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HomeMy WebLinkAbout8 KPMG 2004 Audit Agenda Item # 1' it !3 3ITI Memorandum To: Board of Directors From: Mary Chapman, Administrative Services Manager Date: November 17, 2004 SUBJECT: Proposal from KPMG to perform the District's 2004 audit and provide other related services 1. WHY THIS ITEM IS BEFORE THE BOARD Each year the Board of Directors approves hiring an auditing firm to perform the District's annual audit. It's that time of year again. 2. HISTORY For the last two years the District has hired KPMG to perform the 2002 and 2003 audits. When we originally hired KPMG to perform the 2002 audit, we received a three year proposal which included 2002, 2003, 2004 audits. Their original proposal was $45,000 for 2002, $47,250 for 2003 and $49,500 for 2004. 3. NEW INFORMATION Attached is a letter of engagement from KPMG to perform the 2004 audit in the amount of $49,500 plus $5,000 in estimated out-of-pocket expenses. Should the Board authorize KPMG to perform the 2004 audit, this letter of engagement would be executed by an authorized person. Peter Holzmeister has executed these letters of engagement in the past. RECOMMENDATION: Authorize Peter Holzmeister to execute the engagement letter from KPMG hiring them to perform the 2004 annual audit. MEMO ' KPMG Ltd+ Telephone 603 221 6500 Suite 3800 Fox 503 820 6565 1300 South West Fifth Avenue Internet www.us.kpMg.com Portland,OR 97201 i Ms.Mary Chapman Administrative Services Manager Truckee Donner Public Utility District 11570 Donner Pass Road Truckee,California 96161 November 4,2004 Dear Mary: This letter will confirm our understanding of our engagement to provide professional services to Truckee Donner Public Utility District, Objectives and limitations of services Audit Services We will issue a written report upon our audit of the balance sheets of Truckee Dormer Public Utility District (the District) as of December 31, 2004 and 2003, and the related statements of revenues,expenses and changes in net assets and cash flows for the years then ended. We have a responsibility to conduct and will conduct the audit of the financial statements in accordance with auditing standards generally accepted in the United States of America, with the objective of expressing an opinion as to whether the presentation of the financial statements, taken as a whole, conforms with accounting principles generally accepted in the United States of America. In conducting the audit, we will perform tests of the accounting records and such other procedures, as we consider necessary in the circumstances, to provide a reasonable basis for our opinion on the financial statements. We also will assess the accounting principles used and significant estimates made by management, and evaluate the overall financial statement presentation. Our audit of the financial statements is planned and performed to obtain reasonable, but not absolute, assurance about whether the financial statements are free of material misstatement, whether caused by error or fraud. Absolute assurance is not attainable because of the nature of KPMG UP,a U.S,limn d IVacilm,anneranlp,is the U.S. member film of KPMG Imam ib,al,a swiss coopcm,o. Ms,Mary Chapman November 4,2004 Page 2 audit evidence and the characteristics of fraud. Therefore, there is a risk that material errors, fraud (including fraud that may be an illegal act), and other illegal acts may exist and not be detected by an audit of financial statements performed in accordance with the auditing standards generally accepted in the United States of America, Also, an audit is not designed to detect matters that are immaterial to the financial statements. Our report will be addressed to the Board of Directors of the District. We cannot provide assurance that an unqualified opinion will be rendered. Circumstances may arise in which it is necessary for us to modify our report or withdraw from the engagement, Internal Control Over Financial Reporting In planning and performing our audit of the financial statements,we will consider the District's internal control in order to determine the nature, timing, and extent of our audit procedures for the purpose of expressing an opinion on the financial statements and not to provide assurance on internal control. The objective of our audit of the financial statements is not to report on the District's internal control and we are not obligated to search for reportable conditions as part of our audit of the financial statements. Reportable conditions are significant deficiencies in the design or operation of internal control that could adversely affect the organization's ability to record, process,summarize and report financial data consistent with the assertions of management in the financial statements. The definition of reportable conditions does not include potential future internal control problems,that is, control problems coming to our attention that do not affect the preparation of financial statements for the period under audit. Other Offering Documents Should the District wish to include or incorporate by reference these financial statements and our audit report thereon into an exempt offering,prior to our consenting to include or incorporate by reference our report on such financial statements,we would consider our consent to the inclusion of our report and the terms thereof at that time. We will be required to perform procedures as required by the standards of the American Institute of Certified Public Accountants, including, but not limited to,reading other information incorporated by reference in the offering document and performing subsequent event procedures. Our reading of the other information included or incorporated by reference in the