ITEM 5.1 Accepting Resignation of Admin Services Director position10
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MINNESOTA V
DEPARTMENT INFORMATION
Request for
City Council Action
ORIGINATING DEPARTMENT:
REQUESTOR:
MEETING DATE:
Administration
Lori Johnson, City Administrator
March 23, 2015
PRESENTER(s):
REVIEWED BY:
ITEM #:
Lori Johnson, City Administrator
resignation. His last day with Otsego will be April 8. 1 wish Dan the very best in his new position and
5.1
AGENDA ITEM DETAILS
RECOMMENDATION:
Recommend accepting resignation of Administrative Services Director Dan Jordet, advertisement of
open Finance Director position, and engaging KDV to provide nonaudit services per the attached letter
of engagement.
ARE YOU SEEKING APPROVAL OF A CONTRACT?
IS A PUBLIC HEARING REQUIRED?
Yes, letter of engagement.
No
BACKGROUND/JUSTIFICATION:
Administrative Services Director Dan Jordet has accepted a new position and has submitted his
resignation. His last day with Otsego will be April 8. 1 wish Dan the very best in his new position and
want to extend thanks for all of the expert finance guidance provided and financial work he completed
while in Otsego. There were strides made in many aspects of financial management under his
leadership.
Staff is requesting authorization to fill this position vacancy as soon as possible. The position is
proposed to be advertised through the standard means with advertisement stating the position is open
until filled. First review of applications is proposed on April 17 with interviews conducted soon
thereafter. Thus, the Council may want to identify potential interview dates assuming all or some of the
Council members want to participate in the interviews.
As you know, the auditors are scheduled to begin the audit the last week of April. It is unlikely that all of
the audit preparation work can be completed between now and April 8. Therefore, additional
accounting services are needed to prepare for the audit. KDV has an independent accounting division
that can provide those services. Joe Rigdon, who has worked in Otsego previously, is available to assist
in nonaudit services in preparation for the audit. Mr. Rigdon is available to assist on an ongoing basis
until the vacant position is filled as well. KDV will provide services at $145.00 per hour per the attached
engagement letter. It is very difficult to determine how much time is needed for audit preparation;
Dan Jordet's rough estimate is from 100 to 120 hours. Additional ongoing services could be up to two
days per week until the position is filled — again, it is very difficult to determine at this time.
SUPPORTING DOCUMENTS: X ❑ ATTACHED ❑ NONE
0 Letters from KDV dated March 16, 2015
POSSIBLE MOTION
Please word motion as you would like it to appear in the minutes.
Motion to accept Administrative Service Director Dan Jordet's resignation.
Motion to advertise Finance Director position opening.
Motion to enter into a Letter of Engagement with KDV to provide nonaudit services and ongoing
accounting services as needed until the director position is filled.
BUDGET INFORMATION
FUNDING: BUDGETED: ❑ YES
Funding available due to position vacancy will
be used to fund KDV services. ° NO
ACTION TAKEN
❑ APPROVED AS REQUESTED ❑ DENIED ❑ TABLED ❑ OTHER (List changes)
COMMENTS:
KDV is engaged to audit the City of Otsego's financial statements as its independent auditor for
the year ended 12/31/14. Additionally, KDV has been asked to provide a draft engagement
letter for additional nonaudit services, including assistance with reconciliations, cash to accrual
conversions, and audit work papers to assist with the City's 2014 financial statements
preparation. Since KDV may be engaged to provide both audit and nonaudit services to the City,
an independence discussion is necessary.
Generally accepted government auditing standards (GAGAS) include a "conceptual framework"
used to:
• Identify threats to independence
• Evaluate the significance of the threats identified
• Apply safeguards as necessary to eliminate any significant threats or reduce them to an
acceptable level
If no safeguards are available to eliminate an unacceptable threat or reduce it to an acceptable
level, independence would be considered impaired.
