city of palo alto (id # 10773) policy and services

City of Palo Alto (ID # 10773) Policy and Services Committee Staff Report

Report Type: Action Items Meeting Date: 12/10/2019

City of Palo Alto

Summary Title: P&S Recommendation to Accept Status Updates of Audits

Title: Staff Recommends the Policy and Services Committee Recommend the City Council Accept the Status Updates of the Audits of; 1) Citywide Cash Handling and Travel Expense; 2) Cable Franchise and PEG Fees; 3) Continuous Monitoring: Overtime; 4) Continuous Monitoring: Payments

From: City Manager

Lead Department: Administrative Services Recommendation Staff Recommends the Policy and Services Committee Recommend the City Council Accept the Status Updates of the Audits of; 1) Citywide Cash Handling and Travel Expense; 2) Cable Franchise and PEG Fees; 3) Continuous Monitoring: Overtime; 4) Continuous Monitoring: Payments Background At its meeting on June 11, 2019, the Policy and Services Committee approved by a vote of 2-1 to recommended that the City Council accept the status reports (status updates as of April 2019). Since the item did not receive a unanimous vote it, per the City’s practice, this item was placed as an action item for City Council discussion. The City Council reviewed the item at its September 9 meeting (CMR: 10177). The Council voted 6-0 to accept the report. Discussion Since the September Council meeting staff has been focused on addressing the outstanding recommendations as summarized below.

https://www.cityofpaloalto.org/civicax/filebank/documents/73214

City of Palo Alto

Audit Status

Citywide Cash Handling and Travel Expense (issued 9/2010) Attachment B

Staff has implemented a new meals policy citywide, which is going into effect in December. This final recommendation is considered complete.

Cable Franchise and PEG Fee (issued 6/2016) Attachment A

The new agreement with the JPA and the Media Center on the use of PEG fees is being reviewed by the JPA agencies and the Media Center. Staff expects to bring the new agreement to the Council for approval in early 2020.

Continuous Monitoring: Payments (issued 4/2017) Attachment C

Staff is discussing alternative approaches to completing these recommendations with the City Auditor and expects to have these completed in early 2020. Additional updates are provided in the attachment.

Continuous Monitoring: Overtime (issued 9/2017) Attachment D

Staff is working with departments to develop a process to report overtime citywide and take corrective action as appropriate. Staff expects this recommendation to be closed in early 2020. Additional updates are provided in the attachment.

Stakeholder Engagement This report and the updates within have been coordinated with the City Auditor’s Office staffing. The roll out of citywide changes such as the new meals policy included two citywide training offerings to allow staff to be trained and engage with the new policy and provide feedback and areas for clarification prior to finalizing. Resource Impact The implementation of the audit recommendations thus far have been handled with existing resources limiting the pace of implementation as well as the absorption of additional duties and processes as requested in the findings. Policy Implications The implementation of the audit recommendations is consistent with existing city policies. Attachments:

• Attachment A: Cable Franchise and PEG Fees

• Attachment B: Citywide Cash Handling and Travel Expense

• Attachment C: Continuous Monitoring: Payments

• Attachment D: Continuous Monitoring: Overtime

Attachment A STATUS OF AUDIT RECOMMENDATIONS

CABLE FRANCHISE AND PEG FEE AUDIT – ISSUED 6/14/16

PAGE 1

The City Manager has agreed to take the following actions in response to the audit recommendations in this report. The City Manager will report

progress on implementation six months after the Council accepts the audit report, and every six months thereafter until all recommendations have been

implemented.

Recommendation

Responsible

Department(s) Original Target Date and Response Current Status

Implementation Update and Expected Completion Date

Finding 1: The Media Center did not restrict its use of $340,000 of annual PEG fees to capital expenditures as required by the federal Cable Act.

