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HomeMy WebLinkAboutContract 42322 Y Deloitte. Deloitte&Touche LLP 201 Main Street Suite 1501 Fort Worth,TX 76102 USA Tel:+1 817 347 3300 Fax:+1 817 336 2013 www.deloitte.com City Secretary Contract No. 4a3 as CITY OF FORT WORTH DELOITTE & TOUCHE LLP INDEPENDENT AUDIT ENGAGEMENT August 8, 2011 Mr. Jungus Jordan Chair,Audit and Finance Advisory Committee City of Fort Worth, Texas 1000 Throckmorton Fort Worth, Texas Ms. Darlene Allen City Auditor City of Fort Worth, Texas 1000 Throckmorton Fort Worth,Texas Dear Ms. Allen: Deloitte & Touche LLP ("D&T" or"we" or"us") is pleased to serve as independent auditors for the City of Fort Worth, Texas (the "City"), each individually referred to as a "party," collectively referred to as the "parties;" Mr. Terry Kile, Lead Client Service Director, will be responsible for the services that we perform for the City hereunder, hereafter referred to as the "engagement." In addition to the audit services we are engaged to provide under this engagement letter, we would also be pleased to assist the City on issues as they arise throughout the year. Hence, we hope that you will call Mr. Kile whenever you believe D&T can be of assistance. This engagement letter shall consist of the following documents plus appendices: - This Engagement Letter - Appendix A — Description of D&T's Responsibilities and an Audit Under Generally Accepted Auditing Standards, Generally Accepted Government Auditing Standards, U.S. Office of Management and Budget (OMB) Circular A-133 Compliance Supplement ("OMB Circular A-133") and the State of Texas Governor's Office of Budgets and Planning Uniform Grant Management Standards ("UGMS') - Appendix B—Management's Responsibilities - Appendix C—Communications with the Audit and Finance Advisory Committee - Appendix D—Circumstances Affecting Timing and Fee Estimate - Appendix E—General Terms and Conditions - Appendix F — Dispute Resolution Provision OFFC ^ R —sc.ETAKY W0,Frm, TXZ Member of Deloitte Touche Tohmatsu Limited All appendices are attached hereto, incorporated by reference herein and made a part of this engagement for all purposes. The services to be performed by D&T pursuant to this engagement are subject to the terms and conditions set forth herein and in the accompanying appendices. Such terms and conditions shall be effective as of the date of the commencement of such services. Audit of Financial Statements and Other Reporting Our engagement is to perform an audit in accordance with auditing standards generally accepted in the United States of America("generally accepted auditing standards") and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States ("generally accepted government auditing standards"). The objectives of an audit conducted in accordance with the aforementioned standards are to: • Express an opinion on the fairness of the presentation of each opinion unit in the City's basic financial statements, and to disclaim an opinion on the required supplementary information for the year ending September 30, 2011, in conformity with accounting principles generally accepted in the United States of America ("generally accepted accounting principles"), in all material respects, except for the Employees' Retirement Fund of the City of Fort Worth and the Villas of Eastwood Terrace LLC which are audited by other auditors • Express an opinion on whether the supplementary information that accompanies the basic financial statements, including the schedule of expenditures of federal and state awards and other supplementary schedules are presented fairly, in all material respects, in relation to the basic financial statements taken as a whole • Report on the City's internal control over financial reporting and on its compliance with certain provisions of laws, regulations, contracts, and grants and other matters for the year ending September 30, 2011 based on an audit of financial statements performed in accordance with the standards applicable to financial audits contained in generally accepted government auditing standards • Report on the City's compliance with requirements applicable to each major program and on internal control over compliance in accordance with the OMB Circular A-133, and UGMS. Appendix A contains a description of our responsibilities and an audit under generally accepted auditing standards, generally accepted government auditing standards, OMB Circular A-133, and UGMS. Our ability to express an opinion and the wording thereof will, of course, be dependent on the facts and circumstances at the date of our report. If, for any reason, we are unable to complete the audit or are unable to form or have not formed an opinion, we may decline to express an opinion or decline to issue a report as a result of this engagement. If we are unable to complete our audit or if the report to be issued by D&T as a result of this engagement requires modification, the reasons therefore will be discussed with the Audit and Finance Advisory Committee,the City's management, and as necessary, the City Council. Our reports on the City's internal control and compliance and other matters will state that they are intended solely for the information and use of City Council, management, federal and state awarding agencies, and pass-through entities and are not intended to be and should not be used by anyone other than these specified parties. 2 Management's Responsibilities Appendix B describes management's responsibilities for (1)the basic financial statements and all accompanying information, (2)representation letters, (3)process for obtaining preapproval of services, (4) independence matters relating to providing certain services, and (5) independence matters relating to hiring. Responsibility of the Audit and Finance Advisory Committee As independent auditors of the City, we acknowledge that the Audit and Finance Advisory Committee and the City Council are directly responsible for the appointment, compensation, and oversight of our work, and accordingly, except as otherwise specifically noted, we will report directly to the Audit and Finance Advisory Committee. You have advised us that the services to be performed under this engagement letter, including, where applicable, the use by D&T of affiliates or related entities, and the use by D&T of selected Minority and Women Business Enterprises ("MWBE") subcontractors in connection with this engagement, have been approved by the Audit and Finance Advisory Committee in accordance with the City Council's established preapproval policies and procedures. Term of the Engagement This engagement shall begin upon the last day executed by both parties ("Effective Date") and shall expire upon completion of the engagement for the year ending September 30, 2011. This engagement shall be renewed on an annual basis for the following three (3) consecutive years upon the parties execution of an annual engagement letter in a form substantially similar to this engagement letter. Following the expiration of the fourth renewal, the City shall have the sole option to renew this engagement for each of the five (5) following consecutive years upon the parties' execution of an annual engagement letter in a form substantially similar to this engagement letter. Communications With the Audit and Finance Advisory Committee Appendix C describes various matters that we are required by generally accepted auditing standards and generally accepted government auditing standards to communicate with the Audit and Finance