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HomeMy WebLinkAbout11750RESOLUTION NO. 11750 A RESOLUTION APPROVING AN ENGAGEMENT LETTER BETWEEN THE CITY OF PUEBLO, A MUNICIPAL CORPOR- ATION, AND MCPHERSON, BREYFOGLE, DAVELINE & GOODRICH, PC, CERTIFIED PUBLIC ACCOUNTANTS, RELATING TO PROFESSIONAL AUDITING SERVICE AND AUTHORIZING THE PRESIDENT OF THE CITY COUNCIL TO EXECUTE SAME BE IT RESOLVED BY THE CITY COUNCIL OF PUEBLO, that: SECTION 1 The Engagement Letter between the City of Pueblo, a Municipal Corporation, and McPherson, Breyfogle, Daveline & Goodrich, PC, Certified Public Accountants, for the rendering of professional auditing services to the City of Pueblo, dated November 23, 2009, a copy of which is attached hereto, having been approved as to form by the City Attorney, is hereby approved. SECTION 2 The President of the City Council is hereby authorized to execute the Engagement Letter in the name of the City and the City Clerk is authorized and directed to attest same and affix the Seal of the City thereto. INTRODUCED: November 23, 2009 BY: Judy Weaver COUNCILPERSON APPR D' } �- PRESIDENTaf Cfty Council A77TSTED DY: CITY CLERK D �I � �I ED Background Paper for Proposed RESOLUTION AGENDA ITEM # M -2 DATE: November 23, 2009 DEPARTMENT: Law Department TITLE A RESOLUTION APPROVING AN ENGAGEMENT LETTER BETWEEN THE CITY OF PUEBLO, A MUNICIPAL CORPORATION, AND MCPHERSON, BREYFOGLE, DAVELINE & GOODRICH, PC, CERTIFIED PUBLIC ACCOUNTANTS, RELATING TO PROFESSIONAL AUDITING SERVICE AND AUTHORIZING THE PRESIDENT OF THE CITY COUNCIL TO EXECUTE SAME ISSUE Should City Council engage McPherson, Breyfogle, Daveline & Goodrich, PC, Certified Public Accountants, to perform professional audit services. City staff recommends approval. BACKGROUND McPherson, Breyfogle, Daveline & Goodrich, PC, Certified Public Accountants "(MBDG "), was selected in 2008 through requests for proposals to perform professional auditing services for the City for fiscal year ending December 31, 2008. The attached Engagement Letter engages MBDG to perform professional auditing services for fiscal years 2009 through 2013 with the City's and MBDG' s right to terminate the Engagement Letter for any fiscal year subsequent to fiscal year 2009. FINANCIAL IMPACT MBDG's gross fee, including expenses, will not exceed $88,000.00 per year for each of the years ending December 31, 2009 and 2010, and will not exceed $92,400 per year for years ended December 31, 2011, December 31, 2012 and December 31, 2013. 503 N. Main Street, Suite 740 Pueblo, CO 81003 P Phone (719) 543 -0516 MBDG ® Fax (719) 544 -2849 McPherson, Breyfog le, Dave Iine & Goodrich, PC Certified Public Accountants November 23, 2009 City Council City of Pueblo, Colorado We are pleased to confirm our understanding of the services we are to provide the City of Pueblo, Colorado (the City) for each of the years ended December 31, 2009 through December 31, 2013. We will audit the financial statements of the governmental activities, the business -type activities, each discretely presented component unit, each major fund, and the aggregate remaining fund information, which collectively comprise the basic financial statements of the City of Pueblo, Colorado as of and for each of the years ended December 31, 2009 through December 31, 2013. 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 Pueblo, Colorado's basic financial statements. As part of our engagement, we will apply certain limited procedures to the City of Pueblo, Colorado's RSI. These limited procedures will consist principally of inquiries of management regarding the methods of measurement and presentation, which management is responsible for affirming to us in its representation letter. Unless we encounter problems with the presentation of the RSI or with procedures relating to it, we will disclaim an opinion on it. The following RSI is required by generally accepted accounting principles and will be subjected to certain limited procedures, but will not be audited: 1. Management's discussion and analysis. 2. Budgetary comparison schedules for the general fund and all major special revenue funds. Supplementary information other than RSI also accompanies the City of Pueblo, Colorado'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. 2. Combining and individual fund financial statements and schedules. The following additional information accompanying the basic financial statements will not be subjected to the auditing procedures applied in our audit of the financial statements, and for which our auditors' report will disclaim an opinion. Statistical section 1- Audit Objectives The objective of our audit is the expression of opinions as to whether the 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. • Internal control related to major programs and an opinion (or disclaimer of opinion) on compliance with laws, regulations, and the provisions of contracts or grant agreements that could have a direct and material effect on each major program in accordance with the Single Audit Act Amendments of 1996 and OMB Circular A -133, Audits of States, Local Governments and Non- Profit Organizations. The reports on internal control and compliance will each include a statement that the report is intended solely for the information and use of management, the body or individuals charged with governance, others within the City, 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 auditing standards generally accepted in the United States of America; the standards for financial audits contained in Government Auditing Standards issued by the Comptroller General of the United States; the Single Audit Act Amendments of 1996; and the provisions of OMB Circular A -133, and will include tests of accounting records, a determination of major