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HDC - Item 2B - Approval Of Contract With Mayer Hoffman Mccann, P.C For Fiscal Year 2007• ROSEMEAD HOUSING DEVELOPMENT CORPORATION STAFF REPORT TO:. HONORABLE PRESIDENT AND DIRECTORS FROM: ANDREW C. LAZZARETTO, EXECUTIVE DIRECTO DATE: MAY 8, 2007 SUBJECT: APPROVAL OF CONTRACT WITH MAYER HOFFMAN MCCANN, P.C. FOR FISCAL YEAR 2007 SUMMARY The California Government Code requires that an independent audit of the City of Rosemead's records, books, and inventories be conducted and a report issued thereon. The services provided by the independent auditor are to support the City's reporting function as well as to provide ongoing technical support when necessary. The current contract with McGladrey & Pullen ended after audit services.for fiscal year ending June 30, 2006 were completed. The City spent $89,100 for audit services performed by McGladrey & Pullen for fiscal year 2006. On April 24, 2007 the City Council authorized the City Manager to seek proposals to contract with a new public accounting firm to perform the annual audits of the financial statements of the City of Rosemead, the Rosemead Community Development Commission, and the Rosemead Housing Development Corporation. In addition, the accounting firm will also perform the audit to satisfy the requirement imposed by the Single Audit Act and the U.S. Office of Management and Budget (OMB Circular A-133). City staff requested proposals from five well established, full service independent accounting firms with municipality specialization including McGladrey & Pullen. Each firm was evaluated based on the competitive selection process, in which the evaluation of proposals was not limited to price alone. Audit service proposal pricing ranged from $44,610 to $73,300, with only $390 separating the two lowest bids. Each firm demonstrated strong technical experience auditing similar entities, performing the types of work outlined, and the ability to provide ongoing technical support when necessary. However, a critical factor in the overall rating was the firms' commitment to the internal control review process and ongoing consultative support. The proposal of $45,000 from Mayer Hoffman McCann, not only addressed their reporting of internal control matters of significant deficiency or material weakness by letter to the City Council, but also included the preparation of a letter to City management with other recommendations from their review of internal control procedures. City staff views this APPROVED FOR HOUSING DEVELOPMENT CORPORATION AGENDA:. IT~ Housing Development Corporation Meeting May 8, 2007 Page 2 of 5 benefit as significant due to numerous staff and operational changes throughout the City which may have a direct impact on internal controls. The proposal also included a provision for additional client training at their annual client training conference. Further, the proposal reiterated that the firm's policy is to provide unlimited telephone consultations to their municipal clients regarding accounting and other technical matters. The selection of Mayer Hoffman McCann will result in a $28,300 cost savings in audit service fees. Staff Recommendation Staff recommends that the City Council authorize the Mayor to execute a contract with the public accounting firm of Mayer Hoffman McCann, P.C. to perform the annual audits of the financial statements of the City of Rosemead, the Rosemead Community Development Commission, and the Rosemead Housing Development Corporation for the amount of $45,000. ANALYSIS Four well established, full service independent accounting firms with California municipality specialization were contacted to solicit bid proposals. In addition, the current audit firm of McGladrey & Pullen was contacted for a proposal for fiscal year 2007. Copies of the proposals received by the City are. included as attachments A through E. An arrangement letter was submitted by McGladrey & Pullen due to the firm's history of auditing the City of Rosemead for over 20 years. Evaluation Criteria Each firm was evaluated based on the competitive selection process, in which the evaluation of proposals was not limited to price alone. Technical merit, consultative support and firm capability were also given significant consideration in the selection process. The competitive selection evaluation criteria were as follows: A.l Firm Qualifications Technical experience of the firm as documented by experience in auditing similar entities and performing the type of work outlined; size and structure of the firm; ability to provide ongoing technical and consultative support when necessary. Specific firm qualifications considered included: 1. Documented experience in auditing similar government agencies. 