AGENDA #5d
TO: Mayor and Town Council
FROM: W. Calvin Horton, Town Manager
SUBJECT: Audit Firm Selection
DATE: April 24, 2000
The attached resolution would authorize the Mayor to sign a contract with the Certified Public Accounting firm of McGladrey and Pullen, LLP for conducting the annual audit for the 2000-2001 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 2000-2001 and for the four succeeding years, contingent upon the selected firm’s satisfactory performance of the audit each year.
The Town’s independent audit has been performed by the firm of McGladrey and Pullen, LLP, for the past five years. Our informal commitment to retain McGladrey and Pullen expired with the completion of the 1998-99 audit in November, 1999. Therefore, we solicited proposals for future audits from qualified CPAs based on the guidelines established and recommended by the Local Government Commission.
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 firms with area offices listed with the Local Government Commission. In addition, we advertised for Requests for Proposals in the Chapel Hill News on Sunday, March 15, 2000.
We received Proposals from the following firms:
Cherry, Bekaert & Holland, LLP
Dixon, Odom & Co., LLP
McGladrey & Pullen, LLP
Mills, Rouse & Company
All four firms are approved by the Local Government Commission to work on municipal audits.
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 four areas: 1) General overall quality, 2) Applicable skills and experience of the senior person responsible for the audit, 3) Applicable skills and experience of the person responsible for the day-to-day, on-site work, and 4) Ability to address issues related to the material accounting changes coming in fiscal year 2003 as a result of the Governmental Accounting Standards Board new reporting standards for governments.
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 person 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 giving presentations to national and statewide auditor 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 grants, police grants, 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 person responsible for the audit.
In evaluating their ability to address issues related to the new reporting standards, we examined the related training of the personnel who would be responsible for the Town audit. We feel that the degree of preparation the audit firm has done and intends to do will have a significant affect on the efficiency of the preparation of the Town’s financial statements in fiscal year 2003, in particular.
Using the above criteria, we used a point system to rank the firms. McGladrey & Pullen was ranked first. Dixon, Odom was ranked second.
Next we looked at the second half of the Proposals which contained the bid prices. The bid prices were as follows:
|
FIRM |
2000 |
2001 |
2002 |
2003 |
2004 |
TOTALS |
|
|
|
|
|
|
|
|
|
Cherry, Bekaert & Holland, LLP |
34,000 |
35,000 |
36,000 |
37,000 |
38,000 |
180,000 |
|
Dixon Odom, PLLC |
38,000 |
39,000 |
39,500 |
40,500 |
41,500 |
198,500 |
|
McGladrey & Pullen, LLP |
35,000 |
36,750 |
38,500 |
49,000 |
45,000 |
204,250 |
|
Mills, Rouse & Company |
41,775 |
43,850 |
46,000 |
48,300 |
50,700 |
230,625 |
In evaluating the costs we took into account that only McGladrey and Pullen, LLP, included the cost of implementing the new financial accounting standards. The other firms specifically indicated that their proposals did not include costs for implementing the new standard. Those costs would be in addition to the proposed costs. We contacted Dixon Odom to get an estimate for implementation of the new standard. They indicated that they thought the cost would be minimal.
Since the proposed cost of the audits for the fiscal years prior to implementation of the new financial reporting standard are less for McGladrey and Pullen, LLP than for our second choice firm, Dixon Odom, PLLC and since total five year costs are very close, we concluded that McGladrey & Pullen, LLP would remain the preferred choice.
RECOMMENDATION
That the Council adopt the attached resolution and award the audit services contract to McGladrey & Pullen, LLP in the amount of $35,000 for fiscal year 1999-2000, 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 MCGLADREY
& PULLEN, LLP TO PERFORM THE TOWN OF CHAPEL HILL’S 1999-2000 AUDIT
(2000-04-24/R-8)
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 1999-2000 audit from McGladrey & Pullen, LLP for $35,000 with the option to renew the contract for each of the following four fiscal years based upon satisfactory performance each year.
This is the 24th day of April, 2000.