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HomeMy WebLinkAbout7 2007 Annual Audit Agenda Item # TRUCKEE DONNER Public Utility District Memorandum To: Board of Directors From: Mary Chapman Tya, Date: July 13, 2007 Subject: Authorization to appoint auditors to perform the District's 2007 annual audit 1. WHY THIS ITEM IS BEFORE THE BOARD The auditors are hired by the Board of Directors and report to the Board of Directors. 2. HISTORY For the last two years, the Board hired the Virchow Krause & Company LLP accounting firm to perform the 2005 and 2006 annual audits. When the Board hired Virchow Krause you authorized them to perform the 2005 audit with the option to reemploy them to perform the 2006 and 2007 audits. Their fee for 2005 was $50,000 ($45,000 for the regular audit plus $5,000 for the A133 audit). Their quoted fee for 2006 was $52,000 ($47,000 for the regular audit plus $5,000 for the A133 audit). As it turned out, we did not need to have them prepare a separate A133 audit for 2006. The Virchow Krause quote for 2007 was $50,000 for the regular audit only. During the 2005 audit presentation made by Tom Unke in May, 2006, Tom suggested to the Board that you consider having their firm issue an additional audit report that only included the core businesses of the Truckee Donner Public Utility District without the Old Greenwood and Gray's Crossing CFDs data. As you may recall since the formation of the CFDs, we have had to combine the CFD transactions into our regular electric and water combined audit report. We will be required to continue to do this for as long as the CFD debt is outstanding. Tom suggested that if they could prepare a separate report on just the District's core businesses with full disclosure that this report excluded the CFDs, it would make it easier for the reader to evaluate the District's core businesses. They have provided us with a quote to prepare the extra report in the range of $1,500 to $2,500 each year. Part of the price difference has to do with how many copies of the report we request. 3. NEW INFORMATION Attached is a copy of the Board action taken on October 11, 2006 when you decided to hire Virchow Krause & Company LLP. Also attached is a copy of the engagement letter between the District and Virchow Krause & Company LLP outlining their responsibilities and the District's responsibilities. If the Board wishes to reemploy Virchow Krause to perform the 2007 audit, they could authorize the board president to send them such notice. Also, if the Board wishes Virchow Krause to once again issue the separate report on the District's core businesses for an additional amount not to exceed $2,500 for each year authorized, they could authorize the board president to include that direction in their notice to VK. 4. RECOMMENDATION That the Board hire Virchow Krause to perform the District's annual audit for 2007. Further, that the Board authorize Virchow Krause to issue an additional audit report on the District's core businesses (Electric and Water) for an amount not to exceed $2,500. TRUCKEE DONNER Public PO Box 309, 11570 Donner Pass Road Truckee, Ca. 96160 Minute Order October 119 2005 2005-111 CONSIDERATION OF APPOINTING A FIRM TO PERFORM AUDIT SERVICES FOR THE DISTRICT. Director Thomason moved and Director Aguera seconded, a motion to authorize staff to employ the services of Virchow Krause, Madison, Wl. to perform the District's 2005 audit for $50,000 (including the A-133 audit); and with the option to employ Virchow Krause to perform the 2006 ($52,000) and 2007 ($50,000) District audits. ROLL CALL: All Directors, aye. SO MOVED. Post Office Box 309- 11570 Donner Pass Road-Truckee, CA 96160 Phone 530 587-3896-Fax 530 587-1 189 VirchowKrause November 23, 2005 Ms. Kim Szczurek, Finance and Accounting Manager Truckee Donner Public Utility District 11570 Donner Pass Road Truckee, CA 96160 Dear Ms. Szczurek: Enclosed is the engagement letter for Truckee Donner Public Utility District. Please sign a copy and return it in the enclosed postage-paid, business-reply envelope. Once we receive the signed copy from you, we'll be ready for project kick-off. Please contact me if you have any questions. Sincerely, VIRCHOW, KRAUSE & COMPANY, LLP Am- 6k..... Thomas E. Unke, CPA, Partner TEU/jas Enclosures Ten Terrace Cowl.PO Box 7398.Madison,yN 53707-7398.Tel 608.249.6622•Fax 608.249.8532• Virchow,Krause a company.LLP Cwtilled Public Acoountarft a Corftkwft.An Indeper0 nl Member of Baker riy Intemadonal VirdiowKrause &� lipl November 23, 2005 To the Board of Directors Truckee Donner Public Utility District 11570 Donner Pass Road Truckee, CA 96160 Dear Board of Directors: This letter is to confirm our understanding of the terms and objectives of our engagement and the nature and limitations of the services we will provide to the Truckee Donner Public Utility District (the 'District'). Scope of Services We shall audit the financial statements of the District as of and for the year ended December 31, 2005-2007. Our audits will be made in accordance with generally accepted auditing standards, and, accordingly, will include such tests of the accounting records and such other auditing procedures as we consider necessary in the circumstances. At the conclusion of each audit, we will submit to you a report containing our opinion on the financial statements. If, for any reason, we are unable to render an unqualified opinion on the financial statements, we will discuss this with you. 