Vancouver City Council

ADMINISTRATIVE REPORT

Date: December 2, 2002

Author/Local: T. Corrigan

RTS No. 03111
CC File No. 1805

Council: December 10, 2002

TO:

Vancouver City Council

FROM:

General Manager of Corporate Services/Director of Finance

SUBJECT: Award of Contract for External Audit Services and Appointment of External Auditor for 2003

RECOMMENDATION

A. THAT, subject to the conditions set out in Recommendations C, D and E, an agreement be entered into with KPMG LLP (KPMG) to supply external audit services to the City for a period of five years commencing with the audit of the 2003 fiscal year and subject to annual appointment in accordance with Section 230 of the Vancouver Charter, at an all inclusive fee of $132,765 (excluding GST) for 2003 increased by the Consumer Price Index for the audit of each of 2004 through 2007 fiscal years. Funding is to be included in the 2003 operating budget.

B. THAT, if Council approves Recommendation A, and subject to the conditions set out in Recommendations C, D and E, the auditing firm of KPMG be confirmed as the City's External Auditor for the fiscal year 2003.

C. THAT all legal documentation is to be in a form which is satisfactory to the Director of Legal Services and the General Manager of Corporate Services/Director of Finance.

D. THAT upon approval of the legal documentation by the Director of Legal Services and the General Manager of Corporate Services/Director of Finance that the Director of Legal Services and the General Manager of Corporate Services/Director of Finance be authorized to execute and deliver the necessary agreement on behalf of City Council.

E. THAT no legal rights or obligations shall arise hereby and none shall arise or be granted hereafter unless and until all contemplated legal documentation has been executed and delivered by all parties.

COUNCIL POLICY

Section 230 of the Vancouver Charter provides that Council shall , no later than the first Council meeting in each year, appoint a firm of chartered accountants or certified general accountants to audit the accounts and transactions of the city and of every other administrative body.

External Audit Services be considered for re-tender after five years.

The policy of Council is to award contracts for the purchase of equipment, supplies and services that will give the highest value based on quality, service and price.

Contracts with a value over $300,0000 are referred to Council for approval.

PURPOSE

This report recommends awarding a contract for external audit services for a period of five years commencing with the audit of the 2003 fiscal year.

The report also recommends the appointment of External Auditors for the City for the fiscal year 2003, as required by Section 230 of the Vancouver Charter.

DISCUSSION

KPMG is currently the City's External Auditor. This appointment expires with the audit of the 2002 fiscal year.

On August 26, 2002 the City issued a Request for Proposal (RFP) for External Audit Services. The competition was advertised on the City's web site, on the BC Purchasing Commission's web site and in Vancouver Sun. From the six prospective proponents attending the information pre-submission meeting, three proposals were received, only two of which met the requirements of the RFP.

The City's objectives for the service requirement include:

· Auditing of the City's annual financial statements for the year ended December 31, 2003 and the subsequent four years in accordance with generally accepted auditing standards.

· Reporting to Council on or before April 30 of the following year, an opinion on whether or not the financial statements, which include all City boards as well as all owned and controlled corporations, fairly present the City's financial position and results of operations in accordance with generally accepted accounting principles for local governments.
· Providing as part of the annual audit, advice and recommendations on the City's management and internal control procedures.
· Attending meetings with City official as required for the planning and review of the external audit process and the financial statements.
· Responding to requirements and duties of the auditors as outlined in the provisions of the Vancouver Charter in Sections 230 to 235.
· Auditing the Vancouver Public Housing Corporation's annual financial statements for the year ending December 31, 2003 and the subsequent four years in accordance with generally accepted auditing standards.

The RFP process was coordinated by Materials Management Division with the evaluation team comprised of the following:

Estelle Lo, General Manager of Corporate Services/Director of Finance
Roger Fast, Director of Business Support Services
Terry Corrigan, Director of Financial Services
Eric Smith, Acting Director/Corporate Services Director, Vancouver Public Library
Ken Bayne, Director of Financial Planning and Treasury
Esther Lee, Manager of Accounting

Evaluation criteria were as follows:

· Proponent Qualifications:
Factors considered included size of firm, size of engagement office, relevant experience both for firm and for engagement office, relevant experience of key personnel assigned to the contract, expertise and experience of audit team in application of generally accepted accounting principles for local governments, planning and conducting audits in a large decentralized organization, and experience of key personnel in auditing complex financial systems, references.
· Ability to Meet Specific Engagement Requirements:
Factors considered included the work plan outlining audit planning, timing, level of staff and number of hours, communication during the audit; use of statistical sampling and computer assisted audit techniques; approach to technology audit; risk assessment analysis, co-ordination with the City's Internal Audit division, transition plan, and approach to dealing with City's decentralized organizational structure.
· Value Added Services:
Factors considered included types of services that could be provided by the audit firm.
· Quality of Proposal
Factors considered included the organization, compliance and the comprehensiveness of the proposal.
· Financial Offering
The pricing of the audit services was considered in the overall evaluation after other evaluative factors were scored. Pricing considered the firm pricing provided for the 2003 fiscal year audit, inclusion of out of pocket charges and the total cost for the five term of the contract.

The following steps were taken in completing the evaluation process:

· Proposals were evaluated by team members individually.
· A composite score was assigned each proposal based on team member scores.
· Pricing was then combined with the team composite score.
· Interviews were subsequently held with each proponent to seek clarification of proposals and to give the team members an opportunity to ask questions.
· References were checked by members of the evaluation team.

Based on the results of the evaluation, the highest ranked proponent was KPMG. The key strengths of their proposal include:

· The knowledge and experience of the members of the audit team proposed for the City's audit engagement in municipal auditing, audits of large diverse organizations, and audit of complex computerized accounting systems.
· The depth of the auditing team in the local office to support the audit of the City.
· Experience of the local office in completing municipal audits.
· Audit team proposed has specific experience with the City of Vancouver.
· Strong references for the local office and audit team members.

FINANCIAL IMPLICATIONS

The financial offer made by each of the qualifying proponents is summarized below:

Proponent	Ernst & Young (Note 1)	KPMG (Note 2)
City of Vancouver	$117,000	$123, 265
Vancouver Public Housing Corporation	$7,900	$9,500
RFP Value for all components (2003)	$124,900	$132,765
Total 5 Year Term All Components (estimated - see notes below)	$663,000	$689,542

Note 1: Ernst and Young provided a five year fixed fee quote.
Note 2: KPMG provided a fixed fee for the 2003 audit and quoted CPI annual price adjustments for 2004 through 2007. Using the Conference Board of Canada's data, a forecast using the CPI has been used in analysing the financial offering of KPMG over the five year term.

The difference between the two offers is due to the fact that KPMG provides more hours in their work plan to complete audit field work.

CONCLUSION

The recommendation to appoint KPMG as the City's External Auditor is considered the best value for the City over the term of the contract. KPMG has been the City's External Auditor for a considerable number of years and has provided good value audit services during their appointment. KPMG has the largest municipal audit practice of all audit firms in British Columbia. They have provided the audit team with the greatest experience in municipal auditing, knowledge of generally accepted accounting principles for local government and experience conducting audits of large diverse audit clients using complex computerized accounting systems. KPMG has a large local office in terms of staff which will provide backup for the team assigned to the City's audit. KPMG has a large municipal practice at both the local and national level which will allow KPMG to bring a broad knowledge and understanding of the developing trends in the municipal sector to the City's audit.

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© 2002 City of Vancouver