offering document will consider whether such information, or the manner of its presentation, is materially inconsistent with information, or the manner of its presentation, appearing in the financial statements.However, we will not perform procedures to corroborate such other information (including forward-looking statements). The specific terms Ms.Mary Chapman November 4,2004 Page 3 I I I of our future services with respect to offering documents will be determined at the time the services are to be performed. Our responsibility to communicate with the Board of Directors While the objective of our audit of the financial statements is not to report on the District's internal control and we are not obligated to search for reportable conditions as part of our audit of the consolidated financial statements, we will communicate reportable conditions to you to the extent they come to our attention. We will report to you,in writing,the following matters. ■ Audit adjustments arising from the audit that could,in our judgment, either individually or in aggregate, have a significant effect on the District's financial reporting process. In this context, audit adjustments,whether or not recorded by the entity, are proposed corrections of the financial statements that, in our judgment, may not have been detected except through the auditing procedures performed. ■ Uncorrected misstatements aggregated during the current engagement and pertaining to the latest period presented that were determined by management to be immaterial, both individually and in aggregate. r Any disagreements with management or other serious difficulties encountered in performance of our audit ■ Other matters required to be communicated by generally accepted auditing standards in the United States of America. We will also read minutes, if any, of Board of Directors meetings for consistency with our understanding of the communications made to you and determine that you have received copies of all material written communications between ourselves and management. We will also determine that you have been informed of i)the initial selection of, or the reasons for any change in, significant accounting policies or their application during the period under audit, ii) the methods used by management to account for significant unusual transactions and iii) the effect of significant accounting policies in controversial or emerging areas for which there is a lack of authoritative guidance or consensus. To the extent that they come to our attention, we will inform the Board of Directors and management about any material errors and any instances of fraud or illegal acts, Further, to the extent they come to our attention we will also communicate to the Board of Directors fraud that i I Ms.Mary Chapman November 4, 2004 Page 4 involves senior management or that, in our judgment, causes a material misstatement of the financial statements and illegal acts that come to our attention, unless they are clearly inconsequential. If, during the performance of our audit procedures, circumstances arise which make it necessary to modify our report or withdraw from the engagement,we will communicate to you our reasons for withdrawal Management responsibilities The management of the District is responsible for the fair presentation, in accordance with accounting principles generally accepted in the United States of America, of the financial statements and all representations contained therein. Management also is responsible for identifying and ensuring that the District complies with laws and regulations applicable to its activities, and for informing us of any known material violations of such laws and regulations. Management also is responsible for preventing and detecting fraud, including the design and implementation of programs and controls to prevent and detect fraud, for adopting sound accounting policies, and for establishing and maintaining effective internal controls and procedures for fmancial reporting to maintain the reliability of the financial statements and to provide reasonable assurance against the possibility of misstatements that are material to the financial statements. Management is also responsible for informing us, of which it has knowledge, of all reportable conditions in the design or operation of such controls. Management of the District also agrees that all records, documentation, and information we request in connection with our audit will be made available to us, that all material information will be disclosed to us, and that we will have the full cooperation of the District's personnel. As required by the auditing standards generally accepted in the United States of America, we will make specific inquiries of management about the representations embodied in the financial statements and the effectiveness of internal control, and obtain a representation letter from management about these matters. The responses to our inquiries, the written representations, and the results of audit tests, among other things, comprise the evidential matter we will rely upon in forming an opinion on 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 financial statements being reported upon taken as a whole. Because of the importance of management's representations to the effective performance of our services,the District will release KPMG LLP Ms,Mary Chapman November 4,2004 Page 5 and its personnel from any claims, liabilities, costs and expenses relating to our services under this letter attributable to any misrepresentations in the representation letter referred to above. Dispute Resolution Any dispute or claim arising out of or relating to the engagement letter between the parties, the services provided thereunder,or any other services provided by or on behalf of KPMG or any of its subcontractors or agents to the District or at its request (including any dispute or claim involving any person or entity for whose benefit the services in question are or were provided) shall be resolved in accordance with the dispute resolution procedures set forth in Appendix I, which constitute the sole methodologies for the resolution of all such disputes. By operation of this provision,the parties agree to forego litigation over such disputes in any court of competent jurisdiction. Mediation, if selected, may take place at a place to be designated by the parties. Arbitration shall take place in New York, New York. Either party may seek to enforce any written agreement reached by the parties during mediation, or to confirm and enforce any final award entered in arbitration,in any court of competent jurisdiction. Notwithstanding the agreement to such procedures, either party may seek injunctive relief to enforce its rights with respect to the use or protection of (i) its confidential or proprietary information or material or(ii) its names, trademarks, service marks or logos, solely in the courts of the State of New York or in the courts of the United States located in the State of New York. The parties consent to the personal jurisdiction thereof and to sole venue therein only for such Purposes. Other matters This letter shall serve as the District's authorization for the use of e-mail and other electronic methods to transmit and receive information, including confidential information, between KPMG LLP (KPMG) and the District and between KPMG and outside specialists or other entities engaged by either KPMG or the District. The District acknowledges that e-mail travels over the public Internet,which is not a secure means of communication and,thus,confidentiality of the transmitted information could be compromised through no fault of KPMG. KPMG will employ commercially reasonable efforts and take appropriate precautions to protect the privacy and confidentiality of transmitted information. Further, for purposes of the services described in this letter only, the District hereby grants to KPMG a limited, revocable, non-exclusive, non-transferable, paid up and royalty-free license, without right of sublicense,to use all names, logos, trademarks and service marks of the District solely for presentations or reports to the District or for internal KPMG presentations and intranet sites. Ms,Mary Chapman November4,2004 Page 6 KPMG is a limited liability partnership comprising both certified public accountants and certain principals who are not licensed as certified public accountants. Such principals may participate in the engagements to provide the services described in this letter. a,x ,ro The work papers for this engagement are the property of KPMG. In the event KPMG is requested pursuant to subpoena or other legal process to produce its documents relating to this engagement for the District in judicial or administrative proceedings to which KPMG is not a party, the District shall reimburse KPMG at standard billing rates for its professional time and expenses,including reasonable attorney's fees,incurred in responding to such requests. Fees for Services Based upon our discussions with and representations of management,our fees for services we will perform are estimated at$49,500. This estimate is based on the level of experience of the individuals who will perform the services. In addition,expenses are billed for reimbursement as incurred. Expenses for items such as travel,telephone,postage,and typing,printing,and reproduction of financial statements are estimated at$5,000, Circumstances encountered during the performance of these services that warrant additional time or expense could cause us to be unable to deliver them within the above estimates. We will endeavor to notify you of any such circumstances as they are assessed, The fees will be billed according to the following schedule: December 15,2004 $15,000 March 31,2005 S30,000 April 29,2005 S 4,500 Where KPMG is reimbursed for expenses,it is KPMG's policy to bill clients the amount incurred at the time the good or service is purchased, If KPMG subsequently receives a volume rebate or other incentive payment from a vendor relating to such expenses,KPMG does not credit such payment to the client, Instead,KPMG applies such payments to reduce its overhead costs,which costs are taken into account in determining KPMG's standard billing rates and certain transaction charges which may be charged to clients, aa � s Pursuant to our arrangement as reflected in this letter we will provide these services for each of the District's subsequent fiscal years until either the Board of Directors or we terminate this agreement,or mutually agree to the modification of its terms. The fees for each subsequent year will be annually subject to negotiation and approval by the Management. I� Ms.Mary Chapman November 4,2004 Page 7 we shall be pleased to discuss this letter with you at any time. For your convenience in confirming these arrangements,we enclose a copy of this letter. please sign and return it to us. Very truly yours, KPMQ t Timothy Mccann Partner ACCEPTED: Truckee Donner Public Utility District Authorized Signature Title Date i X f T } OMEN j Appendix I Dispute Resolution Procedures The following procedures are the sole methodologies to be used to resolve any controversy or claim("dispute'j. If any of these provisions are determined to be invalid or unenforceable, the remaining provisions shall remain in effect and binding on the parties to the fullest extent permitted by law. Mediation Any party may request mediation of a dispute by providing a written Request for Mediation to the other party or