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 financial statements: 1. Schedule of expenditures of federal awards 2. Schedule of findings and questioned costs(if applicable) The document will also include supplemental information that will be subjected to the auditing procedures applied in relation to our audit of the basic financial statements and Management's Discussion and Analysis, which will apply certain limited procedures, and for which we will express no opinion. The District's financial statements are solely the representation and responsibility of the District's management. Although management may consult with us regarding accounting principles applied to the financial statements and methods of application, the selection of accounting principles and method of application is a determination made solely by management. Our audits will be directed to the expression of our opinion on the mentioned financial statements taken as a whole. To be cost-effective, an audit is based on the concept of selective testing. That, coupled with the fact that it is possible to override or circumvent the internal controls established by you to provide assurance, among other things, as to the reliability of financial records, means that our engagement is subject to the inherent risk that material errors, irregularities, or illegal acts, including fraud or defalcations, may not be detected if they exist. However, should any such matters come to our attention, we will report them to you. The tests selected by us will be sufficient, in our professional judgment, to allow us to form a meaningful, thorough, and complete audit opinion. Ten Terrace Court•PO Boot 7398.Madison,lM 53707-7396•Tel 608.249.6822•Fax 608.249.8532• Virchow,Krause&Company, LLP Cert fled Public Accountants&COnsultants•An Independent Member of Baker Tilly intemationat To the Board of Directors Truckee Donner Public Utility District November 23, 2005 Page 2 We will also submit to you a letter containing any suggestions for improvement of existing systems of internal control structure, accounting policies and procedures, and other related matters which come to our attention during the course of our engagement. We will ask that your personnel, to the extent possible, prepare various schedules and analyses, and make various invoices and other documents available to our staff. This assistance by your personnel will serve to facilitate the progress of our work. At the conclusion of our audit, we will request certain written representations from you confirming your responsibility for the fair presentation in the financial statements of financial position, results of operations, and cash flows in conformity with generally accepted accounting principles, and related matters. We will be pleased to meet with you at various times throughout the year to discuss accounting, and auditing and other related matters affecting the District. You should feel free to call on us at any time in this regard. Any fees incurred for these services in excess of audit fees listed below, will be agreed upon prior to rendering the service. Audit Fee Schedule Our charges to the District for our services will be made at our regular rates plus out-of-pocket expenses. Billings will be rendered as the work progresses, with payment to be made upon presentation. A finance charge of 1.5% per month shall be imposed on accounts not paid within 30 days of the receipt of our statement for services. Our fees for the annual audits will be based on the following schedule: Description 2005 2006 2007 Audit Services $ 45,000 $ 47,000 $ 50,000 A133 Single Audit 5,000 5,000 - Out-of-pocket expenses - - - Total Fee $ 50,00 $ 52,000 $ 50,000 We would expect to continue to perform our services under the arrangements discussed above from year to year, unless for some reason you or we find that some change is necessary. Engagement Team We understand continuity during the course of the audit of our engagement team staffing is important to you. We share your belief and, to the extent in our control and as best for your engagement, commit to maintaining the same engagement personnel for the interim and year- end phases of the engagement to the extent possible. Tom Unke will serve as engagement partner. To the Board of Directors Truckee Donner Public Utility District November 23, 2005 Page 3 Audit Fieldwork The timing of our interim and year-end audit procedures will follow the schedule outlined in the proposal and is currently scheduled for the dates shown below. Any changes to this schedule will be agreed in advance between the District and Virchow, Krause & Company, LLP. Interim Procedures November or December 2005 Year-End Procedures April 3—April 7, 2006 Audit Objectives The objective of our audit is the expression of an opinion about whether your financial statements are fairly presented, in all material respects, in conformity with accounting principles generally accepted in the United States of America and to report on the fairness of the additional information referred to in the third paragraph when considered in relation to the financial statements taken as a whole. The objective also includes reporting on: • Internal control related to the financial statements and compliance with laws, regulations, and the provisions of contracts or grant agreements, noncompliance with which could have a material effect on the financial statements in accordance with Government Auditing Standards. • Internal control related to major programs and an opinion on compliance with laws, regulations, and the provisions of contracts or grant agreements that could have a direct and material effect on each major program in accordance with the Single Audit Act Amendments of 1996 and OMB Circular A-133, 'Audits of States, Local Governments, and Non-Profit Organizations.' The reports on internal control and compliance will each include a statement that the report is intended for the information of the audit committee, management, specific legislative or regulatory bodies, federal awarding agencies, and if applicable, pass-through entities and is not intended to be and should not be used by anyone other than these specified parties. Our audit will be conducted in accordance with auditing standards generally accepted in the United States of America; 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, a determination of the major program(s) in accordance with OMB Circular A-133, and other procedures we consider necessary to enable us to express an opinion and to render the required reports. If our opinions on the financial statements or the Single Audit compliance opinion is other than unqualified, 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 an opinion, we may decline to express an opinion or to issue a report as a result of this engagement. To the Board of Directors Truckee Donner Public Utility District November 23, 2005 Page 4 Management Responsibilities Management is responsible for establishing and maintaining internal control and for compliance with the provisions of contracts, agreements, and grants. 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 financial statements in accordance with accounting principles generally accepted in the United States of America, and that federal award programs are managed in compliance with applicable laws and regulations and the provisions of contracts and grant agreements. Management is responsible for making all financial records and related information available to us and for the accuracy and completeness of that information. We will advise management about appropriate accounting principles and their application and will assist in the preparation of your financial statements, including the schedule of expenditures of federal awards, but the responsibility for the financial statements remains with management. This responsibility includes the establishment and maintenance of adequate records and effective internal control over financial reporting and compliance, the selection and application of accounting principles, and the safeguarding of assets. Management is responsible for adjusting the financial statements to correct material misstatements and for 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 fraud, and for 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. You are also responsible for informing us of your knowledge of any allegations of fraud or suspected fraud affecting the organization received in communications from employees, former employees, regulators, or others. In addition, you are also responsible for identifying and ensuring that the organization complies with applicable laws and regulations. Additionally, as required by OMB Circular A-133, it is management's responsibility to follow up and take corrective action on reported audit findings and to prepare a summary schedule of prior audit findings and a corrective action plan. The summary schedule of prior audit findings should be available for our review on the first day of fieldwork. As part of management's responsibility for the financial statements and the effectiveness of its system of internal control over financial reporting and compliance, management is responsible for making available to us, on a timely basis, all of your original account records and related information and for the completeness and accuracy of that information and your personnel to whom we may direct inquiries. As required by auditing standards generally accepted in the United States of America, we will make specific inquiries of management and others about the representations embodied in the financial statements and the effectiveness of internal control over financial reporting and compliance. Auditing standards generally accepted in the United States of America also require that we obtain written representations covering audited financial statements from certain members of management. The results of our audit tests, the responses to our inquiries, and the written representations, comprise the evidential matter we intend to rely upon in forming our opinion on the financial statements. To the Board of Directors Truckee Donner Public Utility District November 23, 2005 Page 5 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. We will plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether from errors, fraudulent financial reporting, misappropriation of assets, or violations of laws or governmental regulations that are attributable to the organization or to acts by management or employees acting on behalf of the organization. As required by the Single Audit Act Amendments of 1996 and OMB Circular A-133, our audit will include tests of transactions related to major federal award programs for compliance with applicable laws and regulations and the provisions of contracts and agreements. Our audit is not required to be designed to detect error or fraud that did not cause a material misstatement of the financial statements. It is important to recognize that there are inherent limitations in the auditing process. Audits are based on the concept of selective testing of the data underlying the financial statements, which involves judgment regarding the areas to be tested and the nature, timing, extent and results of the tests to be performed. Audits are, therefore, subject to the limitation that material errors or fraud or other illegal acts having a direct and material financial statement impact, if they exist, may not be detected. Because of the characteristics of fraud, particularly those involving concealment through collusion, falsified documentation and management's ability to override controls, an audit designed and executed in accordance with auditing standards generally accepted in the United States of America may not detect a material fraud. Further, while effective internal control reduces the likelihood that errors, fraud or other illegal acts will occur and remain undetected, it does not eliminate that possibility. For these reasons, we cannot ensure that errors, fraud or other illegal acts, if present, will be detected. However, we will communicate to you, as appropriate, any such matters identified during our audit. We will also inform you of any violations of laws or governmental regulations 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. 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 funding sources, creditors, and financial institutions. We will also 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. We are also responsible for determining that the audit committee (or equivalent) is informed about certain other matters related to the conduct of the audit, including (i) any disagreements with management about matters that could be significant to the District's financial statements or our report thereon; (ii) any serious difficulties encountered in performing the audit; (iii) information relating to our independence with respect to the District; (iv) other matters related to your financial statements including your accounting policies and practices; and (v) all significant deficiencies and material weaknesses identified during the audit, as previously mentioned. Lastly, we are responsible for ensuring that the audit committee receives copies of certain written communications between us and management including written communications on accounting, auditing, internal control or operational matters. To the Board of Directors Truckee Donner Public Utility District November 23, 2005 Page 6 Identifying and ensuring that the District complies with laws, regulations, contracts, and agreements, is the responsibility of management. As part of obtaining reasonable assurance about whether the basic financial statements are free of material misstatement, we will perform tests of the District's compliance with applicable laws and regulations and the provisions of 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. Audit Procedures - Internal Control In planning and performing our audit, 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 the District's 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 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 financial statements. Tests of controls relative to the financial statements 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 internal control and, accordingly, no opinion will be expressed in our report on internal control issued pursuant to Government Auditing Standards. As required by OMB Circular A-133, we will perform tests of controls 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 major federal award program. However, our tests will be less in scope than would be necessary to render an opinion on those controls and, accordingly, no opinion will be expressed in our report on internal control issued pursuant to OMB Circular A-133. 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 involve 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 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. To the Board of Directors Truckee Donner Public Utility District November 23, 2005 Page 7 Audit Procedures - Compliance Our audit will be conducted in accordance with the standards referred to in the section titled Audit Objectives. As part of obtaining reasonable assurance about whether the financial statements are free of material misstatement, we will perform tests of the District's compliance with applicable laws and regulations and the provisions of contracts and agreements, including grant agreements. However, the objective of those procedures will not be to provide an opinion on overall compliance, and we will not express such an opinion in our report on compliance issued pursuant to Government Auditing Standards. OMB Circular A-133 requires that we also 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 agreements applicable to major programs. Our procedures will consist of the applicable procedures described in the 'OMB Circular A-133 Compliance Supplement." The purpose of these procedures will be to express an opinion on the District's compliance with requirements applicable to major programs in our report on compliance issued pursuant to OMB Circular A-133. Government Auditing Standards requires that we provide you with a copy of our most recent quality control report. Our most recent peer review report accompanies this letter. Nan-Attest Services Prior to or as part of our audit engagement, it may be necessary for us to perform certain non- attest services including, but not limited to, preparing drafts of your financial statements and schedule of expenditures of federal and state awards, and proposing general, adjusting, or correcting journal entries to your financial statements. You are responsible for reviewing the entries and understanding the nature of any proposed entries and the impact they have on the financial statements and schedule of expenditures of federal and state awards. In addition, you will be required to review and approve the financial statements and schedule of expenditures of federal and state awards and approve those documents prior to their issuance and have a responsibility in fact and appearance to make an informed judgment on those documents. We will not