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Council Appointed Officers Committee
Staff Report
Report Type: ACTION ITEM
Lead Department: Human Resources
Meeting Date: October 16, 2024
Report #:2409-3546
TITLE
Discussion and Recommendation from the City Council on Next Steps for Internal Audit Services Contract with Baker Tilly that ends June 2025; CEQA Status – Not a Project
RECOMMENDATION
Staff recommend that the Committee review the Baker Tilly Contract for the provision of internal audit services that ends June 2025 and recommend next steps to the City Council.
EXECUTIVE SUMMARY
This report provides an overview of the upcoming contract expiration for Baker Tilly in June 2025. It outlines the options available to the City Council in determining the future direction for these services.
BACKGROUND
The City Charter defines the City Auditor's important role and furthers the City Council’s commitment to internal auditing, transparency, and accountability in government. The City Auditor is a City Council Appointee, meaning the City Council appoints this position.
Per City Council direction on February 10, 2020 to consider outsourcing the Auditor function, the Council Appointed Officers (CAO) Committee, led by an independent procurement expert team, completed a request for proposals (RFP) process for outsourced internal auditing services, led a procurement process aligned with Council direction, and engaged in a transparent review of scope of work services, RFP evaluation, and a public interview process as part of the overall effort. Through the procurement process, the Council selected Baker Tilly to lead the City’s internal audit services.
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On September 28, 20201 the Council approved a contract with Baker Tilly US, LLP for internal auditor services in an amount not to exceed $1.3 million for a term beginning October 1, 2020 through June 30, 2022. The contract provides the option to extend the term for a period or periods of up to three additional years, through June 30, 2025, by mutual agreement with compensation to be determined in such years by terms outlined in the contract. Council has extended the contract through approval of the following amendments with the current contract ending June 30, 2025:
- Amendment #1 2: extension to increase the not to exceed compensation by $2.1 million for an additional three years of continued audit services. Amended contract to end June to, 2025 for total not to exceed amount of $3.4 million over five years. - Assignment and assumption agreement 3 to transfer Baker Tilly US LLP contract to Baker Tilly Advisory Group, LP: This transfer reflected alignment with a strategic investment and restructure of the firm and did not change any of the contract’s terms or conditions Baker Tilly, LLC provides auditing services for the City of Palo Alto and the City’s contract with Baker Tilly specifies the designation of a City Auditor. On May 6, 2024, the City Council formally appointed Kate Murdock as City Auditor.
ANALYSIS
As an appointed role, this item is before the Committee for review and a recommendation to the City Council on next steps in light of the current contract term. The City Council has the opportunity to renew the contract, renegotiate terms, and/or seek to explore alternative service providers. These are not mutually exclusive options and staff as well as representative(s) from Baker Tilly will be available to address questions on options the committee may wish to explore during the discussion.
Renew the Contract: Continue the current service arrangement with Baker Tilly. Some considerations may include: the performance of Baker Tilly and the effectiveness of the current contract terms; continuity of service; price and length of time for the renewed contract.
Renegotiate the Contract: Modify the terms and conditions of the existing contract. Some considerations may include: assess the feasibility of renegotiation and the potential impact on service delivery; price and length of time; address any concerns or issues with current contract. 1 City Council, September 28, 2020, Staff Report #11624, https://portal.laserfiche.com/Portal/DocView.aspx?id=58666&repo=r-704298fc&searchid=0b800107-4b67-4777- 99d5-d258e3d6f8c7
2 City Council, May 9, 2022, Staff Report #14232,
https://portal.laserfiche.com/Portal/DocView.aspx?id=59458&repo=r-704298fc&searchid=0b800107-4b67-4777- 99d5-d258e3d6f8c7
3 City Council, June 17, 2023, Staff Report #2406-3129, https://portal.laserfiche.com/Portal/DocView.aspx?id=73984&repo=r-704298fc&searchid=0b800107-4b67-4777- 99d5-d258e3d6f8c7
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Explore Alternative Service Providers: Issue a Request for Proposals (RFP) to solicit bids from industry providers. Some considerations may include: the time and resources required for the procurement process, potential disruptions in service, access to new service options, increased competition; potential cost savings.
The Committee should also consider the administrative support required to navigate the recommended next steps. Previously in 2020, one member of the CAO Committee was designated as the lead in consultation with an independent contracted procurement professional.
FISCAL/RESOURCE IMPACT
Funding for annual internal audit services is budgeted in the Office of the City Auditor in the operating budget. Depending on the Committee’s recommendation, additional resources may be needed to support the process.
STAKEHOLDER ENGAGEMENT
N/A
ENVIRONMENTAL REVIEW
Committee action on this item is not a project as defined by CEQA because direction on the City Auditor contract and alternative options is a continuing administrative or maintenance activity.
CEQA Guidelines section 15378(b)(2).
ATTACHMENTS
Attachment A: Baker Tilly Advisory Group, LP Contract
APPROVED BY:
Sandra Blanch, Human Resources Director