HomeMy WebLinkAboutCOUNCIL - AGENDA ITEM - 07/17/2018 - FIRST READING OF ORDINANCE NO. 101, 2018, AMENDINGAgenda Item 11
Item # 11 Page 1
AGENDA ITEM SUMMARY July 17, 2018
City Council
STAFF
Travis Storin, Accounting Director
Gerry Paul, Director of Purchasing & Risk Management
John Duval, Legal
SUBJECT
First Reading of Ordinance No. 101, 2018, Amending Section 8-158 of the Code of the City of Fort Collins
Pertaining to the City's Procurement of Services for an Annual Independent Audit of the City's Financial
Records.
EXECUTIVE SUMMARY
The purpose of this item is to amend the City Code to accommodate the roles of the Council Finance
Committee and the City Council in procuring external audit services for the City. An important element of
auditor independence is that the selection of the external auditor is made by a governing body rather than by
the staff of the auditee. The proposed Code section would (1) allow the selection process of an external audit
services to take place at publicly held meetings and (2) define the maximum service period of an incumbent
auditor.
STAFF RECOMMENDATION
Staff recommends adoption of the Ordinance on First Reading.
BACKGROUND / DISCUSSION
Audit Requirements and Best Practices in Selection
An annual, external audit by an independent CPA firm is required by Colorado Statute, City Charter, City debt
covenants on outstanding bonds and leases, and the majority of grant agreements for which the City is a
recipient.
The current audit contract is in its fifth and final year, necessitating a competitive selection per City Code.
Historically, the Council Finance Committee has served as the interview panel for audit services and made a
recommendation to the Council for selection via resolution. Staff recommends that the Finance Committee
continue to perform this function.
Properly performed audits play a vital role in the public sector by helping to preserve the integrity of the public
finance functions and by maintaining citizens’ confidence in their local government. Best practices published by
the Government Finance Officers Association and the American Institute of CPAs strongly recommend for the
selection of auditing services be conducted by governing and oversight bodies (rather than by employees of
the auditee) as an important measure to preserve auditor independence. It is also ideal for auditor
independence to require auditors be replaced after a defined contract term, as is often the case in the private
sector.
As a comparison, SEC-regulated publicly traded companies are required by the Sarbanes-Oxley Act of 2002 to
delegate to an audit committee the responsibility for appointment, compensation, and oversight of audits.
Agenda Item 11
Item # 11 Page 2
Sarbanes further requires that the high-ranking personnel within the selected firm be rotated every 5 years,
although there is not a requirement that the firm itself be rotated.
Holding Supplier Interviews in a Public Meeting
Any meeting of three or more Councilmembers is required to be held in public with sufficient advance notice of
the time, location, and meeting agenda. Further, Code Section 2-31 and Article II Section 11 of the City
Charter specifically limit when the Council and its committees can go into executive session and there is no
exception that authorizes an executive session to interview prospective auditors. Therefore, Finance
Committee interviews of prospective auditors are required to be conducted in a public meeting.
Current City Code pertaining to supplier/vendor procurement precludes the public disclosure of proposal,
offeror, and evaluation information during the competitive selection process.
Given the limitations this places on the selection process of an auditor, staff recommends the Code be
amended to allow the Finance Committee and Council to conduct its interview and selection of qualified
candidates in a public meeting. If this Ordinance is adopted, interviews will proceed at the September meeting
of the Finance Committee.
Auditor Rotation
Many private-sector business enterprises and not-for-profits mandate that a new audit firm be selected
periodically, in an effort for fresh procedures and greater independence from management. In highly-regulated
environments such as publicly traded companies, it is often required that personnel rotate from their clients in
5-year increments.
The City does not currently have a policy or Code requirement to rotate auditors. At the June 18 Finance
Committee, the matter was discussed and the Committee supported a codified rotation requirement. Staff was
asked to research and recommend a practice for the City to adopt.
Staff contacted Front Range peer organizations, the results of which are below:
City Selection method Rotation
Boulder Public selection by Finance Committee Not mandatory
Loveland Staff run, staff selected Not mandatory
Aurora Staff run, Council adopted 5-year partner rotation; no mandatory firm rotation
Larimer County One commissioner participates with staff committee Not mandatory, like to rotate every 10 years
CO Springs Finance/Audit Committee decides Have in practice rotated every 5 years, but not codified
Staff recommends to Council a 10-year rotation requirement for accounting firms (2 consecutively awarded 5-
year periods), with a mandatory rotation of the lead partner after the first 5-year period concludes. This
recommendation allows efficiencies and continuity to be gained throughout the contract term between audit
staff and City staff while also ensuring fresh perspectives are introduced at regular intervals.
CITY FINANCIAL IMPACTS
Staff sees no direct financial impact from the proposed amendments and additions.
BOARD / COMMISSION RECOMMENDATION
The Finance Committee supported adoption at its June 18, 2018 meeting.
