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HomeMy WebLinkAbout08-15-11 Fiscal Affairs Committee MeetingCITY OF LA PORTE FISCAL AFFAIRS COMMITTEE MEETING AGENDA Notice is hereby given of a meeting of the City of La Porte Fiscal Affairs Committee to be held on Monday, August 15, 2011, at 5:00 p.m., in the La Porte City Hall Council Chambers, 604 West Fairmont Parkway, La Porte, Texas, regarding the items of business according to the agenda listed below: 1. Call to Order 2. Approve and sign the engagement letters from Null - Lairson for the City of La Porte and La Porte Area Water Authority — M. Dolby 3. Discuss audit for fiscal year 2011. — M. Dolby 4. Administrative Reports — R. Bottoms 5. Committee Comments — Matters appearing on agenda; Recognition of community members, City employees, and upcoming events; Inquiry of staff regarding specific factual information or existing policy. 6. Adjourn In compliance with the Americans with Disabilities Act, the City of La Porte will provide for reasonable accommodations for persons attending public meetings. To better serve attendees, requests should be received 24 hours prior to the meetings. Please contact Patrice Fogarty, City Secretary, at 281.470.5019. CERTIFICATION I certify that a copy of the August 15, 2011, agenda of items to be considered by the Fiscal Affairs Committee was posted on the City Hall bulletin board on August 11, 2011, at 3:00 p.m. Patrice Fogarty, City Secretary I certify that the attached notice and agenda of items was removed by me from the City Hall bulletin board on the day of 2011. Name and Title Page 1 of 1 June 13, 2011, Fiscal Affairs Committee Agenda 1 � , i ` ili ff August 3, 2011 The Honorable Mayor and Members of the City Council City* of La Porte, Texas 604 W. Fairmont PlcNw - NT La Porte, Texas 77571 We are pleased to confirm our understanding of the services we are to provide City of La Porte, Texas for the Near ended September 30, 2011. We will audit the financial statements of the governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information, which collectively* comprise the basic financial statements, of City of La Porte, Texas as of and for the Near ended September 30, 2011. Accounting standards generally* accepted in the United States provide for certain required supplementaiv information (RSI), such as management's discussion and analysis (MD &A), to supplement City* of La Porte, Texas's basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board N-, 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 City of La Porte, Texas'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 an assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance.. The following RSI is required by generally* accepted accounting principles and will be subjected to certain limited procedures, but will not be audited: 1) Management's Discussion and Analysis. 2) Analysis of Funding Progress — Pension Data 3) Budgetaiv Comparison Schedules Supplementaiv information other than RSI also accompanies City of La Porte, Texas's financial statements. We will subject the following supplementaiv 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 will provide an opinion on it in relation to the financial statements as a whole: 1) Schedule of Expenditures of Federal Awards. 2) Combining and Individual Fund Statements and Schedules 2000 Loop 197 North I Suite 200 1 Texas Cite_ TX 77590 (P) 409 -948 -4406 1 (F) 409 -948 -0364 ��z�z� . null- lairson.com Mayor and Members of City Council City* of La Porte, Texas Page 2 The following other information accompanying the financial statements will not be subjected to the auditing procedures applied in our audit of the financial statements, and for which our auditor's report will not provide an opinion or any assurance. 1) Introductoiv Section 2) Statistical Section Audit Objectives The objective of our audit is the expression of opinions as to whether your basic financial statements are fairly* presented, in all material respects, in conformity* with U.S. generally* accepted accounting principles and to report on the fairness of the supplementaiv information referred to in the second paragraph when considered in relation to the financial statements 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 (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 solely* for the information and use of management, the body* or individuals charged with governance, others within the entity* specific legislative or regulator* 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 accounting records, a determination of major program(s) in accordance with OMB Circular A -133, and other procedures we consider necessaiv to enable us to express such opinions and to render the required reports. If our opinions on the financial statements or the Single Audit compliance opinions are other than unqualified, we will fully* 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 to issue a report as a result of this engagement. Mayor and Members of City Council City* of La Porte, Texas Page 3 Management Responsibilities Management is responsible for the basic financial statements and all accompanying information as well as all representations contained therein. Management is also responsible for identi firing government award programs and understanding and complying with the compliance requirements, and for preparation of the schedule of expenditures of federal awards in accordance with the requirements of OMB Circular A -133. As part of the audit, we will assist with preparation of your financial statements, schedule of expenditures of federal awards, and related notes. You are responsible for making all management decisions and performing all management functions relating to the financial statements, schedule of expenditures of federal awards, and related notes and for accepting full responsibility* for such decisions. You will be required to acknowledge in the management representation letter our assistance with preparation of the financial statements and the schedule of expenditures of federal awards and that you have reviewed and approved the financial statements, schedule of expenditures of federal awards, and related notes prior to their issuance and have accepted responsibility* for them. Further, you are required to designate an individual with suitable skill, knowledge, or experience to oversee any* nonaudit services we provide and for evaluating the adequacy* and results of those services and accepting responsibility* for them. Management is responsible for establishing and maintaining effective internal