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ANNUAL AUDIT
THIS AGREEMENT, made and entered into this !.3 day of , 2010 by and between the CITY OF CLEARWATER, FLORIDA, a mu icipal corporation of the State of Florida, located at 112 S. Osceola Avenue, Clearwater, Florida 33756, hereinafter referred to as "City", and Kirkland, Russ, Murphy & Tapp, P.A., a firm of Certified Public Accountants, located at 13577 Feather Sound Drive, Suite 400, Clearwater, Florida 33762, hereinafter referred to as "Contractor"; WITNESSETH WHEREAS, the City is required by Article II, Section 2.01(c) (3) of the City Charter to provide for an annual audit of its financial accounts; and WHEREAS, the City participates in various Federal, State and County Assistance programs which require independent financial and compliance audits in accordance with rules established by the U.S. Department of Housing and Urban Development, Florida Auditor General, and other agencies; and WHEREAS, the Contractor is in the business of public accounting, is fully qualified to meet the requirements of applicable City, State and Federal law, and desires to perform the necessary services: NOW, THEREFORE, the parties agree as follows: 1. Recitals. The foregoing recitals are true and correct and are incorporated in and form a part of this Agreement. 2. The "Auditor Services Documents" form the Auditor Services Agreement. The Auditor Services Documents consist of this Agreement between the City and the Contractor (hereinafter "Agreement") and it's attached Exhibits: City of Clearwater Request For Proposal for Professional Auditing Services, ("RFP 16-10")issued May 11, 2010 (Exhibit "A"); Proposal to provide Professional Auditing Services to the City of Clearwater, Florida ("Proposal") submitted June 8, 2010 (Exhibit "B"); Engagement Letter from Contractor to City confirming understanding of the services to be provided under the Agreement ("Engagement Letter") (Exhibit "C"); written modifications of the Agreement executed by the parties hereto, issued after execution of the Agreement. The Auditor Services 1 Documents shall not be construed to create a contractual relationship of any kind with any third party, including any third party service provider used by the Contractor in the fulfillment of its obligations under the Agreement. 3. This agreement relates specifically to the City's fiscal years ending September 30, 2010 thru 2014. This agreement may be terminated by the City on the basis of unsatisfactory performance, as determined by the City in its sole discretion, with written notice at least six months prior to the September 30 fiscal year-end, or by the contractor for reasons specified in the Engagement Letter which is hereby incorporated by reference and made a part hereof. City Charter Section 2.01(c)(3) currently prohibits any single audit firm from being employed for more than five consecutive years. The fees for subsequent years are fixed per this agreement and not expected to deviate from the amounts stated herein except for unanticipated significant changes in the scope of auditing services required by the City. 4. The Contractor shall review the City's comprehensive annual financial report for compliance with GAAP and the applicable requirements of the Certificate of Achievement for Excellence in Financial Reporting program of the Government Finance Officers Association and assist the City in complying with new or existing requirements. The Contractor shall, subject to the terms and conditions of the engagement letter, render a report on the fair presentation of the City's basic financial statements and all individual non-major fund financial statements, in conformity with generally accepted accounting principles, for the fiscal years ending September 30, 2010 thru 2014. The Contractor shall, subject to the terms and conditions of the engagement letter, render a report on the fair presentation of the City's combining and individual fund financial statements and schedules in conformity with generally accepted accounting principles. The Contractor is not required to audit the supplementary information contained in the comprehensive annual financial report, however, the Contractor shall provide an "in-relation-to" report on the supplementary information based on the audit procedures 2 applied during the audit of the basic financial statements and the combining and individual fund financial statements and schedules. The Contractor is not required to audit the statistical section of the report. The Contractor shall also perform the required financial and compliance audits associated with Federal, State, and County Assistance programs in accordance with the Federal Single Audit Act of 1984 as amended; U.S. Office of Management and Budget (OMB) Circular A-133; the provisions of the Florida Single Audit Act (Section 215.97 Florida Statutes); and rules of other agencies. 5. In performing the services described in #4 above, the Contractor shall comply with the following: ° generally accepted auditing standards ° standards set forth for financial audits in the U.S. General Accounting Office's (GAO) Government Auditing Standards ° provisions of the Federal Single Audit Act as amended ° U.S. Office of Management and Budget (OMB) Circular A- 133 ° Chapter 11.45 Florida Statutes ° the Rules of the Auditor General of the State of Florida, Chapters 10.550 and 10.600 ° Regulations of the State Department of Banking and Finance ° Audits of State and Local Governmental Units - AICPA As a part of the audit, the Contractor will consider the City's internal control structure, as required by generally accepted auditing standards and Government Auditing Standards. 6. Following completion of the audit, the Contractor shall, subject to the terms and conditions of the engagement letter, render the following reports: 3 ° A report on the fair presentation of the financial statements in conformity with generally accepted accounting principles. ° A report on the internal control structure based on the auditor's understanding of the control structure and assessment of control risk. ° A report on compliance with applicable laws and regulations, including those relating to funds received form a State of Florida grants and aid appropriation pursuant to a grant or contract. ° A report on the internal control structure used in administering federal assistance programs. ° A report on compliance with laws and regulations related to major and non-major federal financial assistance programs. ° A Management Letter as required by Section 10.554(1)(i) of the Rules of the Auditor General of the State of Florida. ° A report on compliance with general compliance requirements as required by the Single Audit Act and OMB Circular A-133. ° A report on compliance as required by the Florida Single Audit Act and Chapter 10.550, Rules of the Auditor General of the State of Florida. 7. In conjunction with City debt issuances, the Contractor will provide Consent Letters and Citations of Expertise and/or Comfort Letters at no additional cost to the City. 8. The Contractor shall retain all working papers for a minimum of five (5) years, unless notified in writing by the City of the need to extend the retention period. The Contractor shall make working papers available, upon request, to the following parties or their designees: ° City of Clearwater ° U.S. Department of Housing and Urban Development U.S. General Accounting Office (GAO) ° Parties designated by the federal or state governments or by the City of Clearwater as part of an audit quality review process 4 ° Auditors of entities of which the City of Clearwater is subrecipient of grant funds In addition the Contractor shall, providing all fees have been paid, respond to the reasonable inquiries of successor auditors and allow successor auditors to review working papers relating to matters of continuing accounting significance. 9. The Contractor shall assist the City in scheduling the Comprehensive Annual Financial Report to be completed and issued no later than March 15th, succeeding each fiscal year. Contractor/City meetings will be held at least once per month until completion of this contract. Weekly status meetings shall be held while the Contractor is working at the City. The Contractor shall complete performance under this contract by March 31St succeeding each fiscal year. 10. The Contractor shall bill the City and the City shall pay the Contractor for the performance of the services under this contract on the basis of the Contractor's normal and customary charges for such services, plus ordinary out-of- pocket expenses customarily stated separately by the Contractor in his general practice. The total amount of this contract, including out-of-pocket expenses, shall not exceed: Fiscal 2010 $114,750 Fiscal 2011 $117,300 Fiscal 2012 $120,600 Fiscal 2013 $124,450 Fiscal 2014 $128,400 The City may, by amendment of this agreement, increase this maximum fee and/or extend the completion date upon the Contractor's showing evidence of conditions which require substantially more time than would generally be required to perform the prescribed services. Progress payments will be made periodically for work completed to date based on invoices submitted by the Contractor. The sum of such 5 progress payments shall not exceed ninety percent (90%) of the maximum specified above. The final payment will be made within thirty (30) days of receipt of the final audit reports. Miscellaneous Provisions 11. Budget Allocations. The obligations of the parties are subject to appropriate budgeted funds being available in each budget year to achieve the purposes of this Agreement. Tn the event that sufficient budgeted funds are not available in a subsequent fiscal year, this Agreement shall terminate on the last day of the fiscal year for which sufficient budgeted funds are available without penalty to either of the parties. 12. Record Retention. Documents related to this agreement may be construed as public record and shall be retained and provided as required by law. 13. Compliance With the Law. Both Parties shall comply with all federal, state, county, and local laws, regulations, and ordinances at all times. 14. Discrimination Prohibited. The Parties shall, during the performance of this agreement, comply with all applicable provisions of federal, state and local laws and regulations pertaining to prohibited discrimination. 15. Assignment. This agreement is not assignable. 16. Severabilitv. Should any section or part of any section of this Agreement be 6 rendered void, invalid, or unenforceable by any court of law, for any reason, such a determination shall not render void, invalid, or unenforceable of any other section or any part of any section of this Agreement. 17. Amendments. This Agreement constitutes the entire Agreement between the Parties, and no change will be valid unless made by supplemental written agreement executed by both Parties. 18. Notices. Ali notices, requests, demands, or other communications required by law, or this Agreement shall be in writing and shall be deemed to have been served as of the delivery date appearing upon the return receipt if sent by certified mail, postage prepaid with return receipt requested, to: Jay Ravins, Asst. Finance Director City of Clearwater 100 South Myrtle Ave. Clearwater, Florida 33756 Laura Brock Kirkland, Russ, Murphy & Tapp 13577 Feather Sound Drive, Suite 400 Clearwater, Florida 33762 19. Non-Waiver. No act of omission or commission of either Party, including without limitation, any failure to exercise any right, remedy, or recourse, shall be deemed to be a waiver, release, or modification of the same. Such a waiver, release, or modification is to be effected only through a written modification to this Agreement. 7 20. Authority. Each Party to this Agreement represents and warrants to the other Party that (i) it is duly organized, qualified and existing entities under the laws of the State of Florida, and (ii) all appropriate authority exists so as to duly authorize the persons executing this Agreement to so execute the same and fully bind the Party on whose behalf they are executing. This Agreement is subject to approval by the Parties. 21. Governing Law. This Agreement shall be construed and enforced in accordance with Florida Law. IN WITNESS WHEREOF, the parties hereto have caused this agreement to be executed the day and year first above written: Fra Mav tersigned: Approved as to form Laura Mah.ony_._. Assistant City Attorney CITY OF CLEARWATER, FLORIDA By: ?V4 ': - W liam B. Horne, III City Manager_ Attest: ACthia E."Goudeau C y Clerk ?yOF TNf ?,+? k, Kirkland, Russ, Murphy & Tapp, P.A. By: 8 Request for Auditing Services City of Clearwater RFP 16-10 CITY OF CLEARWATER REQUEST FOR PROPOSAL PROFESSIONAL AUDITING SERVICES RFP 16-10 Issued By: Purchasing Department Municipal Services Building, 3?d Floor 100 S. Myrtle Avenue Clearwater, Florida 33756-5520 (727) 562-4634 (727) 562-4635 FAX Date of Issue: May 11, 2010 Due Date/Time for Receipt of Proposals: June 8, 2010 @ 4:00 PM EXHIBIT A m Request for Auditing Services City of Clearwater RFP 16-10 REQUEST FOR PROPOSAL FOR PROFESSIONAL AUDITING SERVICES FOR THE CITY OF CLEAR WATER, FLORIDA I. INTRODUCTION A. Purpose The City of Clearwater is seeking proposals from qualified firms of certified public accountants to audit the financial statements of the City of Clearwater, Florida (the City) for the fiscal years ending September 30, 2010, 2011, 2012, 2013, and 2014. The audit agreement is subject to annual approval by the City with grounds for termination including poor performance, not adhering to time schedules, and excessive fee increases. The City will select and negotiate with the firm whose proposal is most responsive to this Request for Proposal (RFP) and in the best interest of the City. Proposals submitted in response to the RFP must provide sufficient detail and information to complete an evaluation of their merit. The instructions contained herein must be followed to be considered responsive to the RFP. The City reserves the right to reject any or all responses. B. Calendar of Events The City will utilize the following time table with the goal of selection. This schedule may be altered as necessary at the City's discretion. May 11, 2010 Release Date June 8, 2010 RFP opening, 4:00 PM, 100 S. Myrtle Ave, Clearwater, 33756 June 17, 2010 Preliminary ranking completed (Audit Committee) June 29, 2010 Presentations by firms selected as finalists, if needed August 5, 2010 Audit Committee recommendation for Council approval Request for Auditing Services City of Clearwater RFP 16-10 C. Proposal Delivery Eight (8) proposal copies shall be delivered to the City of Clearwater, Purchasing Manager, 100 S. Myrtle Avenue, Clearwater, Florida 33756-5520, prior to opening time of 4:00 PM, EDT, on June 8, 2010. The delivery of proposals to the City of Clearwater Purchasing Office prior to the specified date and time is solely and strictly the responsibility of the proposing firm. The City shall not, under any circumstances, be responsible for delays caused by the United States Postal Service or any private delivery service, or for other delays. All responses must be manually and duly signed by an authorized corporate officer, principal, or partner with the authority to bind said firm. All responses must be marked on the outside: "Request to provide Auditing Services for the City of Clearwater, Florida To be opened at 4:00 PM, EDT, June 8, 2010" Each proposer is solely responsible for reading and completely understanding the requirements of this RFP. The opening time shall be and must be scrupulously observed. Under no circumstances will proposals delivered after the specified delivery time be considered. Late submissions shall be returned unopened to the firm with the notation: "The proposal was received after the delivery time designated for the receipt and opening of the proposals". All proposals shall be prepared and submitted in accordance with the provisions of this RFP. However, the City may waive any informalities, irregularities, or variances, whether technical or substantial in nature, or reject any and all proposals at its discretion. Any proposal may be withdrawn prior to the indicated time for opening of proposals or authorized postponement thereof. No firm may withdraw a proposal within ninety (90) days after the actual date of the proposal's opening. D. Ranking of RFP's Proposal ranking results will be announced and all responses shall be a matter of public record. Criteria for evaluation are set forth in this document. These criteria will be used by the City to determine, in its judgment, the proposal it deems to be in its best interest. Negotiations will proceed, if at all, with the responsible ranked firm whose proposal is determined by the City to be in its best interest. Offerors may be required to make presentations. The City reserves the right to reject any or all responses with or without cause. Request for Auditing Services City of Clearwater RFP 16-10 II. SERVICES REQUIRED A. Scope of Services • Express opinion on the fair presentation of the City's basic financial statements in conformity with U.S. generally accepted accounting principles no later than February 28"' annually. • Express opinion on the fair presentation of City's individual non-major governmental, non-major enterprise, internal service and fiduciary funds financial statements, including any budgetary comparisons presented as basic financial statements, in conformity with U.S. generally accepted accounting principles, no later than February 28th annually. Provide an "in-relation-to" opinion on the supporting schedules of federal and state financial assistance. • Perform certain limited procedures involving required supplementary information as mandated by generally accepted auditing standards. • Provide a report on internal controls over financial reporting and on compliance and other matters based on an audit of financial statements performed in accordance with government auditing standards. • Provide a report on compliance with requirements applicable to each major Federal program and state project and on internal control over compliance in accordance with OMB Circular A-133; Chapter 10.550, Rules of the Auditor General of the State of Florida; and the Florida Department of Financial Services State Projects Compliance Supplement. • Provide a schedule of findings and questioned costs as mandated by the Single Audit Act Amendments of 1996, OMB Circular A-133, and the Florida Single Audit Act. • Provide any other reports required by the Federal and State Single Audit Acts. • Provide a Management Letter as required by Section 10.554(l)(i) of the Rules of the Auditor General of the State of Florida including all required disclosures. B. Auditing Standards The audit shall be performed in accordance with: • Generally accepted auditing standards (GAAS) as set forth by the American Institute of Certified Public Accountants. • Government Auditing Standards issued by the Comptroller General of the United States. • OMB Circular A-133, Audits of State and Local Governments • Federal Single Audit Act Amendments of 1996; Florida Single Audit Act; Section 215.97, Florida Statutes Request for Auditing Services City of Clearwater RFP 16-10 • Chapter 10.550 and 10.600, Rules of the Auditor General • Chapter 11.45, Florida Statutes • State of Florida Department of Banking and Finance Regulations • Audits of State and Local Governmental Units (Revised) - AICPA • Any other applicable federal, state and local laws, regulations, or professional guidance not specifically listed above as well as any additional requirements which may be adopted by these organizations in the future. C. Assistance to be provided to the Auditor • The City of Clearwater will prepare draft financial statements, notes, and all required supplementary schedules and statistical data, including the Schedule of Expenditures of Federal Awards and State Financial Assistance. • Finance staff and responsible management personnel will be available during the audit to assist the firm in providing additional information, documentation, and explanations. City of Clearwater EDP personnel will be available to provide systems documentation and explanations. • The preparation of confirmations shall be the responsibility of the City of Clearwater as directed by the auditor. • The City's Assistant Finance Director, or designee, will act as coordinator for the audit and will be the primary contact for assistance to be provided to the auditor by the City. • The City will provide reasonable work space, tables, chairs, computer access, telephone access, photocopying facilities, and facsimile services for the on-site audit staff, to be used solely for the audit of the City. • CAFR preparation and printing shall be the responsibility of the City. D. Special Considerations • The City requires that auditors oWne_ at the fund level across all funds, including non-major funds. • The