opportunity to serve the City of Clearwater and look forward to a continuing
relationship in the years ahead.
Yours very truly,
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The foregoing is in accordance with our understanding.
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