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ITEM 3.8 Bergan KV audit servicesOtsTY F MINNESOTA �O DEPARTMENT INFORMATION Request for City Council Action ORIGINATING DEPARTMENT: REQUESTOR: MEETING DATE: Administration Adam Flaherty, Finance Director September 12, 2016 PRESENTER(s): REVIEWED BY: ITEM #: Consent Agenda City Administrator Johnson 3.8 AGENDA ITEM DETAILS RECOMMENDATION: It is recommended by staff that the City Council authorize the Finance Director to sign a three year engagement letter with BerganKDV for financial statement audit services for the years ending December 31, 2016, 2017 and 2018. ARE YOU SEEKING APPROVAL OF A CONTRACT? IS A PUBLIC HEARING REQUIRED? No No BACKGROUND/JUSTIFICATION: During 2013, the City solicited proposals for independent financial statement auditing services and awarded the three year engagement to Kern, DeWenter & Viere, Ltd. (KDV), now referred to as BerganKDV. The request for proposals (RFP) allowed the City the option to award the three subsequent financial statement audits, for years ending December 31, 2016, 2017 and 2018 without going through the RFP process. BerganKDV has provided the following fee schedule for the three year period: 2016 26,950 2.47% 2017 27,600 2.41% 2018 28,300 2.549/. City staff has been pleased thus far in working with BerganKDV during the audit process. Staff believes that the,audit team assigned to Otsego has been well qualified as well as being easy to work with. City staff recommends entering into a three year engagement agreement with BerganKDV. SUPPORTING DOCUMENTS: ATTACHED NONE • Summary of Audit Engagement Terms • Audit Engagement Agreement POSSIBLE MOTION Please word motion as you would like it to appear in the minutes. -Motion to authorize the Finance Director to sign a three year engagement letter with BerganKDV for audit services for the years ending December 31, 2016, 2017 and 2018. BUDGET INFORMATION FUNDING: BUDGETED: 101-41600-304 Yes berganv August 31, 2016 The Honorable Mayer and City Council Attn: Adam Flaherty City of Otsego 13400 90th Street NE Otsego, MN 55330 Dear Mr. Flaherty: This letter is to confirm and summarize our understanding of the terms and objectives of our engagement and the nature and limitations of the services we will provide, Summary of Engagement Terms: Level of Attest Service: Audit in accordance with Government Auditing Standards (Governmental) Financial Statements: Governmental activities, the business -type activities, each major fund, and the aggregate remaining fund information Financial Reporting Framework: Accounting Principles Generally Accepted in the United States of America Period: As of and for the Years Ended December 31, 2016, 2017 and 2018. Required Supplementary Information (RSI): Management's Discussion and Analysis (MD&A), Schedule of City's and Non -employer's Proportionate Share of Net Pension Liability - Minnesota PERA GERF AND PEPFF Plans, Schedule of City Contributions — Minnesota PERA GERF and PEPFF Plans Supplementary Information: • Combining and Individual Fund Financial Statements and Schedules/Supplemental Schedules - opinion in relation to the financial statements as a whole • Introductory Section and Statistical Section of the Comprehensive Annual Financial Report - No opinion or assurance / N/A Engagement Partner: Nancy Schulzetenberg Non -attest Services: Preparation of the financial statements Fees: Our fees for these services will be $ 26,950 for 2016, $27,600 for 2017 and $ 28,300 for 2018 for the audit. We appreciate the opportunity to be of service to you and believe this letter and attached audit engagement agreement 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 and as further detailed In the attached audit engagement agreement, please sign the enclosed copy of this summary of engagement terms and return it to us. I have read and I agree to the summary of engagement terms listed above and the terms in the attached audit engagement agreement. Sincerely, BerganKDV, Ltd. Nancy Schulzetenberg Certified Public Accountant Acknowledged by: Signature Title Date BerganKDV, Ltd, Cedar Falls 602 Main Street Suite 100 R0. Box 489 Cedar falls, IA 50613.0026 T 319,2681715 F 319.26 8 .1720 Cedar Rapids 27201stAvenue NE Suite 300 P.O. Box 10200 Cedar Rapids, IA 52402-0200 T 319,294.8000 F 319,294.9003 Coralv file 2530 Corridor Way Suite 301 RO, Box 5267 Coralville, IA 52241-0267 T 319.248.0367 F 319.248,0582 Des Moines 9207 Northpark Drive Johnston, IA 50131-2933 T 515.727.5700 F 515.727,5800 Minneapolis 3800 American Blvd W Suite 1000 Bloomington, MN 55431-4420 T 952.563,6800 F 952.563.6801 St. Cloud 220 Park Avenue S P.O. Box 1304 St. Cloud, MN 56302-3713 T 320,251.7010 F 320.251,1784 Waterloo 100 East Park Avenue Suite 300 P.O. Box 2100 Waterloo, IA 50704.2100 T 319,234.6885 F 319.234.6287 bergankdv.com BerganKDV, Ltd. ATTACHMENT — AUDIT ENGAGEMENT AGREEMENT (GOVERNMENTAL) This agreement is to confirm our understanding of the terms and objectives of our engagement and the nature and limitations of the services we will provide. We will audit the financial statements as identified In the summary of engagement terms, including the related notes to the financial statements, which collectively comprise the basic financial statements of the governmental entity. Accounting standards generally accepted in the United States of America provide for certain required supplementary information (RSI), such as management's discussion and analysis (MD&A), to supplement the governmental entity's basic financial statements. Such information, although not a part of the basic financial statements, Is required by the Governmental Accounting Standards Board who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. As part of our engagement, we will apply certain limited procedures to the governmental entity's RSI in accordance with auditing standards generally accepted in the United States of America. These limited procedures will consist of inquiries of management regarding the methods of preparing the information and comparing the information for consistency with management's responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We will not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. The required RSI is identified in the summary of engagement terms and will be subjected to certain limited procedures, but will not be audited. We may also be engaged to report on supplementary information other than RSI that accompanies the governmental entity's financial statements. If we opine on the supplementary information, accompanying the financial statements as identified in the summary of engagement terms, we will subject the supplementary information to the auditing procedures applied in our audit of the financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the financial statements or to the financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America and we will provide an opinion on It in relation to the financial statements as a whole. If we do not provide an opinion or any assurance on the supplementary information other than RSI as identified in the summary of engagement terms, the other information accompanying the financial statements will not be subjected to the auditing procedures applied in our audit of the financial statements and our auditor's report will not provide an opinion or any assurance on that other information. Audit Objective The objective of our audit is the expression of opinions as to whether your financial statements are fairly presented, In all material respects, in conformity with the financial reporting framework identified in the summary of engagement terms and to report on the fairness of the supplementary information for which we opine on as identified in the summary of engagement terms when considered in relation to the financial statements as a whole. Our audit will be conducted in accordance with auditing standards generally accepted in the United States of America and will include tests of the accounting records and other procedures we consider necessary to enable us to express such opinions. We will issue a written report upon completion of our audit of the governmental entity's financial statements. We cannot provide assurance that unmodified opinions will be expressed. Circumstances may arise in which it is necessary for us to modify our opinions or add emphasis -of -matter or other -matter paragraphs. If our opinions on the financial statements are other than unmodified, we will 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 opinions, we may decline to express opinions or may withdraw from this engagement. Audit Procedures — General 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. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. 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 (1) errors, (2) fraudulent financial reporting, (3) misappropriation of assets, or (4) violations of laws or governmental regulations that are attributable to the government or to acts by management or employees acting on behalf of the government. Because of the inherent limitations of an audit, combined with the inherent limitations of internal control, and because we will not perform a detailed examination of all transactions, there is a risk that material misstatements may exist and not be BerganKDV, Ltd.. ATTACHMENT —AUDIT ENGAGEMENT AGREEMENT (GOVERNMENTAL) detected by us, even though the audit is properly planned and performed In accordance with auditing standards generally accepted in the United States of America. 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 the appropriate level of management of any material errors, any fraudulent financial reporting, or misappropriation of assets that come to our attention. We will also inform the appropriate level of management 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 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, funding sources, creditors, and financial institutions. We may 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 require certain written representations from you about the financial statements and related matters. Audit Procedures — Internal Control Our audit will include obtaining an understanding of the government and its environment, including internal control, sufficient to assess the risks of material misstatement of the financial statements and to design the nature, timing, and extent of further audit procedures. An audit is not designed to provide assurance on internal control or to identify deficiencies in internal control. However, during the audit, we will communicate to management and those charged with governance internal control related matters that are required to be communicated under AICPA professional standards. Audit Procedures —Compliance As part of obtaining reasonable assurance about whether the financial