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AWARD A CONTRACT FOR ANNUAL AUDIT SERVICES TO THE PUN GROUP, LLP FOR THE FISCAL YEARS 2020-21, 2021-22, AND 2022-23 WITH TWO ONE-YEAR OPTIONS TO EXTEND
recommendation
RECOMMENDATION
It is recommended that the City Council adopt a motion authorizing the City Manager to award and enter into an agreement for annual audit and report preparation services with the firm of The Pun Group, LLP, for an amount not to exceed $830,419 for the three (3) fiscal years ended June 30, 2021, 2022, and 2023.
The proposed contract includes the option of two one-year contract extensions for audits of the fiscal years ending June 30, 2024, and 2025. The combined five-year contract award is for an amount not to exceed a total of $1,415,248.
It is further recommended that the City Manager be authorized to take appropriate and necessary actions to carry out the purpose and intent of the motion.
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Summary
Section 1911 (“Annual Audit”) of the City Charter requires that an annual audit of all City accounts be conducted by certified public accountants selected by the City Council.
Annually, the Administrative Services Department prepares the City’s Comprehensive Annual Financial Report with the required assistance of an independent auditor who attests to the fair presentation of the information contained in the CAFR. 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 November 2020, staff issued a Request for Proposals (“RFP”) for professional auditing services. The Selection Committee reviewed the proposal based on criteria from the RFP including experience with government agencies, cities, computer audits, internal controls, grants, and other aspects associated with a complex organization such as the City of Stockton and unanimously recommends the City Council to award a three-year contract, with up to two one-year extensions, to retain the services of The Pun Group, LLP (Attachment A).
DISCUSSION
Background
Section 1911 (“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 Guaranty. 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 audit is 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 Professional Auditing Services (PUR 20-034) with proposals due to the City by December 10, 2020. The RFP notice was published on the City’s Bid Flash website, and notice was sent to 7 qualified firms. The City received timely interest and response to the RFP from five proposers; The Pun Group, LLP, Badawi & Associates, Eide Bailly, Macias Gini and O’Connell, and All About IT. All About IT’s proposal was deemed non-responsive due to a failure to provide a complete proposal. The remaining four proposals advanced to the evaluation stage.
A selection committee for evaluation of the proposals was formed and consisted of the following members:
• Jay Kapoor, Chief Financial Officer
• Kerrie Biddle, Accounting Manager
• Jeff Groom, Supervising Accountant
The selection 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 selection 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 selection 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 selection committee ratings are as follows:
• The Pun Group, LLP - 49.50
• Edie Bailly - 44.40
• Badawi & Associates - 43.83
• Macias Gini and O’Connell - 43.80
From these results, it is recommended that the City Council award a contract to The Pun Group, LLP and authorize the City Manager to execute an agreement for independent auditing services for the City. Adoption of the motion will provide the City’s required professional auditing services and required agreed upon procedures on GANN Appropriation Limits and core revenues calculations. The recommended Council action will also allow the City to complete this critical audit work within the desired schedule. The scope of services will include audits of the City’s annual financial statements (Comprehensive Annual 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 also included in its proposal an option for additional services to assist in filing required State Controller reports. These services include preparation of the City’s Annual Financial Transactions Report and Annual Streets and Roads Report, both of which are filed with the State Controller’s Office and are due shortly after year end.
FINANCIAL SUMMARY
The following are total fixed fees for fiscal years ending June 30, 2021, 2022, and 2023 with two one-year options to extend for the fiscal years ending June 30, 2024, and 2025.
* The Single Audit fees are based on (3) three major programs. The fee to audit additional major programs will be $5,000 each. The number of programs determined to be "major" will be based on OMB Uniform Grant Guidance.
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-.
The subsequent years’ budget will be established in the Annual Budget development process. Audit costs attributable directly to other funds ($35,000), such as Single Audit and Measure W, have been included in those funds’ annual operating budgets.
Attachment A - The Pun Group LLP proposed contract