Search

City of Nashua

Office of the Chief Financial Officer

229 Main Street - Nashua, NH 03060 (603) 589-3171
Fax (603) 589-3233

To: Mayor Jim Donchess

From: John L. Griffin, Chief Financial Officer

Date: March 16, 2016

Subject: Recommendation to Extend Melanson Heath & Company Contract

The purpose of this communication is to recommend extending the existing contract with Melanson Heath &
Company for services to audit the City’s general-purpose financial statements and schedules for the next two
fiscal years ended June 30, 2016 and June 30, 2017.

During the past four years, this firm has provided audit services for the Lawson Financial Systems including
GL, A/P, Payroll, Procurement, Cash Receipts and Fixed Assets. Melanson Heath’s familiarity with the former
ADMINS system and the new Lawson Systems has proven to be most helpful.

As the City continues to convert several of its critical legacy systems from ADMINS to newer systems, the
institutional knowledge of the audit firm of the systems is important. During the next two fiscal years, we
anticipate implementing the MUNIS property tax and utility billing systems.

In summary, given the continued migration of financial systems over the next two years, it is important to
maintain the services from the incumbent external auditor — Melanson Heath & Company for continuity.

MELANSONI|e aN

ACCOUNTANTS * AUDITORS

March 8, 2016 102 Perimeter Road
Nashua, NH 03063
(603) 882-1111
melansenheath.com

Mr. John Griffin

Chief Financial Officer Additional Offices:
City of Nashua Andover, MA

229 Main Street Cee
Nashua, NH 03061 Ellsworth, ME

Dear Mr. Griffin:

You have requested that we audit the basic financial statements of the City of Nashua,
New Hampshire as of June 30, 2016 and 2017 and for the years then ended, and the
related notes to the financial statements. In addition, we will audit the City’s compliance
over major federal award programs for the years ended June 30, 2016 and 2017. We are
pleased to confirm our acceptance and our understanding of this audit engagement by
means of this letter. Our audits will be conducted with the objectives of our expressing an
Opinion on each opinion unit and an opinion on compliance regarding the entity’s major
federal award programs.

Accounting principles generally accepted in the United States of America require that
certain information be presented to supplement the basic financial statements. Such
information, although not a part of the basic financial statements, is required by the
Governmental Accounting Standards Board, who considers it to be an essential part

of financial reporting for placing the basic financial statements in an appropriate opera-
tional, economic, or historical context. As part of our engagement, we will apply certain
limited procedures to the required supplementary information (RSI) in accordance with
auditing standards generally accepted in the United States of America. These limited
procedures will consist primarily of inquiries of management regarding their methods of
measurement and presentation, and comparing the information for consistency with
management's responses to our inquiries. We will not express an opinion or provide any
form of assurance on the RSI. The following RSI is required by accounting principles
generally accepted in the United States of America. This RSI will be subjected to certain
limited procedures but will not be audited:

e Management's Discussion and Analysis

e Schedule of Funding Progress — Other Post-Employment Benefits

e Employer's Schedule of Proportionate Share of the Net Pension Liability
e Schedule of Contributions

e Schedule of Changes in Net Pension Liability

e Schedule of Net Pension Liability

e Schedule of Contributions

e Schedule of Investment Returns

Supplementary information other than RSI will accompany the City’s basic financial
statements. We will subject the supplementary information to the auditing procedures
applied in our audit of the basic financial statements and certain additional procedures,
including comparing and reconciling the supplementary information to the underlying
accounting and other records used to prepare the financial statements or to the financial
statements themselves, and additional procedures in accordance with auditing standards
generally accepted in the United States of America. We intend to provide an opinion on
the supplementary information in relation to the financial statements as a whole.

Also, the document we submit to you will include the introductory and statistical sections
that will not be subjected to the auditing procedures applied in our audit of the financial
statements. As part of our engagement, we will apply certain limited procedures to the
introductory and statistical sections. These limited procedures will consist primarily of
inquiries of management regarding their methods of measurement and presentation,
and comparing the information for consistency with management’s responses to our
inquiries. We will not express an opinion or provide any form of assurance on the
introductory and statistical sections.

Schedule of Expenditures of Federal Awards

We will subject the schedule of expenditures of federal awards to the auditing proce-
dures applied in our audit of the basic financial statements and certain additional proce-
dures, including comparing and reconciling the schedule to the underlying accounting
and other records used to prepare the financial statements or to the financial statements
themselves, and additional procedures in accordance with auditing standards generally
accepted in the United States of America. We intend to provide an opinion on whether
the schedule of expenditures of federal awards is presented fairly in all material respects
in relation to the financial statements as a whole.