The assumption of management responsibilities or decision making would impair KDV's
independence in the following circumstances (not an all-inclusive list):
• Setting policies and strategic direction
• Directing and accepting responsibility for the actions of employees in the performance
of their routine, recurring activities
• Having custody of assets
• Accepting responsibility for designing, implementing, or maintaining internal control
It is important to note that threats to independence do not necessarily impair independence.
Assurance should be obtained that the City performs the following functions:
• Assumes all management responsibilities
• Oversees the services, by designating an individual, preferably within senior
management, who possesses suitable skill, knowledge, or experience
• Evaluates the adequacy and results of the services performed
• Accepts responsibility for the results of the services
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Minneapolis
3800 American Blvd W.
To:
City of Otsego
Suite 1000
Mayor and City Council
MN 1
TMinneapolis,9-92)566800
T (952) 563 G800
From:
Joe Rigdon, KDV
Date:
March 16, 2015
ud
22 l0 Park 'L2Ave S.
Subject:
Nonaudit Services
St. cioud,MN56301
T (320) 251 7010
KDV is engaged to audit the City of Otsego's financial statements as its independent auditor for
the year ended 12/31/14. Additionally, KDV has been asked to provide a draft engagement
letter for additional nonaudit services, including assistance with reconciliations, cash to accrual
conversions, and audit work papers to assist with the City's 2014 financial statements
preparation. Since KDV may be engaged to provide both audit and nonaudit services to the City,
an independence discussion is necessary.
Generally accepted government auditing standards (GAGAS) include a "conceptual framework"
used to:
• Identify threats to independence
• Evaluate the significance of the threats identified
• Apply safeguards as necessary to eliminate any significant threats or reduce them to an
acceptable level
If no safeguards are available to eliminate an unacceptable threat or reduce it to an acceptable
level, independence would be considered impaired.
The assumption of management responsibilities or decision making would impair KDV's
independence in the following circumstances (not an all-inclusive list):
• Setting policies and strategic direction
• Directing and accepting responsibility for the actions of employees in the performance
of their routine, recurring activities
• Having custody of assets
• Accepting responsibility for designing, implementing, or maintaining internal control
It is important to note that threats to independence do not necessarily impair independence.
Assurance should be obtained that the City performs the following functions:
• Assumes all management responsibilities
• Oversees the services, by designating an individual, preferably within senior
management, who possesses suitable skill, knowledge, or experience
• Evaluates the adequacy and results of the services performed
• Accepts responsibility for the results of the services
wWW,kdv.CoM
Documentation of KDV's understanding with the City's management and Council should include:
• Objectives of the nonaudit services
• Services to be performed
• The City's acceptance of its responsibilities
• KDV's responsibilities
• Any limitations of the nonaudit services
Nonaudit services may be provided without impairing independence if:
• The nonaudit services are not expressly prohibited
• KDV has determined that the requirements for performing nonaudit services have been
met
• Any significant threats to independence have been eliminated or reduced to an
acceptable level through the application of safeguards
The specific nonaudit services requested by the City include assistance with reconciliations, cash
to accrual conversions, and audit work papers. KDV's independence would be impaired by:
• Determining or changing journal entries, account codes or classifications for
transactions, or other accounting records without obtaining management's approval
• Authorizing or approving transactions
• Preparing or making changes to source documents without management approval
However, services that may be provided include:
• Recording transactions for which City management has determined or approved the
appropriate account classification, or posting coded transactions to the general ledger
• Posting entries that have been approved by City management to the trial balance
• Preparing account reconciliations that identify reconciling items for City management's
evaluation
• Preparing cash to accrual conversions and audit work papers
• Proposing standard, adjusting, or correcting journal entries or other changes affecting
the financial statements to City management, provided City management reviews and
accepts the entries and KDV is satisfied that City management understands the nature
of the proposed entries and the impact the entries have on the financial statements
,.vY441. kdv. com
I_V
We are pleased to confirm our understanding of the services we are to provide to the City of
Otsego. We are proposing one or more of (but not limited to) the following nonaudit services:
A. Assistance with reconciliations, cash to accrual conversions, and audit work papers to
assist with the City's 2014 financial statements preparation
B. Ongoing accounting, finance, and consulting services —as requested
Management is responsible for the reconciliations, cash to accrual conversions, audit work
papers, and all accompanying information as well as all representations contained therein.
