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CCR2007067. . . COMMON COUNCIL - CITY OF MUSKEGO RESOLUTION #067-2007 APPROVAL OF VIRCHOW, KRAUSE & COMPANY, LLP ENGAGEMENT LETTER FOR THE AUDIT OF TID NO.9 BE IT RESOLVED That the Common Council of the City of Muskego, upon the recommendation of the Finance Committee, does hereby approve the attached engagement letter submitted by Virchow, Krause & Company, LLP for the audit of Tax Incremental District NO.9. BE IT FURTHER RESOLVED That the Mayor is authorized to sign the engagement letter in the name of the City. DATED THIS 27th DAY OF March ,2007. SPONSORED BY: FINANCE COMMITTEE Ald. Nancy Salentine Ald. Eileen Madden Ald. Neil Borgman This is to certify that this is a true and accurate copy of Resolution #067-2007 which was adopted by the Common Council of the City of Muskego. 3/07jmb . . . ~ VirchOWKrause &company January 12, 2007 Common Council CIO Ms. Sharon Mueller, Finance Department Supervisor City of Muskgeo W182 S82 Racine Avenue Muskego, WI 53150-0749 Dear Common Council Members: We are pleased to confirm our understanding of the services we are to provide to the City for the year ended December 31, 2006. We will audit the Combined Balance Sheet, the Historical Summary of Project Costs, Project Revenues and Net Costs to be Recovered Through Tax Increments and the Related Historical Summary of Sources, Uses, and Status of Funds of the Tax Incremental District NO.9 of the City of Muskego as of December 31, 2006 and from the date the District was created through December 31, 2006. This audit represents both the 30% and 100% of project plan expenditures audit of District NO.9. The Tax Incremental Financing District is also required to be audited according to Wisconsin State Statutes Section 66.1105. We will perform tests of the City's compliance with this section of the statute and the project plan for the period ended December 31, 2006. 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 TIF District. Detailed Schedule of Sources, Uses, and Status of Funds Detailed Schedule of Capital Expenditures Audit Objectives The objective of our audit is the expression of an opinion as to whether your TIF 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 any additional information included with the financial statements when considered in relation to the TIF financial statements taken as a whole. Our audit will be conducted in accordance with auditing standards generally accepted in the United States of America and will include tests of the accounting records and other procedures we consider necessary to enable us to express such an opinion. If our opinion on the TIF financial statements 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. 115 South 84th Street. Suite 400 . Milwaukee, WI 53214 . Tel 414.777.5500 . Fax 414.777.5555 . www.virchowkrause.com Virchow, Krause & Company, LLP Certified Public Accountants & Consultants. An Independent Member of Baker Tilly International Common Council January 12, 2007 Page 2 . Audit Approach - 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 design our audit to obtain reasonable, but not absolute, assurance of detecting errors or fraud that would have a material effect on the financial statements as well as other illegal acts having a direct and material effect on financial statement amounts. 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. 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 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. 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 City of Muskego TIF No. 9's financial statements or our report thereon; (ii) any serious difficulties encountered in performing the audit; and (iii) other matters related to your financial statements including your accounting policies and practices; and (iv) 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. . . . . Common Council January 12, 2007 Page 3 The audit will not be planned or conducted in contemplation of reliance by any specific third party or with respect to any specific transaction. Therefore, items of possible interest to a third party will not be specifically addressed and matters may exist that would be assessed differently by a third party, possibly in connection with a specific transaction. Identifying and ensuring that the City of Muskego TIF No. 9's complies with laws, regulations, contracts, and agreements, is the responsibility of management. As part of obtaining reasonable assurance about whether the TIF financial statements are free of material misstatement, we will perform tests of the City of Muskego TIF No. 9'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 Approach - Internal Controls In planning and performing our audit, we will consider the internal control solely for the purpose of determining the nature, timing, and extent of our auditing procedures for the purpose of expressing our opinion on City of Muskego's TIF financial statements. An audit is not designed to provide assurance on internal control over financial reporting 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 TIF financial statements. Audit Approach - 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 TIF financial statements are free of material misstatement, we will perform tests of compliance with tax increment financing district laws, regulations and the project plan. However, it should be noted that our objective was not to provide an opinion on overall compliance with the provisions included in Wisconsin State Statutes Section 66.1105. Common Council January 12, 2007 Page 4 . Management Responsibilities . 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, 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, the selection and application of accounting principles, and the safeguarding of assets. You are responsible for (i) adjusting the TIF 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 basic financial statements taken as a whole, and (ii) notifying us of all material weaknesses, including other significant deficiencies, in the design or operation of your internal control over financial reporting that are reasonably likely to adversely affect your ability to record, process, summarize and report external financial data reliably in accordance with accounting principles generally accepted in the United States of America. 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 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. As part of management's responsibility for the financial statements and the effectiveness of its system of internal control over financial reporting, 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. 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. Non-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 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. . We will not perform any management functions or make management decisions on your behalf with respect to any non-attest services we provide. Common Council January 12, 2007 Page 5 . 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. 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. 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. In addition, you agree to notify us, in advance, if you intend to publish the audited financial statements on a web site or if you intend to transmit the audited financial statements electronically over the Internet. 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 Village'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 City 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. . Invoices for these fees will be rendered each month as work progresses and are payable on presentation. A charge of 1.5% per month shall be imposed on accounts not paid within 30 days of receipt of our statement for services provided. In accordance with our Common Council January 12, 2007 Page 6 . firm policies, work may be suspended if your account becomes 30 days or more overdue and will 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 notice 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 expenditures through the date of termination. We estimate that our fees for these services will range from $5,000 to $7,000 for the audit. The fee estimate 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. Our fees are based on known circumstances at the time of this agreement. Should circumstances change significantly during the course of this engagement, we will discuss with you the need for any revised audit fees. We plan to perform the fieldwork for this audit in September 2007 and issue our report no later than November 30, 2007. . Because of the importance of oral and written representations to an effective audit, the City 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 Village, whether a claim be in tort, contract or otherwise (a) for any amount in excess of the total professional fees paid by the City under this engagement letter; or (b) 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 to have resulted from the fault of Virchow, Krause & Company, LLP relating to such services. In addition, the City 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 City 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. . . . Common Council January 12, 2007 Page 7 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 City 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 Village, the City 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 City 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. This engagement letter reflects the entire agreement between us relating to the services covered by this letter. It replaces and supersedes any previous proposals, correspondence and understandings, whether written or oral. If any provision of this letter is determined to be unenforceable, all the other provisions shall remain in force. The agreement contained in this engagement letter shall survive the completion or termination of this engagement. We appreciate the opportunity to be of service to the City of Muskego 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. It is a pleasure to be of service to you. We look forward to many years of pleasant association with you and the City. Please contact me if you have any questions or concerns. Sincerely, ~~MPANy.LLP Donald N. Vilione, CPA Partner Enclosures *** ** ** **** * *** **** *** ***** * Accepted By: Date: