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1. Audit Contract for 2007, 2008, 2009City of Kalispell Post Office Box 1997 - Kalispell, Montana 59903-1997 - Telephone (406)758-7700 Fax (406)758-7758 Date: December 21, 2006 TO: Mayor Kennedy and City Council Jim Patrick, City Manager From.: Amy Robertson, Finance Director RE: Audit Contract for 2007, 2008 & 2009 Our 2006 Financial Statements are complete and awaiting audit by the firm of Denning, Downey and Associates, CPA's. 2006 is the final year on a 3 year contract; the annual price of the audit is $20,830. It is time to determine how to contract for the next three year period. As the finance officer for the City I believe it is not management's place to hire the auditor, it is a function that belongs to Council. Unfortunately your options are very limited. An auditor must be on the State list of qualified auditors to perform goverm-rental audits. The only firm in the Flathead is DDA. The closest qualified firms would be two firms out of Missoula. Those firms cannot compete financially with DDA; they have start up and travel costs. The last time we did an P_FQ only one Missoula firm responded and the price was double that of the local firm. Of course, auditors should be selected based on qualifications and not price. I do not have a problem with the current auditors. However, it's not a bad idea to rotate auditors. The discussions I've had with auditors from out of the area is that they won't spend the time putting together a proposal if they are competing with DDA. If we want to change auditors we need to make it clear that we wish to do so. Unfortunately, with our level of staffing we are not able to have the financial report available for audit before winter --- January is not a time that many CPA's want to be traveling. The audit contract is a 3 year contract which is actually provided by the state and must be signed by the State as well. 2007 is the year we must book all of the infrastructure on the City's financials as part of our OASB 34 implementation. we will be adding about. $30 million in assets related to streets. we will use a software program which public works uses for maintenance — the program has a component to estimate the historical cost for streets. whether the auditors will be satisfied with our numbers is an unknown; we could see a qualified report for infrastructure. It will require a higher level of testing for there to determine if we have included all of the infrastructure assets. For this reason I expect we will see an increase in audit costs. Your consideration and direction is appreciated.