Advisory Committee and management. Fees Our fees for the audit of the City's financial statements will be based on personnel assigned and actual hours incurred, plus expenses. Based on our anticipated levels of participation, we estimate our blended hourly rates, audit hours, and total costs for the audit of the City's basic financial statements for fiscal years 2010 - 2014 to be as follows: 3 Year Estimated Normal Estimated Blended Rate Estimated Total Hours Additional Hours Cost Required 2010 6,000 1,600 $130.00 $988,000.00 2011 6,000 1,600 $137.00 $1,041,200.00 2012 6,000 1,600 $143.00 $1,086,800.00 2013 6,000 1,600 $150.00 $1,140,000.00 2014 6,000 1,600 $158.00 $1,200,800.00 The fees above assume six major programs in the federal and state single audits. An additional $10,000 will be billed for each major program that is required to be tested in excess of six. Should the required leverage model change (i.e. more experienced personnel time be required than expected), these rates may change. If any such situation occurs, we will promptly notify you and discuss with you the need to adjust our rates. Should the City reduce or eliminate all control weaknesses that are classified as significant deficiencies and material weaknesses, the number of additional hours to complete the audits may be reduced; thereby lowering the estimated total costs accordingly. Invoices shall be sent monthly, and payments are due within thirty(30)days of receipt of the invoice. Non-appropriation of Funds. D&T and the City agree that all payments due hereunder shall be subject to the City Council's appropriation of funding for this engagement. In the event no funds or insufficient funds are appropriated by the City for any payments due hereunder, during this engagement, or any renewal term, the City will notify D&T of such occurrence and the City shall have the right to terminate this engagement without penalty or expense to the City of any kind whatsoever. Notwithstanding the above, the City shall pay D&T for services actually rendered and expenses incurred up to the effective date of termination. Our continued service on this engagement is dependent upon payment of our invoices in accordance with these terms. To the extent that certain circumstances affecting time and fee estimate, as listed in Appendix D, arise during this engagement, our fee estimate also may be significantly affected and additional fees may be necessary. We will notify you promptly of any circumstances we encounter that could significantly affect our estimate and discuss with you any additional fees, as necessary. Additional services provided beyond the described scope of services described herein will be billed separately after receipt of pre-approval from the Audit and Finance Advisory Committee, and if necessary, the City Council. Access to Working Papers by Regulators In accordance with the requirements of generally accepted government auditing standards, we are required to make all audit-related documents, including auditor's reports, working papers, and management letters, available to a federal agency or the Comptroller General of the United States upon their request for their regulatory oversight purposes. If such a request is made. we will inform you prior to providing such access. The working papers for this engagement are the property of D&T and constitute D&T's confidential 4 information. We may request confidential treatment of D&T information. If we are requested to make photocopies of audit-related documents, we will maintain control over duplication of all information. The City of Fort Worth hereby grants us permission to provide access to and to make and permit others to make photocopies of all audit-related documents, including auditor's reports, working papers and management letters, to representatives of the United States Government Accountability Office (GAO) or other appropriate government audit staffs. D&T may require its personnel to supervise the photocopying of audit- related documents and may specify the location at which such documents may be photocopied. The working papers relating to this audit will be retained by us for a minimum of three years from the dates of the reports issued, or such longer period as required to satisfy legal and administrative requirements. Inclusion of D&T Reports or References to D&T in Other Documents or Electronic Sites If the City intends to publish or otherwise reproduce in any document our reports on the City's basic financial statements, or otherwise make reference to D&T in a document that contains other information in addition to the audited financial statements (e.g., in a periodic filing with a regulator, in a debt or equity offering circular, or in a private placement memorandum), thereby associating D&T with such document, the City agrees that its management will provide D&T with a draft of the document to read and obtain our approval for the inclusion or incorporation by reference of our reports, or the reference to D&T, in such document before the document is printed and distributed. The inclusion or incorporation by reference of our reports in any such document would constitute the reissuance of our reports. The City also agrees that its management will notify us and obtain our approval prior to including our report on an electronic site. Our engagement to perform the services described herein does not constitute our agreement to be associated with any such documents published or reproduced by or on behalf of the City. Any request by the City to reissue our reports,to consent to its inclusion or incorporation by reference in an offering or other document, or to agree to its inclusion on an electronic site will be considered based on the facts and circumstances existing at the time of such request. The estimated fees outlined herein do not include any services that would need to be performed in connection with any such request; fees for such services (and their scope) would be subject to the mutual agreement of the City and D&T at such time as D&T is engaged to perform the services and would be described in a separate engagement letter. Notwithstanding the foregoing, D&T understands and acknowledges that the City is a public entity under the laws of the State of Texas, and as such, all documents and data held by the City are subject to disclosure under Chapter 552 of the Texas Government Code, the Texas Public Information Act(the "Act"). If the City is required to disclose any documents that may reveal any D&T proprietary information to third parties under the Act, or by any other legal process, law, rule or judicial order by a court of competent jurisdiction, the City will, unless otherwise prohibited by law or regulation, notify D&T prior to disclosure of such documents. The City shall not be liable or responsible in any way for the disclosure of information not clearly marked as "Proprietary/Confidential Information" or if disclosure is required by the Act or any other applicable law or court order. In the event there is a request for such information under the Act, it will be the responsibility of D&T to submit reasons objecting to disclosure. A determination on whether such reasons are sufficient will not be decided by the City, but by the Office of the Attorney General of the State of Texas, or by a court of competent jurisdiction. This engagement letter, including the Appendices A through F attached hereto incorporated herewith and made a part hereof, constitute the entire agreement between the parties with respect to this engagement and supersedes all other prior and contemporaneous agreements or understandings between the parties. whether written or oral. relating to this engagement. 