Memorandum

City of Lawrence

Finance Department

TO:	Mike Wildgen,  City Manager
FROM:	Ed Mullins, Finance Director
CC:	Dave Corliss, Assistant City Manager
Date:	November 8, 2005
RE:	Audit Proposals

ITEM

The Finance Department desires City Commission action on the selection of an independent audit firm to conduct the annual audits for the fiscal years ending December 31, 2005-2007.

BACKGROUND

On September 9, 2005, the Finance Department sent a Request for Proposals (RFP) to six (6) audit firms.  The RFP was based upon the model RFP developed by the Government Finance Officers Association (GFOA) and included the scope of services for independent auditing services for the City of Lawrence.   The City of Lawrence has utilized the firm of Lowenthal Singleton Webb and Wilson to conduct its annual audit for the years 1999-2004.

PROPOSALS

The Finance Department received a total of three (3) responses.  Responses were received from Lowenthal Singleton Webb and Wilson, Cochran Head & Co., and McGladrey & Pullen.  The Finance Department believes all three firms are qualified to perform the annual financial audit and have checked the firm’s references.

The GFOA’s recommended practice on Audit Procurement states, “Unfortunately, the frequent lack of competition among audit firms fully qualified to perform public-sector audits could make a policy of mandatory auditor rotation counterproductive.”   The recommended practice also recommends a multi-year agreement of at least five years in duration.  The RFP envisioned a three (3) year agreement and requested fixed costs for each of the three (3) years.  Additional one (1) year agreements can be added in the future if desired.

The cost of providing the auditing services varied significantly among the firms.  The following table summarizes the annual cost of the engagement and the anticipated hours to be worked for each of the three (3) firms.

Firm	Hours Worked	Annual Cost	Total Cost	Clients
Lowenthal Singleton	390	$26,108		Lawrence, Prairie Village,
		$27,152		Salina, Douglas County
		$28,238	$81,498
Cochran & Head	350	$37,985		Olathe, Leawood, Shawnee,
		$39,500		Independence, Mo.
		$41,080	$118,565
McGladrey & Pullen	380	$34,000		Des Moines, Bettendorf, Ia,
		$36,000		Liberty, Mo.
		$38,000	$108,000

OPTIONS

The issue of auditor rotation is a much debated topic.  With the reduction in the number of audit firms qualified and willing to do government audits, the GFOA has refrained from recommending it.  The need to rotate auditors is also a function of the size and complexity of the entity being audited.  In the case of the City of Lawrence, our financial structure and activities are not of a complex nature.  In addition, we have the benefit of a local firm that has grown its governmental accounting business.   As a result, the Finance Department does not recommend the rotation of auditors for the sake of hiring a new group of reviewers.  We especially do not feel comfortable making the recommendation given the significant difference in costs.

RECOMMENDATION

The Finance Department recommends engaging the firm of Lowenthal Singleton Webb and Wilson to conduct the annual financial audit.  The firm has provided very good service to the City over the last six (6) years.  In addition, their three (3) year total cost is nearly $27,000 less than the next lowest proposal.  Copies of the RFP responses are available for review.