Procuring Quality Audit Services Through the RFP Process
Regardless of the type or size of your government, there are many advantages to having a high quality audit of your government’s financial statements. High quality audits can result in increased accountability over government programs and long-term improvements in public confidence in government. In addition, high quality audits can result in recommendations for immediate improvements in management operations and systems of internal controls.
Taking the time to choose a quality auditor will likely be rewarded by a smooth, timely and comprehensive audit. It can also help to avoid wasting the taxpayers’ money on a substandard audit. Since the mid-1980s, substandard government audit work performed by CPAs has concerned the United States General Accounting Office (GAO) and the American Institute of Certified Public Accountants (AICPA). The GAO concluded that the substandard work could be attributed to CPAs unfamiliar with government standards and poor procurement procedures that did not stress professional qualifications and competence.
Selecting a qualified auditor can be a very subjective process involving several factors. Price alone should not be the sole determinate when procuring audit services. As stated in the Government Finance Officers Association’s (GFOA) publication An Elected Official’s Guide to Auditing, “a poor quality audit is no bargain, at any price." Government Auditing Standards issued by the GAO recommend that a government should, in addition to price, consider the responsiveness of the proposer to the request for proposal, past experience, professional qualifications and technical abilities, and results of the proposer’s external quality control reviews.
There is much guidance available to assist your government in procuring and administering a quality audit. In particular, there are in-depth literature and tools available from the GFOA, including a model audit RFP on CD. There is also a comprehensive guide published by the Mid-America Intergovernmental Audit Forum titled Selecting an External Auditor, which outlines the following five-step process for procuring and administering your independent audit:
- Planning: determine what needs to be done and when
- Communicating Audit Requirements and Soliciting Proposals: writing a clear and direct solicitation document and disseminating it widely
- Selecting a Qualified Auditor: authorizing a committee of knowledgeable persons to evaluate the ability of prospective auditors to effectively carry out the audit
- Writing the Agreement: documenting the expectations of both the entity and the auditor
- Monitoring the Audit: periodically reviewing the progress of that performance
All five steps in this process are essential. However, communicating the audit requirements and soliciting proposals is extremely important. The following is a summary of the recommendations provided in the Mid-America Intergovernmental Audit Forum’s guide.
Communicating Audit Requirements and Soliciting Proposals
Encouraging as many qualified audit firms as possible to submit their proposals for auditing your government increases the likelihood that a quality audit will be performed at a fair price. The objective of this step is to communicate your government’s audit needs to the potential proposers. This step is critical, because proposers who do not clearly understand exactly what services your government needs might not respond, or may respond incorrectly.
There are many ways to solicit bids for an audit, but the most reliable method is a written request for proposal (RFP). An RFP should be clearly written, set forth all terms, conditions, and evaluation criteria as well as the scope of the work required. The RFP should be sufficiently well-distributed and publicized to ensure full and open competition.
The use of an audit committee is advisable when writing an RFP. Committee members should have a clear understanding of both the audit function and your government’s audit needs.
Essential Elements of an RFP
The prime consideration in preparing an RFP is that it contains enough information to provide proposers with a common basis by which to prepare proposals that address all audit needs. At a minimum, the RFP should contain the following:
- Name and address of the government issuing the RFP
- Name, address, title and telephone number of person to contact regarding questions
- Response due date and time deadline
- Number of copies of response
- Contract period (clarify if this is a multi-year contract proposal)
- Specific location and method of delivery of response
Description of your government, records to be audited and nature of services:
- Explain the work that your government does (for example, general purpose government, water precinct, school district)
- Explain what is to be audited (for example, general purpose financial statements or a list of all funds. Note that RSA 21-J:19 requires that contracts with independent auditors “…shall stipulate that all accounts and funds of the governmental unit shall be audited…." An audit of “only the general fund" for example, is not permissible under this statute)
- Describe your government’s accounting system, administrative controls, records and procedures
- Identify the appropriate auditing standards
- Inform prospective proposers if data from prior years (audit reports and management letters) will be available
- Describe expected audit products and the required format of the audit report
- Inform prospective proposers whether the Single Audit Act applies to the audit
- Explain any assistance that your organization will offer, such as staff support to assist the auditor (which could materially reduce your audit cost)
- Outline the expected schedule of work
A well-prepared RFP will elicit certain information from prospective auditors to help you make your decision. For example, it will ask prospective auditors to state:
- How they would conduct the audit and, if it were a multi-year contract, how they would approach the work efforts of the subsequent year(s)
- Their qualifications, those of their local office, if applicable, and those of the proposed audit staff, including their government auditing experience
- Whether they meet appropriate state licensing requirements
- Their policies on notification of changes in key personnel
- Whether the proposed staff have received continuing professional education in governmental accounting and auditing during the past two years
- Whether they are independent, as defined by applicable auditing standards
- That they have not been suspended or debarred from performing government audits
- Whether they have received a positive peer review within the last three years
- Their audit fees
Although this outline provides an excellent starting point for your government’s procurement, you must ensure that the RFP complies with state law and any specific municipal charter provisions, if applicable. The RFP must describe the proposed scope of work and contract conditions that will meet the needs of your government.
When you take the time to prepare a thoughtful RFP, tailored to your government’s needs, you will be well on your way to achieving your goal of procuring quality audit services.
Daniel M. Sullivan, CPA, is a partner with the firm of Sullivan, Rogers & Company, LLC.