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05-015, Maze & Associates AAAZE & · ." ASSOCIA TES January 31, 2005 ACCOUNTANCY CORPORATION 1931 San Miguel Drive - Suite 100 Walnut Creek, California 94596 (925) 930-0902. FAX (925) 930-0135 E-Mail: maze@mazeassociates.com Website: www.mazeassociates.com Carol Atwood, Director of Administrative Services City of Cupertino 10300 Torre Avenue Cupertino, CA 95014-3255 Dear Carol: Weare pleased to offer to extend our existing contract with the City for additional three years. We have prepared this letter describing our understanding of the services we are to provide for the City of Cupertino for the years ended June 30, 2005,2006 and 2007. This letter serves as an authorized extension of our contract, dated June 16, 2000, with the City and incorporates terms and conditions of that contract. The services we are to provide are outlined below, but we are also available to provide accounting and consulting services at your request: 1. Audit of the basic financial statements and assistance with the preparation of the Comprehensive Annual Financial Report. 2. Testing one program for compliance with the Single Audit Act and applicable laws and regulations and issuance of our report thereon. 3. Audit of the component unit [mancial statements for the Redevelopment Agency. 4. Audit of the Transportation Development Act financial statements and issuance of our reports thereon. 5. Agreed Upon Procedures applied to the City's GANN Limit issuance of our report thereon. 6. Preparation ofthe Annual Report of Financial Transaction for the City. 7. Preparation of the Annual Report of Financial Transaction for the Redevelopment Agency. 8. Preparation of the Annual Report of Financial Transaction for the Cupertino Public Facilities Corporation. A Professional Corporation IJ~J Audit Objective The objective of our audit is to express an opinion on whether your basic financial statements are fairly presented in all material respects in conformity with generally accepted accounting principles in the United States of America and to report on the fairness of accompanying supplemental information when considered in relation to the basic financial statements taken as a whole. The objective also includes reporting on: . Internal controls 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 controls related to major programs and an opinion (or disclaimer of 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 and use of the Councilor their appointed committee, management, specific legislative or regulatory bodies, federal awarding agencies, and if applicable, pass-through entities. Our audit will be conducted in accordance with generally accepted auditing standards 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 provision of OMB Circular A-133, and will include tests of accounting records, a determination of major programs in accordance with Circular A-133 and other procedures we consider necessary to enable us to express such an opinion and to render the required reports. If our opinion on the basic financial statements or the Single Audit compliance opinion is other than unqualified, we will fully discuss the reasons with City management 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. 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 basic [mancial statements in accordance with generally accepted accounting principles, 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. We understand that you will provide us with the Closing Checklist information required for our audit and that is responsible for the accuracy and completeness of that information. We will advise you about appropriate accounting principles and their application and will assist in the preparation of the financial statements, including the Schedule of Expenditure of Federal A wards, but the responsibility for the financial statements remains with you. 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 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 [mancial statement 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 (7-~ suspected fraud affecting the government 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 government received in communications from employees, former employees, regulators, or others. In addition, you are responsible for identifying and ensuring that the entity 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 must be made available for our review. 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. Also, 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 entity or to acts by management or employees acting on behalf of the entity. 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 grant agreements. Because of the concept of reasonable assurance and because we will not perform a detailed examination of all transactions, there is a risk that material errors, noncompliance, fraud or other illegal acts, may exist and not be detected by us. In addition, an audit is not designed to detect immaterial misstatements, immaterial illegal acts, or illegal acts that do not have a direct effect on the financial statements or major programs. We will advise management of any material errors and any fraudulent [mancial reporting or misappropriation of assets that comes to our attention. We will also inform the management of any violations oflaws 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 direct confirmation with selected individuals, creditors and banks. We will request written representations from your attorneys as part of the engagement, and they may bill the City for responding to this inquiry. At the conclusion of our audit we will also request certain written representations from management about the financial statements and related matters. 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 basic financial statements are free of material misstatement, we will perform tests of the City's compliance with certain provisions of laws, regulations, contracts, and grants. However, the objective of our audit 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 City has complied with applicable laws and regulations and the provisions of contracts and grant agreements applicable to major programs. Our procedures will consist of the applicable procedures described in the OMB Circular A-133 Compliance Supplement for the types of compliance requirements that could have a direct and material effect on each major programs. The purpose of those procedures will be to express an opinion on the City's compliance with requirements applicable to major programs in our report on compliance issued pursuant to OMB Circular A-133. (7- )' Audit Procedures - Internal Controls In planning and performing our audit we will consider the adequacy of internal controls in determining the nature, timing and extent of our auditing procedures applied for the purpose of expressing an opinion on the basic 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 basic financial statements and to preventing and detecting misstatements resulting from illegal acts and other noncompliance matters that have a direct and material effect on the basic financial statements. Tests of controls relative to the basic 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 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. Our audit is not designed to provide assurance on internal control or to identify reportable conditions. However, we will inform the Councilor their appointed 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 internal controls that in our judgment could adversely affect the City's ability to record, process, summarize and report [mancial data consistent with the assertions of management in the basic financial statements. We will inform you of any nonreportable conditions or other matters involving internal control, ifany, as required by OMB Circular A-133. Fees Our fees for these services are billed monthly based on our contract with the City. Our standard hourly rates vary according to the degree of responsibility involved and the experience level of the personnel assigned to your audit. 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 the City's account becomes thirty days or more overdue and may not be resumed until the City's account is paid in full. These fees are based on anticipated cooperation from City personnel, the completion of schedules and data requested on our Checklists, and the assumption that there will be no unexpected increases in work scope, such as new Single Audit Act programs, new debt issues, etc., or delays which are beyond our control, as discussed on the Fees Attachment to this letter. If significant additional time is necessary, we will discuss it with City management and arrive at a new fee before we incur any additional costs. Government Auditing Standards require that we provide the City with a copy of our most recent quality control review report. Our 2002 peer review report accompanies this letter. (/~ MAZE & ASSOCIATES AUDIT & ACCOUNTING SERVICES SUMMARY OF FEES FOR THE CITY OF CUPERTINO FOR THE YEARS ENDED JUNE 30, 2005 THROUGH 2007 Actual Estimated Fees Fees in For the Year Ended June 30, (a) Service Notes 2004 2005 2006 2007 Audit & Attest Services: Audit of the Basic Financial Statements included in the: Comprehensive Annual Financial Report (b) $46,290 $47,679 $49,109 $50,582 Audit of federal awards programs and preparation of the Single Audit Report and Data Collection Form ( c) 6,734 6,936 7,144 7,358 Preparation and Audit of the Redevelopment Agency Financial Statements and Compliance Report (d) 3,933 4,051 4,173 4,298 Preparation and Audit of Transportation Development Act Program Financial Statements and Compliance Repor (e) 2,103 2,166 2,231 2,298 Perform Agreed Upon Procedures and Issue Report on the City's GANN Limit Increment 802 826 851 877 Audit & Attest Services 59,862 61,658 63,508 65,4 \3 Optional Services: Preparation of Annual Reports of Financial Transactions for: City (f) 5,105 5,258 5,416 5,578 Redevelopment Agency (f) 511 526 542 558 Cupertino Public Facilities Corporation (f) 1,021 1,052 1,084 1,117 TOTAL FEES $66,499 68,494 70,550 72,666 Deduct discount for contract extension (5%) (5,000) Net Fees $63,494 $70,550 $72,666 Notes: (a) Fees are based on 2004 fees adjusted for a 3% cost ofliving increase in each subsequent year. (b) Fee assumes we will audit the financial statements and ensure they comply with award program requirements. (d) Redevelopment Agency is in the start-up stage. Fee does not impacts from new debt issues, new DDAs/OP As or significant increases in activity. (e) Fee covers up to two projects (f) Report will be assembled from data supplied by the City without audit or verification. 11-'1 t "~'Id . y,. .' y; '.' . I:/.: 'I C' . ~. ~/td !J. ~//~ir~/l? CERTIFIED PUBLIC ACCOUNTANTS 4040 Moorpark Ave., Suite 100 San Jose., Ca 95117 Tel: (408) 557-9890 Fax: (408) 557-9893 16360 Monterey Rd., Suite 170 Morgan Hill, CA 95037 Tel: (408) 779-3313 Fax: (408) 776-1555 July 19, 2002 To the Shareholders Maze & Associates Accountancy Corporation Walnut Creek, California We have reviewed the system of quality control for the accounting and auditing practice of Maze & Associates Accountancy Corporation (the :firm) in effect for the year ended May 31, 2002. A system of quality control encompasses the firm's organizational 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 descnoed in the Statements on Quality Control Standards issued by the American Institute of Certified Public Accountants (AICP A). The design of the system and compliance with it are the responsibility of the firm. Our responsibility is to express an opinion on the design of the system, and the finn's compliance with the system based on our review. Our review was conducted in accordance with standards established by the Peer Review Board of the AICP A In performing our review, we obtained an understanding of the system of quality control for the firm's accounting and auditing practice. In addition, we tested compliance with the firm's quality control policies and procedures to the extent we considered appropriate. These tests covered the application of the firm's policies and procedures on selected engagements. Because our review was based on selective tests, it would not necessarily disclose all weaknesses in the system of quality control or all instances oflack of compliance with it. Because there are inherent limitations in the effectiveness of any system of quality contro~ 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 because 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 Maze & Associates Accountancy Corporation in effect for the year ended May 31, 2002, has been designed to meet the requirements of the quality control standards for an accounting and auditing practice established by the AlCP A and was complied with during the year then ended to provide the firm with reasonable assurance of complying with professional standards. IV;LL /7<:J- of- (.,- Nichols, Rick & Company { 7-1