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City Council
Staff Report
From: City Manager
Report Type: CONSENT CALENDAR
Lead Department: Human Resources
Meeting Date: May 4, 2026
Report #:2602-6015
TITLE
Approval of Contract Amendment No. 3 to Contract Number C21179340 with Baker Tilly US, LLP to Extend Term to June 30, 2028 with no increase to the not to exceed amount based on CAO Committee Recommendation; CEQA Status – Not a Project.
RECOMMENDATION
The Council Appointed Officers Committee recommends that the City Council approve and authorize the City Manager or their designee to execute Amendment No. 3 to Contract No.
C21179340 (Attachment A) with Baker Tilly US, LLC to extend the contract term for internal audit services to June 30, 2028.
BACKGROUND
The CAO Committee met in December 2025 to review and discuss the options available for the internal audit services contract and make a recommendation to Council on next steps for the future direction for these services.
The City Auditor is a City Council appointed position. 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. Per City Council direction on February 10, 2020 to consider outsourcing the Auditor function, the Council Appointed Officers (CAO) Committee completed a request for proposals (RFP) process for outsourced internal auditing services, and through the extensive procurement process, the Council selected Baker Tilly US, LLP (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 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 provided 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 two amendments, with the current contract ending June 30, 2026. Baker Tilly 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. The CAO Committee met on November 13, 20242 and unanimously recommended that the Council authorize staff and the Council Appointed Officers Committee Chair to refine the terms of a contract renewal with Baker Tilly through June 30, 2026, negotiate terms for an option to renew for up to two additional years, and align the review of the City Auditor‘s performance with other CAO reviews. These terms were then approved by Council action at the June 2, 20253 Council meeting.
At mid fiscal year, the CAO Committee met again on December 10, 20254 to discuss the option to extend the contract up to two years or, alternatively, to renegotiate terms, and/or to explore alternative service providers. Some considerations reviewed were the performance of Baker Tilly and the effectiveness of the current contract terms, the continuity of service, and progress of the workplan. After discussion, the following motion passed (3-0):
Council Member Veenker moved and seconded by Council Member Burt to recommend to City Council the recommendation that staff and the Council Appointed Officers Committee Chair extend the contract with Baker Tilly for an additional two years, through June 30, 2028. 1 City Council, September 28, 2020, Resolution #11624, Staff Report #14232:
https://recordsportal.paloalto.gov/WebLink/DocView.aspx?id=81861&dbid=0&repo=PaloAlto&searchid=f060c732 -f401-47bd-9a37-9b72da6e8bff
2 Council Appointed Officer Committee, November 13, 2024, Item #1, Staff Report #2410-3733:
https://recordsportal.paloalto.gov/WebLink/DocView.aspx?id=52941&dbid=0&repo=PaloAlto&searchid=fbe3ded7 -74ed-4bf0-bd56-acd4f0725271
3 City Council, June 2, 2025, Item #8, Staff Report #2503-4422:
https://recordsportal.paloalto.gov/WebLink/DocView.aspx?id=6279&dbid=0&repo=PaloAlto&searchid=047b84cc- 4920-4c98-afd4-4b27aa6ca4d5
4 Council Appointed Officers Committee, December 10, 2025, Item #2, Staff Report #2511-5567:
https://recordsportal.paloalto.gov/WebLink/DocView.aspx?id=84034&dbid=0&repo=PaloAlto&searchid=a0820794 -5f83-46c4-90d8-ea30ee00f2fe&cr=1
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ANALYSIS
The table below outlines the term and compensation of the third amendment (attached):
Table 1: Baker Tilly US, LLP Amendment No. 3 Summary
Term This amendment will extend the contract through June 30, 2028.
Compensation Target value of compensation during this extension is $1,417,500. Annual compensation for services under the contract was held flat, as approved in the second amendment:
Year 7 (FY 2027): $708,750
Year 8 (FY 2028): $708,750
The NTE of the overall contract over the full amended contract term of eight years is $5,552,500.
FISCAL/RESOURCE IMPACT
Funding for annual internal audit services is budgeted in the Office of the City Auditor in the operating budget. Funding for this contract extension will be included in the FY 2027 Proposed Budget and funding for future years of the contract is subject to City Council approval though the annual appropriation of funds.
STAKEHOLDER ENGAGEMENT
The CAO Committee engaged in a public discussion of this item on December 10, 2025.
ENVIRONMENTAL REVIEW
Council action on this item is not a project as defined by CEQA because adopting an amendment to this contract is an organizational or administrative activity that will not result in direct or indirect physical changes in the environment. CEQA Guidelines section 15378(b)(5).
ATTACHMENTS
Attachment A: Amendment No. 3 To Contract No. C21179340 Between the City of Palo Alto and Baker Tilly Advisory Group, LLP
APPROVED BY:
Sandra Blanch, Human Resources Director