01-02-2001 - Finance Department Management Revieww
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City of West Covina
Memorandum
AGENDA
ITEM NO.: I-1
DATE: January 2, 2001
To: Daniel G. Hobbs
City Manager
From: Severo Esquivel
Financial Management Consultant
SUBJECT: FINANCE DEPARTMENT MANAGEMENT REVIEW
SUMMARY:
Recommendation: Authorize the City Manager to negotiate a supplemental agreement
with the City's independent auditor, Caporicci, Cropper and Larson LLC (CC&L), to
conduct a Managerial Review as described herein and to provide specific
recommendations, not to exceed $20,000. Appropriate $13,500 from the Non -
departmental City Council Reserve Account (110-320-2640-6900) and $4,500 from
General Fund, Fund Balance to Other Contractual Services (110-320-2530-6120).
Fiscal Impact: The initial scope of work has been discussed with CC&L. They have
estimated a cost in the range of $25,000 to $40,000, due primarily to field work of two
senior auditors on site full-time for a period of three weeks followed by analysis, write-up
and administrative work over a 90-day period. The City Manager would prefer to stay
under $20,000 and will negotiate the final scope of work and terms. The funds will come
from the Non -departmental City Council Reserve Account ($13,500), which will exhaust
the available funds from this account, and from the General Fund, Fund Balance
(4,500).
Prior Related Action(s): October 17, 2000 Council agenda item #C-7g (attached) to
engage the services of the Financial Management Consultant.
BACKGROUND:
On October 17, 2000, you reported to the City Council a need to strengthen the financial
management of the Finance Department. In summary, the major issues identified at that
time were:
• Staff turnover over the last several years;
• Insufficient number of financial executives;
• Designing and installing a new financial management system;
• Continuing budget challenges; and
• The unmet need to provide more timely financial management information and
assistance to the organization.
Specific expectations, over a period of twelve months, included the following:
a) Assist with annual closing of the books in a more timely fashion.
b) Assist with quality control of the final FY 2000/01 budget printing.
c) Assist with departmental division supervision, insuring satisfactory functioning of
Finance operations, including Treasury, Purchasing, Accounting, Print Shop and
other.
d) Assess what is needed to insure successful implementation of the new SCI software
system.
e) Insure that two page monthly budget reports are provided to the City Manager.
f) Insure that a brief, clear quarterly budget report is provided to the City Council.
g) Improve the accuracy and timeliness of financial information to the City departments.
To Daniel G. Hobbs 0
Finance Department Management Review
Page 2
h) Increase the responsiveness of the Finance department to information and assistance
requests from the City departments.
i) Insure the timely submission of all reports to agencies.
j) Insure the timely submission of the GFOA, CAFR and Budget applications.
k) Provide the numbers for the completion of the Financial Trends Monitoring System.
1) Insure the completion of the Finance Department's Standard Operating Procedures
Manual.
m) Initiate appropriate data gathering for the preparation of the FY 2001/2002 budget.
DISCUSSION:
In the past sixty days, the following progress has been made on those items:
• Several staff positions have been filled permanently (e.g., payroll clerk, two
computer technicians) and temporarily (acting Controller, part-time purchasing
assistant/part-time clerical). The only remaining vacancies are the permanent
Controller and the newly classified Purchasing Manager. Additionally, the
Finance Director has been on self initiated medical leave.
• The FY 2000 books have been closed in preparation for the audit.
• The field audit work was successfully completed and the final audit is on schedule
for completion (RDA by December 31, 2000) and Comprehensive Annual
Financial Report (CAFR) by the end of February 2001, which is ahead of the
deadline. The City's independent auditors, CC&L, was complimentary on the
work done to complete the audit this year and said it was much better than last
year's.
• The FY 2001 Final Budget production and printing was completed and distributed
on December 6, 2000.
• Application for the annual GFOA Budget Presentation Award was submitted
ahead of schedule.
• We have expedited progress on completion of the Systems Consultants
Incorporation (SCI) payroll module which has been held up primarily due to the
complex Cal-PERS formulae, a change of staff at SCI and the City's staff
shortages. In November we discovered the lack of progress and initiated
interaction with SCI top management. Staff and I have participated in several
teleconferences. This is the last remaining major module in the SCI financial
system. The Financial module is fully implemented though staff has not begun to
fully utilize its potential due to factors such as lack of staff time and training. A
more detailed report on the SCI will be prepared for a later Council agenda.
• A monthly budget report to the City Manager has been implemented, though it
needs analysis and comment plus interaction with the department directors.
