Focusing the Audit

Subcommittee meets to give scope – and a budget – to the forensic audit By Eric Johnson Members of the Forensic Audit Subcommittee spent much of their first meeting determining the proper scope of the audit so that the firms wanting to bid on the job have some idea what they’re bidding on. They also discussed the potential expenses of the audit as well as the reasons for doing one. The subcommittee was created when bidders for the forensic audit, which was voted on last December when commissioners expressed uneasiness over the details of theTEECenter’s parking deck, voiced questions about the audit’s budget and scope. Procurement Director Geri Sams sent out request for proposals to 106 companies. Of that 106, 18 attended the mandatory pre-bid conference and the city received 86 questions about the forensic audit, mainly about the budget. Similar municipalities spent from $85,000 to $250,000 for a forensic audit, Sams said. Over the last four years, the government-wide external audit – a much simpler financial audit – averaged $190,000 while internal audits were funded on a project by project basis, where the CPA charges between $150 and $200 an hour. Commissioner Bill Lockett, who is the chairman of the subcommittee, said he conducted some research a few months ago and insisted that there is not a great difference between the cost of a forensic audit and a regular audit. He figured $200,000 ought to represent a ballpark figure to recommend to the commission. Whether the commission will agree to spend that much on a forensic audit is doubtful, especially given the cautionary tone taken by the staff members assigned to the subcommittee, who spent much of the time instructing the commissioners on the finer points of forensic audits. Finance Director Donna Williams in particular emphasized restraint, pointing out that the differences between financial audits, which use one firm, and a forensic audit, which looks at every transaction, can be considerable. “With a forensic audit, the firm that is engaged will be utilizing the resources of – and asking questions of – any parties that were involved in the deal,” she said. And that can be costly. For example: the bonding attorneys. “Those guys bill out at a substantially higher rate than any CPA that we’ve ever dealt with,” she said. “We would be incurring those over and above the scope you set for the forensic audit.” In other words, if the commission allocated $200,000 to a firm to conduct a forensic audit, there would be significant additional costs. She recommended that if they wanted to cap the initial cost at $200,000, 40 to 50 percent of that should be designated to the firm with the remainder left to the expenses of the people they would have to use in order to do their investigation. “You need to be cognizant of the fact that just because select firm XYZ to conduct this investigation, that’s not going to be the only expense,” Williams said. Though staff members recommended narrowing the scope of the forensic audit, Lockett seemed to feel limiting the audit to theTEECenterparking deck was narrow enough. He also seemed to feel the additional costs wouldn’t be assessed to the city. “With these outside attorneys that you are paying these big bucks to – they should have a paper trail of what they’ve done and we shouldn’t have to pay them any more at all,” he said, at which point attorney Wayne Brown, who was representing general council Andrew MacKenzie, put his head in his hands. “Okay,” he said patiently. “You can make that demand, but it’s not gong to be honored, and it’s not appropriate. These are professionals and professionals are paid for all the time that they take in a transaction.” That means that just because it’s a forensic audit doesn’t mean the outside agencies aren’t going to bill you for whatever time they’re forced to spend answering questions and compiling information. Most likely, they’ll be paid the same rate to participate in the audit as they were paid to participate in the original transaction. Brown also tried to pin Lockett down on what he was searching for with the forensic audit. “Honestly,” he said when discussion turned to the management contract portion of the issue. “Why is it that it should be looked at? What is the suspicion?” “My suspicion is that we’re not getting our fair share of the proceeds,” Lockett said. “If we’re not getting our fair share from the money, why would you thing that arrangement would ever be set up?” Brown asked. “Because of what I’ve been preaching for the last six months,” Lockett said. “We need a professional contract person because we’re giving away city assets because we don’t have people versed in how to give a contract.” “Do you think that’s bad management or do you think there’s fraud connected to that?” Brown asked. “Do I have to answer that?” “No, but I’m simply saying that if you think there’s fraud, you should have a forensic audit,” he said. “If you think it’s poor management, it would not be the subject matter of a forensic audit.” “Sometimes, you know, management can be so poor that you think it has to be criminal,” Lockett said. The committee meets next on May 29, with the pre-bid conference with the vendors moved to mid-June.You Might Also Like: