Title
Contract No.: GLWA-CS-132, Change Order No. 1, External Auditor Services
Body
Agenda of: September 13, 2017
Item No.: 2017-379
Amount: $127,508.00
TO: The Honorable
Board of Directors
Great Lakes Water Authority
FROM: Sue F. McCormick
Chief Executive Officer
Great Lakes Water Authority
DATE: September 8, 2017
RE: Contract No.: GLWA-CS-132, Change Order No. 1, External Auditor
Services
MOTION
Upon recommendation of Nicolette Bateson, Chief Financial Officer/Treasurer, the Board of Directors (Board) of the Great Lakes Water Authority (GLWA) authorizes the Chief Executive Officer (CEO) to enter into Change Order No. 1 Contract No. GLWA-CS-132, “External Auditor Services” with an increase of $127,508.00 for a total cost not to exceed $863,516.00 and to take such other action as may be necessary to accomplish the intent of this vote.
BACKGROUND
The firm of Rehmann Robson was selected to provide auditing services for the Great Lakes Water Authority (GLWA) in January 2017. The timing of this selection was performed sequentially and in coordination with the City of Detroit who appointed a new audit firm late in calendar year 2016 for the year ended June 30, 2016. Given that this was the inaugural audit for the GLWA, the timing and completion of the audit for the predecessor entity, the City of Detroit Water & Sewerage Department (DWSD), was a critical path item.
At the time that GLWA was seeking audit proposals, it was anticipated that the City and DWSD’s audited financial reports would be completed by March 31, 2017 however, that date was subsequently extended until May 31, 2017. The City’s report was filed on May 31, 2017. Separately, on May 19, 2017, it was decided that all parties would be best served by a six-month audited financial report of DWSD through December 31, 2015 to support the opening statements of net position on January 1, 2017 for the regional and local systems. That report was issued in mid-July 2017.
The GLWA’s request for proposal was based upon the City’s initial audit filing date of March 31, 2017 and is shown below.
Beyond the City’s timing, finalizing the first year-end financial close and developing the first comprehensive financial report (CAFR) created inefficiencies for the auditors such as staff reassignments and validating multiple general ledger uploads. Further, the auditor’s engagement was to process the first CAFR. Lastly, the capital asset valuation report excluded formulas that the appraiser considered proprietary. As a result, additional analysis and interfacing with the valuation company was necessary in order to gain “audit comfort” with the acquisition values.
JUSTIFICATION
The table below summarizes the number of budgeted versus actual hours and dollars based upon the July 31, 2017 completion of the audit. It is proposed that Rehmann Robson’s contract for the FY 2016 audit be increased by $127,508 for a total of $863,616.00. The proposed contract amendment represents a negotiated adjustment to 67.5% of the overage.
For comparison, the incumbent auditor submitted a fee to GLWA of $630,275 with 3,150 hours and an effective hourly rate of $200 when proposals were received for the FY 2016 audit. Even with the change order, the Rehmann Robson fee is lower. In addition, the City approved a change order in a similar proportion recognizing the additional efforts of its auditors.
The table below reflects the contract value following approval of this change order.
|
Fiscal Year |
Original Fee |
Change Order #1 |
Revised Fee including Change Order #1 |
|
FY2016 |
$333,600.00 |
$127,508.00 |
$ 461,108.00 |
|
FY2017 |
$198,500.00 |
$ - |
$ 198,500.00 |
|
FY2018 |
$203,908.00 |
$ - |
$ 203,908.00 |
|
Total Contract |
$736,008.00 |
$127,508.00 |
$ 863,516.00 |
BUDGET IMPACT
To the extent that there are not savings in the Financial Reporting & Accounting cost center, a budget amendment from unallocated reserve would be required. There are sufficient funds in that unallocated budget reserve.
COMMITTEE REVIEW
The Audit Committee unanimously approved the proposed change order at its meeting on September 1, 2017.
SHARED SERVICES IMPACT
This item does not directly impact the shared services agreement between GLWA and DWSD.