Loading...
HomeMy WebLinkAboutCOUNCIL - AGENDA ITEM - 08/21/2018 - SECOND READING OF ORDINANCE NO. 101, 2018, AMENDINAgenda Item 6 Item # 6 Page 1 AGENDA ITEM SUMMARY August 21, 2018 City Council STAFF Travis Storin, Accounting Director Gerry Paul, Director of Purchasing & Risk Management John Duval, Legal SUBJECT Second 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 This Ordinance, adopted on First Reading on July 17, 2018, amends 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 Second Reading. ATTACHMENTS 1. First Reading Agenda Item Summary, July 17, 2018 (w/o attachments) (PDF) 2. Ordinance No. 101, 2018 (PDF) Agenda 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. 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. Agenda Item 11 Item # 11 Page 2 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: 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) 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 -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, proposals 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. (f) The request for proposals shall state evaluation factors and their relative importance. (g) 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, in 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, individual rating sheets and notes prepared or utilized by members of the evaluation committee shall not be made available for public inspection. (k) 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. (l) 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