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Rogers, Anderson, Malody and Scott-2003-10 DONALD L. ROGERS, C.P.A. DENNIS H. MALODY II, C.P.A. JAY H. ZERCHER, C.P.A. ROBERT B. MEMORY, C.P.A. PHILLIP H. WALLER, C.P.A. BRENDA L. ODLE, C.P.A. TERRY P SHEA, C.P.A. KIRK A. FRANKS, C.P.A. ROGERS, ANDERSON, MALODY & SCOTT, LIT CERTIFIED PUBLIC ACCOUNTANTS CYNTHIA L. SAKS, C.P.A. LEENA SHANBHAG, C.P.A. NANCY O'RAFFERTY, C.P.A. KATHLEEN L DEVALK, C.P.A. LAURIE K. MAFISCHER, C.P.A. THOMAS T. FRILL, C.P.A. JENNIFER L STARBUCK, C.P.A. JOSEPH P. WALSH, C.P.A. SO MAN (PEONY) CHENG, C.P.A. SCOTT W. MANNO, C.P.A. THOMAS V. HESS, C.P.A. May 12, 2003 Larry Ronnow, Finance Director City of Grand Terrace 22795 Barton Road Grand Terrace, California 92313 We are pleased to confirm our understanding of the services we are to provide the City of Grand Terrace for the year ended June 30, 2003. We will audit the basic financial statements of the City of Grand Terrace, the City of Grand Terrace Community Redevelopment Agency and the City of Grand Terrace Public Financing Authority as of and for the year ended June 30, 2003. We understand that the basic financial statements will be presented in accordance with the financial reporting model described in GASB Statement No. 34. 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 basic financial statements: 1.Schedule of expenditures of federal awards, if applicable. 2.Management's discussion and analysis. 3.Budgetary comparison schedule. 4.Infrastructure under modified reporting. Audit Objective The objective of our audit is the expression of an opinion 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. 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. MEMBERS AMERICAN INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS PCPS THE AICPA ALLIANCE FOR CPA FIRMS CALIFORNIA SOCIETY OF CERTIFIED PUBLIC ACCOUNTANTS VANIR TOWER • 290 NORTH "O STREET • SUITE 300 SAN BERNARDINO, CA 92401 (909) 889-0871 • (909) 824-6736 • FAX (909) 889-5361 E-mail: rams@ramscpa.net Larry Ronnow, Finance Director May 12, 2003 City of Grand Terrace Page 2 • 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 for the information and use 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 U.S. generally accepted auditing standards and 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; the provisions of OMB Circular A-133; the Audit Guidelines for Compliance Audits of California Redevelopment Agencies as promulgated by the State Controller's office; and Article XIII B of the California State Constitution, and will include tests of accounting records, a determination of major program(s) 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 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. We will also provide reports (that do not include opinions) on internal control related to the financial statements and compliance with laws, regulations, and the provisions or grant agreements, noncompliance with which could have a material effect on the basic financial statements as required by Government Auditing Standards. Management Responsibilities Management is responsible for establishing and maintaining internal control and for compliance with laws, regulations, contracts and agreements. 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 financial 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. May 12, 2003 Page 3 Larry Ronnow, Finance Director City of Grand Terrace Management is responsible for making all financial records and related information available to us. We understand that you will provide us with such information required for our audit and that you are 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 your financial statements, including the schedule of expenditures of federal awards, but the responsibility for the financial statements remains with you. That 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 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 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 basic 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. 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 caused by 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 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 basic financial statements or to major programs. However, we will inform you of any material errors and any fraudulent financial reporting or misappropriation of assets that comes to our attention. 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. Larry Ronnow, Finance Director May 12, 2003 City of Grand Terrace Page 4 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. Identifying and ensuring that the City of Grand Terrace 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 misstatements, we will perform tests of the City of Grand Terrace'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 audits, 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 opinion on the City of Grand Terrace's basic financial statements and on 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 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. Larry Ronnow, Finance Director May 12, 2003 City of Grand Terrace Page 5 An audit is not designed to provide assurance on internal control or to identify reportable conditions. However, we will inform the governing body 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 basic 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. Audit Procedures - Compliance Our audit will be conducted in accordance with the standards referred to in the section titled Audit Objective. As part of obtaining reasonable assurance about whether the basic financial statements are free of material misstatement, we will perform tests of the City of Grand Terrace'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 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 of the City of Grand Terrace's major programs. The purpose of those procedures will be to express an opinion on the City of Grand Terrace's compliance with requirements applicable to major programs in our report on compliance issued pursuant to OMB Circular A- 133. Audit Administration, Fees, and Other At the conclusion of the engagement, it is management's responsibility to submit the reporting package (including financial statements, schedule of expenditures of federal 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 audits. 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. May 12, 2003 Page 6 Larry Ronnow, Finance Director City of Grand Terrace The workpapers for this engagement are the property of Rogers, Anderson, Malody and Scott and constitute confidential information. However, we may be requested to make certain workpapers available to federal cognizant or grantor agencies pursuant to authority given to them by law or regulation. If requested, access to such workpapers will be provided under the supervision of our firm. Furthermore, upon request, we may provide photocopies of selected workpapers to federal cognizant or grantor agencies. The federal cognizant or grantor agencies may intend, or decide, to distribute the photocopies or information contained therein to others, including other governmental agencies. In such cases, Rogers, Anderson, Malody and Scott is not responsible for the distribution of the photocopies or information contained therein. Our fee for these services will be at our standard hourly rates except that we agree that our gross fee will not exceed $10,000, $3,100 and $1,500 for the City of Grand Terrace, the City of Grand Terrace Community Redevelopment Agency and the City of Grand Terrace Public Financing Authority. Our standard hourly rates vary according to the degree of responsibility involved and the experience level of the personnel assigned to your audit. 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. In addition, we agree to prepare the City of Grand Terrace's Cities Financial Transactions Report, and the City of Grand Terrace Public Financing Authority Transaction Report to the State Controllers Office. In addition, we will also prepare the City's Annual Street Report. Our fees for these services will be $1,025. We appreciate the opportunity to be of service to the City of Grand Terrace 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, ROGERS, ANDERSON, MALODY AND SCOTT, LLP Response: This letter correctly sets forth the understanding of the City of Grand Terrace. Signature: (///4,W'N Title: F(/34/3e t Pr g_Ee Date: MAY' Zoo 3