5 ACCEPTED AND AGREED: �q�1a��Aa TPl re� L L P AA FORT0�i1� *� -"c Deloitte & Touche LLP ° a2 00 °*A' a� 000 000 .4 ACCEPTED AND AGREED: ATTEST: aa��.A.bxx— �� City of Fort orth,Texas By: i. By: Marty Hendrix, City Secretary Darlene Allen, ity Auditor Contract Authorization: APPROVED TO FORM AND LEGALITY: By: Maleshia B. FAmer Assistant City Attorney OFFICIAL RECORD CITY SECRETARY ' FT. WORTH, TX 6 ACCEPTED AND AGREED: By: Charles aniels, Assistant City Manager 6a APPENDIX A DESCRIPTION OF D&T'S RESPONSIBILITIES AND AN AUDIT UNDER GENERALLY ACCEPTED AUDITING STANDARDS, GENERALLY ACCEPTED GOVERNMENT AUDITING STANDARDS, OMB CIRCULAR A-133, AND UGMS CITY OF FORT WORTH, TEXAS Year Ending September 30, 2011 Our Responsibilities Our responsibilities under generally accepted auditing standards and generally accepted government auditing standards include: • Forming and expressing opinions about whether the basic financial statements that have been prepared by management with the oversight of the Audit and Finance Advisory Committee, and as necessary, the City Council, are presented fairly, in all material respects, in conformity with generally accepted accounting principles • Reporting on the scope and results of testing of the City's internal control over financial reporting and compliance with laws,regulations, and provisions of contracts or grant agreements. The audit of the basic financial statements does not relieve management or the Audit and Finance Advisory Committee of their responsibilities. Components of an Audit in Accordance With Generally Accepted Auditing Standards, Generally Accepted Government Auditing Standards, OMB Circular A-133, and UGMS An audit includes the following: • Obtaining an understanding of the City and its environment, including internal control, sufficient to assess the risks of material misstatement of the basic financial statements and to design the nature, timing, and extent of further audit procedures • Consideration of internal control over financial reporting, as a basis for designing audit procedures that are appropriate in the circumstances but not for the purpose of expressing an opinion on the effectiveness of the City's internal control over financial reporting • Consideration of internal control and compliance over major federal and state programs, as a basis for determining the City's internal control over compliance with state and federal laws and other laws and regulations • Examining, on a test basis, evidence supporting the amounts and disclosures in the basic financial statements • Inquiring directly of the Audit and Finance Advisory Committee regarding its views about the risk of fraud and whether the Audit and Finance Advisory Committee has knowledge of any fraud or suspected fraud affecting the City • Assessing the accounting principles used and significant estimates made by management 7 • Evaluating the overall basic financial statement presentation • Determining which federal and/or state programs should be considered major programs and thus be included within the scope of the compliance audit • Evaluating the overall presentation of the schedule of expenditures of federal and state awards and other supplementary information in relation to the basic financial statements taken as a whole • Evaluating the items to be included in the schedule of findings and questioned costs and the reasonableness of the summary schedule of prior year findings • Obtaining and reporting the views of responsible officials concerning the findings, conclusions, and recommendations, as well as their planned corrective actions • Preparing a schedule of findings and questioned costs • Completing the auditor prepared sections of and signing the OMB Data Collection Form that summarizes our audit findings. We will also perform tests of the City's compliance with certain provisions of laws, regulations, and the provisions of contracts and grant agreements. However, it is not our objective to provide an opinion on overall compliance with those provisions and, accordingly, we will not express such an opinion. As part of our audit of compliance with the requirements of major federal and state programs, we will obtain an understanding of the City's internal control related to administering major federal and state programs and we will assess risk as required by OMB Circular A-133 and UGMS for the purpose of establishing the nature,timing, and extent of auditing procedures necessary for expressing an opinion concerning compliance with laws and regulations related to major federal and state award programs. Generally accepted accounting principles provide for certain required supplementary information (RSI), such as a management's discussion and analysis,to accompany the City's basic financial statements. As part of our engagement, we will apply certain limited procedures to the City's RSI. Those limited procedures will consist principally of inquiries of management regarding the methods of measurement and presentation, which management will affirm to us in its representation letter. Unless we encounter problems with the presentation of the RSI or with our procedures relating to it, we will disclaim an opinion on the RSI. Supplementary information other than RSI, such as the schedule of expenditures of federal and state awards, and other supplementary information, also accompany the City's basic financial statements. We will subject all supplementary information that is financially oriented to the audit procedures applied in our audit of the basic financial statements and render our opinion on whether that information is fairly presented, in all material respects, in relation to the basic financial statements taken as a whole. We will disclaim an opinion on supplementary information that comprises nonaccounting information or accounting information not directly related to the basic financial statements. We will also make specific inquiries of management about supplementary information, which management will affirm to us in its representation letter. Reasonable Assurance We will plan and perform our audit to obtain reasonable assurance about whether the basic financial statements are free of material misstatement, whether caused by error or fraud, and we will perform tests of the City's compliance with certain provisions of laws. regulations, contracts, and grants. However, because 8 of the characteristics of fraud, a properly planned and performed audit may not detect a material misstatement. Therefore, an audit conducted in accordance with generally accepted auditing standards and generally accepted government auditing standards is designed to obtain reasonable, rather than absolute, assurance that the basic financial statements are free of material misstatement. An audit is not designed to detect error or fraud that is immaterial to the basic financial statements, nor is it designed to provide assurance on internal control or to identify deficiencies in internal control or to detect immaterial instances of noncompliance. We will also plan and perform our audit to obtain reasonable assurance about whether noncompliance with the types of compliance requirements that are applicable to the City's major federal and state programs could have a direct and material effect on each of its major federal and state programs. An audit of compliance includes examining, on