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e e City of La Porte, Texas August 26, 1998 Page 3 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, creditors, and financial institutions. We will 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 audits, we will also request certain written representations from you about the financial statements and related matters. 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 audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether caused by error or fraud. As required by the Single Audit Act Amendments of 1996 and OMB Circular A-133, our audits will include tests of transactions related to federal award programs for compliance with applicable laws and regulations and the provisions of contract 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 misstatement may exist and not be detected by us. In addition, an audit is not designed to detect errors, fraud, or other illegal acts that are immaterial to the general purpose financial statements or to major programs. However, we will inform you of any material errors and any fraud that comes to our attention. We will also inform you of any illegal acts 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 audits and does not extend to matters that might arise during any later periods for which we are not engaged as auditors. Management is responsible for making all financial and related information available to us. We understand that yqu will provide us with the basic information required for our audits and that you are responsible for the ~ccuracy and completeness of that information, We will advise you about appropriate accounting principles and their application and will assist in the preparation of your financial statements, but the responsibility for t~e financial statements remains with you. That responsibility includes the establishment and maintenance of adequate records and effective internal control over financial reporting, the selection and application of accounting principles, and the safeguarding of assets. Additionally, as required by OMB Circular A-133, you will prepare the summary of prior audit findings. We understand that your employees will: provide us with trial balances, general ledgers, type all cash or other confirmations we request, and locate any invoices selected by us for testing. The workpapers for this engagement are the property of WHITE PETROY McHONE, A Professional Corporation and constitute confidential information. However, we may be requested to make certain workpapers available to your cognizant or grantor agency pursuant to authority given to it by law or regulation. If requested, access to such workpapers will be provided under the supervision of WHITE PETROY McHONE personnel. Furthermore, upon request, we may provide photocopies of selected workpapers to your cognizant or grantor agency. Your cognizant or grantor agency may intend, or decide, to distribute the photocopies or information contained therein to others, including other governmental agencies. We expect to begin our interim audit procedures in September and to issue our report for the year ended September 30, 1998, no later than February 10, 1999, assuming all year end accounting work is completed in a t.h:nely fashion.