Data Collection Form

Prior to the completion of our engagement, we will complete the sections of the Data
Collection Form that are our responsibility. The form will summarize our audit findings,
amounts and conclusions. It is management's responsibility to submit a reporting package
including financial statements, schedule of expenditure of federal awards, summary
schedule of prior audit findings and corrective action plan along with the Data Collection
Form to the federal audit clearinghouse. The financial reporting package must be text
searchable, unencrypted, and unlocked. Otherwise, the reporting package will not be
accepted by the federal audit clearinghouse. We will assist you in the electronic submis-
sion and certification. You may request from us copies of our report for you to include with
the reporting package submitted to pass-through entities.

The Data Collection Form is required to be submitted within the earlier of 30 days after
receipt of our auditors’ reports or nine months after the end of the audit period, unless
specifically waived by a federal cognizant or oversight agency for audits. Data Collection
Forms submitted untimely are one of the factors in assessing programs at a higher risk.

e Review of existing conditions to identify issues such as existing driveway or walk
puddles, and utility concerns

e Assistance during construction start-up including kick-off meetings and establishment of
working and reporting practices with contractors

e Construction observation including measuring and tracking quantities, as well as
preparation of comprehensive daily reports

e Compilation of project records

e Administration and support of construction contract closeout process

e Close coordination with Contractor during reconstruction of ADA compliant sidewalk
ramps

In performing these services, we understand that our efforts will always be as directed by the
City Engineer. At times, we may perform services which the City’s standard General Conditions
for construction contracts assign to the “Engineer”. We note that performing these duties will
not bestow upon us the role and responsibilities of “Engineer” as may be defined in contracts
with construction contractors.

HSI will not be given the authority to stop the Contractor’s work, nor to order the Contractor to
perform work beyond contract limits. If so directed by the City Engineer, we will deliver such
orders on the Engineer’s behalf.

On occasions when City staff may be working under the direct supervision of HSI, we
understand that the City staff will perform work with a standard of care equal to or exceeding the
standard we require of our own staff. City staff working under our supervision on construction
sites will be expected to always wear appropriate safety equipment and maintain detailed
records.

We understand that it is the City’s desire to establish a budget for HSI’s services which will be
performed as directed by the City Engineer. On a monthly basis, we will prepare a report on the
status of our overall budget and submit the report with our invoice. We anticipate that as work
progresses, the specific tasks we work on will vary dependent upon the workload of City staff, as
well as the budget remaining for our support.

We anticipate that our work will fall under four categories:
1. Principal Level: Work under this category will be administrative and supervisory

support. We anticipate that these services will be provided by John Vancor, P.E. and
Paul Hayner, P.E.

2, Engineering and Construction Manager: Work under this category will include utility
coordination, review of technical concerns, review of payment requisitions, resolution of
disputes and preparation of possible change order documentation, preparation of bid
documents and contract coordination with contractors. We anticipate that these services
will primarily be provided by Scott Murphy, P.E. and Francisco Mota.

Page 3 of 5

Audit of the Financial Statements

We will conduct our audit in accordance with auditing standards generally accepted in
the United States of America (U.S. GAAS) and Government Auditing Standards of the
Comptroller General of the United States of America; and OMB Circular A-133, Audits of
States, Local Governments, and Non-Profit Organizations. Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether the basic
financial statements are free from material misstatement. An audit involves performing
procedures to obtain audit evidence about the amounts and disclosures in the financial
statements. The procedures selected depend on the auditor's judgment, including the
assessment of the risks of material misstatement of the financial statements, whether due
to error, fraudulent financial reporting, misappropriation of assets, or violations of laws,
governmental regulations, grant agreements, or contractual agreements. An audit also
includes evaluating the appropriateness of accounting policies used and the reason-
ableness of significant accounting estimates made by management, as well as evaluating
the overall presentation of the financial statements.

Because of the inherent limitations of an audit, together with the inherent limitations of
internal control, an unavoidable risk that some material misstatements or noncompliance
may not be detected exists, even though the audit is properly planned and performed in
accordance with U.S. GAAS and Government Auditing Standards of the Comptroller
General of the United States of America.

In making our risk assessments, we consider internal control relevant to the City’s prep-
aration and fair presentation of the financial statements in order to design audit proce-
dures that are appropriate in the circumstances, but not for the purpose of expressing
an opinion on the effectiveness of the City’s internal control. However, we will communi-
cate to you in writing concerning any significant deficiencies or material weaknesses in
internal control relevant to the audit of the financial statements that we have identified
during the audit.

We will issue a written report upon completion of our audit of the City’s June 30, 2016
and 2017 basic financial statements. Our report will be addressed to those charged with
governance of the City. We cannot provide assurance that an unmodified opinion will be
expressed. Circumstances may arise in which it is necessary for us to modify our opin-
ion, add an emphasis-of-matter or other-matter paragraph(s), or withdraw from the
engagement.

In accordance with the requirements of Government Auditing Standards, we will also
issue a written report describing the scope of our testing over internal control over
financial reporting and over compliance with laws, regulations, and provisions of grants
and contracts, including the results of that testing. However, providing an opinion on
internal control and compliance over financial reporting will not be an objective of the
audit and, therefore, no such opinion will be expressed.

Audit of Major Program Compliance

Our audit of the City’s June 30, 2016 and 2017 major federal award program(s)
compliance will be made in accordance with the requirements of the Single Audit Act, as
amended; and the provisions of U.S. Office of Management and Budget Circular A-133,
Audits of States, Local Governments, and Non-Profit Organizations; 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 an opinion on major federal award program compliance and to render the required
reports. We cannot provide assurance that an unmodified opinion on compliance will be
expressed. Circumstances may arise in which it is necessary for us to modify our
opinion or withdraw from the engagement.

OMB Circular A-133 requires that we also plan and perform the audit to obtain reason-
able assurance about whether the City has complied with applicable laws and regula-
tions and the provisions of contracts and grant agreements applicable to major federal
award programs. Our procedures will consist of determining major federal programs and
performing the applicable procedures described in the U.S. Office of Management and
Budget Circular A-133 Compliance Supplement for the types of compliance requirements
that could have a direct and material effect on each of the City’s major programs. The
purpose of those procedures will be to express an opinion on the City’s compliance with
requirements applicable to each of its major programs in our report on compliance

issued pursuant to Circular A-133.

Also, as required by Circular A-133, we will perform tests of controls to evaluate the
effectiveness of the design and operation of controls that we consider relevant to pre-
venting or detecting material noncompliance with compliance requirements applicable
to each of the City’s major federal award programs. However, our tests will be fess in
scope than would be necessary to render an opinion on these controls and, accordingly,
no opinion will be expressed in our report.

We will issue a report on compliance that will include an opinion or disclaimer of opinion
regarding the City’s major federal award programs, and a report on internal controls
over compliance that will report any significant deficiencies and material weaknesses
identified; however, such report will not express an opinion on internal control.

Management’s Responsibilities

Our audit will be conducted on the basis that management and, when appropriate, those
charged with governance acknowledge and understand that they have responsibility:

1. For the preparation and fair presentation of the financial statements in accordance
with accounting principles generally accepted in the United States of America;

2. For the design, implementation, and maintenance of effective internal control
relevant to the preparation and fair presentation of financial statements that are
free from material misstatement, whether due to error fraudulent financial

reporting, misappropriation of assets, or violations of laws, governmental
regulations, grant agreements, or contractual agreements;

3. For safeguarding assets;

4. For identifying all federal awards expended during the year including those
received prior to December 26, 2014, and those received in accordance with
2CFR200, Uniform Administrative Requirements, Cost Principles, and Audit
Requirements for Federal Awards generally received after December 26, 2014;

5. For preparing the schedule of expenses of federal awards (including notes
and noncash assistance received) in accordance with OMB Circular A-133
requirements;

6. For the design, implementation, and maintenance of internal control over
compliance;

7. For identifying and ensuring that the City complies with laws, regulations, grants,
and contracts applicable to its activities and its federal award programs;

8. For following up and taking corrective action on current year audit findings and
preparing a corrective action plan for such findings;

9. For submitting the reporting package and data collection form to the appropriate
parties;

10. For making the auditor aware of any significant vendor relationships where the
vendor is responsible for program compliance;

11. For adjusting the financial statements to correct material misstatements and
confirming to us in the management representation letter that the effects of any
uncorrected misstatements aggregated by us during the current engagement and
pertaining to the current year period(s) under audit are immaterial, both individ-
ually and in the aggregate, to the financial statements as a whole;

12. For confirming your understanding of your responsibilities as defined in this letter
to us in your management representation letter; and

13. To provide us with:

a. Access to all information of which management is aware that is relevant to the
preparation and fair presentation of the financial statements, and relevant to
federal award programs, such as records, documentation, and other matters:

b. Additional information that we may request from management for the purpose
of the audit; and

c. Unrestricted access to persons within the City from whom we determine it
necessary to obtain audit evidence.