City has received the Certificate of Achievement for Excellence in Financial Reporting for the past thirty consecutive years and will continue to submit its comprehensive annual financial report (CAFR) to the Government Finance Officers Association for review via its Certificate of Achievement for Excellence in Financial Reporting program. It is expected that the auditor will assist in the review of the report for compliance with the requirements of that program prior to submission. • The City currently anticipates it will prepare one or more official statements in connection with the sale of debt securities which will contain the general purpose financial statements and the auditor's reports thereon. The auditor shall be required, if requested by the City, to issue a "consent and citation of expertise" as the auditor along with any necessary "comfort letters" at no additional cost to the City. Request for Auditing Services City of Clearwater RFP 16-10 • The City has determined that the U.S. Department of Housing and Urban Development will function as the cognizant agency in accordance with the provisions of the Single Audit Act Amended of 1996 and U.S. Office of Management and Budget (OMB) Circular A-133, Audits of State and Local Governments. • The Schedule of Expenditures of Federal and State Awards and the related auditor's report, as well as the related reports on compliance and internal control, and the management letter are to be issued as part of the CAFR. • The auditor will assist the City in complying with changes in reporting requirements to remain in conformity with generally accepted accounting principles. • The auditors shall be required to issue an immediate written report of all irregularities and illegal acts or indications of illegal acts of which they become aware to the City Manager, the Audit Committee and/or the City Council, as appropriate. • The auditor shall submit a signed audit report on the fair presentation of the financial statements in conformity with generally accepted accounting principles no later than February 28th annually, along with the required reports on internal controls and compliance with laws and regulations. E. Working Paper Retention and Access to Working Papers All working papers and reports must be retained, at the auditor's expense, for a minimum of five (5) years, unless the firm is notified in writing by the City of the need to extend the retention period; except grant-related working papers will be retained for ten (10) years. The auditor will be required to make working papers available, upon request, to the following parties or their designees: • City of Clearwater • U.S. Department of Housing and Urban Development • U.S. General Accounting Office (GAO) • Parties designated by the federal or state governments or by the City as part of an audit quality review process. • Auditors of entities of which the City of Clearwater is a sub-recipient of grant funds. • In addition the firm shall respond to the reasonable inquiries of successor auditors and allow successor auditors to review working papers relating to matters of continuing accounting significance. III. DESCRIPTION OF GOVERNMENT Background Information: The City of Clearwater serves an area of approximately 26 square miles with a population of approximately 110,000. The City's fiscal year begins October 1 st and ends September 301h The City of Clearwater provides the following services to its citizens: 0 Police and fire protection Request for Auditing Services City of Clearwater RFP 16-10 • Construction and maintenance of streets, bridges, sidewalks, storm drainage, public parks, and recreational facilities • City planning, zoning, subdivision and building code regulation and enforcement • Supervised recreation programs • Public libraries • Redevelopment of declining commercial and residential neighborhoods • Refuse and trash collection • Comprehensive recycling program • Natural gas distribution • Water supply and distribution • Storm and waste water collection, treatment, and disposal • Parking system • Marina, downtown boat slips, and beach fishing pier • Executive airpark More detailed information on the government and its finances can be found in the annual budget and comprehensive annual financial report documents. These documents are available for review at the City's website: http://www.myClearwater.com/ (Office of Management & Budget and Finance Department documents). Pension Plans The City of Clearwater participates in the following retirement plans: Single Employer Defined Defined Plan Benefit Contribution Clearwater Employees' X Clearwater Firefighters' Relief X Firefighters' Supplemental (Ch. 175) X Police Officers' Supplemental (Ch-185) X Management (401 a) X The actuarial services for the Clearwater Employees' and Clearwater Firefighters' Relief pension plans are currently provided by Gabriel Roeder Smith & Company and Mouton & Company, respectively. Deferred Compensation plans The City offers its employees a deferred compensation plan adopted under Internal Revenue Code Section 457. Insurance The City is self-insured within certain parameters for losses arising from claims for property damage, general liability, auto liability and physical damage and workers' compensation. The City's current actuary for the self-insurance program is AMI Risk Consultants, Inc. Component Unit Request for Auditing Services City of Clearwater RFP 16-10 Clearwater Redevelopment Agency (CRA) - a blended component unit, is presented as a non- major special revenue fund in the City's comprehensive annual financial report. Separate financial statements are not available for the CRA. IV. TECHNICAL REQUIREMENTS A. To assure consistency, proposals must conform to the following format: • Title Page - List the RFP subject, the name of the firm, local address, telephone number, name of contact person, and the date. • Table of Contents Include a clear identification of the material included in the proposal by page number. • Transmittal Letter Briefly state the proposer's understanding of the work to be done (including audit opinion at the individual fund level), the commitment to perform the work within the required time period, a statement why the firm believes itself to be the best-qualified to perform the engagement, and a statement that the proposal is a firm and irrevocable offer for 90 days. • Detailed Proposal See below for description B. Detail Proposal General Requirements The purpose of the technical proposal is to demonstrate the qualifications, competence, and capacity of the firms seeking to undertake an independent audit of the City of Clearwater in conformity with the requirements of this request for proposals. As such, the substance of proposals will carry more weight than their form or manner of presentation. The technical proposal should demonstrate the qualifications and experience of the firm and of the particular staff to be assigned to this engagement. It should also specify an audit approach that will meet the request for proposals requirements. Cost proposals for services are requested as part of the response. The fees quoted should include a breakdown of anticipated hours and rates of the various classes of personnel to be assigned. Fees should be quoted for each of the five (5) years of the audit engagement. Qualified firms will be identified and ranked on the basis of qualifications, competence, and capacity of the firms as demonstrated by the RFP response, and oral interviews if necessary. Cost of services will be of secondary importance in evaluating qualified firms. The technical proposal should address all points outlined in the RFP. The proposal should be prepared simply and economically, providing a straightforward, concise description of the proposer's capability to satisfy the requirements of the RFP. While additional data may be presented, the following subjects, items 1 through 10, must be included. They represent the primary criteria against which the proposal will be evaluated. Request for Auditing Services City of Clearwater RFP 16-10 1. Independence The firm should provide an affirmative statement that it is independent of the City of Clearwater as defined by generally accepted auditing standards and the U.S. General Accounting Office's Government Auditing Standards. The firm should also provide an affirmative statement that it is independent of all potential component units of the City of Clearwater as defined by those same standards. The firm should list and describe the firm's (or proposed subcontractors') professional relationships involving the City of Clearwater or any of its actual or potential component units for the past five (5) years, together with a statement explaining why such relationships do not constitute a conflict of interest relative to performing the audit. In addition, the firm shall provide the City of Clearwater timely written notice of any professional relationships involving the City or component units which the firm enters into during the period of this agreement. 2. License to Practice in Florida An affirmative statement should be included indicating that the firm and all assigned key professional staff are properly licensed to practice in Florida. 3. Insurance Requirements An affirmative statement should be included indicating that the firm can and will comply with the insurance requirements as enumerated in this RFP. 4. Firm Qualifications and Experience The proposal should indicate the total number of employees of the firm, the number of employees considered to be governmental audit staff, the location of the office from which the work on this engagement is to be performed, the number and nature of the professional staff to be employed in this engagement on a full-time basis, and the number and nature of the staff to be employed on a part-time basis. If the proposer is a joint venture or consortium, the qualifications of each firm comprising the joint venture or consortium should be separately identified and the firm that is to serve as the principal auditor should be noted, if applicable. The firm is also required to submit a copy of the report on its most recent external quality control review, with a statement whether that quality control review included a review of specific governmental engagements. The firm shall also provide information on the results of any federal or state desk reviews or field reviews of its audits during the past three (3) years. In addition, the firm shall provide information on the circumstances and status of any disciplinary actions taken or pending against the firm during the past three years with the state regulatory bodies or professional organizations. Request for Auditing Services City of Clearwater RFP 16-10 5. Partners, Supervisory, and Staff Qualifications and Experience The firm should identify the principal supervisory and management staff, including engagement partners, managers, single audit staff, and other supervisors and specialists, who would be assigned to the engagement and indicate whether each such person is licensed to practice as a certified public accountant in Florida. The firm also should provide information on the governmental auditing experience of each person, including information on relevant continuing professional education for the past three (3) years and membership in professional organizations relevant to the performance of this audit. The firm should provide as much information as possible regarding the number, qualifications, experience, and training, including relevant continuing professional education, of the specified staff to be assigned to this engagement. The firm should indicate how the quality of staff over the term of the agreement will be assured. Engagement partners, managers, other supervisory staff and specialists may be changed if those personnel leave the firm, are promoted, or are assigned to another office. These personnel may also be changed for other reasons with the express prior written permission of the City of Clearwater, which retains the right to approve or reject replacements. Other audit personnel may be changed at the discretion of the proposer provided that replacements have substantially equivalent or better qualifications and experience. 6. Prior Engagements with Other Governmental Entities The firm should list separately all engagements within the last five (5) years for other Governmental entities, by type of engagement (i.e. audit, management advisory services, other). For each engagement, the firm should indicate the scope of work, date, engagement partners, total hours, the location of the firm's office from which the engagement was performed, and the name and current telephone number of the principal client contact. 7. Similar Engagements with Other Governmental Entities For the firm's office that will be assigned responsibility for the audit, list the five (5) most significant engagements performed in the last five (5) years that are similar to the engagement described in this request for proposal. Indicate the scope of work, date, engagement partners, total hours, managers, specialists, and the name and telephone number of the principal client contact. 8. Audit Approach The proposal should set forth a general work plan, including an explanation of the audit methodology to be followed. Proposers will be required to provide the following information regarding their audit approach: a. Proposed segmentation of the engagement b. Level of staff and percentage of hours to be assigned to each proposed segment of the engagement Request for Auditing Services City of Clearwater RFP 16-10 c. Extent of EDP software use in the engagement d. Approach to be taken to gain and document an understanding of the City of Clearwater's internal control structure e. Approach to be taken in determining laws and regulations subject to audit test work f. Sample sizes and the extent to which statistical sampling is to be used in the engagement g. Type and extent of analytical procedures to be used in the engagement h. Approach to be taken in drawing audit samples for purposes of tests of compliance 9. Identification of Potential Audit Problems The proposal should identify and describe any anticipated potential audit problems, the firm's approach to resolving, and any special assistance that will be requested from the city. 10. Cost Proposal The cost proposal should contain all pricing information relative to performing the audit engagement as described in this request for proposals. The total all-inclusive maximum price to be bid is to contain all direct and indirect costs, including all out-of-pocket expenses. The cost proposal should include a total all-inclusive Maximum Price for each of the 2010, 2011, 2012, 2013, and 2104 engagements, along with the signature of an individual empowered to represent the firm and sign a contract with the City. Progress payments will be made on the basis of hours of work completed during the course of the engagement in accordance with an agreement reached during contracted negotiations. Interim billings shall cover a period of not less than a calendar month. Twenty percent (20%) of the total annual contract will be retained pending delivery and acceptance of the firm's final reports. All out-of-pocket expenses are to be included in the total all-inclusive maximum price and any out-of-pocket expense reimbursements will be charged against the total all-inclusive maximum price submitted by the firm. V. EVALUATION OF PROPOSALS An Audit Committee has been appointed by the City Council to review and evaluate all proposals submitted in response to this Request for Proposal (RFP). The Audit Committee shall conduct a preliminary evaluation of all proposals on the basis of the information provided and other evaluation criteria as set forth in the RFP. The Audit Committee will first review each proposal for compliance with the minimum qualifications and mandatory requirements of the RFP. Failure to comply with any mandatory requirements may disqualify a proposal. Request for Auditing Services City of Clearwater RFP 16-10 Proposals will be evaluated on the following criteria: Mandatory Elements: 1. The audit firm is independent and licensed to practice in the State of Florida. 2. The audit firm's professional personnel have received adequate continuing professional education within the preceding two years. 3. The firm has no conflict of interest with regard to any other work performed by the firm for the City of Clearwater. 4. The firm submits a copy of its most recent external quality control review report and the firm has a record of quality audit work. 5. The firm submits a cost proposal per the proposal requirements, including an all-inclusive maximum price for each of the five (5) years of the contract period. 6. The firm adheres to the instructions in this RFP for preparation and submission of the proposal. Technical ualifications: 1. Expertise and Experience (Maximum Points - 40) A. The firm's past experience and performance on government engagements of comparable size and complexity. B. The quality and experience of the firm's professional auditing personnel to be assigned to the engagement and the quality of the firm's management support personnel to be available for technical consultation. C. The quality and experience of the firm's professional EDP auditing personnel assigned to the engagement. D. The quality and experience of the firm's professional auditing personnel assigned to perform the Single Audit. 2. Audit Approach (Maximum Points - 25) A. Adequacy of proposed staffing plan for various segments of the engagement. B. Adequacy of the general audit plan for the overall engagement. C. Adequacy of the audit plan for the EDP function. D. Adequacy of the audit plan for the Single Audit. E. Completeness of the response to the RFP F. Competitiveness of fee structure 3. Responses of references (Maximum Points - 10) Upon completion of the Audit Committee's rankings of proposals, top-ranked firms may be required to make oral presentations. If oral presentations are required, a maximum additional Request for Auditing Services City of Clearwater RFP 16-10 score of 25 points will be assigned to the oral presentation in arriving at a total composite score for each proposal. VI. INSURANCE REQUIREMENTS The Vendor's insurance coverage shall include General Liability, Automobile Liability, Professional Liability, and Workers' Compensation and Employer Liability. General Liability The Vendor (contractor) shall f irnish, pay for, and maintain during the life of this contract, such general liability insurance to protect the City, the Contractor, an any of his/her sub-contractors who may be performing any work under the terms and provisions of this contract from claims for damages or bodily injury, including accidental death, as well as from claims for this contract whether such operations as may be performed by the Vendor or by any sub-contractor or by any other party directly or indirectly employed by either the Vendor or the sub-contractor. The General Liability shall be the Comprehensive form including the categories of: Premises and Operations, Underground and Collapse Hazard, Products and Completed Operations, Contractual, Independent Vendors, Broad Form Property Damage, and Personal Injury in the minimum amounts of $1,000,000 for combined Bodily Injury and Property Damage. The Proposer's comprehensive general liability policy shall include contractual liability on a blanket or specific basis to cover this indemnification. Automobile Li_abili The Vendor shall maintain, for the life of the contract, Business Automobile Liability Insurance, if applicable. The minimum limits of coverage shall be $1,000,000 per occurrence, Combined Single Limit for Bodily Injury Liability and Property Damage Liability. This coverage shall be an "Any Auto" type policy. Coverage shall be no more restrictive than the latest edition of the Business Automobile Policies of the Insurance Services Office (ISO). Professional Liability The Vendor shall procure and maintain for the life of this contract, Professional Liability Insurance. This insurance shall provide coverage against such liability resulting from this contract/project. The minimum limits of coverage shall be $1,000,000 per occurrence with deductible or self-insured retention (SIR) indicated. Worker' Compensation and Employer Liability The Worker's Compensation and Employer Liability shall be in conformance with current State of Florida Statutory requirements. Proof of Insurance: The contractor shall famish the City with satisfactory proof of coverage of all insurance required by this RFP prior to commencing any work under this contract. The Certificate of Insurance shall show the City of Clearwater as an additional insured party to the Vendor and shall show that all sub-contractors or any other party directly or indirectly employed by either the Vendor or the sub-contractor as additional insured party(s). The City shall be notified a Request