HomeMy WebLinkAboutRes2018-013CITY OF SEWARD, ALASKA Sponsored by: Hunt
RESOLUTION 2018-013
A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF SEWARD,
ALASKA, APPROVING AN EXTENSION TO THE AUDIT CONTRACT
WITH BDO USA, LLC FOR THE YEARS 2017 AND 2018, AND
APPROPRIATING FUNDS
WHEREAS, the Seward City Council passed Resolution 2015-014 on February 23, 2015,
authorizing a three-year contract with BDO USA, LLC (`BDO") with an option to extend for an
additional two years; and
WHEREAS, the original resolution and the certified resolution posted in the City's official
legislative history, shows the two-year extension can be authorized at the discretion of the city
manager. The certified resolution failed, however, to take into account an amendment made by
Council at the time of passage, which authorized the extension to be approved instead by the City
Council; and,
WHEREAS, the City's audit was conducted by BDO in 2014, 2015 and 2016 and the current
auditor's performance has been excellent and within budget, despite the City's transition to a new
financial accounting system and a new federally qualified health center during this period of
performance, as well as implementation of the new Governmental Accounting Standards Board
(GASB) Statement No. 68 related to allocation of pension liabilities, with another major GASB
Statement coming forth in 2018 related to the allocation of pension -related healthcare liabilities; and
WHEREAS, auditor rotation is common in the private sector but less common in the public -
sector where the lack of competition among audit firms fully qualified to perform public -sector
audits is often managed through mandatory turnover of individual audit staff rather than audit firms,
and between 2014 and 2017 the majority of the audit team serving on the City's audit experienced
rotation, including the two highest -level auditors; and
WHEREAS, BDO has served as the auditor for both the City of Seward and the Seward
Community Health Center ("CHC") where synergies are gained by utilizing the same firm, since
most of the financial transactions of the Seward CHC are reported within the Comprehensive Annual
Financial Report of the City; and
WHEREAS, the City's audit is scheduled to begin in eight weeks, and a competitive request
for proposals process is expected to result in a delay of the audit fieldwork, potentially delaying the
audit until May or later, with May being the month where finance staff is fully engaged in the
system -wide automated electric meter exchange project, with sole responsibility for ensuring the
accuracy of utility billing changes, making staff unavailable for audit work in May; and
WHEREAS, the current contract with BDO resulted from a competitive request for
proposals ("RFF") process in 2015 where, for the third consecutive time, only two qualified and
CITY OF SEWARD, ALASKA
RESOLUTION 2018-013
responsive proposals were received in response to a competitive procurement process and because no
new auditing firms have entered the Alaska market since that time, the outcome of an RFP at this
time is likely to produce similar or the same results; and
WHEREAS, the goal of a competitive procurement process is generally to balance the
quality and thoroughness of an audit against its cost, and based on the previous competitive process,
potential cost savings resulted solely from a 50% reduction in the length of the audit, reducing the
current two -week audit to a one -week audit scope, since hourly cost comparisons showed that BDOs
hourly rate was lower than the alternate proposer.
NOW, THEREFORE, BE IT RESOLVED BY THE CITY COUNCIL OF THE CITY
OF SEWARD, ALASKA, that:
Section 1. The City Manager is hereby authorized to execute Amendment No. 1 to the
Agreement with BDO USA, LLC in substantially the form as attached hereto, to extend the contract
for two additional years, allowing completion of the audit for years ended 2017 ($111,295) and 2018
($114,634).
Section 2. Additional funding is hereby appropriated from General Fund reserves account
no. 01000-0000-3400 to the audit services account no. 01000-1110-7000, as follows: 1) $1,295 in
2018; and 2) $2,634 in 2019.
Section 3. This resolution shall take effect immediately upon its adoption.
PASSED AND APPROVED by the City Council of the City of Seward, Alaska this 12"' day
of February, 2018.