• A quarterly report is being prepared.
• Progress has been made on the Finance Department's responsiveness to other
departments; additional operational procedures and standards are being worked
on.
• The Financial Trends Monitoring System data is being prepared and the Standard
Operating Procedures Manual (SOPM) initial draft material has been provided to
Bill Kirchhoff. The Payroll section of the SOPM has been completed.
• Initial preparation for the FY 2001/2002 budget has commenced and a draft
budget calendar has been circulated.
To Daniel G. Hobbs
Finance Department Management Review
Page 3
My assessment with the limited time available should not and must not be misconstrued
as an individual evaluation of the staff. I find much talent in the department. The
staffing needs to be supplemented with more executive and professional level staff. The
staff is hard working, dedicated to public service and loyal to the City. They need longer
term managerial direction, delegation of authority to do their jobs, some improved
business systems, training in the use of the new financial system, and training related to
their specific roles and duties along with cross -training to assist and back-up each other.
The original assignment did not contemplate the absence of the Director, so, much of my
time has been consumed by day to day operational and managerial duties that would be
performed by the Director. Additionally, we have found quite a number of unfinished
tasks and projects such as responses to requests from Council candidates for information,
backlog in some reports, reports due to other agencies, questions about SCI, computer
purchases and purchasing in general. Significant time has been spent in getting the SCI
project back on track.
Several additional tasks have occurred as well, including a response to computer
purchasing procedures. The PERS actuarial review and a Deferred Compensation
Request for Proposal are still in progress.
All of the above has limited the time for an in-depth managerial and organizational
review at this time or in the near term.
A major finding is the need to update the department's internal controls, cross training of
staff, delegation of authority, authorizations to access third party accounts and clear
definition of roles. There is a shortage of staff at the executive level, professional level
(e.g., accountants) and the para-professional level staff. I have discussed this with the
auditors who have identified similar issues in the past. A report was prepared by the
auditor on a similar subject a few years ago.
A Management Review by the auditors with a scope of work to be negotiated, would take
approximately 90 days after commencement, estimated to begin approximately on
February 1, 2001.
CONCLUSION:
I recommend that CC&L:
• Do a detailed organizational assessment of the department and identify staffing
needs.
• Provide a detailed analysis of current procedures for which they have observed
shortcomings during the recently completed audit. These included, but are not
limited to, the automatic preparation of schedules required for the annual audit
and the CAFR. This would entail a systems review and complete internal control
review.
• Improve procedures for the Accounts Payable and Accounts Receivables systems.
• Make recommendations for the accurate and timely (if not real time)
encumbrances of all purchases and contracts including a tie between contracts and
program payments; including ensuring against overpayment or overcommitment
of budgeted levels.
• Review the investment process and practice seeking means to improve, if
possible, the rate of return while ensuring safety and liquidity.
• Review cash management and longer term cash flow analysis ensuring that we
have timely, liquidity and transfers of funds, and stay fully invested within
reasonable tolerances.
To Daniel G. Hobbs • i
Finance Department Management Review
Page 4 is
• Complete review of the purchasing system, process and controls therefor. Also
assess the current decentralized purchasing practice as to efficacy, efficiency and
controls.
• Assess staff training and cross training to accomplish the various demands on the
limited human resources.
• Provide recommendations on the utilization of the SCI system which has
powerful reporting tools but is complex and may require more higher level staff
(i.e., professional accountants) and in depth training on the SCI system.
• Assess and make recommendations on other business systems in the department
(e.g., the cashiering systems and its tie-in with the financial system, the Capital
Improvement Program (CIP) and its financial accounting system and timely tie-in
with the financial system, the budget module and its tie-in, etc).
• Comment on the reasonableness of the City's current Administrative and
Overhead charge methodology which has been in place for over five years.
• Comment on the reasonableness of the City current charge -back methodology for
various internal services funds, such as the Equipment Replacement Fund; the
Self-insurance Fund, etc.
• Comment on the adequacy of the City Self -Insurance reserve posture.
• Assess the City's past practice of exclusive use of Dell Computers since 1994
which have been purchased by use of C-MAS, which was established to minimize
the need for additional Information Technology staff.
Severo Esquivel
Financial Management Consultant
Reviewed and approved by:
Artie Fie
Acting Finance Director
Mdelis does on 'Satum'/My documents/Memo/Finance Department Mgmt Review Sev's version
TO: City Council
FROM: City Manager
SUBJECT: Strengthening Financial Management
City of West Covina
Memorandum
AGENDA
ITEM NO. C-7-
DATE 10-17-00
I would like to take some steps to strengthen the financial management of the Finance
Department over the next six months. As you probably recognize, the department has been
challenged by the following:
• Staff turnover over the last several years;
• Insufficient number of financial executives;
• Designing and installing a new financial management system;
• . Continuing budget challenges.