programs 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 in advance. If, for any reason, we are unable to complete our 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 the basic financial statements and all accompanying information, as well as all representations contained therein. Management is also responsible for preparation of the schedule of expenditures of federal awards in accordance with the requirements of OMB Circular A -133. As part of the audit, we will assist with preparation of the financial statements, schedule of expenditures of federal awards, and related notes. Management is responsible for making all management decisions and performing all management functions relating to the financial statements, schedule of expenditures of federal awards, and related notes and for accepting full responsibility for such decisions. Management will be required to acknowledge in the management representation letter our assistance with preparation of the financial statements and the schedule of expenditures of federal awards and that management has reviewed and approved the financial statements, schedule of expenditures of federal awards, and related notes prior to their issuance and have accepted responsibility for them. Further, management is required to designate an individual with suitable skill, knowledge, or experience to oversee any nonaudit services we provide and for evaluating the adequacy and results of those services and accepting responsibility for them. -2- Management is responsible for establishing and maintaining effective internal controls, including internal controls over compliance, and for monitoring ongoing activities to help ensure that appropriate goals and objectives are met. Management is also responsible for the selection and application of accounting principles; for the fair presentation in the financial statements of the respective financial position of the governmental activities, the business -type activities, each discretely presented component unit, each major fund, and the aggregate remaining fund information of the City of Pueblo, Colorado and the respective changes in financial position and, where applicable, cash flows in conformity with U.S. generally accepted accounting principles; and for compliance with applicable laws and regulations and the provisions of contracts and grant agreements. Management is also responsible for making all financial records and related information available to us and for ensuring that financial information is reliable and properly recorded. Management's responsibilities also include identifying significant vendor relationships in which the vendor has responsibility for program compliance and for the accuracy and completeness of that information. Management responsibilities include adjusting the financial statements to correct material misstatements and confirming to us in the representation letter that the effects of any uncorrected misstatements aggregated by us during the current engagement and pertaining to the latest period presented are immaterial, both individually and in the aggregate, to the financial statements taken as a whole. Management is 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 City 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. Management responsibilities include informing us of their knowledge of any allegations of fraud or suspected fraud affecting the City received in communications from employees, former employees, grantors, regulators or others. In addition, management is responsible for identifying and ensuring that the City 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 establishing and maintaining a process for tracking the status of audit findings and recommendations. Management is also responsible for identifying for us previous financial audits, attestation engagements, performance audits, or other studies related to the objectives discussed in the Audit Objectives section of this letter. This responsibility includes relaying to us corrective actions taken to address significant findings and recommendations resulting from those audits, attestation engagements, performance audits, or studies. Management is also responsible for providing management's views on our current findings, conclusions and recommendations, as well as their planned corrective actions. 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 our 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 City or to acts by management or employees acting on behalf of the City. Because the determination of abuse is subjective, Government Auditing Standards do not expect auditors to provide reasonable assurance of detecting abuse. -3- 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 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, funding sources, creditors and financial institutions. We will request written representations from your attorneys as part of the engagement and they may bill you for responding to this inquiry. At the conclusion of our audit, we will also require certain written representations from management about the financial statements and related matters. Audit Procedures — Internal Controls Our audit will include obtaining an understanding of the City and its environment, including internal control, sufficient to assess the risks of material misstatement of the financial statements and to design the nature, timing and extent of further audit procedures. Tests of controls may be performed to test the effectiveness of certain controls that we consider relevant to preventing and detecting errors and fraud that are material to the financial statements and to preventing and detecting misstatements resulting from illegal acts and other noncompliance matters that have a direct and material effect on