We recommend that the City Manager’s Office:

1.1 Consult with ASD, IT, the City Attorney’s Office, and Cable Joint Powers members to assess the need to continue collecting PEG fees and adjust the fee based on a demonstrated need for future capital expenses related to PEG access facilities or discontinue collecting the fee.

a. If it is determined that the PEG fee should be adjusted or discontinued, submit a staff report to the City Council with a recommendation to amend the Municipal Code to reflect the revised fee or to eliminate the requirement and recommend to the other Cable Joint Powers members that they do the same.

b. If it is determined that the PEG fee should continue to be collected:

• Amend the agreement with the Media Center to remove the requirement for the City to remit all PEG fees collected to the Media Center.

City Manager’s Office, ASD, IT, City Attorney’s Office

Concurrence: Agree

Target Date: 2017

Action Plan: Staff agrees that it should confirm the ongoing need for the PEG fee and ensure it is set at a level that is consistent with future capital needs. Staff will work with the City Attorney’s Office to develop a “capital cost” definition that eliminates any cost categories that could be construed as operating costs and will restrict the use of PEG fees to expenditures that meet this definition. Staff will also develop and adopt procedures that define the PEG fee distribution and reporting process. Staff will propose the appropriate revisions to the Municipal Code if it is determined that the PEG fee should be modified in any way.

In Progress December 2019 Management Update: Council will be presented with a new JPA/Media Center agreement in early 2020 after review by the Media Center and the JPA agencies. Expected Completion Date: Q1 2020 April 2019 Management Update: On 1/28/2019 Council directed staff to negotiate agreements to purchase the Media Center building with PEG fee revenue (CMR 9804). The City is working through development of the transaction terms with the Media Center and the Cable Joint Powers partners, and will return to Council for approvals. Expected Completion Date: 4QTR 2019 September 2018 Management Update: The Cable Joint Powers is evaluating the possible purchase the Media Center building over time using PEG fees, in order to dedicate the building to future PEG use and to maximize the benefit of PEG fee revenue for PEG capital costs. The City is discussing the terms of the building purchase agreement with the Media Center. In the meantime, PEG fees are being placed in a




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Recommendation

Responsible



• Coordinate with ASD, the City Attorney’s Office, and the Cable Joint Powers to develop and implement criteria for the use of PEG fees to ensure compliance with the federal Cable Act, and that the fees are set at a level appropriate for anticipated and necessary capital expenses.

• Place the PEG fees in a restricted account and distribute them based on City-approved capital expenditures that meet federal Cable Act requirements.

• Require that semi-annual documentation of expenditures be provided and adopt procedures to review the documentation to ensure that PEG fees are spent only as allowed by the federal Cable Act and take immediate corrective action as necessary.

restricted account only to be used for capital expenditures that meet Federal Cable Act requirements. Staff expects to provide an update on the status of the possible purchase of the Media Center building to the City Council before the end of 2018. Expected Completion Date: 1QTR 2019 March 2018 Management Update: Staff is working with the Cable Joint Powers and the Media Center to confirm the ongoing need for PEG fees. It is anticipated that PEG fee revenue will continue to be needed for appropriate capital equipment and building expenses. Effective 2016, PEG fees have been placed in a restricted account only to be used for capital expenditures that meet Federal Cable Act requirements. Procedures that define capital assets, and the PEG fee distribution and reporting process are under development. Expected Completion Date: 3QTR 2018

1.2 Consult with ASD, IT, the City Attorney’s Office, and the Cable Joint Powers on whether to allocate a portion of the unrestricted franchise fees or other funds, instead of restricted-use PEG fees, to subsidize the Media Center’s operations or to discontinue subsidizing the Media

City Manager’s Office, ASD, IT, City Attorney’s Office

Concurrence: Agree

Target Date: 2017

Action Plan:

Staff will consult with the Cable Joint Powers to determine if there is any interest in subsidizing the Media Center’s operations. Staff will propose

In Progress December 2019 Management Update: Council will be presented with a new JPA/Media Center agreement in early 2020. Expected Completion Date: Q1 2020 April 2019 Management Update: On 1/28/2019 Council directed staff to negotiate



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Recommendation

Responsible



Center’s operations. Based on the resulting recommendation, the City Manager’s Office should make recommendations to the Council regarding appropriate future funding, if any, for the Media Center.

recommendations to the City Council if needed.

agreements to purchase the Media Center building with PEG fee revenue (CMR 9804). The City is working through development of the transaction terms with the Media Center and the Cable Joint Powers partners, and will return to Council for approvals. Expected Completion Date: 4QTR 2019 September 2018 Management Update: The Cable Joint Powers prefers not to subsidize the Media Center operations with franchise fees or other funds. Instead, the City is pursuing the option of using PEG fees to purchase the Media Center building, thus providing the Media Center with funds to cover its operating costs. Expected Completion Date: 1QTR 2019 March 2018 Management Update: The City is exploring with the Media Center a proposal for the use of PEG fees to purchase the Media Center’s facility. Under this option, the JPA would use PEG fees for capital, enabling the Media Center to cover operational expenses. (Staff will report back to Council on the merits of this option in the spring/summer 2018 timeframe.) The Cable Joint Powers favors this option over using franchise fees or other funds to subsidize the Media Center’s operations. Expected Completion Date: 4QTR 2018




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Recommendation

Responsible



Finding 3: Roles and responsibilities for managing the City’s cable communications program are not clearly defined or assigned.

We recommend that the City Clerk and City Manager’s Office:

3.1. Confer and develop a recommendation for the City Council to assign responsibility for the City’s cable communications program and require the assigned department to provide appropriate program oversight to ensure that:

a. The City’s cable communications program objectives are aligned with the City’s goals and objectives.

b. The assigned department develops performance measures to demonstrate that the program is effective and is meeting the City’s goals and objectives.

c. There is effective oversight and management of the cable coordinator’s contract and activities.

City Manager’s Office, City Clerk

Concurrence: Agree

Target Date: 4Q 2016

Action Plan: Staff will determine where to assign responsibility for the City’s cable communications program/activities and propose the appropriate revisions to the Municipal Code. The responsible department will establish performance measures to ensure proper program administration and oversight.

In Progress December 2019 Management Update: Staff is in the process of transitioning cable responsibilities to the City Manager’s Office. Expected Completion Date: Q2 2020 April 2019 Management Update: The Administrative Services Department assumed responsibility for the City’s cable communications program on an interim basis. A permanent placement will be identified after the audit findings are fully implemented. Expected Completion Date: TBD September 2018 Management Update: Responsibility for the City’s cable communications program was transferred to the Administrative Service Department on an interim basis. After staff completes the implementation of the audit findings, it will determine where to assign final responsibility for the program. Expected Completion Date: 1QTR 2019 March 2018 Management Update: Staff is evaluating where to assign responsibility for the City’s cable communications program/activities and will propose the appropriate revisions to the Municipal Code.



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Recommendation

Responsible



Expected Completion Date: 4QTR 2018

3.2. Submit a draft ordinance to the Palo Alto City Council recommending revisions to the Palo Alto Municipal Code based on the revised assignment of roles and responsibilities.

Not Started December 2019 Management Update: Staff is in the process of transitioning cable responsibilities to the City Manager’s Office. Expected Completion Date: TBD April 2019 Management Update: Staff plans to propose revisions to the Municipal Code after it determines where final responsibility for the City’s cable communications program will reside. Expected Completion Date: TBD September 2018 Management Update: Staff will propose appropriate revisions to the Municipal Code after it determines where final responsibility for the City’s cable communications program will reside. Expected Completion Date: TBD April 2017 Management Update: Not started. Expected Completion Date: 4QTR 2018

Attachment B STATUS OF AUDIT RECOMMENDATIONS

CITYWIDE CASH HANDLING AND TRAVEL EXPENSE – ISSUED 9/15/10

PAGE 1

The City Manager has agreed to take the following actions in response to the audit recommendations in this report. The City Manager will report progress on

implementation six months after the Council accepts the audit report, and every six months thereafter until all recommendations have been implemented.

Recommendation Responsible Department Original Target Date and Response

Current Status


Finding 1: Stronger controls are needed for cash handling

Finding 2: Increased oversight and coordination can improve the employee travel expense process.

6. ASD should review the nighttime meeting reimbursement policy. If the City decides to maintain this practice, ASD should report the amounts as income on employee Form W-2s to conform to Internal Revenue Service requirements. In addition, ASD should review other types of meal expense to ensure any reportable amounts are included on employee Form W-2s.

Auditor’s Note: The City Auditor and Administrative Services Department staff met to discuss using federal per diem rates, which is a best practice, instead of requiring employees to provide meal receipts when traveling.

Administrative Services Department

Target Date Not Provided

ASD has determined that handling such reimbursements through payroll would involve significant staff time. Staff is developing a process that will comply with the IRS regulation in the most economical and efficient fashion. Any change in reimbursements would be subject to meet-and-confer depending on the labor group.

Complete December 2019 Management Update: The updated meals policy has been implemented and is going into effect in December 2019. Training of employee and citywide communications are complete, and a firm implementation date no later than December 31, 2019 is expected. Taxable meals per IRS requirements will now be captured on employee paychecks and W-2s. April 2019 Management Update: Staff has developed a form and draft policy for tracking meal expenses on employee W2s. Staff is reviewing the form and policy with departments. Expected Completion Date: 4QTR 2019 September 2018 Management Update: Staff has developed a form and draft policy for tracking meal expenses on employee W2s. Staff is reviewing the form and policy with departments. Expected Completion Date: 1QTR 2019 March 2018 Management Update: Staff has developed a form and draft policy for tracking meal expenses on employee W2s. Staff is reviewing the form and policy with departments. The new expected due date for capturing meals expenses on W2s is 12/31/2018.



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Current Status


April 2017 Management Update: Staff is planning to include taxable meals on employee W2s by the end of 2017. Expected Completion Date: 12/31/2017 October 2015 Management Update: ASD, working with the City Auditor and the City Manager’s Office, and has completed the first phase changes to the meal reimbursement policy. Staff changed the reimbursement for travel meals to the IRS per diem limits, which do not require reporting on an employee’s W2. June 2014 Management Update: ASD staff is reviewing process changes coupled with search and reporting capabilities in the purchase card system that could make it feasible for the Accounts Payable and Payroll processes to sync up so that all taxable meal reimbursements would be included on employee paychecks to ensure proper handling of taxable meal pay to employees. Expected Completion Date: 4/1/15

Prior Years’ Management Updates (summarized): ASD updated the travel policy, petty cash policy, and reimbursement form to ensure proper coding of meals. ASD also established a new general ledger account to capture taxable meals for inclusion on employee W-2 forms as compensation. It takes considerable staff time to track and record these taxable meals such as meals provided during one-day training and meals provided to employees during overtime. Given the small number of incidents and the low dollar amounts, probably in the few thousand dollars citywide in a given year,



PAGE 3


Current Status


staff is looking at phasing out these types of meals. A further complication is that meals are sometimes purchased with a P-card and may be for several staff. There is currently no easy way to assign these charges to the appropriate person receiving the meal.

Attachment C STATUS OF AUDIT RECOMMENDATIONS

CONTINUOUS MONITORING: PAYMENTS – ISSUED 4/3/17



Recommendation

Responsible

Department(s) Original Target Date and Response

Current

Status Status

Finding: 1. Implementing a continuous monitoring process can help the City identify duplicate invoice payments. The City recovered 17 (71 percent) of 24 confirmed

duplicate invoice payments.

1.1. Build a continuous monitoring reporting process into the new ERP system to identify potential duplicate invoices based on information such as vendor, date, invoice number, and amount, and run the report at least monthly. ASD should review the results, seek recovery of duplicate payments, and identify and correct process deficiencies that allowed the duplicate payments to be processed.