a test basis, evidence about the City's compliance with those requirements and performing such other procedures as we consider necessary in the circumstances. Our audit does not provide a legal determination on the City's compliance with those requirements. Peer Review Process and Report Deloitte participates in the peer review program of the Center for Public Company Audit Firms(CPCAF). The CPCAF program evaluates those portions of a firm's accounting and auditing practice that are not inspected by the PCAOB (i.e.,the non-SEC issuer practice)so firms can meet their state licensing, federal regulatory, and AICPA membership requirements. Firms that are required to be registered with and inspected by the PCAOB must be enrolled in the CPCAF program and undergo a peer review under the standards maintained by the CPCAF. The latest peer review of the system of quality control for the Deloitte&Touche LLP accounting and auditing practice was completed in December 2008 by Ernst&Young. A copy of Ernst&Young's review is available at http://peerreview.aicpaservices.org/publicfile/Popup.aspx?f=10016352&i=264503&t=REV&s=1&e=pdf. 9 APPENDIX B MANAGEMENT'S RESPONSIBILITIES CITY OF FORT WORTH, TEXAS Year Ending September 30, 2011 Financial Statements, Internal Control, and Compliance The overall accuracy of the basic financial statements and all accompanying information and their conformity with generally accepted accounting principles is the responsibility of the City's management. In this regard, management has the responsibility for, among other things: • Selecting and applying the accounting policies. • Establishing and maintaining effective internal control over financial reporting and compliance with laws, regulations, and provisions of contracts or grant agreements. • Designing and implementing programs and controls to prevent and detect fraud. • Identifying and ensuring that the City complies with the laws and regulations applicable to its activities and the provisions of contracts or grant agreements, and informing us of any known material violations of such laws, regulations,or provisions. • Adjusting the basic financial statements to correct material misstatements. • Making all financial records and related information available to us. • Taking timely and appropriate steps to remedy fraud, illegal acts, violations of provisions of contracts or grant agreements, or abuse that we report. • Having a process to track the status of audit findings and recommendations. • Identifying for us previous financial audits, attestation engagements, performance audits, or other studies related to the objectives of our audit and the corrective actions taken to address significant findings and recommendations. • Providing its view on our current findings, conclusions, and recommendations, as well as management's planned corrective actions, for our reports. The corrective action plan that the City develops for its OMB Circular A-133 reporting package may fully or partially satisfy this responsibility. • Submitting the reporting package and OMB Data Collection Form to the federal clearinghouse and other appropriate recipients. Representation Letters We will make specific inquiries of the City's management about the representations (1)embodied in the basic financial statements and all accompanying information, (2)regarding the effectiveness of internal control, and (3) regarding the City's compliance with laws, regulations, and the provisions of contracts and grant agreements. Additionally, we will request that management provide to us the written representations 10 the City is required to provide to its independent auditors under generally accepted auditing standards. As part of our audit procedures, we will request that management provide us with a representation letter that includes, among other things: • Acknowledgment of management's responsibility for the preparation of the basic financial statements, all accompanying information, and for compliance with laws and regulations applicable to federal and state award programs • Acknowledgment of management's responsibility for the design and implementation of programs and controls to prevent and detect fraud • Affirmation of management's knowledge of any fraud or suspected fraud affecting the City involving management, employees who have significant roles in internal control, and others where the fraud could have a material effect on the basic financial statements • Affirmation of management's knowledge of any allegations of fraud or suspected fraud affecting the City • Affirmation of management's belief that the effects of any uncorrected financial statement misstatements aggregated by us during the current audit engagement and pertaining to the latest period presented are immaterial, both individually and in the aggregate, to the basic financial statements. We will also request that management confirm certain representations made to us during our audit. The responses to those inquiries and related written representations of management required by generally accepted auditing standards are part of the evidential matter that D&T will rely on in forming its opinions on the City's basic financial statements. Because of the importance of management's representations, the City agrees to release D&T, its subcontractors, and their respective personnel from all claims, liabilities, and expenses relating to our services under this engagement letter attributable to any misrepresentation by management. Process for Obtaining Preapproval of Services Management is responsible for the coordination of obtaining the preapproval of the Audit and Finance Advisory Committee, in accordance with the Audit and Finance Advisory Committee's preapproval process, for any services to be provided by D&T to the City. Independence Matters Relating to Providing Certain Services In connection with our engagement, D&T, management, the Audit and Finance Advisory Committee, and the City Council will assume certain roles and responsibilities in an effort to assist D&T in maintaining independence. Management of the City will ensure that the City has policies and procedures in place for the purpose of ensuring that the City will not act to engage D&T or accept from D&T any service that under American Institute of Certified Public Accountants (AICPA), generally accepted government auditing standards, or other applicable rules would impair D&T's independence. All potential services are to be discussed with the Lead Client Service Director. 11 Independence Matters Relating to Hiring Management will coordinate with D&T to ensure that D&T's independence is not impaired by hiring former or current D&T partners, principals, or professional employees in a key position, as defined in the AICPA Code of Professional Conduct, that would cause a violation of the AICPA Code of Professional Conduct or other applicable independence rules. Any employment opportunities with the City for a former or current D&T partner, principal, or professional employee should be discussed with Mr. Kile before entering into substantive employment conversations with the former or current D&T partner, principal, or professional employee. For purposes of the preceding three paragraphs, "D&T" shall mean Deloitte & Touche LLP and its subsidiaries; Deloitte Touche Tohmatsu, its member firms, the affiliates of Deloitte & Touche LLP, Deloitte Touche Tohmatsu, and its member firms; and, in all cases, any successor or assignee. 