perform any management functions or make management decisions on your behalf with respect to any non-attest services we provide. In connection with our performance of any non-attest services, you agree that you will: • Continue to make all management decisions and perform all management functions including approving all journal entries and general ledger classifications when they are submitted to you. • Designate a competent employee, preferably within senior management, to oversee the services we perform. • Evaluate the adequacy and results of the non-attest services we perform. • Accept responsibility for the results of our non-attest services. • Establish and maintain internal controls, including monitoring ongoing activities related to the non-attest function. To the Board of Directors Truckee Donner Public Utility District November 23, 2005 Page 8 On a periodic basis, as needed, we will meet with you to discuss your accounting records and the management implications of your financial statements. We will notify you, in writing, of any matters that we believe you should be aware of and will meet with you upon request. To assist us in planning the audit of the financial statements, the District will authorize its previous auditors to allow us to review their working papers and to respond fully to our inquiries. Other Documents Auditing standards generally accepted in the United States of America require that we read any annual report that contains our audit report. The purpose of this procedure is to consider whether other information in the annual report, including the manner of its presentation, is materially inconsistent with information appearing in the financial statements. We assume no obligation to perform procedures to corroborate such other information as part of our audit. You may intend to reproduce or publish the financial statements, or a portion thereof, and make reference to our Firm name in connection therewith. If so, you agree to provide us, for our approval and consent, proofs before printing, and final materials before distribution. With regard to the electronic dissemination of audited financial statements, including financial statements published electronically on your Internet website, you understand that electronic sites are a means to distribute 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. You agree that you will notify us in advance whenever you intend to reproduce our report for any reason. This notification does not constitute an acknowledgment on our part of any party's intent to rely on the financial statements. Audit Administration Completion of our work is subject to, among other things, 1) appropriate cooperation from the District's personnel, including timely preparation of necessary schedules, 2) timely responses to our inquiries and 3) timely communication of all significant accounting and financial reporting matters. With regard to the preparation of necessary schedules, we understand that your employees will prepare all cash, accounts receivable and other confirmations we request. When and if for any reason the District is unable to provide such schedules, information and assistance, Virchow, Krause & Company, LLP and you will mutually revise the fee to reflect additional services, if any, required of us to complete the audit. At the conclusion of the engagement, we will complete the appropriate sections of and sign the Data Collection Form that summarizes our audit findings relative to your single audit requirements. We will provide copies of our reports to the District; however, it is management's responsibility to submit the reporting package (including financial statements, schedule of expenditures of federal and state awards, summary schedule of prior audit findings, auditors' reports, and a corrective action plan) along with the Data Collection Form to the designated federal clearinghouse and, if appropriate, to pass-through entities. The Data Collection Form and the reporting package must be submitted within the earlier of 30 days after receipt of the auditors' reports or nine months after the end of the audit period, unless a longer period is agreed to in advance by the cognizant or oversight agency for audit. At the conclusion of the engagement, we will provide information to management as to where the reporting packages should be submitted and the number to submit. To the Board of Directors Truckee Donner Public Utility District November 23, 2005 Page 9 The audit documentation for this engagement is the property of Virchow, Krause & Company, LLP and constitutes confidential information. However, pursuant to authority given by law or regulation, we may be requested to make certain audit documentation available to federal or state agencies for purposes of a quality review of the audit, to resolve audit findings, or to carry out oversight responsibilities. We will notify you of any such request. If requested, access to such audit documentation will be provided under the supervision of Virchow, Krause & Company, LLP personnel. Furthermore, upon request, we may provide copies of selected audit documentation to the aforementioned parties. These parties may intend, or decide, to distribute the copies or information contained therein to others, including other governmental agencies. The audit documentation for this engagement will be retained for a minimum of seven years after the date the auditors' report is issued or for any additional period requested by federal, state or pass-through entities. If we are aware that a federal or state awarding agency, pass-through entity, or auditee is contesting an audit finding, we will contact the party(ies) contesting the audit finding for guidance prior to destroying the audit documentation. No action, regardless of form, arising out of the services under this agreement may be brought by either party more than three years after the act, event or service that is subject of such action or within one year of discovery of such act, error, or omission, whichever occurs last. Because of the importance of oral and written representations to an effective audit, the District releases Virchow, Krause & Company, LLP and its personnel from any and all claims, liabilities costs and expenses attributable to any knowing misrepresentation by management. Further, in no event shall Virchow, Krause & Company, LLP be liable to the District, whether a claim be in tort, contract or otherwise for any consequential, indirect, lost profit or similar damages relating to Virchow, Krause & Company, LLP's services provided under this engagement letter, except to the extent finally determined to have resulted from the professional misconduct or fraudulent behavior of Virchow, Krause & Company, LLP relating to such services. In addition, the District agrees to indemnify and hold harmless Virchow, Krause & Company, LLP and its personnel from any and all claims, liabilities, costs and expenses relating to Virchow, Krause & Company, LLP's services under this engagement letter, except to the extent finally determined to have resulted from the willful misconduct or fraudulent behavior of Virchow, Krause & Company, LLP relating to such services. Resolution of Disagreements In the unlikely event that differences concerning our services or fees should arise that are not resolved by mutual agreement, to facilitate judicial resolution and save time and expense of both parties, the District and Virchow, Krause & Company, LLP agree not to demand a trial by jury in any action, proceeding or counterclaim arising out of or relating to our services and fees for this engagement. Rather, we both agree that the matter be submitted first to voluntary mediation and, if mediation is not successful, then to binding arbitration under the rules and procedures of the American Arbitration Association. Other Matters Virchow, Krause & Company, LLP is owned by professionals who hold CPA licenses as well as by professionals who are not licensed CPAs. Depending on the nature of the services we provide, non-CPA owners may be involved in providing services to you now or in the future. To the Board of Directors Truckee Donner Public Utility District November 23, 2005 Page 10 Any additional services that may be requested and we agree to provide will be the subject of separate arrangements. In the event we are requested or authorized by the District, or required by government regulation, subpoena, or other legal process to produce our working papers or our personnel as witnesses with respect to our engagement for the District, the District will, so long as we are not a party to the proceeding in which the information is sought, reimburse us for our professional time and expenses, as well as the fees and expenses of our counsel, incurred in responding to such a request. The District agrees that it will not, directly or indirectly, agree to assign or transfer any claim against Virchow, Krause & Company, LLP arising out of this engagement to anyone. Our dedication to client service is carried out through our employees who are integral in meeting this objective. In recognition of the importance of our employees to Virchow, Krause & Company, LLP, it is hereby agreed that the District will not solicit our employees for employment or enter into an independent contractor arrangement with any individual who is or was an employee of Virchow. Krause b Company, LLP for a period of twelve months following the date of conclusion of this engagement. If the District violates this non-solicitation clause, the District agrees to pay to Virchow, Krause & Company, LLP a fee of 30% of the hired individual's new annual compensation within 30 days of such event. We believe the foregoing correctly sets forth our understanding, but if you have any questions, please call Tom Unke at 608.240.2394 or email tunkeQvirchowkrause.com. If you find the arrangements acceptable, please acknowledge your agreement to the understanding by signing and returning to us the copy enclosed. It is a pleasure for us to be of service to you. We look forward to many years of pleasant association with you and the District. Sincerely, VIRCHOW, KRAUSE 8 COMPANY, LLP Vj&�, Kja-� a , L4P TE U/jas Enclosures Accepted: / „h Date: 'r!' �, o- To the Partners of Virchow,Krause dt Company,LLP And the SEC Practice Section Peer Review Committee We have reviewed the system of quality control for the accounting and auditing practice of Virchow, Krause dt Company, LLP (the firm) in effect for the year ended June 30, 2003. A system of quality control encompasses the firm's organisational structure and the policies adopted and procedures established to provide it with reasonable assurance of conforming with professional standards. The elements of quality control are described in the Statements on Quality Control Standards issued by the American Institute of Certified Public Accountants (the AICPA). The design of the system and compliance with it are the responsibilities of the firm. In addition,the firm has agreed to comply with the membership requirements of the SEC Practice Section of the AICPA Division for CPA Firms (the Section). Our responsibility is to express an opinion on the design of the system, and the firm's compliance with that system and the Section's membership requirements based on our review. Our review was