CITY OF SEWARD, ALASKA
David Squires, May r
AYES: Kell, McClure, Towsley, Horn, Squires
NOES: Casagranda
ABSENT: Slater
ABSTAIN: None
A EST: / %�
rends J. 9010d''
City Clerkw'
(City S4)
"°N d 'i�;;,,+OF
1
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ouncil Agenda Statemeng
Meeting Date: February 12, 2018
Through: Jarnes Hunt, City Manag
From-, Kristin Erchinger, Finance Director
A ends Item: External Audit Contract nsion
BACKGROUND &JUSTIFICATION:
, I"he City of Seward issued a request for proposals for external audit services in 2015 and received two
proposals for the audit of calendar years 2014, 201.5, and 2016, On February 23, 2015, the Seward City
Council passed Resolution 20 15-014 authorizing a three-year contract with BDO USA, LLC ("13130")
with the option to extend for two additional years. The original resolution and the certified resolution
posted in the City's official legislative history, shows the two-year extension can be authorized at the
discretion of the city manager. The certified resolution failed however, to take into account an
amendment made by Council at the time of passage, which authorized the extension to be approved
instead by the City Council.
The administration recommends the audit contract be extended for an additional two years, This
recommendation is based on the current auditor's performance, ability to stay within budget, key audit
staff rotation, improvements in audit firm's data analytics tools, and the efficiency of the audit process
despite the City's recent transition to a new financial accounting system, incorporation of the new
federally qualified health center, and implementation of Governmental Accounting Standards Board
Statement No. 68 related to allocation of pension liabilities, during this performance period. Further,
BDO's hourly rate was lower than their competitor in the last competitive process, and potential cost
savings from the other firm would have resulted solely from reducing the amount of time spent auditing
the City's financial records; BDO has an extensive list of comparable governmental clients with
experience auditing healthcare entities and utilities; their positive contract history with the, City of
Seward; their proven ability to assist the City with drafting complex comprehensive annual financial
reports; recent experience with Seward's implementation of GASB No. 68, with a similar complex
Standard pending in 2018; and the adverse impact to the finance department's schedule of any potential
delay in the annual audit.
Since the official City resolution authorized the city manager to extend the contract, staff did not
anticipate the need to solicit requests for proposals. Doing so now would affect the timing of the audit
fieldwork which is slated to begin March 26 and end April 6, 2018. A delay in the timing of the audit
will conflict with the April 17 start of the transition to automated meter reading, where the City will be
replacing all electric meters in our system, and staff will be fully engaged in ensuring the accuracy of
changes to every customer account in the billing system. From mid -April through the end of May,
finance staff is scheduled to coordinate data conversion efforts with No,rthstar software consultants,
install and train on new automated meter reading equipment, and facilitate daily customer account
'Changes related to meter exchanges completed by National Metering's on -site metering crew. With the
loss of one full-time position in 2018, finance staff is again struggling to meet important deadlines even
without additional disruptions to the work. schedule or undertaking major projects,
With respect to external audit services, a key consideration is auditor rotation which can prevent overly
close relationships between lead partners and clients, which may be perceived as jeopardizing auditor
objectivity. Due to the lack of competition among audit firms fully qualified to perform public -sector
audits however, mandatory audit firm rotation can be counterproductive because small firms may lack
the expertise to conduct more complex audits, and audit inefficiency can have a significant adverse
effect on staffing and on overall costs. Instead, the Public Company Accounting Oversight Board which
provides standards for auditors conducting public sector audits, suggests that auditor rotation can be
accomplished by placing limits not on audit firms, but instead on partner tenure and mandatory audit
team rotation, to provide a fresh perspective, reduce the opportunity for familiarity bias, and minimize
the disruption from loss of the built-up knowledge of complex audit engagements which can lead to a
reduction in audit quality.
BDO is a national certified public accounting firm which merged with Mikunda, Cottrell & Co. in 2013,
resulting in 39 years of local Alaska experience and the backing of the 71h largest firm in the U.S. with
52 offices in the U.S. and 3,000 professional staff. BDO serves more Alaska government entities than
any other firm in Alaska, including auditing more than 75 government entities and conducting roughly
150 single audits each year. Their clients include cities, boroughs, utilities, school districts, state
agencies, public utilities, health care organizations, and communities such as the Municipality of
Anchorage, Homer, Kodiak, Palmer, Valdez, Kotzebue, and the City and Borough of Sitka, Wrangell
and Yakutat. They also audit the Kenai Peninsula and Mat -Su Boroughs. The firm employs more than
100 people in Anchorage and principals serve on national GFOA review committees, and are qualified
to perform the City's audit and to ensure the accurate production of the City's comprehensive annual
financial report.