the financial statements. Our tests, if performed, will be less in scope than would be 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 and 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 AICPA professional standards, Government Auditing Standards and OMB Circular A -133. Audit Procedures — Compliance As part of obtaining reasonable assurance about whether the financial statements are free of material misstatement, we will perform tests of the City of Pueblo, Colorado'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. -4- OMB Circular A -133 requires that we also plan and perform the audit to obtain reasonable assurance about whether the auditee has complied with applicable laws and regulations and the provisions of contracts and grant agreements applicable to major programs. Our procedures will consist of tests of transactions and other applicable procedures described in the OMB Circular A -133 Compliance Supplement for the types of compliance requirements that could have a direct and material effect on each of the City of Pueblo, Colorado's major programs. The purpose of those procedures will be to express an opinion on the City of Pueblo, Colorado's compliance with requirements applicable to each of its major programs in our report on compliance issued pursuant to OMB Circular A -133. Engagement Administration, Fees and Other At the conclusion of the engagement, we will complete the appropriate sections of the Data Collection Form that summarizes our audit findings. It is management's responsibility to submit the reporting package (including financial statements, schedule of expenditures of federal awards, summary schedule of prior audit findings, auditors' reports, and corrective action plan), along with the Data Collection Form to the federal audit clearinghouse. We will coordinate with you the electronic submission and certification. If applicable, we will provide copies of our report for you to include with the reporting package you will submit to pass - through entities. The Data Collection Form and the reporting package must be submitted within the earlier of 30 days after receipt of the auditors' reports or nine months after the end of the audit period, unless a longer period is agreed to in advance by the oversight agency for audits. The audit documentation for this engagement is the property of McPherson, Breyfogle, Daveline & Goodrich, PC 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 oversight agency 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 management of any such request. If requested, access to such audit documentation will be provided under the supervision of McPherson, Breyfogle, Daveline & Goodrich, PC 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 oversight agency for audit or any pass - through entity. If we are aware that a federal awarding agency, pass - through entity, or auditee is contesting an audit finding, we will contact the party(ies) contesting the audit finding for guidance prior to destroying the audit documentation. Our fee for these services will be billed at the following hourly rates for each of the identified years: December 31, 2009 and December 31, 2010 December 31, 2011, December 31, 2012 and December 31, 2013 Shareholder $ 145 $ 153 Manager 125 132 Supervisor 105 111 Junior 85 90 Clerical 60 63 -5- We agree, however, that our gross fee, including expenses, will not exceed $88,000 per year for each of the years ended December 31, 2009 and 2010, and our gross fee, including expenses, will not exceed $92,400 per year for each of the years ended December 31, 2011, December 31, 2012 and December 31, 2013. The above stated fees are based on anticipated cooperation from City personnel and the assumption that unexpected circumstances will not be encountered during the audit for each year. If significant additional time is necessary, we will discuss it with you and management 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 2008 peer review report accompanies this letter. Either we or the City may terminate our engagement and this engagement letter at any time and for any reason, with respect to the audit of any or all fiscal years subsequent to fiscal year 2009 by giving to the other party written notice of such termination on or before September 30 of such fiscal year or years. We acknowledge and agree that (a) all financial obligations of the City under this engagement letter for fiscal years subsequent to the current fiscal year are subject to funds being appropriated and budgeted for such purposes; (b) in the event City does not budget and appropriate funds specifically for such purpose, our sole and only remedy is to terminate this agreement; (c) we, our officers and employees are independent contractors and not employees of the City and we are responsible for all their withholdings, FICA, employment and other taxes and workers' compensation coverage and benefits, and will hold the City harmless for all claims therefore; and (d) the State - mandated or Related Contract Clauses attached hereto as Attachment No. 1 are incorporated herein as if set out herein in full and for the purpose thereof, we are the "Contractor ". We appreciate the opportunity to be of service to the City of Pueblo, Colorado 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, Ilk Pku, McPHERSON, BREYFOGLE, DAVELINE & GOODRICH, PC RESPONSE: This letter corrpctly sets forth the understanding of the City of Pueblo, Colorado. an President of Citv Council November 23, 2009 LAD:jm -6- State - Mandated or Related Contract Clauses As used in this section, "Contractor" shall mean the firm or entity ( whether referred to as Consultant, Company, Contractor, Architect Accountant or by other term) entering into this Agreement with Pueblo, a Municipal