statements are free of material misstatement, we will perform tests of the governmental entity's compliance with the provisions of applicable laws, regulations, 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. Other Services We will also prepare or assist in preparing the financial statements of the governmental entity in conformity with the financial reporting framework identified in the summary of engagement terms based on information provided by you. Management Responsibilities Management is responsible for establishing and maintaining effective internal controls, including monitoring ongoing activities; for the selection and application of accounting principles; and for the preparation and fair presentation of the financial statements In conformity with the financial reporting framework identified in the summary of engagement terms. 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 and fair presentation of the financial statements, (2) additional information that we may request for the purpose of the audit, and (3) unrestricted access to persons within the government from whom we determine it necessary to obtain audit evidence. Your responsibilities include adjusting the financial statements to correct material misstatements and confirming to us in the management 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 (1) management, (2) employees who have significant roles in internal control, and (3) others where the fraud could have a material effect on the financial statements. Your responsibilities include informing us of your knowledge of any allegations of fraud or suspected fraud affecting the government received in communications from employees, former employees, regulators, or others. In 2 BerganKDV, Ltd. ATTACHMENT— AUDIT ENGAGEMENT AGREEMENT (GOVERNMENTAL) addition, you are responsible for identifying and ensuring that the government complies with applicable laws and regulations. You are responsible for the preparation of the supplementary information, if any, in conformity with the financial reporting framework identified in the summary of engagement terms. You agree to include our report on the supplementary Information in any document that contains and indicates that we have reported on the supplementary information, You also agree to include the audited financial statements with any presentation of the supplementary information that includes our report thereon. Your responsibilities include acknowledging to us in the representation letter that (1) you are responsible for presentation of the supplementary information in accordance with the financial reporting framework identified in the summary of engagement terms; (2) you believe the supplementary information, including its form and content, is fairly presented in accordance with the financial reporting framework identified in the summary of engagement terms; (3) the methods of measurement or presentation have not changed from those used in the prior period; and (4) you have disclosed to us any significant assumptions or interpretations underlying the measurement or presentation of the supplementary information. You agree to assume all management responsibilities for the non -attest services identified in the summary of engagement terms and any other non -attest services we provide; oversee the services by designating an Individual, preferably from senior management, with suitable skill, knowledge, or experience; evaluate the adequacy and results of the services; and accept responsibility for them. Engagement Administration, Fees, and Other We may from time to time, and depending on the circumstances, use third -party service providers in serving your account. We may share confidential information about you with these service providers, but remain committed to maintaining the confidentiality and security of your information. Accordingly, we maintain internal policies, procedures, and safeguards to protect the confidentiality of your personal Information. In addition, we will secure confidentiality agreements with all service providers to maintain the confidentiality of your information and we will take reasonable precautions to determine that they have appropriate procedures in place to prevent the unauthorized release of your confidential information to others. In the event that we are unable to secure an appropriate confidentiality agreement, you will be asked to provide your consent prior to the sharing of your confidential information with the third -party service provider. Furthermore, we will remain responsible for the work provided by any such third -party service providers. We understand that your employees will prepare all cash or other confirmations we request and will locate any documents selected by us for testing. The audit documentation for this engagement is the property of BerganKDV, Ltd, and constitutes confidential information. However, subject to applicable laws and regulations, audit documentation and appropriate individuals will be made available upon request and in a timely manner to oversight, regulatory, state agencies or their designees pursuant to authority given to them by law or regulation, We will notify you of any such request. If requested, access to such audit documentation will be provided under the supervision of BerganKDV, Ltd. personnel. Furthermore, upon request, we may provide copies of selected audit documentation to oversight, regulatory, state agencies or their designees. The oversight, regulatory, state agencies or their designees may intend or decide to distribute the copies or information contained therein to others, including other governmental agencies. The engagement partner, as identified in the summary of engagement terms, is responsible for supervising the engagement and signing the report or authorizing another individual to sign it. Our fees for these services are detailed in the summary of engagement terms. The fee estimate is based on anticipated cooperation from your personnel and the assumption that unexpected circumstances will not be encountered during the engagement. If significant additional time is necessary, we will keep you informed of any problems we encounter and our fees will be adjusted accordingly. 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 60 days or more overdue and will not be resumed until your account Is paid in full. If we elect to terminate our services for nonpayment, our engagement will be deemed to have been completed upon written notification of termination, even if we have not completed our report. You will be obligated to compensate us for all time expended and to reimburse us for all out-of-pocket expenditures through the date of termination. A service charge of 1% per month, which is an annual rate of 129/., 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. BerganKDV, Ltd. ATTACHMENT — AUDIT ENGAGEMENT AGREEMENT (GOVERNMENTAL) You may request that we perform additional services not contemplated by this engagement agreement or summary letter. If this occurs, we will communicate with you regarding the scope of the additional services and the estimated fee. We also may issue a separate engagement agreement and summary letter covering the additional services. In the absence of any other written communication from us documenting such additional services, our services will continue to be governed by the terms of this engagement agreement and summary letter. During the course of our engagement, we may accumulate records containing data which should be reflected in your books and records. You will determine that all such data will be so reflected. Accordingly, you will not expect us to maintain copies of such records in our possession. This engagement agreement and summary letter includes your authorization for us to supply you with electronically formatted financial statements or drafts of financial statements, financially sensitive information, spreadsheets, trial balances or other financial data from our files, upon your request. If you intend to publish or otherwise reproduce the financial statements and make reference to our Firm name, you agree to provide us with printers' proofs or masters for our review and approval before printing. You also agree to provide us with a copy of the final reproduced material for our approval before it is distributed. Additionally, if you include our report or a reference to our Firm name In an electronic format, you agree to provide the complete electronic communication using or referring to our name to us for our review and approval prior to distribution. During the course of our engagement, we will request information and explanations from management regarding the entity's operations, internal controls, future plans, specific transactions, and accounting systems and procedures. At the conclusion of our engagement, we will require, as a precondition to the issuance of our report, that management provide certain representations in a written representation letter. The procedures we will perform in our engagement and the conclusions we reach as a basis for our report will be heavily influenced by the written and oral representations that we receive from management. Accordingly, false representations could cause us to expend unnecessary efforts or could cause a material error or a fraud to go undetected by our procedures. In view of the foregoing, you agree that we shall not be responsible for any misstatements in the entity's financial statements that we may fail to detect as a result of false or misleading representations that are made to us by management. 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 nonbinding 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 nonbinding 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 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 24 months after the date of our report. This 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 60 days before the expiration of this 24 month period, then the period of limitation shall be extended by 60 days, to allow the parties of conduct nonbinding mediation. Our role is strictly limited to the engagement described in this letter, and we offer no assurance as to the results or ultimate outcomes of this engagement or of any decisions that you may make based upon our communications with, or our reports to you. Your entity will be solely responsible for making all decisions concerning the contents of our communications and reports, for the adoption of any plans and for implementing any plans you may develop, including any that we may discuss with you. You agree that it is appropriate to limit the liability of BerganKDV, 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. 4 BerganKDV, Ltd. ATTACHMENT — AUDIT ENGAGEMENT AGREEMENT (GOVERNMENTAL) 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.