The auditors work for the city council rather than management. Each year, the auditors meet with
representatives of the City Council to ask questions and address any areas of potential concern. The
results of the audit will be presented to the Seward City Council in a public work session within one
month after completion of the audit.
INTENT:
To extend for two years, the contract for independent audit services with BDO USA, LLC, to perform
the City's financial audit for the calendar years ended 2017 and 2018.
�I
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ATTORNEY REVIEW: X Yes No
FISCAL NOTE:
The 2018/2019 Budget includes $110,000 and $112,000 respectively for the annual audit, requiring an
additional appropriation of $1,295 for 2018 and $2,634 for 2019.
Approved by Finance Department: A_
RECOMMENDATION:
Council approve Resolution 2018-013, exercising the option to extend for an additional two years,
the audit contract with BDO USA, LLC.
1 A I it
THIS AGREEMENT is made and entered into this l3th day of Februa
2018, between the CITY OF SEWARD (hereinafter called "CITY") and BDO USA, LLP (hereinafter
called "CONTRACTOR"):
WITNESSETH:
WHEREAS, pursuant to the provisions of Seward City Code Chapter 6, the CITY may contract for
such professional services as may be required; and
WHEREAS, the City Charter requires an independent audit of all accounts of the CITY at least
annually, and the audit is required to be made by certified public accountants; and
WHEREAS, CONTRACTOR works for the Seward City Council and their services will be of
benefit to the citizens of the City of Seward; and
WHEREAS, the parties entered into an initial three-year contract for BD,Oto perform external audit
services for the calendar years ended December 2014, 2015 and 2016; and
WHEREAS, Resolution 2015-014 was approved by the Seward City Council on February 23, 2015,
authorizing the initial three-year contract with an option to extend for two additional years upon approval
of the city council; and
WHEREAS, the parties mutually desire to extend the contract for an additional two years to cover
the calendar years ended December 2017 and December 2018,
NOW, THEREFORE, the CITY and CONTRACTOR mutually agree as follows:
A. Employment of Contractor. The CITY agrees to engage the CONTRACTOR and the
CONTRACTOR hereby agrees to perform external audit services for the calendar years ending
December 2017 and December, 2018.
B. Scope of services: The CONTRACTOR shall do, perform., and carry out in a professional manner,
the services described in the City of Seward's Audit RFP No. 2015-00 1, as well as in the Agreement
to Provide Services signed by the parties on March 10, 2015„ and as subsequently amended in
writing upon mutual agreement,
C. Time of Performance: The services to be performed hereunder by the CONTRACTOR shall be
undertaken and completed in such sequence as to assure their expeditious completion to best carry
out the purposes of this Agreement. The CITY requires that the external auditors coordinate their
work with CITY personnel as follows:
1. All work will be coordinated with the: Finance Director., who is primarily responsible for
working with the external field auditors. Further coordination as necessary with the
Assistant Finance Director, who monitors the day-to-day workflow of the department.
Profcssional Scrviccs Agi-ccincill
For Exict-11.11 111(h,pendent Audit Services
2. The Finance Director will work with the auditors to coordinate: scheduling and identify the
work required to complete the audit.
3. Verbal progress reports will be provided to the Finance Director on a weekly basis during
the conduct of the audit- All adjusting journal entries suggested by the auditors are to be
discussed with the CITY Finance Director,
1.). Compe isation: Compensation is to be computed separately for each year for which audit services
are provided. The total, compensation due to the CONTRACTOR during each year of this contract
is as follows: 1) 2017 audit = $111,245; and 2) 2018 audit = $114,634, where compensation
includes professional fees and actual out-of-pocket expenses, such as airfare, lodging, per diem and
report production. The total compensation due the: CONTRACTOR for any extensions of this
contract will be mutually negotiated prior to commencement of additional audit work beyond the
initial three-year contract term, and Subject to approval by the Seward City Council.
E. Payment to Contractor: The CONTRACTOR will bill the CITY monthly for services rendered.
The CITY agrees to make payment to the CONTRACTOR within 30 days of receipt and agreement
with the CONTRACTOR's bill, Final payment will be made after presentation of the audit report
to the City Council,, within 30 days of receipt and agreement with the CONTRACTOR's bill.
F. Changes: The City may, from time : to time, require changes to the scope of services of the
CONTRACTOR to be performed hereunder. Such changes, which are mutually agreed upon by
and between the CITY and the CONTRACTOR, shall be incorporated by written amendment to
the Agreement, subject to approval of the Finance Director, For any additional fee/costs so
authorized, the CITY requires that the fees for additional financial work be expressed as a fixed
hourly rate for each period subject to audit, quoted for each staff category (e.g, partner, manager,
senior), and that the detail of the costs be disclosed, with the average hourly rate not exceeding the
rate quoted within the response to the Request for Proposals, as adjusted by the annual adjustment
in audit fee.
G. Services and Materials to be Furnished by the CITY-. The City shall provide assistance in the
accumulation of data and records to facilitate the audit for the City of Seward.
ff. Termination of Agreement: If, through any cause, the CONTRACTOR shall fail to fulfill in timely
and proper manner, its obligation under this Agreement, the CITY shall thereupon have the right
to terminate this Agreement by giving written notice to the CON'"I'RACTOR Of Such termination at
least ten (10) business days before the effective date of such termination, and specifying the
effective date of termination.
1. Information and Reports: The CONTRACTOR shall, at such time and in such form as the CITY
may require, furnish periodic reports concerning the status of the project, The CONTRACTOR
shall furnish the CITY, upon request, copies of all documents and other materials prepared or
developed in relation to, or as part of, the project, including copies of all year-end work papers,
J. Records and lnspections:'The CONTRACTOR shall maintain full and accurate records with respect
to all matters covered under this Agreement, The CITY shall have free access at all reasonable
times to such records, and the right to examine and audit the same and to make transcripts
therefrom, and to inspect all program data, documents, proceedings, and activities.
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1'rof'essional Services Agrceniciu.
t 'or External Indcpendcut Audit Services
K. Accomplishment of Project: Tire CONTRACTOR shall commence, carry on, and complete the
project with all practicable dispatch, in a sound, econornical, and efficient manner, in accordance
with the provisions of this Agreement and all applicable laws. In accomplishing the project, the
CONTRACTOR shall take such steps as are appropriate to ensure that the work is properly
coordinated with related work being carried out by the CITY.
L. Matters to be Disregarded: The titles of the several sections, Subsections,, and paragraphs set forth
in this Agreement are inserted for convenience of reference only and shall be disregarded in
construing or interpreting any of the provisions of the Agreement.
M. Completeness of Agreement: This Agreement and any additional or supplementary docurnent or
documents incorporated herein by specific reference contain all the terms and conditions agreed
upon by the parties hereto, and no other agreements, oral, or otherwise, regarding the subject matter
of this agreement or any part thereof shall have any validity or bind any of the parties hereto,
N. City. Not ObliV ated to Third Parties: The CITY shall not be obligated or liable hereunder to any
party other than the CONTRACTOR.
OWhen Riahts and Remedies Not Waived-, In no event shall the making by the CITY of any payment
to the CONTRACTOR FRACTOR constitute or be construed as a waiver by the CITY of any breach of
covenant, or any default which may then exist on the part of the CONTRACTOR, and the making
of any such payment by the CITY while any such breach or default shall exist, shall in no way
impair or prejudice any right or remedy available to the CITY with respect to such breach or default.
P. Personnel: The CONTRACTOR represents that it has, or will, secure at its own expense, all
personnel required to perform the services under this Agreement. All of the services required
hereunder will be performed by the CONTRACTOR or under its supervision, and all personnel
engaged in work shall be fully qualified to perform such services. The personnel assigned to the
CITY shall be Mutually agreed upon by the CONTRACTOR and Finance Director, All subsequent
staffing changes will be reviewed with, and agreed to, by the Finance Director prior to assigning
personnel. The CONTRACTOR shall make every effort practicable to ensure continuity of
personnel from year to year, with respect to performance of the audit,
Q. Independent Contractor: The parties intend that the CONTRACTOR, in performing the services
specified in the Agreement shall act as an independent contractor and shall have full control of the
work and the manner in which it is performed. The CONTRACTOR and CONTRACTORs
employees are not to be considered agents or employees of the CITY for any purpose.
R. Insurance: Tile CONTRACTOR shall provide at its own expense, and maintain at all times, the
following insurance with insurance companies licensed in the State of Alaska and shall provide
evidence of such insurance to the CITY as may be required. The policies or certificates thereof
shall provide that, thirty (30) days prior to cancellation or material changes in the policy, notices
of sarne shall be given to the CITY for all of the following stated insurance policies:
1, Worker's Compensation — in compliance with the statutes of the State of Alaska
2. Corgi prehensiveGeneral Liability -insurance in the amount of $1,000,000 combined single
limit to include:
a. Premises Operations
b. Products/Completed Operations
Page, 3 of 5
Prol,cssional services A
For Extcrnal Indepcii(Icut Audit SciAi(Ts
c, Blanket Contractual
d. Broad Form Property Damage
e. Independent Contractors
f. Personal Injury
3. Comprehensive Automobile Liability -- insurance with a minimum limit of liability per
occurrence of $1,000,000 for bodily injury and $100,000 for property damage, This
insurance shall cover bodily injury and property darnage, owned automobiles, and non_
owned automobiles.
4. Professional Liability — insurance in the arnount of $ 1,000.000.
If at any time, any of said policies shall be unsatisfactory to the CITY, as to form or
substance, or if a company issuing such policy shall be unsatisfactory to the CITY, the
CONTRACTOR shall promptly obtain a new policy and acertificate thereof as herein
above provided. Upon failure of the CONTRACTOR to furnish, deliver or maintain Such
insurance and certificates as above provided, the Agreement,, at the election of the CITY,
may be forthwith declared suspended, or terminated. Failure of the CONTRAC'I'OR to
obtain and/or maintain any required insurance shall not relieve tile CONTRACTOR frorn
any liability under this Agreement, nor shall the insurance requirements be construed to
conflict with or otherwise limit the obligations of the CONTRACTOR concerning
indemnification. The CITY, its officials,, agents and employees shall be named as
additional insured on all insurance policies required herein, The CONTRACTOR's
insurance policies shall include a provision that the coverage is primary as respects to the
CITY; shall include no special limitations to coverage provided to additional insured; and,
shall be placed with the insurer(s) with acceptable Best's rating of A:VII or with approval
of the Finance Director.
S. Ownership of Work Products` Work products produced Linder this Agreement, except items which
have preexisting copyrights, are the property of the CITY. Payments to the CONTRACTOR for
services hereunder include full compensation for all work products and other materials produced
by the CONTRACTOR pertaining to this Agreement.
T. Claims and DiSDUteS: If the CONTRACTOR becomes aware of any act or occurrence which may
form the basis of a claim, the CONTRACTOR shall immediately inform the Finance Director. If
the matter cannot be resolved within seven (7) days, the CONTRACTOR shall, within the next
fourteen (14) days, submit written notice of the facts which may form the basis of the claim,
In presenting any claims, the CONTRACTOR shall specifically include the provisions of this
Agreement which apply, the specific relief requested, including any additional compensation
claimed, and the basis upon which it was calculated and/or the additional tirne requested and the
basis upon which it was calculated.
U. Governing Laws: This Agreement is governed by the laws of the State of Alaska and such federal
and local laws and ordinances as a applicable to the work performed. CONTRACTOR is required
to have a current City business license prior to cornmencement of Agreement.
V. Hold Harmless: The CONTRACTOR shall hold the CITY, its agents, officers, employees and
Volunteers, harmless from, save, defend and indemnity the same against, any and all clairns, losses,
and damages for every cause, including but not limited to injury to person or property, .and related'
costs and expenses, including reasonable attorney fees, arising directly or indirectly out of any act
iRage 4 of 5
J'rol'cssional Services Agi-ecinciii,
For E.,Vcrnal Indcl)cudent Audit Servi(Ts
or ornission of CONTRACTOR, its agents, officers, employees, or volunteers, during the
performance of its obligations under this Agreement.
W. rNotices: Any notices, bills, invoices, or reports required by the Agreement shall be sufficient if sent
by the parties in the United States mail, postage paid, to the addresses noted below
City of Seward B,DO USA, LLC
Kristin Erchinger, Finance Director Lia Patton., Partner
PO Box 167 3601, C Street
Seward, Alaska 99664-0167 Anchorage, Alaska 99503
IN WITNESS WHEREOF, the CITY and the CONTRACTOR have executed this Amendment as of the
date first written above.
Lia Patton
Partner
CITY OF SEWARD
Jaynes Hunt
City Manager
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