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1e. Auditors Contract.I 7 C u MEMORANDUM CITY OF 1 r CHANHASSEN 690 COULTER DRIVE • P.O. BOX 147 • CHANHASSEN, MINNESOTA 55317 (612) 937 -1900 • FAX (612) 937 -5739 TO: Mayor and City Council FROM: Don Ashworth, City Manager DATE: October 24, 1996 SUBJ: Selection of 1996 -98 Auditing Services Contract This item was tabled from the last city council agenda to allow council members and city staff the opportunity to discern why such a wide disparity existed between Deloitte & Touche and Tautges, Redpath & Company in regards to junior accountant hours. Because of the number of hours difference, it was also questioned as to whether Tautges may have underestimated the number of hours necessary to complete all tasks. Questions also exist as to whether or not technology played a role in Tautges low bid. The last question is the easiest to answer. No, technology did not play a part in the difference between the bids. Both firms will pull the same number of source documents and trace those through the various ledgers, files, budgets, authorizations, etc. The primary reason for the ' difference between the two bids is one of how each of the two firms approach the work task, i.e. Tautges believes in a more experienced staff (in our case, one with six years of municipal experience and the other having two years of municipal experience). Deloitte's philosophy is ' one of putting more junior auditors into the work place with less experience (in our case, Scott has two years of municipal experience and I do not know who the other two or three may be). I am sincerely appreciative of the city council tabling action Monday evening and to ask the questions that were asked. We had talked to the references listed by both of the firms, but did not ask the question as to their thoughts of the differences in philosophy between the two firms. That ' question was definitely a reality check. Specifically, two cities that had used both firms commented on the additional staff time that was required virtually teaching the younger auditors provided to them by Deloitte. One mentioned the frustration of literally having three or four ' people attempting to hover over them at the same time. As stated, the comments were a reality check. We (Todd, Pain and myself) had felt the same frustrations in previous years, but simply were not able to realize that some other way does exist. it Mayor and City Council October 24, 1996 Page 2 As it deals with the final question of estimated hours to actual hours, all of the cities with Tautges had estimated and actual hours exactly as bid, i.e. Woodbury's contract was for $22,000 (same as ours) and the actual hours necessary to complete the audit was exactly as bid and billed. As previously stated to the city council, staff believes that both firms are excellent. However, in light of the above points, staff is recommending that the three year contract be awarded to Tautges, Redpath & Company. g: \mgr \audi torselection.e I r 1 r L 1 1 J J J MEMORANDUM CITY OF -q CHANHASSEN 690 COULTER DRIVE • P.O. BOX 147 • CHANHASSEN, MINNESOTA 55317 (612) 937 -1900 • FAX (612) 937 -5739 TO: Mayor and City Council FROM: Don Ashworth, City Manager Mlk- DATE: October 8, 1996 SUBJ: Interview Auditors and Selection of 1996 -98 Auditing Services Contract Through correspondence received and personal contacts, five firms were identified to potentially perform audit services for the City of Chanhassen. The city council authorized the solicitation of RFPs approximately one month ago, including the RFP itself. A "briefing" meeting was held on September 16, 1996. Four firms attended that meeting and subsequently submitted a proposal on September 27, 1996. Roger Knutson, Dave MacGillivrary, Pam and I met earlier this week to review the proposals as submitted. Surprisingly, the total cost was relatively similar between all of the fines (copy of estimated costs for all four have been attached). The four firms submitting RFPs were as follows: • Deloitte & Touche LLP • KPMG Peat Marwick LLP • Malloy Montague Karnowski Radosevich & Co. • Tautges Redpath & Co. Ltd. Governmental accounting experience and the experience of the "team" proposed to be serving the City of Chanhassen was the primary criteria that reduced the list from four to two. Malloy Montague Karnowski Radosevich & Co. primarily audits school districts. Peat Marwick is a prestigious national firm, but has very little presence within the State of Minnesota. Accordingly, it was the unanimous