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HomeMy WebLinkAboutC20183 Lance, Soll, & Lunghard, LLP - Audit Services for FYE 06/30/2005CITY OF PALM DESERT FINANCE DEPARTMENT STAFF REPORT REQUEST: APPROVAL OF THE CONTRACT WITH LANCE, SOLL & LUNGHARD, LLP, FOR AUDIT SERVICES OF THE CITY OF PALM DESERT, PALM DESERT REDEVELOPMENT AGENCY, DESERT WILLOW GOLF RESORT, PALM DESERT RECREATION FACILITIES CORPORATION, AND THE HOUSING AUTHORITY FOR THE FISCAL YEAR ENDED JUNE 30, 2005. SUBMITTED BY: PAUL S. GIBSON, DIRECTOR OF FINANCE DATE: APRIL 14, 2005 CONTENTS: AUDIT ENGAGEMENT LETTER Recommendation: By Minute Motion, that the City Council approve the contract with Lance, Soil & Lunghard, LLP, for audit services of the City of Palm Desert, Palm Desert Redevelopment Agency, Desert Willow Golf Resort, Palm Desert Recreation Facilities Corporation, and the Housing Authority for the fiscal year ended June 30, 2005. Backaround: On June 13, 2002 , the City Council approved a five-year contract with Lance, Soil & Lunghard, LLP, to conduct audits of the City of Palm Desert, Palm Desert Redevelopment Agency, Desert Willow Golf Resort, Palm Desert Recreation Facilities Corporation, and the Housing Authority. This is the fourth year of the existing contract and the increase in fees are consistent with the approved five year contract. On March 23, 2005, the Investment and Finance Committee met and recommended to continue the audit contract with Lance Soil & Lunghard LLP. Staff recommends to continue the contract with Lance, Soil & Lunghard, LLP, in relation to the audit services provided for the City, Redevelopment Agency, Desert Willow Golf Resort, Palm Desert Recreation Facilities Corporation and the Housing Authority. Submitted by: Paul S. Gibson, Director of Finance PSG:JI-E:jle Approved by: Carlos L. Orte City Manager Contract No. C20183 Lance Soil & Lunghard cl n, U` r'1-11', BESET F�l ��,i`LC 1� _^ri iTi�1EN I Brandon W. Burrows Donald L. Parker Michael K. Chu David E. Hate A Prol6ssiare/ Cwtporstion r� Ayy 10 A y 10: 16 Donald G. Slater Richard K. Kikuchi Certified Public Accountants Robert C. a a C. Lance 1914A994 Richard C. Soll Fred J. Lunghard, Jr. 1929-1999 March 7, 2005 Mr. Paul S. Gibson, CCMT Director of Finance/City Treasurer City of Palm Desert 73-510 Fred Waring Drive Palm Desert, CA 92260-2578 Dear Mr. Gibson: We are pleased to confirm our understanding of the services we are to provide the City of Palm Desert for the year ended June 30, 2005. We will audit the financial statements of the governmental activities, the business -type activities, the aggregate discretely presented component units, each major fund and the aggregate remaining fund information, which collectively comprise the entity's basic financial statements, of the City of Palm Desert as of and for the year ended June 30, 2005. If applicable, we would conduct separate financial audits of the Component Unit Financial Statements as specified in our agreement with the City. Also, the document we submit to you will include the following additional information that will be subjected to the auditing procedures applied in our audit of the financial statements: 1. Management's discussion and analysis. 2. Budgetary comparison schedules. 3. Infrastructure information under the modified approach of reporting. 4. Combining and individual fund schedules presented as supplemental schedules. If a Comprehensive Annual Financial Report (CAFR) is to be issued, the document will also include the following additional information that will not be subject to the auditing procedures applied in our audit of the financial statements, and for which our accountant's report will disclaim an opinion. 1. Statistical data included in the CAFR. 2. Transmittal letter included in the CAFR. Audit Objectives The objective of our audit is the expression of an opinion as to whether your financial statements are fairly presented, in all material respects, in conformity with U.S. generally accepted accounting principles and to report on the fairness of the additional information referred to in the first paragraph when considered in relation to the financial statements taken as a whole. Our audit will be conducted in accordance with U.S. generally accepted auditing standards and the standards for financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States, and will include tests of the accounting records of the City of Palm Desert and other procedures we consider necessary to enable us to express such an opinion. If our opinion on the financial statements is other than unqualified, we will fully discuss the reasons with you in advance. 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 to issue a report as a result of this engagement. 75 Years 1929 2004 of Excellence 203 N. Brea Blvd., Suite 203 • Brea, CA 92821-4056 • (714) 672-0022 • Fax (714) 672-0331 0 www.lslcpas.com e USUSIgLiP ard CERTIFIED PUBLIC ACCOUN7AN7S City of Palm Desert March 7, 2005 Page 2 Contract No. C20183 We will also provide a report (that does not include an opinion) on internal control related to the financial statements and compliance with laws, regulations and the provisions of contracts or grant agreements, noncompliance with which could have a material effect on the financial statements as required by Government Auditing Standards. This report will include a statement that the report is intended solely for the information and use of the audit committee, management and specific legislative or regulatory bodies and is not intended to be and should not be used by anyone other than these specified parties. Management Responsibilities Management is responsible for establishing and maintaining internal control and for compliance with laws, regulations, contracts and agreements. In fulfilling this responsibility, estimates and judgments by management are required to assess the expected benefits and related costs of the controls. The objectives of internal control are to provide management