REPORT TO THE CITY COUNCIL
June 11, 2015
FROM: MICHAEL LIMA, Finance Director/Controller
Finance Department
BY: KAREN M. BRADLEY, Assistant City Finance Director/Controller
Finance Department
SUBJECT
Title
Award Independent Audit Contract to Brown Armstrong and authorize the Finance Director/Controller to negotiate and execute the contract for services
Body
RECOMMENDATION
Staff recommends that the City of Fresno engage Brown Armstrong as the City's independent outside auditor to audit various City financial documents for the fiscal years 2015 through and including fiscal year 2018 (four years) at a not to exceed fee (inclusive of indirect expenses, i.e. lodging and subsistence) in the total amount of $700,995.
EXECUTIVE SUMMARY
Section 1216 of the City of Fresno's Charter requires the City to employ a public accountant who shall perform an independent audit of the City's books, public records, inventories, and reports. It is City policy to periodically seek Request for Proposals (RFP) with respect to ongoing professional contracts. On February 2, 2015 an RFP was prepared. It was directed to seven specific public accounting firms, as well as published on the City of Fresno's website through Planet Bids. Thirteen proposals were disseminated, with five firms responding to the RFP.
Each of the responding firms was evaluated on responsiveness to the criteria outlined in the RFP, qualifications and experience with similar municipal engagements, detail audit plan presented and proposed fees.
The Audit RFP Evaluation Committee (Committee) determined that two proposals were non-responsive as they did not adhere to the RFP's requirements. The three remaining responding firms were selected by the Committee for live interviews and formal presentations. Based upon the results of the RFP process and the results of the live interviews, the Committee made the decision to request Last, Best and Final (LBF) fee solicitations from the three remaining finalists. After receiving the LBF results, the Committee determined the firm of Brown Armstrong was the most responsive and responsible proposer with the lowest overall fee. The Committee cited Brown Armstrong's substantially lower price, the benefit of changing audit firms on a periodic basis, Brown Armstrong's familiarity with the City's finances due to their role as external auditor for the City of Fresno's Retirement Systems, and their office in Fresno as reasons for the selection. Thus, staff recommends Brown Armstrong to be the City's independent outside auditor for the fiscal years 2015 through and including 2018. The contract to be entered into also allows the City and the auditor to negotiate, if so desired, three one-year extensions for fiscal years 2019, 2020 and 2021.
BACKGROUND
Section 1216 of the Charter of the City of Fresno requires the City to employ a public accountant who shall perform an independent audit of the City's books, public records, inventories, and reports. The City's independent outside auditor performs the auditing services for the Comprehensive Annual Financial Report (CAFR), Single Audit, Fresno Area Express, Employees Health & Welfare Trust, Gann Limit Appropriations Letter, and the Passenger Facility Charges (PFC - Airports) report.
The City's most recent auditors, Macias Gini & O'Connell (MGO) have been with the City since 2008. They have assisted the City greatly in improving its financial reporting process, as well as addressing many of the complicated audit processes that have resulted from both federally mandated changes and Government Accounting Standards Board statements. In addition, MGO guided the City in ensuring that appropriate and comprehensive disclosures were made in its CAFR particularly during the City's economic crisis. Staff has enjoyed working with the MGO firm during its tenure as the City's external auditor. .
On February 2, 2015, an RFP was prepared and directed to seven specific public accounting firms, as well as published on the City's website through Planet Bids. The specific firms that were directly sent RFPs were selected based upon their prior experience with Municipal audits, municipal client base in California, experience with an organization with the operational complexity as the City of Fresno possesses, and familiarity with the program criteria under which the CAFR is submitted for participation in the Government Finance Officers Association Certificate of Achievement for Excellence in Financial Reporting Award. Thirteen proposals were disseminated, with five firms responding to the RFP. The responding firms were:
- Brown Armstrong
- Lance, Soll, and Lunghard
- MGO
- Price, Paige, & Company
- The Pun Group
Each firm was evaluated on responsiveness to the criteria outlined in the RFP, qualifications and experience with similar municipal engagements, detail audit plan and their proposed fees.
At the first meeting of the Committee on April 16th, it was determined that two proposers were non-responsive as they did not adhere to the RFP requirements. Lance, Soll and Lunghard did not attach the Auditing Service Agreement to their response and Price Paige & Company did not provide answers to several items required in the RFP. The three remaining responding firms were selected by the Committee for live interviews and formal presentations. Based upon the results of the RFP process and the results of the live interviews, the Committee made the decision to request Last, Best and Final (LBF) fee solicitations. The LBF figures were received on May 1st and reflected a substantial reduction in cost from their initial responses.
Based on the result of the entire RFP process including the LBFs, the Committee has carefully chosen the firm of Brown Armstrong to be the City's independent outside auditor to audit various City financial documents for the fiscal years 2015 through and including 2018. The contract to be entered into also allows the City and the auditor to negotiate three one-year extensions for fiscal years 2019, 2020 and 2021. The Committee citied four reasons for its selection:
1) Brown Armstrong had the lowest four year all-inclusive price of any of the respondents. Of the three finalists, Brown Armstrong was approximately $218,000 lower in price than The Pun Group, and approximately $320,000 lower than MGO (all differences based on LBF prices).
2) Under Sarbanes-Oxley, publically traded companies are required to rotate audit staff/audit firms on a regular basis. While that requirement isn't imposed on governmental agencies, it is considered a sound fiscal practice for audit staff/firms to be changed on a periodic basis.
3) Brown Armstrong is the City of Fresno Retirement Systems' external auditor, and thus possesses some familiarity with the City's finances.
4) Brown Armstrong has an office in Fresno, thus keeping the City's contract with a firm that has a local presence.
Staff recommends that Council award the independent audit contract to Brown Armstrong and authorizes the Finance Director/ Controller to negotiate and execute the contract for services subject to approval as to form by the City Attorney's Office.
ENVIRONMENTAL FINDINGS
By the definition provided in the California Environmental Quality Act Guidelines Section 15378, this item does not qualify as a "project" and is therefore exempt from the California Environmental Quality Act Requirements.
LOCAL PREFERENCE
Although their main office is located in Bakersfield, Brown Armstrong has a satellite office in Fresno. Audit staff will be coming from both offices for the City of Fresno engagement and as a result local preference applies to Brown Armstrong. A 5% "discount" is applied to the quoted cost for evaluation comparison purposes when a firm qualifies for local preference. For pricing evaluation purposes, Brown Armstrong's four year all-inclusive fee quote is approximately $672,000. (The discount cannot be applied to any federally funded portion of the contract. The discounted fee is reflective of those federally funded audit elements removed).
FISCAL IMPACT
Auditing services are an annual requirement of the Charter; therefore the audit fee is contained in the Finance Department's budget. The Proposed FY 2016 budget contains sufficient appropriations to cover Brown Armstrong's quoted first year price of $170,000. The fee for the remaining years of the proposed agreement will need to be appropriated as part of that fiscal year's budget.
Attachments:
Bid Evaluation Form
Evaluation Matrix
Report from Evaluation Committee
Sample Contract