position of the city attorney, financial advisor, and city staff that the two firms that should be interviewed by the city council should be Deloitte & Touche and Tautges Redpath & Co. (see attached RFPs). Both Deloitte and Tautges will do an excellent job for the City of Chanhassen and staff can work with either firm. We believe both firms have a strong commitment to preparation of management reports to provide the city council with information as to the strengths and 1 Mayor and City Council October 8, 1996 Page 2 weaknesses of the city. Both have a very strong presence within the State of Minnesota and more specifically in the metropolitan area. Both are considered leaders in terms of educational opportunities and current insights into federal and state legislation affecting cities. RECOMMENDATION Again, staff is proposing that the city council interview both Deloitte and Tautges as a part of our regular agenda Monday evening. [Note: The Board of Adjustments and Appeals meeting scheduled for 6:30 p.m. Monday evening is anticipated to be controversial and setting an early meeting time was not possible. By contrast, the regular city council agenda is relatively short and we should be able to conduct interviews without going into a late hour.] Although I have previously stated that either of the two firms would do an excellent job for the city and that the final selection should be based on the city council's comfort with either of the two firms, staff would recommend that the council consider awarding the contract to Tautges Redpath. This recommendation is being made recognizing that Deloitte has had a very poor track record of keeping key staff members servicing our account. Without question, Cliff Hoffman has been the official spokesman for Deloitte throughout the past eight years. However, virtually every position from Cliff down has continuously changed almost every year. By contrast, in checking with references, Tautges Redpath has had a much stronger consistency of staff members. It is logical that you may lose one of three positions that actually carry out the audit service contract; however, when you consistently lose two or all three, a significant "retraining" effort is required by our staff in terms of where to find and how to read development contracts, HRA assistance packages, special assessment procedures, etc. Again, assuming that the city council finds the presentations of both firms to be excellent, staff is in hopes that the final nod will be given to Tautges Redpath. g:Amgr \97auditcontract.e r 1 J d J r I I I J C 1 1f lF 1 �r r.� ,F ,F TAUTGES, REJPATH & CO., LTC RESPONSE FORM Page 3 4. Fee Schedule - Please estimate the costs associated with completing the municipal audit. Proposed cost estimates should include printing of 50 copies of the final report. Position 1996 Hours Cost 1997 Hours Cost 1998 Hours Cost Partners 45 $4,500 40 $4,120 $40 $4,244 Managers 301 1,8601 40 3,708 40 3,819 Seniors 214 13,268 150 9,579 150 9,866 Juniors 158 6,478 140 5,912 140 6,089 Support Staff 39 1,092 40 1,154 40 1,188 Other Expenses 1,350 1,350 1,350 Total 456 26,688 410 25,823 410 26,556 Deduct Amount if City prints Final 1,350 1,350 1,350 Not to Exceed Amount $25,338 $24,473 $25,206 Please estimate costs associated with arbitrage compliance. Position 1996 Hours Cost 1 1997 Hours Cost 1998 Hours Cost 1 Partner 16 $1,600 16 $1,648 16 $1,697 Senior 301 1,8601 301 1,9161 301 1,973 Total 46 $3,460 46 $3,564 46 $3,670 The estimate associated with arbitrage compliance may be adjusted based on the number of funds which do not meet exception criteria and the number of periods requiring analysis. All such work is performed at our standard hourly rates. 5. Please explain your firm's billing policy for inquiries and assistance provided throughout the year. We are available for consultation throughout the year. It is our normal operating procedure to field questions and perform brief research projects for our audit clients free of charge. We expect to follow this procedure for the City of Chanhassen. These calls tend to keep us informed of current and contemplated actions of the City. Our involvement throughout the year better prepares us to perform the annual audit. If, however, you are requesting service outside the scope of the audit and for which we estimate we will spend more than one half hour to one hour, we will discuss the potential for additional fees. Additionally, in the case of major consulting projects, such as debt studies or tax increment projections, we