Report 2011-131 Recommendations and Responses in 2014-041

Report 2011-131: City of Vernon: Although Reform Is Ongoing, Past Poor Decision Making Threatens Its Financial Stability

Department Number of Years Reported As Not Fully Implemented Total Recommendations to Department Not Implemented After One Year Not Implemented as of 2013-041 Response Not Implemented as of Most Recent Response
City of Vernon 2 39 24 24 11

Recommendation To: Vernon, City of

To increase accountability and transparency in its governance, the city should develop a formal policy that describes the circumstances under which revenues can be transferred from its power department, and the limits and permissible uses of transferred revenue.

Response

On February 4, 2014, the City Council adopted a formal Budget Policies and Procedures Manual prepared by the Finance Director. The Manual was developed utilizing the methodology used by the Government Finance Officer Association (GFOA), approaches by other local cities, and the Citys existing practices. The Manual includes a section specifically addressing interfund transfers. (See page 8 of Budget Policies and Procedures Manual.)

  • California State Auditor's Assessment of Status: Not Fully Implemented
  • Completion Date: February 2014
  • Response Date: July 2014

Recommendation To: Vernon, City of

To ensure that it develops complete and appropriate personnel policies and procedures, the new human resources director should ensure that the city's policies and procedures include, at a minimum, requirements for performing and documenting the analyses and justifications for appointments, including promotions, to management positions.

Response

The Citys personnel policies relating to appointments and promotions (I-1: Terms of Employment, I-2: Requesting and Recruiting for Personnel, and I-3: Testing, Certification, and Eligibility Lists), apply to employees at all levels, including department heads and key management. When recruitments for department heads and key management are conducted in-house, the Human Resources Department adheres to the testing and certification procedures outlined in Personnel Policy I-3, within which the department is required to maintain all recruitment related documents, including but not limited to, applications/resumes, exam scores (when applicable), interview rating forms, and reference checks, for the purpose of documenting the analyses and justifications utilized for appointments and promotions to department head and key management positions. In the event an outside search firm is used to conduct a particular recruitment, the search firm is required to provide the City with the methodology to be used for the recruitment process (i.e. outreach methods, placement of advertisements, resume review and ranking process), as well as a written summary of highest ranking candidates, guidance on the interview process, including panel composition, questions, and rating forms, and verification of reference checks. All related documentation of the aforementioned is received and maintained by the Human Resources Department. On July 15, 2014, the City Council shall consider amending Personnel Policy I-3 to memorialize the aforementioned requirements.

  • California State Auditor's Assessment of Status: Fully Implemented
  • Completion Date: November 2012
  • Response Date: July 2014

Recommendation To: Vernon, City of

To ensure that it develops complete and appropriate personnel policies and procedures, the new human resources director should ensure that the city's policies and procedures include, at a minimum, requirements for minimum qualifications, desirable qualifications, and job duties for all city executive positions.

Response

On September 17, 2013, the City Council adopted Personnel Policy II-1: Classification Plan Administration. The purpose of the policy is to describe the Classification Plan and provide basic guidelines for plan administration and maintenance. The policy requires each class specification, including executive positions, to include the class title, a brief statement defining the essential duties and responsibilities of the class, the distinguishing characteristics of the class that differentiate it from other classes (if applicable), the supervision received and exercised, examples of duties performed, the typical working conditions (as applicable), the medical category designation, and the minimum qualifications required in terms of knowledge, skills, ability, experience, and education.

  • California State Auditor's Assessment of Status: Fully Implemented
  • Completion Date: September 2013
  • Response Date: July 2014

Recommendation To: Vernon, City of

To ensure that it develops complete and appropriate personnel policies and procedures, the new human resources director should ensure that the city's policies and procedures include, at a minimum, a periodic appraisal process for executives.

Response

On May 7, 2013, the City Council approved form At-Will Employment Agreements (Safety and Non-Safety) to be used for all executive positions, except the City Administrator and City Attorney, at terms not to exceed three years. Section 5 of said agreements requires a written performance evaluation, defining goals and performance objectives, to be conducted six months after the hire date specified in the agreement, and annually thereafter. The City Administrator may conduct more frequent evaluations at his/her discretion. As of June 3, 2013, all applicable executives are under this provision.

