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Certified Public Accountants RETURN COPY Hayden, Ross ¢Co. John F. Hayden, CPA Patton A. Ross, CPA James R Pilcher, CPA David E. Jones, CPA Brad Lewis, CPA I Tracey Hostetler, CPA Cade Konen, CPA Nathan Strong /vvf:t/ Honorable Mayor and City Council City of Moscow Moscow, 10 83843 September 9, 1999 We are pleased to confirm our understanding of the services we are to provide City of Moscow for the year ended September 30, 1999. We will audit the general-purpose financial statements of City of Moscow as of and for the year ended September 30, 1999. 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 general purpose financial statements. 1. Schedule of expenditures of federal awards. 2. Combining and individual fund financial statements. The objective of our audit is the expression of an opinion as to whether the general purpose financial statements are fairly presented, in all material respects, in conformity with 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 general purpose financial statements taken as a whole. The objective also includes reporting on the City of Moscow's compliance with laws and regulations and the provisions of contracts and grant agreements and its internal controls as required by the Single Audit Act Amendments of 1996 and OMB Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations. Our audit will be conducted in accordance with generally accepted auditing standards; the standards for financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States; the Single Audit Act Amendments of 1996; and the provisions of OMB Circular A-133, and will include tests of the accounting records of City of Moscow and other procedures we consider necessary to enable us to express such an opinion and to render the required Single Audit reports. If our opinion on the general purpose financial statements or the Single Audit compliance opinion is other that 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 express an opinion, we may decline to express an opinion or may not issue a report as a result of this engagement. 315 S. Almon P.O. Box 9043 Moscow, Idaho 83843-1543 [PHONE REDACTED] Fax [PHONE REDACTED] Email: [EMAIL REDACTED] ---PAGE BREAK--- City of Moscow September 9, 1999 Page 2 of 6 The management of City of Moscow is responsible for establishing and maintaining internal control. 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 general purpose financial statements in accordance with generally accepted accounting principles, and that federal award programs are managed in compliance with applicable laws and regulations and the provisions of contracts and grant agreements. In planning and performing our audits, 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 opinions on City of Moscow's general purpose financial statements and on its compliance with requirements applicable to major programs. 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 general purpose financial statement and to preventing and detecting misstatements resulting from illegal acts and other noncompliance matters that have a direct and material effect on the general purpose 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. We will perform tests of controls, as required by OMS Circular A-133, 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 of City of Moscow's major federal award programs. Our tests will be less in scope than would be necessary to render an opinion on these controls and, accordingly, no opinion will be expressed. ---PAGE BREAK--- City of Moscow September 9, 1999 Page 3 of 6 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 involved 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 general purpose financial statements. We will also inform you of any nonreportable conditions or other matters involving internal control, if any, as required by OMB Circular A-133. Identifying and ensuring that City of Moscow complies with laws, regulations, contracts, and agreements, including grant agreements, is the responsibility of management. As part of obtaining reasonable assurance about whether the general-purpose financial statements are free of material misstatement, we will perform tests of City of Moscow's compliance with applicable laws and regulations and the provisions of contracts and agreements, including grant 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. Our audit will be conducted in accordance with the standards referred to in the second paragraph. OMB Circular A-133 requires that we plan and perform the audit to obtain reasonable assurance about whether the auditee has complied with applicable laws and regulations and the provisions of contracts and grant agreements applicable to major programs. Our procedures will consist of the applicable procedures described in the OMB's compliance supplement. The purpose of these procedures will be to express an opinion on City of Moscow's compliance with requirements applicable to major programs. 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. ---PAGE BREAK--- City of Moscow September 9, 1999 Page 4 of 6 An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements; therefore, our audit will involve judgement 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 caused by error or fraud. As required by the Single Audit Act Amendments of 1996 and OMB Circular A133, our audit will include test of transactions related to federal award programs for compliance with applicable laws and regulations and the provisions of contracts and grant agreements. Because of the concept of reasonable assurance and because we will not perform a detailed examination of all transactions, there is a risk that a material misstatement may exist and not be detected by us. In addition, an audit is not designed to detect errors, fraud, or other illegal acts that are immaterial to the general-purpose financial statements or to major programs. However, we will inform you of any material errors and any fraud that comes to our attention. We will also inform you of any other illegal acts that come to our attention, unless clearly inconsequential. We will include such matters in the reports required for a Single Audit. 