HomeMy WebLinkAbout05-11-2011 Administration Committee Agenda
5/11/11 Administration Committee Agenda Page 1 of 3
Orange County Sanitation District
Regular Meeting of the
Administration Committee
Wednesday, May 11, 2011
5:30 P.M. Administration Building Board Room
10844 Ellis Avenue
Fountain Valley, CA
(714) 593-7124
AGENDA
PLEDGE OF ALLEGIANCE:
DECLARATION OF QUORUM:
PUBLIC COMMENTS: If you wish to speak, please complete a Speaker’s Form and give it to the
Clerk of the Board. Speakers are requested to limit comments to three minutes.
REPORTS: The Committee Chair and the General Manager may present verbal reports on
miscellaneous matters of general interest to the Committee Members. These reports are for information only and require no action by the Committee.
REPORT OF DIRECTOR OF FINANCE AND ADMINISTRATIVE SERVICES:
• Intergrated Program Management Consultants (IPMC)
• Emergency Preparedness
CONSENT CALENDAR:
1. Approve Minutes of the April 13, 2011, Administration Committee meeting. ACTION ITEMS:
2. Approve a professional consulting services agreement for External Financial
Auditing Services, Specification No. CS-2011-473BD for the period June 1, 2011 through May 31, 2012, with four one-year renewal options, for the following fiscal
periods at the maximum annual fees with one of the following firms:
A) Diehl, Evans, and Company, LLP OR B) McGladrey and Pullen,
Fiscal Year Diehl-Evans McGladrey & Pullen
FY 2010-11 $45,500 $70,650
FY 2011-12 $45,500 $72,800
FY 2012-13 $45,500 $75,000
FY 2013-14 $46,618 $77,300 FY 2014-15 $47,856 $79,650
5/11/11 Administration Committee Agenda Page 2 of 3
INFORMATIONAL ITEMS N/A
CLOSED SESSION:
During the course of conducting the business set forth on this agenda as a regular meeting of the Committee, the Chair may convene the Committee in closed session to consider matters of pending real estate negotiations, pending or potential litigation, or personnel matters, pursuant to Government Code Sections 54956.8, 54956.9, 54957 or
54957.6, as noted Reports relating to (a) purchase and sale of real property; (b) matters of pending or potential litigation; (c) employee
actions or negotiations with employee representatives; or which are exempt from public disclosure under the California Public Records Act, may be reviewed by the Committee during a permitted closed session and are not available for public inspection. At such time as final actions are taken by the Committee on any of these subjects, the minutes will
reflect all required disclosures of information.
Convene in closed session.
(1) CONFER WITH DISTRICT NEGOTIATORS
(Government Code Section 54954.5(f))
• Agency Designated Representatives: James D. Ruth, General Manager;
Robert Ghirelli, Assistant General Manager; Jim Herberg, Assistant General
Manager, Jeff Reed, Director of Human Resources; and, Richard Spencer,
Human Resources Supervisor.
• Employee Organizations: International Union of Operating Engineers, Local
501 and Orange County Employees Association (OCEA)
Reconvene in regular session.
Consideration of action, if any, on matters considered in closed session.
OTHER BUSINESS AND COMMUNICATIONS OR SUPPLEMENTAL AGENDA
ITEMS, IF ANY:
ADJOURNMENT
The next Administration Committee meeting is scheduled for Wednesday, June 8, 2011, at 5:30 p.m.
5/11/11 Administration Committee Agenda Page 3 of 3
Accommodations for the Disabled: Meeting rooms are wheelchair accessible. If you require any special disability related accommodations, please contact the Orange County Sanitation District Clerk of the
Board’s office at (714) 593-7124 at least 72 hours prior to the scheduled meeting. Requests must specify the nature of the disability and the type of accommodation requested.
Agenda Posting: In accordance with the requirements of California Government Code Section 54954.2,
this agenda has been posted outside the main gate of the Sanitation District’s Administration Building located at 10844 Ellis Avenue, Fountain Valley, California, not less than 72 hours prior to the meeting
date and time above. All public records relating to each agenda item, including any public records distributed less than 72 hours prior to the meeting to all, or a majority of the Board of Directors are
available for public inspection in the office of the Clerk of the Board.
NOTICE TO DIRECTORS: To place items on the agenda for the Committee Meeting, items must be submitted to the Clerk of the Board 14 days before the meeting.
Lilia Kovac
Assoc Clerk of the Board
(714) 593-7124 lkovac@ocsd.com
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ADMINISTRATION COMMITTEE Meeting Date 05/11/11 To Bd. of Dir. 05/25/11
AGENDA REPORT Item Number 2 Item Number
Orange County Sanitation District FROM: James D. Ruth, General Manager
Originator: Lorenzo Tyner, Director of Finance and Administrative Services
SUBJECT: Selection of Independent Financial Auditors
GENERAL MANAGER'S RECOMMENDATION
Approve a professional consulting services agreement for External Financial Auditing
Services, Specification No. CS-2011-473BD for the period June 1, 2011 through May 31, 2012, with four one-year renewal options, for the following fiscal periods at the
maximum annual fees with one of the following firms:
A) Diehl, Evans, and Company, LLP or B) McGladrey and Pullen
Fiscal Year Diehl-Evans McGladrey & Pullen
FY 2010-11 $45,500 $70,650
FY 2011-12 $45,500 $72,800
FY 2012-13 $45,500 $75,000
FY 2013-14 $46,618 $77,300 FY 2014-15 $47,856 $79,650
SUMMARY
The current contract for external auditing services has expired. Staff completed a solicitation for proposals. Seven firms submitted proposals and three were interviewed.