On September 17, 2013, the City Council approved Personnel Policy IV-1: Performance Evaluation. The purpose of the policy is to provide a systematic method for the evaluation, recording and improvement of the work effectiveness of employees. As part of the policy, new performance appraisal forms for executive and miscellaneous employees were adopted. A copy of the policy, including the new appraisal forms, is included. The City Administrator will utilize the new Executive Performance Appraisal Form for all executive performance reviews occurring in 2014 and later.

  • California State Auditor's Assessment of Status: Fully Implemented
  • Completion Date: September 2013
  • Response Date: July 2014

Recommendation To: Vernon, City of

To ensure that it develops complete and appropriate personnel policies and procedures, the new human resources director should ensure that the city's policies and procedures include, at a minimum, an improved methodology for and analysis of future salary surveys, ensuring that they are performed by staff or a consultant with experience and expertise in the area of salary surveys.

Response

On September 17, 2013, the City Council adopted Personnel Policy II-1: Classification Plan Administration and Personnel Policy II-3: Salary Plan Administration. The Director of Human Resources has primary responsibility for the maintenance and application of both plans, including the preparation of recommended revisions/updates for consideration by the City Administrator and/or City Council. The Classification Plan Administration Policy identifies the various class series within the City and requires, at minimum, a triennial review of each series. The application of the Plan must be reviewed each fiscal year to verify and ensure the adequacy of job descriptions, the proper allocation of jobs to appropriate salary ranges, the proper classification and compensation of employees, and the reflection of any significant changes in comparison to the labor market. More frequent reviews may be conducted as recommended or directed by the City Administrator. The City Council will review any recommended revisions or updates to the Classification and/or Salary Plans as part of the budget process each year, or more frequently as necessary. Such recommendations, and Council consideration thereof, shall be based on competitive market conditions, the Citys ability to pay, and applicable collective bargaining agreements. Copies of the referenced policies are included.

  • California State Auditor's Assessment of Status: Not Fully Implemented
  • Completion Date: September 2013
  • Response Date: July 2014

Recommendation To: Vernon, City of

The city should determine whether employees have a vested right to longevity payments and whether it can legally reduce or discontinue the original longevity program as a means to reduce its costs.

Response

Pursuant to the Citys July 2013 response, Public Sector Personnel Consultants (PSPC) completed its Citywide Classification and Compensation Study and found tiered longevity programs similar to Vernons elsewhere in the market. Additionally, PSPC found that longevity benefits were being discontinued on a go-forward basis.

The Citys labor law counsel has determined that current employees have a vested right to the longevity pay they currently receive. It cannot be unilaterally reduced or discontinued by the City. In accordance with the MMBA, the City must negotiate with all affected bargaining units to reduce or discontinue any longevity programs.

The City has recently been in negotiations with all six of its employee bargaining units and has, in good faith, proposed to each bargaining unit to discontinue the current longevity program for all employees hired after December 31, 2013. The City could not in good faith propose to reduce the original longevity program. As of July 9, 2014, negotiations with 3 units have concluded and all of those units have agreed to discontinue the current longevity program for future hires. Negotiations with the remaining units are expected to conclude by July 31, 2014.

  • California State Auditor's Assessment of Status: Fully Implemented
  • Completion Date: January 2014
  • Response Date: July 2014

Recommendation To: Vernon, City of

To ensure accurate reporting and payment of retirement benefits, the city should work with California Public Employees' Retirement System (CalPERS) to resolve the reported findings and observation noted in CalPERS April 2012 audit report within a reasonable period of time.

Response

Of the 10 findings and 1 observation noted in the CalPERS April 2012 audit report, 3 of the findings and the observation have been fully resolved as of May 20, 2014, and 7 of the findings are pending an administrative appeal process and may be subject to further review as a result of the final appeal determinations. Where required, corrective documents and payments have been provided by the City and credits have been issued by CalPERS.

