Laguna Beach City Council voted 4-1 to switch audit firms from Eide Bailly to Lance, Soll, and Lunghard (LSL) at its regular meeting on Tuesday, Aug. 13, one year before the current auditors’ contract expired.
Councilmember George Weiss voted against the move.
According to the staff report, Eide Bailly, the audit firm that has conducted the annual independent audit of the city’s financial statements for the past two years, failed to meet its Dec. 30 deadline. The firm’s tardiness prompted Assistant City Manager and Interim City Finance Officer Gavin Curran to terminate their contract.
“I did verbally communicate with Eide Bailly through a meeting, and I also followed up with an email indicating that we would no longer be proceeding with Eide Bailly going forward,” Curran told council. “I also let them know we would be issuing a request for proposals (RFP), which was a public RFP, and anyone could propose on that RFP.”
RFP’s were issued to new audit firms in mid-May. City staff then tasked the Citizen’s Audit Review and Investment Advisory Committee to conduct interviews, which it did Aug. 7, and make final recommendations to the City Council on Aug. 13.
RFP documents state the city is “considering a change in the auditor because the city had concerns about the quality of service provided by the previous audit firm.”
The documents also note that the current auditor, Eide Bailly, wasn’t invited to bid on the RFP.
Weiss said sticking with Eide Bailly was a no-brainer.
“You don’t change horses if they’re running okay,” said Weiss, who suggested the city stay with the current auditor since he was told it was a “verbal separation.”
“It was really the timing,” Curran said when asked why the city didn’t continue with Eide Bailly’s audit services. “They indicated that March was the soonest they could do it, and also the costs associated with that. They are $30,000 more than the five audit firms that proposed, so they would be the highest bidder.”
In the staff report summary, Eide Bailly told the city it would be unable to make the December deadline “for various reasons.”
However, some residents expressed concern that the audit findings were delayed due to internal struggles within the city finance department, including submitting financial statements late, which in turn caused the audit committee to miss its deadline.
“I find it highly irregular that he (Gavin Curran) unilaterally decided to fire these auditors for no other reason than that they couldn’t deliver by the end of the year. Could it also be that the numbers weren’t given to them until very late and it was impossible?” Resident Michele Monda said.
Mayor Sue Kempf, the audit committee liaison, said that after talking to Eide Bailly representatives last Friday, they conveyed that recent turnover within the city’s finance department affected their ability to submit financial statements in a timely manner.
Councilmember Bob Whalen said if he could rewind it all, he’d leave Eide Bailly in place, but since the city has already gone through the RFP process, they should take the Audit Committee’s recommendation and go with LSL.
“I think we’re in a tough spot,” Councilmember Bob Whalen said. “With all due respect to Gavin (Curran), we had a three-year contract (with Eide Bailly) that was awarded by council, and it shouldn’t have been terminated unilaterally by staff. That shouldn’t happen, but it did. Then, this process was unrolled and came back to the council for the first time tonight.
“I think we should recognize this wasn’t our finest moment,” Whalen continued. “This wasn’t a great process.”
Prior to selection, the recommended audit firm, LSL notified city staff that it can’t complete the 2023-24 audit until March 2025 due to its current schedule and client obligations.
“It is presumed the December delivery date was included in the RFP,” said Robin Hall, Laguna Beach resident and practicing CPA for about 50 years. “Meeting a December delivery for a first-year audit of a city that has not met a December delivery date for the past six years and has had significant reported findings in its prior audit reports is exceedingly unlikely.”
But, despite other bidding audit firms saying they could meet the December deadline, the audit committee felt that LSL was the strongest candidate for the city based on a review of the proposals, the firm’s size, the location of audit staff, and their overall performance during the interviews, according to the staff report.
During public comment, resident Gene Felder read an email exchange between him and the assistant city manager, Gavin Curran, who also became the acting city financial officer in April 2024.
“I asked, ‘Is it true that for six years, the city finance department did not complete a year-end audit on time, and that in 2023, the completed audit was over a year late,'” Felder said. “Assistant city manager Gavin Curran emailed me and answered, ‘Yes, that’s true.’ In the letter, I also asked, ‘Is it true that in 2024, assistant city manager Gavin Curran terminated Edie Bailly, who had been our auditor for two years, without consulting the city audit committee or the city council?’ The answer was, ‘The decision was made not to renew the contract following an audit planning meeting in April… (it) needed to be done quickly to make sure a new audit committee could be placed in time to have the ability to meet the December timeline.’ So that means the answer is yes.”
“The greater issue here is that financial controls need to be investigated so that this poor record is properly addressed,” Felder continued.
In the same agenda item, the city council unanimously approved up to $85,000 for audit firm Raftelis, partly coordinated by firm partner, local resident and former city manager Jan Perkins, to conduct a third-party performance review of its finance unit and related functions. The review is predicted to be finished in the next few months. Once complete, the recommendations will return to the City Council for further discussion.
Great article! The assistant City Manager should be disciplined for exceeding his authority!
The action taken by ACM Gavin Curran without input and approval from our internal Audit Committee or the approval to not move forward/terminate a contract approved by the City Council is alarming. This is a seasoned employee who should know better then to disregard our government authorities, processes and procedures. Agree, discipline is in order.
That said, why did four of our Council members agree to support the over-stepping action even though they acknowledged it was a mistake? There was no legitimate argument from ACM Curran nor City Manager Kiff as Municipality Requests for Proposals (RFP’s) are issued with the understanding that participation does not guarantee selections of those submitting bids. Period.
In this case, the ACM jumping the gun by making a unilateral decision is not reason enough for our Council to reject the existing Audit Firm that had performed their duties and in fact had expressed concerns about the staffing and functioning of our Finance Department. What kind of sound logic is this?
It is clear from this meeting discussion and the serious concerns addressed by several local finance expert residents that our Finance Department is in need of more supervision and direction. The FD staffing turnover-over rate in the last decade under the current supervision is a red flag. Begs the question – what else do we not yet know?
YES to a third party deep-dive financial audit and more City transparency CM Kiff. Thank you.
Who’s minding the store?
Rogue behavior and no rebuke? “With all due respect?”
In the real world, employees get fired for this kind of act.
And then the City Council majority agrees to support that behavior?!
If this is how the current City Council majority underperforms, it’s got to be time for a change.
To paraphrase a phrase – Insanity is voting for the same old candidates who control the City Council and then expect different results.
Over the last 10 years, 576 public officials in California have been convicted on federal corruption charges, according to Justice Department reports.
Maybe we’re not looking at the right stuff?