HomeMy WebLinkAboutAgenda Report - April 5, 1995 (96)CIW OF LODI COUNCIL COMMUNICATION
AGENDA TITLE: Contract Audit Services
MEETING DATE: April 5, 1995
PREPARED BY: Finance Director
RECOMMENDATION: Award the contract for audit services to KPMG Peat Marwick, LLP and
authorize the Mayor to execute the agreement.
BACKGROUND
On December 21, 1995 the City Council authorized staff to solicit proposals for audit services in
accordance with the attached specifications. The City received and mailed requests to 8 audit firms and
received proposals from the following 6 firms:
Caporicci & Larson from Walnut Creek
Coopers & Lybrand, LLP from Sacramento
Deloitte &Touche, LLP from Sacramento
Gilbert Accountancy Corp fi-om Sacramento
KPMG Peat Marwick LLP from Sacramento
Vargas and Company from. San Jose
After an extensive evaluation process, we are recommending that KPMG Peat Marwick LLP be retained as
the City's independent auditors. This recommendation is based on three factors:
Exceptionally well qualified
History of quality service to the City
Competitive fees
This type of selection is very difficult, especially when all of the firms considered possess the minimum
qualifications necessary to perform the audit work required, and when each of them would bring unique
strengths and weaknesses to the audit. In balancing these factors, when fees are competitive and past
service has been good, we believe that the City's best interests are served when continuity is maintained
with its auditors.
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DISCUSSION
With Council approval on December 21, 1994, the City issued a Request for Proposal (RFP) with the
following key elements and selection process described:
0 Scope of Service. Audit work will include:
- City general purpose financial statements
- Single Audit Act financial and compliance report
- Transportation Development Act (TDA) financial and compliance report
- Federal Transportation Act (FTA) financial and compliance report
- Community Development Block Grant (CDBG) financial and compliance report
0 Review Process.
Six proposals were received, which were extensively reviewed and rated by a committee
composed of the Mayor, the Chief Financial Officer from General Mills and the Finance
Director. Provided in Exhibit A is a summary of the proposals received. Bidders were
evaluated for general and technical qualifications, experience and expertise, their approach to
performing the audit and price. Provided in Exhibit B is the checklist used by the raters in
performing this review. Oral interviews were conducted for the two finalists: KPMG Peat
Marwick LLP and Deloitte & Touche LLP. The finalists were asked to discuss their recent
experience and performance on comparable government engagements and their resource
capability and qualifications to serve as the auditors for the City.
Evaluation Results.
Peat Marwick rated as the best overall candidate based on the following evaluation factors:
Municipal government experience and expertise. Peat Marwick is the largest public sector
auditing and consulting firm in the country. The Sacramento office serves over 9 Northern
California cities as clients, most of whom are GFOA or CSMFO award winners.
Insurance expertise and experience. With extensive insurance industry expertise, Peat
Marwick is qualified to audit and provide consulting services on the City's insurance fund.
They have an actuary on staff to provide the necessary review of actuarial assumptions which
are critical to a fairly presented financial statement.
Technical resources. In addition to their auditing staff, Peat Marwick has specialized technical
groups available as a resource to the city in the areas of retirement and employee benefits,
information systems management and securities offerings.
Added service. In addition to the services offered in their proposal, Peat Marwick offered the
City 30 hours of free services for special reviews or consulting services per year over the three
years of this agreement.
Service. The City has been satisfied with the level of service Peat Marwick has provided in the
past. They have been responsive to our needs, staffed the audit with knowledgeable
professionals, and successfully met our audit completion requirements.
Bond Market. Peat Marwick assists in issuing bonds or certificates of participation. Financial
statements audited by a "Big Six" firm are often viewed more favorably by rating agencies.
Competitive fees. Of the two finalists interviewed, Peat Marwick quoted the lowest fees as
summarized below:
Peat Marwick $32,500
Deloitte & Touche $32,964
Current Fees $31,500
ALTERNATIVES
The City does not have a formal policy encouraging the rotation of auditors. Through the internal rotation
of audit staff and the use of concurring partner review, the legitimate desire for a "fresh look" can still be
achieved while maintaining auditor continuity. In fact from an internal control perspective, it has been the
industry experience that problem areas are more frequently uncovered by auditors when there has been
continuity rather than changeover.
Overall, in considering auditor services, technical competence, service and fees should be the determining
factors in making this decision, not the desire to make change for change's sake. Nevertheless, in the event
that the Council prefers to see a change in the city's audit firm, we recommend Deloitte & Touche LLP
who finished second in the evaluation process be awarded the contract. Deloitte & Touche is a highly
qualified firm that has developed a special niche in the municipal auditing market. In the ratings, Deloitte
& Touche were very competitive with Peat Marwick in technical ability and expertise; it was primarily the
price of their bid that resulted in their second place ranking.
SUMMARY
Upon expiration of the current contract for auditing services, the City issued an RFP and received six
proposals. After extensive review, two firms were selected to participate in an oral interview. Peat
Marwick emerged from the evaluation process as the firm we believe will provide the services required at
the best competitive price.
Dixon Flynn
Finance Director
Attachments
Agreement for auditing services with KPMG Peat Marwick LLP
A. Summary of audit proposals
B. Audit proposal evaluation checklist.
AGREEMENT
THIS AGREEMENT is made and entered into in the City of Lodi on this day of
April, by and between the City of Lodi, a municipal corporation, hereinafter referred to as
City and KPMG Peat Marwick LLP, hereinafter referred to as Contractor.
WITNESSETH:
WHEREAS, on December 21, 1994, City requested proposals for auditing services per
Specifications No. 94-0 1, and
WHEREAS, pursuant to said request, Contractor submitted a proposal which was accepted by
City for said services.
NOW THEREFORE, in consideration of their mutual promises, obligations and covenants
hereinafter contained, the parties hereto agree as follows:
1. TERM. The term of this Agreement shall be from the date this Agreement is made and
entered, as first written above, until acceptance or completion of the annual audit for the fiscal year ended
June 30, 1997.
2. INCORPORATION BY REFERENCE. City Specification No. 94-01 and Contractors
proposal dated February 8, 1995 are hereby incorporated in and made a part of this Agreement.
3, CITY'S OBLIGATIONS. For providing auditing services as specified in this Agreement,
City will pay contractor and Contractor shall receive the amounts stated in the proposal hereto and
incorporated into this Agreement.
4. CONTRACTOR'S OBLIGATIONS, For and in consideration of the payments and
agreements hereinbefore mentioned to be made and performed by City, Contractor agrees with City to
everything required by this Agreement and said specifications.
5. AMENDMENTS. Any amendment, modification, or variation from the terms of this
Agreement shall be in writing and shall be effective only upon approval by the Council of the City.
6. COMPLETE AGREEMENT. This written Agreement, including all writings specifically
incorporated herein by reference, shall constitute the complete agreement between the parties hereto. No
oral agreement, understanding, or representation not reduced to writing and specifically incorporated
herein shall be of any force or effect, nor shall any such oral agreement, understanding, or representation be
binding upon the parties hereto.
7. NOTICE: All written notices to the parties hereto shall be sent by United States mail,
postage prepaid by registered or certified mail addressed as follows:
City: Finance Director
City of Lodi
P.O. Box 3006
Lodi, CA 95241-3006
Contractor: KPMG Peat Marwick LLP
400 Capital Mail, Suite 800
Sacramento, CA 95814
8. AUTHORITY TO EXECUTE AGREEMENT. Both the City and Contractor do
covenant that each individual executing this agreement on behalf of each party is a person duly authorized
and empowered to execute Agreements for such party.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be executed the
day and year first written above.
ATTEST:
CITY OF LODI
A Municipal Corporation
By:
Jacqueline L. Taylor
Acting City Clerk
APPROVED AS TO FORM:
Bob McNatt, City Attorney
Stephen J. Mann, Mayor
CONTRACTOR
L0
M.
Summary of Audit Proposals Exhibit A
General Information
Firm Location Fees
Finalists
KPMG Peat Marwick LLP Sacramento $ 32,500
Deloitte & Touche LLP Sacramento 32,964
Other Proposals
Caporicci & Larson
Walnut Creek
23,310
Gilbert Accountancy
Sacramento
25,000
Vargas and Company
San Jose
25,800
Coopers & Lybrand LLP
Sacramento
35,795
Current Audit Services
KPMG Peat Marwick LLP
Sacramento
$ 31,500
Summary of Audit Services
General Purpose Financial Statements
Single Audit Act Financial and Compliance Reports
Firm Name:
General Qualifications
1. A statement that the firm is independent and licensed to practice in California
2. The firm's professional personnel have received adequate continuing education within the
preceding two years, focusing on local government auditing.
3. The bidder has no conflict of interest with regard to any other work performed by the firm
for the City.
4. The bidder included a copy of its last external quality control review report.
5. The bidder followed the instructions in the RFP:
• Limited the proposal to 30 pages
• Included the Proposal Submittal Summary form
• Included one Schedule of Professional Fees and Expenses for each Financial
Report required
Total Score - General Qualirications
Expertise and Experience
6. The bidder demonstrates recent experience and performance on comparable
goverm-nent engagements (instructions limited to 5 engagements)
• Bidder should have included audits conducted within the last 5 years
• Recent experience performing city audits
• Recent experience performing audits of self-insurance pools (JPA's)
• Recent experience performing TDA , FTA and CDBG audits
• Recent experience performing Single Audits
• For each engagement bidder should have included:
Total staff hours
Total Partner hours
Date of engagement
Scope of work
Contact name and phone number
7. Statements supporting the quality of the professional personnel assigned to this
engagement. (For each individual indicate if licensed to practice as a CPA in
California, government auditing experience, local government continuing education,
and membership in professional organization relavant to the performance of this
audit.
8. A statement on the quality of the firm's management support personnel available for
technical consultation.
9. A statement indicating how the firm will assure the quality of the staff over the term
of the contract.
Total Score - Expertise and Experience
Total
Score I Possible
K
0
P3
1
2
1
5
5
3
2
4
2
Firm Name:
Page 2
Total
Score I Possible
Audit Approach
10. The bid should contain the following information on audit approach:
(Is the item included ( I point - if the approach reasonable; 2 points - if the approach is preferable)
Proposed segmentation of the engagement
• Level of staff and number of hours assigned to each segment
• Extent of statistical sampling
• Proposed use of on-site automated systems
• Type and extent of analytical procedures
• Approach to document and understand the City's internal control structure
(Preferred approach is prior to June 30, 1995, not during fieldwork)
• Approach taken to determine laws and regulations that will be subject to audit
test work
• Approach taken to draw samples for tests of compliance.
• A statement indicating how the firm will be able to staff and service the City in light of
their other client obligations
• An indication that they can meet our completion date of November Ist each year
Total Score - Audit Approach
Price
11. The maximum score for price will be assigned to the firm offering the lowest total
all-inclusive maximum price, over the three year contract. Appropriate fractional
scores will be assigned to other proposers. (ie. If the bid is 10% higher than the
lowest proposal, the firm would receive a score 10% lower than 25, or a 22)
TOTAL CUMULATIVE SCORE
3
3
3
3
3