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Hoyman Dobson FY '05-'06 14111 HOYMAN, DOBSON COMPANY, P.A. CERTIFIED PUBLIC ACCOUNTANTS Charles W. Hoyman, Jr. Barbara J. Oswalt Thomas L. Kirk Karen E. Kirkland September 7, 2006 Deborah A. Bradley A. William Forness, Jr Roman G. Carraway Mayor and Commissioners Gina Howard Rall City of Okeechobee 55 S.E. Third Avenue Okeechobee, FL 34974 We are pleased to confirm our understanding of the services we are to provide City of Okeechobee for the year ending September 30, 2006. We will audit the financial statements of the governmental activities, each major fund, and the aggregate remaining fund information, which collectively comprise the entity's basic financial statements, of City of Okeechobee as of and for the year ending September 30, 2006. The following supplementary information accompanying the basic financial statements 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 Also, the following additional information accompanying the basic financial statements will be subjected to the auditing procedures applied in our audit of the financial statements upon which we will provide an opinion in relation to the basic financial statements: 1. Schedule of expenditures of federal awards and state financial assistance 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— Internal control related to the financial statements and compliance with the provisions of 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 and the Florida Single Audit Act. The reports on internal control and compliance will each include a statement that the report is intending for the information and use of the audit committee, management, specific legislative or regulatory bodies, federal and state awarding agencies, and if applicable, pass- through entities and is not intending to be and should not be used by anyone other than these specified parties. 44illWAI uWIIIYL I I. I I 215 Baytree Drive, Melbourne, FL 32940 321 255 -0088 Fax 321 259 -8648 www.hoyman.com 2221 Lee Road, Suite 15, Winter Park, FL 32789 407 -422 -1681 Fax 407 -423 -1681 Mayor and Commissioners City of Okeechobee Page Two 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 Rules of the Auditor General of the State of Florida, Chapter 10.550; the Single Audit Act Amendments of 1996; the provisions of OMB Circular A -133, and the Florida Single Audit Act, and will include tests of accounting records, a determination of major program(s) in accordance with Circular A -133 and the Florida Single Audit Act, 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 effective internal control and for compliance with the provisions of applicable laws, regulations, contracts, agreements, and grants. 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 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. Management is responsible for making all financial records and related information available to us, including any significant vendor relationships in which the vendor has the responsibility for program compliance. 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. 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 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 governmental activities, each major fund, and the aggregate remaining fund information of the City of Okeechobee and the respective changes in financial position, in conformity with U.S. generally accepted accounting principles. 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 or illegal acts 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 and regulations and for taking timely and appropriate steps to remedy any Mayor and Commissioners City of Okeechobee Page Three fraud, illegal acts, violations of contracts or grant agreements, or abuse that we may report. Additionally, as required by OMB Circular A -133 and the Florida Single Audit Act, 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. As part of the audit, we will prepare a draft of your financial statements, schedule of expenditures of federal awards and state financial assistance, and related notes. In accordance with Government Auditing Standards, you will be required to review and approve those financial 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 service. 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. As required by the Single Audit Act Amendments of 1996 and OMB Circular A -133 and the Florida Single Audit Act, our audit will include tests of transactions related to major federal and state award programs for compliance with applicable laws and regulations and the provisions of contracts and 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 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 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. Mayor and Commissioners City of Okeechobee Page Four Audit Procedures Internal Controls In planning and performing our audit, 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 opinions on City of Okeechobee's financial statements and on its 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 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. Tests of controls relative to the 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 and the Florida Single Audit Act, 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 and the Florida Single Audit Act. An audit is not designed to provide assurance on internal control 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 financial statements. We will also inform you of any nonreportable conditions or other matters involving internal control, if any, as required by Government Auditing Standards, OMB Circular A -133 and the Florida Single Audit Act. Audit Procedures 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 financial statements are free of material misstatement, we will perform tests of 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 and the Florida Single Audit Act 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 Mayor and Commissioners City of Okeechobee Page Five the types of compliance requirements that could have a direct and material effect on each of City of Okeechobee's major programs. The purpose of those procedures will be to express an opinion on 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 and the Florida Single Audit Act. 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. 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. 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 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. The audit documentation for this engagement is the property of Hoyman, Dobson Company, P.A. and constitutes confidential information. However, pursuant to authority given by law or regulation, we may be requested to make certain audit documentation available to the U.S. Department of Commerce or its designee, a federal or state agency providing direct or indirect funding, or the U.S. Governmental 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 Company, P.A. 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 U.S. Department of Commerce. If we are Mayor and Commissioners City of Okeechobee Page Six aware that a federal or state awarding agency, pass through entity, or auditee is contesting an audit finding, we will contact the party 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 $24,500 for the audit and $8,000 for the Federal and State single audits. 