We received another set of questions from an accounting firm interested in responding to the City’s RFP for audit services. For the benefit of all interested parties, we are providing the questions and answers as a website post.
1) Why is the City going out to bid and how often does the City go out to bid? Does the City require firm rotation or can the current auditors propose on the audit?
The chairperson of the audit committee made a request to change auditors and the full city council supported the request to issue a Request for Proposals. The City of Salida does not have a formal policy regarding the frequency of going out to bid for new auditors or rotating partners on the engagement. The last time the City went out to bid was in 2003 and a contract was awarded to Johnson, Holscher & Company, P.C. A partner rotation for the Salida audit occurred sometime prior to the 2007 audit, and then transitions took place to the “successor firms” of Johnson and Associates for 2011 and 2012 audits and to Hamblin and Associates for the 2013 and 2014 audits. (Mr. Hamblin was an employee of the predecessor firms and took over many of the Johnson and Associates clients when Mr. Johnson retired). Hamblin and Associates was invited to propose on the future audits.
2) The RFP indicates that federal funding is expected for 2015 that would require a Single Audit. Is the City anticipating that a Single Audit requirement will also be in place for future years? Should the fee for a Single Audit, by major program, be separately identified in the cost proposal?
The Single Audit has been required from time to time when large federal grants are used to fund capital projects and would continue to be in place for some future years. In particular, the City will complete the fourth phase of a Highway 50 Enhancement project and final phase of the wastewater treatment plant upgrade using federal funds. Future phases of the Highway 50 project or other one-time projects may require a Single Audit in the future; however, a Single Audit would not be required in a typical year. It would be helpful to identify the fee for a Single Audit by major program separately so the City will also have the proposed fees for a year without the Single Audit requirement.
3) Does the City prepare the financial statements or has this been historically completed by the auditors? On average, when does the City complete its financial records and close out the fiscal year? When are the trial balances and supporting schedules available to the auditors?
Historically, the auditors have prepared the annual financial statements with the exception of the MD&A. In 2014, the annual report was expanded to include an introductory and statistical section, taking steps toward a full CAFR; these new sections were completed by staff. The City would like to see any difference in fees, in any, for preparation of the basic financial statements and footnotes. Since the 2009 year end, the annual close process has been completed during March and the City continues to improve its processes. A preliminary 2014 financial report was prepared on February 10, 2015. Fieldwork for the 2014 audit was conducted during the week of March 9th, and staff was 100% ready with client prepared schedules. The annual audit report was presented to City Council on April 7, 2015. Trial balances and supporting schedules are available to auditors on or just before the start of fieldwork. Confirmation letters are generally prepared and mailed to the auditor during January or February.
4) When has fieldwork (both interim and final) been completed? Are there are any expected changes to the preferred timing of fieldwork?
Over the past few years, audit fieldwork has been conducted over one week in the early to mid March timeframe. No interim fieldwork has been conducted in prior years. There are no expected changes expected to the preferred timing, but the City would have some flexibility in the schedule.
5) Have there been any major events/transactions that have occurred during 2015 that would impact the financial statement audit (i.e. major debt issuances or capital improvements, or changes to major funds)?
6) Are there any major events/transactions anticipated for fiscal years 2016 through 2019 that are known at this time?
The City of Salida is considering a new debt issuance in the water fund during 2016 or 2017 to fund certain capital projects. This would likely through the state revolving fund program under CDPHE. Some council members have expressed an opinion that the general fund should be separated into multiple funds based on restrictions of sales tax revenue, which would add some complexity to the financial statements. Although a significant amount of capital spending will continue during this time period, none of the projects are particularly complex (such as the recent wastewater treatment plant upgrade.)
7) Are you willing to share your thoughts on how, or if, the process for completing the audit could be improved? What is most important to you in working with your auditors?
It is most important to me that the auditors are well qualified technically, organized, timely and will work respectfully with staff and the elected officials.
8) What tools (e.g., disclosure checklists) has the City historically used in preparing the financial statements to ensure financial statements and disclosures are complete and pursuant to current guidance? What resources would the City like the auditor to provide?
Staff obtains a list of documents needed by the auditors and provides them at or before the start of fieldwork. The auditors have historically provided standard checklists for the financial statement preparation and disclosures. The City does not have internal checklists for this purpose and would rely upon the auditors to employ up-to-date checklists to ensure compliance with the latest standards.
9) What challenges does the City expect to face over the next five years (i.e. accounting system limitations including peripheral applications, etc.)? How can the auditor provide help to the City with these challenges, taking into consideration independence requirements?
The 2013 conversion to Tyler software has successfully improved financial reporting capabilities and eliminated most off-line transactions. Some discussions have taken place regarding the implementation of a project accounting system and more detailed time tracking practices to increase information reporting about the cost of routine work activities and one-time projects. We have also discussed adopting a policy to capitalize staff salaries, primarily due to the fact that the operating budget is constrained by the level of restriction on sales tax funds for capital spending. The auditor can assist the City by sharing benchmark data and common practices through their experience working with other municipalities. Salida also has political challenges within and between members of the governing body, staff and the public. A clean opinion from independent accountants regarding the financial statements and records is an important step for maintaining or building trust.
10) Which software system does the City utilize? Are there any automated controls within the system that would impact the audit?
In 2013, Salida converted to the Tyler Technologies software (combination of INCODE Version 9 and VX). Modules include financials (general ledger, budgeting, accounts payable, bank reconciliations, cashiering, fixed assets), utility billing, business licensing, accounts receivable, court and law enforcement. Automated controls include limitations on system access and/or processing based on user profiles, period management to prevent entries to the wrong year, entries must be in balance, reconciliations between subledgers and the G/L, etc. We also employ a separation of duties between the staff of four in the finance department.
11) Were there any known instances of fraud or illegal acts during the fiscal year?
There are no known instances of fraud or illegal acts during the fiscal year. A pending lawsuit alleges illegal action with respect to the amendment of a construction agreement.
12) Does the City utilize outside service providers for any significant functions (i.e. payroll services)?
The City uses ADP for payroll processing.
13) Is the City willing to share historic audit fees for the City’s financial audit?
Description 2012 2013 2014
Financial audit $ 10,500 $ 12,000 $ 11,000
Single Audit n/a included n/a
Out of pocket costs included included included
Total $ 10,500 $ 12,000 $ 11,000
14) Is the City willing to share historical audit hours, or if not known, how many auditors were generally at the City during interim and final fieldwork and how long was fieldwork generally scheduled?
In recent years, either two or three auditors have been on site for up to one week during year end fieldwork. No interim fieldwork has been performed in the past. I do not know the total number of hours spent by the independent accountants on past audit.
15) Please provide the following, if applicable, relating to the fiscal year 2013 and 2014 audit for the City:
a. Audit Adjusting Journal Entries – N/A – No AJEs identified
b. Passed Adjusting Journal Entries (not posted) – N/A – No AJEs identified
c. Management Letter (internal control deficiency communication, or SAS 115) – N/A
d. Final letter to the City Council and/or Audit Committee (SAS 114) – Attached – 2014, 2013