On April 16, 2014, City representatives met with CalPERS representatives in Sacramento to receive further clarification and direction with regard to any audit items considered open as of that point. The meeting included five Vernon representatives: City Administrator and staff, HR Director, Deputy City Attorney, and outside labor law counsel; and seven CalPERS representatives from the following divisions: membership, payroll, compensation review, and legal/appeals.

As instructed by CalPERS at said meeting, the Citys HR Director has provided additional documentation relating to Findings 2, 3, 4, 5, 6, 7, 10 and is awaiting further instruction from CalPERS regarding these remaining open items.

  • California State Auditor's Assessment of Status: Not Fully Implemented
  • Completion Date: December 2014
  • Response Date: July 2014

Recommendation To: Vernon, City of

To better control contract expenditures and ensure that it receives the best value for the services it purchases, the city should require that all contracts contain a well-defined scope of work and deliverables that a sufficiently detailed invoice can be measured against.

Response

The Finance Department and City Attorneys Office are currently developing scope of work guidelines for each type of contract that a sufficiently detailed invoice can be measured against. The guidelines will be used when preparing contracts, requests for proposals, bid notices, etc. and will be consistent with the Citys Purchasing Ordinance, Purchasing Manual, Budget Policies and Procedures Manual, and Accounts Payable Invoice and Check Processing Procedures. The City is currently in the process of hiring a new City Attorney and expects said person to be onboard by late July or early August 2014. The guidelines will be finalized with the new City Attorney shortly thereafter and hopefully no later than October 1, 2014.

  • California State Auditor's Assessment of Status: Not Fully Implemented
  • Completion Date: October 2014
  • Response Date: July 2014

Recommendation To: Vernon, City of

To better control contract expenditures and ensure that it receives the best value for the services it purchases, the city should also require the finance department to review invoices to identify those that lack sufficient detail and return such invoices to the appropriate contract manager to obtain a revised invoice that is sufficiently detailed.

Response

On February 4, 2014, the City Council adopted a formal Accounts Payable Invoice and Check Processing Procedures. As invoices arrive, they are stamped by the Accounts Payable Clerk as received then they are forwarded to the appropriate department for review, coding, and payment approval. After departmental approval is obtained, invoices are then forwarded back to Finance for processing. Step 9 of the Invoice Processing Procedures specifically requires the Deputy City Treasurer to review each invoice to ensure that it contains sufficient detail that can be measured against the scope of work, proper departmental approval, and proper account coding. If any of these elements are missing or deficient, the invoice is returned to the contracting/approving department and the invoice is not paid until the missing or deficient information is obtained or corrected.

  • California State Auditor's Assessment of Status: Fully Implemented
  • Completion Date: February 2014
  • Response Date: July 2014

Recommendation To: Vernon, City of

To the extent that the city implements policies that affect contracts, the city should also ensure that it reviews all current contracts and amends them, if necessary, to comply with newly established policies.

Response

Effective July 1, 2013, upon renewal of existing contracts and award of new contracts, the requirements of the Citys Competitive Bidding and Purchasing Ordinance were fully adhered to. The City did not retroactively renegotiate existing legally binding contracts.

  • California State Auditor's Assessment of Status: Not Fully Implemented
  • Completion Date: July 2016
  • Response Date: July 2014

Recommendation To: Vernon, City of

To improve its internal controls, better control costs, and prevent abuse from occurring, the city should require the finance department to review credit card expenditures for appropriateness.

Response

The Purchasing Manual, as updated February 4, 2014, contains a section on credit card procedures and responsibilities and outlines the responsibilities of the Finance Director to review and compare credit card statements against their corresponding receipts to ensure accuracy, accountability, and appropriateness of purchases. The City Administrator is required to perform such review for the Finance Directors credit card purchases. (See page 20 of Purchasing Manual.)

  • California State Auditor's Assessment of Status: Fully Implemented
  • Completion Date: February 2014
  • Response Date: July 2014

Recommendation To: Vernon, City of

To improve its internal controls, better control costs, and prevent abuse from occurring, the city should revise its travel and expense reimbursement policy to be clear about the expenditure limits for meals, and add a limit for lodging accommodations.