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. 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 assist in the preparation of your financial statements, but the responsibility for the financial statements remains with you. That responsibility includes the establishment and the maintenance of adequate records and effective internal control over financial reporting, the selection and application of accounting principles, and the safeguarding of assets. Additionally, as required by OMB Circular A-133, you will prepare the summary of prior audit findings. This schedule should be available for our review on October 31, 1999. We understand that your employees will prepare all cash or other confirmations we request and will locate any invoices selected by us for testing. ---PAGE BREAK--- City of Moscow September 9, 1999 PageS of6 The workpapers for this engagement are the property of Hayden, Ross & Co. and constitute confidential information. However, we may be requested to make certain workpapers available to the federal cognizant agency pursuant to authority given to it by law or regulation. If requested, access to such workpapers will be provided under the supervision of Hayden, Ross & Co. personnel. Furthermore, upon request, we may provide photocopies of selected workpapers to the federal cognizant agency. The federal cognizant agency may intend, or decide, to distribute the photocopies or information contained therein to others, including other governmental agencies. We expect to begin our audit on approximately October 10, 1999 and to issue our reports no later than January 15, 2000. Our fee for these services will be at our standard hourly rates plus out-of-pocket costs (such as report reproduction, typing, postage, travel, copies, telephone, etc.) except that we agree that our gross fee, including expenses, will not exceed $9,300. Our standard hourly rates vary according to the degree of responsibility involved and the experience level of the personnel assigned to your audit. Our invoices for these fees will be rendered each month as work progresses and are payable on presentation. In accordance with our firm policies, work may be suspended if your account becomes 50 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, 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 quality control review report. Our 1999 peer review report accompanies this letter. ---PAGE BREAK--- ' . City of Moscow September 9, 1999 Page 6 of 6 We appreciate the opportunity to be of service to City of Moscow 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, HAYDEN, ROSS & CO. Qao Jim Pilcher, CPA RESPONSE: ---PAGE BREAK--- Peer Review Program Amerk:an Institute of Certified Public Accountants mmistered by the Idaho Society of CPAs October 27, 1998 David E. Jones, CPA Hayden, Ross & Co., P. A. 315 S Almon PO Box 9043 Moscow, ID 83843-1543 Dear Mr. Jones: It is my pleasure to notify you that on October 20, 1998 the Idaho Peer Review Executive Committee accepted the report on the most recent peer review of your firm, the related letter of comments, and your firm's response thereto. Those documents will now be placed in the public files of the Division for CPA Firms. The due date for your next review is December 31, 2001. This is the date by which all review documents should be completed and submitted to the administering entity. As you know, the reviewer's opinion was unqualified. The Committee asked me to convey its congratulations to the firm. Sincerely, G.d Tracy K. Poe Program Manager cc: Edward Grover Evans, CPA Firm Number: 10029960 Review Number: 131930 250 Bobwhite Court, Suite 240, Boise. 10 83706 (208) 344-6261 • fax (208) 344-8984 The U Never The Value,' ---PAGE BREAK--- Avans & Beck P.A. Certified Public Accountants August 5, 1998 To the Owners Hayden, Ross & Co. P A Members of the American Institute of CPA S, Idaho Society of CPA's and Private Companies Practice Section (A/CPA) Edward G. Evans, CPA Garth W. Beck CPA We have reviewed the system of quality control for the accounting and auditing practice of Hayden, Ross & Co. PA(the firm) in effect for the year ended June 30, 1998. Our review was conducted in conformity with the standards established by the Peer Review Board of the American Institute of Certified Public Accountants (AICPA). We tested compliance with the firm's system of quality control to the extent we considered appropriate. These tests included a review of selected accounting and auditing engagements. In performing our review, we have given consideration to the quality control standards for an accounting and auditing practice issued by the AICPA. Those standards indicate that a firm's quality control policies and procedures should be appropriately comprehensive and suitably designed in relation to the firm's size, organizational structure, operating policies, and the nature of its practice. They state that variance in an individual's performance and understanding of professional requirements or the firm's quality control policies and procedures can affect the