pender county request for board action

Pender County

Request for Board Action

TO: Board of County Commissioners

FROM: Kathy Brafford

DATE: June 18, 2018

SUBJECT: Request for approval of Audit Contract for FY 2018 and approval of the Medicaid Eligibility AUP (Agreed Upon Procedures) Arrangement Letter.

SUMMARY:

We are required to sign the annual audit contract for the County's financial audit. FY 2018 represents the 3rd year of a three year contract entered into with RSM US LLP. Additionally, the State Auditor and the State Treasurer now require additional compliance testing for medicaid eligibility - which is beyond the scope of the regular audit contract. For the FY 2017 audit, the County was invoiced an additional $12,036 for additional compliance testing 100.3 hours @ $120 per hour). Attached for your information, review and/or approval are the following: 1) Preliminary communication letter to the Board (for your review and understanding of the audit engagement), 2) Audit Arrangement Letter, 3) Audit Contract, 4) Medicaid Eligibility AUP Arrangement Letter, and 5) Medicaid Eligibility AUP Engagement Letter Process Quick Reference Instructions from the NC Dept of State Treasurer's website.

ACTION REQUESTED:

Approval of FY 2018 Audit Contract and Medicaid Eligibility AUP Arrangement Letter.

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THEPOWER OF BEINGUNDERSTOODAUDITITAXICONSULTING

April 16, 2018

Board of CommissionersPender County, North CarolinaBurgaw, NC 28425

Attention:Board Chairman

This letter is intended to communicate certain matters related to the planned scope and timingof ouraudit of Pender County's ?nancial statements and compliance as of and for the year ending June 30,2018.

communicationEffectivetwo-way communication between our Finn and the Board of Commissionersis important tounderstanding matters related to the audit and developing a constructive working relationship.

Your insights may assist us in understanding Pender County and its environment, identifying appropriatesources of audit evidence and providing informationabout specific transactions or events. We willdiscusswith you your oversight of the effectiveness of internal control and any areas where you request additiona

lprocedures to be undertaken. We expect that you willtimely communicate to us any matters you considerrelevant to the audit. Such matters might include strategic decisions that may significantly affect thenature, timingand extent of audit procedures, your suspicion or detection of fraud or abuse, or anyconcernsyou may have about the integrityor competence of senior management.

We willtimely communicate to you any fraud involvingsenior management and other fraud that causes amaterial misstatement of the ?nancial statements, illegalacts, instances of noncompliance, or abuse thatcome to our attention (unless they are clearly inconsequential), and disagreements with management andother serious dif?cultiesencountered in perfonning the audit. We also willcommunicate to you and tomanagement any significant deficiencies or material weaknesses in internalcontrol that become known tous during the course of the audit. Other matters arising from the audit that are, in our professionaljudgment, significant and relevant to you in your oversight of the ?nancial reporting process willbecommunicated to you in writingafter the audit.

IndependenceOur independence policies and procedures are designed to provide reasonable assurance that our firmand its personnel comply withapplicable professional independence standards. Our policies address?nancial interests, business and family relationships, and non-audit services that may be thought to bearon independence. For example, without our permission no partner or professional employee of RSM USLLP is permitted to have any direct ?nancial interest or a material indirect?nancial interest in a client oran affiliateof a client. Also, ifan immediate family member or close relative of a partner or professionalemployee is employed by a client in a key position, the incidentmust be reported and resolved inaccordance withfirm policy. in addition, our policies restrict certain non-audit services that may beprovided by RSM US LLP and require audit clients to accept certain responsibilities in connection with theprovision of permitted non-attest services.

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April 16, 2018 Board of Commissioners Randell Woodruff, County Manager Katherine C. Brafford, Finance Officer Pender County, North Carolina 805 S. Walker Street Burgaw, North Carolina 28425 Attention: Chairperson The Objective and Scope of the Audit of the Financial Statements You have requested that we audit Pender County, North Carolina’s (the County) governmental activities, business-type activities, aggregate discretely presented component units, each major fund and aggregate remaining fund information as of and for the year ending June 30, 2018, which collectively comprise the basic financial statements. We are pleased to confirm our acceptance and our understanding of this audit engagement by means of this letter. Our audit will be conducted with the objective of our expressing an opinion on the financial statements. We will also perform the audit of Pender County, North Carolina as of June 30, 2018 so as to satisfy the audit requirements imposed by the Single Audit Act and Subpart F of Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance), and the State Single Audit Implementation Act. The Responsibilities of the Auditor We will conduct our audit in accordance with auditing standards generally accepted in the United States of America (GAAS); Government Auditing Standards issued by the Comptroller General of the United States (GAS); the provisions of the Single Audit Act; Subpart F of Title 2 U.S. CFR Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards; the U.S. Office of Management and Budget’s (OMB) Compliance Supplement and the State Single Audit Implementation Act. Those standards, the Uniform Guidance, supplements, and Act require that we plan and perform the audit to obtain reasonable assurance about whether the 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 fraud or error. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.