controls, including internal controls over compliance, and for evaluating and monitoring ongoing activities, to help ensure that appropriate goals and objectives are met and that there is reasonable assurance that government programs are administered in compliance with compliance requirements. You are also responsible for the selection and application of accounting principles; for the fair presentation in the financial statements of the respective financial position of the governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information of the City of La Porte, Texas and the respective changes in financial position and, where applicable, cash flows in conformity* with U.S. generally* accepted accounting principles; and for compliance with applicable laws and regulations and the provisions of contracts and grant agreements. Management is also responsible for making all financial records and related information available to us and for ensuring that management and financial information is reliable and properly* recorded. Your responsibilities also include identi firing significant vendor relationships in which the vendor has responsibility* for program compliance and for the accuracy* and completeness of that information. Your responsibilities include adjusting the financial statements to correct material misstatements and 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 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 or illegal acts affecting the government involving (1) management, (2) employees who have significant roles in internal control, and (3) others N-, - here the fraud or illegal acts 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, grantors, regulators, or others. In addition, you are responsible for identi firing and ensuring that the entity* complies with applicable laws, regulations, contracts, agreements, and grants. 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 summaiv schedule of prior audit findings and a corrective action plan. You are responsible for the preparation of the supplementaiv information in conformity* with U.S. generally* accepted accounting principles. You agree to include our report on the supplementaiv information in any document that contains and indicates that we have reported on the supplementaiv information. You also agree to present the supplementaiv information with the audited financial statements. Mayor and members of City Council City* of La Porte, Texas Page 4 Management is responsible for establishing and maintaining a process for tracking the status of audit findings and recommendations. Management is also responsible for identif - ing for us previous financial audits, attestation engagements, performance audits, or other studies related to the objectives discussed in the Audit Objectives section of this letter. This responsibility* includes relaying to us corrective actions taken to address significant findings and recommendations resulting from those audits, attestation engagements, performance audits, or studies. You are also responsible for providing management's views on our current findings, conclusions, and recommendations, as well as your planned corrective actions, for the report, and for the timing and format for providing that information. 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 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 entity* or to acts by management or employees acting on behalf of the entity*. Because the determination of abuse is subjective, Government Auditing Standards do not expect auditors to provide reasonable assurance of detecting abuse. Because an audit is designed to provide reasonable, but not absolute assurance and because we will not perform a detailed examination of all transactions, there is a risk that material misstatements or noncompliance may exist and not be detected by us. 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 or major programs. However, we will inform you of any material errors and any fraudulent financial reporting or misappropriation of assets that come to our attention. We will also inform you of any* violations of laws or governmental regulations that come to our attention, unless clearly* inconsequential, and of any* material abuse that comes to our attention. 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 any later periods for which we are not engaged as auditors. Our procedures will include tests of documentaiv 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 will request written representations from your attorneys as part of the engagement, and they may bill you for responding to this inquHy. At the conclusion of our audit, we will require certain written representations from you about the financial statements and related matters. Audit Procedures - Internal Controls Our audit will include obtaining an understanding of the entity* 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. 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. Our tests, if performed, will be less in scope than would be necessaiv 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. Mayor and Members of City Council City* of La Porte, Texas Page 5 As required by OMB Circular A -133, we will perform tests of controls over compliance 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 necessaiv 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* significant deficiencies. 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, Government Auditing Standards, and OMB Circular A -133. Audit Procedures - Compliance As part of obtaining reasonable assurance about whether the financial statements are free of material misstatement, we will perform tests of City* of La Porte, Texas'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 grant agreements applicable to major programs. Our procedures will consist of tests of transactions and other applicable procedures described in the OMB Circular A -133 Compliance Supplement and related addenda for the types of compliance requirements that could have a direct and material effect on each of City* of La Porte, Texas's major programs. The purpose of these procedures will be to express an opinion on City* of La Porte, Texas's compliance with requirements applicable to each of its major programs in our report on compliance issued pursuant to OMB Circular A -133. 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, 'kve 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, accounts receivable, or other confirmations we request and will locate any* documents selected by us for testing. Mayor and members of City Council City* of La Porte, Texas Page 6 At the conclusion of the engagement, we will complete the appropriate sections of the Data Collection Form that summarizes our audit findings. It is management's responsibility* to submit the reporting package (including financial statements, schedule of expenditures of federal awards, summaiv schedule of prior audit findings, auditors' reports, and corrective action plan) along with the Data Collection Form to the federal audit clearinghouse. We will coordinate with you the electronic submission and certification. If applicable, we will provide copies of our report for you to include with the reporting package you will submit 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 audits. The audit documentation for this engagement is the property* of Null Lairson, P.C. 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 agency* providing direct or indirect funding, or the U.S. Government Accountability* Office for purposes of a quality* review of the audit, to resolve audit findings, or to cans out oversight responsibilities. We will notifi- you of any such request. If requested, access to such audit documentation will be provided under the supervision of Null Lairson, P.C. 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 five years after the report release or for any* additional period requested by the funding agencies. If we are aware that a federal 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. We expect to begin our audit on approximately* September 8, 2011 and to issue our reports no later than March 31, 2012. Tom Pedersen is the engagement partner and is responsible for supervising the engagement and signing the reports or authorizing another individual to sign them. Our fee for these services will be at our standard hourly* rates plus out -of- pocket costs (such as report reproduction, word processing, postage, travel, copies, telephone, etc.) except that we agree that our gross fee, including expenses, will not exceed $59,750. Our standard hourly* rates vaiy 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 your account becomes 60 days or more overdue and may* 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(s). You will be obligated to compensate us for all time expended and to reimburse us for all out -of- pocket costs through the date of termination. The above fee is based on anticipated cooperation from your personnel and the assumption that unexpected circumstances will not be encountered during the audit. If significant additional time is necessaiv, we will discuss it with you and arrive at a new fee estimate before we incur the additional costs. Government Auditing ,Standards require that we provide you with a copy* of our most recent external peer review report and any letter of comment, and any subsequent peer review reports and letters of comment received during the period of the contract. Our 2007 peer review report accompanies this letter. Mayor and Members of City Council City* of La Porte, Texas Page 7 We appreciate the opportunity* to be of seivice to City of La Porte, Texas and believe this letter 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, please sign the enclosed copy* and return it to us. Vein truly yours, Null Lairson, P.C. Texas City*, Texas RESPONSE: This letter correctly* sets forth the understanding of City of La Porte, Texas. Signature: Title: Date: To the Shareholders of Null Lairsori, P-C. and the Center for Public Company Audit Firms Peer Review Committee First Financial Bank Building 400 Pine sirew, Suite 600 AbRenl- Texas 7%01-5133 Office (32 5) 672-dOOO FAX (a25) 67Z-?049 1-800-58B-252,5 We have reviewed the syucm of quality control for the accounting and audifing practice of Null Lairson, ( ' the firm) applicable to non -SEC issuers in effect Rx the year ended Deceni.Lmcr 3 1, 200 - The Zin has informed us that it did nol audit SEC issuers for the year ended Decegilber 31, 2007 A. system ofquahty control encompmses the firm's organizational structure and the li�Aicie,, adopted and Procedures established to prcivido it with reasonable assurance of complying with profrssional standards. The elements of quality MUM] are described in tire. Stananent's Oil Quality Conn�ol Standards issued by the Anter lns:Litutc of Certified Public Accountants (tile AlCPA). 'The design of the systein, and coni.pliance with 'Lt, are tht responsibilities of the firm. Our responsibility is to "pros an opinion on tbQ design of the system, and the fir compliance with. that systems basQd oil out- review, Our review was conducted in accordance with standards established by the Peer Review Conuniftee of the Center 1 Public Company Audit Finns and included procedures to plan an(] perform the T thal are summarized in the at description of flee peer review process- Our revicw would not necessarily disclose all weaknesses 'M the iysti.na of quahty control or all instances of lack, of compliance with it since it was based on selective tests, Because there are Inherent linniations in the effectiveness of any systen of quality' control, departures from the system may occur and not lic detected. Mso, projection of arty evaluation of a systern of quality control to future poriods I.% sait-jcd to thy: risk that (fic symcni of quality` QuntrO may becorne inadequate be-cause of' chan-es In conditions, or that the degree of compliance with the policies or prucedures inay deteriorate- In out opinion, the system of quality control for the accounting and auditiiq piaetkx 4ppljckh to ibQ non -SEC imuers of Null Lairs n, P C, in effect for the year ended December 21, 2007, has been designed to zMet the Tcquirei=nls of the quality control standards for an accounting and auditing practice established by tile A.10 and was complied, with duriag the ycaT then ended to provide the firth with reasonable assurance [if Complying WiLb applicable professional siandards. DAVIS, KINARD & 01, P,C Al N I L a } August 3, 2011 Board of Directors La Porte Area Water Authority La Porte, Texas 77571 We are pleased to confirm our understanding of the services we are to provide La Porte Area Water Authority ( "the Authority ") for the year ended September 30, 2011. We will audit the financial statements of the business - type activities, which collectively comprise the basic financial statements of the Authority as of and for the year ended September 30, 2011. Accounting standards generally accepted in the United States provide for certain required supplementary information (RSI), such as management's discussion and analysis (MD &A), to accompany the Authority's basic financial statements. As part of our engagement, we will apply certain limited procedures to the Authority's RSI. These limited procedures will consist principally of inquiries of management regarding the methods of measurement and presentation, which management is responsible for affirming to us in its representation letter. Unless we encounter problems with the presentation of the RSI or with procedures relating to it, we will disclaim an opinion on it. The following RSI is required by generally accepted accounting principles and will be subjected to certain limited procedures, but will not be audited: 1) Management's Discussion and Analysis. 2) Budgetary Comparison Schedule We will perform additional procedures and present additional information together with auditors' reports as may be required by the Texas Commission on Environmental Quality ( "TCEQ ") for the same periods, as applicable. Audit Objective The objective of our audit is the expression of opinions as to whether your basic financial statements are fairly presented, in all material respects, in conformity with U.S. generally accepted accounting principles and to report on the fairness of the additional information referred to in the first paragraph when considered in relation to the basic financial statements taken as a whole. Our audit will be conducted in accordance with U.S. generally accepted auditing standards and will include tests of the accounting records and other procedures we consider necessary to enable us to express such opinions. If our opinions on the financial statements are other than unqualified, we will fully 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 to issue a report as a result of this engagement. 2000 Loop 197 North I Suite 200 1 Texas Cite_ TX 77590 (P) 409.948.4406 1 (F) 409.948.0364 ��z�z� . null- lairson.com Board of Directors La Porte Area Water Authority Page 2 Management Responsibilities Management is responsible for establishing and maintaining internal controls, including monitoring ongoing activities; for the selection and application of accounting principles; and for the fair presentation in the financial statements of the respective financial position of the business -type activities of the Authority and the respective changes in financial position and where applicable, cash flows, in conformity with U.S. generally accepted accounting principles. Management is responsible for the basic financial statements and all accompanying information as well as all representations contained therein. You are also responsible for management decisions and functions; for designating an individual with suitable skill, knowledge, or experience to oversee our financial statement preparation services and any other nonattest services we provide; and for evaluating the adequacy and results of those services and accepting responsibility for them. Management is responsible for making all financial records and related information available to us and for the accuracy and completeness of that information. 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 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 or illegal acts affecting the government involving (1) management, (2) employees who have significant roles in internal control, and (3) others where the fraud or illegal acts 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 addition, you are responsible for identifying and ensuring that the entity complies with applicable laws and regulations. With regard to using the auditor's report, you understand that you must obtain our prior written consent to reproduce or use our report in bond offering official statements or other documents. 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 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 entity or to acts by management or employees acting on behalf of the entity. Because an audit is designed to provide reasonable, but not absolute, assurance and because we will not perform a detailed examination of all transactions, there is a risk that material misstatements may exist and not be detected by us. 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 you of any material errors and any fraudulent financial reporting or misappropriation of assets that come to our attention. We will also inform you 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, 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 audit, we will also require certain written representations from you about the financial statements and related matters. Board of Directors La Porte Area Water Authority Page 3 Audit Procedures — Internal Control Our audit will include obtaining an understanding of the entity 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 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 Authority'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 Administration, Fees, and Other We understand that your employees will prepare all cash or other confirmations we request and will locate any documents selected by us for testing We expect to begin our audit on approximately September 8, 2011 and to issue our reports no later than March 31, 2012. Our fee for these services will be at our standard hourly rates plus out -of- pocket costs (such as report reproduction, word processing, postage, travel, copies, telephone, etc.) except that we agree that our gross fee, including expenses will not exceed $6,000. 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 your account becomes 60 days or more overdue and may 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 costs through the date of termination. The above fee is based on anticipated cooperation from your personnel and the assumption that unexpected circumstances will not be encountered during the audit. If significant additional time is necessary, we will discuss it with you and arrive at a new fee estimate before we incur the additional costs. You may request that we perform additional services not addressed in this engagement letter. If this occurs, we will communicate with you regarding the scope of the additional services and the estimated fees. We also may issue a separate engagement 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 letter. Board of Directors La Porte Area Water Authority Page 4 We appreciate the opportunity to be of service to the Authority and believe this letter 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, please sign the enclosed copy and return it to us. Very truly yours, Null Lairson RESPONSE: This letter correctly sets forth the understanding of La Porte Area Water Authority. By: Title: Date: