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CC - Approval of a Professional Services Agreement with Moss Adams LLP for Internal Auditing Services for a Term of Five Years (Ending on June 30, 2020) in an Amount Not-to-Exceed $90,000 for Fiscal Year 2015/2016 and Approved Appropriations in Subsequent Years.
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Contact Person/Dept: Jeff Muir/Finance
Phone Number: (310)253-5865
Fiscal Impact: Yes [X] No [] General Fund: Yes [X] No []
Public Hearing: [] Action Item: [] Attachments: Yes [] No [X]
Commission Action Required: Yes [] No [X]
Commission Name:
Public Notification: (E-Mail) Meetings and Agendas - City Council (10/22/15)
Department Approval: Jeff Muir, Chief Financial Officer (10/21/15)
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RECOMMENDATION
Staff recommends the City Council approve a professional services agreement with Moss Adams LLP for internal auditing services for a term of five years (ending on June 30, 2020) in an amount not-to-exceed $90,000 for Fiscal Year 2015/2016 and in an amount not-to-exceed approved appropriations in subsequent fiscal year budgets.
BACKGROUND
Internal audits will assist the City in the efficient use of resources by providing analysis and recommendations for improved operations and stronger internal controls. Staff recommends engaging the services of an independent audit firm to perform internal audit services in accordance with applicable industry standards and relevant rules and regulations established by the City. Culver City has not historically had an internal audit function outside of the internal controls testing that is part of the annual audit of the City’s financial statements and federal expenditures. An effective internal control function is a best management practice for financial operations.
While the option of hiring a staff member to perform this function was considered, the demand for accountants and auditors is high, and attracting and retaining an individual with the requisite combination of auditing knowledge, presentation skills, and experience was determined to be of significant difficulty.
As part of the City Council Adopted Budget for Fiscal Year 2015/2016, the City Council approved the City Manager’s recommendation for funding to hire an external firm to perform internal audit functions and have that firm report directly to the Chief Financial Officer and City Manager. This firm would provide continuity and efficiencies to the process while maintaining an independent and objective approach that would add value and help further improve the City’s operations. Specifically, a firm would provide a variety of personnel with experience in the many areas of a City’s operations and a deep knowledge of best practices obtained through training and experience gained working with other cities and governments. Further, such a firm might utilize audit management software, audit techniques, and other up-to-date resources otherwise unavailable to the City to perform the internal audit functions in the most efficient and effective way possible.
DISCUSSION
The City issued a Request for Proposals (RFP) for internal auditing services in July 2015. The RFP was posted on the City’s web site, and notices were advertised in the Culver City News. The deadline to respond was August 13, 2015. The City received five proposals in response to the RFP. The City’s selection committee, comprised of the City Manager and Chief Financial Officer, evaluated the proposals based upon each firm’s relevant knowledge and prior experience, capacity and technical resources, audit approach and work plan, references and costs. The two top candidates were invited to a short presentation with the selection committee where they addressed topics directly relevant to the submitted proposals.
As a result of this evaluation process and based upon the above criteria, Moss Adams LLP is recommended as the best qualified firm to provide internal auditing services and relevant agreed-upon procedures for the City.
Headquartered in Seattle, Moss Adams has been in business for over 100 years and currently employees 2,000 staff, including 260 partners, and maintains locations in several states including a heavy presence in California. The firm has provided similar services to hundreds of government agencies throughout the western United States, including dozens in Southern California. Most of the firm’s proposed team members have been practicing public accounting for more than 10 years and many are Certified Public Accountants, Certified Internal Auditors, Certified Fraud Examiners and Certified Information Systems Auditors. The firm’s seasoned internal audit team members have significant experience performing compliance audits, financial audits, fraud audits, performance audits, and revenue enhancement audits. The firm currently serves as internal auditor to other government agencies including the Cities of Santa Monica; Modesto, Stockton, California; and Carson City, Nevada.
The firm’s work plan would be coordinated with the City Manager and Chief Financial Officer and is anticipated to cover a variety of projects/audits. For Fiscal Year 2015/2016, the following work plan will be addressed:
1. Perform a review of the enterprise internal control environment in place at the City. This includes evaluating the adequacy of segregation of duties, transfers of accountability, supervisory reviews and approvals, reconciliations, physical safeguards over cash, checks and critical forms (such as handwritten receipts, permits and licenses), and existence of written procedures. These should include the following financial processes at the City:
a. Payroll
b. Purchasing and Accounts Payable
c. Monthly account reconciliation and closing
d. Cash receipts and cash handling
e. Revenues and billings
f. Accounts receivables and compliance
g. Grant management and compliance
h. Budgeting and funds
i. IT general controls
2. In conjunction with key City staff, perform a risk assessment of City operations. Utilize the results of the risk assessment and internal controls review to prioritize the areas for internal audit work to be performed. From this prioritization, develop a multi-year internal audit schedule encompassing all City departments. Review the risk assessment and the internal audit schedule annually with City management and adjust accordingly to reflect any changes in the internal or external environment that affect the risks the City is facing.
3. Perform additional payroll and accounts payable reviews to address potential areas of IRS scrutiny.
Based on the results of the internal controls review and risk assessment, a prioritized audit plan will be developed for the next several years to address items identified for further evaluation and mitigation measures. The City Manager will recommend an amount to be budgeted in subsequent years to address the audit plan. Subject to City Council approval of the proposed agreement this evening, Moss Adams will be engaged for these further audits.
The total cost of the agreement for the Fiscal Year 2015-2016 work plan would be an amount not-to-exceed $90,000.
FISCAL ANALYSIS
The City Council Adopted Budget for Fiscal Year 2015/2016 includes $90,000 for these internal auditing services. Future year appropriations will be recommended by the City Manager, and will be subject to City Council approval prior to Moss Adams doing additional work.
ATTACHMENTS
None.
RECOMMENDED MOTIONS
That the City Council:
1. Approve a professional services agreement with Moss Adams LLP to provide internal auditing services for a five year term (ending on June 30, 2020) in an amount not-to-exceed $90,000 for Fiscal Year 2015/2016, and subject to future year appropriations; and,
2. Authorize the City Attorney to review/prepare the necessary documents; and,
3. Authorize the City Manager to execute such documents on behalf of the City.