ASD Concurrence: Agree

Target Date: TBD (date of ERP implementation)

Action Plan: ASD agrees that a continuous monitoring reporting process should be part of the accounts payable process. ASD and City staff currently detects and recovers duplicate payments through periodic account analysis, contract monitoring and notifications from vendors. Per the auditor’s recommendation, ASD will develop and document an internal control process to identify duplicates for the new ERP system. ASD is in the process of implementing a hard stop in the City’s SAP system if the invoice date, invoice number, and invoice amount are the same. Previously, only a warning was issued and it was possible to still enter a duplicate invoice. This more restrictive configuration should decrease the number of duplicate payments. It is important to note that no system can prevent 100% of duplicate payments. However strong internal controls and entity -wide coordination, can prevent most duplicates. With technological advances and changing requirements we have seen an increase in

In process

December 2019 Management Update: Staff is developing an alternative approach in light of the revised path for a new ERP system and is working with the City Auditor to implement the new approach. Expected Completion Date: first quarter 2020 April 2019 Management Update: The City will be upgrading the current SAP environment per CMR 9826 rather than implement a new ERP. Duplicate payment detection will be implemented in the upcoming upgrade to the current SAP environment. Target Completion Date: TBD (date of ERP upgrade) September 2018 Management Update: See below, no new update. Expected Completion Date: March 2018 Management Update:




Recommendation

Responsible


Current

Status Status

duplicate invoices arriving in Accounts Payable. Invoices come in to Accounts Payable from multiple sources, and while previously a best practice, requiring original invoices is no longer practical. Invoices are now emailed by the vendor, sent via DocuSign, by internal departments and sometimes also sent via U.S. mail.

As of 12/28/17, SAP is configured to result in a hard stop if a duplicate invoice is entered. Previously only a warning was given. The fields that are configured for a hard stop are a combination of vendor number, invoice date, reference text (invoice number), amount and company code. In the upcoming demonstrations, ASD will seek confirmation that the new ERPs can provide similar duplicate invoice detection. Expected Completion Date: TBD (date of ERP implementation)

Finding: 2. Numerous unneeded vendor records increase the risk of inappropriate and erroneous payments and payment records, as well as incorrect tax reporting.

2.1. Build a continuous monitoring process into the new ERP system to:

• Review the vendor master file at least annually to identify duplicate, incomplete, or unused vendor records (i.e., vendor records not used during a time frame determined by ASD).

• Inactivate duplicate vendor records, enter missing identifying information based on reliable source documents such as a vendor-provided IRS Form W9, and inactivate or archive unused vendor records.


Target Date: TBD (date of ERP implementation)

Action Plan: ASD agrees that a continuous monitoring process should be built into the new ERP system. When the new ERP is implemented ASD will prepare a plan to review the vendor master file at least annually and inactivate unused, incomplete or inactive vendors. Part of the annual review of the master vendor file will also entail identifying and deleting duplicate vendors. In addition, staff will also

In Process December 2019 Management Update: Staff is developing an alternative approach in light of the revised path for a new ERP system and is working with the City Auditor to implement the new approach. Expected Completion Date: first quarter 2020 April 2019 Management Update: The City will be upgrading the current SAP environment per CMR 9826 rather than implement a new ERP. Duplicate payment detection will be implemented in the




Recommendation

Responsible


Current

Status Status

update the missing vendor record using information from sources mentioned in the recommendation. ASD staff will also work with ERP Team to explore other options to accommodate different “Remit To” addresses without creating a new vendor number.

upcoming upgrade to the current SAP environment. Target Completion Date: TBD (date of ERP upgrade) September 2018 Management Update: See below, no new update. Expected Completion Date: March 2018 Management Update: To be implemented with new ERP. Prior to implementation, ASD will prepare a plan to review the vendor master file at least annually and inactivate unused, incomplete or inactive vendors. Expected Completion Date: TBD (date of ERP implementation)

2.2. Clean the City’s vendor master file in accordance with recommendations 2.1 and 2.2 before merging the data into the City’s proposed new ERP system.