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. Amounts outstanding more than 30 days will be considered delinquent and will be subject to an interest charge of 1% per month (annual percentage rate of 12 In accordance with our firm policies, work may be suspending if your account becomes thirty 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 expending 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. 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 are requested to complete any supplementary services. 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 report 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. 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 Company, P.A. 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 Company, P.A. and wish to extend an offer of employment. Hoyman, Dobson Company, P.A. 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 Company, P.A.'s investment and training in each associate, you agree to reimburse Hoyman, Dobson Company, P.A. 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 Mayor and Commissioners City of Okeechobee Page Seven 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 Company, P.A. 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 Company, P.A. for fees incurred. By mutual agreement of both parties, this contract can be extending beyond this initial contract period. We appreciate the opportunity to be of service to 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, 44,404 Je&Z /1A, Deborah A. Bradley Hoyman, Dobson Company, P.A. RESPONSE: This letter c ly sets forth the un erstanding of City of Okeechobee. By: Attest: Title: E. Kirk, Mayor antes By: Date: 19, 2006 Title: Lane Gamil.ea, CNC, City Clerk Late: c :r 1A, Reviewed f Legal BY: Title: John R. Cook, City Attorney Late: Sc 19, 2006 APPENDIX A HOYMAN, DOBSON COMPANY, P.A. SUPPLEMENTAL SERVICE AGREEMENT Client Proposed by Year Ending Date Prepared 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 Estimated Accountant Rate Hours Totals Estimated cost of change/ additional work You will be billed for the actual time expending 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: Accepted: Manager Client Director Date HD -70 12/95 APPENDIX A SUPPLEMENTAL SERVICE AGREEMENT PAGE 2 Rejected: Manager Director Date: Reason: Rejected: Client: Date: 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. HD -70 12/95 I NTE A RNATIONAL September 14, 2005 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. g. Jges R. Taylor, CPA Team Captain 11801 Research Dr. Ph: (386) 418 -4001 Fax: (386) 418 -4002 j Horvath Alachua, FL 32615 E -mail: cpamerica @cpamerica.org www.cpamerica.org Strategic Alliance Attachment to the Peer Review Report of Hoyman, Dobson Company, P.A. Description of the Peer Review Process Overview Firms enrolled in the AICPA Center for Public Company Audit Firms (the Center) Peer Review Program have their system of quality control periodically reviewed by independent peers. These reviews are system and compliance oriented with the objectives of evaluating whether: The reviewed firm's system of quality control for its accounting and auditing practice applicable to non -SEC issuers has been designed to meet the requirements of the Quality Control Standards established by the AICPA. The reviewed firm's quality control policies and procedures applicable to non -SEC issuers were being complied with to provide the firm with reasonable assurance of complying with professional standards. A peer review is based on selective tests and directed at assessing whether the design of and compliance with the firm's system of quality control of its accounting and auditing practice applicable to non -SEC issuers provides the firm with reasonable, not absolute, assurance of complying with professional standards. Consequently a peer review on the firm's system of quality control is not intended to, and does not, provide assurance with respect to any individual engagement conducted by the firm or that none of the financial statements audited by the firm should be restated. The Center's Peer Review Committee (PRC) establishes and maintains peer review standards. At regular meetings and through report evaluation task forces, the PRC considers each peer review, evaluates the reviewer's competence and performance, and examines every report, letter of comments, and accompanying response from the reviewed firm that states its corrective action plan before the peer review is finalized. The Center's staff plays a key role in overseeing the performance of peer reviews working closely with the peer review teams and the PRC. Once the PRC accepts the peer review reports, letters of comments, and reviewed firms' responses, these documents are maintained in a file available to the public. In some situations, the public file also includes a signed undertaking by the firm agreeing to specific follow -up action requested by the PRC. Firms that perform audits or play a substantial role in the audit of one or more SEC issuers, as defined by the Public Company Accounting Oversight Board (PCAOB), are required to be registered with and have their accounting and auditing practice applicable to SEC issuers inspected by the PCAOB. Therefore, we did not review the firm's accounting and auditing practice applicable to SEC issuers. Planning the Review for the Firm's Accounting and Auditing Practice Applicable to Non SEC Issuers To plan the review of Hoyman, Dobson Company, P.A., we obtained an understanding of (1) the nature and extent of the firm's accounting and auditing practice, and (2) the design of the firm's system of quality control sufficient to assess the inherent and control risks implicit in its practice. Inherent risks were assessed by obtaining an understanding of the firm's practice, such as the industries of its clients and other factors of complexity in serving those clients, and the organization of the firm's personnel into practice units. Control risks were assessed by obtaining an understanding of the design of the firm's system of quality control, including its audit methodology, and monitoring procedures. Assessing control risk is the process of evaluating the effectiveness of the reviewed firm's system of quality control in preventing the performance of engagements that do not comply with professional standards. Performing the Review for the Firm's Accounting and Auditing Practice Applicable to Non -SEC Issuers Based on our assessment of the combined level of inherent and control risks, we identified practice units and selected engagements within those units to test for compliance with the firm's system of quality control. The engagements selected for review included engagements performed under the Government Auditing Standards. The engagements selected for review represented a cross section of the firm's accounting and auditing practice with emphasis on higher -risk engagements. The engagement reviews included examining working paper files and reports and interviewing engagement personnel. The scope of the peer review also included examining selected administrative and personnel files to determine compliance with the firm's policies and procedures for the elements of quality control pertaining to independence, integrity, and objectivity; personnel management; and acceptance and continuance of clients and engagements. Prior to concluding the review, we reassessed the adequacy of scope and conducted a meeting with firm management to discuss our findings and recommendations.