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APPROVE THE SCOPE OF WORK AND ISSUANCE OF A REQUEST FOR PROPOSALS FOR INTERNAL AUDIT SERVICES
recommended action
RECOMMENDATION
It is recommended that the Council Audit Committee review and approve the scope of work and issuance of a Request for Proposals (RFP) for Internal Audit Services, and forward the item to the full Council for concurrence.
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Summary
The City has not employed an internal city employee as the City Auditor since 2012. At that time, the City Council directed that internal audit services be secured by contract. Through a competitive Request for Proposals (RFP) in 2013, the firm Moss Adams was selected to provide internal audit services. Council approved an initial five-year agreement, which was extended by a year in 2018. Following a new RFP process in 2019, Moss Adams was again selected and provided services under a five-year agreement, which Council extended in 2024 for four additional years.
On February 3, 2025, Moss Adams notified the City of its intent to terminate its agreement, effective May 7, 2025. Since that time, the City has not had either an internally employed City Auditor or a contracted firm performing this critical function. Issuing a new RFP will allow the City to competitively select a qualified firm to provide internal audit services, ensuring continuity of independent oversight, internal controls, and compliance with Council’s adopted policies.
DISCUSSION
Background
In 1994, Stockton voters approved a City Charter amendment establishing the Office of the City Auditor (Attachment A – Article XV). The Charter outlines several duties of the City Auditor, including oversight and analysis of the City’s financial audits and procedures, conducting performance and special audits and projects as directed by the City Council, Council Committee, and staff, reviewing City records, providing quarterly reports on audit activities, and preparing additional reports as assigned.
From its creation until 2012, the City Auditor’s Office was led by the same employee. Following their retirement, and in response to the 2011 Strategic Initiatives aimed at achieving fiscal sustainability and addressing significant audit findings through bankruptcy and related court proceedings, the City Council directed that internal audit services be provided by contract.
In 2013, Moss Adams was selected through a competitive RFP to pilot internal audit services, conduct a citywide risk assessment, and review internal controls. The risk assessment concluded that the City’s overall risk exposure was “high” and recommended mitigating actions to strengthen performance delivery and reduce risk. The subsequent internal controls review also found substantial weaknesses in accounting and reporting functions and outlined a roadmap of improvements needed to strengthen control processes and procedures.
Based on these findings, in September 2013 the City Council approved a five-year contract with Moss Adams to implement an Internal Audit Plan. The initial Plan, developed by the City Manager and Moss Adams, included 24 projects focused on (1) improving internal controls and (2) enhancing performance. Work was prioritized by urgency, timing, and workload capacity, and the plan was completed in FY 2015-16.
The original five-year contract expired in spring 2018, and Council authorized an extension to allow Moss Adams to complete annual audit plans and align the contract term with the City’s fiscal year cycle. The extended agreement concluded on June 30, 2019.
On February 28, 2019, the City issued a Request for Proposals (RFP) for internal audit services, with more than ten firms notified. Two qualified proposals were received, from Moss Adams LLP and Lance, Soll & Lunghard LLP. Staff confirmed with other firms that the comprehensive scope of services limited the number of qualified respondents, as few firms provide the full range of internal audit services required under the City Charter.
An evaluation committee reviewed the proposals based on qualifications and experience, audit approach, ability to provide the full scope of services, accessibility of key personnel, and organizational fit. Both firms were interviewed. Moss Adams received the highest overall ranking and was awarded the contract in July 2019.
Under the agreement, Moss Adams provided general internal audit services to the City related to support of daily operations. In addition, they were responsible for the preparation and coordination of annual internal audit plans, providing status reports to the Council Audit Committee, administration of the fraud, waste, and abuse hotline, and specialized project reports with recommendations for Council consideration. Regular updates were presented at Council Audit Committee meetings and informational items were provided to the City Council.
Present Situation
Since May 7, 2025, the City has been without internal audit services. To reestablish this function, staff propose issuing a Request for Proposals (RFP) to solicit qualified firms to serve as the City Auditor in accordance with the duties established in the City Charter.
Historically, the City’s practice related to this contracted Charter Office, has been for City Manager’s staff to administer the RFP process. Staff develop and advertise the solicitation, convene an evaluation panel, and review proposals based on criteria established by Council. The panel then brings forward a recommended candidate to the Council Audit Committee for consideration, and the Committee forwards their recommendation to the full Council for final approval. This approach ensures a competitive, transparent process while allowing Councilmembers to focus their review on the qualifications and proposals of the top-ranked firms.
To provide the Committee with full visibility, proposals received through the upcoming RFP will be made available for members to review prior to action on staff’s recommendation of a candidate. The RFP will require proposers to demonstrate their ability to perform, at a minimum, the full range of internal audit services contemplated by the City Charter, including but not limited to:
- Annual Audit Planning – Develop and present an annual internal audit plan for approval by the Council Audit Committee and City Council, based on risk assessment, emerging issues, and Council priorities.
- Performance Audits – Conduct audits of City programs, departments, or functions to evaluate efficiency, effectiveness, and compliance with Council-adopted policies.
- Financial and Compliance Audits – Examination and analysis of fiscal procedures and related transactions, reporting, and compliance with applicable laws, regulations, and City policies as directed.
- Ethics, Fraud, Waste, and Abuse Hotline – Administer and monitor the City’s hotline, investigate complaints, and report activity to the Council Audit Committee.
- Internal Control Reviews – Assess internal controls across City operations and recommend improvements to safeguard assets, reduce risk, and strengthen accountability.
- Quarterly and Annual Reporting – Provide regular updates and written reports to the Council Audit Committee and City Council summarizing audit activities, findings, and recommendations.
- Special Projects – Conduct special audits or investigations as may be directed or requested by the City Council, Committee members, or staff.
- Consultation – Provide advice on audit or controls related matters, emerging risks, and best practices in municipal auditing, as requested.
If authorized by the City Council, the RFP will be released in October 2025. Proposals will be due within approximately six weeks of release. Staff will then convene an evaluation panel to review and score the submissions based on their ability to provide internal auditing services, as well as their qualifications, technical approach, resources, municipal experience, and cost. Interviews will be conducted as part of the evaluation process. The RFP will be advertised broadly to maximize competition and identify firms with demonstrated municipal internal audit experience.
Following the evaluation process, staff will present the recommended firm to the Council Audit Committee for discussion and recommendation. If approved, the Committee will then direct staff to forward its recommendation to the full City Council for contract award. It is anticipated that the new contract will be structured with an initial three-year term, with provisions for extensions, following accepted City practices.
FINANCIAL SUMMARY
In FY 2011-12 the City established, and Council approved, a baseline annual budget of $421,000 for Internal Audit Services. This baseline has not changed since. Funds have been budgeted accordingly in FY2025-26 and will continue to be approved through subsequent annual budget processes.
Attachment A – City Charter Article XV