12 APPENDIX C COMMUNICATIONS WITH THE AUDIT AND FINANCE ADVISORY COMMITTEE CITY OF FORT WORTH, TEXAS Year Ending September 30, 2011 Significant Matters We are responsible for communicating significant matters related to the audit that are, in our professional judgment, relevant to the responsibilities of the Audit and Finance Advisory Committee in overseeing the financial reporting process. Fraud and Illegal Acts We will report directly to the Audit and Finance Advisory Committee any fraud of which we become aware that involves senior management and any fraud(whether caused by senior management or other employees) of which we become aware that causes a material misstatement of the basic financial statements. We will report to senior management any fraud perpetrated by lower level employees of which we become aware that does not cause a material misstatement of the basic financial statements; however, we will not report such matters directly to the Audit and Finance Advisory Committee, unless otherwise directed by the Audit and Finance Advisory Committee. We will inform the appropriate level of management of the City and determine that the Audit and Finance Advisory Committee is adequately informed with respect to illegal acts that have been detected or have otherwise come to our attention in the course of our audit,unless the illegal acts are clearly inconsequential. Internal Control Matters We will report directly to management and the Audit and Finance Advisory Committee all significant deficiencies and material weaknesses identified during the audit as required by AU 325, Communicating Internal Control Related Matters Identified in an Audit, and generally accepted government auditing standards. Our written communication will identify those matters considered by D&T to be significant deficiencies and those that are considered by D&T to be material weaknesses. A deficiency in internal control over financial reporting exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct misstatements on a timely basis. A deficiency in design exists when (a) a control necessary to meet the control objective is missing or(b) an existing control is not properly designed so that, even if the control operates as designed, the control objective would not be met. A deficiency in operation exists when (a) a properly designed control does not operate as designed, or (b) the person performing the control does not possess the necessary authority or competence to perform the control effectively. A significant deficiency is a deficiency, or combination of deficiencies, in internal control over financial reporting that is less severe than a material weakness, yet important enough to merit attention by those charged with governance. A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the entity's financial statements will not be prevented, or detected and corrected on a timely basis. We will also communicate certain matters to management and the Audit and Finance Advisory Committee. including our responsibilities for testing and reporting on internal control over financial reporting and on 13 compliance with laws, regulations, and provisions of contracts or grant agreements, both for our financial statement audit and our compliance audit of major federal and state programs. Other Matters We will communicate to management and the Audit and Finance Advisory Committee the following, if any of the following are identified during our audits: material noncompliance with laws, regulations, and provisions of contracts or grant agreements related to major programs; certain known questioned costs; fraud affecting federal and state awards; abuse that is material to a federal and state program; and other federal and state award audit findings as required by generally accepted government auditing standards and OMB Circular A-133. Generally accepted auditing standards and generally accepted government auditing standards do not require us to design procedures for the purpose of identifying other matters to communicate with the Audit and Finance Advisory Committee. However, we will communicate to the Audit and Finance Advisory Committee matters required by AU 380, The Auditor's Communication With Those Charged With Governance. In addition, as required by generally accepted government auditing standards, our report on internal control and on compliance and other matters will include our findings of material violations of provisions of contracts and grant agreements and material abuse. In planning the audit, we will follow up on known significant findings and recommendations from previous financial audits, attestation engagements, performance audits, or other studies that directly relate to the objectives of the current audit to determine the effect on our risk assessment and audit procedures. As part of our audit, we will be alert to situations or transactions that could be indicative of abuse as defined by generally accepted government auditing standards, which involves behavior that is deficient or improper when compared with behavior that a prudent person would consider reasonable and necessary business practice given the facts and circumstances. This determination of abuse is subjective; generally accepted government auditing standards do not require us to provide reasonable assurance of detecting abuse, and we will not design the audit to detect abuse. However, if we become aware of indications of material abuse, we will apply procedures to ascertain whether abuse has occurred. Under generally accepted auditing standards and generally accepted government auditing standards, we may be required to directly report fraud, illegal acts, and violations of provisions of contracts or grant agreements, and abuse to outside parties. We may also communicate to management and the Audit and Finance Advisory Committee on internal control, compliance, or other matters we have observed and possible ways to improve the City's operational efficiency and effectiveness or otherwise improve its internal control or other policies and procedures. 14 APPENDIX D CIRCUMSTANCES AFFECTING TIMING AND FEE ESTIMATE CITY OF FORT WORTH, TEXAS Year Ending September 30, 2011 The fees quoted for the audit are based on certain assumptions. Circumstances may arise during the engagement that may significantly affect the targeted completion dates or our fee estimate. As a result, changes to the fees may be necessary. Such circumstances include but are not limited to the following: Audit Facilitation 1. Changes to the timing of the engagement at the City's request. Changes to the timing of the engagement usually require reassignment of personnel used by D&T in the performance of services hereunder. However, because it is often difficult to reassign individuals to other engagements, D&T may incur significant unanticipated costs. 2. All audit schedules are not (a)provided by the City on the date requested, (b)completed in a format acceptable to D&T, (c)mathematically correct, or (d)in agreement with the appropriate City records (e.g., general ledger accounts). D&T will provide the City with a separate listing of required schedules, information requests, and the dates such items are needed. 3. Significant delays in responding to our requests for information such as reconciling variances or providing requested supporting documentation(e.g., invoices, contracts, and other documents). 4. Deterioration in the quality of the City's accounting records during the current-year engagement in comparison with the prior-year engagement. 