ATTACHMENTS
1. Council Finance Committee minutes, June 18, 2018 (draft) (PDF)
COUNCIL FINANCE COMMITTEE
June 18, 2018
Minutes Excerpt (draft)
E. CFC Auditor Selection - Selection of independent auditor for City, PFA, and Library
Travis Storin, Accounting Director
John Voss, Controller
EXECUTIVE SUMMARY
The purpose of this item is to solicit consensus from the Committee regarding:
• The process for selecting an independent auditor for an up-to five-year period
• Potential Code modifications to resolve public disclosure limitations and increase
transparency with respect to audit selection
• Perspective on the candidacy of incumbent firms
A Request for Proposal (RFP) will be issued this summer for audit services. The process is
designed to ensure that the selected firm meets the City’s requirements and has the
knowledge, experience, and reputation in auditing similar entities.
An annual external audit by an independent CPA firm is required by Statute, Charter, debt
covenants, and virtually all grant agreements.
GENERAL DIRECTION SOUGHT AND SPECIFIC QUESTIONS TO BE ANSWERED
Staff seeks input on:
• Evaluation criteria for selection of the independent auditor
• Desired modification to historical processes for selection, if any
• Support for Code amendment to allow Committee participation in an open public
meeting
BACKGROUND/DISCUSSION
Code Amendment
Current City Code precludes the Committee from holding a meeting to interview service
providers. Code Section 8-158(f) limits public disclosure of interview information, while City
Charter Article II, Section 11 and Code Section 2-31 preclude the use of executive session for
this purpose. In order to allow the interview process to remain with the Committee, Staff
recommends modifying Section 8-158(f) for audit services specifically to allow the interviews to
be conducted in public before the Committee.
Auditor Rotation
Multi-year contracts are limited to 5 years by City Code. The City does not have a mandatory
auditor rotation policy and would allow evaluation of the incumbent.
GFOA best practice guidance acknowledges that private sector and publicly-traded, SEC filing
entities have rotation practices mandated by regulatory authorities or their own bylaws. In the
public sector, GFOA cautions that sometimes it is difficult to get enough qualified responses if
the incumbent is disallowed.
ATTACHMENT 1
COUNCIL FINANCE COMMITTEE
June 18, 2018
Minutes Excerpt (draft)
The below table shows a 30-year history of audit firms the City has engaged.
1983 Ericson, Hunt, Spelman 1995 Bondi 2007 Bondi
1984 Ericson, Hunt, Spelman 1996 Bondi 2008 McGladrey & Pullen
1985 KPMG 1997 Bondi 2009 McGladrey & Pullen
1986 KPMG 1998 Bondi 2010 McGladrey
1987 KPMG 1999 Bondi 2011 McGladrey
1988 Price Waterhouse 2000 Bondi 2012 McGladrey
1989 Price Waterhouse 2001 Bondi 2013 McGladrey
1990 Price Waterhouse 2002 Bondi 2014 McGladrey
1991 Price Waterhouse 2003 Bondi 2015 McGladrey
1992 Price Waterhouse 2004 Bondi 2016 RSM (McGladrey)
1993 Bondi 2005 Bondi 2017 RSM (McGladrey)
1994 Bondi 2006 Bondi
Timeline and Process
Staff proposes to release a Request for Proposal (RFP) in July. The proposed evaluation criteria,
all to be equally weighed at 25% and in no particular order, would be:
• Scope of proposal
• Assigned personnel qualifications
• Cost and work hours
• Firm capability & reputation
A staff committee, including staff members from City, Library and PFA would evaluate written
proposals and recommend the top 2-3 firms for presentation to the Finance Committee.
Interviews would be conducted at the September Finance Committee meeting with the City
Purchasing Director serving as Purchasing Agent and facilitator. The Committee’s
recommendation would be presented to the full Council for adoption via Resolution, thereby
authorizing the Purchasing Agent to enter into an agreement with the awarded firm for the
2018 fiscal year audit, renewable annually through the 2022 audit.
Discussion / Next Steps:
Ken S: does the same team do the audit each year?
Travis: The management team from the company is the same and the staff rotates by about
50%. There are 4 Auditors, 2 of the Auditors are returning and 2 are new.
We have no concern with RSM’s quality of work. We just want to ensure the best
possible Audit and that we satisfy independence in fact and appearance.
Ross: Yes to question 1. I agree with doing a rotation, whether it be every 5 years or 10 years.
Yes, I support the timeline.
COUNCIL FINANCE COMMITTEE
June 18, 2018
Minutes Excerpt (draft)
Ken S: I agree with Ross. I’m not sure if I’m comfortable with a proposal by the incumbent
(RSM)? Since we are looking at enforcing turn-over, that might not be appropriate.
Mayor Troxell: I am supportive of what needs to be done.
Travis: I should mention that the URA, Library and PFA use our Auditor selection, so this would
affect them as well.
-1-
ORDINANCE NO. 101, 2018
OF THE COUNCIL OF THE CITY OF FORT COLLINS
AMENDING SECTION 8-158 OF THE CODE OF THE CITY OF FORT COLLINS
PERTAINING TO THE CITY’S PROCUREMENT OF SERVICES FOR AN
ANNUAL INDEPENDENT AUDIT OF THE CITY’S FINANCIAL RECORDS
WHEREAS, the City Council is required by Section 17 in City Charter Article II to
provide an annual independent audit of the City’s books and accounts conducted by a public
accounting firm; and
WHEREAS, City Code Section 8-158 sets out the process by which such accounting
services, as well as similar professional services, are procured by the City through competitive
sealed proposals; and
WHEREAS, this procurement process is typically conducted administratively by the
City’s Purchasing Agent and other City staff, but because of the requirements in Section 17 of
Charter Article II that the City Council provide for an annual independent audit, this process has
historically been conducted, with assistance from the Purchasing Agent, by the Council Finance
Committee reviewing the proposals and conducting the interviews of the offerors in a public
meeting and making a recommendation to City Council, with the Council then making the final
decision in a public meeting to select the firm; and
WHEREAS, this Ordinance amends Code Section 8-158 to take into account that this
process will occur in public meetings because it is being conducted by the Council Finance
Committee and the City Council; and
WHEREAS, this Ordinance is necessary for the public’s health, safety and welfare.
NOW, THEREFORE, BE IT ORDAINED BY THE COUNCIL OF THE CITY OF
FORT COLLINS as follows:
Section 1. That the City Council hereby makes and adopts the determinations and
findings contained in the recitals set forth above.
Section 2. That Section 8-158 of the Code of the City of Fort Collins is hereby
amended to read:
Sec. 8-158. - Competitive sealed proposals.
(a) Procurements for the following are eligible for award by competitive sealed
proposals:
(1) Materials and services when the Purchasing Agent determines in writing
that the use of competitive sealed bidding is either not practicable or not
advantageous to the City;
-2-
(2) Professional services; and
(3) City improvements when the Purchasing Agent determines that the use of
alternative delivery methods will provide substantial benefit to the City while
retaining sufficient competitive pricing and/or performance.
(b) Procurements accomplished pursuant to this Section shall be solicited through a
request for proposals.
(c) Public notice shall be given and shall include the proposal title, place, date and time
of proposal opening.
(d) Except as provided in paragraph (m) of this Section, Pproposals shall be opened so
as to avoid disclosure of contents to competing offerors during the process of negotiation.
(e) A register of proposals shall be maintained containing the name of each offeror
and shall be open for public inspection after the award of the contract in the office of the
Purchasing Agent in the same manner as are other public records.
(ef) The request for proposals shall state evaluation factors and their relative
importance.
(fg) After proposal opening, interviews may be conducted with the highest ranked
responsible offeror or offerors for the purpose of clarification and to assure full
understanding of, and responsiveness to, solicitation requirements. Offerors selected for
interview shall be accorded fair and equal treatment with respect to any opportunity for
discussion and revision of proposals. Revisions may be permitted after submissions and
prior to award in order to reflect clarifications in the proposal's scope of work or contract
amount.
(h) Except as provided in paragraph (m) of this Section, Iin conducting interviews,
there shall be no disclosure by the City or any officer, employee or committee thereof, of
any information derived from proposals submitted by competing offerors, nor shall there
be any disclosure of information discussed by the evaluation committee in selecting the
highest ranked offeror(s).
(i) After the contract has been awarded and a written contract executed with the
selected offeror(s), the total points of the evaluation committee will be retained by the
Purchasing Agent for a period of time consistent with the City's record retention policy.
(j) Except as provided in paragraph (m) of this Section, Iindividual rating sheets and
notes prepared or utilized by members of the evaluation committee shall not be made
available for public inspection.
(gk) The contract shall be awarded with reasonable promptness by written notice to the
responsible offeror whose proposal is determined in writing to be the most advantageous
-3-
to the City, taking into consideration the evaluation factors set forth in the request for
proposals. No other factors or criteria shall be used in the evaluation.
(hl) The Purchasing Agent is authorized to negotiate the final price and precise scope
of work with the selected offeror.
(m) If the proposals are for the services of a public accounting firm to conduct the
annual independent audit of the City’s books and accounts as required in Section 17 of
Charter Article II, those proposals shall be reviewed and the interviews conducted by the
City Council or a committee of the Council in a public meeting and the selection by
Council shall be conducted in a public meeting. In conducting such review, interviews
and selection, the City Council and committees of the Council shall not be subject to the
provisions in paragraphs (d), (h) and (j) of this Section.
(n) No public accounting firm selected to conduct the City’s annual independent audit
shall be eligible to be selected under this Section to conduct that audit for more than two
(2) consecutive five (5) year terms. In addition, any firm conducting the audit for five (5)
consecutive years shall not be eligible to participate in a new competitive sealed proposal
and be selected unless the firm assigns a new lead partner to conduct the audit under the
new contract with a term of one (1) to five (5) years.
Introduced, considered favorably on first reading, and ordered published this 17th day of
July, A.D. 2018, and to be presented for final passage on the 21st day of August, A.D. 2018.
__________________________________
Mayor Pro Tem
ATTEST:
_______________________________
City Clerk
Passed and adopted on final reading on the 21st day of August, A.D. 2018.
__________________________________
Mayor
ATTEST:
_______________________________
City Clerk