Council Appointed Officers Committee
Staff Report
Report Type: ACTION ITEM
Lead Department: Human Resources
Meeting Date: December 10, 2025
Report #:2511-5567
TITLE
Discussion and Recommendation to the City Council on Next Steps for the Internal Audit Services Contract with Baker Tilly that ends June 2026; CEQA Status – Not a Project
RECOMMENDATION
Recommend to the City Council next steps for internal audit services with the current contract ending June 2026.
EXECUTIVE SUMMARY
The CAO Committee will review and discuss next steps regarding the current contract ending June 20, 2026 and provide a recommendation to City Council. This report outlines the options available to the City Council in determining the future direction for these services. Next steps for consideration include extending the contract, renegotiating terms, and/or conduct a Request for Proposal (RFP) to explore alternative service providers. These are not mutually exclusive options.
BACKGROUND
The City Charter defines the City Auditor's 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 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
On June 2, 20251, the City Council approved Contract Amendment No. 2 to the Baker Tilly US, LLP contract #C21179340 in the Amount of $2,126,250 and to extend the term of the contract to June 30, 2026, with an option to extend for two years. The revised total not to exceed contract authority was $5.55 million for the eight-year term should the additional two years of extension be authorized. As a result of this approval, audit services were authorized to continue through the scheduled review of the City Auditor through the annual CAO evaluation process prior to authorization of further extension beyond June 2026.
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 CAO Committee and City Council has the opportunity to direct staff to exercise the option to extend the contract up to two years; alternatively, the Committee could recommend to 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.
Extend 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: If the CAO Committee has a desire to modify the terms and conditions of the existing contract, the contract would require renegotiation. Some considerations may include: potential impact on service delivery, assessing the feasibility of renegotiation and timeframe for this step; price; and, addressing any concerns or issues with current contract.
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, and potential increase in cost. This step will require several CAO Committee meetings to complete the procurement process.
FISCAL/RESOURCE IMPACT
Funding for annual internal audit services is budgeted in the Office of the City Auditor in the operating budget. The option to extend reflects a contract amount of $708,750 annually, consistent with the current year contract compensation limit. Depending on the Committee’s recommendation, additional resources may be needed to support the process.
STAKEHOLDER ENGAGEMENT
Public comment will be available during the Committee deliberations. 1 City Council, June 2, 2025, Item #8, Staff Report #2410-3733:
https://cityofpaloalto.primegov.com/Portal/Meeting?meetingTemplateId=16122
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 US LLP Contract #C21179340
APPROVED BY:
Sandra Blanch, Human Resources Director