for Auditing Services City of Clearwater RFP 16-10 minimum of thirty (30) days prior to any cancellation of policy which may occur prior to the policy expiration date contained on the Certificate of Insurance. Other Provisions: Any party providing services or products to the City will be expected to enter into a written agreement, contract, or purchase order with the City that incorporates, either in writing or by reference, all of the pertinent provisions relating to insurance and insurance requirements as contained herein. A failure to do so may, at the sole option of the City, disqualify any bidder or proposer of services and/or products to the City. Insurance coverage shall be written by a company licensed to do business in the State of Florida and satisfactory to the City. The Vendor shall defend, indemnify, save and hold the City harmless from any and all claims, suits, judgments, and liability for death, personal injury, bodily injury, or property damage arising directly or indirectly from the performance by the Vendor, its employees, subcontractors, or assigns, including legal fees, court costs, or other legal expenses. Vendor acknowledges that it is solely responsible for complying with the terms of this RFP. In addition, the Vendor shall, at its expense, secure and provide to City, prior to beginning performance under this RFP, insurance coverage as required in this RFP. VII. OTHER RFP PROCEDURES AND TERMS A. Where and How to Deliver Inquiries: Questions to be submitted to Mr. George McKibben, Purchasing Manager, City of Clearwater, P.O. Box 4748, Clearwater, Florida 33758-4748, or George.McKibben@myclearwater.com. B. How RFP Addenda Will Be Communicated: The City shall not be responsible for oral interpretations given by any City employee, representative, or others. The. issuance of a written addendum is the only official method whereby interpretation, clarification, or additional information may be given. If any addenda are issued to this RFP, the City will attempt to notify all prospective firms who have secured same. However, it shall be the responsibility of each firm, prior to submitting the proposal, to contact the City of Clearwater's Purchasing Manager (727-562-4634) to determine if addenda were issued and to make such addenda a part of the proposal. C. General Terms: The winning vendor may be rejected as the primary selection if that vendor cannot successfully negotiate the contract with the City to the satisfaction of the City. D. Appropriations Clause: The City, as an entity of government, is subject to the appropriation of funds by its legislative body in an amount sufficient to allow continuation of its performance in accordance with the terms and conditions of this contract for each and every fiscal year in which this contract is executed and entered into and for which this contract shall remain in effect. Upon notice that sufficient funds are not available in the subsequent fiscal years, the City shall thereafter be released of all terms and other conditions. E. Right To Protest: Request for Auditing Services City of Clearwater RFP 16-10 Any actual or prospective bidder who is aggrieved in connection with the solicitation or award of a contract may seek resolution of his/her complaints by contacting the Purchasing Manager. F. No Corrections: Once a competitive proposal is submitted, the City shall not accept any request by any proposer to correct errors or omissions in any calculations or competitive price submitted. G. Openness of Procurement Process: Written competitive proposals, other submissions, correspondence, and all records made thereof, as well as, negotiations conducted pursuant to this RFP, shall be handled in compliance with Chapters 119 and 286, Florida Statutes. The City gives no assurance as to the confidentiality of any portion of any proposal once submitted. H. No Collusion: By offering a submission to the RFP, the proposer certifies the proposer has not divulged to, discussed or compared his/her competitive proposal with other proposers and has not colluded with any other proposer or parties to this competitive proposal whatsoever. I. Informality Waiver / Rejection of Bids: The City reserves the right to reject any or all responses and to waive any irregularity, variance or informality whether technical or substantial in nature, in keeping with the best interests of the City. RFB #16-10 Professional Auditing Services Submitted by: Kirkland, Russ, Murphy & Tapp, P.A. 13577 Featlicr Sound Drive, Suite 400 Clearwater, FL 33762 Firrn License #: AD0020591 Contact: Laura Krueger Brock, Sbarcbolder E-mail: lbrock@krmtcpa. corn Phone Number: 727.572.1400 Fax Number: 727.571.1933 Proposal to Provide Professional Auditing Services to: The City of Clearwater, Florida June 8, 2010 MEN M KIFKLAN Russ, M_U_RPH_ Y _ TAPP CERTIFIED PUBLIC ACCOUNTANTS A Professional Association Proposal to Provide Professional Auditing Services to: The City of Clearwater, Florida Table of Contents Letter of Transmittal Firm Profile 1 Why Choose KRMT? ..................................................................................................................................................1 Firm Description ..........................................................................................................................................................2 1. Independence ....................................................................................................................................................... 2 2. License to Practice in Florida ............................................................................................................................ 3 3. Insurance Requirements .................................................................................................................................... 3 4. Firm Qualifications and Experience Office Location and Size .......................................... ..................... .............. -...................................................... 3 Peer Review .......................................................................................................................................................... 3 Desk Reviews ....................................................................................................................................................... 3 Federal/State Review and Disciplines of Action .................................................................................................. 3 Workpaper Retention ............................................................................................................................................4 BDO Seidman Alliance ........................................................................................................................................4 Experience in Performing Government Financial Audits .....................................................................................4 Certificate of Achievement for Excellence in Financial Reporting ...................................................................... 5 Single Audit Experience ...................................................................................................-................................. 6 Experience in Forensic Accounting .............................................................................. 5. Partners, Supervisory and Staff Qualifications and Experience Engagement Team ................................................................................................................................................ 7 Engagement Team Continuity .............................................................................................................................. 7 Individual Resumes .............................................................................................................................................. 8-12 6. Prior Engagements with Other Governmental Agencies ................................................................................ 13-14 7. Similar Engagements with Other Governmental Entities ............................................................................... 15 8. Audit Approach Scope of Services .................................................................................................................................................. 16 Segmentation of the Engagement ................................................. ........................................................................ 16-18 Single Audit Approach ......................................................................................................................................... 18 Staffing Plan ......................................................................................................................................................... 19 EDP Software Usage ............................................................................................................................................ 19-20 Approach Taken to Gain and Document an Understanding of Internal Controls ................................................. 20-21 Approach Taken to Determine Laws and Regulations Subject to Audit Test Work ............................................. 2'l. Sample Size Methodology and Statistical Sampling ............................................................................................ 22 Analytical Procedures ........................................................................................................................................... 22 Approach in Drawing Samples ................................................... .......... ..........-................................................... 22 Information Technology Audit Approach ......................... ..................... ........................... -................................. 23 Audit Timeline ................... ......-..................................................................................... .................. .............. ..... 23 Assistance from City Personnel ............................................................................................................................ 24 Presentation to City Council ................................................................................................................................. 24 9. Identification of Potential Audit Problems ....................................................................................................... 25 10. Cost Proposal ...................................................................................................................................................... 26 Appendix A - Peer Review Report and PCAOB Letter ' Appendix B - Detailed Cost Proposal Appendix C - Community Involvement and Affiliations Elm KT11??]J(CT NRLm MTJItPIiyl_ TAPP axnF?fr ruraic.cxrn?u,evn n LOU KIRKLAN , Russ, MURPHY TAPP CERTIFIED PUBLIC ACCOUNTANTS Jack W. Kirkland, Jr. Daniel I Johnson. Andrew J. Russ Cindy Alvear Mull Bruce H. Murphy Laura Krueger Brock William G. Tapp Hobert J. Batz Paul C. Dunham Kevin R. Essex Steven W. Grove Donald M. Jones, Jr. AProfessional Association June 8, 2010 ;I Audit Committee City of Clearwater, Florida: We are pleased to submit our proposal to provide professional auditing services with regards to the financial statements of the City of Clearwater (the City) for the fiscal years ending September 30, 2010, 2011, 2012, 2013, and 2014. We understand that this includes opining at the individual hind level. We have the in-depth experience and knowledge of the operations of municipalities and have assembled a qualified team. We have completed our client acceptance procedures and are ready to begin this engagement as soon as possible if we are selected to perform this work. We are enthusiastic about the opportunity to start our professional relationship with the City and demonstrate our commitment to providing you with an exceptional level of service. We are committed to performing the work within the timeframe identified in the Request for Proposal We are determined to use our knowledge of your City and other governmental entities throughout the state to I assist you in achieving your defined goals. This level of ambition places heavy demands on your professional advisors. KRMT is up to that challenge. We have identified a qualified team to serve you based on their extensive knowledge and expertise in serving governmental entities. Laura Krueger Brock is authorized to make representations for the firm and will serve as the engagement shareholder and will be actively involved in the audit. She has over thirty years experience auditing municipalities in Pinellas County and Florida and joined Kirkland, Russ, Murphy & Tapp (KRMT) from Cherry, Bekaert & Holland where she served as the partner in charge of the Tampa Bay governmental practice and was the Engagement Partner for The City of Clearwater. Chrp Jones will be the concurring shareholder and will perform an independent review of the financial statements and selected work papers prior ' to the issuance of our formal report as part of our firm's quality control standards. Chip joined us from KPMG where he served as the Partner in Charge of the Public Sector practice for North Florida. Laura Tatem will serve as the engagement manager. She has audited many governmental entities and will deliver a high quality ' of service. Laura Tatern leads our efforts in serving government clients in the Tampa Bay area. We are not new to the government industry. Several team members are members of both the GFOA and the ' FGFOA. Laura Brock has been a featured speaker at many government conferences including the FGFOA -- Gulfcoast and Nature Coast Chapters, Florida Association of School Business Officials, FICPA State and Local Government Accounting Conference, and the FGFOA School of Government Finance Conference. ' KRMT will bring an independent perspective to the City's audit and operations. We are committed to understanding the intricacies of your operations and will provide an intelligent and fresh look at your ' operations throughout the year. We are familiar with the City having served as its auditor in prior years. Our thorough approach will enhance and add diligence to the audit process. The public sector practice is an important component of our firm's business strategy, and the City would be a valuable addition. Your business is very important to us. We are committed to working with the City's management to further align ' ourselves to meet your service needs and provide the right tailored approach to achieve your objectives and timeline. . ' 13577GVeatba Souud, Dnvex $uite 400 a watdx,. . 176i$ mw: 1 1- 727.972_?40G - 913.879.1400 • lax - 727.571.1933 KRMTCPA.cam ' KRMT has been ranked one of the "Best Places to Work" by the Tampa Bay Business Journal for the past five years. We are the only CPA firm to have received the award five years in a row. We hire the best professionals who enjoy what they do and work exceptionally well together and with our clients. Your engagement team will be comprised of true professionals who are committed to their community, their profession, their clients, and their colleagues. ' We at KRMT believe that our core values of integrity and reliability, as well as our technical skills and experience, enable us to provide an unsurpassed level of service to our clients. You can trust that KRMT is committed to service excellence and exceeding our clients' expectations. In addition to strong technical competence, effective thinking, and responsiveness, the engagement team assigned to the City will be completely attuned to your business and values. We have provided you specific reference information and encourage you to contact any of these individuals in order to confirm the high level of quality service we provide. ' KRMT is located in Clearwater and is committed to servicing the Clearwater community. We have included a list of community involvement in Appendix C as a part of our proposal. We believe we are the best firm to serve your audit needs based on our experienced team, commitment to meet your deadline, and the fees we are proposing. We look forward to the opportunity to work with you and would ' welcome the opportunity to meet with you in person to discuss any components of our proposal as well as to provide you an opportunity for in.eeting the proposed engagement team. This proposal is a firm and irrevocable offer for 90 days. Sincerely, 1 ' Laura Krueger Brock Shareholder Kirkland, Russ, Murphy & Tapp, P.A. 13577 Feather Sound Drive, Suite 400 ' Clearwater, Florida 33762 727.572.1400 (ph.) I Firm Profile Why Choose Kirkland, Russ, Murphy & Tapp? We believe there are several compelling reasons why KRMT is the best firm to provide audit services to the City of Clearwater. • We are the largest local Certified Public Accounting (CPA) firm based in the Tampa Bay area. • Compared to other firms, we have an exceptional level of shareholder experience serving government entities throughout Florida. Both Laura Brock and Chip Jones were previously partners with regional and national firms where each served as the partner in charge of their respective firm's governmental practice. Together, they have over 65 years of experience serving governments in this marketplace • The proposed audit team has significant experience serving the public sector. Laura Brock and Jarrod Langhans have previously served as the auditors for the City of Clearwater. • As part of the BDO Seidman Alliance, we have complete access to all of the technical resources of a large international firm, if needed. • KRMT has been ranked as one of the "Best Places to Work" by the Tampa Bay Business Journal for the past five years. We hire the best professionals who enjoy what they do and work exceptionally well together. Our staff turnover is extremely low compared to other professional service firms in the Tampa Bay area. Your engagement team will be comprised of true professionals who are committed to their community, their profession, their clients, and their colleagues. In addition, our team members take great pride in their ability to ease the transition of new clients to our firm. • We believe that our fees are competitive and provide value to the City in this time of economic uncertainty. We do not want fees to be the decisive factor and would be glad to further discuss our fee proposal with you. We will provide a fresh perspective in our approach to the audit of the City. Although this term is somewhat over used, our clients continually tell us they appreciate our perspective on the issues that they encounter each and every day. Finally, we are committed to making you one of our premier clients and demonstrating to the governmental sector our ability to provide superior service at a reasonable fee. Since our firm began in 1991, we have established a strong reputation for the quality of the service we provide regardless of industry. This same commitment to quality carries over to our work in the government arena. We feel strongly that KRMT can provide you with the best of all worlds with regard to professional services. We can provide you with the experience and resources of a larger firm packaged in an environment where you receive more personal service, a higher concentration of direct shareholder time and a very reasonable fee structure. These attributes have been the cornerstone for our growth since our firm was founded and will ' continue to serve us well for many years. EN ON M LAN -, Russ, MUPHY T_A_P_P O TT 16 P1TFCA000UWAN Firm Profile - Continued Firm Description Kirkland, Russ, Murphy & Tapp, P.A. (KRMT) is the largest CPA firm based in the Tampa Bay area and was ranked #8 by The Tampa Bay Business Journal in the 2010 Book of Lists. Since its inception in 1991, the firm has grown to 12 shareholders and 70 professional staff. The founding shareholders of KRMT all began their professional careers with international accounting firms known in the industry as the "Big Four". KRMT was formed as a result of the personal philosophy of our shareholder group to deliver quality services and develop long-term, value-driven relationships with our clients. Laura Krueger Brock (engagement shareholder) started her career with a large local CPA firm where she audited many cities and municipalities in Pinellas County and Florida. She joined KRMT coming from Cherry, Bekaert & Holland, L.L.P. where she served as the partner in charge of their Tampa Bay governmental. practice and served as the Engagement Partner for the City of Clearwater. Chip Jones joined KRMT as a shareholder coming from KPMG to compliment our public sector practice and brings a wealth of knowledge and expertise in serving governmental clients. While at KPMG, Chip was the partner in charge of the Public Sector (governments and not- for-profits) practice for their North Florida offices. Together Laura and Chip bring many years of concentrated experience with governmental clients including serving many cities and counties. This commitment to quality, combined with our experience across a broad range of industries and our personal approach to client service has enabled KRMT to become the fastest growing and one of the most respected CPA firms on the west coast of Florida. 1. Independence With the passing of the Sarbanes-Oxley Act, this changed the way the profession addressed independence. Independence has long been a topic for consideration by every organization including governments and not-for- profits. In the accounting profession, professionalism includes independence, integrity, objectivity, and the adherence to professional standards and allocable laws and regulations. The firm and all members of the proposed engagement team are independent of the City of Clearwater as defined by the U.S. General Accounting Offices Governmental Auditing Standards (2007) and as defined by the Florida Statutes, Chapter 112. We are also independent of the City's blended component unit which includes the Clearwater Community Redevelopment Agency. We are not aware of any conflicts of interest with the City of Clearwater or its component unit. KRMT has not performed professional services for the City or its component unit for the past five (5) years. KRMT currently serves as the independent auditor for The Clearwater Downtown Development Board (DDB). The DDB is reflected in the financial statements of The City of Clearwater as part of the Fiduciary Agency Fund. This is not considered a conflict of interest. If during the period of our engagement, professional relationships are entered into that may constitute a conflict of interest relative to performing the proposed audit, KRMT shall give the City of Clearwater written notice. M N KII. LAND,RUss, MUAPHY0 TAM? CERTIFIED PUBLIC ACCOUNTANTS A Pn!Jnvi.d A-,,i &. 2 Firm Profile -- Continued 2. License to Practice in Florida Kirkland, Russ, Murphy & Tapp, the engagement shareholders and assigned key professional staff with the exception of Laura Tatem, are properly licensed to practice public accounting in the State of Florida. The Florida License Number for KRMT is AD0020591. Laura Tatem recently moved to Florida. She is licensed to practice as a Certified Public Accountant in Virginia and is currently applying for her Florida license. Additionally, KRMT CPA's are members of the AICPA and the FICPA many of the government staff are members of GFOA and FGFOA. KRMT is registered with the AICPA Governmental Audit Quality Center, A1CPA Employee Benefit Plan Audit Quality Center the AICPA Center for Public Company Audit Firms, and the Public Company Accounting Oversight Board (PCAOB). 3. Insurance Requirements Kirkland, Russ, Murphy & Tapp, P.A. has met the required insurance coverage that is noted in the Request for Proposal. 4. Firm Qualifications and Experience Office Location and Size KRMT has one office in the Tampa Bay area at 13577 Feather Sound Drive, Suite 400, Clearwater, FL which is strategically located to service clients throughout Florida. Our structure does not require the high staff-to- shareholder ratios that exist in larger ferns. This allows us to provide cost-effective, gold-star service tailored to your unique situation. In addition our management group stays closely involved with you throughout the engagement. All the staff assigned for this engagement are from the Clearwater office and are employed on a full time basis. We currently have 16 professionals that make up our governmental staff. Our firm staff breakdown is as follows: Staff B Position reakdoNN ii Total Public Sector Shareholders 12 3 Managers 12 5 Seniors 19 5 Staff 27 3 TOTAL 70 16 See page 19 for staffing structure and hours specific to this engagement. This engagement will not include a joint venture with any other firm. Peer Review KRMT has passed without exception, all peer reviews under the auspices of the AICPA. Copies of our most recent peer review reports are attached as Appendix A. The review does not include a review of a specific government engagement, however our next scheduled peer review will include the review of a government engagement. ' Desk Reviews KRMT has not had any federal or state desk reviews or field reviews in the past three (3) years. Federal/State Review and Disciplines of Action There has been no disciplinary action taken or pending against KRMT or its employees during the past three (3) years with state regulatory bodies or professional organizations. 3 Firm -Profile - Continued 1I Workpaper Retention ' All working papers and reports will be obtained for ten years. KRMT will make working papers available upon request to the City of Clearwater, U.S. Department of Housing and Urban Development, U.S. General Accounting Office (GAO), Parties designated by the federal or state governments or by the City as part of an audit quality review process, and auditors of entities of which the City of Clearwater is a Sub-recipient of grant funds. In addition, KRMT shall respond to the reasonable inquiries of successor auditors and allow successor auditors to review working papers relating to matters of continuing accounting significance. BDO Siedman Alliance Our firm participates in the BDO Seidman Alliance (BDO) with over 300 independent alliance firm locations nationwide. As a Member Firm of BDO International, BDO Seidman serves multi-national clients by leveraging a global network of resources comprised of 601 Member Firm offices in 105 countries. This provides us and our = clients access to both national and worldwide resources. The BDO Seidman Alliance is a nationwide association of independently owned regional, local and boutique firms, with BDO Seidman and its vast resources as one of the premier national firms, coordinating the Alliance programs and relationships. Since its inception, BDO has provided audit, tax and consulting services to the government community. Through years of working in this sector, BDO has developed a significant capability and fluency in the general business issues that may face these organizations. With more than 2,000 clients in their public sector practice, which includes governments, BDO's team of professionals are available to KRMT to assist where necessary and serve the distinctive needs of their government clients. As an independent member of this powerful alliance, we have access to the resources and expertise of one of the largest national firms, with the lower cost structure and high quality service of a regional firm. This enables us to: • Gain greater technical expertise • Utilize specialists with extensive experience in most industries • Expand our domestic and international coverage • Access the most up-to-date technical information and training programs • Provide our clients with key business contacts throughout the U.S. By supplementing our existing expertise and service offerings, the BDO Seidman Alliance brings us the necessary tools to better serve our clients with greater flexibility, efficiency and cost effectiveness. Experience in Performing Government Financial Audits KRMT shareholders and managers have been performing continuous CPA services in the Tampa Bay area since 1991. KRMT shareholders and staff have over 75 years of combined experience serving governmental entities. We understand the unique accounting and financial reporting requirements that deserve professionals who have extensive experience working on governmental audit engagements. We have helped numerous governments in the preparation of their CAFR's in accordance with the Codification of Governmental Accounting and Financial Reporting Standards Board Pronouncements and Interpretations including in some cases preparing and typing the document. We continue to keep updated on all new GASB pronouncements (Statements and Interpretations) and share this information with our clients. 4 Firm Profile - Continued We have assisted many municipalities with the adoption of new GASB's especially the more complex GASB's such as GASB 33 Accounting and Financial Reporting for Nonexchange Transactions; GASB 34 Basic Financial Statements - and Management's Discussion and Analysis -for State and Local Governments; GASB 40 Deposit and Investment Risk Disclosures; and GASB 45 Accounting and Financial Reporting by Employers for Postemployment Benefits Other Than Pensions. We are prepared to help the City with the implementation of GASB 54 Fund Balance Reporting and Governmental Fund Type Definitions. Although this GASB is not required to be adopted by the City until fiscal 2011, we can assist with the early implementation of this GASB if the City so desires. Certificate of Achievement for Excellence in Financial Reporting Receiving the Certificate of Achievement for Excellence in Financial Reporting from the Government Finance Officers Association (GFOA) is a highly recognized award and the goal of many governments. We understand the City has received the Certificate for the past thirty consecutive years and applaud this accomplishment. KRMT's staff is knowledgeable of the process and requirements to obtain the certificate each year. Many of the government entities that the KRMT shareholders and staff have served have obtained and continued to receive this award. Whether it was working with the government as a first time applicant, such as the Lee County School District and the School Board of Sarasota County or the continuation of the award such as the Cities of Clearwater, Fort Myers, Largo, Marco Island, Naples, Orlando, Pinellas Park, St. Petersburg or Tampa, we have worked with each of these government entities to successfully achieve this goal. We are qualified and committed to assist the City in receiving this award. Governments that KRMT shareholders or assigned engagement team members have worked with that have obtained the Certificate of Achievement include the following: City of Clearwater City of Fort Myers City of Jacksonville/Duval County City of Largo City of Tampa City of Pinellas Park City of Marco Island City of Naples City of St. Petersburg City of Orlando Collier County School Board of Sarasota County Hillsborough County Lee County School District of Lee County Pasco County Pinellas County Juvenile Welfare Board of Pinellas County (JWB) Sarasota County Hernando County r? IM KI??Kr Atv , Russ MIJ HY TAPP 4D CE.RTMED PUBLIC ACCOUNTANTS AY feAi-l A-W1i- 1 Firm. Profile - Continued Single Audit Experience. KRMT's professional staff have significant single audit experience. In working with more than 30 different governmental entities, our current proposed engagement team has performed over one hundred (100) single audits over the years in accordance with the yellow book and the Single Audit Act. As a result we are very familiar with the requirements of the U.S. Office of Management and Budget (OMB) Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations, and Chapter 10.550, Rules of the Auditor General of the State of Florida. Additionally we have audited the American Reinvestment and Recovery Act (ARRA) funding and are familiar with the associated special requirements. Many of our single audits have included grants from the following departments: • Department of Housing and Urban Development • Department of Justice • Department of Transportation • Environmental Protection Agency • Department of Homeland Security • Department of Health and Human Services Experience in Forensic Accounting With fraud and white-collar crime reaching epidemic proportions, it is critical for businesses to be prepared. Forensic accountants utilize specialized accounting skills to conduct investigations into the actual earnings and income stream of individuals and businesses along with review of related party transactions. Whether it is helping our clients or legal professionals assess suspected fraud or providing proactive services in fraud protection and recovery of assets, we are here to help. Our professionals use accounting, auditing, and other investigative methods including Computer Assisted Audit Tools (CAATs) such as Microsoft Office and IDEA to assist with this work. This experience provides the skill set to perform the analytical procedures necessary to reveal discrepancies, altered documents or improper transfer of assets and to assist with the review of internal controls and identification of fraud risks. Laura Brock, Engagement Shareholder, and Jarrod Langhans, Engagement Supervisor are both Certified Fraud Examiners (CFE). Professional services related to Forensic Accounting include: • Expert Witness and Testimony • Forensic Investigations • Financial Analysis • Employee Theft/Embezzlement • Misappropriation of Funds • Financial Statement Fraud • Kickback Schemes • Fraud Risk Assessment • Fraud Prevention Controls • Whistle-Blowing Strategies and Policies I Members of KRMT and the forensic team have an impressive list of credentials obtained by our staff to include: CPA (Certified Public Accountant) ' CFP (Certified Financial Planner) ABV (Accredited in Business Valuation) CFE (Certified Fraud Examiner) CFF (Certified in Financial Forensics) CVA (Certified Valuation Analyst) AVA (Accredited Valuation Analysis) ¦o1 LI KIRI?t?LAN,?_ BUSS Mu Hy&.TAPP CERTIFIED KJBIX ACCOUNTANTS Avn xJ;x?l A-,,'&4'- 5. Partners, Supervisory and Staff Qualifications and Experience - -------- --- Enmement Team We recognize the importance from your perspective as well as our perspective of having an engagement team with prior experience in serving other governmental entities. A strong engagement team leads to a high quality and efficient audit, as well as a strong working relationship with the City that will last for years to come. We approach this audit engagement with the full intent of providing excellent and responsive services over the life of the contract. We have assembled a team with the required skills and experience to meet and exceed your expectations. We have worked to align and blend our team's talents and experience to provide the services and knowledge you require. We understand the importance of continual communication and strong coordination. Our team members are eager and excited to work with the City. Our engagement team who will report to the Audit Committee and the Finance Director and work closely with management is as follows: Laura Krueger Brock Donald (Chip) Jones, Jr. .Audit Engagement Slareholder ----- Concurring Review Shareholder Joyce Block IT Audit Manager - - - - - Laura Tatem Audit Engagement Manager ,larrod Langhans Audit Engagement Supervisor iciumT Audit Senior En-mement Team Continuity ' As you can see on the inside cover of this proposal, one of our firm's core values is reliability. We have further defined this value as "Doing what you say...An uncompromising commitment to deliver quality service in a manner consistent with established expectations." Every member of our firm has committed to follow our core ' values and this translates directly to meeting or exceeding our client's expectations. We commit to you that we will not change the engagement team unless a member of the team leaves the firm or is promoted. In addition, we commit to performing the engagement within the timeline noted in the proposal. u KI??((((LAN , RUSs MUIfPFIY?TAPP (I.xTivixn ryiNl iii ?CCUtMTAJi6 n 5. Partners, Supervisory and Staff Qualifications and Experience - Continued Laura Krueger Brock CPA/CFF, CFE?CVA Formal Education and Continuine Professional Education Laura will serve as the engagement shareholder on the City's audit. Laura obtained her Bachelor of Science degree in Accounting from Florida State University. Laura maintains her continuing professional education requirements by attending firm sponsored courses, the FGFOA Conference, the AICPA State and Local Government Accounting Conference, and other FICPA and AICPA courses focusing on State and Local Governments as well as the Single Audit Act. She also frequently is a speaker at these conferences and recently spoke at the Florida Association of School Board Officials (FASBO) conference held in St. Petersburg in 2009 as well as the 2009 FICPA State and Local Government Accounting Conference. Laura has 27 governmental CPE hours in the current reporting period which exceeds the requirements of Government Auditing Standards. ExVerience Laura's entire career has been spent in public accounting and the primary focus of her career has been on auditing governments and not-for-profits, Laura spent a portion of her career at Cherry, Bekaert & Holland where she was the partner in charge of the government practice in the Tampa Bay area including service as engagement partner to the City of Clearwater. Her governmental audit experience includes the following governmental entities where she served as the engagement manager or partner: City of Clearwater City of Fort Myers City of Largo City of Pinellas Park Sarasota County Sarasota County School Board School District of Lee County City of Belleair Bluffs Town of Belleair Beach City of Indian Rocks Beach City of Seminole Juvenile Welfare Board City of Port Richey School District of Manatee County Additionally, Laura served as the concurring review shareholder on many other governmental audits. I I Memberships 11 I I 11 Laura is a member of the American Institute of Certified Public Accountants (AICPA), the Florida Institute of Certified Public Accountants (FICPA), the Government Finance Officers Association (GFOA), the Florida Government Finance Officers Association (FGFOA), the American Woman's Society of Certified Public Accountants (AWSCPA), the Association of Certified Fraud Examiners (ACFI), and the National Association of Certified Valuation Analysts (NACVA). She served on the Board of Governors of the FICPA, and is past president of the West Coast Chapter of the FICPA, the Tampa Chapter of the ACFE, and the Tampa Bay Chapter of the AWSCPA. Additionally, Laura is very active in the Tampa Bay community including being the immediate past president of the St. Petersburg College Alumni Association and the immediate past chairman of the Catholic Diocese Finance Council. Laura is also an active member of the Rotary Club of Clearwater East and is currently Assistant Governor for District 6950. She is a past president of the Clearwater Junior Woman's Club, Clearwater Alumnae Panhellenic and Clearwater Alumnae Delta, Delta, Delta. Professional Recognitions Laura has been a licensed Certified Public Accountant in the State of Florida for over 27 years and was a finalist in the 2010 St. Petersburg Chamber Business Women of the Year Award. She is also a Certified Fraud Examiner, Certified in Financial Forensics and a Certified Valuation Analyst. She is a frequent lecturer at various conferences for governments, school boards, and not-for-profits. She is a member of the Advisory Board at the University of South Florida - St. Petersburg, College of Business Program on Social Responsibility and Corporate Reporting and the St. Petersburg College Applied Ethics Institute. It _ _-- 5. Partners, Supervisory and Staff Qualifications and Experience - Continued ' Donald M. (Chip) Jones, Jr. CPA Formal Education and Continuing Professional Education ' Chip will serve as the concurring review shareholder for the City. Chip has his Bachelor of Science in Accounting from Florida. State University. Chip maintains his continuing education requirements by attending firm sponsored courses, the annual FGFOA Conference, the annual GFOA Conference, and AICPA courses focusing on State and Local Governments as well as the Single Audit Act. He has 40 governmental CPE hours in the current reporting period which exceeds the requirements established by Government Auditing Standards. Experience ' Chip's entire career has been spent in public accounting performing auditing services for a variety of industries. In 1993, lie elected to pursue only serving governmental and not-for-profit clients so he could focus his efforts and bring a more in depth ' knowledge and experience to each engagement. Chip spent a significant portion of his career at KPMG where he was in charge of the governmental and not-for-profit practice for their Tampa, Orlando and Jacksonville offices. His governmental audit experience includes the following governmental entities where he served as the engagement partner: ' Children's Board of Hillsborough County Hillsborough County City of Cape Coral Jacksonville Electric Authority City of Jacksonville/Duval County Juvenile Welfare Board of Pinellas County City of Largo Lee County ' City of Marco Island Pasco County City of Naples Pinellas County City of Orlando Pinellas Education Foundation ' City of St. Petersburg Pinellas Suncoast Transit Authority City of Tampa Sarasota County Clearwater Downtown Development Board School District of Hillsborough County Collier County Southwest Florida Water Management District ' Greater Orlando Aviation Authority Tampa Bay Water Hernando County Water and Power Authority of the U.S. Virgin Islands Additionally, he served as the concurring review partner on such audits as the School District of Palm Beach County, the City of ' Miami, Miami-Dade County, the City of Atlanta, and the Commonwealth of Puerto Rico. l'lemberships ' Chip is a member of the American Institute of Certified Public Accountants (AICPA), Florida Institute of Certified Public Accountants (FICPA), Government Finance Officers Association (GFOA), and Florida Government Finance Officers Association (FGFOA). He served on the Board of the West Coast Chapter of the FICPA, and served on several FICPA committees including State and Local Government, Not-for-Profits (Chairman), FSU Accounting Conference (Chairman), and ' the Legislative Affairs Committee. Additionally, Chip is very active in the Tampa Bay community including being Treasurer of the Florida Network for Youth and ' Family Services, a board member of the Bayfront Health Foundation, past board member of the Pinellas Education Foundation, past Chairman and Treasurer of Great Explorations Children's Museum, past board member of the Tampa Bay Partnership, and past Vice President of Suncoasters. Additionally he is an active member of the Kiwanis Downtown St. Petersburg Club. ' Professional Reco-anitions Chip has been a licensed Certified Public Accountant in Florida for over 30 years and in 1994 was recognized by the Beta Alpha Psi Chapter (national honorary accounting fraternity) at Florida State University as their outstanding alumni. He has served for several years as a member of Florida State University's Professional Advisory Board for the School of Accountancy. 9 1 ' 5. Partners, Supervisory and Staff Qualifications and Experience - Continued ' Laura Tatem Formal Education and Continuing Professional Education ' Laura will serve as the engagement manager for the City. Laura received her Bachelor of Business Administration degrees from the University of North Carolina at Wilmington. Laura maintains her continuing education requirements by attending firm sponsored courses, the annual FGFOA conference, various AICPA and FICPA ' conferences, and AICPA self study courses in the fields of governmental audits and single audits. She has 95 governmental CPE hours in the current reporting period which exceeds the requirements established by Government Auditing Standards. ' Experience ' Laura's entire career has been spent in public accounting providing professional auditing services in a variety of industries. Early in her career he began getting involved in the audits of governmental entities. Her governmental experience includes serving as the staff, senior or manager on the audits of the following governmental entities: ' City of Ft. Myers, Florida Charlotte County, Florida City of Pinellas Park, Florida Martin County Water Utilities City of Virginia Beach, Virginia Martin County Solid Waste ' City of Norfolk, Virginia Monroe County Sheriff's Office City of Portsmouth, Virginia York County, Virginia City of Hampton, Virginia Lee County School Board, Florida ' City of Suffolk, Virginia Sarasota County District School Board - Internal Accounts Village of Islamorada, Florida Portsmouth School Board - Internal Accounts Sarasota Manatee Airport Authority Henrico County District School Board - Internal Accounts ' Memberships Laura is a member of the American Institute of Certified Public Accountants (AICPA), the Florida Institute of ' Certified Public Accountants (FICPA), the Government Finance Officers Association (GFOA), and the Florida Government Finance Officers Association (FGFOA). ' Professional Recognitions Laura is a licensed Certified Public Accountant in Virginia. 1 I KIR CLAN11??,?Russ, MIJRPHYLXTAPP CERTIFIED PUBLIC ACCOUNTANTS A P-fta 1-1A-1,1111 10 1 5. Partners, Supervisory and Staff Qualifications and Experience Continued Joyce Block, Director, C_ISA_, CPA Formal Education Joyce will serve as the IT audit manager for the City. Joyce received her Masters of Accountancy from the 'University of South Florida with a concentration in Accounting Information Systems. ' Experience Joyce has managed and performed Sarbanes-Oxley testing and control assessments, IT risk assessments, information security reviews, disaster recovery/business continuity assessments, general IT controls testing, and ERP implementation reviews over the past 10 years. She is also experienced with several ERP systems and their related controls. In addition to IT audits, Joyce has participated in several business process reviews and internal control assessments with consumer markets, not-for-profit and governmental entities. Joyce has experience with not-for-profit and governmental entities including: Broward County, Certified Management Accountants of Ontario, City of Orlando, City of St. Petersburg, City of Tampa, Collier County, ' Pinellas County, Ruth Eckerd Hall, Saint Leo University, and Shriners Hospital for Children. Professional Designations Certified Information Systems Auditor Certified Public Accountant I ' 5. Partners, Supervisory and Staff Qualifications and Experience - Continued Jarrod J. Langhans, CPA, CFE ' Formal Education and Continuine Professional Education ' Jarrod will serve as the engagement supervisor for the City. Jarrod received a Bachelor of Science in Accounting and a Master of Accountancy from the University of Florida. Jarrod maintains his continuing education requirements by attending firm sponsored courses, the annual FGFOA conference, various AICPA and ' FICPA conferences, and AICPA self study courses in the fields of governmental audits and single audits. He has 54 governmental CPE hours in the current reporting period which exceeds the requirements established by Government Auditing Standards. ' Experience ' He has six years of public accounting experience with all aspects of audit, tax and forensic services including work in the areas of government and not-for-profit auditing. Jarrod is trained in the use of data extraction software and he is an active participant on the firm's technology ' committee and provides assistance in both technology implementation and maintenance. In addition, he is involved in on-campus recruiting, firm-wide continuing education, and plays a significant role in the firm's quality control activities. His governmental experience includes serving as the staff, senior or manager on the audits of the following governmental entities: City of Clearwater City of Pinellas Park City of Largo City of Marco Island Hillsborough County Supervisor of Elections School District of Lee County School District of Pasco County School District of Manatee County School District of Pinellas County School Board of Sarasota County Memberships Jarrod is a licensed Certified Public Accountant in the State of Florida. Jarrod is a member of the American Institute of Certified Public Accountants (AICPA), the Florida Institute of Certified Public Accountants (FICPA), the Government Finance Officers Association (GFOA), the Florida Government Officers Association (FGFOA), and the Association of Certified Fraud Examiners (ACFE). Jarrod is also a member of the Northeast Exchange Club of St. Petersburg, the St. Petersburg Young Professionals, Big Brothers Big Sisters and is a graduate of the 2009 Class of Leadership St. Petersburg. MEN Professional Designations MEJ Certified Public Accountant Certified Fraud Examiner Ki LAN1, BUSS, MURPHY?TAPP CERTIFIED PUBLIC ACCOUNTANTS A ? mf x,1em1 Aaro Wio, 12 i i r_ Ci. Prior Engagements with Other (?o??ex?ne?zt?? _i - -t es The members of the proposed engagement team have worked on several engagements similar to the City of Clearwater engagement described in this proposal over the last five (5) years to include the following: City of Marco Island (current KRMT client) Scope Financial and compliance audit Date 2009 Partner(s) Chip Jones, Engagement Partner, Laura Krueger Brock Concurring Review Partner Total Hours Approx. 800 Contact Information Maria T. Aguilar, Controller (239) 389-5009 Sarasota County (nrinr client of Shareholder) Scope Financial and compliance audit Date 2004-2006 Partner Laura Krueger Brock Total Hours Approx. 3,000 Contact Information Peter Ramsden, Director of Finance (941) 861-5165 City of 1 ,nrffn (nrinr client of Shnreholder) Scope Financial and compliance audit Date 2007-2006 Partner Laura Krue_er Brock Total Hours Approx. 550 Contact Information Kimball (Kim) Adams, Management Services Director (727) 587-6747 C'hnrlotte Cnnnty (nrinr client of Mnnnoi r) Scope Financial and compliance audit Date 2009 Manager Laura Tatem Total Hours Approx. 1,600 Contact Information Ann Larrivee, Finance Director (941) 743-1412 City of C'laarwvnter (nrinr elient of Chnrehn1dt-r) Scope Financial and compliance audit Date 200- 2006 Partner Laura Krueger Brock Total Hours Approx. 1,000 Contact Information Jay Ravins, Asst. Finance Director (727)562-4533 .: Klkl<LANR Russ, MURPHY `.TAPP 13 1 6., Pr nor Engagements with Other Governmental Entities - .o nti.nued Hernando C.nunty (nrinr client of SharPhnldP1•1 Scope Financial and compliance audit Date 2000- 2006 Partner Chip Jones Total Hours Approx. 1;700 Contact Information Arny Gillis, Finance Director (352) 540-6788 0tv of Pinellas Park (nrinr client of Shareholder and Mannoor) Scope Financial and compliance audit Date 2003-2006; 2009 Partner/Manager Laura Krueger Brock; Laura Tatem Total Hours Approx. 500 Contact Information Ron Miller, Finance Administrator (727) 541-0700 Juvenile Welfare Board of Pinellas Countv (.iWS) (nrinr client of Shareholder) Scope Financial and compliance audit Date 2005- 2006 Partners Laura Ki7ueger Brock and Chip Jones Total Hours Approx. 600 Contact Information Sue Walterick, Finance Director (727) 547-5656 Sarasntn School Rnard and internal Arennnts (m for client of SharPhnlrlPr and WnnamPrl Scope Financial and compliance audit Date 2001-2006 & 2008 Partner/Manager Laura Krieger Brock and Laura Tatem. Total Hours 600 Contact Information Carrie Hannabass, Treasurer (941) 927-9000 Lop. C..nnuty School Hoard (nrinr client of ShnrahnlrlPrl Scope Financial and compliance audit Date 2003-2006 & 2008 Partner/Manager Laura Krueger Brock and Laura Tatem Total Hours 800 Contact Information Greta S. Campbell, Director of Financial. Accounting (239) 337-8'229 i r 14 ILANL, Russ, MU PHY TAPP LELfC AC WLA`TAKTS error„ a,?r.U.«n?d?? r j. 1, i i ar 1 nc ements with Other 'm gag G ,vern- e n: li n :itie - 1 - + The KRMT offices located in Clearwater, Florida will be assigned the responsibility for the audit of the City of Clearwater. The five most significant engagements performed in the last five (5) years by the engagement team ineinbers that are similar include the following: City of Marco iclnnd (current KR NIT client) Scope Financial and compliance audit Date 2009 Partuer(s) Chip Jones, Engagement Partner; Laura Krueger Brock Concurring Review Partner Total Hours Approx. 800 Contact' Information Maria T. Aguilar, Controller (239) 389-5009 City of I.arno (nrinr client of Shareholder) Scope Financial and compliance audit Date 2002-2006 Partner Laura Krueger Brock Total Hours Approx_ 550 Contact Information Kimball (Kum) Adams, Management Services Director (727) 587-6747 City of ("laarwntt r (nrinr rliPnt of Shnrahnldar) Scope Financial and compliance audit Date 2005- 2006 Partner Laura Krueger Brock Total Hours Approx. 1,000 Contact Information Jay Ravins; Asst. Finance Director (727) 562-4533 Hernando County (prior client of Shareholder) Scope Financial and compliance audit Date 2000- 2006 Partner w -- .. _. Chip Jones Total Hours Approx. 1,700 Contact Information Amy Gillis; Finance Director (352) 540-6788 Charlotte County (nrinr client of Manafyer) Scope. Financial and compliance audit Date 2009 Manager Laura Tatem Total Hours 1'lpprox. 1,600 Contact Information Ann Larrivee, Finance Director (941) 743-141.2 KIItxI?Nr, Russ, a rtl'i?i??+?r?iii il. 7('wN-j"x'!• 1.5 of We understand the services you are requesting from our audit firm. We will perform an audit of your September 30, 2010, 2011, 2012, 2013, and 2014 financial statements. These audits will be both financial and compliance audits in accordance with generally accepted auditing standards; Government Aicdi677g Standards, Chapter 10.550 and 10.600, Rules of the Auditor General, and the requirements of Florida Statute 11.45. We will issue an opinion on the financial statements included in the Comprehensive Annual Financial Report (CAFR) that they present the financial position of the City's governmental activities, business type activities, each major fiend, the aggregate remaining fund information as well as the City's non-major govennmental, non-major enterprise, intennal service and fiduciary funds. Additionally, we will provide an "in-relation-to" opinion on the supporting schedules of federal and state financial assistance. We will also issue our report on internal control over financial reporting and compliance and other matters. We consider the City's internal control over financial reporting as a basis for designing our auditing procedures to express an opinion on the financial statements. However, we do not express an opinion on the effectiveness of the City's internal control over financial reporting. We also perform tests of compliance with certain provisions of laws and regulations (Florida Statutes, Federal Rules and the City's own significant policies and procedures), contracts and grant agreements where noncompliance could have a direct and material effect on the financial statements. We will also perform a federal and state single audit on those grant programs considered major through our risk assessrrient procedures. In regards to the single audit, we will issue an opinion on compliance with requirements applicable to each major program and internal control over compliance in accordance with OMB Circular A133, Federal Single Audit Act Amendments of 1996, the Florida Single Audit Act, and Section 215.97 of the Florida Statutes. We will provide a schedule of findings and questioned costs. We understand that federal and state funding is a significant source of revenue to the City and maintaining compliance with the requirements specific to each grant is a difficult task- We also understand that the City qualifies as a low risk auditee. (See page 18 for detailed single audit approach.) We understand that we may be requested to issue a Consent Letter and Citation of Expertise and/or Comfort Letters in connection with the issuance of debt securities. We will provide this service aC no additional cost to the City. ?:??-sr?,:rnti.f?lic?a.: r?F tlx:.r En??„rernent Our audit services approach is generally implemented in four stages - Planning, Control Evaluation, Fieldwork and Completion/Reporting -whose key activities are described below. 1 Y Stage 2 Stake 1. Control Planning Evaluation Stage 4 Completion/ Reporting 17 Ki . LAND, BUSS, c:UirRRn' PURLIC ACCOUNTANTS A Pr'nf•sslunnlAssoeinrian 1 16 J 11 L:I,vdit ,,kppr coach -- C'onfirtned na o thy, ?'??XGg a;e?d"1?i (1 11?LIrZL,[? l I Stage 1: Planning ..? ----------- -- We believe that planning is the most important stage of any audit- Plamring allows KRMT to focus on those areas that present the greatest risk that the City's internal controls will fail to prevent or detect a material misstatement in the financial statements or a violation of laws or Stage 1 Planning . regulations. This includes performing risk assessment procedures and identifying key risks and developing reasonable procedures based upon our industry experience as auditors. At this time we identify critical accounting matters and determine our planned audit approach, including the scope of our single audit testing. During the planning stage we also focus on perfoinjing the necessarv ,Statelnent on Auditrna Standards No. 99 - Consideration of Fraud in a FinanCial Statement :4udit procedures.. including brainstorming sessions, fraud risk assessments, and discussions with management. During the initial year audit, we would meet the prior auditors and review the audit workpapers. In addition, we would hold a planning meeting to determine the key dates for planning and interim fieldwork that are mutually agreeable for vour organization and staff. Our discussions would include any changes in the City's operations, year-to-date results as well as a review of new auditing standards and accounting issues that could impact the City's financial reporting process. Stage 2: Control Evaluation The control evaluation stage includes documenting our understanding of the internal control structure to include the accounting and reporting activities. We would review the internal controls documented initially by your internal staff, and determine whether control policies Stage 2 and procedures in place are functioning properly in significant business processes, as well as Control in the areas of grant funding. The purpose of the review is to provide us with sufficient Evaluation information to properly design our audit tests and allow us to conclude on the financial statements, compliance with the laws and regulations of the City. Key areas including cash and cash equivalents, reserves, receivables and revenues, disbursements, and capital assets are analyzed and tested. This testing is usually conducted during our interim audit procedures. St Fi ld 3 k age e wor : As result of our control testing and risk assessment, interim and year-end fieldwork involves updating our understanding of the business operations, business processes, internal controls, financial and non-financial indicators and results of reviews to affrrnl that our audit programs are addressing risks. By utilizing our top-dwAm risk-based approach, our emphasis is on the Stage 3 financial statement level controls, then on the entity level controls and on other significant Fie1 accounts. Our year-end fieldwork will focus on the operating statement activities year-end balance sheet account reconciliations, and review of accounting estimates. We will determine if we have obtained sufficient and appropriate audit evidence to support our conclusions on the audit objectives to include internal control and compliance. KiP,ICL ,ND Russ, MU HY _: TAPP CF.RTIFTED i,uRr,rC nccouu9'ANTs 17 I 1 8. Audit Approach - Continued Seamentation of the Engagement (Continued) Stage 4; Completion/Reporting ?r ' a1 L 17? 9S? / f The completion/reporting stage involves the evaluation of all evidence gathered as a part of the audit and the assessment of any audit differences and the issuance of our reports on the Stagi 4 audited financial statements, internal controls, compliance with laws and regulations. At the completion of the audit, we also submit our management letter, which provides Rel7IIg recommendations to improve internal accounting controls, administrative efficiencies and profitability. In addition we also report on certain matters to be communicated to the City Council, which includes a discussion of new pronouncements, material proposed adjustments, and significant audit estimates along with other items. Single Audit Approach KRMT's single audit approach is based on the guidance and requirements of OMB Circular A-133, the Florida Single Audit Act, Government Auditing Standards issued by the Comptroller General of the United States, Single Audit Act, as amended in 1996, and the Rules of the Auditor General. Our approach consists of the following procedures: Assessing the completeness of the Schedule of Expenditures of Federal Awards (SEFA). This is a critical task because an incomplete schedule can result in an improper determination of programs that should be audited and omission of programs from the SEFFA can result in inquires from the related federal funding sources. Our procedures to document the completeness of the SEFA include understanding the procedures used by accounting personnel to prepare the SEFA, reconciliation of reported expenditures to earned revenues from federal and state grants reflected in the financial statements, and a comparison to prior year SEFA's to understand significant changes in the amount of funding for specific programs. Upon determining the completeness of the SEFA we determine a Type A program threshold and a Type B program threshold and also determine if the County qualifies as a low risk auditee. Currently the City does qualify as a low risk auditee meaning that the single audit has to provide coverage of at least 25% (as opposed to 50%) of the expenditures of federal awards. We perform a risk analysis on all Type A programs to determine if they qualify as low risk and consequently do not need to be audited in the current fiscal year. We also perform a risk analysis on Type B programs to identify any that might be considered high risk and should be considered as a major program subject to the current year's single audit procedures. For major programs identified to be audited, we determine the material compliance requirements associated with the program that needs to be audited. A compliance requirement is considered material if failure to comply could result in material financial sanctions. Material compliance requirements are identified in the OMB Compliance Supplement. Other significant compliance requirements are identified through the review of grant agreements, the Code of Federal Regulations, as well as other sources. Only those requirements that are material are subject to test work. ' liil LJ KI LANo RUssy MUR_PHY_ LYTAPP Ciiiii En PUBLIC ACCOUNTANTS A Prof[uiM A,-iurin. 18 1 S. Audit Approach - Continued ---- .__..._... --.._.. ..........................µ............... -- - .... ,----- --_ _ _..._._....... _..__. ..... ' Staffing ,Plan Percentage of Audit Engagement Hours per ' Shareholders Managers Supervisors Staff Totals Segment Planning 30 35 40 40 145 12% Control Evaluation 15 40 80 105 240 21% Fieldwork 35 145 210 215 605 52% ' Completion/Reporting 40 60 50 30 180 15% Total Hours 120 280 380 390 1170 ' EDP Software Usage ' Our use of technology creates efficiencies in our ability to communicate effectively, and in our ability to collect and manage data throughout the audit. KRMT utilizes several key technology systems to improve internal audit efficiency and effectiveness. All of our professionals are trained in the auditing of computerized systems. As the ' largest local CPA firm in the Tampa Bay area, we audit large publicly held clients with strong dependence on information technology. Additionally, in today's environment, even the smallest of companies can be dependent on information technology. ' ? Electronic Work papers - The Electronic Internal Audit Binder allows users to manage electronic documentation. When an engagement is created, appropriate work paper templates and programs are created. ' The engagement team can easily establish access to the work papers stored in the Electronic Audit Binder either in the office or in the field at the client's office. ? Accounting Research Manager (ARM) - CCH's Accounting Research Manage' is the most timely and ' comprehensive online database of expert-written analytical accounting, auditing, internal controls and SEC information as well as primary source data. Updated daily, it provides a current, complete and objective resource. ' ? IDEA © Computer-Assisted Audit Technology - IDEA, our data analysis software allows us to extract information from large volumes of data according to relevant criteria determined by the engagement team. ' We can import and export data into a multitude of formats, including formats for large mainframe computers and accounting software. IDEA can read andprocess millions of records in seconds. KRMT utilizes IDEA for review of journal entries and various accounts with significant transactions. I iD MOM LUE KI?K LAN , Russ, MURPHYTAPP CERTIFIED PLMLIC ACCOUNTANTS a r„,p?;ern.=o?mn,? 1 19 ? 1 8. Audit Approach - Continued E'.DP SofMare Usage (Continued) ? Document - Document is an online portal where KRMT's clients can securely transfer files for the engagement team. Document is web based and user friendly. Our use of technology in the audit process will benefit the City in several ways. ' ? Efficiency - Your audit files are designed with you in mind including planning forms, audit programs and procedures and other unique aspects of the City. This promotes efficiency and allows for easy documentation, exchange and review of information. ? Communication - When you call with a question, all client information is at our fingertips to access at anytime no matter where we are located. Questions on work papers or other issues can be accumulated and sent via email or uploaded in the portal on Document in order to reduce the number of interruptions to your daily routine during audit fieldwork. ? Technical Information - In addition to our extensive government industry experience, the ARM system allows us to provide up-to-date technical information quickly. Accounting standards and support can be provided to management at any time during the audit process. Our firm uses the most advanced micro-based hardware and software in all areas of our audits. Each professional staff person has a lap top computer that is docked to the LAN when in the office, and is provided a wireless router when out of the office or operated as a stand-alone machine. Our external auditing philosophy, commitment, attitude and technology effectively distinguish us with our clients and in the marketplace. Approach Taken to Gain and Document an Understanding of Internal Controls There are two major components to our understanding and evaluation of internal controls. First is an understanding of the City's internal control environment. This includes an understanding and review of management's control consciousness and operating style, management control mechanisms, and other influences on management. Essentially this refers to the importance that management attaches to internal controls and to the environment in which specific controls function (the tone at the top). This is a critical part of any internal control structure. After documenting and assessing the control environment, the second component of our understanding and evaluation of controls is a review and testing of significant accounting processes and specific control procedures to ensure accurate financial information, prevention and detection of material fraud, compliance with laws and regulations, and effective and efficient operations. Critical to this evaluation is the interaction of controls with the City's accounting system. How we approach the audit of your information systems is discussed in the next section. MEN IMMJ KIR?K LAN RuSS, MURPHYTAPP CERTIFIED PUI31IC ACCOUNTANTS nr nummrtnrs?trnw? 20 ' 8. Audit Approach - Continued Approach Taken to Gain and Document an Understanding of Internal Controls (Continued) Significant processes we have identified through a review of the City's CAFR and our past experience with other government entities would include: • Revenues and receivables (intergovernmental and charges for services) • Capital outlay • Procurement/expenditures and accounts payable • Human resources and payroll • Treasury functions - cash, investments, and debt management • Journal entries • Grants management In addition to documenting and testing internal controls we expect to rely on, we also perform a GAP analysis when reviewing the various accounting processes. We don't just document what controls are in effect and test the effectiveness of them, we also look for controls that should be in place but are not. Our audit professionals assigned to your engagement are very experienced in understanding what internal controls should be in effect to make an effective accounting process. For example, an area that other accounting firms may not look at is the process that new vendors are set up in the payables system, who has the authority to set up those vendors, how they are pre-qualified, and ensuring that the process of selecting and establishing new vendors is independent of processing payments to these vendors. This GAP analysis can be an effective tool in identifying ways for the City's internal controls to be more efficient and effective. Approach Taken to Determine Laws and Regulations Subject to Audit Test Work An audit of a governmental entity is by definition a financial and compliance audit. Government Auditing Standards require us to issue an opinion on the City's compliance with laws and regulations of which noncompliance could have a material effect on the financial statements. Statement on Auditing Standards No. 74, Compliance Auditing Considerations in Audits of' Governmental Entities and Recipients of Governmental Financial Assistance, establishes standards for testing and reporting on compliance with laws and regulations. We will determine through inquiry of City personnel, review of debt instruments, contracts and agreements, review of minutes of meetings, and a review of Florida Statutes, which laws and regulations could have a direct and material impact on the financial statements in the event of noncompliance. For those laws and regulations identified, we will determine the procedures the City has in place to ensure compliance and then test those procedures as considered necessary. Idduals, u Kit LANpp, Russ, M_u PHYQ'1TAPP CERTIFIED PUBLIC ACCOUNl'ANTS n-1,1j,-n-w1;,, 21 ' 8. Audit Approach - Continued ' Sample Size Methodology and Statistical Sampling Statistical sampling will be used in our compliance and internal control testing (including those related to single ' audit compliance) as well as our substantive procedures performed on year-end account balances. We avoid excessive sample sizes by developing an overall level of audit precision based on key financial amounts. Our sample sizes are determined based on materiality, the risk of misstatement, and the expected error in the population. ' Analytical Procedures Analytical procedures are a very effective tool to be used in the audit engagement. We will perform an overall evaluation of account balances and their interrelationship with each other. We design this analytical review to identify unexpected fluctuations in accounts, the absence of expected fluctuations and other items that appear unusual in light of expected results, past performances, normal relationships and other factors. Specifically our analytical procedures can be broken down into three specific types: • Budget to actual comparisons - since the budget is an effective management tool, comparisons and understandings of variations are critical to performing an effective audit. We will review the process in developing the budget, understand the basis for budget amendments made during the year and that they have been properly approved, make key comparisons between final budgeted amounts and actual amounts and inquire and understand the reasons for key variations. The use of auditor skepticism is an important tool in auditing the reasons behind significant budget variations. • Expectation analytical - these are very effective in that it allows the auditor to understand what drives certain financial results and using independent data we perform predictive analytics on expected results. For example, the number of students in the school system can be used as a basis for determining expected amounts of certain ' revenues or expenditures. Any exceptions between actual results and predictive amounts are followed through and resolved to determine if there were flaws in the original criteria used to develop an expectation or if a proposed audit adjustment is warranted. • Comparisons to prior year amounts - although the City operates based on a currently adopted budget it is important to understand key variations in results from prior years. These sometimes can be identified through understanding the inputs into the currently adopted budget. But in other instances it involves an analysis of data ' from both years and discussion with City personnel to understand why the fluctuation took place and was it warranted. Where feasible, we will use analytical procedures to the extent possible to minimize the amount of other testing that may need to be performed including having the City pull a significant number of documents for our review. ' Approach in Drawing Audit Samples As much as possible, we utilize dual purpose testing to use one sample to satisfy the testing requirements for both financial statement and compliance (single audit) purposes. I' IMiil ME KII1?LAN RUSS, MU 14Y TA PP CERTIFIED PUBLIC ACCOUNTANTS a I'd nl,w?inrn?r mbm 22 ' S. Audit Approach - Continued Information Technology Audit Approach IT audit personnel will assist the engagement team in gaining an understanding of the City's overall technology environment and risk exposure. The purpose is to provide the engagement team with information regarding the documentation of information technology considerations when applying a systems-based audit approach. By applying a systems-based audit approach, the engagement team will be able to place higher reliance on accounting records and reports which can reduce the amount of substantive testing performed. Our audit program is designed by our financial and IT auditors to address IT risk exposures throughout the City, including the areas of: Interfaces. We determine which controls have been configured within the system and how data passed through system interfaces is controlled. User Reports. We determine which standard or customized reports are relied upon then identify control procedures to provide evidence of the completeness and accuracy of financial information. User Access and Security. In addition to the risk of unauthorized access to data, there may be a risk of theft of sensitive or confidential intellectual property. We determine if segregation of duties is controlled and overall security posture is maintained. Application Controls. We determine which system configuration and account mapping controls have been designed based on appropriate business criteria, to secure data against inappropriate processing (by enforcing validity, completeness, and accuracy) and help ensure data integrity. General IT controls. Since information technology (IT) permeates all aspects of the City's business, we assess the controls within the IT process related to change management, security, and IT operations. Our IT auditors follow practices suggested by the Information Systems Audit and Control Association (ISACA). ' Specifically, they will utilize CobiT (Control Objectives for IT) which is a risk-based, process-focused methodology that is used to establish a thorough understanding of the City's audit objectives, the risks that threaten those objectives, and the relationships between those risks and the City's controls. ' Audit ':Timeline Initial Planning Meeting Upon execution of contract Interim fieldwork August/September, 2010 Fieldwork January, 2011 /February, 2011 Draft reports delivered to Management Mid-February, 2011 Final Issuance of Audit Report End of February, 2011 Presentation to City Council February or March Council Meeting This is an estimated timeline and can be adjusted accordingly to fit your needs. I 4D MWE u KILR K?LANN1133 RM MUIIPHYC?LTAPP CERTIFIED PUBLIC ACCOUNTANTS n rnl „i,wn n.u. wnw 23 ? 1 8. Audit Approach - Continued Assistance from City Personnel The key to all engagements is proper planning. During the planning phase of the engagement, a list of items needed from the City will be prepared by KRMT and the audit schedule would be adjusted to meet the needs of management. Assistance from you and your staff would include the following: • Locate and provide copies of permanent records data such as articles of incorporation and by-laws, • All year end bookkeeping and reconciliations being performed such as bank reconciliations, receivables, calculation of depreciation and related accumulated depreciation, reconciliation of accounts payable, accrued payroll and other accruals, roll forward of long term debt schedules, and analysis of restricted and unrestricted net assets, • The preparation of audit confirmations, • Responses to system walk throughs and revenue and expense audit analytical inquiries, • Data available to include: electronic format of general ledger and journal entries, canceled checks, paid invoices, contribution records, fundraising and special event records and journal entry supporting documentation As noted in the REP, City staff will prepare draft financial statement, notes and all required supplementary schedules and statistical data, including the Schedule of Expenditures of Federal Awards and State Financial Assistance. Additionally, final CAFR preparation and printing will be the responsibility of the City. City resources would include office space for auditors and the use of copier. Presentation to City Council Our presentation to the City Council at the February or March 2011 Council Meeting will be the culmination of our audit. Although we will have had constant communication with the Finance Director and Audit Committee throughout the audit, it is important that closure be brought to the audit by presenting a concise but meaningful presentation to the City in a public forum. We continually hear compliments from our clients on our ability to communicate to governing boards the results of the audit and financial highlights of the past year's fiscal activities. We accomplish this through a short 15 minute presentation using slides that discuss the audit highlights as well as the financial highlights through charts and graphs. The City has the ultimate responsibility for the financial activities of the City and this is an opportunity for them to hear the results of the audit in a public forum and to ask any questions they may have. We look forward to doing this presentation to the City Council. n IJ KIR LAND, RUSS, MURPHY TAPP CERTIFIED PUBLIC ACCOUNTANTS AP ftui.-IA-iwx. 24 ' 9. Identification of Potential Audit Problems ' At this time we anticipate the City will receive significant amounts of ARRA funding. Members of the engagement team have prior experience with auditing this new type of funding and are very familiar with the special requirements that have been issued. We also anticipate that the new compliance supplements that will be issued by the OMB will likely include additional guidance and the possibility of new testing requirements related to the ARRA funding. Overall, this is a newer area to most governments and could be an area of potential audit problems. We are fully prepared to deal with these new requirements as they are issued. There may also be other additions to the compliance supplement issued by the OMB. Again, we are fully 1 prepared to tackle any new additions and will work diligently to educate you regarding any changes or additional requirements. Additionally, we are aware of the pending implementation of GASB 54 Fund Balance Reporting and Governmental Fund Type Definitions. The new GASB is not required for implementation until fiscal year ending September 30, 2011, but will affect the current year's budgeting process. Based on our knowledge and experience, we do not anticipate any significant audit problems related to any of the above potential issues. If any other issues were to arise, then we would immediately contact the City's management in order to resolve the issue. If the issue dealt with illegal acts or fraud, we would contact the City's audit committee, City Councilmember, or appropriate governance body. KRMT remains committed to working closely with key client financial and accounting personnel in identifying and resolving any issues that arise in a timely manner. Our commitment is to reach a resolution of technical issues within a reasonable timeframe. If the issue were a technical issue, Laura Brock and Chip Jones will utilize the knowledge and experience of the entire management team, as well as other members of our practice (and BDO Seidman, if necessary) as deemed necessary in rendering our opinion. M u KIP LAN , RUSS, MU- -HY TAPP --- ..- .. CEMMED PV13LIC ACCOUNTANTS A Fn*- -W Ax-0im 25 ? 1 10. Cost Proposal ? t...- 1. We propose the following fees to perform the audit and single audit of the City of Clearwater: Fiscal Year Ending Total September 30, 2010 $114,750 September 30, 2011 $117,300 September 30, 2012 $120,600 September 30, 2013 $124,450 September 30, 2014 $128,400 See Appendix B for detailed cost proposal including anticipated hours and rates. The above fees assume the full cooperation of City personnel in having completed trial balances and prepared by client (PBC's) schedules completed at the beginning of interim and final .fieldwork. This also assumes no auditor adjustments to "clean up the books". We understand there may be auditor proposed adjustments that result from audit work we perform particularly in the area of estimates and possibly cut-off, but we expect generally all account balances on the City's final trial balance will be reconciled and supported by schedules that the auditors can review and perform audit procedures as necessary. Travel expenses are included in the total fee and are in accordance with Section 112.061, Florida Statutes. Should major changes in the scope of our services be requested by the City, additional fees will be negotiated separately. This would include pronouncements not yet issued. Cost Containment. Stratep-ics No one likes to receive additional billings. Many times these billings can result from unrealistic timetables that the client commits to and cannot achieve. Additionally they can result from errors in the clients accounting records or financial statements that have not been detected by the client's own internal procedures. We believe the scheduling of the audit should be done well in advance and be realistic based on the information to be provided by Accounting Department personnel prior to the beginning of the audit. If we receive complete and accurate information to perform our audit, we will be able to perform the audit efficiently and in the scope of fees proposed above. If we encounter difficulties, then additional fees may be necessary in order to complete the audit within the agreed timetable. Such additional fees would be discussed prior to performing the additional procedures. Progress Payments We understand that we are to progress bill the engagement based on hours of work completed in accordance with an agreement reached during contracted negotiations. We understand that we are only to bill once a month and 20% of total contract will be retained pending delivery and acceptance of the final reports. I Laura Krueger rock, areholder- ¦EN u KIII?LAN , RUSS, MURPHYTAPP CERTIFIED "IAC ACCOUNTANTS A Mnfinka [A2i!