5. A completed trial balance, referenced to the supporting analyses and schedules and basic financial statements, is not provided timely by the City's personnel. 6. Draft basic financial statements with appropriate supporting documentation are not prepared accurately and timely by the City's personnel. 7. Electronic files in an appropriate format and containing the information requested are not provided by the City on the date requested for our use in performing file interrogation. D&T will provide the City with a separate listing of the required files and the dates the files are needed. 8. The engagement team, while performing work on the City's premises, is not provided with high-speed access to the Internet for purposes of conducting the engagement. 9. The agreed-upon level of support by the City's internal audit department is not provided or is not suitable for our purposes. 15 Significant Issues or Changes 10. Significant deficiencies or material weaknesses in the design or operating effectiveness of the City's internal control over financial reporting or internal control over federal and state programs are identified during our audit that result in the expansion of our audit procedures. 11. A significant level of proposed audit adjustments is identified during our audit. 12. A significant number of drafts of the basic financial statements are submitted for our review, or we identify a significant level of deficiencies in the draft basic financial statements. 13. Significant new issues or changes as follows: a. Significant new accounting issues b. Significant changes in accounting policies or practices from those used in prior years c. Significant events or transactions not contemplated in our budgets d. Significant changes in the City's financial reporting process or Information Technology systems e. Significant changes in the City's accounting personnel,their responsibilities, or their availability f. Significant changes in auditing standards g. Significant changes in the City's use of specialists, or the specialists or their work product does not meet the qualifications required by generally accepted auditing standards for our reliance upon their work. 14. The procedures necessary to adopt all applicable Governmental Accounting Standards Board ("GASB") statements have not been completed by the City's personnel. 15. Changes in audit scope caused by events that are beyond our control. Payment for Services Rendered 16. Without limiting its rights or remedies, D&T may halt or terminate its services entirely if payment is not received within 30 days of the date of the invoice. 16 r APPENDIX E GENERAL TERMS AND CONDITIONS CITY OF FORT WORTH, TEXAS Year Ending September 30, 2011 1. Independent Contractor. It is understood and agreed that D&T is an independent contractor and that D&T is not, and will not be considered to be, an agent, partner, fiduciary, or representative of the City, the Audit and Finance Advisory Committee, or the City Council. D&T shall have exclusive control of and the exclusive right to control., the details of the work performed hereunder by its employees, officers, personnel and subcontractors, and shall be solely responsible for the acts and omissions of its employees, officers, personnel and subcontractors. Nothing herein shall be construed as creating a partnership or joint venture between the City and D&T, and the doctrine of respondeat superior shall have no application as between the City and D&T. 2. Survival. The agreements and undertakings of the City and the Audit and Finance Advisory Committee contained in the engagement letter to which these terms are attached (the "engagement letter"), together with the appendices to the engagement letter including these terms, will survive the completion or termination of this engagement. 3. Assignment and Subcontracting. Except as provided below, neither party may assign, transfer, or delegate any of its rights or obligations relating to this engagement (including, without limitation, interests or claims relating to this engagement)without the prior written consent of the other party. The Audit and Finance Advisory Committee hereby recommends, and the City hereby consents, to D&T subcontracting a portion of its services under this engagement to any D&T affiliate, whether located within or outside of the United States. Professional services performed hereunder by any of D&T's affiliates shall be invoiced as professional fees, and any related expenses shall be invoiced as expenses, unless otherwise agreed. In addition, the Audit and Finance Advisory Committee hereby recommends, and the City hereby consents, to the use by D&T of selected nonaffiliated, nonrelated MWBE subcontractors approved by the City and certified by North Central Texas Regional Certification Agency in connection with this engagement; professional services performed hereunder by such selected subcontractors and any related expenses shall be invoiced as expenses, unless otherwise agreed. D&T shall be responsible for its subcontractors' performing services in connection with this engagement to the same extent that D&T would be if it were performing such services. 4. Severability. If any term of the engagement letter, including its appendices, is determined to be invalid or unenforceable, such term shall not affect the other terms hereof or thereof, but such invalid or unenforceable term shall be deemed modified to the extent necessary to render it enforceable, preserving to the fullest extent permissible the intent of the parties set forth herein and therein. 5. Force Majeure. No party shall be deemed to be in breach of the engagement letter (including its appendices) as a result of any delays or non-performance directly or indirectly resulting from circumstances or causes beyond its reasonable control, including, without limitation, fire, epidemic or other casualty, act of God, strike or labor dispute, war or other violence, or any law, order, or requirement of any governmental agency or authority. 6. Dispute Resolution. Any controversy or claim between the parties arising out of or relating to the engagement letter, including its appendices, or this engagement (a "Dispute") shall be resolved as set forth in the Dispute Resolution Provision attached hereto as Appendix F and made a part hereof. 17 r r r 7. Amendments. This engagement letter may not be amended, changed or otherwise modified without the prior written consent of both parties. 8. Insurance. D&T shall carry insurance in the types and amounts for the duration of this engagement, including any renewal terms, and furnish certificates of insurance as evidence thereof. Coverage and Limits: Commercial General Liability - $1,000,000 each occurrence; $1,000,000 aggregate. Automobile Coverage: $1,000,000 each occurrence on a combined single limit basis. Automobile coverage shall be on any vehicle used by D&T, its employees, agents, representatives in the course of the providing services under this engagement. "Any vehicle" shall be any vehicle owned, hired and non-owned. Worker's Compensation: statutory limits. Professional Liability (Errors and Omissions): $1,000,000 each claim limit; $1,000,000 aggregate limit. Professional Liability coverage may be provided through an endorsement to the Commercial General Liability (CGL) policy, or a separate policy specific to Professional E&O. Either is acceptable if coverage meets all other requirements. Coverage shall be claims-made, and maintained for the duration of the engagement and for two (2) years following completion of services provided, if commercially available. An annual certificate of insurance shall be submitted to the City to evidence coverage. Certificates. Certificates of Insurance evidencing that D&T has obtained all required insurance shall be delivered to the City prior to D&T proceeding with any work pursuant to this engagement. The commercial general liability and automobile liability policies shall be endorsed to include the City as an additional insured thereon, as its interests may appear. The term City shall include its employees, officers, officials, agent and volunteers in respect to the contracted services. Any failures on the part of the City to request required insurance documentation shall not constitute a waiver of the insurance requirement. The insurers will endeavor to provide a minimum of thirty(30)days notice of cancellation of coverage to the City. Ten (10) days notice shall be acceptable in the event of non-payment of premium. Notice shall be sent to the Risk Manager, City of Fort Worth, 1000 Throckmorton, Fort Worth, Texas 76102,with copies to the City Attorney at the same address. 