These nonaudit services do not constitute an audit under Government Auditing Standards and
such services will not be conducted in accordance with Government Auditing Standards. You
agree to assume all management responsibilities relating to the reconciliations, cash to accrual
conversions, audit work papers and any other nonaudit services we provide. You will be
required to acknowledge in the audit management representation letter our assistance with
reconciliations, cash to accrual conversions, and audit work papers and that you have reviewed
and approved the reconciliations, cash to accrual conversions, and audit work papers prior to
issuance of the financial statements and have accepted responsibility for them. Further, you
agree to oversee the nonaudit services by designating an individual, preferably from senior
management, who possesses suitable skill, knowledge, or experience; evaluate the adequacy
and results of those services; and accept responsibility for them.
Management is responsible for establishing and maintaining effective internal controls,
including evaluating and monitoring ongoing activities, to help ensure that appropriate goals
and objectives are met; following laws and regulations; and ensuring that management is
reliable and financial information is reliable and properly reported. Management is also
responsible for implementing systems designed to achieve compliance with applicable laws,
regulations, contracts, and grant agreements. You are also responsible for the selection and
application of accounting principles, for the preparation and fair presentation of the financial
statements in conformity with U.S. generally accepted accounting principles, and for compliance
with applicable laws and regulations and the provisions of contracts and grant agreements.
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h1li lea,polh;
3800 American Blvd W.
March 16, 2015
Suite 1000
Minneapolis, MN 55431
T (952) 563 6800
St. Cloud
220 Park Ave S.
St. Cloud, NAN 56301
Mayor and City Council
T (320)2517010
City of Otsego
13400 90th Street NE
Otsego, MN 55330
We are pleased to confirm our understanding of the services we are to provide to the City of
Otsego. We are proposing one or more of (but not limited to) the following nonaudit services:
A. Assistance with reconciliations, cash to accrual conversions, and audit work papers to
assist with the City's 2014 financial statements preparation
B. Ongoing accounting, finance, and consulting services —as requested
Management is responsible for the reconciliations, cash to accrual conversions, audit work
papers, and all accompanying information as well as all representations contained therein.
These nonaudit services do not constitute an audit under Government Auditing Standards and
such services will not be conducted in accordance with Government Auditing Standards. You
agree to assume all management responsibilities relating to the reconciliations, cash to accrual
conversions, audit work papers and any other nonaudit services we provide. You will be
required to acknowledge in the audit management representation letter our assistance with
reconciliations, cash to accrual conversions, and audit work papers and that you have reviewed
and approved the reconciliations, cash to accrual conversions, and audit work papers prior to
issuance of the financial statements and have accepted responsibility for them. Further, you
agree to oversee the nonaudit services by designating an individual, preferably from senior
management, who possesses suitable skill, knowledge, or experience; evaluate the adequacy
and results of those services; and accept responsibility for them.
Management is responsible for establishing and maintaining effective internal controls,
including evaluating and monitoring ongoing activities, to help ensure that appropriate goals
and objectives are met; following laws and regulations; and ensuring that management is
reliable and financial information is reliable and properly reported. Management is also
responsible for implementing systems designed to achieve compliance with applicable laws,
regulations, contracts, and grant agreements. You are also responsible for the selection and
application of accounting principles, for the preparation and fair presentation of the financial
statements in conformity with U.S. generally accepted accounting principles, and for compliance
with applicable laws and regulations and the provisions of contracts and grant agreements.
wviw.kdu.c*m
Management is also responsible for making all financial records and related information
available to us and for the accuracy and completeness of that information. You are also
responsible for providing us with (1) access to all information of which you are aware that is
relevant to the preparation of reconciliations, cash to accrual conversions, and audit work
papers, (2) additional information that we may request for the purpose of the preparation of
reconciliations, cash to accrual conversions, and audit work papers, and (3) unrestricted access
to persons within the government from whom we determine it necessary to obtain
reconciliations, cash to accrual conversions, and audit work papers evidence.
our charges for services, including travel and out-of-pocket expenses, will be billed as the work
progresses on a monthly basis. Payments for our services are due upon receipt of our billing.
These services will be billed at the rate of $145 per hour. When, and if, our hours or billings
approach estimated amounts, we will discuss the progress of the above consulting services with
you. We will also provide the City with progress reports on objectives accomplished on an "as
requested" basis.
Should our relationship terminate before our engagement is completed, you will be billed for
services to the date of termination. All bills are payable upon receipt. A service charge of 1% per
month, which is an annual rate of 12%, will be added to all accounts unpaid 30 days after billing
date. If collection action is necessary, expenses and reasonable attorney's fees will be added to
the amount due.
Any disputes between us that arise under this agreement, or for a breach of this agreement, or
that arise out of any other services performed by us for you, must be submitted to non-binding
mediation before either of us can start a lawsuit against the other. To conduct mediation, each
of us shall designate a representative with authority to fully resolve any and all disputes, and
those representatives shall meet and attempt to negotiate a resolution of the dispute. If that
effort fails, then a competent and impartial third party acceptable to each side shall be
appointed to hold and conduct a non-binding mediation proceeding. You and we will equally
share in the expenses of the mediator and each of us will pay for our own attorneys' fees, if any.
No lawsuit or legal process shall be commenced until at least sixty (60) days after the mediator's
first meeting with the parties.
The nature of our engagement makes it inherently difficult, with the passage of time, to present
evidence in a lawsuit that fully and fairly establishes the facts underlying any dispute that may
arise between us. We both agree that notwithstanding any statute of limitation that might
otherwise apply to a claim or dispute, including one arising out of this agreement or the services
performed under this agreement, or for breach of contract, fraud or misrepresentation, a
lawsuit must be commenced within twenty-four (24) months after the date of our report. This
twenty-four (24) month period applies and starts to run on the date of each report, even if we
continue to perform services in later periods and even if you or we have not become aware of
the existence of a claim or the basis for a possible claim. In the event that a claim or dispute is
not asserted at least sixty (60) days before the expiration of this twenty-four (24) month period,
then the period of limitation shall be extended by sixty (60) days, to allow the parties to conduct
non-binding mediation.
www.kdv.Zom
You agree that it is appropriate to limit the liability of Kern, DeWenter, Viere, Ltd. its
shareholders, directors, officers, employees and agents and that this limitation of remedies
provision is governed by the laws of Minnesota, without giving effect to choice of law principles.
You further agree that you will not hold us liable for any claim, cost or damage, whether based
on warranty, tort, contract or other law, arising from or related to this agreement, the services
provided under this agreement, the work product, or for any plans, actions or results of this
engagement, except to the extent authorized by this agreement. In no event shall we be liable
to you for any indirect, special, incidental, consequential, punitive or exemplary damages, or for
loss of profits or loss of goodwill, costs or attorney's fees.
The exclusive remedy available to you shall be the right to pursue claims for actual damages that
are directly caused by acts or omissions that are breaches by us of our duties under this
agreement.
We appreciate the opportunity to be of service to the City of Otsego 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 a copy and return it to us. At any time, please feel free to contact Joe Rigdon at 952-
563-6868.
Sincerely,
,�jr Ss
J�
Nancy Schulzetenberg
Certified Public Accountant
—ountant
Joe Rigdon
Certified Public Accountant
v,rww.kau.cam
RESPONSE:
This letter correctly sets forth the understanding of the City of Otsego.
By:
Title:
Date:
RESPONSE:
This letter correctly sets forth the understanding of the City of Otsego.
By:
Title:
Date:
www.kdv.com