Corporation ( which may be referred to in this Agreement as City, Client, Customer or by other term). PERA LIABILITY Contractor shall reimburse the City for the full amount of any employer contribution required to be paid by City to the Public Employees' Retirement Association ( "PERA ") for salary or other compensation paid to a PERA retiree performing contracted services for the City under this Agreement. Contractor shall fill out the questionnaire attached as Exhibit "A" and submit the completed form to City as part of the signed Agreement. SOLE SOURCE CONTRACTS - Article XXVIII of the Colorado Constitution was amended by vote of the people on November 4, 2008 ("Amendment 54) to provide certain limitations on holders of "sole source' government contracts entered into by government entitles. On August 12, 2009, Denver District Court Judge Catherine Lemon issued an order granting a preliminary injunction against enforcement of Amendment 54, holding that it violated rights of free speech and association guaranteed by the First Amendment. The parties agree that if, at any time during the term of this Agreement, a court of appropriate jurisdiction determines that (1) Amendment 54 is constitutional or otherwise lawful under applicable law; or (2) Amendment 54, if lawful, applies to agreements such as this Agreement and must be included in such agreements, then City and Contractor agree to negotiate the inclusion of complying Amendment 54 language in this Agreement. STATE - IMPOSED MANDATES PROHIBITING ILLEGAL ALIENS FROM PERFORMING WORK UNDER THIS CONTRACT (a) At or prior to the time for execution of this Contract, Contractor shall submit to the Purchasing Agent of the City its certification that it does not knowingly employ or contract with an illegal alien who will perform work under this Contract and that the Contractor will participate in either the AE- Verify Program created in Public Law 208, 104 Congress, as amended and expanded in Public law 156, 108 Congress, as amended, that is administered by the United States Department of Homeland Security or the "Department Program" established pursuant to section 8- 17.5- 102(5)(c), C.R.S. that is administered by the Colorado Department of Labor and Employment in order to confirm the employment eligibility of all employees who are newly hired for employment to perform work under this Contract. (b) Contractor shall not: (1) Knowingly employ or contract with an illegal alien to perform work under this Contract; (ll) Enter into a contract with a subcontractor that fails to certify to Contractor that the subcontractor shall not knowingly employ or contract with an illegal alien to perform work under this Contract. (c) The following state- imposed requirements apply to this Contract: ATTACHMENT NO. 1 (I) The Contractor shall have confirmed the employment eligibility of all employees who are newly hired for employment to perform work under this Contract through participation in either the E- Verify Program or Department Program. (II) The Contractor is prohibited from using either the E- Verify Program or Department Program procedures to undertake pre- employment screening of job applicants while this Contract is being performed. (III) If the Contractor obtains actual knowledge that a subcontractor performing work under this Contract knowingly employs or contracts with an illegal alien to perform work under this Contract, the Contractor shall be required to: A. Notify the subcontractor and the Purchasing Agent of the City within three (3) days that the Contractor has actual knowledge that the subcontractor is employing or contracting with an illegal alien; and B. Terminate the subcontract with the subcontractor if within three (3) days of receiving the notice required pursuant to subparagraph (c)(III)A. above the subcontractor does not stop employing or contracting with the illegal alien; except that the Contractor shall not terminate the contract with the subcontractor if, during such three (3) days, the subcontractor provides information to establish that the subcontractor has not knowingly employed or contracted with an illegal alien. (IV) The Contractor is required to comply with any reasonable request by the Colorado Department of Labor and Employment (hereinafter referred to as ACDLE @) made in the course of an investigation that CDLE is undertaking pursuant to its authority under '8-17.5-102(5), C.R.S. (d) Violation of this Section by the Contractor shall constitute a breach of contract and grounds for termination. In the event of such termination, the Contractor shall be liable for City =s actual and consequential damages. (e) Nothing in this Section shall be construed as requiring the Contractor to violate any terms of participation in the E- Verify Program. EXHIBIT "A" COLORADO PUBLIC EMPLOYEES RETIREMENT ASSOCIATION SUPPLEMENTAL QUESTIONNAIRE TO BE ANSWERED BY ANY BUSINESS PERFORMING SERVICES FOR THE CITY OF PUEBLO Pursuant to section 24 -51- 1101(2), C.R.S., salary or other compensation from the employment, engagement, retention or other use of a person receiving retirement benefits (Retiree) through the Colorado Public Employees Retirement Association (PERA) in an individual capacity or of any entity owned or operated by a PERA Retiree or an affiliated party by the City of Pueblo to perform any service as an employee, contract employee, consultant, independent contractor, or through other arrangements, is subject to employer contributions to PERA by the City of Pueblo. Therefore, as a condition of contracting for services with the City of Pueblo, this document must be completed, signed and returned to the City of Pueblo: (a) Are you, or do you employ or engage in any capacity, including an independent contractor, a PERA Retiree who will perform any services for the City of Pueblo? Yes , No -V--. (b) If you answered Ayes@ to (a) above, please answer the following question: Are you an individual, sole proprietor or partnership, or a business or company owned or operated by a PERA Retiree or an affiliated party? Yes _, No If you answered Ayes@ please state which of the above entities best describes your business: (c) If you answered Ayes@ to both (a) and (b), please provide the name, address and social security number of each such PERA Retiree. Name Address Social Security Number Name Address Social Security Number (If more than two, please attach a supplemental list) Failure to accurately complete, sign and return this document to the City of Pueblo may result in your being denied the privilege or doing business with the City of Pueblo. If you answered Ayes@ to both (a) and (b), you agree to reimburse the City of Pueblo for any employer contribution required to be paid by the City of Pueblo to PERA for salary or other compensation paid to you as a PERA Retiree or paid to any employee or independent contractor of yours who is a PERA Retiree performing services for the City of Pueblo. You further authorize the City of Pueblo to deduct and withhold all such contributions from any moneys due or payable to you by the City of Pueblo under any current or future contract or other arrangement for services between you and the City of Pueblo. Signed Opp --Yosu )-3 , 200__. Mcl��- 2.s v�_I��QF Fnu� 1�evF+ -�rar a- Lr��t),ztG?t, �L By Name: L Y , ] U> Title: 1 Xh'T For purposes of responding to question (b) above, an Aaffiliated party@ includes (1) any person who is the named beneficiary or cobeneficiary on the PERA account of the PERA Retiree; (2) any person who is a relative of the PERA Retiree by blood or adoption to and including parents, siblings, half - siblings, children, and grandchildren; (3) any person who is a relative of the PERA Retiree by marriage to and including spouse, spouse =s parents, stepparents, stepchildren, stepsiblings, and spouse =s siblings; and (4) any person or entity with whom the PERA Retiree has an agreement to share or otherwise profit from the performance of services for the City of Pueblo by the PERA Retiree other than the PERA Retiree =s regular salary or compensation. Schulz & Company, P.C. Michael L, Schulz, CPA Certified Public Accountants Tracy G. Schulz, CPA November 21, 2008 To the Shareholders of McPherson, Breyfogle, Daveline & Goodrich, PC We have reviewed the system of quality control for the accounting and auditing practice of McPherson, Breyfogle, Daveline & Goodrich, PC, (the firm) in effect for the year ended June 30, 2008. A system of quality control encompasses the firm's organizational structure, the policies adopted and procedures established to provide it with reasonable assurance of conforming 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 (AICPA). The firm is responsible for designing a system of quality control and complying with it to provide the fine with reasonable assurance of conforming with professional standards in all material respects. Our responsibility is to express an opinion on the design of the system of quality control and the firm's compliance with its system of quality control based on our review. Our review was conducted in accordance with standards established by the Peer Review Board of the AICPA. During our review, we read required representations from the firm, interviewed firm personnel and obtained an understanding of the nature of the firm's accounting and auditing practice, and the design of the firm's system of quality control sufficient to assess the risks implicit in its practice. Based on our assessments, we selected engagements and administrative files to test for conformity with professional standards and compliance with the firm's system of quality control. The engagements selected represented a reasonable cross: section of the firm's accounting and auditing practice with emphasis on higher -risk engagements. The engagements selected included among others, audits of Employee Benefit Plans and engagements performed under Government Auditing Standards. Prior to concluding the review, we reassessed the adequacy of the scope of the peer review procedures and met with firm management to discuss the results of our review. We believe that the procedures we performed provide a reasonable basis for our opinion. In performing our review, we obtained an understanding of the system of quality control for the firm's accounting and auditing practice. In addition, we tested compliance with the firm's quality control policies and procedures to the extent we considered appropriate. These tests covered the application of the firm's policies and procedures on selected engagements. Our review was based on selective tests therefore it would not necessarily disclose all weaknesses in the system of quality control or all instances of lack of compliance with it. There are inherent limitations in the effectiveness of any system of quality control and therefore noncompliance with the system of quality control may occur and not be detected. Projection of any evaluation of a system of quality control to future periods is subject to risk that the system of quality control may become inadequate because of changes in conditions, or because the degree of compliance with the policies or procedures may deteriorate. 15200 E, Girard Avenue, Suite 4900, Aurora, Colorado 80014 (303) 690 -7275 Fax (303)690 -9110 In our opinion, the system of quality control for the accounting and auditing practice of McPherson, Breyfogle, Daveline & Goodrich, PC in effect for the year ended June 30, 2008, 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 conforming with professional standards. 5:" &„ pe Schulz & Company, P.C.