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APPROVE MOTION TO ENTER INTO A PURCHASING AGREEMENT WITH THE PUN GROUP, LLP. FOR EXTERNAL AUDIT SERVICES (ALL DISTRICTS - CITYWIDE)
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RECOMMENDATION
It is recommended that the City Council approve a motion to:
1. Approve findings pursuant to Stockton Municipal Code 3.68.070 in support of an exception to the competitive bidding process.
2. Authorize City Manager to execute a purchasing agreement with The Pun Group, LLP. to provide external audit services for a term of up to five (5) years, in a total not-to-exceed amount of $1,903,027.
It is also recommended that the City Manager be authorized to take appropriate and necessary actions to carry out the purpose and intent of this motion.
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Summary
Annually, the Administrative Services Department prepares the City's Annual Comprehensive Financial Report ("ACFR") with the required assistance of an independent auditor who attests to the fair presentation of the information contained in the ACFR. Audit services include an assessment of the use of accounting principles, internal control and procedures, and testing of compliance with certain provisions of laws, regulations, contracts, and grants.
The City's three-year contract, that includes two one-year extensions for audit services with Pun Group, LLP., has expired. To ensure the independence of the audit process, the Government Finance Officers Association recommends that organizations evaluate auditors periodically. In January 2026, staff issued a Request for Proposals ("RFP") for professional auditing services. The Selection Committee reviewed the proposal based on criteria from the RFP including qualifications, professional experience with external audits, industry expertise, organization capacity to handle the City’s requirements, and the proponent’s cost/price proposals.
DISCUSSION
Background
Section 1910 ("Annual Audit") of the City Charter requires an annual audit of all City accounts be conducted by certified public accountants selected by the City Council.
One of the City Council's strategic priorities is Fiscal Stability, which is supported by timely financial reporting to inform Council's decisions. Therefore, year-end financial reports should be published as soon as possible after the end of the reporting period. Staff continues to focus on the need to balance timeliness of the City's audits with ensuring the reliability of financial information.
The City engages an independent auditing firm to perform an examination of the City's basic financial statements, Measure W, Measure A, Measure M -Strong Communities, Entertainment Venues, Downtown Marina, Cannabis Licenses, and Schedule of Expenditures of Federal Awards (Single Audit). The independent auditor also performs agreed-upon procedures to test and report on the City's GANN appropriation limit calculation and core revenues required by the Bankruptcy agreement with Assured Guarantee. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. The audit also includes evaluating the overall presentation of the financial statements and evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management. The objective of the audits to express an opinion as to whether these financial statements are fairly presented in all material respects in conformity with all applicable accounting standards generally accepted in the United States of America and as promulgated by the American Institute of Certified Public Accountants, the standards applicable to financial audits contained in Government Auditing Standards issued by the Comptroller General of the United States, and the U.S. Office of Management and Budget Circular A-133, Audits of States, Local Governments and Non-Profit Organizations.
Additionally, the independent auditor remains available throughout the term of the contract to provide financial advice and counsel on matters that would affect the City's financial statements.
Present Situation
Staff issued a Request for Proposals for External Auditing Services (PUR 26-018) with proposals due to the City by February 26, 2026, rather than using a competitive bid process. The RFP notice was published on the City's Bid Flash website, The Record, and Public Purchase website. The City received timely interest and response to the RFP from four proposers: The Pun Group, LLP, Badawi & Associates, Macias Gini and O'Connell (MGO), and Vasquez & Company. All four proposals were deemed responsive and responsible and advanced to the evaluation stage.
The evaluation committee met and evaluated the proposals submitted by the four firms against the required qualifications established in the RFP. The fee proposal was submitted under separate seal and was opened at the completion of the technical evaluation. The evaluation committee used criteria outlined in the RFP that included professional experience, industry expertise, qualifications, and the capacity to perform audit functions associated with a complex organization such as the City of Stockton. The evaluation committee unanimously ranked The Pun Group, LLP highest on these criteria, specifically with regards to complex fund structures and Governmental Accounting Standards Board training and implementation. The Pun Group, LLP. was determined to be the best qualified to provide independent professional auditing services for the City of Stockton and has committed the necessary resources to meet the City's requirement to ensure audits on a timely schedule by the end of this calendar year. The evaluation committee ratings as well as costs associated with a 5-year contract are as follows:
|
Proponent’s Name |
Final Combined Score |
Total Costs |
|
The Pun Group LLP |
85.97 |
$1,903,027.00 |
|
MGO |
77.14 |
$1,947,200.00 |
|
Badawi and Associates |
76.00 |
$1,325,856.00 |
|
Vasquez & Company |
67.41 |
$1,460,020.00 |
The scope of services will include audits of the City's annual financial statements (Annual Comprehensive Financial Report), audit of the City's federal financial assistance (Single Audit), and audit of the City's Measure W Public Safety Fund financial statements, Measure A, Measure M - Strong Communities. Additional audit services include the Downtown Marina, Cannabis Licenses as required, and Entertainment venues including the Arena, Events Center Common Areas, Oak Park Ice Arena, and the Bob Hope Theatre.
The Pun Group, LLP. not only provided high quality materials and references, but they are one of the few firms to have working knowledge of the Tyler Munis ERP (Enterprise Resource Program) that the City utilizes. The Pun Group, LLP. has broad experience in carrying out the specific role of External City Auditor for a number of other California cities and municipalities. These California cities and municipalities include:
- City of Santa Cruz
- City of Fairfield
- City of Santa Clarita
- Orange County Business Council
- South Bay Cities Council of Governments
FINDINGS
Stockton Municipal Code Section 3.68.070(A)(3) provides an exception to the competitive bidding process in cases where City Council has approved findings that support and justify the exception. The proposed findings are as follows:
• The City has conducted the Request for Proposals (RFP) PUR 26-018 solicitation in which proposals were received from multiple firms and evaluated against criteria by a selection committee comprised of City staff.
• The RFP and evaluations have been facilitated and reviewed by the City’s Procurement Division and determined to be consistent with the City’s procurement requirements and industry best practices for open, fair, and competitive solicitations.
• The Pun Group, LLP. has been evaluated and received the highest-ranking scores when compared to all other proposals. Utilizing a contract with the Pun Group, LLP. will provide the City of Stockton with comprehensive financial auditing services.
• The use of the RFP process is appropriate for this contract because it relies on the evaluation of professional qualifications and performance as the basis for selection of a vendor. Use of these criteria helps ensure selection of a vendor that will provide the highest quality professional service which is in the public interest.
• On April 20, 2026, the City’s Audit Committee reviewed and recommended an agreement with the Pun Group, LLP. for Council’s approval.
FINANCIAL SUMMARY
The estimated cost of a 5-year contract with The Pun Group, LLP. is $1,903,027. The following table is comprised of total fixed fees for fiscal years 2025-26, 2026-27, 2027-28, with two one-year options to extend for fiscal years 2028-29, 2029-2030.
*Single Audit fees based on three (3) major programs. The Fee for auditing additional major programs will be $10,000 each. The number of programs determined to be “major” will be based on OMB Uniform Guidance. The Engagement Team will discuss this with the City of Stockton Management before starting Single Audit Work.
The budget to support the first year's audit services are already budgeted in the General Fund City Auditor Professional Services account #1310-000-630006-100-000-10-13-000-000-.
Attachment A - The Pun Group LLP proposed contract