parties. The mediator, as well as the time and place of the mediation, shall be selected by agreement of the parties. Absent any other agreement to the contrary, the parties agree to proceed in mediation using the CPR Mediation Procedures (effective April 1, 1998) issued by the Center for Public Resources, with the exception of paragraph 2 which shall not apply to any mediation conducted pursuant to this agreement. As provided in the CPR Mediation Procedures, the mediation shall be conducted as specified by the mediator and as agreed upon by the parties. The parties agree to discuss their differences in good faith and to attempt, with facilitation by the mediator, to reach a consensual resolution of the dispute. The mediation shall be treated as a settlement discussion and shall be confidential. The mediator may not testify for any ply in any later proceeding related to the dispute. No recording or transcript shall be made of the mediation proceeding. Each party shall bear its own costs in the mediation. Absent an agreement to the contrary,the fees and expenses of the mediator shall be shared equally by the parties. Arbitration Arbitration shall be used to settle the following disputes: (1) any dispute not resolved by mediation 90 days after the issuance by one of the parties of a written Request for Mediation(or, if the parties have agreed to enter at extend the mediation, for such longer period as the parties may agree) or (2) atty dispute in which a party declatea, more than 30 days after receipt of a written Request for Mediation,mediation to be inappropriate to resolve that disgute and initiates a Request for Arbitration. C3nce conuneneed, the arbitration will be conduated either (1) in accordance with the procedures in this document and the Rules for Non•Administered Arbitration of the CPR Institute far Dispute Resolution("CPR Arbitration Rules' as in effect on Ute date of the engagement letter or contract between the parties,or(2) is accordance with other rules and procedures as the parties may designate by mutual agreement, In the event of a conflict,the provisions of this document and the CPR Arbitration Rules will control. An,In�oo_nca_cnc:xeJ J ♦ 5 f Y Ms.Mary Chapman November 4,2004 Page 9 { of whom be The arbitration will be conducted before a panel of three arbitrators, wo ed Neutrals orY the designated by the parties using either the CPR Panels of Distinguish Arbitration Rosters maintained by any united States office of the Judicial Arbitration and Mediation Service (JAMS). If the parties are unable to agree �stheocompositionh Section B, arbitration panel, the parties shall follow the screened selection pro Pr _! Rules 5,6, 7,and S of the CPR Arbitration Rules,c Any a issue concerninghp ibilib}nntt�eta in, Or dispute is subject m arbitration, or any disputeat all or part of these procedures enforceability of these procedures, including any contention th are invalid or unenforceable, shall be governed by the Federal Arbitration Act and resolved by the arbitrators. No potential arbitrator shall be appointed unless he or she has agreed in writing to abide and be bound by these Procedures- The arbitration panel shall issue its final award in writing, The panel shall have no power to th any award non-monetary agreement ent between hle relief of any sort.e parties,that are punitive Damages natuM that are not measured by applicable a�eem the prevailing Patty's actual damages, shall be unavailable in arbitration or any other forum. In no event, even if any other portion of these provisions is held to be invalid or impose a remedy that could nforcnoteabl e shall the arbitration panel have power to make an award or imp made or imposed by a court deciding the matter in the same jurisdiction. Discovery shall be permitted in connection with the arbitration only to the extent, if any, expressly authorized by the arbitration panel upon a showing of substantial need by the party seeking discovery. All aspects of the arbitration shall be treated as confidential- The Parties and the arbitrat the ion panel may disclose the existence, content or results of the arbitration onlll yas prrove •v,not a to CPR Arbitration Rules. Before malting any such disclosure, a party all other parties and shall afford such parties a reasonable opportunity to protect their interests. The award reached as a result of the arbitration will be binding anthparties, and confirmation of the arbitration award may be sought in any court having jurisdiction. " .01 nnnz qt AGN 8Z8Z-05b-605 xe� Agenda Item #Cal) D Memorandum To: Board of Directors From: Peter Holzmeister Date: November 12, 2004 Subject: Audit for 2004 Why this matter is before the board: The auditors report to the board of directors and the board chooses the auditors. History: The District received and accepted a proposal from KPMG to conduct an audit of the financial reports for District operations. The proposal was for a three-year period beginning with the financial reports for 2002. The proposal was worded in such a manner that it was in the board's discretion whether KPMG would be retained for the second and third years. In point of fact, the board did retain KPMG for the audit of 2003, the second year. New information: it is now time to choose an audit firm to conduct the audit for 2004. Initial audit work usually begins during the month of December. I had expected to have a proposed engagement letter from KPMG by now, but it has not yet arrived. Mary Chapman is on a well deserved vacation this week, so she is not here to light a fire under the KPMG staff. I expect to have the letter early next week and will get it out to you as soon as possible Recommendation: I feel it would be premature to give a recommendation without seeing the engagement letter.