degree of compliance with a firm's prescribed quality control policies and procedures and, therefore, the effectiveness of the system. In our opinion, the system of quality control for the accounting and auditing practice of Hayden, Ross & Co. PA in effect for the year ended June 30, 1998, has been designed in accordance with the quality control standards for an accounting and auditing practice established by the AI CPA, and was being complied with for the year then ended to provide the firm with reasonable assurance of conforming with professional standards in the conduct of that practice. Evans & Beck 1:?Rn Alhinn ,o,,an,,a • , • /rli"''OI c-7o ---PAGE BREAK--- Avans & Beck P.A. Certified Public Accountants August 5, 1998 To the Owners Hayden, Ross & Co. P.A. Members of the American Institute of CPA Idaho Society of CPA s and Private Companies Practice Section (A/CPA) Edward G. Evans, CPA Garth W. Beck CPA We have reviewed the system of quality control for the accounting and auditing practice of Hayden, Ross & Co. P.A. (the firm) in effect for the year ended June 30, 1998 , and have issued our report thereon dated August 5, 1998. This letter should be read in conjunction with that report. Our review was for the purpose of reporting upon the firm's system of quality control and its compliance with that system. Our review was conducted in conformity with standards established by the Peer Review Board of the American Institute of Certified Public Accountants, however, our review would not necessarily disclose all weaknesses in the system or all instances of noncompliance with it because our review was based on selective tests. There are inherent limitations that should be recognized in considering the potential effectiveness of any system of quality control. In the performance of most control procedures, departures can result from misunderstanding of instructions, mistakes of judgment, carelessness, or other personal factors. Projection of any evaluation of a system of quality control to future periods is subject to the risk that the procedure may become inadequate because of changes in conditions or that the degree of compliance with the procedure may deteriorate. As a result of our review, we have the following comments which were considered in determining our opinion set forth in our report dated August 5, 1998, and this letter does not change that report: Engagement Performance Finding- The firm's quality control policies and procedures require that the engagement owner review the work papers before issuance of a financial statement. However, on several governmental auditing standards engagements reviewed, the work papers did not include certain minor updated requirements. This lack of documentation did not result in the issuance of an inappropriate report. Recommendation -The firm should carefully comply with its policy of review of working papers by the engagement partner, particularly in the area of updated requirements on governmental auditing standards. Finding- The firm's quality control policies and procedures require completion of a reporting and disclosure checklist on each financial statement engagement. However, on some engagements reviewed, we noted inappropriate answers on this checklist. As a result, some financial statements did not include all the disclosures required by generally accepted accounting principles in such areas as certain concentrations and use of estimates. None of ---PAGE BREAK--- the missing disclosures were of such significance as to make the financial statements misleading. Recommendation - The owners should carefully review the reporting and disclosure checklist as part of their final financial statement review. In addition, a training session should be held to review the questions on the financial statement reporting and disclosure checklists. /tf Evans & Beck ---PAGE BREAK--- Idaho Society Peer Review Committee P.O. Box 2896 Boise, 10 83701 Ladies and Gentlemen: FILE COPY September 2, 1998 This letter represents our response to the letter of comments issued in connection with our firm's on-site peer review for the year ended June 30, 1998. The matters discussed herein were brought to the attention of all professional personnel at a training session held on August 26, 1998. In addition, the matters discussed in this letter will be monitored to ensure they are effectively implemented as a part of our system of quality control. Financial Reporting and Disclosure Checklists - All professional personnel were reminded of the importance of complying with the firm's policy requiring completion of its financial reporting and disclosure checklist at the training session held on August 26, 1998. In addition, the firm's review personnel were reminded to pay particular attention to checklist requirements regarding certain concentrations and management's use of estimates. Lack of Documentation concerning certain governmental reporting requirements - All professional staff involved in the preparation of governmental financial statements were reminded of the new requirements contained in the 1994 revision of "Government Auditing Standards", and the need to address those requirements in all governmental engagements. Monitoring - On an annual basis, the individual responsible for completion and summarization of finding on the firm's annual internal inspection will insure that the actions taken are sufficient to prevent the reoccurrence of these items. ---PAGE BREAK--- Peer Review Committee September 2, 1998 Page 2 of 2 We believe these actions are responsive to the findings of the review. Sincerely, HAYDEN, ROSS & CO. Jim Pilcher, CPA