SR 01-12-2016 3H
City Council
Report
City Council Regular and Special Joint Meeting: January 12, 2016
Agenda Item: 3.H
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To: Mayor and City Council
From: Gigi Decavalles-Hughes, Director, Finance Department, Financial Operations
Subject: Third Modification to Agreement for Independent Auditing Services for the
City of Santa Monica
Recommended Action
Staff recommends that the City Council authorize the City Manager to negotiate and
execute a third modification to Professional Services Agreement #9373 in the amount of
$23,800 with Macias Gini & O’Connell, a California-based company, to provide
additional financial auditing services. This will result in a five-year amended agreement
with a new total amount not to exceed $821,081.
Executive Summary
The City of Santa Monica engages an independent auditing firm to audit its financial
statements in accordance with generally accepted accounting principles and to perform
agreed-upon procedures in accordance with attestation standards established by the
American Institute of Certified Public Accountants. In 2011, the firm of Macias, Gini and
O’Connell was selected through a competitive process to provide these services for up
to a five-year term. Since that time, the implementation of a new standard from the
Governmental Accounting Standards Board, changes made to federal grant guidelines
based on modifications to the United States Code of Federal Regulations, and the
formation of the Audit Subcommittee have necessitated additional services. Staff
recommends modifying the agreement to include that work. This would result in a new
five-year not to exceed amount of $821,081.
Background
The City engages an independent auditing firm to perform an examination of the City’s
basic financial statements, as well as the City’s Big Blue Bus (BBB) Fund financial
statements, the City’s Air Quality Improvement Program, and the City’s Schedule of
Expenditures of Federal Awards (Single Audit). The Auditor also performs agreed -upon
procedures to test and report on the City’s GANN appropriation limit calculation. At its
May 10, 2011 meeting, Council awarded a contract with Macias Gini & O’Connell in a
five-year amount of $675,000 to perform these services (Attachment A).
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On November 13, 2012, Council authorized a first modification to the agreement in the
amount of $78,281 to perform due diligence reviews for the Successor Agency
(Attachment B).
On March 18, 2014, Council authorized a second modification to the agreement in the
amount of $44,000 to perform additional services related to the implementation of new
Governmental Accounting Standards Board standards, including new pension reporting
standards, and to re-test the National Transit Database Agreed Upon Procedures for
the BBB (Attachment C).
Discussion
The Governmental Accounting Standards Board (GASB) has implemented changes that
affect the City’s auditing and reporting process and therefore require additional work by
Macias Gini & O’Connell.
GASB Statement No. 68 Accounting and Financial Reporting for Pensions – an
Amendment of GASB Statement No. 27 and GASB Statement No. 71 Pension
Transition for Contributions Made Subsequent to the Measurement Date - an
Amendment of GASB Statement No. 68 substantially changes the accounting and
financial reporting requirements for governments that provide their employees with
pensions. The City participates in three plans administered by the California Public
Employees’ Retirement System (CalPERS): Miscellaneous, Fire and Police. While the
March 18, 2014 contract modification sought to accommodate the additional time and
effort that would be needed to transition to the new pension reporting standard s,
additional work is needed to evaluate and audit the City’s procedures to confirm the
accuracy of employee census data provided by CalPERS and the reasonableness of
retirement assumptions used to calculate total pension liability.
Additionally, the Office of Management and Budget (OMB) and the Council of Financial
Assistance Reform (COFAR) issued a new guidance for federal grant awards in the
Title 2 US Code of Federal Regulations (CFR) Part 200, Uniform Administration
Requirements, Cost Principles, and Audit Requirements for Federal Awards, also
known as “Uniform Guidance.” Applicable to new federal grant funds received on or
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after December 26, 2014, the Uniform Guidance poses a variety of potential risks and
challenges for federal grant recipients, and particularly in the rules governing the
procurement and subrecipient processes. Macias, Gini & O’Connell will provide a four
hour interactive training session for City staff and grant subrecipients to better
understand the key provisions of the Uniform Guidance and provide an implementation
framework based on best practices.
Lastly on July 28, 2015, Council established the Audit Subcommittee to provide
oversight responsibilities for the financial reporting processes, the framework for internal
control, and the audit process (Attachment D). Macias Gini & O’Connell advised
Council on best practices in the establishment of an audit subcommittee and is
expected to attend the January 19, 2016 Audit Subcommittee Special Meeting to report
on the audit for fiscal year ending June 30, 2015 and to provide an overview of the
Comprehensive Annual Financial Report (CAFR).
The additional work outlined above would increase the five -year agreement by an
amount not to exceed $23,800. The current five year contract with MGO will expire in
May 2016. Staff recently issued a request for proposals for external audit work and will
be returning to Council with a recommendation on contractor selection in February.
Vendor/Consultant Selection
In January 2011, the City issued a Request for Proposals (RFP) for an external auditor
to perform independent audit work as required by Article 15 of the City Charter. Six
firms responded. Responses to the RFP were reviewed by a selection panel of staff
from the Finance, Housing and Economic Development, and Community and Cultural
Services Departments. Evaluation was based on consultant experience, references,
work plans, project team, and cost. Staff selected MGO as the best qualified firm to
provide independent audit services.
Financial Impacts and Budget Actions
The agreement modification to be awarded to Macias Gini & O’Connell is $23,800, for
an amended agreement total not to exceed $821,081. Funds are available in the FY
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2015-16 budget in division 01222; the contract will be charged to account
01222.577040.
Prepared By: Stephanie Manglaras, Accounting Manager
Approved
Forwarded to Council
Attachments:
A. May 10, 2011 Staff Report (Web Link)
B. November 13, 2012 Staff Report (Web Link)
C. March 18, 2014 Staff Report (Web Link)
D. July 28, 2015 Staff Report (Web Link)
Reference:
Modified Agreement No. 9373
(CCS)