/ I.1wn 26 I APPENDIX A PEER REVIEW REPORT AND PCAOB LETTER I? mom KI?LANl ,_ RUSS, MUFtPHYI TM CBRTIFIQD PU ILIC ACCO[INTANTS A r. pr.1-d nan Wh. n -: - NATHERSON & COMPANY, P.A. Certified Public Accountants 1801 Glengary Street 544 Bay Isles Road Sarasota, Florida 34231 Longboat Key, Florlda 34228 (941) 923-1881 (941) 387-8555 Fax 923-0065 Members American institute of Certified Public Accountants Florida Institute of Certified Public Accountants Russell S. Natherson. C.P.A. Patrick L. Gallagher, C.P.A. Russell E. Natherson. C.P.A. Randall L. Natherson, C.P.A. Eileen A. Sams, C.P.A. December 2, 2008 To the Shareholders of Kirkland, Russ, Murphy & Tapp, P.A. and the Center for Public Company Audit Firms Peer Review Committee We have reviewed the system of quality control for the accounting and auditing practice of Kirkland, Russ, Murphy & Tapp, P.A. (the firm) applicable to non-SEC issuers in effect for the year ended May 31, 2008. The firm's accounting and auditing practice applicable to SEC issuers was not reviewed by us since the Public Company Accounting Oversight Board (PCAOB) is responsible for inspecting that portion of the firm's accounting and auditing practice in accordance with PCAOB requirements. A system of quality control encompasses the firm's organizational structure and the policies adopted and procedures established to provide it with reasonable assurance of complying with professional standards. The elements of quality control are described in the Statements on Quality Control Standards issued by the American Institute of Certified Public Accountants (the AICPA). The design of the system, and compliance with it, are the responsibilities of the firm. Our responsibility is to express an opinion on the design of the system, and the firm's compliance with that system based on our review. Our review was conducted in accordance with standards established by the Peer Review Committee of the Center for Public Company Audit Firms and included procedures to plan and perform the review that are summarized in the attached description of the peer review process. Our review would not necessarily disclose all weaknesses in the system of quality control or all instances of lack of compliance with it since it was based on selective tests. Because there are inherent limitations in the effectiveness of any system of quality control, departures from the system may occur and not be detected. Also, projection of any evaluation of a system of quality control to future periods is subject to the risk that the system of quality control may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. In our opinion, the system of quality control for the accounting and auditing practice applicable to the non-SEC issuers of Kirkland, Russ, Murphy & Tapp, P.A. in effect for the year ended May 31, 2008, has been designed to meet the requirements of the quality control standards for an accounting and auditing practice established by the AICPA, and was complied with during the year then ended to provide the firm with reasonable assurance of complying with applicable professional standards. 9?,Zz?.sCam,P.,k. Attachment to the Peer Review Report of Kirkland, Russ, Murphy & Tapp, P.A. r' Description of the Peer Review Process Overview Firms enrolled in the AICPA Center for Public Company Audit Firms (the Center) Peer Review ' Program have their system of quality control periodically reviewed by independent peers. These reviews are system and compliance oriented with the objectives of evaluating whether: ' The reviewed firm's system of quality control for its accounting and auditing practice applicable to non-SEC issuers has been designed to meet the requirements of the Quality Control Standards established by the AICPA. ' The reviewed firm's quality control policies and procedures applicable to non-SEC issuers were being complied with to provide the firm with reasonable assurance of complying ' with professional standards. A peer review is based on selective tests and directed at assessing whether the design, of and compliance with the firm's system of quality control for its accounting and auditing practice applicable to non-SEC issuers provides the firm with reasonable, not absolute, assurance of complying with professional standards. Consequently a peer review on the firm's system of ' quality control is not intended to, and does not, provide assurance with respect to any individual engagement conducted by the firm or that none of-the financial statements audited by the firm should be restated. The Center's Peer Review Committee (PRC) establishes and maintains peer review standards. At regular meetings and through report evaluation task forces, the PRC considers each peer review, evaluates the reviewer's competence and performance, and examines every report, letter of ' comments, and accompanying response from the reviewed firm that states its corrective action plan before the peer review is finalized.: The Center's staff plays a key role in overseeing the performance of peer reviews working closely with the peer review teams and the PRC. ' Once the PRC accepts the peer review rePorts letters of comments, and reviewed firms' responses, these documents are maintained in a file available to the public. In some situations, ' the public file also includes a signed undertaking by the firm agreeing to specific follow-up action requested by the PRC. ' Firms that perform audits or play a substantial role in the audit of one or more SEC issuers, as defined by the Public Company Accounting Oversight Board (PCAOB), are required to be registered with and have their accounting and auditing practice applicable to SEC issuers ' inspected by the PCAOB. Therefore, we did not review the firm's accounting and auditing practice applicable to SEC issuers. ? U_ Attachment to the Peer Review Report of Kirkland, Russ, Murphy & Tapp, P.A. Description of the Peer Review Process - Continued Planning the Review for the Firm's Accounting and Auditing Practice Applicable to Non-SEC Issuers To plan the review of Kirkland, Russ, Murphy & Tapp, P.A., we obtained an understanding of (1) the nature and extent of the firm's accounting and auditing practice, and (2) the design of the firm's system of quality control sufficient to assess the inherent and control risks implicit in its practice. Inherent risks were assessed by obtaining an understanding of the firm's practice, such as the industries of its clients and other factors of complexity in serving those clients, and the organization of the firm's personnel into practice units. Control risks were assessed by obtaining an understanding of the design of the firm's system of quality control, including its audit methodology, and monitoring procedures. Assessing control risk is the process of evaluating the effectiveness of the reviewed firm's system of quality control in preventing the performance of - engagements that do not comply with professional standards. Performing the Review for the Firm's Accounting and Auditing Practice Applicable to Non-SEC Issuers Based on our assessment of the combined level of inherent and control risks, we selected engagements to test for compliance with the firm's system of quality control. The engagements selected for review included audits of Employee Benefit Plans. The engagements selected for review represented a cross-section of the firm's accounting and auditing practice with emphasis on higher-risk engagements. The engagement reviews included examining working paper files and reports and interviewing engagement personnel. The scope of the peer review also included examining selected administrative and personnel files to determine compliance with the firm's policies and procedures for the elements of quality control pertaining to independence, integrity, and objectivity; personnel management; and acceptance and continuance of clients and engagements. Prior to concluding the review, we reassessed the adequacy of scope and conducted a meeting with firm management to discuss our findings and recommendations. PCAOB Public Company Accounting Oversight Board 1666 K Street, N.W. Washington, DC 20006 Telephone: (202) 207-9100 Facsimile: (202) 862-8433 www.pceahus.org Inspection of Kirkland, Russ, Murphy & Tapp, P.A. Issued by the Public Company Accounting Oversight Board October 23, 2008 F""CAOB Public Company Accounting Oversight Board Notes Concerning this Report Portions of this report may describe deficiencies or potential deficiencies in the systems, policies, procedures, practices, or conduct of the firm that is the subject of this report. The express inclusion of certain deficiencies and potential deficiencies, however, should not be construed to support any negative inference that any other aspect of the firm's systems, policies, procedures, practices, or conduct is approved or condoned by the Board or judged by the Board to comply with laws, rules, and professional standards. 2. Any references in this report to violations or potential violations of law, rules, or professional standards should be understood in the supervisory context in which this report was prepared. Any such references are not a result of an adversarial adjudicative process and do not constitute conclusive findings of fact or of violations for purposes of imposing legal liability. Similarly, any description herein of a firm's cooperation in addressing issues constructively should not be construed, and is not construed by the Board, as an admission, for purposes of potential legal liability, of any violation. Board inspections encompass, among other things, whether the firm has failed to identify departures from U.S. Generally Accepted Accounting Principles ("GAAP") or Securities and Exchange Commission ("SEC" or "Commission") disclosure requirements in its audits of financial statements, This report's descriptions of any such auditing failures necessarily involve descriptions of the related GAAP or disclosure departures. The Board, however, has no authority to prescribe the form or content of an issuer's financial statements. That authority, and the authority to make binding determinations concerning an issuer's compliance with GAAP or Commission disclosure requirements, rests with the Commission. Any description, in this report, of perceived departures from GAAP or Commission disclosure requirements should not be understood as an indication that the Commission has considered or made any determination regarding these issues unless otherwise expressly stated. PCAOB Public Company Accounting Oversight Board INSPECTION OF KIRKL.AND, RUSS, MURPHY & TAPP, P.A. The Public Company Accounting Oversight Board ("PCAOB" or "the Board") has conducted an inspection of the registered public accounting firm Kirkland, Russ, Murphy & Tapp, P.A. ("the Firm"). The Board is issuing this report of that inspection in accordance with the requirements of the Sarbanes-Oxley Act of 2002 ("the Act"). The Act restricts the Board from publicly disclosing portions of an inspection report that discuss certain types of deficiencies or certain other nonpublic information.' - Because the inspection did not identify instances of such deficiencies, and because the report does not otherwise disclose protected information, the Board is making the entire report available to the public. 1/ The Board has elsewhere described in detail its approach to making inspection-related information publicly available consistent with legal restrictions. See Statement Concerning the Issuance of Inspection Reports, PCAOB Release No. 104- 2004-001 (August 26, 2004). Inspection of Kirkland, Russ, Murphy & Tapp, P.A. P-- 1 C A%dlo Dis October 23, 2008 Page 2 Public Company Accoundng Oversight Board PARTI INSPECTION PROCEDURES AND CERTAIN OBSERVATIONS Members of the Board's inspection staff ("the inspection team") conducted primary procedures for the inspection from July 28, 2008 to July 31, 2008. These procedures were tailored to the nature of the Firm, certain aspects of which the inspection team understood at the outset of the inspection to be as follows: Number of offices 1 (Clearwater, Florida) Ownership structure Corporation Number of partners 10 Number of professional staff2-1 54 Number of issuer audit clients!/ 7 Board inspections are designed to identify and address weaknesses and deficiencies related to how a firm conducts audits.41 To achieve that goal, Board ?/ "Professional staff' includes all personnel of the Firm, except partners or shareholders and administrative support personnel. The number of partners and professional staff is provided here as an indication of the size of the Firm, and does not necessarily represent the number of the Firm's professionals who participate in audits of issuers or are "associated persons" (as defined in the Act) of the Firm. T The number of issuer audit clients shown here is based on the Firm's self- reporting and the inspection team's review of certain information for inspection planning purposes. It does not reflect any Board determination concerning which, or how many, of the Firm's audit clients are "issuers" as defined in the Act. in some circumstances, a Board inspection may include a review of a firm's audit of financial statements of an issuer that ceased to be an audit client before the inspection, and any such former clients are not included in the number shown here. 4/ This focus necessarily carries through to reports on inspections and, accordingly, Board inspection reports are not intended to serve as balanced report cards or overall rating tools. PCAOF-51 Public Company Accounting aversighl Board Inspection of Kirkland, Russ, Murphy & Tapp, P,A. October 23, 2008 Page 3 inspections include reviews of certain aspects of selected audits performed by the firm and reviews of other matters related to the firm's quality control system. In the course of reviewing aspects of selected audits, an inspection may identify ways in which a particular audit is deficient, including failures by the firm to identify, or to address appropriately, respects in which an issuer's financial- statements do not present fairly the financial position, results of operations, or cash flows of the issuer in conformity with GAAP.S' It is -not the purpose of an inspection, however, to review all of a firm's audits or to identify every respect in which a reviewed audit is deficient. Accordingly, a Board inspection report should not be understood to provide any assurance that the firm's audits, or its issuer clients' financial statements, are free of any deficiencies not specifically described in an inspection report, A. Review of Audit Engagement The inspection procedures included a review of aspects of the Firm's auditing of financial statements of one issuer. The scope of this review was determined according to the Board's criteria, and the Firm was not allowed an opportunity to limit or influence the scope, This review did not identify any audit performance issues that, in the inspection team's view, resulted in the Firm failing to obtain sufficient competent evidential matter to support its opinion on the issuer's financial statements, B. Review of Quality Control System In addition to evaluating the quality of the audit work performed on a specific audit, the inspection included review of certain of the Firm's practices, policies, and procedures related to audit quality. This review addressed practices, policies, and procedures concerning audit performance, training, compliance with independence standards, client acceptance and retention, and the establishment of policies and procedures. The inspection team did not identify anything that it considered to be a quality control defect that warrants discussion in a Board inspection report. END OF PART I T When it comes to the Board's attention that an issuer's financial statements appear not to present fairly, in a material respect, the financial position, results of operations, or cash flows of the issuer in conformity with GAAP, the Board's practice is to report that information to the SEC, which has jurisdiction to determine proper accounting in issuers' financial statements. Inspection of Kirkland, Russ, Murphy & Tapp, P.A. F--% C A October 23, 2008 Page 4 Public Company Accounting Oversighi Board PART II RESPONSE OF THE FIRM TO DRAFT INSPECTION REPORT Pursuant to section 104(f) of the Act, 15 U.S.C. § 7214(f), and PCAOB Rule 4007(a), the Firm provided a written response to a draft of this report. Pursuant to section 104(f) of the Act and PCAOB Rule 4007(b); the Firm's response, minus any portion granted confidential treatment, is attached hereto and made part of this final inspection report. APPENDIX B DETAILED COST PROPOSAL r, u KI MLAND,&T RUSS P' _ iJ_R_PHY CERTIFII'D PUEC ACCOUNTANTS A Pwft?'J.JJA-kd- FY2010 Std. Hourly Quoted Hours Rates Hrly Rates Total Partners 120 $ 325 $ 160 $ 19,200 Managers 280 $ 230 $ 115 $ 32,200 Supervisory Staff 380 $ 200 $ 100 $ 38,000 Staff 390 $ 135 $ 65 $ 25,350 Total 1,170 114,750 FY2011 Std. Hourly Quoted Hours Rates Hrly Rates Total Partners 120 $ 325 $ 165 $ 19,800 Managers 280 $ 230 $ 115 $ 32,200 Supervisory Staff 380 $ 205 $ 100 $ 38,000 Staff 390 $ 140 $ 70 $ 27,300 Total 1,170 ° 7 ';,''+'',i`"'? ? i ;y; $ 117,300 FY2012 Std. Hourly Quoted Hnum Rates Hrly Rates Total Partners 120 $ 325 $ 165 $ 19,800 Managers 280 $ 230 $ 120 $ 33,600 Supervisory Staff 380 $ 200 $ 105 $ 39,900 Staff 390 $ 135 $ 70 $ 27,300 Total 1,170 I $ 120,600 FY2013 Std. Hourly Quoted Hours Rates Hrly Rates Total Partners 120 $ 325 $ 165 $ 19,800 Managers 280 $ 230 $ 120 $ 33,600 Supervise Staff 380 $ 200 $ 110 $ 41,800 Staff 390 $ 135 $ 75 $ 29,250 Total ,Total 1,170 'tiNVI I )4 NVI l+ ? I ' 'i?' j $ 124,450 124,450 FY2014 Std. Hourly Quoted Hnurs Rates Hrly Rates Total Partners 120 $ 325 $ 170 $ 20,400 Managers 280 $ 230 $ 125 $ 35,000 Supervisory Staff 380 $ 200 $ 110 $ 41,800 Staff 390 $ 135 $ 80 $ 31,200 ,Total 1,170 i.: : !; $ 128,400 F L APPENDIX C ' COMMUNITY INVOVLEMENT AND AFFILIATIONS r.., IM KI i AN MU?_ P_HY TAPP CERTIFIED PUBLIC ACCOUNTANTS A Profvleno! A uneJprox I Community Involvement and Affiliations ' KRMT is committed to serving the Tampa Bay community. This includes volunteering to serve not-for- profi t organizations as board chairs, committee members, and providing financial support. A partial list of ' organizations that KRMT and staff have actively supported includes the following: ' • Academy of The Holy Names • Northeast Exchange Club of St. Petersburg • All Children's Health System • Palma Ceia Little League ' • • Association of Latino Professionals B C H lth S t • Pinellas Education Foundation R Cl b f Cl E ay are ea ys ems • otary u o earwater ast • Bayfront Hospital Foundation • South 'T'ampa Fellowship ' • Big Brothers Big Sisters • St. Anthony's Health Care • Christ the King Church • St. Petersburg Young Professionals ' • • Clearwater Alumnae Panhellenic Clear ate Al D D lt lt D lt • • Suncoasters T B P hi w r umnae e a e a e a ampa ay artners p • Clearwater Chamber of Commerce • Tampa Bay Professional Alliance • Clearwater Junior Woman's Club • Tampa Bay Watch • Diocese of St. Petersburg • Tampa Connection Alumni Association ' • • First United Methodist Church Fl id A M t • Tampa Merrimakers T Y h d C Cl b or a s useum r • ampa ac t an ountry u • Florida Network for Youth and Family Services • The Children's Home ' • Florida State University School of Accountancy • University of Tampa Professional Advisory Board • Upper Pinellas Association for Retarded Citizens ' • • Goodwill Suncoast Industries Great Explorations Museum • • USF Accounting Circle USF Alumni Association • Harris E. "Zip" Long Charitable Foundation • USF School of Accountancy • Hillsborough County Education Foundation • USF St. Petersburg, College of Business • Leadership Tampa Bay Alumni Association • Wharton Club of Tampa Bay ' • • Leadership Pinellas Alumni Association Leadership St. Pete Alumni Association • • YMCA of Greater St. Petersburg YMCA of the Suncoast 0 u Ki LANp, RUSS, M%LHYQ.. (TAPP awiu iiD PUBLIC ACCUU N'T'ANI-s ME KI LAN , RUSSy MU HY TAPP CERTIFIED PUBLIC ACCOUNTANTS A Professional Association KRMTCPA.com Mr. Jay Ravins City of Clearwater P.O. Sox 4748 ; Clearwater, FL 33758 Dear Mr. Ravins: We are pleased to confirm our understanding of the services %Ob to provide the City of Clearwater (the City). We agree to meet the specific requirements as stated in al 'rate agreement dated July _, 2010. We will audit the financial statements of tl ` vernmental activifiosb„the business-type activities, each major fund, and the aggregate remaining ; 0prmation, whicfit3 ollcotively comprise the basic financial statements, of the City of Clearwater Os of4or the fiscal "yoO ended September 30, 2010. We will also audit the financial statements of `oath of ditty's non+major governmental, non-major enterprise, internal service and., fiduciary funds. counting sts generally accepted in the United .i States provide for certain relireil Supplementary ormation (1AI), such as management's discussion and analysis (MD&A), G , u"ppletmcmit:? he City's ba:!Oc financial statements. Such information, although not a part of the basioA -al stater tts, is require&hy the Governmental Accounting Standards Board who considers it to be an ntial pan, of financial rep ing for placing the basic financial statements in an appropriate operational, eco?onA&,; or jl tori al context. As part of our engagement, we will apply certain limited pt Uses to the Cityy's RSI in i6?ce with auditing standards generally accepted in the Uniteo, Mates of Am4ka.. Thes ited procedures will consist of inquiries of management regarding the motligds of preparing ithe inf° otj_R. and comparing the information for consistency with ,. manage's responses to=' inqu ; it `"the basic financial statements, and other knowledge we obtained diiring our audit of thei asic finalcial statements. We will not express an opinion or provide any assurance on the:',. formation bese the limited procedures do not provide us with sufficient evidence to express an opirit W,,or provid&JAny assurance. The following RSI is required by generally accepted accounting principli stand will bo subjected to certain limited procedures, but will not be audited: 1) Management's discussion and analysis. 