Target Date: TBD with adoption of new ERP system

Action Plan: In order to provide consistency, ASD intends to begin from scratch with the Master Vendor File when the City adopts a new ERP.

In Process December 2019 Management Update: Staff is developing an alternative approach in light of the revised path for a new ERP system and is working with the City Auditor to implement the new approach. Expected Completion Date: first quarter 2020 April 2019 Management Update: The City will be upgrading the current SAP environment per CMR 9826 rather than




Recommendation

Responsible


Current

Status Status

implement a new ERP. The vendor master file will be cleaned as part of the upcoming upgrade to the current SAP environment. Target Completion Date: TBD (date of ERP upgrade) September 2018 Management Update: See below, no new update. Expected Completion Date: March 2018 Management Update: Prior to the conversion to a new ERP, ASD will identify the vendors to input into the new system. ASD will also create a coding standard for data entry to be used by Purchasing and Accounts Payable. Expected Completion Date: Prior to ERP implementation

ATTACHMENT D STATUS OF AUDIT RECOMMENDATIONS

CONTINUOUS MONITORING: OVERTIME – ISSUED 9/6/17



Recommendation

Responsible


Current

Status Status

Finding: Implementing a continuous monitoring process for overtime in the new Enterprise Resource Planning (ERP) environment can help the City improve its

resource allocation and utilization.

1. Explore the potential of developing a continuous monitoring process to provide more detailed information on overtime usage so that management can better manage and control overtime costs. A continuous monitoring system could include data analytics to extract data on service demands, absences and vacancies, and elements of city policies and contractual requirement that could be useful in identifying opportunities to reduce overtime costs.


Target Date: 4th Quarter 2018

Action Plan: ASD will work with departments to explore the potential of developing a continuous monitoring process for overtime.

In Process December 2019 Management Update: Staff is developing an alternative approach in light of the revised path for a new ERP system and is working with the City Auditor to implement the new approach. Both the Police Department and Fire Department have significantly increased their due diligence in monitoring overtime usage and the causes. Expected Completion Date: first quarter 2020 September 2019 Management Update: Staff is working with departments to develop a process to report overtime citywide and take corrective action as appropriate. Staff expects this recommendation to be closed in early 2020. April 2019 Management Update: Staff is working with departments to explore the potential of developing a continuous monitoring process for overtime.

ATTACHMENT D STATUS OF AUDIT RECOMMENDATIONS

CONTINUOUS MONITORING: OVERTIME – ISSUED 9/6/17

Recommendation

Responsible


Current

Status Status

Expected Completion Date: 4th Quarter 2019

2. Form a work group consisting of main end users and stakeholders to design shared system capabilities and standardized overtime management processes in the new ERP environment by:

• Identifying useful overtime data including their source, and user interface (e.g., dashboard with drilldown and reporting capabilities) that allow users to analyze pertinent overtime factors shown in Appendix 1 in a comprehensive manner.

• Identifying manual data collection and auxiliary processes (e.g., billing, reimbursement) that can be automated.

• Reviewing applicable ERP system requirements to ensure needed capabilities are included in the City’s ERP contract.

ASD Concurrence: Agree Target Date: 4th Quarter 2018 Action Plan: ASD will work with departments to determine shared needs for overtime in the new ERP system. Staff is currently evaluating ERP solutions for payroll and core financials and staff has communicated the important of overtime reporting to the vendors. Once an ERP solution is selected staff will finalize overtime reporting requirements and build those requirements into the new ERP system with the implementation consultants.

Not Started December 2019 Management Update: Staff is developing an alternative approach in light of the revised path for a new ERP system and is working with the City Auditor to implement the new approach. Expected Completion Date: first quarter 2020 April 2019 Management Update: The City will be upgrading the current SAP environment per CMR 9826 rather than implement a new ERP. As part of that project ASD will work with departments to determine shared needs for overtime in the upgrade, as new system capabilities allow. Expected Completion Date: TBD


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