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Because of the inherent limitations of an audit, together with the inherent limitations of internal control, an unavoidable risk that some material misstatements may not be detected exists, even though the audit is properly planned and performed in accordance with GAAS. Also, an audit is not designed to detect errors or fraud that are immaterial to the financial statements. The determination of abuse is subjective; therefore, GAS does not expect us to provide reasonable assurance of detecting abuse. In making our risk assessments, we consider internal control relevant to the County’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. However, we will communicate 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 also communicate to the Board of Commissioners (a) any fraud involving senior management and fraud (whether caused by senior management or other employees) that causes a material misstatement of the financial statements that becomes known to us during the audit, and (b) any instances of noncompliance with laws and regulations that we become aware of during the audit (unless they are clearly inconsequential). The funds that you have told us are maintained by the County and that are to be included as part of our audit are listed here: • General Fund • Special Reserve Funds • Capital Projects Funds • Enterprise Funds • Internal Service Funds • Fiduciary Funds

The component unit whose financial statements you have told us is to be included as part of the County’s basic financial statements is Pender County ABC Board. The federal and state financial assistance programs and awards that you have told us that the County participates in and that are to be included as part of the single audit are the same ones in the Schedule of Expenditures of Federal and State Awards for the year ended June 30, 2017 included in the County’s June 30, 2017, annual financial report. We are responsible for the compliance audit of major programs under the Uniform Guidance, including the determination of major programs, in the consideration of internal control over compliance, and reporting responsibilities. Our reports on internal control will include any significant deficiencies and material weaknesses in controls of which we become aware as a result of obtaining an understanding of internal control and performing tests of internal control consistent with requirements of the standards and regulations identified above. Our reports on compliance matters will address material errors, fraud, abuse, violations of compliance obligations, and other responsibilities imposed by state and federal statutes and regulations or assumed by contracts, and any state or federal grant, entitlement, or loan program questioned costs of which we become aware, consistent with requirements of the standards and regulations identified above. In the event that the audit report will not be issued by the North Carolina Local Government Commission’s established deadline, RSM will notify the Pender County Board of Commissioners, in writing, when RSM is reasonably assured that the deadline will not be met. In the event Pender County staff are not

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providing sufficient, appropriate, and timely documentation to complete the audit, RSM will notify the Pender County Board of Commissioners, in writing, with every effort made to provide such notification with sufficient time for corrective action to be taken to meet the established Local Government Commission reporting deadline. The Responsibilities of Management and Identification of the Applicable Financial Reporting Framework 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. To evaluate subsequent events through the date the financial statements are issued or available to be issued, and to disclose the date through which subsequent events were evaluated in the financial statements. Management also agrees that it will not evaluate subsequent events earlier than the date of the management representation letter referred to below.

3. For the design, implementation and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error;

4. For establishing and maintaining effective internal control over financial reporting, and for informing us of all significant deficiencies and material weaknesses in the design or operation of such controls of which it has knowledge;

5. For report distribution;

6. 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 such as records, documentation and other matters;

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

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

d. When applicable, a summary schedule of prior audit findings for inclusion in the single audit reporting package; and

e. If applicable, responses to any findings reported on the schedule of findings and questioned costs.

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 among other items:

1. That management has fulfilled its responsibilities as set out in the terms of this letter; and

2. That it believes 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 identifying and ensuring that the County complies with the laws and regulations applicable to its activities, and for informing us about all known material violations of such laws or regulations. In addition, management is responsible for the design and implementation of programs and controls to prevent and detect fraud or abuse, and for informing us about all known or suspected fraud or abuse affecting the entity involving management, employees who have significant roles in internal control, and others where the fraud or abuse could have a material effect on the financial statements or compliance. Management is also responsible for informing us of its knowledge of any

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allegations of fraud or abuse, or suspected fraud or abuse, affecting the entity received in communications from employees, former employees, analysts, regulators or others. Management is responsible for the preparation of the required supplementary information (RSI) and supplementary information presented in relation to the financial statements as a whole in accordance with accounting principles generally accepted in the United States of America. Management agrees to include the auditor’s report on the RSI and supplementary information in any document that contains the RSI supplementary information and that indicates that the auditor has reported on such RSI and supplementary information. Management also agrees to present the supplementary information with the audited financial statements or, if the supplementary information will not be presented with audited financial statements, to make the audited financial statements readily available to the intended users of the supplementary information no later than the date of issuance of the supplementary information and the auditor’s report thereon. Because the audit will be performed in accordance with the Single Audit Act and the Uniform Guidance, management is responsible for (a) identifying all federal awards received and expended; (b) preparing the schedule of expenditures of federal awards (including notes and noncash assistance received) in accordance with Uniform Guidance requirements; (c) internal control over compliance; (d) compliance with federal statutes, regulations, and the terms and conditions of federal awards; (e) making us aware of significant vendor relationships where the vendor is responsible for program compliance (f) following up and taking corrective action on audit findings, including the preparation of a summary schedule of prior audit findings and a corrective action plan; and (g) submitting the reporting package and data collection form. The Board of Commissioners are responsible for informing us of its views about the risks of fraud or abuse within the entity, and its knowledge of any fraud or abuse or suspected fraud or abuse affecting the entity. Our association with an official statement is a matter for which separate arrangements will be necessary. Pender County agrees to provide us with printer's proofs or masters of such offering documents for our review and approval before printing, and with a copy of the final reproduced material for our approval before it is distributed. In the event our auditor/client relationship has been terminated when Pender County seeks such consent, we will be under no obligation to grant such consent or approval. Pender County agrees that it will not associate us with any public or private securities offering without first obtaining our consent. Therefore, Pender County agrees to contact us before it includes our reports, or otherwise makes reference to us, in any public or private securities offering. Records and Assistance If circumstances arise relating to the condition of the County’s records, the availability of appropriate audit evidence or indications of a significant risk of material misstatement of the financial statements because of error, fraudulent financial reporting or misappropriation of assets which, in our professional judgment, prevent us from completing the audit or forming an opinion, we retain the unilateral right to take any course of action permitted by professional standards, including declining to express an opinion or issue a report, or withdrawing from the engagement. During the course of our engagement, we may accumulate records containing data that should be reflected in the County’s books and records. The County will determine that all such data, if necessary, will be so reflected. Accordingly, the County will not expect us to maintain copies of such records in our possession. The assistance to be supplied by County personnel, including the preparation of schedules and analyses of accounts, has been discussed and coordinated with Katherine C. Brafford, Finance Officer. The timely

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and accurate completion of this work is an essential condition to our completion of the audit and issuance of our audit report. In connection with our audit, you have requested us to perform certain non-audit services necessary for the preparation of the financial statements, including the preparation of the draft financial statements that are based on management’s chart of accounts and trial balance and any adjusting, correcting, and closing entries that has been approved by management and assisting in the preparation of draft notes to the financial statements based on information provided by and approved by management. The GAS independence standards require that the auditor maintain independence so that opinions, findings, conclusions, judgments and recommendations will be impartial and viewed as impartial by reasonable and informed third parties. Before we agree to provide a non-audit service to Pender County, we determine whether providing such a service would create a significant threat to our independence for GAS audit purposes, either by itself or in aggregate with other non-audit services provided. A critical component of our determination is consideration of management’s ability to effectively oversee the non-audit service to be performed. Pender County has agreed that Katherine C. Brafford, Finance Officer possesses suitable skill, knowledge or experience and that the individual understands the preparation of the draft financial statements and notes to the financial statements services to be performed sufficiently to oversee them. Accordingly, the management of Pender County agrees to the following:

1. Pender County has designated Katherine C. Brafford, Finance Officer as a senior member of management who possesses suitable skill, knowledge and experience to oversee the services;

2. Katherine C. Brafford, Finance Officer will assume all management responsibilities for subject matter and scope of the drafting of the financial statements and related notes;

3. Pender County will evaluate the adequacy and results of the services performed; and

4. Pender County accepts responsibility for the results and ultimate use of the services.

GAS further requires we establish an understanding with the County’s management and those charged with governance of the objectives of the non-audit service, the services to be performed, the entity's acceptance of its responsibilities, the auditor’s responsibilities and any limitations of the non-audit service. We believe this letter documents that understanding.

Other Relevant Information RSM US LLP may mention Pender County’s name and provide a general description of the engagement in RSM US LLP’s client lists and marking materials. From time to time and depending upon the circumstances, we may use third-party service providers to assist us in providing professional services to you. In such circumstances, it may be necessary for us to disclose confidential client information to them. We enter into confidentiality agreements with all third-party service providers and we are satisfied that they have appropriate procedures in place to prevent the unauthorized release of your confidential information to others. In accordance with GAS, a copy of our most recent peer review report and applicable letter of comment is enclosed, for your information. Fees, Costs, and Access to Workpapers Our fees for the audit and accounting services described above are based upon the value of the services performed and the time required by the individuals assigned to the engagement plus direct expenses. Our fee for the services described in this letter will be $76,400 which includes testing of 2 major compliance programs. Our fee estimate and completion of our work is based upon the following criteria:

1. Anticipated cooperation from County personnel.

2. Timely responses to our inquiries.

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3. Timely and accurate completion and delivery of the standard PBC (prepared by client) work papers requested each year that support the amounts, balances, and disclosures in the financial statements and schedule of expenditures of federal and state awards.

