HomeMy WebLinkAboutRes2015-014 CITY OF SEWARD,ALASKA Sponsored by: Hunt
RESOLUTION 2015-014
A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF
SEWARD,ALASKA APPROVING A CONTRACT FOR EXTERNAL
AUDIT SERVICES WITH BDO USA,LLP(BDO) FOR THE YEARS
2014,2015,AND 2016,AND APPROPRIATING FUNDS
WHEREAS, the City of Seward issued a Request for Proposals for external audit services
and advertised in newspapers of local circulation in Seward and Anchorage in accordance with
competitive sealed bid procedures; and
WHEREAS, the City Council was informed of the criteria to be used in scoring the
proposals; and
WHEREAS, in addition to newspaper advertising, the RFP was sent to four prospective
auditing firms doing business in Alaska; and
WHEREAS,two qualified and responsive proposals were received in response to the request
for proposals; and
WHEREAS,proposals were scored on the basis of four criteria with a total available points
of 100, including: 1) firm's expertise, qualifications, and technical proposal; 2) organization
experience and audit approach; 3)engagement personnel experience and qualifications; and 4)bid
price; and
WHEREAS,of the two proposals,BDO received the highest overall score,scoring 84.9 out
of 100 available points; and
WHEREAS, the overall bid to conduct the City's audit was higher by BDO (three-year
average cost of$102,920 vs. $75,733 for Altman), the hourly cost by BDO was lower($143/hour
BDO vs. $153/hour Altman),reflecting the fact that BDO estimated 45%more time to conduct the
audit(720 hours versus 495 hours); and
WHEREAS,in addition to the request for bids to audit the City of Seward's annual financial
records, the request for proposals also sought additive alternate bids to audit the financial
transactions of the Seward Community Health Center, and the clinic will decide whether or not to
conduct and pay for an audit of their financial transactions.
NOW,THEREFORE,BE IT RESOLVED BY THE CITY COUNCIL OF THE CITY
OF SEWARD,ALASKA,that:
Section 1. The City Manager is hereby authorized and directed to execute an agreement with
CITY OF SEWARD, ALASKA
RESOLUTION 2015-014
BDO USA,LLP in substantially the form as attached hereto,to provide external audit services to the
City of Seward for 2014,2015 and 2016,with options to extend for up to two additional years at the
discretion of the city manager.
Section 2. BDO's three-year fee is $308,760 ($99,785 for 2014, $102,980 for 2015, and
$105,995 for 2016).
Section 3. Additional funding in the amount of$5,000 is hereby appropriated for the audit of
2014 from General Fund reserves account no. 01000-0000-3400 to the audit services line item no.
01000-1110-7000.
Section 4. This resolution shall take effect immediately upon its adoption.
PASSED AND APPROVED by the City Council of the City of Seward,Alaska this 23rd day
of February, 2015.
THE CITY OF SEWARD,ALASKA
can Bardarson,Mayor
AYES: Keil, Terry, Squires, Bardarson
NOES: Casagranda, Darling
ABSENT: Butts
ABSTAIN: None
ATTEST:
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.11 hanna Ki .MI MC
C y Clerk
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Council Agenda Statement
Meeting Date: February 23, 2015
Through: James Hunt, City Manager qtP
From: Kristin Erchinger, Finance Director M'""
Agenda Item: External Audit Contract
BACKGROUND &JUSTIFICATION:
The City of Seward received two proposals for external audit services for years 2014,2015,and 2016
with options for up to two additional years. Proposals were received from Altman, Rogers & Co.
("Altman") and BDO, and both proposals were found to be responsive. One additional firm from
Alaska requested a copy of the proposal, but declined to submit a proposal.
A review committee of three members separately evaluated proposals based on criteria provided to the
City Council in advance of the solicitation of requests for proposal: 1)Firm Expertise,Qualifications
and Technical Proposal (25%); 2)Organization Experience and Audit Approach(25%); 3)Personnel
Experience and Qualifications(25%); and 4)Fee Proposal(25%). The reviewers scored each criteria
for a total possible points of 100.
The firm of BDO received the highest overall score of 84.9 points; Altman received 75 points. The
scores below indicate BDO received the highest overall score on two criteria,tied on one criteria,and
rated lowest on the fee. Altman scored highest on the fee, lowest on two criteria, and tied on one
criteria.
ALTMAN BDO
Firm Expertise,Qualifications, Technical Proposal 16.7 25.0
Organization Experience,Audit Approach 12.5 20.8
Personnel Experience/Qualifications 20.8 20.8
Fee 25.0 18.3
Total Score: 75.0 84.9
BDO is the incumbent firm,having provided auditing services to the City for more than 10 years. Their
proposal was strong,comprehensive,and demonstrates considerable experience auditing governmental
entities similar in size and scope to the City of Seward. Comparables include cities of Cordova and
Valdez (both have city-owned hospital and clinic), Kodiak, Palmer, Kotzebue, Homer, and more
complex entities such as the Municipality of Anchorage and some State agencies. Altman's primary
governmental focus is on school districts and housing authorities,as well as a more limited list of City
and Borough audit clients, including Nome, Houston, Egegik,Nuiqsut, Gustavus, and Kodiak Island
Borough. Their firm is Alaskan-based and has strong principals. BDO prepares comprehensive annual
financial reports for many of their clients;Altman does so for two cities. The BDO proposal detailed a
thorough understanding of the scope of work; especially as it relates to the challenges associated with
the City's migration to a new accounting system, and the need to ensure the accurate translation of a
new chart of accounts,as well as the migration of data across systems and across fiscal years. Altman's
proposal lacked specificity on the additional work associated with this transition. The BDO proposal
described the complexity of Seward's audit as it relates to the consolidation of the hospital and long-
term care facility financial statements, describing it as one of the most complex CAFRs they prepare.
The Altman proposal appeared to overlook some of the complexities of the scope of our audit.
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The primary difference in the cost of each proposal is the amount of time proposed to be spent on the
audit.Altman estimates 495 hours at a cost of$73,600,or an hourly rate of$149. BDO estimates 720
hours at a cost of$99,785,or an hourly rate of$139. While BDO's hourly rate is lower,they will spend
45% more time (225 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. BDO has averaged 10 days on-site. The Altman proposal estimates on-site fieldwork of
approximately 5 days.This is consistent with the reference checks reviewers conducted(of similar-sized
entities), in which references noted that Altman was on-site less than five full days to conduct the
annual audit. Ultimately the difference in price appears directly correlates to the amount of time spent
conducting the audit.
Following is a brief description of each firm's proposal:
Altman, Rogers& Co.
This firm is an Alaskan based Certified Public Accounting (CPA) firm which provides auditing and
accounting services to more than 70 governmental entities in Alaska,representing 55%of their overall
audit practice and 52%of their total firm hours. The firm has been in practice in Alaska for 24 years.
The bulk of their governmental clients are smaller school districts,housing authorities,and communities
such as Nome,Pelican,Hoonah,and Unalaska,as well as the Boroughs of Kodiak Island and Lake and
Peninsula. The firm employs 57 people and has branch offices in Anchorage, Soldotna and Juneau.
The principals in the firm have experience auditing governmental entities, have served on national
Government Finance Officer's Association review committees,and are qualified to perform the City's
audit. Altman's three-year fee is$227,200($73,600 for 2014;$75,600 for 2015;and$78,000 for 2016).
This results in an average hourly fee of$149.
BDO
This firm is a CPA firm which merged with Mikunda, Cottrell&Co. in 2013,resulting in 35 years of
local Alaska experience, and the backing of the 7th 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. BDO's three-year fee is$308,760($99,785 for 2014,$102,980 for 2015,and$105,995 for
2016). This results in an average hourly fee of$139.
It is our opinion that BDO should perform the City's audit based on the outcome of the RFP process,
their extensive list of comparable governmental clients,their experience auditing healthcare entities and
utilities,their positive history auditing the City of Seward,and their ability to accommodate the City's
mid-year migration to a new financial accounting system. This firm's experience with the City is
expected to reduce the amount of staff time preparing for the annual audit; a benefit to staff in light of
recent finance department staff turnover. BDO's bid is higher than Altman's based on historical
experience auditing the City,and includes 45%more time(225 additional hours)spent on the audit(720
hours versus 495), and is considered to fairly represent the amount of time it takes to do a thorough
audit of the City's financial records,including preparation of the CAFR and completion of a thorough
state and federal single audit.
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This RFP also requested an additive alternate bid to audit the financial activities of the Seward
Community Health Center(CHC). The Board of the CHC and their executive director will be asked
whether they wish to enter into and pay for an audit contract separate from that of the City. The bids for
that stand-alone audit came in at$40,500 (Altman) and$41,720 (BDO).
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.
INTENT:
To award a contract for independent audit services for a three-year period,with options 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
FISCAL NOTE:
The 2015 Budget includes$95,000 for the annual audit,requiring an additional appropriation of$5,000.
Approved by Finance Department:
RECOMMENDATION: 0�
Council approve Resolution 2015- awarding a contract for external audit services to the firm of BDO
for the 2014,2015,and 2016 annual audits,with an option to extend for an additional two years at the
discretion of the city manager.
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
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.
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