TITLE
Recommendation to authorize City Manager to amend the agreement with KPMG, LLC to extend the contract term one year to perform the audit of the Comprehensive Annual Financial Report (CAFR) and Federal Single Audit for the City of Long Beach and related reporting entities. The contract price will be $1,042,475 plus $25,665 per required Single Audit program exceeding 13 programs and cover fiscal year 2012, extending the term of the agreement to September 30, 2013.
DISCUSSION
Pursuant to Section 803 of the City Charter, the Office of the City Auditor is charged with completing "an annual audit of the City's financial records" and rendering an appropriate auditor's opinion thereon in accordance with auditing standards generally accepted in the United States.
In August 2007, the Office of the City Auditor issued a Request for Proposal (RFP) to perform the annual audit of the CAFR and the Federal Single Audit for the City of Long Beach and related reporting entities. Six auditing firms responded to the RFP. An eight-member steering committee reviewed the proposals in depth and conducted interviews of the finalists. The committee unanimously selected KPMG to perform the requested services.
The original term of the contract covered fiscal years 2007 through 2009 and included two one-year renewal options the City exercised for fiscal years 2010 and 2011. The Office of the City Auditor has negotiated a one year extension to this existing agreement. The audit fees for fiscal year 2012 include a 2% CPI adjustment over the fiscal year 2011 fees. This is lower than the 3% annual increase for the 2011 auditing fees.
Over the years, KPMG has developed a solid understanding of the City, its multiple reporting entities and complex operations. In addition, there are three key factors that support extending the contract with KPMG for one additional year.
1. Available Staff Time. There is a significant learning curve for new auditors, especially for a city as large and complex as Long Beach. Financial Management has experienced turnover recently in key positions, including the Director and Budget Manager. The arrival of new staff make it difficult to afford sufficient time to train a new auditing firm. This may result in delays, which could affect critical bond and debt reporting requirements.
2. Elimination of the Redevelopment Agency (RDA). The elimination of the RDA has resulted in an additional layer of complexity to the audit. KPMG is familiar with RDA's history and transactions and has a detailed understanding of the pending legislation. As the reporting requirements for the RDA are in flux, it would be very costly to spend the time to educate another firm on these issues.
3. Issuance of Bonds. The Harbor Department expects to be issuing bonds each year over the next five years. Harbor management believes the credibility of having KPMG on the bond offering documents rather than a smaller firm could impact the ratings firms' opinions of the quality of the bond offering.
Extending the KPMG contract for one year will ensure that the City receives a quality audit at a competitive price from a firm that has an extensive understanding of the City's operations.
TIMING CONSIDERATIONS
City Council approval is requested on May 22, 2012, to allow sufficient time for the planning of the audit engagement.
FISCAL IMPACT
The annual cost of the audit of $1,042,475, will be allocated to the departments and funds receiving the services. The allocation to the General Fund is estimated at $215,000. Additional fees of $25,665 will be charged for each required single audit program exceeding 13 programs. The contract price of $1,042,475, includes funding for 13 single audit programs. The audit fees for fiscal year 2012 include a 2% CPI adjustment over the fiscal year 2011 fees.
SUGGESTED ACTION
Approve recommendation.
Respectfully Submitted,
LAURA L. DOUD
CITY AUDITOR