• The unmet need to provide more timely financial management information and assistance to
the organization.
Here is what I plan to do:
1. I am recommending that the Council approve the hire of Mr. Severo Esquivel as the
Chief Financial Officer. In this capacity, he will assist with the financial management
leadership of the department and will position the department to cover the vacant
controller position.
Mr. Esquivel has previously held the title of Interim City Treasurer for the City of
Pomona. In addition, he has held a number of significant management positions,
including Deputy City Manager of San Diego. He recently retired from the City of
Pomona after seven years of successful service as City Manager. His references provided
high marks for his financial hands-on and oversight abilities.
The payment for Mr. Esquivel's services will be covered by the department's salary
savings from the vacant controller position; the department's consultant services line
item; and other vacancies in the department and in the general fund, if necessary.
Mr. Esquivel will be paid $70 per hour, for hours worked.- It is anticipated that he will
work 3 to 4 days a week, averaging 28 to 36 hours per week. He will be commuting
weekly from out of the area. His formal start date under this proposal and subject to City
Council approval will be November 13. If I can, I will start him earlier under a
consultant arrangement, not to exceed $10,000. This is driven by the fact that his formal
retirement from Pomona is not effective until November 11, 2000.
This option compares to other options such as:
• Utilizing the services of the principal of the city's audit firm for a rate of $100 per
hour.
• Utilizing the services of a temporary controller, who was interviewed and found quite
capable, for $85 to $90 per hour.
It is an incredibly difficult market in which to find the financial management assistance
needed by the city at an affordable price. As a point of comparison, the City had to
recently hire a senior planner from a consulting firm in order to cover several vacancies
in the planning department. The cost of that, approved by Council, was $79 per hour.
2. I am assigning Bill Kirchhoff the task of completing the update of the Finance
Department's Standard Operations Procedures Manual, while he continues his other
management oversight responsibilities in Public Services. This manual provides the
organization with a detailed read-out on what each position in the Finance department
does, and how it does it.
I expect the application and coordination of the above resources to accomplish the following:
a) Assist with the annual closing of the books in a more timely fashion.
b) Assist with quality control of the final FY 200001 budget printing.
c) Assist with departmental division supervision, insuring satisfactory-'fimctioning of Finance
operations, including Treasury, Purchasing, Accounting, Print Shop and other.
d) Assess what is needed to insure successful implementation of the new SCI software system.
e) Insure that 2 page monthly budget reports are provided to the City Manager.
f) Insure that a brief, clear quarterly budget report is provided to the City Council.
g) Improve the accuracy and timeliness of financial information to the city departments.
h) Increase the responsiveness of the Finance department to information and assistance requests
from the city departments.
i) Insure the timely submission of all reports to agencies.
j) Insure the timely submission of the GFOA CAFR and Budget applications.
k) Provide the numbers for the completion of the Financial Trends Monitoring System.
1) Insure the completion of the Finance Department's Standard Operating Procedures Manual.
m) Initiate appropriate data gathering for the preparation of the FY 2001-02 budget.
While achieving the above may be ambitious, I think we need to be clear on where we need to
go. If this approach does not accomplish the above, then I will look at alternate strategies.
This recognizes that the Finance department has undertaken a major department and
organizational initiative during the past year with the proposed transition to a new financial
management information system. The new system is not fully operational at this time. This has
absorbed significant departmental time and created difficulty in meeting all priorities in a timely
fashion.
Interim financial management assistance will help to cover the existing vacancy in the City
Controller position. The city has had trouble securing a number of qualified candidates for the
position the last two times out.
I have reviewed this matter with the City Attorney who indicates that the City's personnel rules
authorize a limited service appointment for personnel performing a part-time work schedule. His
examination of the City's Municipal Code and Personnel Rules and Regulations allow for this
type of temporary appointment.
It is anticipated that these services could be needed for the next year in order to make the needed
improvements and recruit the right people for any vacancies.
RECOMMENDATION:
It is recommended that the City Council authorize the employment of Mr. Severo Esquivel as a
Chief Financial Officer, as recommended by the City Manager, for a period ending December
31, 2001.
Daniel G. Hobbs
City Manager
Reviewed:
Arnold Alvar(
City Attorney
RFSUML (BIO) of SLYERO MUIIVRL
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