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12-09-2004 CLIFTON GUNDERSON LLP AUDITORS' ENGAGEMENT LETTERMemo TO: Honorable Mayor and Town Council nM: Lang Brooks, Town Manager F'OM: Scott Wright, Finance Directo Hate: December 9, 2004 Re: Auditors' Engagement Letter Summary: Attached is an engagement letter from Clifton Gunderson LLP for the audit of the Town's 2004 financial statements. An engagement letter is a requirement of generally accepted auditing standards for an independent auditor. This engagement letter also includes a quote for fees for years 2005 and 2006. Each subsequent engagement is subject to annual approval by the Council and may be cancelled prior to the start of interim fieldwork each year. Discussion: The engagement letter sets out the scope and timing of the audit services, indicates that the audit will be performed in accordance with generally accepted auditing standards, identifies the normal responsibilities of the auditor and of Town management, and sets out the standard fees for the engagement. Financial Implications: The not-to-exceed audit fee of $27,500 for the 2004 audit is less than the Town's budget for auditing services. The Town should not be required to have a Single Audit in 2004 based on the level of federal grants the Town received. Town pManager Comments: Attachments: Engagement Letter from Clifton Gunderson LLP, Certified Public Accountants Page 1 - - - - - W~ -17 27 1W MR CWto LP Gunderson L Certified Public Accountants & Consultants December 8, 2004 Avon Town Council Members Town of Avon Attn: Scott Wright, Finance Director P.O. Box 975 Avon, Colorado 81620 Dear Council Members: We are pleased to serve you as your independent accountants. The purpose of this letter is to confirm the terms of our agreement. This letter also clarifies the nature and extent of the auditing and accounting services to be provided. Bill Petri will be the client partner responsible for these services to be provided to you. Karla Whittenburg, Senior Manager also will be assigned to you. This arrangement assures that another person you know will be familiar with your operations. It also provides a person who can substitute for Bill should he not be available. We hope you will call either of these persons when you believe the firm can be of assistance. Our services will include' Auditing services. We will audit the the financial statements of the governmental activities, the business type activities, each major fund, and the aggregate remaining fund information of the Town of Avon, Colorado as of and for the year ended December 31, 2004. Our audit will be performed in accordance with auditing standards generally accepted in the United States of America. The audit will include tests of your accounting records and other procedures we consider necessary to enable us to express our opinion on these financial statements. In planning and performing our audit for the year ended December 31, 2004, we will consider the internal control in order to determine our auditing procedures for the purpose of expressing our opinion on the basic financial statements and not to provide assurance on the internal control. International Avon Town Council Members Town of Avon December 9, 2004 Page 2 We will obtain an understanding of the design of the relevant policies and procedures 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 policies and procedures that we consider relevant to preventing and detecting errors and fraud that are material to the basic 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 basic 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 the internal control policies and procedures and, accordingly, we will not express such an opinion. Also, as part of obtaining reasonable assurance about whether the basic financial statements are free of material misstatement, we will perform tests of compliance with certain provisions of laws, regulations, contracts, and grants. However, the objective of our tests will not be to provide an opinion on overall compliance with such provisions, and we will not express an opinion. Accounting services. We also will provide you with the following nonaudit services: 0 Proposing adjusting journal entries In connection with the services we provide, we will not perform management functions, make management decisions, or act in a capacity equivalent to that of a member of management or an employee. You are responsible for management decisions and functions, and for designating a competent employee to oversee these services. You are responsible for evaluating the adequacy and results of the services performed and accepting responsibility for the results. You are also responsible for establishing and maintaining internal controls, including monitoring ongoing activities. We are not responsible for the preparation of any report to any governmental agency, or any other form, return, or report, or for providing advice not specifically recited in this letter. Our fee does not include any time for consultation with your personnel or third parties regarding the assistance for GASB statements 34 and 35. Charges for such additional services will be billed separately at standard rates. The nature and extent of such services are the subject of a separate agreement. This letter constitutes the entire agreement regarding services to be provided to you and supersedes all prior agreements, understandings, negotiations, and discussions between us, whether oral or written. This agreement may be supplemented by other written agreements. Avon Town Council Members Town of Avon December 8, 2004 Page 3 The purpose and objective of our audit is to lead to the expression of an unqualified opinion with respect to the financial statements. You understand that circumstances may exist or may arise that would preclude submitting such an opinion. We will inform you if we discover circumstances that will have an effect on our opinion on the financial will be other than unqualified, the reasons will be fully disclosed. If, for any reason, we are unable to complete the audit or are unable to form an opinion, we may decline to issue a report and terminate our engagement. Our audit is designed to provide reasonable, but not absolute, assurance of detecting misstatements, whether caused by error or fraud, that, in our judgment, could have a material effect on the financial statements as a whole. It is not designed to detect error or fraud that is immaterial to the financial statements. Our audit will be based upon tests and samples, since detailed auditing of all transactions is not practicable. The concept of selective testing of data is generally accepted as a valid and sufficient basis for an auditor to express an opinion on financial statements. Selective testing involves judgment both as to the number of transactions we examine and the areas to be tested. Because we will not perform a detailed examination of all transactions, there is an inherent risk that we will not detect material errors, fraud, or other illegal acts, if they exist. There is also an inherent risk that violations of compliance requirements and other responsibilities