Exh 8BAGENDA ITEM #8B
MAY 14, 2001
City of Atlantic Beach
Atlantic Beach City Commission
Staff Report
Agenda Item: Audit Procurement Policy
Date: May 1, 2001
Submitted By: Nelson Uan Liere, Finance Director
Background:
The issue to rotate or not rotate has come up from time to time and the discussions have led to
the desire to adopt some sort of rotation policy. Upon looking deeper into the issue of rotation
policies, I have found that the mandatory rotation of auditors is uncommon. Most cities simply
require that a Request for Proposals for multi-yeaz services be performed every four to six years.
Auditor rotation helps to preserve the auditor independence and provides the benefit of a fresh
perspective. On the other hand, there are some drawbacks. These drawbacks typically include
an increase in cost, retaining auditors unfamiliar with the City's background and a dramatic
increase in staff time devoted to the audit. Because there are a limited number of qualified firms
in the area willing to do governmental audits, the reduction in competition caused by mandatory
rotation may also drive the price up.
An alternative to the rotation of firms for the purpose of gaining a fresh perspective is to require
in the contract that senior members of the audit team be rotated. This gives the fresh perspective
without loosing the continuity of the audit process.
I believe that the City Commission should not restrict the City with a mandatory rotation policy.
Excluding a firm, which has done an excellent job for the City over the years, may not be in the
best interest of the City. It would be wise to look at the competition before deciding to rotate. If
after hearing the presentations from the qualified firms, the City Commission does not believe
that retaining the incumbent firm is in the best interest of the City, they can simply exercise their
voting rights at that time and vote for a new firm
Budget:
There will be no impact to the. current yeaz's budget.
Recommendations:
1.) Delete the fourth pazagraph of the proposed Audit Procurement Policy; "No accounting
firm or public accountant shall perform the audit for more than six (6) consecutive yeazs".
2.) Adopt the attached proposed Audit Procurement Policy with the change above, requiring
the City to undertake afull-scale competitive process for the procurement of independent
auditors, consistent with legal requirements.
Attachments:
Proposed Audit Procurement Policy
Governmental Finance Officer's Association Recommended Practice on Audit Procurement
AGENDA ITEM #8B
MAY 14, 2001
Audit Procurement Policy
The City of Atlantic Beach will periodically undertake afull-scale competitive process for the
selection of independent auditors, consistent with applicable legal requirements. The
competitive auditor selection process will be similar to that which is described in Fl. Statutes sec
11.45.
The procedures to be followed will promote competition among qualified firms taking into
account their capabilities, adequacy of available personnel, past record, and experience with
governmental audits.
The City of Atlantic Beach will awazd a multi-year contract of 4 years with two one-year options
to extend. The City Commission will be required to approve each extension. The multi-year
contract will enable audit firms to spread the initial start up costs over a longer period thus
helping to reduce fees and provide continuity of the audit process for both the audit firm and the
City.
No accounting firm or public accountant shall perform the audit for more than six (6)
consecutive years.
The City will appoint an Audit Selection Committee to make a selection of the top three
qualified audit firms using a competitive selection process.
The Audit Selection Committee shall adopt procedures for evaluating the various firms; they
shall have discussions with those fines, and may require public presentations to the City
Commission by no fewer than three fu~ms regarding the qualifications, approach to the audit and
the ability to furnish the required services.
If fewer than three firms desire to perform the services, the Audit Selection Committee shall
recommend to the City Commission such firms as it determines to be qualified:
If the City Commission receives more than one proposal for the engagement from the cormnittee,
the City Commission may rank, in order ofpreference, the firms to perform the engagement.
The firm ranked first may then negotiate a contract with the City Commission giving, among
other things, a basis of its fees for the engagement.
If negotiations with the firm ranked first fail, negotiations with that firm shall be formally
terminated and the City Commission shall then undertake negotiations with the second ranked
firm. This process shall continue until a contract is negotiated. The City may not conduct
negotiations with more than one fine at a time.
If the City Commission is unable to negotiate a successful contract with any of the selected
firms, the Audit Selection Committee shall select additional firms, and the City Commission
shall continue negotiations in accordance with the preceding process until an agreement is
reached.
AGENDA ITEM #8B
MAY 14, 20001
GFOA Recommended Practice
Audit Procurement (1996
Background. The Government Finance Officers Association (GFOA) has long recommended that
state and local governmental entities obtain independent audits of their financial statements
performed in accordance with the appropriate professional auditing standazds. 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 elected leaders.
Recommendation. GFOA makes the following recommendations regazding the selection of
auditing services:
1. The scope of the independent audit should encompass not only the fair presentation of the
general purpose (i.e., combined) financial statements, but also the fair presentation of the
financial statements of individual funds and account groups. The cost of extending full audit
coverage to the financial statements of individual funds and account groups can be justified
by the additional degree of assurance provided. Nevertheless, the selection of the appropriate
scope of the independent audit ultimately remains a matter of professional judgment.
Accordingly, those responsible for securing independent audits should make their decision
concerning the appropriate scope of the audit engagement based. upon their particular
government's specific needs and circumstances, consistent with applicable legal
requirements.
2. Governmental entities should enter into multiyeaz agreements when obtaining the services
of independent auditors. Such multiyeaz agreements can take a variety of different forms
(e.g., a series of single-year contracts),. consistent with applicable legal requirements. Such
agreements allow for greater continuity and help to minimize the potential for disruption in
connection with the independent audit. Multiyear agreements can also help to reduce audit
costs by allowing auditors to recover certain "start-up" costs over several years, rather than
over a single year.
3. Governmental entities should periodically undertake afull-scale competitive process for the
selection of independent auditors, consistent with applicable legal requirements. This
process should actively seek the participation of all qualified firms, including the current
auditors, assuming that the past performance of the current auditors has proven satisfactory.
4. The audit procurement process should be structured so that the principal factor in the
selection of an independent auditor is the auditor's ability to perform a quality audit. In no
case should price be allowed to serve as the sole criterion for the selection of an independent
auditor, _
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