4. Timely communication of all significant accounting and financial reporting matters.

5. The assumption that unexpected circumstances will not be encountered during the engagement. If any of the aforementioned criteria are not met, then fees may increase, however we would discuss this with you before proceeding with any additional required work. Additional major programs above the planned 2 major programs will be billed at $5,000 each. We will submit billings accordingly. Interim billings will be submitted as work progresses and as expenses are incurred. Billings are due upon submission.

Our professional standards require that we perform certain additional procedures, on current and previous years’ engagements, whenever a partner or professional employee leaves the firm and is subsequently employed by or associated with a client in a key position. Accordingly, the County agrees it will compensate RSM US LLP for any additional costs incurred as a result of the County’s employment of a partner or professional employee of RSM US LLP. In the event we are requested or authorized by Pender County or are required by government regulation, subpoena or other legal process to produce our documents or our personnel as witnesses with respect to our engagement for Pender County, Pender County will, so long as we are not a party to the proceeding in which the information is sought, reimburse us for our professional time and expenses, as well as the fees and expenses of our counsel, incurred in responding to such requests. The documentation for this engagement is the property of RSM US LLP. However, you acknowledge and grant your assent that representatives of the cognizant or oversight agency or their designee, other government audit staffs, and the U.S. Government Accountability Office shall have access to the audit documentation upon their request and that we shall maintain the audit documentation for a period of at least three years after the date of the report, or for a longer period if we are requested to do so by the cognizant or oversight agency. Access to requested documentation will be provided under the supervision of RSM US LLP audit personnel and at a location designated by our Firm. You have informed us that you intend to prepare a comprehensive annual financial report (CAFR) and submit it for evaluation by the Government Finance Officers Association's Certificate of Achievement for Excellence in Financial Reporting. Our association with the CAFR is to consist of having the report reviewed by a person who has also performed reviews for the GFOA Certificate Program and have him involved in the resolution of any accounting or reporting issues that arise from the engagement. Information Security – Miscellaneous Terms RSM US LLP is committed to the safe and confidential treatment of the County’s proprietary information. RSM US LLP is required to maintain the confidential treatment of client information in accordance with relevant industry professional standards which govern the provision of services described herein. The County agrees that it will not provide RSM US LLP with any unencrypted electronic confidential or proprietary information, and the parties agree to utilize commercially reasonable measures to maintain the confidentially of County information, including the use of collaborate sites to ensure the safe transfer of data between the parties. RSM US LLP may terminate this relationship immediately in its sole discretion if RSM US LLP determines that continued performance would result in a violation of law, regulatory requirements, applicable professional standards or RSM US LLP’s client acceptance or retention standards, or if the County is placed on a verified sanctioned entity list or if any director or executive of, or other person closely associated with, the County or its affiliates is placed on a verified sanctioned person list, in each case, including but not limited to lists promulgated by the Office of Foreign Assets Control of the U.S.

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Department of the Treasury, the U.S. State Department, the United Nations Security Council, the European Union or any other relevant sanctioning authority.

If any term or provision of this arrangement letter is determined to be invalid or unenforceable, such term or provision will be deemed stricken and all other terms and provisions will remain in full force and effect.

Reporting We will issue a written report upon completion of our audit of Pender County’s financial statements. Our report will be addressed to the Board of Commissioners of Pender County. We cannot provide assurance that an unmodified opinion will be expressed. Circumstances may arise in which it is necessary for us to modify our opinion, add an emphasis-of-matter or other-matter paragraph(s), or withdraw from the engagement. In addition to our report on Pender County’s financial statements, we will also issue the following types of reports:

1. A report on the fairness of the presentation of Pender County's schedule of expenditures of federal awards for the year ending June 30, 2018;

2. Reports on internal control related to the financial statements and major programs. These reports will describe the scope of testing of internal control and the results of our tests of internal controls;

3. Reports on compliance with laws, regulations, and the provisions of contracts or grant agreements. We will report on any noncompliance that could have a material effect on the financial statements and any noncompliance that could have a material effect, as defined by Subpart F of Title 2 U.S. CFR Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards, on each major program.

4. An accompanying schedule of findings and questioned costs.

This letter and contract constitutes the complete and exclusive statement of agreement between RSM US LLP and Pender County, superseding all proposals, oral or written, and all other communications with respect to the terms of the engagement between the parties. Electronic Signatures and Counterparts Each party hereto agrees that any electronic signature of a party to this agreement or any electronic signature to a document contemplated hereby (including any representation letter) is intended to authenticate such writing and shall be as valid, and have the same force and effect, as a manual signature. Any such electronically signed document shall be deemed (i) to be "written" or "in writing," (ii) to have been signed and (iii) to constitute a record established and maintained in the ordinary course of business and an original written record when printed from electronic files. Each party hereto also agrees that electronic delivery of a signature to any such document (via email or otherwise) shall be as effective as manual delivery of a manual signature. For purposes hereof, “electronic signature” includes, but is not limited to, (i) a scanned copy (as a "pdf" (portable document format) or other replicating image) of a manual ink signature, (ii) an electronic copy of a traditional signature affixed to a document, (iii) a signature incorporated into a document utilizing touchscreen capabilities or (iv) a digital signature. This agreement may be executed in one or more counterparts, each of which shall be considered an original instrument, but all of which shall be considered one and the same agreement. Paper copies or "printouts,” of such documents if introduced as evidence in any judicial, arbitral, mediation or administrative proceeding, will be admissible as between the parties to the same extent and under the same conditions as other original business records created and maintained in documentary form. Neither party shall contest the admissibility of true and accurate copies of electronically signed documents on the basis of the best evidence rule or as not satisfying the business records exception to the hearsay rule.

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Please sign and return the attached copy of this letter to indicate your acknowledgment of, and agreement with, the arrangements for our audit of the financial statements including our respective responsibilities.

RSM US LLP

Robert E Bittner III, CPA, MBA Senior Manager

Confirmed on behalf of Pender County, North Carolina:

____________________________________ _______________________________ Chairperson Date

____________________________________ _______________________________ County Manager Date

____________________________________ _______________________________ Finance Officer Date

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LGC-205 (Rev. 2018)CONTRACT TO AUDIT ACCOUNTS

of Fender county

PrimaryGovernmentUnit

DiscretelyPresentedComponentUnit (DPCU) if applicable

On this 19"‘ day ofAnn‘! 1015

Auditor; RSM us LLP AuditorMailingAddmss; am John FlattDrive

Morthead City. NC 25657 Hereina?er referredto as TheAuditor

and commlnionen (Governing Boar-d(s))ofPenderCounty

(Primary Government)and : hereina?er referredto as the GovernmentalUnit(s), agree as follows:

(DiscretelyPresentedComponentUnit)

The Auditor shall audit all statements and disclosuresrequired by accounting principlesgenerallyaccepted in theUnited States of America (GAAP) and additional required legal statements and disclosuresof all funds andlordivisionsof the GovernmentalUnit (s) for the period beginnin JHN1 2017 andendi June 80 2°19 The non-ma_iorcombining, and individual fundstatements and schedulesshall be subjected to the auditing procedures applied in the audit of the basic ?nancialstatements and an opinion shall be rendered in relation to (as applicable) the governmental activities, the business-type activities, the aggregate DPCUs,each major governmental and enterprise fund, and the aggregate remainingfund information(non-major goverrunent and enterprise funds, the internal service fund type, and the fiduciaryfund types).

2. At a minimum,the Auditor shall conduct his/her audit and render his/her report in accordance withauditing standards generally accepted in the United States of America. TheAuditor shall performthe audit in accordancewith GovernmentAuditingStandards if required by the State SingleAudit Implementation Act, as codi?ed in G.S. 159-34.If requiredby OMB UniformAdministrationRequirements,Cost Principles, and Audit Requirements?zrFederal Awards, (Uniform Guidance) and the State Single AuditImplementationAct, the Auditor shall perform a Single Audit. This audit and all associatedauditdocumentationmay be subject to review by Federal and State agencies in accordancewith Federal and State laws,includingthe staffs of the Office of State Auditor (OSA) and the Local GovernmentCommission(LGC). If theaudit and Auditor communicationare found in this review to be substandard,the results of the review may beforwardedto the North Carolina State Boardof CPA Examiners(NC State Board). County and Multi-CguntyHealth De rtm ms: The O?ice of State Auditor will require Auditorsof theseGovernmentalUnitsto performagreed upon procedures (AUPs) on eligibilitydeterminationon certainprograms. Both Auditor and GoverrunentalUnit agree that Auditorshall completeand report on these AUPs on EligibilityDeterminationas requiredby Officeof the State Auditor (OSA) and in accordancewith the instructionsand timelineprovided by OSA.

If an entity is determinedto be a component of another government as de?ned by the group audit standards, theentity's Auditor shall make a good faith effort to comply in a timelymanner wi?r the requests of the group auditor inaccordancewith AU-6 §600.4l - §600.42.

This contract contemplates an unmodi?ed opinion being rendered. If during the process of conducting the auditthe Auditor determinesthat it will not be possible to render an unmodified opinion on the ?nancial statementsof the unit, the Auditor shall contact the SLGFD staff to discuss the circumstancesleading to that conclusionas soon as is practical and before the ?nal report is issued. The audit shall include such tests of the accountingrecords and such other auditingprocedures as are consideredby the Auditor to be necessary in the circumstances.An limitationsor restri tions in co e whichwoul lead a uali? tion sho d be full lained in an ttachmtg this Qntract.

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Steps to Completing the Audit Contract

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May 9, 2018

Pender County Board of Commissioners Mr. George Brown, Chairman Pender County, NC Burgaw, North Carolina

Attention: Mr. Brown

This letter is to explain our understanding of the arrangements for, and the nature and limitations of, the services we are to perform for Pender County, NC (County) with respect to certain records and transactions of Pender County for the purpose of determining compliance with the eligibility intake functions for certain federal programs at County governments and health districts for the year ending June 30, 2018. The specific procedures to be performed are described in Attachment B in the Letter of Instruction to Auditor’s Testing for the Eligibility Intake Function for Certain Federal Programs at County Governments and Health Districts dated March 20, 2018, issued by the North Carolina Office of the State Auditor (NCOSA) and are included in Attachment A to this letter.

Engagement Services

Our engagement will be conducted in accordance with attestation standards established by the American Institute of Certified Public Accountants and the standards applicable to attestation engagements contained in Government Auditing Standards, issued by the Comptroller General of the United States. Because the procedures included in the attachment to this letter do not constitute an audit made in accordance with generally accepted auditing standards, we will not express an opinion on any of the specific elements, accounts, or items referred to in our report or on the financial statements of the Pender County taken as a whole.

At the conclusion of our engagement, we will submit a report in letter form outlining the procedures performed and our findings resulting from the procedures performed.

Our report will contain a statement that it is intended solely for the use of Pender County and the NCOSA and should not be used by those who have not agreed to the procedures and taken responsibility for the sufficiency of the procedures for their purposes. Should you desire that others be added to our report as specified parties, please contact us as it will be necessary to obtain their agreement with respect to the sufficiency of the procedures for their purpose.

Our report will also contain a paragraph pointing out that if we had performed additional procedures or if we had conducted an audit in accordance with generally accepted auditing standards, matters in addition to any findings that may result from the procedures performed might have come to our attention and been reported to you.

The procedures that we will perform are not designed and cannot be relied upon to disclose errors, fraud, or illegal acts, should any exist. However, we will inform the appropriate level of management of any material errors that come to our attention and any fraud or illegal acts that come to our attention, unless they are clearly inconsequential.

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Furthermore, the procedures were not designed to provide assurance on internal control or to identify significant deficiencies or material weaknesses. However, we will communicate to management and the County board of commissioners any significant deficiencies or material weaknesses that become known to us during the course of the engagement.

Pender County’s Responsibilities

The sufficiency of the procedures included in the attachment is solely the responsibility of Pender County and the NCOSA. We make no representation regarding the sufficiency of the procedures described above either for the purpose for which these services have been requested or for any other purpose. In addition, 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 affecting the entity involving management, employees who have significant roles in internal control, and others where the fraud could have a material effect on the financial statements. Management is also responsible for informing us of its knowledge of any allegations of fraud or suspected fraud affecting the entity received in communications from employees, former employees, analysts, regulators, short sellers or others. The County agrees that it will not include our reports, or otherwise make reference to us, in any public or private securities offering without first obtaining our consent. Any request to consent is also a matter for which separate arrangements will be necessary. After obtaining our consent, the County also agrees to provide us with printer's proofs or masters of such offering documents for our review and approval before printing and with a copy of the final reproduced material for our approval before it is distributed. In the event our auditor/client relationship has been terminated when the County seeks such consent, we will be under no obligation to grant such consent or approval. Pender County’s Records and Assistance

If circumstances arise relating to the condition of the County’s records, the availability of appropriate evidence, or indications of a significant risk of material misstatement of the financial statements because of error, fraudulent financial reporting, or misappropriation of assets, which in our professional judgment prevent us from completing the engagement or forming an opinion, we retain the unilateral right to take any course of action permitted by professional standards, including declining to express an opinion or issue a report, or withdrawal from the engagement. During the course of our engagement, we may accumulate records containing data that should be reflected in the County’s books and records. The County will determine that all such data, if necessary, will be so reflected. Accordingly, the County will not expect us to maintain copies of such records in our possession. The assistance to be supplied by your personnel in the preparation of schedules and analyses of accounts has been discussed and coordinated with Katherine Brafford, Pender County’s Finance Director. The timely and accurate completion of this work is an essential condition to our completion of our services and issuance of our report. Fees, Costs, and Access to Documentation

Our fees for the services described above are based on the time required by the individuals assigned to the engagement, plus direct expenses. Our fees for performing the agreed upon procedures attestation services for the County will be $120 per hour not to exceed a total of $25,000. We will submit our bill for services promptly upon rendering the special report. Billings are due upon submission.

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In the event we are requested or authorized by Pender County or are required by government regulation, subpoena, or other legal process to produce our documents or our personnel as witnesses with respect to our engagement for Pender County, Pender County will, so long as we are not a party to the proceeding in which the information is sought, reimburse us for our professional time and expenses, as well as the fees and expenses of our counsel, incurred in responding to such requests. From time to time and depending upon the circumstances, we may use third-party service providers to assist us in providing professional services to you. In such circumstances, it may be necessary for us to disclose confidential client information to them. We enter into confidentiality agreements with all third-party service providers and we are satisfied that they have appropriate procedures in place to prevent the unauthorized release of your confidential information to others. Our professional standards require that we perform certain additional procedures on current and previous years’ engagements whenever a partner or professional employee leaves the firm and is subsequently employed by or associated with a client. Accordingly, the County agrees it will compensate RSM US LLP for any additional costs incurred as a result of the County’s employment of a partner or professional employee of Pender County. If any term or provision of this agreement is determined to be invalid or unenforceable, such term or provision will be deemed stricken and all other terms and provisions will remain in full force and effect. Information Security – Miscellaneous Terms RSM US LLP is committed to the safe and confidential treatment of the County’s proprietary information. RSM US LLP is required to maintain the confidential treatment of client information in accordance with relevant industry professional standards which govern the provision of services described herein. The County’s agrees that it will not provide RSM US LLP with any unencrypted electronic confidential or proprietary information, and the parties agree to utilize commercially reasonable measures to maintain the confidentially of the County’s information, including the use of collaborate sites to ensure the safe transfer of data between the parties. RSM US LLP may terminate this relationship immediately in its sole discretion if RSM US LLP determines that continued performance would result in a violation of law, regulatory requirements, applicable professional standards or RSM US LLP’s client acceptance or retention standards, or if the County is placed on a verified sanctioned entity list or if any director or executive of, or other person closely associated with, the County or its affiliates is placed on a verified sanctioned person list, in each case, including but not limited to lists promulgated by the Office of Foreign Assets Control of the U.S. Department of the Treasury, the U.S. State Department, the United Nations Security Council, the European Union or any other relevant sanctioning authority.

This letter constitutes the complete and exclusive statement of agreement between RSM US LLP and Pender County, superseding all proposals, oral or written, and all other communications, with respect to the terms of the engagement between the parties. Electronic Signatures and Counterparts Each party hereto agrees that any electronic signature of a party to this agreement or any electronic signature to a document contemplated hereby (including any representation letter) is intended to authenticate such writing and shall be as valid, and have the same force and effect, as a manual signature. Any such electronically signed document shall be deemed (i) to be "written" or "in writing," (ii) to have been signed and (iii) to constitute a record established and maintained in the ordinary course of business and an original written record when printed from electronic files. Each party hereto also agrees that electronic delivery of a signature to any such document (via email or otherwise) shall be as effective

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as manual delivery of a manual signature. For purposes hereof, “electronic signature” includes, but is not limited to, (i) a scanned copy (as a "pdf" (portable document format) or other replicating image) of a manual ink signature, (ii) an electronic copy of a traditional signature affixed to a document, (iii) a signature incorporated into a document utilizing touchscreen capabilities or (iv) a digital signature. This agreement may be executed in one or more counterparts, each of which shall be considered an original instrument, but all of which shall be considered one and the same agreement. Paper copies or "printouts,” of such documents if introduced as evidence in any judicial, arbitral, mediation or administrative proceeding, will be admissible as between the parties to the same extent and under the same conditions as other original business records created and maintained in documentary form. Neither party shall contest the admissibility of true and accurate copies of electronically signed documents on the basis of the best evidence rule or as not satisfying the business records exception to the hearsay rule.

If this letter defines the arrangements as Pender County understands them, please sign and date the enclosed copy and return it to us. We appreciate your business.

RSM US LLP

Robert E Bittner III, CPA, MBA Senior Manager

Confirmed on behalf of the addressee:

________________________________

________________________________

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Attachment B List of Agreed Upon Procedures

Instructions

Introduction The North Carolina Office of the State Auditor (OSA) has prepared this document to provide guidance to the auditors performing procedures under the Agreed-Upon Procedures related to eligibility determination of designated programs.

The procedures here are not intended to, and do not, constitute an audit in accordance with Generally Accepted Government Auditing Standards or Uniform Guidance. The procedures included are for the purpose described. It is the responsibility of the auditor of the county to carry out the Agreed-Upon Procedures and report the results in accordance with the applicable standards. The county auditor will assume the risk that misapplication of these procedures may result in inappropriate results being reported to OSA.

Relevant Federal Programs For the fiscal year ending June 30, 2018, the following programs with split eligibility determination functions have been determined to be major for the State of North Carolina and will be included in the scope of this AUP:

• Medicaid

This scope is what is known as of the date of the letter to which this is attached. Should there be any changes to the scope, notification will be made in additional correspondence.

Overall Engagement Objectives The overall objective of this engagement is to confirm that participants included in the sample provided were correctly determined eligible for the selected certification period (applicable to the payment selected) by re-performing the eligibility determination for the participant in accordance with the Eligibility Review Document provided by the NC DHHS.

Eligibility Testing Procedures The auditor for each county will receive a listing of participants and correlating certification period to be tested. Instructions for obtaining the sample items are included in Attachment E. The total sample size for each county for fiscal year 2018 will be 96.

For each participant included in the listing provided, the auditors will re-perform the eligibility determination process, including the inspection of required documentation that supports eligibility, to confirm that the participant for which funds were paid was eligible in accordance with Eligibility Review Document provided by the NC DHHS for the period selected.

For each participant for which a payment was selected, all evidence supporting the eligibility determination should be inspected to confirm that information was accurately and completely input into the system for consideration in the determination process. The county auditor should confirm that all information entered into the system supported the determination of eligibility. The county auditor must re-perform the eligibility determination. The auditor must use the DHHS provided eligibility checklist document when re-performing eligibility determination. This document is available on the LGC website.

If the county auditor finds that the information supporting the eligibility determination was not accurate or was not complete, or if the county auditor finds that the necessary evidence was not obtained, an error should be noted in the process and the auditor should re-perform the eligibility determination in its entirety to confirm that the recipient was eligible to receive program benefits. Note: It is not an option to run the participant through the system again.

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Since the sampling unit is based on a specific payment, the procedures are based only on the certification period for the selected claim.

Auditors will document errors related to the eligibility process (technical or eligibility errors, as discussed later) in the Error Documentation Template (Attachment D).

Program Specific Information Medicaid: The Medicaid sample provided should only include participants receiving benefits whose eligibility determination or re-determination was based on the non-MAGI (Modified Adjusted Gross Income) methodology. See Part 4 of the OMB Compliance Supplement, section E. Eligibility for Medicaid for additional details. If your sample item is determined under the MAGI methodology, please replace the item using the replacement items provided by the NC OSA.

If a participant is found to be presumptively eligible for a program based on eligibility for a different program determined at the county, the eligibility intake process and compliance with federal regulations must be tested based on the requirements of the originating program. For example, if a recipient is presumptively eligible for the Medicaid program based on eligibility for the TANF program, then the recipient should be audited for the requirements of the TANF program.

If a participant is found to be presumptively eligible for a program based on eligibility determination performed by a federal program such as Medicare or Social Security Insurance (SSI), the eligibility for those federal programs should be verified and these participants will be considered eligible for the program.

Errors Document any errors using the Error Documentation Template (Attachment D). This template should be completed for each audited program in order to determine the proper error amount (questioned cost). This document allows for both technical errors and eligibility errors to be documented. Technical errors are errors that do not change the participant’s eligibility status. There will not be an associated error value for technical errors. Errors impacting a participant’s eligibility status would have an associated error value and should be considered an eligibility error.

For each error you must also document the cause of the issue. Copies of the error(s) for eligibility should be submitted as additional documentation to support noted errors. For example, if there was an income source that was not included in the original determination within NC FAST, we would like a copy of the original screen showing that the source was excluded, and a copy of the verification that was used to identify the missing income source. Documentation should only be sent for errors that impacted eligibility.

Please submit the error documentation when completed in Excel format.

GAGAS Communications In the event the procedures performed discloses significant deficiencies, material weaknesses, instances of fraud, noncompliance with provisions of laws, regulations, contracts, or grant agreement, or abuse come to the auditors’ attention that warrant the attention of those charged with governance, GAGAS requires that auditors’ should communicate such matters to audited entity officials.

Knowledge of Matters Outside of Agreed-Upon Procedures Although the county auditor need not perform procedures beyond the agreed-upon procedures, if in connection with the application, and through the completion of, the agreed-upon procedures engagement, matters come to the county auditor’s attention by other means that significantly contradict the subject matter or assertion referred to in the AUP report, the county auditor should include this matter in the AUP report.

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Representation Letter In accordance with standards, we request that you obtain written representation from the County’s management regarding their compliance with the applicable eligibility functions of the identified federal programs. These representations may be tailored to cover specific assertions and matters unique to the entity. (Note: The date of the written representation should be the same as the report date.)

Submission and Required Forms We request that you submit all required forms to the NC Office of the State Auditor after completion. The instructions for uploading this information can be found at Appendix E.

The forms that should be summited are as follows:

• Error Documentation Template (and any supporting documentation)• Independent Accountant’s Report

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pender county request for board action

Documents