With regard to the supplementary information referred to above, you acknowledge and
understand your responsibility (a) for the preparation of the supplementary information
in accordance with the applicable criteria, (b) to provide us with the appropriate written
representations regarding supplementary information, (c) to include our report on the
supplementary information in any document that contains the supplementary information

and that indicates that we have reported on such supplementary information, and (d) to
present the supplementary information with the audited financial statements, or if the
supplementary information will not be presented with the audited financial statements, to
make the audited financial statements readily available to the intended users of the sup-
plementary information no later than the date of issuance by you of the supplementary
information and our report thereon.

As part of our audit process, we will request from management and, when appropriate,
those charged with governance, written confirmation concerning representations made
to us in connection with the audit, including your understanding of your responsibilities
as defined in this letter to us in your management representation letter.

We understand that your employees will prepare all confirmations we request and will
locate any documents or invoices selected by us for testing.

If you intend to publish or otherwise reproduce the financial statements and make
reference to our firm, you agree to provide us with printers’ proofs or masters for our
review and approval before printing. You also agree to provide us with a copy of the
final reproduced material for our approval before it is distributed.

Fees

Scott C. McIntire, CPA, is the engagement officer for the audit services specified in this

letter. Those responsibilities include supervising the City’s services performed as part of
this engagement and signing or authorizing another qualified firm representative to sign

the audit report.

Our fees are based on the amount of time required at various levels of responsibility,
plus actual out-of-pocket expenses. Invoices will be rendered monthly and are payable
upon presentation. Our fees for audit services for the years ended June 30, 2016 and
2017 will be $116,500 and $117,500 respectively. We will notify you immediately of any
circumstances we encounter that could significantly affect this initial fee estimate.
Whenever possible, we will attempt to use the City’s personnel to assist in the
preparation of schedules and analyses of accounts. This effort could substantially
reduce our time requirements and facilitate the timely conclusion of the audit.

Other Matters

With respect to any nonattest services we perform, which may include assistance with
the compilation of financial statements, the City’s management is responsible for

(a) making all management decisions and performing all management functions;

(b) assigning a competent individual to oversee the services; (c) evaluating the ade-
quacy of the services performed; (d) evaluating and accepting responsibility for the
results of the services performed; and (e) establishing and maintaining internal controls,
including monitoring ongoing activities.

During the course of the engagement, we may communicate with you or your personnel
via fax or e-mail, and you should be aware that communication in those mediums con-
tains a risk of misdirected or intercepted communications.

The audit documentation for this engagement is the property of Melanson Heath and
constitutes confidential information. However, we may be requested to make certain
audit documentation available to regulators and federal agencies and the U.S. Govern-
ment Accountability Office pursuant to authority given to it by law or regulation, or to
peer reviewers. If requested, access to such audit documentation will be provided under
the supervision of Melanson Heath’s personnel. Furthermore, upon request, we may
provide copies of selected audit documentation to these agencies and regulators. The
regulators and agencies may intend, or decide, to distribute the copies of information
contained therein to others, including other governmental agencies. We agree to retain
our audit documentation or work papers for a period of at least five years from the date
of our report.

Further, we will be available during the year to consult with you on financial management
and accounting matters of a routine nature.

During the course of the audit, we may observe opportunities for economy in, or improved
controls over, your operations. We will bring such matters to the attention of the appropri-
ate level of management, either orally or in writing.

At the conclusion of our audit engagement, we will communicate to those charged with
governance the following significant findings from the audit:

e Our view about the qualitative aspects of the City’s significant accounting
practices:

* Significant difficulties, if any, encountered during the audit;

e Uncorrected misstatements, other than those we believe are trivial, if any;

e Disagreements with management, if any;

e Other findings or issues, if any, arising from the audit that are, in our professional
judgment, significant and relevant to those charged with governance regarding
their oversight of the financial reporting process;

e Material, corrected misstatements that were brought to the attention of manage-
ment as a result of our audit procedures;

e Representations we requested from management:
e Management's consultations with other accountants, if any; and

e Significant issues, if any, arising from the audit that were discussed, or the
subject of correspondence, with management.

In accordance with the requirements of Government Auditing Standards, a copy of our
latest external peer review report of our firm is available upon request for your consid-
eration and files.

Please sign and return a copy of this letter to indicate your acknowledgment of, and
agreement with, the arrangements for our audit of the financial statements compliance
over major federal award programs including our respective responsibilities.

We appreciate the opportunity to be your financial statement auditors and look forward
to working with you and your staff.

Respectfully,

Scott C. Mclntire, CPA
Vice President

HR RRR HKIRR ERE RRR KEK ER HERRERA EERE ERR EER ER ETRE IKKE

RESPONSE:
This letter correctly sets forth our understanding.

Acknowledged and agreed on behalf of the City of Nashua, New Hampshire by:

Name:

Title:

Date: