HomeMy WebLinkAbout03/15/1994, C-2 - AWARD OF AUDITING SERVICES CONTRACT IIIyAII� m�I IpI�III MEETING DATE:
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II COUNCIL AGENDA REPORT ITEM NUM13ER:/1_�
FROM: William C. Statler, Director of Finance 1V c;�f
Prepared by: Carolyn Dominguez, Accounting Manager C
SUBJECT: AWARD OF AUDITING SERVICES CONTRACT
CAO RECOMMENDATION
Award the auditing services contract to KPMG Peat Marwick and authorize the Mayor to
execute the agreement.
OVERVIEW
After an extensive evaluation process, we are recommending that Peat Marwick be retained
as the City's independent auditors. This recommendation is based on three key factors:
■ Exceptionally well qualified
■ History of quality service to the City
■ Competitive fees - of the three finalists, they quoted the lowest 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 work. 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.
DISCUSSION
With Council approval on January 18, 1994, the City issued a Request for Proposal (RFP)
for auditing services which was sent to all "Big Six" accounting firms as well as any other
firm expressing an interest in providing auditing services to the City. In addition, a notice
requesting proposals was published in the Telegram Tribune.
Key elements of the workscope and selection process include:
■ Scope of services Audit work will include:
- City general purpose financial statements
- Single Audit Act financial and compliance report
- Transportation Development Act (TDA) financial and compliance report
- Whale Rock Commission annual financial statements
- Central Coast Cities Self-Insurance Fund (CCCSIF) annual financial statements
■ Review process. Eight proposals were received, which were extensively reviewed and
rated by a committee composed of the Assistant CAO, Director of Finance, and
Accounting Manager. 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
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conducted for three finalists by a panel composed of the President of the CCCSIF,
the Assistant CAO, the Director of Finance, the Accounting Manager, the Revenue
Manager; and the Accounting Supervisor. 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 both the City
and the CCCSIF.
■ Evaluation results As summarized below, Peat Marwick rated as the best overall
candidate based on the following evaluation factors:
I
Municipal government experience and expertise. Peat Marwick is the largest public
sector auditing and consulting firm in the country. The Los Angeles office serves over
30 California cities as clients, most of whom are GFOA and CSMFO award winners.
In addition to San Luis Obispo, they also audit two other central coast cities.
Insurance experience and expertise. With extensive insurance industry experience,
Peat Marwick is the candidate most qualified to audit and provide consulting services
to the Central Coast Cities Self Insurance Fund. They have an actuary on staff to
provide the necessary review of actuarial assumptions which are critical to a fairly
presented financial statements of an insurance pool. The CCCSIF has often relied
upon Peat Marwick's expertise related to insurance matters and emerging insurance
pool issues.
i
Technical resources. In addition to their vast 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.
I
Service. We have 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's Los Angeles office assisted over 40 governmental
entities in issuing bonds or certificates of participation during the past year. Financial
statements audited by a "Big Six" firm are often viewed more favorably by rating
agencies.
Competitive fees. Of the three finalists interviewed, Peat Marwick quoted the lowest
fees as summarized below:
General Fund All
Services Services
Peat Marwick $35,000 $54,600
Glenn, Burdette, Phillips & Bryson 37,000 55,100
Maze and Associates 43,825 58,445
Current Fees $38,000 $59,500
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CONCURRENCES
The President of the Central Coast Cities Self Insurance Fund (Margaret Vicars, Director
of Finance/City of Pismo Beach) concurs with this recommendation. .
FISCAL IMPACT
Audit services for 1993-94 total $54,600 compared with previous fees of$ 59,500 as follows:
General Fund 1993-94 1992-93
City general purpose financial statements $31,000 34,000
Single Audit Act financial and compliance report 4,000 4,000
Transportation Development Act (TDA) financial
and compliance report 4,500 5,000
Whale Rock Commission annual financial statements 3,000 3,000
Central Coast Cities Self Insurance Fund
annual financial statements 12.100 13.50
Total $54,600 $59,500
ALTERNATIVES
As noted when we requested authorization to request proposals, 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 a 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 the firm that finished second in the evaluation process,
Maze and Associates, be awarded the contract. Maze and Associates is a highly qualified
firm that has developed a special niche in the municipal auditing market. The majority of
their clients are California cities (25) and risk pools (4). In the ratings, Maze and Associates
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 eight proposals. After extensive review, three firms were selected to participate in
an oral interview. Peat Marwick emerged from the evaluation process as the firm we believe
will provide the highest quality of professional services required at the best competitive
price.
Attachment. Agreement for auditing services with KPMG Peat Marwick
A. Summa1y of audit proposals B. Audit proposal evaluation checklist
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AGREEMENT
THIS AGREEMENT is made and entered into in the City of San Luis Obispo on this day of
. by and between the CITY OF SAN LUIS OBISPO, a municipal corporation,
hereinafter referred to as City, and KPMG PEAT MARWICK, hereinafter referred to as Contractor.
WITNESSETH:
WHEREAS, on January 19, 1994, City requested proposals for auditing services per Specification No.
93-68.
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, 1996.
2. INCORPORATION BY REFERENCE. City Specification No.93-68 and Contractor's proposal
dated February 11, 1994 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 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 do 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 City Clerk
City of San Luis Obispo
P.O. Box 8100
San Luis Obispo, CA 93403
Contractor KPMG Peat Marwick
725 South Figueroa Street
Los Angeles, CA 90017
8. AUTHORITY TO EXECUTE AGREEMENT. Both 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 above written.
ATTEST: CITY OF SAN LUIS OBISPO,
A Municipal Corporation
By:
Diane Gladwell, City Clerk Peg Pinard, Mayor
APPROVED AS TO FORM:
r
e y G or ity Attorney
CONTRACTOR
By:
By:
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Summary of Audit Proposals Exhibit A
General Information 1993-94 Audit Fees
General Fund All
Firm Location Services Services
Finalists
KMPG Peat Marwick* Los Angeles 35,500 54,600
Glenn Burdette Phillips & Bryson San Luis Obispo 37,000 55,100
Maze & Associates Walnut Creek 43,825 58,445
Other Proposals
Coopers & Lybrand* Los Angeles 39,950 62,500
Brown Armstrong Randall & Reyes Bakersfield 32,145 48,629
Daniels Phillips Vaughn & Bock Bakersfield 43,350 59,950
Macias and Miranda Sacramento 30,000 51,500
RJM Miranda & Company Santa Ana 33,500 52,000
"Big S&'accounting firm
Current Audit Services
KMPG Peat Marwick Los Angeles 38,0001 59,500
Summary of Audit Services
General Fund Services
• General purpose financial statements
• Single audit act financial and compliance reports
Other Services
• Whale Rock Commission financial statements
• Transportation development act financial and compliance reports
• Central Coast Cities Self Insurance Fund financial statements
gmuditsum
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Exhibit B
AUDIT PROPOSAL EVALUATIOI. _rIEET
Firm Name
Total
Score Possible
General Qualifications
1. A statement that the firm is independent and licensed to practice in California 1
2. The firm's professional personnel have received adequate continuing education within the
preceding two years,focusing on local government auditing. j 3
3. The bidder has no conflict of interest with regard to any other work performed by the firm
for the City. 1
4. The bidder included a copy of its last external quality control review report. 2
5. The bidder followed the instructions in the RFP:
— Limited the proposal to 30 pages 1
— Included the Proposal Submittal Summary form 2
— Included one Schedule of Professional Fees and Expenses for each Financial
Report required 5
Total Score — General Qualifications 15'
Expertise and Experience
6. The bidder demonstrates recent experience and performance on comparable
government engagements(instructions limited to 5 engagements) 2
— Bidder should have included audits conducted within the last 5 years 1
— Recent experience performing city audits 5
— Recent experience performing audits of self—insurance pools(7PA's) 5
— Recent experience performing TDA audits 3
— Recent experience performing Single Audits 2
— For each engagement bidder should have included:
Total staff hours 1
Total Partner hours 1
Date of engagement 1
Scope of work 1
Contact name and phone number i
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. 4
8. A statement on the quality of the firm's management support personnel available for
technical consultation. 1
9. A statement indicating how the firm will assure the quality of the staff over the term
of the contract. 2
Total Score — Expertise and Experience 30'
Firm Name Page 2
Total
Score Possible
Audit Approach
10. The bid should contain the following information on audit approach:
(Is the item included, 1 point — is the approach reasonable,preferable,2 points?)
— Proposed segmentation of the engagement 3
— Level of staff and number of hours assigned to each segment 3
— Extent of statistical sampling 3
— Proposed use of on—site automated systems 3
— Type and extent of analytical procedures 3
— Approach to document an understanding of City's internal control structure
(Preferred approach is prior to June 30, 1994,not during fieldwork) 3
— Approach taken to determine laws and regulations that will be subject to audit
test work 3
— Approach taken to drawing samples for tests of compliance. 3
— A statement indicating how the firm will be able to staff and service the City in light of
their other client obligations 3
— An indication that they can meet our completion date of November 1st each year 3
Total Score — Audit Approach 30
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%n higher than the
lowest proposal,the firm would receive a score 10% lower than 25,or a 22)
TOTAL CUMULATIVE SCORE 100
C r�
MEETINP, AGENDA
DAT&. r' ITEM # M.N• a2
COMMUNICATION ITEM
March 15, 1994
TO: Council Colleagues
FROM: Peg Pinard, Mayo6 .Q,
SUBJECT: Campaign Regulations Committee
Five members of the Campaign Regulations Committee have indicated they could continue
to serve and make recommendations pertaining to a possible lobbying ordinance:
GlennaDeane Dovey, Chair
Richard Kransdorf, Vice Chair
Dominic Perello
Carla Sanders
Richard Schmidt
On February 1st Council directed, "Ask the Campaign Regulations Committee to continue
to review and make recommendations regarding a municipal lobbying ordinance;if members
do not wish to continue, Council Members are to submit names to the Mayor for
appointment recommendations."
Since no other Council Members have submitted additional recommendations for
appointment, I believe our earlier direction will allow the committee to now commence
researching and making their recommendations to Council on this issue.
/drg
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