City Council
Report
City Council Meeting: February 23, 2016
Agenda Item: 3.F
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To: Mayor and City Council
From: Gigi Decavalles-Hughes, Director, Finance Department, Financial Operations Subject: Professional Auditing Services for the City of Santa Monica Recommended Action
Staff recommends that the City Council:
1. Award RFP# 62 to Lance, Soll & Lunghard, LLC, a California-based company for professional external auditing services; and
2. Authorize the City Manager to negotiate and execute a five-year agreement with Lance, Soll & Lunghard, LLC, for a total amount not to exceed $779,175 over a five-year period, with future year funding contingent on Council budget approval.
Costs for the first year of the agreement will not exceed $149,725; each year thereafter contains an annual increase of 2%.
Executive Summary
According to the City Charter, the City is required to contract with an independent qualified accountant to complete a year end audit. The contract with the City’s current independent external auditor expires in May 2016. In October 2015, staff issued a Request for Proposals for professional external auditing services for fiscal years 2015- 16 through 2019-20. Following an evaluation process that included staff and members of the Audit Subcommittee (Subcommittee), staff recommended Lance, Soll and Lunghard, LLP (LSL) as the best proposal to the Subcommittee. The Subcommittee approved the recommendation and authorized staff to present the recommendation to Council with a 4-0 vote, with Committee Member Vasquez absent. Staff recommends that the City pursue a five-year agreement with LSL, for a total amount not to exceed $779,175.
Background
As required by Section 1516 of the City Charter, a year-end independent audit is required by a qualified accountant to examine the City’s books, records, inventories and 2 of 5
reports as directed by City Council. At the end of the year, a final audit and report shall be submitted by such accountant to the City Council, City management, and the general public.
Discussion
The City engages an independent auditing firm to perform an examination of the City’s basic financial statements, Big Blue Bus Fund financial statements, Air Quality Improvement Program, and the City’s Schedule of Expenditures of Federal Awards (Single Audit). The independent auditor also performs agreed-upon procedures to test and report on the City’s GANN appropriation limit calculation. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. The audit also includes evaluating the overall presentation of the financial statements and evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management. The objective of the audit is to express an opinion as to whether these financial statements are fairly presented in all material respects in conformity with all applicable accounting standards generally accepted in the United States of America and as promulgated by the American Institute of Certified Public Accountants (AICPA), the standards applicable to financial audits contained in Government Auditing Standards issued by the Comptroller General of the United States, and the U.S. Office of Management and Budget (OMB) Circular A-133, Audits of States, Local Governments and Non-Profit Organizations.
The City’s contract with its current independent auditor, Macias, Gini and O’Connell, LLP (MGO), ends in May 2016 for audit services related to FY 2014-15. Upon Council’s approval, staff will work to execute a contract swiftly to initiate the strategic planning of the audit to ensure reporting deadlines are met and the required auditor communications with Council, the Audit Subcommittee, and management.
Staff anticipates that the selected auditor will be present at the April Audit Subcommittee meeting to discuss planning and communication. 3 of 5
Vendor/Consultant Selection
On October 29, 2015, staff issued a Request for Proposals to seek qualified certified public accounting (CPA) firms to audit its financial statements for the fiscal years 2015- 16 through 2019-20. The RFP was posted on the City’s on-line bidding site, and notices were advertised in the Santa Monica Daily Press in accordance with City Charter and Municipal Code provisions. 245 vendors were notified, 25 prospective vendors downloaded the RFP, and 6 firms submitted proposals.
Vendor
The Pun Group, LLP
Brown Armstrong Accountancy Corp
Vavrinek, Trine, Day & Co, LLP
Lance, Soll & Lunghard, LLP
Vasquez & Company LLP
Macias, Gini, & O’Connell, LLP
An evaluation committee, consisting of two financial experts from the Audit Subcommittee and staff from the Finance, Big Blue Bus, and Housing and Economic Development departments, reviewed and evaluated the six proposals. The evaluation criteria, developed by staff with assistance from the City’s internal auditor, included experience, ability to meet project work plan/timelines, quality control, cost of services, stability/references, and value added, defined as the contractor’s ability to provide insight and information related to new accounting standards or industry best practices and ability to effectively communicate information to management and the Audit Subcommittee, and provide technical training or resources.
Based on the initial review of proposals, the evaluation committee shortlisted four firms and interviewed the three firms that were unfamiliar to the City on January 13, 2016. As a result of this process, the evaluation committee recommended LSL to provide auditing services for the City of Santa Monica. Staff presented the recommendation to the Audit Subcommittee on January 19, 2016 (Attachment A). The Audit Subcommittee approved the evaluation committee’s recommendation by a vote of 4-0, with Committee Member 4 of 5
Vasquez absent, and authorized staff to present its recommendation to the full Council for award of contract.
Established in 1929, LSL is a California-based CPA firm that specializes in government audits and is known as an industry expert at the state and federal level. LSL was selected based on the technical knowledge of the partners and managers to be assigned to the engagement; their emphasis on time management, planning, and realizing deadlines; and their ability to provide valuable insight and information related to new accounting standards, industry best practices, and unusual accounting transactions throughout the process. They were the highest ranked proposal and on average to the other proposals their cost is comparable.
Financial Impacts and Budget Actions
The total cost of auditing services is $149,725 per year with a 2% increase each year, for a total not-to-exceed amount of $779,175 during the five-year term of the professional services agreement from FY 2015-16 to FY 2019-20. Costs will be allocated to the City’s General Fund, the Big Blue Bus Fund, the Air Quality Management District (AQMD) Fund, and other programs where an audit is required for funding. Future year funding is subject to Council budget approval.
Prepared By: Stephanie Manglaras, Accounting Manager
Approved Forwarded to Council
Attachments:
A. January 19, 2016 Audit Committee Staff Report
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B. Public comments