with reasonable, but not absolute, assurance that assets are safeguarded against loss from unauthorized use or disposition, that transactions are executed in accordance with management's authorizations and recorded properly to permit the preparation of financial statements in accordance with generally accepted accounting principles. Management is responsible for making all financial records and related information available to us. We understand that you will provide us with such information required for our audit and that you are responsible for the accuracy and completeness of that information. We will advise you about appropriate accounting principles and their application and will advise you in the preparation of your financial statements, but the responsibility for the financial statements remains with you. As part of our engagement, we may propose standard, adjusting or correcting journal entries to your financial statements. You are responsible for reviewing the entries and understanding the nature of any proposed entries and the impact they have on the financial statements. That responsibility includes the establishment and maintenance of adequate records and effective internal control over financial reporting, the selection and application of accounting principles and the safeguarding of assets. Management is responsible for adjusting the financial statements to correct material misstatements and for confirming to us in the representation letter that the effects of any uncorrected misstatements aggregated by us during the current engagement and pertaining to the latest period presented are immaterial, both individually and in the aggregate, to the financial statements taken as a whole. You are responsible for the design and implementation of programs and controls to prevent and detect fraud, and for informing us about all known or suspected fraud affecting the government involving (a) management, (b) employees who have significant roles in internal control, and (c) others where the fraud could have a material effect on the financial statements. You are also responsible for informing us of your knowledge of any allegations of fraud or suspected fraud affecting the government received in communications from employees, former employees, grantors, regulators or others. In addition, you are responsible for identifying and ensuring that the entity complies with applicable laws and regulations. Sig sLS hard LLP CERDFIED PUBLIC ACCOUNTANTS City of Palm Desert March 7, 2005 Page 3 Audit Procedures - General Contract No. C20183 An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements; therefore, our audit will involve judgment about the number of transactions to be examined and the areas to be tested. We will plan and perform the audit to obtain reasonable rather than absolute assurance about whether the financial statements are free of material misstatement, whether from errors, fraudulent financial reporting, misappropriation of assets or violations of laws or governmental regulations that are attributable to the entity or to acts by management or employees acting on behalf of the entity. Because an audit is designed to provide reasonable, but not absolute assurance and because we will not perform a detailed examination of all transactions, there is a risk that material misstatements may exist and not be detected by us. In addition, an audit is not designed to detect immaterial misstatements or violations of laws or governmental regulations that do not have a direct and material effect on the financial statements. However, we will inform you of any material errors that come to our attention, and we will inform you of any fraudulent financial reporting or misappropriation of assets that comes to our attention. We will also inform you of any violations of laws or governmental regulations that come to our attention, unless clearly inconsequential. Our responsibility as auditors is limited to the period covered by our audit and does not extend to matters that might arise during any later periods for which we are not engaged as auditors. Our procedures will include tests of documentary evidence supporting the transactions recorded in the accounts, and may include tests of the physical existence of inventories, and direct confirmation of receivables and certain other assets and liabilities by correspondence with selected individuals, creditors and financial institutions. We will request written representations from your attorneys as part of the engagement, and they may bill you for responding to this inquiry. At the conclusion of our audit, we will also require certain written representations from you about the financial statements and related matters. Identifying and ensuring that the City of Palm Desert complies with laws, regulations, contracts and agreements is the responsibility of management. As part of obtaining reasonable assurance about whether the financial statements are free of material misstatement, we will perform tests of the City of Palm Desert's compliance with applicable laws and regulations and the provisions of contracts and agreements. However, the objective of our audit will not be to provide an opinion on overall compliance and we will not express such an opinion. Audit Procedures - Internal Controls In planning and performing our audit, we will consider the internal control sufficient to plan the audit in order to determine the nature, timing and extent of our auditing procedures for the purpose of expressing our opinion on the City of Palm Desert's financial statements. We will obtain an understanding of the design of the relevant controls and whether they have been placed in operation, and we will assess control risk. 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. Tests of controls are required only if control risk is assessed below the maximum level. 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. Lance Soll s Lunghard LLP CERT)F1ED PUBLIC ACCOUNTAN fS City of Palm Desert March 7, 2005 Page 4 Contract No. C20183 An audit is not designed to provide assurance on internal control or to identify reportable conditions. However, we will inform the governing body or audit committee of any matters involving internal control and its operation that we consider to be reportable conditions under standards established by the American Institute of Certified Public Accountants. Reportable conditions involve matters coming to our attention relating to significant deficiencies in the design or operation of the internal control that, in our judgment, could adversely affect the entity's ability to record, process, summarize and report financial data consistent with the assertions of management in the financial statements. We will also inform you of any nonreportable conditions or other matters involving internal control, if any, as required by Government Auditing Standards. Audit Administration, Fees, and Other If applicable, we would perform all other services as specified in our agreement with the City. If the additional services to be provided is considered nonattest (nonaudit) services, management is responsible for making all management decisions and perform all management functions; designate a competent employee, preferably within senior management, to oversee the services; evaluate the adequacy and results of the services; and establish and maintain internal controls, including monitoring ongoing activities. The audit documentation for this engagement is the property of Lance, Soll & Lunghard, LLP 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 City's Cognizant or Oversight Agency for Audit or its designee, a federal agency providing direct or indirect funding, or the U.S. General Accounting 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 Lance, Soil & Lunghard, LLP personnel. Furthermore, upon request, we may provide copies of selected audit documentation to the aforementioned parties. These parties may intend, or decide, to distribute the copies or information contained therein to others, including other governmental agencies. Maximum fees for the audits for the fiscal year ending June 30, 2005 are as follows: Lance, Soll & Lunghard, LLP Preparing Reports Enaaaement Services a. City of Palm Desert b. Palm Desert Redevelopment Agency c. City of Palm Desert Golf Course Facilities d. Single Audit e. Gann Limit Verifications f. Investment Policy Compliance Verification Sub -total Meals, Lodging and Transportation Total All -Inclusive Price 2004-05 $ 28,920 23,400 13,060 2,610 740 2,699 71,429 LUS& Contract No. C20183 SLd CERTIFIED PUBLIC ACCOUNTANTS City of Palm Desert March 7, 2005 Page 5 Citv of Palm Desert Preparing Reports Enaaaement Services 2004-05 a. City of Palm Desert $ 27,420 b. Palm Desert Redevelopment Agency * 22,400 C. City of Palm Desert Golf Course Facilities 12,560 d. Single Audit 2,610 e. Gann Limit Verifications 740 f. Investment Policy Compliance Verification 2.699 Sub -total Meals, Lodging and Transportation Total All -Inclusive Price *Includes the Palm Desert Housing Authority Standard Hourly Rates (Auditing and Consulting Services) Partner Manager Senior auditor Staff auditor $ 157.00 98.00 74.00 69.00 68,429 9,250 $ 77.679 Our invoices for these fees will be rendered as work progresses and are payable on presentation. In accordance with our firm policies, work may be suspended if your account becomes 90 days or more overdue and may not be resumed until your account is paid in full. 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 2004 peer review report accompanies this letter. ISE ce s ghard LLP CER77AIED PUBLIC ACCOUNTANTS City of Palm Desert March 7, 2005 Page 6 Contract No. C20183 We appreciate the opportunity to be of service to the City of Palm Desert and believe this letter accurately summarizes the significant terms of our engagement. If you have any questions, please let us know. If you agree with the terms of our engagement as described in this letter, please sign the enclosed copy and return it to us. Very truly yours, Lance, Soll & Lunghard, LLP RESPONSE: This letter correctly sets forth the understanding of the City of Palm Desert By: Title: Date: R.H. JOHNSTON ACCOUNTANCY INC. A Professional Corporation 21031 Ventura Boulevard, Suite 210 Contract No . C20183 Woodland Hills, California 91364 (818) 346-9800 Fax (818) 346-0609 September 16, 2004 To the Partners, Lance Soll & Lunghard LLP We have reviewed the system of quality control for the accounting and auditing practice of Lance Soll & Lunghard LLP (the firm) in effect for the year ended May 31, 2004. 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 conforming 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 (AICPA). The design of the system and compliance with it are the responsibility of the firm. Our responsibility is express an opinion on the design of the system, and the firm's compliance with the system based on our review. Our review was conducted in accordance with standards established by the Peer Review Board of the AICPA. In performing our review, we obtained an understanding of the system of quality control for the firm's accounting and auditing practice. In addition, we tested compliance with the firm's quality control policies and procedures to the extent we considered appropriate. These tests covered the application of the firm's policies and procedures on selected engagements. Because our review was based on selective tests, it would not necessarily disclose all weaknesses in the system of quality control or all instances of lack of compliance with it. 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 because the degree of compliance with the polices or procedures may deteriorate. In our opinion, the system of quality control for the accounting and auditing practice of Lance Soll & Lunghard LLP in effect for the year ended May 31, 2004, 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 conforming with professional standards.