Looking to save the city a considerable amount of money and bring consistency to a department that has experienced turnover and strife over the past decade, Palo Alto's Council Appointed Officers Committee on Tuesday, July 28, will take the next step toward hiring an independent contractor to operate as the Office of the City Auditor.
The committee plans to interview four auditing firms vying to replace the last city auditor, Harriet Richardson, who departed in February 2019, along with the staff in the auditor's office.
The full City Council will interview the candidate for auditor from each of the firms during a special closed session on Wednesday, Councilman Eric Filseth said. The council is scheduled to award the $750,000-per-year contract in mid-August.
Three of the candidate firms are large entities: Eide Bailly LLP is headquartered in Fargo, North Dakota, with an office in San Mateo, and has more than 2,500 employees; Moss Adams LLP, is headquartered in Seattle, Washington with an office in Campbell and has more than 3,200 employees; Baker Tilly Virchow Krause LLP, is the American branch of Baker Tilly International, headquartered in London, United Kingdom. The company's U.S. branch has an office in San Francisco. Baker Tilly has more than 3,350 employees. The fourth candidate, Sacramento-based Sjoberg Evashenk Consultants, is a small, 20-person firm. (Update: On Tuesday, the committee chose the three largest firms to move forward. Each firm's representative who would become the city auditor will face the entire council in a closed meeting on Wednesday afternoon.)
Outsourcing the entire auditor's office would save the city an estimated $250,000 per year in salaries and benefits. The contract would be in effect for two years with extensions of up to three years, according to a staff report.
The decision to contract out the city's auditing operation came after considerable deliberation. The auditor position has had a high turnover rate in the past decade and costs more than similar services in other cities, the council found. On Feb. 10, the council unanimously approved issuing a request for proposals to be overseen by the Council Appointed Officers Committee.
"(We're) really looking to understand which would be the best fit for Palo Alto. Some of the main things we'd like to hear about are their ideas on how their strengths align with our needs, discuss how they'll manage the need to maintain independence, and their thoughts and experiences for us moving from an internal model to using an outside agency," Filseth, a CAO Committee member, said in an email on Monday.
The chosen firm would appoint one of its team members to serve as the internal chief auditor, and other staff would handle the city's audits. The position is responsible for conducting internal audits to provide the public with independent and objective analysis of whether city management is using its "financial, physical and informational resources effectively, efficiently, economically, ethically and equitably" and if the city is complying with laws, contract and grant requirements and city policies and procedures, according to the staff report. The firm and its staff would maintain independent-contractor status.
In a 2020 twist, applicants should also consider the ramifications of the COVID-19 pandemic and how economic and working conditions might affect the internal audit program and its costs, according to the staff report.
The Office of the City Auditor's $1 million operating budget in fiscal year 2019-20 paid for five full-time positions, including one city auditor, two senior performance auditors and two performance auditor II positions, according to the staff report.
The council wants the contractor to focus on annual audit planning by looking at risk assessments and concentrating on the most efficient use of the city's increasingly scarce financial resources. The contracted firm would handle six core tasks: preparing an annual audit plan, performing a citywide risk assessment, selecting an external financial auditor and annually coordinating external audits; conducting a minimal number of internal audits of departments and operations; preparing quarterly and annual status reports and undergoing a peer evaluation following the guidelines of the Association of Local Government Auditors every two years.
Following the interviews, negotiations over the scope of services and fees will take place July 30 to Aug. 10. The City Council is scheduled to vote on the recommended contractor on Aug. 17. The chosen firm would begin work on Sept. 1, according to the report.
The community can view Tuesday's meeting starting at 9 a.m. by visiting Zoom or dialing 669-900-6833 and using Meeting ID: 950 2446 5768. The meeting will also be broadcast live on YouTube. Public-comment instructions can be found on the committee's agenda page.