The Department of Finance has successfully completed the implementation of the City’s integrated financial system and staff is currently in the process of implementing the Accounts Receivable, Fixed Assets and Purchasing modules. Since this project has resulted in numerous changes in business processes and has had a significant impact on the financial operations of the City, we recommend that the City contract with C.G. Uhlenberg & Co. LLP for an additional year in order to minimize disruption and facilitate the annual audit process. The contract would cover the audit of the fiscal year ended June 30, 1999.

BACKGROUND

In 1992, a Request for Proposals (RFP) was mailed to CPA firms that offer audit services in the San Francisco South Bay Area. Representatives of these firms attended an RFP Conference, and four firms responded by the deadline. Staff evaluated the responses based on cost, timeliness, assigned staff, references, ability to meet the requirements of the Request for Proposal, and experience in the governmental audits. C.G. Uhlenberg & Co. LLP was chosen based on this evaluation. Council approved a contract on June 23, 1992, which granted them the annual audit contract including the option for the City to renew in future fiscal years.

Council has in subsequent years reaffirmed C.G. Uhlenberg & Co. LLP as the City’s auditor for the audit for the fiscal years ending June 30. According to the existing service agreement, dated September 25, 1998, the City has the option to extend the agreement for two additional years.

C.G. Uhlenberg & Co. LLP has consistently performed their audits in a timely manner and delivered all of the agreed to opinions within deadlines during the contractual period. There have also been significant advantages to retaining C.G. Uhlenberg & Co. LLP as the City’s auditors during the period of converting to complex new integrated accounting software.

The implementation of the new integrated financial system has had a major impact on all City departments, and the Department of Finance, in particular, has borne the brunt of this change. While maintaining regular operations, staff has had to learn the features of the new system. Considerable time and effort has been spent to ensure the accuracy and integrity of the data and to monitor the transactions during initial years of the transition since account codes, tasks, funds and account classifications all had to be changed. Implementation of the Accounts Receivable, Fixed Assets and Purchasing modules are still underway.

Since C.G. Uhlenberg & Co. LLP is now thoroughly familiar with the City’s organization, financial records, systems and procedures, it will be less onerous for staff to complete the fiscal years 1998-99 audit on a timely basis if Council approves the reappointment. This will ensure that the City will be in compliance with audit requirements for the various grants. Further, unlike a new audit firm that would have to expend considerable effort in the first year to understand the City’s processes, C.G. Uhlenberg & Co. LLP will be able to draw upon their experience and knowledge to provide valuable feedback.

Undoubtedly, the disadvantage of continuing the same audit firm is that their audit approach may not change from year to year and items overlooked or considered immaterial in one year may continue to be overlooked or considered immaterial in subsequent years even if circumstances have changed. However, we believe that in view of the major system efforts mentioned above, the advantages of re-appointing C.G. Uhlenberg & Co. LLP outweigh the disadvantage. Further, as it is a practice with major Certified Public Accountant firms, Audit staff is rotated among assignments and typically at least one half of the staff on site are new to the City’s audit engagement. This approach provides a fresh look at our financial records while maintaining their own internal resources for routine questions minimizing the time demands on City staff. Based on all of these factors, staff recommends that Council approve their reappointment for one year for the audit of the fiscal year ended June 30, 1999.

The cost of all audits has already been budgeted in various programs. The maximum annual audit fee is established by multiplying the maximum total compensation and the billing rates for the prior year times the ratio of the most recent Consumer Price Index for the San Francisco-Oakland Bay Area as compiled by the U. S. Department of Labor ("CPI-U"). The CPI-U for the San Francisco-Oakland Bay Area has increased 4.6% during the period from April 1998 to April 1999. The fee for the 1997-98 audit was $78,872 and the proposed fee for the fiscal year ended June 30, 1999 will not exceed $81,975, a 3.9% increase over the previous year and $ 525 below the maximum amount allowed under the existing service agreement.

Posting of the Council agenda. Reports to Council are also available at the City Library and the City’s Web Site.

Staff recommends alternative #1.

Prepared by:

Gabriel A. Silva
Finance Manager

Reviewed by:

Mary Bradley
Director of Finance

Approved by:

Robert S. LaSala
City Manager