FAIRHOPE, Ala. — The accounting firm that has audited Fairhope’s financial records for almost 20 consecutive years has been selected by Mayor Tim Kant to do the city’s books again and without a competitive bid process, a city employee said.

Earlier this year, Kant chose Hartmann, Blackmon and Kilgore P.C. to conduct the legally-required annual independent audit of Fairhope’s financial statements for the fiscal year ending Sept. 30, said Rose Fogarty, city financial reporting manager. Kant signed the contract with the auditing firm on Aug. 15, according to city records.

The HB&K firm conducted the audit last year, as it has done for each year of Kant’s two four-year terms and during several preceding terms of former Mayor Jim Nix.

During the 2008 election cycle, Xavier Hartmann III, the lead partner in the accounting firm, contributed $1,000 to Kant’s reelection campaign, according to campaign finance reports. During the 2004 cycle, Patricia Hartmann, at the same Fairhope address, contributed $500 to Kant’s first reelection campaign. He was first elected mayor in 2000.

Kant faces Dean Mosher in an Oct. 7 runoff for mayor.

“(They) have been doing the audit since 1990,” Fogarty said this week. “(The) 2007 audit fees, including city and utility audits and single audit of government grants and reimbursements, was $57,520.”

Fogarty said the audit contract with HB&K had not been competitively bid during her approximately 12 years with the city.

“I don’t see the need to change (auditors) unless I’m shown that we’re being charged too much,” Kant said Friday. “They shouldn’t just be fired unless I’m shown they’re not doing a good job. I look at like it having a family doctor. You don’t change doctors just because you can save a few dollars down the street. I have a lot of respect for HBK.”

Fogarty said the city is not legally required to put the audit out to bid, because it is designated as a “professional services” contract, nor is there any legal requirement for cities like Fairhope to rotate auditors.

“There is something to be said for continuity,” Fogarty said.

She said there are few local accounting firms with the requisite governmental accounting expertise and that HB&K rotates the accountants and offices within its company to do the city’s audit in order to maintain the integrity and independence of the audit.

“Well, personally I believe any professional firm that provides a quality service such as an accounting, attorney or engineering firm should continue to be used,” Kant said. “I like to use these firms that are located in Fairhope. So far they (HBK) have done a good job. They do change principal accountants every three years.”

Stephen Gauthier, director of technical services at the Government Finance Officers Association, said the complexity of governmental accounting is the reason that the organization’s Recommended Practice regarding audit procurement does not recommend a mandatory rotation of accounting firms as is done in private industry.

“The auditing rules are significantly more complicated, requiring a high degree of expertise by the accounting firm,” said Gauthier, the author of a book on governmental accounting, auditing and financial reporting. “However, we absolutely recommend a full-scale competitive bid process.”

The GFOA also recommends against the automatic renewal of audit contracts, he said.

According to the GFOA Recommended Practice for auditor procurement, audits that are properly performed preserve the integrity of the public finance functions and maintain citizens’ confidence in their elected leaders.

Mosher, who faces Kant in the Oct. 7 runoff for mayor, said the city should change how it hires its auditing firm.

“Certainly, my administration would agree with the recommendation of the GFOA in that audit services should be bid out,” Mosher said. “In fact, as our sister city, Mobile, does we would set as policy, a five-year rotation of audit firms. This policy would protect both the city and the firms themselves from any appearance of improprieties.”

In most Alabama cities, state law requires the mayor to appoint a private or government accounting firm to audit the city’s basic financial statements. (See Relevant Law sidebar below.) Those contracts, as professional service contracts are exempt from state bid law, said Lori Lein, an attorney with the Alabama League of Municipalities.

“But certainly they can be bid voluntarily by a city,” she said.

In Mobile, however, unlike in most cities, a separate state statute requires that the audit “shall not be made more than five years in succession by the same accountant.”

That statute applies to Class 2 municipalities of which Mobile is the only city with that classification, said Flo Kessler, Mobile’s chief assistant city attorney.

“The auditor that just completed the audit cannot submit (a bid),” said Patricia Aldrich, comptroller of Mobile. “They’re prohibited. They have to wait out the next cycle.”

Aldrich said the city goes through a competitive bid process to select its auditor and is currently going through that five-year process.

“I understand from the accountants around here that (rotating the auditors) is a kind of standard accounting rule,” Kessler said. “It’s so you get another pair of eyes on (the financial statements). ”

City Councilwoman Debbie Quinn said the issue of changing city auditors came up in 2003.

“We had quite a heated discussion at that time,” Quinn said. “But the mayor said it was his prerogative to select the auditor, and he wasn’t going to be making any changes.”

Kant said Friday that the council is able to engage a second audit if it is not satisfied with the auditor he selected.

“Certainly they can do that, because the council is ultimately in charge of the finances of the city,” Lein said.

Relevant Alabama law

Section 11-43-85

Appointment, etc., of accountant, etc., to conduct examination and prepare report as to municipal books and accounts.

In cities and towns, the mayor, at least once a year, shall appoint an independent public accountant or the department of examiners of public accounts to conduct an examination in accordance with generally accepted auditing standards of all books and accounts of the city or town since the preceding examination and to make a full report thereof in writing, under oath, to be submitted to the council at its first meeting after the completion of such report, and the same shall be spread upon the minutes of the council. For his services said independent public accountant or the department of examiners of public accounts shall be paid such sum as may be agreed upon.

Section 11-44C-31 (Applies only to the city of Mobile)

Monthly statement of receipts and expenses; annual examination of books and accounts.

The mayor shall each month print a detailed statement of all receipts and expenses of the city, and shall furnish printed copies thereof to the daily newspapers of the city, other members of the news media of the city, and to persons who apply for copies. At the end of each year, the mayor shall cause a full and complete examination of all the books and accounts of the city to be made by a certified public accountant, or by the state examiners, and shall cause the result of the examination to be published in the same manner as provided above for publication of statements of monthly expenditures. The examination shall not be made more than five years in succession by the same accountant.

GFOA Recommended Practice: Audit Procurement (1996 and 2002)

The Government Finance Officers Association has long recommended that state and local governmental entities obtain independent audits of their financial statements performed in accordance with the appropriate professional auditing standards. Properly performed audits play a vital role in the public sector by helping to preserve the integrity of of the public finance functions and by maintaining citizens’ confidence in the their elected leaders.

Governmental entities should undertake a full-scale competitive process for the selection of independent auditors at the end of the term of each audit contract, consistent with applicable legal requirements. Ideally, auditor independence would be enhanced by a policy requiring that the independent auditor be replaced at the end of the audit contract, as is often the case in the private sector. Unfortunately, the frequent lack of competition among audit firms fully qualified to perform public-sector audits could make a policy of mandatory auditor rotation counterproductive. In such cases, it is recommended that a governmental entity actively seek the participation of all qualified firms, including the current auditors, assuming that the past performance of the current auditors has proven satisfactory. Except in cases where a multiyear agreement has taken the form of a series of single-year contracts, a contractual provision for the automatic renewal of the audit contract (e.g., an automatic second term for the auditor upon satisfactory performance) is inconsistent with this recommendation.