9. Termination. The City may terminate this engagement if D&T fails to cure a material breach within thirty (30) calendar days of receipt of written notice being given of such material breach. If more than thirty (30) calendar days are required to cure such material breach, a reasonable time in excess of said days may be established, provided both parties agree in writing as to the time period. In the event such material breach is not cured within the specified time, the City shall have the right terminate this engagement immediately upon expiration of the specified time and upon written notice to D&T. The City may terminate this engagement for any reason, with or without cause, upon ninety (90) days written notice to D&T. In the event that this engagement is terminated prior to the expiration date, D&T shall immediately discontinue all services or the entering into contracts in connection with the performance of this engagement and shall return all records of the City that have been submitted to D&T for purposes of completion of the then current audit. The City shall pay D&T for services actually rendered and expenses incurred up to the effective date of termination and D&T shall continue to provide the City with services requested by the City and in accordance with this engagement up to the effective date of termination. D&T shall not be entitled to lost or anticipated profits should the City choose to exercise its option to terminate. 18 D&T may terminate this engagement at any time, immediately upon written notice to the City if D&T determines that the performance of any part of the services under this engagement letter would be in conflict with law, or applicable independence or professional rules or standards. In such case,the City shall compensate D&T under the engagement letter for services provided and expenses incurred up to and including the effective date of termination. 10. INDEMNIFICATION / LIABILITY. D&T SHALL INDEMNIFY AND HOLD THE CITY AND ITS OFFICERS, AGENTS AND EMPLOYEES HARMLESS FROM AND AGAINST ALL LIABILITY, EXPENSE, INCLUDING REASONABLE DEFENSE COSTS AND REASONABLE LEGAL FEES, AND CLAIMS FOR DAMAGES, IN EACH CASE SOLELY FOR BODILY INJURY, DEATH OR DAMAGE TO REAL OR TANGIBLE PERSONAL PROPERTY, TO THE EXTENT DIRECTLY AND PROXIMATELY CAUSED BY THE NEGLIGENCE OR WILLFUL MISCONDUCT OF D&T WHILE ENGAGED IN THE PERFORMANCE OF SERVICES HEREUNDER; PROVIDED, HOWEVER, THAT IF THERE ALSO IS FAULT ON THE PART OF THE CITY OR ANY ENTITY OR INDIVIDUAL INDEMNIFIED HEREUNDER OR ANY ENTITY OR INDIVIDUAL ACTING ON THE CITY'S BEHALF, THE FOREGOING INDEMNIFICATION SHALL BE ON A PROPORTIONATE RESPONSIBILITY BASIS. ACCORDINGLY, THE CITY SHALL NOTIFY D&T PROMTLY, IN WRITING, OF ANY CLAIM OR ACTION FOR WHICH INDEMNITY SHALL BE SOUGHT IN CONNECTION WITH THIS PARAGRAPH 10. ON SUCH NOTIFICATION, D&T SHALL PROMPTLY ASSUME RESPONBILITY FOR AND DEFEND OR SETTLE ANY AND ALL CLAIMS OR ACTIONS DESCRIBED ABOVE WITH COUNSEL OF ITS OWN CHOOSING. THE CITY SHALL COOPERATE IN ALL REASONABLE RESPECTS WITH D&T IN CONNECTIONS WITH ANY SUCH CLAIM. 11. Disclosure of Conflicts and Confidential Information. D&T hereby represents to the City that to the knowledge of the engagement leader providing services hereunder, it has made full disclosure of any existing conflicts of interest related to D&T's services under this engagement. In the event that any conflicts of interest arise after the Effective Date, D&T hereby agrees promptly to make full disclosure to the City. D&T further agrees that it shall treat all information provided to it by the City as confidential and shall not disclose any such information to a third party without the prior written approval of the City. Notwithstanding the foregoing, the City hereby consents to D&T disclosing such information (1) to its subcontractors, whether located within or outside of the United States, that are providing services in connection with this engagement and who have agreed to be bound by confidentiality obligations similar to those in this paragraph; (2)as may be required by law, regulation, judicial or administrative process, or in accordance with applicable professional standards or rules, or in connection with litigation pertaining hereto; or (3) to the extent such information (i) shall have otherwise become publicly available (including, without limitation, any information filed with any governmental agency and available to the public) other than as the result of a disclosure in breach hereof, (ii) becomes available to D&T on a nonconfidential basis from a source other than the City that D&T believes is not prohibited from disclosing such information to D&T by obligation to the City, (iii) is known by D&T prior to its receipt from the City without any obligation of confidentiality with respect thereto, or (iv) is developed by D&T independently of any disclosures made by the City to D&T of such information. In satisfying its obligations under this paragraph, D&T shall maintain the City's trade secrets and proprietary or confidential information in confidence using at least the same degree of care as it employs in maintaining in confidence its own trade secrets and proprietary or confidential information, but in no event less than a reasonable degree of care. 19 w Ir 1 ' s APPENDIX F DISPUTE RESOLUTION PROVISION CITY OF FORT WORTH, TEXAS Year Ending September 30, 2011 This Dispute Resolution Provision sets forth the dispute resolution process and procedures applicable to the resolution of Disputes and shall apply to the fullest extent of the law, whether in contract, statute, tort (such as negligence), or otherwise. Mediation: All Disputes shall be first submitted to nonbinding confidential mediation by written notice to the parties, and shall be treated as compromise and settlement negotiations under the standards set forth in the Federal Rules of Evidence and all applicable state counterparts, together with any applicable statutes protecting the confidentiality of mediations or settlement discussions. If the parties cannot agree on a mediator, the International Institute for Conflict Prevention and Resolution ("CPR"), at the written request of a party, shall designate a mediator. Arbitration Procedures: If a Dispute has not been resolved within 90 days after the effective date of the written notice beginning the mediation process (or such longer period, if the parties so agree in writing), the mediation shall terminate and the Dispute shall be settled