2. Adherence to the strict quality control measures and high Housing Development Corporation Meeting May 8, 2007 Page 3 of 5 professional standards of the Public Company Accounting Oversight Board, the American Institute of Certified Public Accountants and the California State Board of Accountancy. 3. Enrollment in continuous professional education classes with a focus on governmental accounting and auditing topics. 4. Ability to react quickly to changes in the auditing profession including early implementation of new audit requirements. 5. Technical knowledge and resources to meet the City's audit report deadlines and special request needs. B. Personnel Qualifications Qualifications of Partners and staff at various levels. The City expects the field senior in-charge to be a CPA candidate with at least three years experience in auditing municipalities or other governmental entities. C. Methodology Responsiveness of the proposal in clearly stating an understanding of the audit services to be performed, including appropriateness and adequacy of proposed procedures, reasonableness of time estimates and timeliness of expected completion. D.1 Dollar Cost Bid I Cost of contracted services. Discussionlof Criteria Evaluation I Firm Qualifications All five firms have been servicing local governments for over 40 years. Each firm demonstrated strong technical experience auditing similar entities, performing the types of work outlined, and the ability to provide ongoing technical support when necessary. However, a critical factor in the overall rating was the firms' commitment to the internal control review process and ongoing consultative support. The proposal from Mayer Hoffman McCann, not only addressed their reporting of internal control matters of significant deficiency or material weakness by letter to the City Council, but also included the preparation of a letter to City management with other recommendations from their review of internal control procedures. City staff views this benefit as significant due to numerous staff and operational changes throughout the City which may have a direct impact on internal controls. Mayer Hoffman McCann's proposal included the provision to keep City staff abreast of new developments affecting local government finance. The proposal also included a Housing Development Corporation Meeting May 8, 2007 Page 4 of 5 provision for' additional client training with respect to new GASB pronouncements at their annual client training conference. Further, the proposal reiterated that the firm's policy is to provide unlimited telephone consultations to their municipal clients regarding accounting 'and other technical matters. Advice can be solicited regarding the application of generally accepted accounting principles, establishment and segregation of funds, advice regarding debt issuance, financial statement preparation and content and other matters relating to the City. Personnel Qualifications The engagement partner, technical review partner and engagement manager for each firm were each well experienced and comparable, and therefore did not provide a major point to distinguish between the firms. Methodology McGladrey & Pullen, being the only firm who has audited the City o understands the scope of the work, and the time necessary to com other four firms were, however, able to clearly demonstrate their u audit services to be performed, including the appropriateness proposed procedures, reasonableness of time estimates and timr completion. Dollar Cost Bid The hours and price for each firm are listed below: Rosemead, clearly Mete the audit. The nderstanding of the and adequacy of Iliness of expected Price for audit Hours for services McGli dreg & Pullen $73,300 Not Provided Mayer Hoffman McCann $45,000 430 hour s Diehl, 'Evans & Co. $44,610 430 hour s Lancel Sol/ & Lunghard $59,510" Not Provi ded Vasquez & Company $64,500 550 hour l s " The dollar cost bid from Lance Soll & Lunghard was for a period of thr 2009. The bid for fiscal 2008 and 2009 was $61,306 and $63,145, respec I FINANCIAL IREVIEW The cost ofi the fiscal year 2007 audit, under the terms of the Funds for the fiscal year 2007 audit have been included in t recommended operating budget. The City will realize a cost saving years through fiscal itract is $45,000, fiscal year 2008 $28,300 in fees. Housing Development Corporation Meeting May 8, 2007 Page 5 of 5 I This item has been noticed through the regular agenda notification process. Submitted by: LISA'Ftj>o-v1t OA Lisa Pedote Director of Finance Attachment A: Arrangement Letter from McGladrey & Pullen Attachment B: Audit Proposal from Mayer Hoffman McCann, P.C. Attachment C: Audit Proposal from Diehl, Evans & Company Attachment D: Audit Proposal from Lance Soll & Lunghard, LLP Attachment E: Audit Proposal from Vasquez & Company, LLP