Florida Attorney General Pam Bondi has ruled that the original request for proposal (RFP) for an audit firm that was created by City Finance Director Dick Barker and found to be defective could not be made valid by an approval by the council’s audit committee. See Bondi letter.
The selection process for a CPA firm to audit the City of Pensacola’s financial statements was filled with controversy–council challenges, tie votes, protests, a motion to reconsider and now this opinion from the attorney general that says the initial RFP was invalid and not fixed by votes of the council or audit committee.
The audit committee is required by law to create the RFP for the annual financial audit. Instead Barker did and created the factors to be used in evaluating the audit services. Since only the audit committee can do that, the RFP was invalid. Once the RFP was issued, the audit committee couldn’t simply make it valid by approving the RFP factors after the fact.
The RFP prepared by Barker, who has been the city’s CFO for over an decade, had other inaccurate information regarding the city’s authority relating to the audit selection process. Bondi didn’t rule on the impact of those irregularities and misstatement of fact because her office does not comment upon the provisions of local codes or contracts.
COUNCIL QUESTIONS PROCESS
The audit issue came to light when Councilwoman Maren Deweese brought up the audit committee the Pensacola City Council’s May 7 Committee of the Whole meeting.
At issue was the composition of the city’s audit selection committee, as well as the RFP process. DeWeese argued that the committee—not solely city staff—should have input into the RFPs and also felt that the committee’s composition should be reevaluated.
“It’s for us to appoint the entire committee, it is our decision,” the councilwoman said. “This is a legislative function.”
In February, the city council had approved selecting an external auditor and the RFP process. At that time, no one on the council challenged this. The process recommended to the council was essentially the one adopted back in March 2007. The audit process was ratified again in September 2010. The council voted in February 2012 that the audit selection committee was to be comprised of a council member, the city’s chief financial officer, a member of city staff and a citizen appointed by the mayor. The RFP was similar to the one used in 2007.
Prior to the May 7 meeting, DeWeese had laid out her argument in a series of letters to city administration. She contended that the current committee composition could potentially present a “taint to the auditor selection process” and requested that the RFP process, which began at the end of March and wrapped up earlier this month, be reassessed.
“If the process moves forward before council takes up the issue, I consider this to be an example of management override of internal controls …” DeWeese wrote.
In a May 7 letter to the council, City Administrator Bill Reynolds wrote that DeWeese was correct that the “audit selection committee should have input into the requirements of the RFP per state law,” but said “all substantive elements that the statute outlines are included in the RFP. The procedural defect in the action as outlined by the councilwoman can be easily cured by having the constituted committee ratify the actions previously taken.”
Messer agreed with Reynolds and told the council that it could remedy the situation by ratifying past actions.
Several council members didn’t appear willing to bless the already-commenced RFP process and instead favored starting over the process with a new RFP.
“Basically, we did not follow our policy, is that correct?” said Councilman Larry B. Johnson.
“Most of the requirements of the law have been followed,” Messer said. “However, if you’re asking me if all the requirements of the law have been followed, then no.”
“If we don’t ratify it as you just said, we’re really setting ourselves up for a legal challenge,” Johnson said, anticipating responses from firms already engaged in the RFP process.
“What I’m saying is, we don’t know that yet,” Messer said, adding that such an issue could be avoided by ratification.
In the end, the council decided to scrap the audit committee composition that it had approved in three months earlier and to place two city council members, two citizens and a CPA each to be appointed by the council on the audit committee.
CART BEFORE THE HORSE…RFP BEFORE COMMITTEE
This Attorney General ruled that audit committee may not ratify or approve the action taken by Barker. A later vote could not validate the defective request for proposals.
To support his May 7 advice to the city council, City Attorney Messer had cited the case Frankenmuth Mutual Insurance v. Magaha. In that case involving Escambia County Clerk of Court Ernie Lee Magaha, the Florida Supreme Court considered whether the county commission could ratify a contract that Magaha had executed without authority. The Court determined the Escambia County Commission had the power to approved the agreement after it was executed.
Bondi determined the Frankenmuth ruling didn’t apply because of the special statutory requirements placed on the audit committee. She wrote, “It is questionable, moreover, whether the audit committee’s statutorily prescribed functions may be delegated to the financial officer. Absent statutory authority, the discretionary authority of a public official or entity may not be delegated to a subordinate.”
In other words, Barker never had the authority to create the RFP. It was the duty of the audit committee. Attorney General Pam Bondi disagreed with City Attorney Jim Messer’s remedy (which was to have the audit committee vote to ratify the RFP). Barker should have waited on the RFP and got the audit committee’s approval before sending it out.
PROTEST OVER SECOND AUDIT COMMITTEE
The new audit committee–comprised of former council member Diane Mack, Council President Sam Hall, City Councilwoman Megan Pratt, Max Watson, Lara McKnight and Scott Egstad (CPA) –met on June 4. The third citizen ended up on the committee because the city council could not decide between adding Watson or McKnight. Having a six-member committee as opposed to the original five-member posed a problem later.
Diane Mack was the chairperson and Hall was a no-show for the June 4 meeting. Saltmarsh, Cleaveland & Gund, who was the auditor for the previous five years, and Warren Averett O’Sullivan Creel tied for first with identical scores of 10.
To help break the tie, Mack had each member discuss their reasons for their picks. After that discussion, a motion was made and seconded to rank firm, previously as O’Sullivan Creel prior to its merger with Warren Averett in January, in first place, Saltmarsh in second. It passed unanimously.
Four days later, Saltmarsh filed a protest with the city. The firm pointed out that it had the highest raw score of points assigned by the selection committee —Salmarsh 457 to O’Sullican 453. Saltmarsh also questioned Mack’s process for breaking the tie.
On June 19, the audit committee met again. Mack wanted to re-rank the list and make Saltmarsh the first pick. The vote on the change ended in a tie — Hall, Pratt and Mack in favor of the new ranking, Watson, McKnight and Egstad voted against it. The tie vote meant the original vote recommending O’Sullivan stood. The six-member committee gave the selection committee no one to break the tie.
COUNCIL REJECTS RECOMMENDATION
At its July 16 Committee of the Whole meeting, the Pensacola City Council rejected the audit selection committee’s selection and instead gave Saltmarsh a one-year contract extension. The item went on the July 19 council meeting as a consent item. Both Myers and Deweese expressed concerns regarding possible legal ramifications regarding a continuation of the old contract with Saltmarsh for another year. The one-year contract extension for Saltmarsh passed 8-0, with Johnson absent for the vote.
At the council’s August 9 meeting, Ann Regan, who covered the audit selection for Pensacola Digest, challenged the illegality of the Saltmarsh contract because she believed the process didn’t follow state statutes. She urged the council to go back and negotiate with one of the two firms.
During the Unfinished Business part of the meeting, Councilwoman Sherri Myers made a motion to reconsider the audit firm. City Administrator Reynolds informed the council that Saltmarsh had already signed the contract and was scheduled to begin auditing services the next day.
The motion to reconsider -which is non-debatable- failed 3-4. Deweese, Myers and Pratt on the losing side. Jerralds and Johnson were absent for the vote.
It will be interesting to see if the Pensacola City Council throws out the Saltmarsh contract and starts the process over with a new audit selection committee. It’s probably too late to do so because the fiscal year ends on Sept. 30.