conducted in accordance with standards established by the Peer Review Committee of the Section and included procedures to plan and perform the review that are summarized in the attached description of the peer review process. Our review would not necessarily disclose all weaknesses in the system of quality control or all instances of lack of compliance with it or with the membership requirements of the Section since it was based on selective tests.Because there are inherent limitations in the effectiveness of any system of quality control, departures from the system may occur and not be detected. Also, projection of any evaluation of a system of quality control to future periods is subject to the risk that the system of quality control may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. In our opinion,the system of quality control for the accounting and auditing practice of Virchow,Krause dt Company, LLP in effect for the year ended June 30, 2003,has been designed to meet the requirements of the quality control standards for an accounting and auditing practice established by the AICPA and was complied with during the year then ended to provide the firm with reasonable assurance of conforming with professional standards.Also, in our opinion,the firm complied during that year with the membership requirements of the Section in all material respects. Richmond, Virginia December 3,2003 Attachment to the Peer Review Report of Virchow. Krause& Company,LLP Description of the Peer Review Process Overview Member firms of the AICPA SEC Practice Section (the Section) must have their system of quality control periodically reviewed by independent peers. These reviews are system and compliance oriented with the objective of evaluating whether: The reviewed firm's system of quality control for its accounting and auditing practice has been designed to meet the requirements of the Quality Control Standards established by the AICPA. The reviewed firm's quality control policies and procedures were being complied with to provide the firm with reasonable assurance of complying with professional standards. The reviewed firm was complying with the membership requirements of the SECPS in all material respects. The Section's Peer Review Committee (PRC) establishes and maintains review standards. At regular meetings and through report evaluation task forces, the PRC considers each peer review, evaluates the reviewer's competence and performance, and examines every report, letter of comments,and accompanying response from the reviewed firm that states its corrective action plan before the peer review is finalized The Transition Oversight Staff(formerly the staff of the Public Oversight Board, an independent oversight body) plays a key role in overseeing the performance of peer reviews working closely with the peer review teams and the PRC. Once the PRC accepts the peer review reports, letters of comments, and reviewed firms' responses, they are maintained in a file available to the public. In some situations,the public file also includes a signed undertaking by the firm agreeing to specific follow-up action requested by the PRC. That file also includes the firm's annual report which contains information regarding the number of firm offices, firm professionals, and SEC clients for which the fuai is principal auditor-of-record. Planning the Review To plan the review of Virchow, Krause & Company, UP, we obtained an understanding of(1) the nature and extent of the firm's accounting and auditing practice, and (2) the design of the firm's system of quality control sufficient to assess the inherent and control risks implicit in its practice. Inherent risks were assessed by obtaining an understanding of the firm's practice, such as the industries of its clients and other factors of complexity in serving those clients, and the organization of the firm's personnel into practice units. Control risks were assessed by obtaining an understanding of the design of the firm's system of quality control, including its audit methodology, and monitoring procedures. Assessing control risk is the process of evaluating the effectiveness of the reviewed firm's quality control system in preventing the performance of engagements that do not comply with professional standards. Performing the Review Based on our assessment of the combined level of inherent and control risks, we identified practice units and selected engagements within those units to test for compliance with the firm's quality control system. The engagements selected for review included audits of clients that are SEC registrants, audits performed under the Government Auditing Standards, audits performed under FDICIA, and audits of Employee Benefit Plans. The engagements selected for review represented a cross-section of the firm's accounting and auditing practice with emphasis on higher-risk engagements. The engagement reviews included examining working paper files and reports and interviewing engagement personnel. The scope of the peer review also included examining selected administrative and personnel files to determine compliance with the firm's policies and procedures for the elements of quality control pertaining to independence, integrity, and objectivity; personnel management; and acceptance and continuance of clients and engagements. In addition, we tested compliance with the membership requirements of the Section, including those pertaining to independence quality controls and concurring partner review. Prior to concluding the review, we reassessed the adequacy of scope and conducted an exit conference with firm management to discuss our findings and recommendations.