will prepare an engagement letter which outlines our approach to the engagement and anticipated fees. We would not proceed with any major project without prior approval. ,e OELOITTE & TOUCHE LLP 3_ Staff Exnerience - Identifv the nersonnel who will he ascivnerl to the ritdc audit 4. Fee Schedule - Please estimate the costs associated with completing the municipal audit. Proposed cost estimates should include printing of 50 copies of the final report. Partners 20 $ 3,500 Years] " Tout "- 20 Prior , Managers 75 7,500 75 Years i :: Cities Now tribes Name : 185 Position : Firm Auditin : Auditin Audited Cliff Hoffman 325 Partner 23 23 Numerous Numerous Natasha Seel 65 Manage 4 4 Chanhassen See Resumes Scott Botzet Senior 2 2 Chanhassen in Appendix B 4. Fee Schedule - Please estimate the costs associated with completing the municipal audit. Proposed cost estimates should include printing of 50 copies of the final report. Partners 20 $ 3,500 20 $ 3,600 20 $ 3,700 Managers 75 7,500 75 7,600 75 7,700 Seniors 185 9,250 185 9,300 185 9,400 Juniors 325 13,000 325 ** 13,200 325 ** 13,300 Support Staff 65 1,950 65 2,000 65 1 2,050 Other Expenses Total 670 $ 35.200 670 $ 35.700 670 $ 36.150 Deduct Amount if City Prints Final 65 3,000 65 3,100 65 3,200 Not to Exceed Amount 605 $ 32.200 605 $ 32.600 605 $ 32.950 * The City will consider adjustments to costs for 1997 and 1998 should the firm selected demonstrate that estimates were significantly different than anticipated. ** Assumes no A -128 audit for Fiscal 1997 and 1998, since Federal Funds are expected to be less than $300,000. Please estimate costs associated with arbitrage compliance. 4 KPMG PEAT MARWICK LLP I RESPONSE FORM ' Page 2 3. Staff Experience - Identify the personnel who will be assigned to the City's audit. u n Total n u Name Position Years with Firm years in Auditing Cities Now Auditing Prior Cities Audited Steven Laible Partner 25 25 5 15+ Karyn Nbinar Partner 22 22 11 15+ Jef f rey I\brr i s Sr. Ntnager 7 7 3 4 Any Cohen In -Gage 1 3 2 9 170 7 Support Staff -- I -- -- Other Expenses 1000 1000 1000 Total 520 4. Fee Schedule - Please estimate the costs associated with completing the municipal audit. Proposed cost estimates should include printing of 50 copies of the final report. Position 1996 Hours Cost 1997* Hours Cost 1998* Hours Cost Partners 24 2400 Managers 120 9000 100 7500 100 8000 Seniors 176 8800 156 7800 156 7800 Juniors 200 8000 170 6800 170 7 Support Staff -- I -- -- Other Expenses 1000 1000 1000 Total 520 29200 446 25100 446 26100 Deduct Amount if City prints Final 500 500 500 Not to Exceed Amount 287 24600 25600 i tie aty wui consiaer aalusimenis io cons wt 1 z 7 v/ a 1ouo ai WU ais uI Iii occ wu demonstrate that estimates were significantly different than anticipated. Please estimate costs associated with arbitrage compliance. *- Position 1996 Hours Cost 1997 Hours Cost 1998 Hours Cost Total * Costs associated with arbitrage compliance would be billed at rates commensurate with those for audit services as outlined above. . I I MALLOY, MONTAGUE, KARNOWSKI, RADOSEVICH & CO., PA RESPONSE FORM Page 2 3. Staff Experience - Identify the personnel who will be assigned to the City's audit. Name Position Years with Firm Total years in Auditing Cities * Now Auditing Prior Cities Audited Bill Lauer Principal 11 11 1, 4, 5, 6, 13 Managers en T Consulting 65 4,030 , 3, 7, 8, 9, 3,900 enni Hoo eveen Mana er 7 7 1 2 9 10 13 1 Kelly Benusa Senior 4 4 1, 5, 9 8,400 1 190 8,550 Support Staff 60 1,500 50 1,250 50 1,250 Other Expenses 500 500 500 Total 550 Numbers refer to the cities listed in question 2. 4. Fee Schedule - Please estimate the costs associated with completing the municipal audit. Proposed cost estimates should include printing of 50 copies of the final report. Position 1996 Hours Cost 1997' Hours Cost 1998' Hours Cost Partners 35 2,625 35 2,695 30 2,400 Managers 70 4,200 65 4,030 60 3,900 Seniors 175 8,750 170 8 840 1 q.ign Juniors 210 8,400 200 8,400 1 190 8,550 Support Staff 60 1,500 50 1,250 50 1,250 Other Expenses 500 500 500 Total 550 25,975 520 25,715 0 Deduct Amount if City prints Final <500> <500 <500> Not to Exceed Amount 1 25,475 1 1 25,215 25,450 The City will consider adjustments to costs for 1997 & 1998 should the firm selected demonstrate that estimates were significantly different than anticipated. Please estimate costs associated with arbitrage compliance. Position 1996 Hours Cost 1997 Hours Cost 1998 Hours Cost Partners 2 150 2 155 2 160 Seniors 10 500 10 520 10 550 Total 12 650 12 675 12 3