by binding arbitration upon consent of the parties to be held in Tarrant County, Texas. The arbitration shall be solely between the parties and shall be conducted in accordance with the CPR Rules for Non-Administered Arbitration that are in effect at the time of the commencement of the arbitration, except to the extent modified by this Dispute Resolution Provision (the"Rules"). The arbitration shall be conducted before a panel of three arbitrators. Each of the City and Deloitte & Touche LLP shall designate one arbitrator in accordance with the "screened" appointment procedure provided in the Rules and the two party-designated arbitrators shall jointly select the third in accordance with the Rules. No arbitrator may serve on the panel unless he or she has agreed in writing to enforce the terms of the engagement letter (including its appendices) to which this Dispute Resolution Provision is attached and to abide by the terms of this Dispute Resolution Provision. Except with respect to the interpretation and enforcement of these arbitration procedures (which shall be governed by the Federal Arbitration Act), the arbitrators shall apply the laws of the State of Texas (without giving effect to its choice of law principles) in connection with the Dispute. The arbitrators shall have no power to award punitive, exemplary or other damages not based on a party's actual damages (and the parties expressly waive their right to receive such damages). The arbitrators may render a summary disposition relative to all or some of the issues, provided that the responding party has had an adequate opportunity to respond to any such application for such disposition. Discovery shall be conducted in accordance with the Rules. All aspects of the arbitration shall be treated as confidential, as provided in the Rules. Before making any disclosure permitted by the Rules, a party shall give written notice to all other parties and afford such parties a reasonable opportunity to protect their interests. Further, judgment on the arbitrators' award may be entered in any court having jurisdiction. Costs: Each party shall bear its own costs in both the mediation and the arbitration; however, the parties shall share the fees and expenses of both the mediators and the arbitrators equally. 21 -,'A&C Review Page 1 of 2 Official site of the City of Fort Worth,Texas CITY COUNCIL AGENDA F°R�H COUNCIL ACTION: Approved on 9/14/2010 DATE: 9/14/2010 REFERENCE NO.: C-24442 LOG NAME: 13P10-0401 AUDIT SERVICES MJ CODE: C TYPE: NON- PUBLIC NO CONSENT HEARING: SUBJECT: Authorize a One-Year Contract in an Amount Up to $1,051,200.00 with Deloitte and Touche, LLP, for Independent Audit Services for Fiscal Year 2010 Comprehensive Annual Financial Report and Single Audits with Options to Renew the Contract for Up to Four One-Year Periods RECOMMENDATION: It is recommended that the City Council authorize a one-year contract in an initial amount up to $1,051,200.00 with Deloitte and Touche, LLP, for independent audit services for Fiscal Year 2010 Comprehensive Annual Financial Report and Single Audits with options to renew the contract for up to four one-year periods. DISCUSSION: The City of Fort Worth (City) Internal Audit Department will use the professional services agreement with Deloitte & Touche LLP (D&T) to serve as independent auditors for the City's financial statements to ensure conformity with generally accepted accounting principles. D&T will examine the City's compliance with procedures established by the City Charter and City Ordinances. D&T will also perform certain limited procedures involving required supplementary information by the Governmental Accounting Standards Board (GASB) as mandated by generally accepted auditing standards as set forth by the American Institute of Certified Public Accountants and Government Auditing Standards. The Purchasing Division issued a Request for Proposals (RFP) on April 7, 2010 soliciting qualified firms of certified public accountant firms to audit the City's financial statements for Fiscal Years 2010, 2011, 2012, 2013 and 2014. The evaluation factors included past experience and performance on comparable government engagements, specific implementation of GASB Statement No. 34, the quality of the firms' professional personnel to be assigned to the engagement, the quality of personnel to be available for technical consultation, the adequacy of the firms' proposed staffing plan, sampling techniques, analytical procedures to be used on the engagement, contract costs, and M/WBE participation. An evaluation panel was made up of representatives from the Financial Management Services Department and the Internal Audit Department. Five proposals were received in response to the RFP. Proposals were received from BKD LLP, Deloitte & Touche, LLP, Grant Thornton, KPMG LLP and Weaver and Tidwell LLP. The recommended service provider, Deloitte &Touche LLP, was deemed the most qualified to perform the services. The recommendation was presented to the Audit and Finance Advisory Committee on July 28, 2010. The committee is in favor of this action. ADVERTISEMENT -This RFP was advertised in the Fort Worth Star-Telegram on April 7, 2010, April 14, 2010, April 21, 2010 and April 28, 2010. PRICE ANALYSIS - Fees under the recommended agreement are approximately 8.5 percent less than those under the 2009 Agreement due to a reduction of estimated hours. Estimated hours decreased due to the City's improved internal controls. Prices for each year's audit are estimated as follows: http://apps.cfwnet.org/council_packet/mc_review.asp?ID=13916&councildate=9/14/2010 9/16/2011 •-A I&C Review Page 2 of 2 Year Estimated Initial Estimated Estimated Total Cost Contingency Cost Funds 2010 $988,000.00 $63,200.00 $1,051,200.00 2011 $1,041,200.00 $60,000.00 $1,101,200.00 2012 $1,086,800.00 $60,000.00 $1,146,800.00 2013 $1,140,000.00 $60,000.00 $1,200,000.00 2014 $1,200,800.00 $50,000.00 $1,250,800.00 5 Year Total $5,456,800.00 $293,200.00 $5,750,000.00 ESTIMATED CONTINGENCY FUNDS—The estimated contingency fund dollars are based upon 450—480 additional audit hours for unanticipated issues that may arise. AGREEMENT TERMS - Upon City Council's approval, the Agreement will begin upon execution and expire September 30, 2011, unless terminated earlier in accordance with its terms. RENEWAL OPTIONS -This Agreement may be renewed for up to four successive one-year terms at an annual amount not to exceed $1,250,800.00 for each renewal year. This action does not require specific City Council approval provided that the City Council has appropriated sufficient funds to satisfy the City's obligation during each renewal term. M/WBE - Deloitte and Touche, LLP, is in compliance with the City's MNVBE Ordinance by committing to 15 percent M/WBE participation. The City's goal on this project is 15 percent. FISCAL INFORMATION/CERTIFICATION: The Financial Management Services Director certifies that funds are available in the current operating budget, as appropriated, of the General Fund. The Financial Management Services Director also certifies that funds will be included in the City Manager's Proposed 2010-2011 Budget of the General Fund. TO Fund/Account/Centers FROM Fund/Account/Centers GG01 531200 0101000 $1,051,200.00 Submitted for City Manager's Office by: Karen Montgomery (6222) Originating Department Head: Darlene Allen (6132) Additional Information Contact: Jack Dale (8357) Marilyn Jackson (2059) ATTACHMENTS http://apps.cfwnet.org/council_packet/mc_review.asp?ID=13916&councildate=9/14/2010 9/16/2011