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HomeMy WebLinkAboutRes2012-012 Sponsored by: Hunt CITY OF SEWARD, ALASKA RESOLUTION 2012 -012 A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF SEWARD, ALASKA, APPROVING A CONTRACT FOR EXTERNAL AUDIT SERVICES FOR THE YEARS ENDING 2011, 2012, AND 2013, WITH MIKUNDA, COTTRELL & CO., AND APPROPRIATING FUNDS WHEREAS, the City of Seward solicited a Request for Proposals (RFP) on January 9, 2012 for the purpose of hiring an independent external auditor to conduct annual financial audits of the City of Seward's financial records, including conducting tests of internal controls, and performing state and federal single audit services in accordance with the requirements of Seward City Charter 6.6; and WHEREAS, the current audit contract expired upon completion of the annual audit for fiscal year ended December 31, 2010; and WHEREAS, based on a competitive procurement process and the evaluation of criteria including scope of work, firm's size, evidence of adequate planning of labor hours, experience r.. with similar engagements, references, technical qualifications, past performance, and bid price, the City received two bids which were considered responsive and qualified; and WHEREAS, the firm of Mikunda, Cottrell & Co. ( "Mikunda ") was the firm receiving the highest score in the RFP process, and the administration recommends entering into a contract with this firm; and WHEREAS, Mikunda has provided independent auditing services to the City of Seward in the past (since 2000), and understands the City =s accounting structure, financial reporting requirements, and recent financial history, and they have a positive working relationship with City staff and City Council; and WHEREAS, Seward City Code 6.10.120 (8) states that professional service contracts are exempt from competitive procurement procedures, but the City sought competitive bids as recommended by the best practices of the Government Finance Officer's Association, when seeking independent auditing services. NOW, THEREFORE, BE IT RESOLVED BY THE CITY COUNCIL OF THE CITY OF SEWARD, ALASKA, that: CITY OF SEWARD, ALASKA RESOLUTION 2012-012 Section 1. The City Manager is hereby authorized and directed to execute an agreement with Mikunda, Cottrell & Co., in substantially the form as attached hereto, to provide external audit services to the City of Seward for calendar years ended 2011, 2012, and 2013, with an option to renew for an additional two years, subject to approval of the City Manager. Section 2. Funding in the amount of $6,145 is hereby appropriated from the General Fund undesignated fund balance account no. 101- 0000 -3050 to the mayor and council audit account no. 101 -1110 -5110 in the 2012 Budget to cover the costs of the 2011 audit, and funding in the amount of $11,283 is hereby appropriated from the General Fund undesignated fund balance account no. 101- 0000 -3050 to the major and council audit account no. 101 - 1110 -5110 in the 2013 Budget, to fund the 2012 audit. Section 3. This Resolution shall take effect immediately upon its adoption. PASSED AND APPROVED by the City Council of the City of Seward, Alaska this 13` day of February, 2012. THE CITY OF SEWARD, ALASKA David Seaward, Mayor AYES: Valdatta, Keil, Shafer, Casagranda, Terry, Seaward NOES: None ABSENT: Bardarson ABSTAIN: None ATTEST: ' sO %$IIIr rr g �� 1.. 4 ( or - - i __ 0 % ' 4 OF S hanna Kinney, CMC .• ♦ .• ' •. �C ity Clerk •0 G /4 0 1 SF AT (City Seal) L • -..-,. . . •• r rr IV - �. OF 1 *** "&imu i3 i0s° Council Agenda Statement r sett, V k'',.4 ' G Meeting Date: February 13, 2012 4 P Through: James Hunt, City Manager From: Kristin Erchinger, Finance Director Agenda Item: External Audit Proposals BACKGROUND & JUSTIFICATION: The City of Seward received two proposals for external audit services for years 2011, 2012, and2013 with options to renew for up to two additional years. Proposals were received from Altman, Rogers & Co. ( "Altman") and Mikunda, Cottrell & Co. ( "Mikunda "), and both proposals were found to be responsive and qualified. One additional firm from outside of Alaska requested a copy of the proposal, but declined to submit a proposal. The review committee evaluated proposals based on the following criteria, provided to the City Council in advance ofthe solicitation ofrequest for proposals: 1) understanding ofthe scope ofwork (10 %); 2) firm's size and evidence of adequate planning to complete the work (20 %); 3) firm's experience with similar engagements, including references (20 %); 4) firm's technical qualifications and qualifications of individuals assigned to the audit (20 %); 5) firm's past performance (10 %); and 6) fee proposal (20 %). The reviewers scored each criteria for a total possible points of 100. The firm of Mikunda received the highest overall score with 88 points, while Altman received 67 points out of a total 100 possible points. Attached is a spreadsheet summarizing the analysis of each firm's proposal. The score sheet indicates that Mikunda received the highest overall score, rating highest on the criteria and lowest on the fee. Altman scored highest on the fee but lower on the other five criteria. The primary difference in the cost of each proposal is the amount of time spent on the audit. The cost proposal for Altman estimates that the audit will take 273 hours at a total cost of $43,150, or an hourly rate of $158. The cost proposal for Mikunda estimates the audit will take 501 hours at a total cost of $72,145, or an hourly rate of $144. While Mikunda's hourly rate is lower, they will spend 84% more time (228 additional hours) conducting audit work, resulting in the higher cost. When KPMG was the City's audit firm prior to 2000, the auditors spent a minimum of 15 days on -site doing fieldwork. Mikunda averages approximately 10 days on -site. The Altman proposal estimates on -site fieldwork of approximately five days. This is consistent with the three reference checks reviewers conducted (of similar -sized entities), in which all three references noted that Altman was on -site less than five full days to conduct the annual audit. Ultimately the difference in price is directly correlated to the thoroughness of the time spent auditing the books and records of the City. Following is an analysis of each firm's proposal: Altman, Rogers & Co. This firm is an Alaskan based Certified Public Accounting (CPA) firm which performs more than 110 governmental and non -profit audits, representing 69% oftheir practice. The bulk oftheir governmental clients are smaller school districts and communities such as Bethel, Pelican, Valdez, Nome, Hoonah, and Unalaska. The firm employs more than 35 people and has branch offices in Anchorage, Juneau, and 3.Z RESOLUTION 2012 - p kV Page Two Soldotna. The principals in the firm have experience auditing governmental entities, serve on the national Government Finance Officer's Association ( "GFOA ") review committees, and are qualified to perform the City's audit. Altman's three -year fee is $133,450 ($43,150 for 2011; $44,500 for 2012; and $45,800 for 2013). This results in an hourly fee ranging from $158 to $168. Mikunda, Cottrell & Co. This firm is an Alaskan based CPA firm which audits the most governmental entities in Alaska (approximately 100 governmental and utility entities) including 8 of the 11 home rule cities (Seward is a home rule City). The bulk of their clients are school districts, utilities, and communities such as the Municipality of Anchorage, Soldotna, Kenai, Homer, Kodiak, Palmer, and the City and Borough of Sitka. They also audit the Kenai Peninsula Borough and KPB School District. The firm has nine directors and employs more than 85 people. Mikunda joined the McGladrey Alliance in 1997, becoming part of the fifth largest accounting and consulting firm in the United States. Mikunda's principals have experience auditing governments, serve on national GFOA review committees, and are qualified to perform the City's audit. Mikunda's three -year fee is $224,098 ($72,145 for 2011, $74,670 for 2012, and $77,283 for 2013). This results in an hourly fee ranging from $144 to $154. It is our opinion that Mikunda, Cottrell & Co. should perform the City's audit based on the outcome of the RFP process, their extensive list of larger governmental clients, and their positive 11 -year history auditing the City of Seward. This firm's experience with the City is expected to reduce the amount of staff time preparing for the audit. Mikunda's bid is higher than Altman's based on historical experience auditing the City, and includes 84% more time (228 additional hours) spent on the audit (501 hours versus 273), and is considered to fairly represent the amount of time it takes to do a thorough audit of the City's financial records and to conduct a thorough state and federal single audit. Mikunda's bid for the audit of 2011 is $72,145, and the 2012 Budget includes $66,000. The auditors work for the city council rather than management. There are advantages to retaining a firm with significant Seward experience, and advantages to having a perspective from other experienced firms. Some would suggest that it is good practice to rotate auditing firms to ensure auditor independence. However, the Government Finance Officers Association has developed a list of "best practices" surrounding the procurement of audit services, which does not necessarily support this theory.1 Management believes that we can work well with either firm. 1 •Governmental entities should enter into multiyear agreements of at least five years in duration when obtaining the services of independent auditors. Such multiyear agreements can take a variety of different forms (e.g., a series of single - year contracts), consistent with applicable legal requirements. Such agreements allow for greater continuity and help to minimize the potential for disruption in connection with the independent audit. Multiyear agreements can also help to reduce audit costs by allowing auditors to recover certain "startup" costs over several years, rather than over a single year. •Governmental entities should undertake a full -scale competitive process for the selection of independent auditors at the end of the term of each audit contract, consistent with applicable legal requirements. Ideally, auditor independence would be enhanced by a policy requiring that the independent auditor be replaced at the end of the audit contract, as is often the case in the private sector. Unfortunately, the frequent lack of competition among audit firms fully qualified to perform public- sector audits could make a policy of mandatory auditor rotation counterproductive. In such cases, it is recommended that a governmental entity actively seek the participation of all qualified firms, including the current auditors, assuming that the past performance of the current auditors has proven satisfactory. Except in cases where a multiyear agreement has taken the form of a series of single -year contracts, a contractual provision for the automatic renewal of the audit contract (e.g., an automatic 3cA RESOLUTION 2012 - Page Three INTENT: To award a contract for independent audit services for a three -year period, with option to extend for up to two additional years. CONSISTENCY CHECKLIST: Yes No N/A 1. Comprehensive Plan (document source here): 2. Strategic Plan (document source here): 3. Other (list): X ATTORNEY REVIEW: YES NO X FISCAL NOTE: The 2012 and 2013 Budgets included $66,000 for each annual audit, necessitating an additional appropriation of $6,145 in 2012 and $11,283 in 2013. Approved by Finance Department: .144 d(Ilaatati RECOMMENDATION: Council approve Resolution 2012 -d awarding a contract for external audit services to the firm of Mikunda, Cottrell and Co. for the 2011, 2012, and 2013 annual audits, with an option to extend for an additional two years at the discretion of the city manager. second term for the auditor upon satisfactory performance) is inconsistent with this recommendation. •The audit procurement process should be structured so that the principal factor in the selection of an independent auditor is the auditor's ability to perform a quality audit. In no case should price be allowed to serve as the sole criterion for the selection of an independent auditor.