the cost of external audits for montreal’s books has skyrocketed
the same firm has done the work since 2002, which is "not a healthy situation," the ensemble montréal opposition party says.
sep 11 2024
5 minute read
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montreal is set to award a $7.48-million contract to audit its books to the same firm that has been winning the contract since the 2002 municipal mergers, and the price this time is nearly double that of the last one.
the contract to the accounting firm deloitte, which was approved by montreal’s city executive committee on wednesday, raises concerns for city council’s contracts committee, whose members grilled municipal finance department officials about it at an in-camera meeting last week.
in a report made public on wednesday, the contracts committee recommends the finance department “study and implement measures to promote and facilitate the rotation of contractors who audit the city’s financial statements.”
the previous three-year contract awarded to deloitte, which has been the sole bidder for the work since 2017 and was one of two bidders in the years before that, was for $4.4 million in 2020.
the new contract will go to city council and the island-wide agglomeration council for final approval later this month.
“best practices suggest that you get other bidders,” said st-laurent borough mayor alan desousa , a chartered accountant and member of the opposition ensemble montréal party. he’s not on the council contracts committee.
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“it is not a healthy situation where you have the same auditor … for 22 years. in the corporate world, they suggest that every five years you rotate your auditor. this is not the corporate world, but obviously the same principle applies.”
the rotation principle exists, desousa added, to ensure an auditor’s independence from their client.
montreal extended the $4.4-million contract awarded in 2020 by one year — to 2023 — and awarded a series of top-ups for unforeseen expenses. as a result, the contract wound up costing montreal $7.44 million.
deloitte’s bid for the new three-year contract to audit the city’s financial statements for 2024, 2025 and 2026 was $7.48 million. with taxes and contingencies, the total value of the new contract comes to $8.2 million.
the office of mayor valérie plante , whose projet montréal party has been in power since november 2017, referred questions about the contract to the city’s corporate communications. the city said through a spokesperson that despite the single bid, it had made an effort to stimulate the market. it also noted that the council contracts committee found the tendering process was compliant.
“the pool of accounting firms with the capacity to deliver such an audit mandate is not very large,” spokesperson gonzalo nunez said in an email wednesday evening. “many firms do not have the necessary experience or expertise, others do not have enough time or resources to devote to the execution of the contract, while some may consider that the degree of risk and responsibility involved in the contract is too great. let us also add that some firms do not have teams that can execute the mandate in french.”
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the city’s response also noted that chartered professional accountant fees are governed by the code of ethics of their professional order and that montreal is a large and complex organization. new accounting standards in place since 2023 and new standards coming into force now also require additional work, a degree of risk and liability, and specialized knowledge, it added.
“given these elements, the city considers that the fees submitted by the firm, including the indexation rate, are reasonable,” nunez wrote.
one reason cited for the top-ups on the previous contract was that a change in legislation required the external auditors to perform audit work for all organizations included in the city’s accounting scope and for organizations where the city appoints more than half the members of the board of directors.
however, desousa said the city has also been late in providing documents to the auditors and delayed their work. so while he’s concerned there’s an explosion in cost because the city received only one bid, he said, “it could also be that the city is partly to blame for the increase in the bid.”
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in 2017, montreal awarded the external audit contract to deloitte for $1.4 million. that was roughly the same price as its previous contracts for the same work going back to 2010, when the firm was samson bélair/deloitte & touche.
however, the scope of the previous contracts, including the one awarded in 2020, included the audit of the financial statements of the société de transport de montréal . the city removed the stm portion from the $7.48-million contract approved on wednesday.
the stm has gone to public tenders to award a separate contract to audit its financial statements for 2024, 2025 and 2026. the deadline for bids is sept. 24.
“to compare apples and apples, you will need to take the city contract and the stm contract and compare it to the previous contract, because the previous contract included both,” desousa said.
in the municipal world, contract awarding rules bar any accounting firm that gets consulting contracts from the city to get the contract to perform the external audit, since the firm is considered to be in a conflict of interest.
that explains why one firm chose not to bid on the external audit contract, the civil service report prepared by montreal’s finance department on the latest contract says.
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a second firm that picked up the call for tenders package but didn’t submit a bid said there wasn’t enough time to bid. the city issued the call for tenders on june 25 and the deadline was 34 days later.
another firm that picked up the tendering package but didn’t submit a bid said it wouldn’t be able to complete the work for the city on time because of other project commitments. and still another firm said it didn’t have the necessary resources to take on the contract.
the civil service report notes that deloitte’s bid was vetted by a selection committee and scored 80.7 per cent.
the report also notes that while the stm has been removed from the scope of the new contract, the office de consultation publique de montréal has been added .
the city’s internal estimate for the latest contract was $8.96 million, which nunez said factors in the new accounting standards. however, desousa called the estimate “surprising.”
“the previous (contract) was $4 million, the latest one is $7 million and the city’s estimate is $9 million,” he said.
“and that’s excluding the stm. i don’t know what justifies the huge increase.”
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