AGENDA #4a

MEMORANDUM

TO:                  Mayor and Town Council

FROM:            W. Calvin Horton, Town Manager

SUBJECT:      Award of Bid for 2004-2005 Audit Contract

DATE:                        April 11, 2005

The attached resolution would authorize the Mayor to sign a contract with the Certified Public Accounting firm of Dixon Hughes, PLLC for conducting the annual audit for the 2004-05 fiscal year.  This recommendation is based on a comparison of the responses to the Town’s Request for Proposal for audit services for fiscal year 2004-05 and for the four succeeding years, contingent upon the selected firm’s satisfactory performance of the audit each year.

BACKGROUND

The Town’s independent audit has been performed by the firm of McGladrey and Pullen, LLP, for the past 10 years.  Our informal commitment to retain McGladrey and Pullen expired with the completion of the 2003-04 audit in November 2004.  Therefore, we solicited proposals for future audits from qualified CPAs based on the guidelines established and recommended by the Local Government Commission.

DISCUSSION

The Town issued a Request for Proposal for audit services proposing a five-year relationship based on satisfactory performance by the audit firm each year and annual negotiation for each contract year.  We sent proposals to all firms with area offices approved by the Local Government Commission to perform governmental audits. In addition, we advertised for Requests for Proposals in the Chapel Hill News on Sunday, March 6, 2005.

We received proposals from the following firms:

            Cherry Bekaert & Holland, LLP

            Dixon Hughes, PLLC

            McGladrey & Pullen, LLP

            Mills, Rouse & Company

All four firms are approved by the Local Government Commission to work on municipal audits.  A request for proposal was also sent to Pittard Perry and Crone, Inc. who did not reply.

In order to evaluate the proposals, we used a two-step process as recommended by the Local Government Commission.  First we evaluated the firms for quality of service.  After completing that evaluation, we compared the firms on the basis of price.

In evaluating the firms for quality, we were looking for a firm with experience and expertise in governmental accounting and the related areas needed by the Town.  We evaluated firms in three areas:  1) General overall quality, 2) Applicable skills and experience of the senior persons responsible for the audit, and 3) Applicable skills and experience of the person responsible for the day-to-day, on-site work.

We looked at two criteria as indicators of the general overall quality of the firms:  size and peer review results.  Size of the firm serves as an indicator of depth and breadth of expertise and experience.  The second criterion, peer review, refers to the audit of internal audit procedures performed by a peer audit firm.  The examining audit firm prepares a formal report on the quality of the firm’s work.

In examining the skills and experience of the senior persons responsible for the audit, we compared their length of time in public accounting, their service on committees that affect national and statewide audit standards, their experience in giving presentations to national and statewide accounting and audit groups, and their service to their firm in preparing and presenting internal standards.  In addition, we compared their audit experience with a municipality or municipalities of similar size.  We looked in particular for experience with housing, community development and transit grants.

When we examined the skills and experience of the person with day-to-day responsibility for the audit, we compared their length of time in public accounting, their length of supervisory experience, and their educational backgrounds.  In addition, we evaluated them in terms of their municipal audit experience.  We looked for experience in the same areas as we had for the senior persons responsible for the audit.

Using the above criteria, we used a point system to rank the firms.  Dixon Hughes, PLLC was ranked first.  Cherry Bekaert & Holland, LLC was ranked second.

Next we looked at the second half of the proposals which contained the bid prices.  The bid prices were as follows:

RECOMMENDATION

That the Council adopt the attached resolution and award the audit services contract to Dixon Hughes, PLLC in the amount of $43,500 for fiscal year 2004-05, with the option to renew the contract for each of the following four fiscal years based upon satisfactory performance each year.

A RESOLUTION AUTHORIZING THE SELECTION OF DIXON HUGHES, PLLC TO PERFORM THE TOWN OF CHAPEL HILL’S 2004-05 AUDIT (2005-04-11/R-2)

BE IT RESOLVED by the Council of the Town of Chapel Hill that the Council hereby authorizes the Mayor to accept the proposal for the Town’s 2004-05 audit from Dixon Hughes, PLLC for $43,500 with the option to renew the contract for each of the following four fiscal years based upon satisfactory performance each year.

This the 11^th day of April, 2005.