imposed by state and federal statutes and regulations or assumed by contracts, if they exist, will not be detected. Management is responsible for establishing and maintaining a sound system of internal control and for identifying and ensuring that the entity complies with the laws and regulations applicable to its activities. Management is also responsible for: designing and implementing programs and controls to prevent and detect fraud; informing us about all known or suspected fraud affecting the Organization 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; and informing us of their knowledge of any allegations of fraud or suspected fraud affecting the Organization received in communications from employees, former employees, regulators, or others. While an audit includes obtaining an understanding of internal control sufficient to plan the audit and to determine the nature, timing, and extent of audit procedures to be performed, it is not designed to provide assurance on internal control or to identify reportable conditions. However, we will inform you of any reportable conditions that come to our attention. Our relationship with you is limited to that described in this letter. As such, you understand and agree that we are acting solely as independent accountants. We are not acting in any way as a fiduciary or assuming any fiduciary responsibilities for you. Your personnel will provide us with the necessary detailed trial balances and supporting schedules, a list of which will be provided. We expect that your office personnel will help us by locating and submitting to us invoices, vouchers, canceled checks and other documents and records that we request. f Avon Town Council Members Town of Avon December 8, 2004 Page 4 Whenever possible, we will use your personnel to help in this work and so reduce costs We wish to emphasize that management has the responsibility for the proper recording of transactions, for the safeguarding of assets, for compliance with all applicable laws, and regulations and for the substantial accuracy of the financial statements. Management is responsible for adjusting the financial statements to correct material misstatements and for affirming 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 opinion units in the financial statements. Management's responsibility includes establishing and maintaining internal. control and retaining, supervising and training qualified personnel in areas affecting financial matters. Management is also responsible for making all financial records and related information available to us. Although our firm may prepare or help in preparing your financial statements, the statements are the representations of management. As part of this responsibility, you agree to provide us, before the delivery date of the financial statements, with written confirmation of the representations made to us by you and your staff during the course of our engagement. The working papers for our engagement are the sole and exclusive property of Clifton Gunderson LLP and constitute confidential and proprietary information. We do not provide access to our workpapers to you or anyone else in the normal course of business. Should we be ordered by a valid subpoena or other appropriate court order to provide access to or copies of our workpapers, you agree to reimburse us for the time and out-of-pocket expense necessary to comply with such order. We must approve the masters or printer's proofs of the financial statements we have audited before they are reproduced or published for distribution if our firm's name is to be connected with the statements or report in any way. With regard to electronic filings, such as in connection with the SEC Electronic Data Gathering Analysis and Retrieval (EDGAR) system or the World Wide Web area of the Internet, you understand that electronic sites are a means of distributing information and, therefore, we are not required to read the information contained in these sites or to consider the consistency of other information in the electronic site with the original document. If our report on the financial statements will be included in another document (for example, in connection with a bond offering), the procedures we perform in connection therewith will be considered an engagement separate and distinct from our audit engagement, for which we will bill you separately. Avon Town Council Members Town of Avon December 8, 2004 Page 5 The charges for our work are to be based upon the time involved, degree of responsibility assumed and skills required, plus direct expenses. Bills for services are due when submitted. Interim bills may be submitted at periodic dates to cover charges and expenses incurred. If a bill for services is not paid when due, we reserve the right to cease work and withdraw from the engagement. In the event that any collection action is required to collect unpaid balances due us, reasonable attorney fees and expenses shall be recoverable. It is hereby agreed that our fee will be as follows: For the year ended December 31, 2004 $27,500 For the year ended December 31, 2005 $28,750 For the year ended December 31, 2006 $30,000 The subsequent years (2005, 2006) engagements and fee quotes are subject to annual agreement and may be canceled prior to the start of interim fieldwork each year. The above fee quote does not create a multiple year commitment. It is our understanding that your accounting records will be substantially completed through December. We do not anticipate that we will encounter any substantial amount of accounting work to be completed -or adjusted by us, or any defalcation or other significant problem or contingency. We will, of course, advise you before undertaking any work that would require an increase in the fee arrangement. We will do our uppermost to provide quality service to you. We do not anticipate any difficulties in meeting the expectations recited in this letter. However, in the unlikely event that there are any disagreements regarding our services, any claims against Clifton Gunderson LLP as a result of this engagement must be brought within one year from the date our report is delivered or our work is completed. As permitted by law, you hereby agree that Town of Avon will indemnify Clifton Gunderson LLP and its partners, principals and employees and hold them harmless from any claims, liabilities, losses and costs arising in circumstances where there has been a knowing misrepresentation by a member of the management of Town of Avon, regardless of whether such person was acting in the best interests of Town of Avon. I If the above terms are in accordance with your understanding and acceptable to you, please sign, date, and return the duplicate copy of this letter to us. Avon Town Council Members Town of Avon December 8, 2004 Page 6 We very much appreciate the opportunity to serve you and will be pleased to discuss any questions you may have. Very truly yours, LLA The services described.in the foregoing letter are in accordance with our requirements and we understand the terms and conditions recited above. To nvon f A C z-YA / jloc"~ By t~ 9~~ONC, Title Ia IL~laq Date