SR-08-26-2014-3ICity o City Council Report
Santa Monica
City Council Meeting: August 26, 2014
Agenda Item: 5-1
To:
Mayor and City Council
From:
Rod Gould, City Manager
Subject:
Internal Audit Services for the City of Santa Monica
Recommended Action
Staff recommends that the City Council authorize the City Manager to negotiate and
execute a professional services agreement with Moss Adams LLP, a Washington -based
company, for internal audit services in an amount not to exceed $561,000 for a 3 -year
period with one option to renew for an additional two years in the annual amount of
$187,000, for a total amount not to exceed $935,000 over a 5 -year period, with future
year funding contingent on Council budget approval.
Executive Summary
Internal audits are used to assist the City in the efficient use of resources by providing
analysis and recommendations for improved operations and stronger internal controls.
Staff recommends engaging the services of an independent audit firm to perform
internal audit services in accordance with applicable industry standards and relevant
rules and regulations established by the City.
Staff recommends the firm of Moss Adams LLP to provide internal audit services for the
City and help ensure the most efficient use of resources. All reports and results would
be communicated with the City Manager. The total cost of the agreement would not
exceed $935,000.
Discussion
In the past, the City of Santa Monica has typically used City staff to perform the internal
audit functions. These functions include assessing and identifying risks, assessing
internal controls and compliance with laws, regulations and contractual agreements and
preventing and detecting fraud to ensure the safeguarding of public assets.
Over the last five years, accountants and auditors have been in high demand and as a
result the City has experienced turnover in internal audit positions.
it
The City attempted to recruit an Internal Audit Manager in January 2014 but was unable
to attract an individual with the requisite combination of auditing knowledge,
presentation skills and experience.
Staff considered available alternatives and now recommends that an external firm be
engaged to perform in -house internal audit functions and report directly to the City
Manager. Such a firm would provide continuity and efficiencies to the process while
maintaining an independent and objective approach that would add value and help
improve the City's operations. Specifically, a firm would provide a variety of personnel
with experience in the many areas of a City's operations and a deep knowledge of best
practices obtained through training and experience gained working with other cities and
governments. Further, such a firm might utilize audit management software, audit
techniques and other up -to -date resources otherwise unavailable to the City to perform
the internal audit functions in the most efficient and effective way possible.
Vendor Selection
The City issued a Request for Proposals (RFP) for internal auditing services in April
2014. The RFP was posted on the City's on -line bidding site, and notices were
advertised in the Santa Monica Daily Press in accordance with City Charter and
Municipal Code provisions. The deadline to respond was April 29, 2014. The City
received five proposals in response to the request. The City's selection committee,
comprised of staff from the Finance Department and the City Manager's office,
evaluated the proposals based upon each firm's relevant knowledge and prior
experience, capacity and technical resources, audit approach and work plan, references
and costs. The two top candidates were invited to a short presentation with the
selection committee where they addressed topics directly relevant to the submitted
proposals.
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As a result of this evaluation process and based upon the above criteria, Moss Adams
LLP is recommended as the best qualified firm to provide internal auditing services and
relevant agreed -upon procedures for the City of Santa Monica
Headquartered in Seattle, Moss Adams has been in business for over 100 years and
currently employees 2,000 staff, including 260 partners and maintains locations in
several states including a heavy presence in California. The firm has provided similar
services to hundreds of government agencies throughout the western United States,
including dozens in Southern California. Most of the firm's proposed team members
have been practicing public accounting for more than 10 years and many are Certified
Public Accountants, Certified Internal Auditors, Certified Fraud Examiners and Certified
Information Systems Auditors. The firm's seasoned internal audit team members have
significant experience performing compliance audits, financial audits, fraud audits,
performance audits, and revenue enhancement audits. The firm currently serves as
internal auditor to other government agencies including Carson City, Nevada; Modesto,
California; and Stockton, California.
The firm's work plan would be coordinated with the City Manager and is anticipated to
cover a variety of projects /audits. Examples of such projects may include the following:
® a review and assessment of the City's plans for dissolution of the RDA and an
evaluation and analysis of the associated financial impact, risks and reserve
levels; and
® a review of internal controls in key areas to determine the adequacy of those
internal controls and identify any areas warranting more in -depth review.
The total cost of the agreement would be for an amount not to exceed $935,000.
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Financial Impacts & Budget Actions
The agreement to be awarded to Moss Adams LLP is for a total amount not to exceed
$935,000. Funds in the amount of $187,000 are available in the FY 2014 -15 budget in
account 01202.555060. Budget authority for subsequent budget years will be
requested in each budget for Council approval. Future year funding is contingent upon
Council approval and budget adoption.
Prepared by: Yiannis Kalaitzidis, Financial Operations Manager
Approved:
Rod Gould
City Manager
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Forwarded to Council:
Rod Gould
City Manager
Reference:
Contract No. 9956
(CCS)