Audit Tender Report - Issue Report

Report To: Manitoulin-Sudbury DSB Finance Committee

From: Connie Morphet, Director of Finance & Administration and Josh Parkinson, Finance Manager      

Date: October 12, 2022

Re: Audit Tender Report 
 

Recommendation

The Finance and Administrationn department is recommending that the Finance Committee recommend to the Board to appoint Freelandt Caldwell Reilly (FCR) as the Manitoulin-Sudbury DSB auditors for the period of eight years (2022-2029), contingent on satisfactory service and fees.

Background

In accordance with Policy B.3.06, tendering for audit will follow the same general rules that govern all tendering and procurement. Additional consideration when selecting an audit tender include an in-depth knowledge of the financial requirements of a District Services Boards or other municipal government structures and the ability to meet with the Board at the Board’s Head office location with short notice. Per the procedure, the maximum cycle for audit services is eight years.

Proposal for Audit Services

In September 2022 the Proposal for Audit Services was released with media coverage, presence on our website, and directly forwarded to four accounting firms that serve Northern Ontario. The proposal requested that each firm provide a quotation for fees to be charged for the 2022 and 2023 audits and an estimate of the probable fees for subsequent years.

The closing date was October 7, 2022 at 4:30pm. Two accounting firms provided audit proposal packages; KPMG (Sudbury), and Freelandt Caldwell Reilly (Espanola). 

Summary of Proposals

Background:

KPMG and FCR have equivalent background, experience and qualifications. Each has respectively worked with numerous municipalities and district social services administration boards. One of the requirements of the Proposal for Audit Services was experience with paperless and electronic accounting systems and performance of an electronic audit; both firms are equivalent.

Hours:

KPMG estimates that the audit file will take 265 hours. Their estimate is based on information provided in the Proposal for Audit Services which included the 2021 financial statements. The following breakdown details the positions who will be completing the audit file.

KPMG Audit Hours

FCR estimates that the audit file will take an estimated 293 hours. This estimate is based on FCR’s experience in completing the audit for the past 23 years. The following breakdown details the positions who will be competing the audit file.

FCR Audit Hours

Fees:

KPMG has provided fees for two years (shown in bold), and an estimate on subsequent years these fees are applicable to core audit services. 

FCR has provided a quotation based on their knowledge of our organization and their understanding of the engagement and scope of work. The fee structure is for the fiscal year ended December 31, 2022 and subsequent years (shown in bold). 

Fees and Expenses

Based on the above here would be a savings of $12,730 over an 8 year period by choosing KPMG, based on estimations for the 2024-2029

Analysis of Proposals

Background: 

There are advantages and disadvantages to retaining the current auditor or appointing a new auditor. 

FCR has an in-depth knowledge of the organization. This is advantageous as it will result in fewer time delays as there is no need to learn about the organization; there is familiarity with processes and staff and will undoubtedly reduce staff time. FCR has a local office within DSB catchment area. The disadvantages of FCR are the advantages to KPMG.

KPMG offers new perspective on organization methodologies. However, the time required to learn the processes may be extensive and taxing on staff resources. It should be noted that KPMG did perform the Finance Review in 2009. 

Hours and Fees: 

Historically, we have worked closely with the audit team while they work on site with our electronic files, and furthermore electronically with their office. The number of hours quoted by FCR is concurrent with the efforts as observed by DSB staff.

After in-depth analysis of the depth and scope of the two proposals, the finance and administration department notes that KPMG has estimated less hours required to complete the audit process. The difference between the two quotations is nearly thirty hours. 

From the consolidated financial statements it appears that we have only four departments. In actuality, there are 16 ministry funded programs which are further consolidated within the four main departments. This intricacy of the organization could attest to the higher hours required by FCR than KPMG.  

It is for this reason that we believe that KPMG is underestimating the time required. Utilizing KPMG, we believe there is a risk of increased fees in future years due to hours required to complete the audit.

The chart below details per hour rates of both KPMG and FCR based on their quotation for services and the hours provided thereto. FCR has a lower hourly rate. 

Hourly Rates Based on Total Audit Fees

Assuming that the total billable hours for the audit are 293 hours, the fees would be as follows; FCR has the lower contracted rate.

Audit Fees
293 Hours of Service 
Based on Hourly Rates Provided

Based on the above here would be a savings of $10,727 over an 8 year period by choosing FCR, based on the estimated hourly rate and the FCR estimated hours. 

CONCLUSION

The difference between the two proposals is the number of hours estimated to complete the audit, and the time required by a new audit firm to familiarize themselves with DSB. Based on the evaluation of the proposals and the analysis completed, it is the recommendation of the Finance and Administration department that Freelandt Caldwell Reilly be appointed as the auditors for the Manitoulin-Sudbury DSB.