Staff selected McGladrey & Pullen as the firm providing the most value to the Sanitation
District. However, although they proposed to provide the most hours (710), they were
also the highest total cost ($78,500).
The Administration Committee directed staff to contact McGladrey to see if a scope with
reduced hours and costs could be developed. McGladrey stated that they could not
audit an entity with the size and complexity of the Sanitation District at the reduced
hours, but could reduce their price by 10%. However, they still would be the highest
total cost proposer.
Diehl, Evans and Company was ranked second by Sanitation District staff. Diehl,
Evans and Company was found to be a solid, long standing auditor that has performed
governmental auditing service in Southern California since 1950. Staff believes that
they are qualified to serve as the Sanitation District’s independent financial auditors and although they included the least hours, their audit fee was the lowest of the seven
bidding firms.
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Staff is requesting direction from the Administration Committee as to whether it wants to award the contract to McGladrey and Pullen, the nation’s fifth largest firm, that would
provide a more in-depth audit but at a higher cost or to Diehl Evans, a smaller firm that
would provide an audit consistent with the level of service of the Sanitation District’s
previous auditors at a lower total cost. The cost annual difference between the two firms is approximately $25,000.
ADDITIONAL INFORMATION
At the direction of the Administration Committee, staff solicited a request for proposal for External Financial Auditing Services for fiscal year 2010-11, with the option of auditing the following four years at the discretion of the Committee. Seven firms submitted
proposals and staff interviewed three of those firms.
A preliminary evaluation ranking of these seven proposals was performed by an Evaluation Team comprised of the Director of Finance and Administrative Services, Controller, Accounting Supervisor, and two Principal Accountants. The Controller and
both Principal Accountants are CPAs with prior public governmental auditing
experience. Listed below are the results of the preliminary evaluation in the order of the
ranking done by staff, followed by the first year maximum fee quoted in their proposals, and then by estimated audit hours:
Evaluation Maximum Estimated Average
Ranking Fee – 1st Yr Audit Hourly
By Staff Hours Rate
McGladrey & Pullen 1 $78,500 710 $111 Diehl, Evans & Co. 2 45,500 396 115
Charles Z. Fedek, & Co. 3 51,000 428 119
Lance, Soll & Lunghard 4 54,525 500 109
Moss, Levy Hartzghim 5 47,475 615 77 Leaf & Cole 6 53,000 415 128 Crowe Horwath 7 55,800 500 112
The initial evaluation performed by staff was done in accordance with the criteria set
forth in the RFP, without consideration of fees, as follows:
(A) Qualifications of the Firm, (B) Staffing and Project Organization, (C) Work Plan
Based on the initial screening, the Evaluation Team interviewed the top three firms who
had distinguished themselves from the others based on the quality of their proposals:
(1) McGladrey & Pullen, (2) Diehl, Evans & Company, (3) Charles Z. Fedak & Company
Once the interviews were concluded, staff concluded that the proposal from McGladrey
& Pullen provided the most value to the Sanitation District.
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However, at the April Administration Committee meeting, the Committee raised concerns with the 710 audit hours proposed by McGladrey & Pullen at a total first year
annual cost of $78,500. The average estimated annual hours to perform the audit by
the seven firms submitting bids was 509 hours. The prior auditors, Mayer, Hoffman &
McCann, took 432 hours to complete the engagement last year. However, it was their sixth consecutive year in performing the Sanitation District’s audit and was more familiar with its financial statements.
The Administration Committee directed staff to inquire with McGladrey & Pullen as to
whether they could scale back their proposal to complete the engagement within 550 hours. McGladrey & Pullen responded that they believe 710 audit hours was appropriate for an agency the size of the Sanitation District ($1.4 billion in net assets,
$1.3 billion of debt, and $473 million in cash and investments). They stated that 710
hours would be needed in order to complete the audit in accordance with the auditing
standards established by their firm that meets or exceeds the American Institute of Certified Public Accounts or by the Government Auditing Standards. To lower their audit hours would compromise the integrity of their firm. However, they were willing to
discount there billing rates by 10 percent, or by $7,850 for the first year of the
engagement from $78,500 to $70,650.
The firm that was ranked second by Sanitation District staff is Diehl, Evans and Company. Diehl, Evans and Company was found to be a solid, long standing auditor
that has performed governmental auditing service in Southern California since 1950.
Staff believes that they are qualified to serve as the Sanitation District’s independent
financial auditors and although they included the least hours, their audit fee was the lowest of the seven bidding firms.
PRIOR COMMITTEE/BOARD ACTIONS
April 2011 – Committee directed staff to inquiry with McGladrey & Pullen, the top rated proposer, to determine if they would be willing to limit the total maximum
audit hours to 550 as opposed to their proposed amount of 710 hours.
CEQA
N/A
BUDGET/DELEGATION OF AUTHORITY COMPLIANCE This request complies with authority levels of the Sanitation District’s Delegation of
Authority. This item has been budgeted.
http://sharepoint/gm/board/Agenda Report Form Library/Agenda Report Independent Auditors RFP 10-11 (2)FINAL.docx