2) Pension and post-employment benefit disclosures Supplementary information other than RSI also accompanies the City's financial statements. We will subject the following supplementary information to the auditing procedures applied in our 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 and will provide an opinion on it in relation to the financial statements as a whole: EXHIBIT Mr. Jay Ravins Page 2 of 7 1) Schedule of expenditures of federal awards and state financial assistance. 2) Combining and individual fund statements and schedules The following other information accompanying the financial statements will not be subjected to the auditing procedures applied in our audit of the financial statements, and for which our auditor's report will not provide an opinion or any assurance. 1) Introductory section 2) Statistical section Audit Objectives The objective of our audit is the expression of opinions as to whether your basic financial statements are fairly presented, in all material respects, in conformity with U.S. g=Wrally accepted accounting principles and to report on the fairness of the supplementary informatioti,efetced to in i6 second paragraph when considered in relation to the financial statements as a whole,..' # &6bjective also inci4 s reporting on- • Internal control related to the financi4.GSti ments and compliance wit laws, regulations, and the provisions of contracts or grant aWements; ?Wncompliance with which could have a material effect on the financial staitsaaextis in `accordance With Government Auditing Standards. • Internal control related to majdir p rams and an opinion (or disclaimer of opinion) on compliance with laws, regulati,96s;, 40 the provisions 4f .0ontracts or grant agreements that could have a direct and mateal effec1gn each majot program in accordance with the Single Audit Act Amendments 001.1,99 sand lar A-133, Audits of States, Local Governments, h . an-Pro it Org`ations, te;ilorida Single audit Act, and Chapter f 10.550, Rees oflhld or GeneraC :' The reports on internal control and commpliance will e ?,Jnclude a statement that the report is intended solely for the information and use PC ftcjty Mayor,,"City Council Members, City Manager and City Management, the of Florida fice 6, tie a iiw General and applicable federal and state awarding agencies and.is'not ii6ndod r to be ,,!hould not used by anyone other than these specified parties. Y. Our a OWill be conducted'lwa a ccordnc *Oh auditing standards generally accepted in the United States of America the standards for AiWncial au Its contained in Government Auditing Standards, issued by the Comptroller`06wral of the United States; the Single Audit Act Amendments of 1996; and the provisions of OMB Circdtr 2A-133, andiwill include tests of accounting records, a determination of major program(s) in accoWance witkADMB Circular A-133, and other procedures we consider necessary to enable us to express`Isuah. 090, ions and to render the required reports. If our opinions on the financial statements or the Singlei j it compliance opinions are other than unqualified, we will fully discuss the reasons with you in adyance. If we are unable to complete the audit or are unable to form or have not formed opinions due to the City's failure to provide reasonably sufficient information or documentation as required under the audit Agreement, we reserve the right to decline to express opinions or to issue a report as a result of this engagement. Mr. Jay Ravins Page 3 of 7 Management Responsibilities Management is responsible for the basic financial statements and all accompanying information as well as all representations contained therein. Management is also responsible for identifying government award programs and understanding and complying with the compliance requirements, and for preparation of the schedule of expenditures of federal awards in accordance with the requirements of OMB Circular A-133. You are responsible for making all management decisions and performing all management functions relating to the financial statements, schedule of expenditures of federal awards, and related notes and for accepting full responsibility for such decisions. You are required to designate an individual with suitable skill, knowledge, or experience to oversee any nonaudit 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 effectiy idtel controls, including internal controls over compliance, and for evaluating and monitoring ongoing aw*jties, to help ensure that appropriate goals and objectives are met and that there is reasonabfJassurance=tl at. government programs are administered in compliance with compliance requirements. Ylou are also respt le for the selection and application of accounting principles; for the fair presentation in the financ statements of the respective financial position of the governmental activitio, the business-type activities. each major fund, and the aggregate remaining fund information of the City the re changes in financial position and, where applicable, cash flows in conformity with USg"Ci4i rive epted accounting principles; and for compliance with applicable laws and regulations and the provjstons of contracts and grant agreements. Management is also responsible for making-all financial records' and related information available to us and for ensuring that management and fin t4nformation is ml ie and properly recorded. Your responsibilities also include identifying sight t TM. , dor relation p in which the vendor has responsibility for program compliance and for tits acc ;and completeness of that information. Your responsibilities include adjusting the financtal statedien'ts b cogect material misstatements and confirming to us in the represetlta letter that tho, sects of an}?,Oficorrected misstatements aggregated by us during the current air gage ? ° and pertatntni4o the latest period presented are immaterial, both individually and in the aggregate, to'tht'financial stat ' ents taken as a whole. You are responsible for the design and irgplementatioti bf programs and controls to prevent and detect fraud, and for intorning us ab6tt.?all known ytp? ted fraud or illegal acts affecting the government involving Q),ntanwlzen?, (2) employees who have significant roles in internal control, and (3) others where tl f• fraud or iIlegal? ;acts cnnla have a material effect on the financial statements. Your reppo,,, ,." 'ties include mfot -pg us of knowledge of any allegations of fraud or suspected fraud affecting government rec ued in c46unications from employees, former employees, grantors, regulators or.aft ers. In additiori,? you are responsible for identifying and ensuring that the entity complies with applicable 4a vs, regulation, contracts, agreements, and grants. Additionally, as required by OMB Circular A-133, it 4s. managerr*,:nt's responsibility to follow up and take corrective action on reported audit findings and to prepare, summary schedule of prior audit findings and a corrective action plan. The summary schedule of prior iudit findings should be available for our review on November 1, 2010. You are responsible for the preparation of the supplementary information in conformity with U.S. generally accepted accounting principles. You agree to include our report on the supplementary information in any document that contains and indicates that we have reported on the supplementary information. You also agree to present the supplementary information with the audited financial statements. Mr. Jay Ravins Page 4 of 7 Management is responsible for establishing and maintaining a process for tracking the status of audit findings and recommendations. Management is also responsible for identifying for us previous financial audits, attestation engagements, performance audits, or other studies related to the objectives discussed in the Audit Objectives section of this letter. This responsibility includes relaying to us corrective actions taken to address significant findings and recommendations resulting from those audits, attestation engagements, performance audits, or studies. You are also responsible for providing management's views on our current findings, conclusions, and recommendations, as well as your planned corrective actions, for the report, and for the timing and format for providing that information. Audit Procedures-General An audit includes examining, on a test basis, evidence supporting tl Mounts and disclosures in the financial statements; therefore, our audit will involve judgment abq.W'the--number of transactions to be examined and the areas to be tested. We will plan and perform th #udit to-obtain reasonable rather than absolute assurance about whether the financial statements are free 4 material iniastatement, whether from (1) errors, (2) fraudulent financial reporting, (3) misapproption of assets, or (+) u olations of laws or governmental regulations that are attributable to the entity;or to acts by management employees acting on behalf of the entity. Because the determination of ab4M is subjective, Government Auditing Standards do not expect auditors to provide reasonable assurance of doWting ahem. Because an audit is designed to provide reasonable, but not absolute assurance and because we will not perform a detailed examination of all tractions, there is 'a= risk that material misstatements or noncompliance may exist and not be detect by. us. In addition ?! ,audit is not designed to detect immaterial misstatements or violations of law&#'gby snunental regulati§t Ghat do not have a direct and material effect on the financial statements or 4aajor However, we will inform you of any material errors and any fraudulent financial repting b?f5 o riation of assets that come to our attention. We will also info any violationi04aws or go " ental regulations that come to our attention, unless clearly i fise 1, and of any4naterial abuse that comes to our attention. We will include such matters in,th reports rtquilred for a Sinilo,, Audit. Our responsibility as auditors is limited to the period covered by our.atid t and tic snot extend to aAyJater periods for which we are not engaged as auditors. Our proce4oes4ilLWcludc tcSLS Qf documentary-,"evidence supporting the transactions recorded in the account4jlFs nd may incld(k tats ofi ibe. physical existence of inventories, and direct confirmation of receival? es and certain other a, SS LS and 1 ' bilities by correspondence with selected individuals, funding sour ces,'creditors, and financial, institutio l ' We will request written representations from your attorneys as part of the engagement, and .J?', ly may'bill you for responding to this inquiry. At the conclusion of our audit, we will r *e certain written representations from you about the financial statements and related matters. Audit Procedures-Intefr0al Controls Our 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 to design the nature, timing, and extent of further audit procedures. Tests of controls may be performed to test the effectiveness of certain controls that we consider 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. Our 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 our report on internal control issued pursuant to Government Auditing Standards. Mr. Jay Ravins Page 5 of 7 As required by OMB Circular A-133, we will perform tests of controls over compliance to evaluate the effectiveness of the design and operation of controls that we consider relevant to preventing or detecting material noncompliance with compliance requirements applicable to each major federal award program. However, our 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 our report on internal control issued pursuant to OMB Circular A-133. An audit is not designed to provide assurance on internal control or to identify significant deficiencies. 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, Government Auditing Standards, and OMB Circular A-133. Audit Procedures-Compliance As part of obtaining reasonable assurance about whether thew: finatwial statements are free of material misstatement, we will perform tests of the City's complianca;witH applicable laws' regulations and the provisions of contracts and agreements, including grant agreements. However, tti ; Qtajective of those procedures will not be to provide an opinion on overW,complianee and we will not.oxpress such an opinion in our report on compliance issued pursuant to Govor ment d ing Standards. OMB Circular A-133 requires that we also plan and perform the audit to obtain reasonable assurance about whether the auditee has complied with applicable laws *d regulations and the provisions of contracts and grant agreements applicable to ;rftor programs. Out' procedures will consist of tests of transactions and other applicable procedures, del in the ON1?B Circular A-133 Compliance u. Supplement and related addenda for the types of comp requirements that could have a direct and material effect on each of the City's major progr s. `:`.. ;gf?these procedures will be to express an opinion on the City's co. with requirem nts applicab ' .?to each of its major programs in our report on compliance issuedur OMB Circullt A-133. Engagement Admimstrat Fees, and Other We may from time,to time, a" `pendMg'^'a_ , icircumstances, use third-party service providers in serving your-accountl We, m y sh =', fidenttaf information about you with these service providers, but remain cdfnmitted to maintaining ofidentiality and security of your information. Accordingly, we maintain internal policies, procedures; safeguards to protect the confidentiality of your personal _ 14A infotmatiott, In addition, we will secure c3 nftdentiality agreements with all service providers to maintain the confidentiality of your inf}ation and we will take reasonable precautions to determine that they have appropriate procedures in ce to prevent the unauthorized release of your confidential information to others. In the event,,that we unable to secure an appropriate confidentiality agreement, you will be asked to provide your consep6rior to the sharing of your confidential information with the third-party service provider. Furthegnc4e, we will remain responsible for the work provided by any such third-party service providers. We understand that your employees will prepare all cash, accounts receivable, or other confirmations we request and will locate any documents selected by us for testing. At the conclusion of the engagement, we will complete the appropriate sections of the Data Collection Form that summarizes our audit findings. It is management's responsibility to submit the reporting package (including financial statements, schedule of expenditures of federal awards, summary schedule of prior audit findings, auditors' reports, and corrective action plan) along with the Data Collection Form to the federal audit clearinghouse. We will coordinate with you the electronic submission and certification. Mr. Jay Ravins Page 6 of 7 If applicable, we will provide copies of our report for you to include with the reporting package you will submit to pass-through entities. 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, unless a longer period is agreed to in advance by the cognizant or oversight agency for audits. The audit documentation for this engagement is the property of Kirkland, Russ, Murphy & Tapp, P.A. and constitutes confidential information. However, pursuant to authority given by law or regulation, we may be requested to make certain audit documentation available to your cognizant agent 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. We will notify you of any such request. If requested, access to such audit documentation will be provided under the supervision of Kirkland, Russ, Murphy & Tv p, P.A. personnel. Furthermore, upon request, we may provide copies of selected audit documentation ;ter the afore mentioned parties. These parties may intend, or decide, to distribute the copies or i4grmation.ontained therein to others, including other governmental agencies. The audit documentation for this engagement will be retained for a minimum of five years after the report release or for any additional period requested by thhs;zN, _ 'zant agent. If we are aware that a federal awarding agency, pass-through entity, or auditee is co" ng an,.,... it finding, we evil contact the party(ies) contesting the audit finding for guidance prior to dei, ,., ying the audit documentation. We will meet with you after finalizationi of the engagement letter and contract to determine an approximate start date and will issue our repor# *q,jater than Februaiyy , 2011. Laura Krueger Brock is the engagement partner and is responsible fof, st?Prvnsang the engage sot' and signing the reports or authorizing another individual to sign them. Ourlee for ???tl??se services w01 be at our standard hourly rates plus out-of-pocket costs (such as report reproduct n, word ptuoQ0p ,,gd postage, travel, copies, telephone, etc.) except that we agree that ,0W, gloss fee, includiexpenses,`"?uAl not exceed $114,750 for the fiscal year 2010 audit. Our standard hourly rates wary according to the degree 'ot*sponsibility involved and the experience level of the personnel assigned to your audit.: Our invoices'; r these fees will be rendered each month as follows and are pa }!le on presentation. August 1U`.% . $11,475 September ;10% $11,475 October x-10% $11,475 November JQ% $11,475 December 1,0% $11,475 January 1.20% $22,950 February , 20% $22,950 Upon delivery of final rrts 10% $11,475 100% $114,1 Mr. Jay Ravins Page 7 of 7 In accordance with our firm policies, work may be suspended if your account becomes 30 days or more overdue and may not be resumed until your account is paid in full. If we elect to terminate our services for nonpayment, our engagement will be deemed to have been completed upon written notification of termination, even if we have not completed our report(s). You will be obligated to compensate us for all time expended and to reimburse us for all out-of-pocket costs through the date of termination. The above fee is based on anticipated cooperation from your personnel and the assumption that unexpected circumstances will not be encountered during the audit. If significant additional time is necessary, we will discuss it with you and arrive at a new fee estimate before we incur the additional costs. Government Auditing Standards require that we provide you with a copy of our most recent external peer review report and any letter of comment, and any subsequent peer review.-reports'and letters of comment received during the period of the contract. Our 2008 peer review,;; report and letter of comment accompanies this letter. We appreciate the opportunity to be of service to the City of Coarwater and belioe this letter accurately summarizes the significant terms of our engagement. If you h&i6 i nY . questions, A`* let us know. If you agree with the terms of our engagement as described in his letter, please sign they :uWlosed copy and return it to us. Very truly yours, ,w Laura Krueger Brock RESPONSE: E This letter correctly sets f", the Lin dorqanding of the 4?4y;of Clearwater. By. i Title: i a Date: