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Hoyman Dobson FY '06-'07FD al(vnitiut,Dektut, Mayor and QOmmissioners City of Okeechobee 55 S.E. Third Avenue Okeechobee FL 34974 August 10, 2007 We are pleased to confirm our understanding of the services we are to provide the City of Okeechobee for the year ending September 30, 2007. We will audit the financial statements of the governmental activities, each major fund, and the aggregate remaining fund information, which collectively comprise the basic financial statements, of the City of Okeechobee as of and for the year ending September 30, 2007. 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 City of Okeechobee's basic financial statements. As part of our engagement, we will apply certain limited procedures to the City of Okeechobee'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. Required supplementary pension information 3. Budgetary comparison schedules for certain governmental funds Supplementary information other than RSI, such as combining and individual fund financial statements, also accompanies the City of Okeechobee's basic financial statements. We will subject the following supplementary information to the auditing procedures applied in our audit of the basic financial statements and will provide an opinion on it in relation to the basic financial statements: 1) Schedule of expenditures of federal awards. 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 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— Certified Public Accountants 215 Baytree Drivel Melbourne, FL 32940 1 p: (321) 255.0088 1 fi (321) 259.8648 2221 Lee Road, Suite 15 1 Winter Park, FL 32789 1 p: (407) 422.1681 1 fi (407) 423.1681 www.hoyman.com Mayor andvmmissioners City of Okeechobee Page Two Internal control related to the financial statements and compliance with the provisions of applicable laws, regulations, contracts, agreements, and grants, 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 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; 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 Circular A -133, and other procedures we consider necessary 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. Management Responsibilities Management is responsible for establishing and maintaining internal controls, including monitoring ongoing activities; 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, each major fund, and the aggregate remaining fund information of the City of Okeechobee and the respective changes in financial position and, where applicable, cash flows in conformity with U.S. generally accepted accounting principles; and for federal award program compliance with applicable laws and regulations and the provisions of contracts and grant agreements. Management is responsible for the basic financial statements and all accompanying information as well as all representations contained therein. You are responsible for management decisions and functions. As part of the audit, we will prepare a draft of your financial statements, schedule of expenditures of federal awards, and related notes. In accordance with Government Auditing Standards, you will be required to review and approve those financial Mayor aneiRtimmissioners City of Okeechobee Page Three statements prior to their issuance and have a responsibility to be in a position in fact and appearance to make an informed judgment on those financial statements. Further, you are required to designate a qualified management -level individual to be responsible and accountable for overseeing our services. Management is responsible for making all financial records and related information available to us, including identifying significant vendor relationships in which the vendor has the responsibility for program compliance and for the accuracy and completeness of that information. Management's responsibilities include 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, grantors, regulators, or others. In addition, you are responsible for identifying 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 summary schedule of prior audit findings and a corrective action plan. Management is responsible for establishment and maintenance of a process for tracking the status of audit findings and recommendations. Management is also responsible for identifying for us previous audits or other engagements or 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 fmdings and recommendations resulting from those audits or other engagements 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, and the timing and format related thereto. 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 fmancial 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. FI) Mayor andkeSinmissioners City of Okeechobee Page Four 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. 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 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 fmancial 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. 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 fmancial 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 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 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 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. 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 professional standards, Government Auditing Standards, and OMB Circular A -133. al( Dilkm, Mayor an- 'mmissioners City of Okeechobee Page Five 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 City of Okeechobee'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 test of transactions and other 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 Okeechobee's major programs. The purpose of those procedures will be to express an opinion on the City of Okeechobee's compliance with requirements applicable to each of its major programs in our report on compliance issued pursuant to OMB Circular A -133. Audit 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, we 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. At the conclusion of the engagement, we will complete the appropriate sections of and sign the Data Collection Form that summarizes our audit findings. We will provide copies of our reports to the City of Okeechobee; however, 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. C21-1( Mayor and,,, nmissioners City of Okeechobee Page Six The audit documentation for this engagement is the property of Hoyman Dobson and constitutes confidential information. However, pursuant to authority given by law or regulation, we may be requested to make certain audit documentation available to U.S. Department of Commerce or its designee, a 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 carry out oversight responsibilities. We will notify you of any such request. If requested, access to such audit documentation will be provided under the supervision of Hoyman Dobson 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 If we are aware that a federal awarding agency, pass through entity, or auditee is contesting an audit fmding, we will contact the party(ies) contesting the audit finding for guidance prior to destroying the audit documentation. Our fee for these services will be at our standard hourly rates including 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 $25,800 for the audit and $4,000 for the Federal Single Audit. 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 30 days or more overdue and may not be resumed until your account is paid in full. Should it appear we would be required to perform any services your personnel have been assigned, to allow for an efficient and timely engagement, or if we see areas where the task undertaken is not as anticipated, we will consult with you to determine if our firm or your staff will take the action necessary to complete the assignment. We will provide a Supplemental Service Agreement (Appendix A) for your signature and authorization.. 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 necessary, 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 2005 peer review accompanies this letter. You have the right and we reserve the right to withdraw from this engagement upon written notification. In such an event, it is the policy of the firm to bill a client for services provided and charges incurred on the client's behalf before the point of withdrawal. alt Deks,t, Mayor and,Vibmmissioners City of Okeechobee Page Seven Parties to this engagement agree that any dispute that may arise regarding the meaning, performance, or enforcement of this engagement, shall be submitted to mediation on a form decided upon by both parties, prior to resorting to litigation. The results of this mediation shall be binding only upon agreement of each party to be bound. Costs of any mediation proceeding shall be shared equally by both parties. Hoyman Dobson prides itself in employing quality individuals and underwrites substantial associate training each year. While engaged to provide these professional services you may become familiar with various members of Hoyman Dobson and wish to extend an offer of employment. Hoyman Dobson values each associate and does not wish to incur turnover, but also does not desire to hinder opportunities that may present themselves to these associates. Recognizing Hoyman Dobson's investment and training in each associate, you agree to reimburse Hoyman Dobson one -third of the individual's current salary should you extend an offer of employment and it be accepted. Additionally, if an employment offer is discussed during the course of the engagement, the Company acknowledges it may have impaired our independence. If an impairment of independence is deemed to have occurred Hoyman Dobson may have to withdraw from the engagement and thus not be able to issue a report. If this occurs the Company agrees to reimburse Hoyman Dobson for fees incurred. By mutual agreement of both parties, this contract can be extended beyond this initial contract period. We appreciate the opportunity to be of service to the City of Okeechobee 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, Deborah A. Bradley Hoyman Dobson RESPONSE: This letter correctly sets forth the undef ding of the City of Okeechobee. By: Title: Date: FI) Client Year Ended At this time we anticipate having to perform the following services in order to complete your year end and financial statements: Reason for requiring the change order Nature of work to be performed Discussion with client Estimated cost of change/ additional work You will be billed for the actual time expended on the services at our normal hourly rates. The terms and conditions of payment will be the same as in our engagement letter. Any revision of timetable Approved: Manager Director APPENDIX A HOYMAN, DOBSON COMPANY, P.A. SUPPLEMENTAL SERVICE AGREEMENT Proposed by Date Prepared Estimated Estimated Accountant Rate Hours Totals Accepted: Client Date Rejected: Manager Director Reason: Rejected: Client: I do not want Hoyman, Dobson Company, P.A. to do the additional services required. I will be responsible for getting our personnel to perform the services. I realize that this will cause a delay in delivery of our financial statements and tax returns. c7 Dokm, APPENDIX A SUPPLEMENTAL SERVICE AGREEMENT PAGE 2 Date: Date: HD -70 To the Directors of Hoyman, Dobson Company, P.A. and the Center for Public Company Audit Firms Peer Review Committee We have reviewed the system of quality control for the accounting and auditing practice of Hoyman, Dobson Company, P.A. (the firm) applicable to non -SEC issuers in effect for the year ended May 31, 2005. The firm's accounting and auditing practice applicable to SEC issuers was not reviewed by us since the Public Company Accounting Oversight Board (PCAOB) is responsible for inspecting that portion of the firm's accounting and auditing practice in accordance with PCAOB requirements. 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 complying with professional standards. The elements of quality control are described in the Statements on Quality Control Standards issued by the American Institute of Certified Public Accountants (the AICPA). The design of the system, and compliance with it, are the responsibilities of the firm. Our responsibility is to express an opinion on the design of the system, and the firm's compliance with that system based on our review. Our review was conducted in accordance with standards established by the Peer Review Committee of the Center for Public Company Audit Firms and included procedures to plan and perform the review that are summarized in the attached description of the peer review process. Our review would not necessarily disclose all weaknesses in the system of quality control or all instances of lack of compliance with it since it was based on selective tests. Because there are inherent limitation in the effectiveness of any system of quality control, 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 that 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 applicable to the non -SEC issuers of Hoyman, Dobson Company, P.A. in effect for the year ended May 31, 2005, has been designed to meet the requirements of the quality control standards for an accounting and auditing practice established by the AICPA, and was complied with during the year then ended to provide the firm with reasonable assurance of complying with applicable professional standards. 11801 Research Dr. Alachua, FL 32615 .1 INTERNATIONAL rIA's g. 1.24i Ages R. Taylor, CPA Team Captain Ph: (386) 418 -4001 Fax: (386) 418 -4002 E -mail: cpamerica @cpamerica.org www.cpamerica.org September 14, 2005 Horwath Strategic Alliance