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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: I .11 hanna Ki .MI MC C y Clerk °°e3I''.I./•,,I (City Seal) .**,,t OF SFa,=,•,,*4. • !t •• O % •- y i^ -ti �F OF Alj" ..°•.eioaooa.°t 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. ( g 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. rf 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. I �