HomeMy WebLinkAbout- - Terminate Contract for Annual Audit Serv - 6/19/2012CITY COUNCIL AGENDA REPORT
MEETING DATE: JUNE 19, 2012
ITEM NUMBER:
SUBJECT: CONSIDERATION TO TERMINATE CONTRACT FOR ANNUAL INDEPENDENT
FINANCIAL AUDIT SERVICES WITH MAYER, HOFFMAN, MCCANN, P.C.
DATE: JUNE 14, 2012
FROM: FINANCE DEPARTMENT
PRESENTATION BY: BOBBY YOUNG, FINANCE & I.T. DIRECTOR
FOR FURTHER INFORMATION CONTACT: BOBBY YOUNG, FINANCE & I.T. DIRECTOR (714)
754-5243
RECOMMENDATION
Receive and file.
BACKGROUND
On February 28, 2012, a RFP was released for financial audit services and a four -
person evaluation committee independently evaluated the five proposals and
interviewed the top three firms on May 3, 2012.
At the May 15, 2012 City Council meeting, staff presented the results of the RFP and
the recommendation of Mayer, Hoffman, McCann from the evaluation committee. City
Council voted 4-0 (Monahan obstained) to sign a three year contract with Mayer,
Hoffman, McCann.
The fieldwork for the FY 2011-12 financial audit was scheduled to begin June 18th
however staff has postponed this due to City Council request to consider termination of
the current contract with Mayer, Hoffman, McCann.
ANALYSIS
On May 14, 2012, the Attorney General of California brought accusations against
Mayer, Hoffman, McCann P.C. to the California Board of Accountancy. These
accusations were specifically related to the audit of the City of Bell. The Attorney
General of California requested that the Board issue a decision:
1. Revoking or suspending or otherwise imposing discipline upon Mayer, Hoffman,
McCann,
2. Ordering Mayer, Hoffman, McCann to pay the California Board of Accountancy
the reasonable costs of the investigation and enforcement of this case,
3. Ordering Mayer, Hoffman, McCann to pay the California Board of Accountancy
an administrative penalty,
4. Taking such other and further action as deemed necessary and proper.
1
On May 29, 2012, the California Board of Accountancy subsequently penalized Mayer,
Hoffman, McCann with a $300,000 fine and as much as $50,000 for the cost of the
investigation. The Board did not revoke or suspend Mayer, Hoffman, McCann's license
to practice, however they are under probation for 2 years.
As was determined by the RFP evaluation committee, Mayer Hoffman McCann, P.0
was superior to other proposers - most notably in the areas of actual field audit hours
budgeted for this engagement, lowest annual audit fees, and the quality of the staff
auditors that would be assigned to the Costa Mesa audit.
Among other attributes, the following list summarizes the advantages to the City for
continuing the contract with Mayer Hoffman McCann P.C.
The firm specializes in local government auditing. Currently, the firm serves as
auditors to approximately eighty (80) municipalities.
The firm takes a proactive leadership role in local government accounting and
auditing issues, and are experts in issues of redevelopment agency compliance
and OMB Circular A-133 single audit compliance.
y The firm has established a high level of responsiveness to staff's inquiries and
does not bill for non -audit consultation and advisory services.
y The firm provides an annual Governmental Accounting Standards Board (GASB)
Technical Update each spring for clients.
y Mayer Hoffman McCann, P.C. uses an electronic trial balance software and IDEA
software which allows them to upload the trial balance and map it to the financial
statements and create audit lead schedules, perform analytical reviews, perform
ratio analysis and evaluate the data in other ways. The system provides a new
tool for focusing audit efforts on transactions that could be more susceptible to
fraud.
y While the firm was also the audit firm for the City of Bell, their management has
implemented many additional internal control measures to further tighten the
audit process.
Altering the audit scheduling process at this point in time will place additional
pressures on staff as a new audit firm will need more staff resources to compile
their documentation and assessment of internal controls.
ALTERNATIVES CONSIDERED
Should City Council wish to terminate the current contract with Mayer, Hoffman,
McCann (see Attachment 1) and direct staff to provide written notice of termination, the
City Council could direct the City CEO enter into a contract with the audit firm also
recommended by the review committee, White Nelson Diehl Evans, LLP in a form
approved by the City Attorney.
With an original proposed annual audit fee for a 3 year contract of $193,824.00, the
proposed cost by White Nelson Diehl Evans, LLP for FY 12-13 is $68,525. It should be
noted, that while the total cost of this proposal for 3 years is $58,696 ($19,565 per year
on average) higher than that of Mayer Hoffman McCann. As such, City Council could
choose to enter a one year contract for audit services with White Nelson Diehl Evans
LLP.
E
As part of the FY 12-13 Proposed Budget, staff included an audit budget of $75,000.
Therefore, the proposed cost by White Nelson Diehl Evans, LLP would be $6,475 less
than the amount currently proposed as part of the City's budget. Staff has contacted
representatives from White Nelson Diehl Evans, LLP and they are available to complete
the FY 2011-12 financial audit.
FISCAL REVIEW
An amount of $75,000 is currently included as part of the FY 12-13 Proposed Budget for
financial audit services. The current contract with Mayer Hoffman McCann, P.C. is
$47,500.
Should City Council choose White Nelson Diehl Evans, LLP as the alternative, first year
pricing would be $68,525, which is still less than the amount currently included in the
proposed budget.
LEGAL REVIEW
The attached professional service agreement has been reviewed and approved as to
form.
RECOMMENDATION
Staff recommends receiving and filing the report regarding the consideration of
terminating the current contract with Mayer Hoffman McCann. As stated, the Board of
Accountancy has imposed a fine totaling $350,000 and a probationary period of 2 years
on Mayer Hoffman McCann, however they did not revoke or suspend their license to
practice. As noted by the RFP evaluation committee, Mayer Hoffman McCann, P.C.
were rated higher for their qualifications, experience, and changes relating to
assessment of internal controls and documentation throughout the audit process.
BOBBY YOUNG THOMAS DUARTE
Finance & I.T. Director City Attorney
Attachments:
1. Copy of unsigned Professional Services Agreement with Mayer Hoffman
McCann. P.C.
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