Response

The City has updated its Expense Reimbursement Policy twice, once in October 2013 and again in December 2013. Section XII of the current policy, adopted December 17, 2013 via Resolution No. 2013-100, sets forth the expenditure limits for meals based on the lowest IRS standard rate. Section XIII sets forth the expenditure limits for lodging based on the maximum group rate (if for a conference), the government rate, or the IRS rate for the given area.

  • California State Auditor's Assessment of Status: Fully Implemented
  • Completion Date: December 2013
  • Response Date: July 2014

Recommendation To: Vernon, City of

To address the structural deficit in its general fund, the city should seek long-term solutions to balance the general fund's expenditures and revenues and lessen its reliance on transfers from other city funds. These solutions could include revenue increases, such as the proposed increased and new parcel tax, as well as looking for ways to reduce expenditures.

Response

In addition to the passage of new or increased taxes and the reduction of employee and consultant related expenditures, the City increased its General Fee Schedule by approximately 28%, effective July 1, 2014. The structural deficit in the General Fund is further being addressed by the City Administrator and Finance Director in conjunction with the long-term financial planning efforts currently underway. The Citys Financial Advisor, PFM, is currently assisting and advising the City with regard to potential debt restructuring options that would further address the structural deficit. The City continues to seek additional solutions consistent with the provisions and requirements of its Budget Policies and Procedures Manual.

  • California State Auditor's Assessment of Status: Not Fully Implemented
  • Completion Date: July 2015
  • Response Date: July 2014

Recommendation To: Vernon, City of

The city should clearly present the general fund structural deficit to the city council and the public in a budget that includes narrative and summary information to help users understand the city's budget process and its priorities and challenges, and that incorporates the elements for improved budgeting practices recommended by the Government Finance Officers Association (GFOA).

Response

On February 4, 2014, the City Council adopted the Budget Policies and Procedures Manual, which incorporates best practices recommended by GFOA, including Fiscal First Aid, and provides for the method of communication of budget information (see pages 7 and 12-13). These practices were implemented as part of the fiscal year 2014-2015 budget preparation process. Additionally, the Finance Directors fiscal year 2013-2014 2nd Quarter Financial Update to the City Council identified the need to address the General Funds structural deficit through the budget process.

  • California State Auditor's Assessment of Status: Not Fully Implemented
  • Completion Date: July 2015
  • Response Date: July 2014

Recommendation To: Vernon, City of

To better guide its budget preparation and improve transparency, the city should develop budget policies, particularly for long-term planning, that incorporate the elements that the GFOA recommends and make these policies available to the public on its Web site.

Response

On February 4, 2014, the City Council adopted the Budget Policies and Procedures Manual, which incorporates best practices recommended by GFOA and contains sections specifically governing budget preparation and long-term planning. These guidelines were implemented as part of the fiscal year 2014-2015 budget preparation process. The Budget Policies and Procedures Manual is posted on the Finance Department page of the Citys website. (See pages 9-13 of Budget Policies and Procedures Manual.)

  • California State Auditor's Assessment of Status: Fully Implemented
  • Completion Date: February 2014
  • Response Date: July 2014

Recommendation To: Vernon, City of

The city should improve the monitoring of expenditures against the approved budget by establishing a centralized process to regularly monitor and report to the city administrator and the city council on the status of the budget.

Response

On February 4, 2014, the City Council adopted the Budget Policies and Procedures Manual, which includes a section that specifically requires the Finance Director to provide quarterly budget reports to the City Council that compare budgeted to actual revenues and expenditures. The policy requires significant deviations to be explained. (See page 4 of Budget Policies and Procedures Manual.)

  • California State Auditor's Assessment of Status: Fully Implemented
  • Completion Date: February 2014
  • Response Date: July 2014

Recommendation To: Vernon, City of

To ensure that it issues debt when doing so is in the best interests of the city and is consistent with its long-term financial goals, the city should establish a comprehensive debt policy that includes the elements that the GFOA recommends and make the debt policy it establishes available on its Web site.

Response

On February 4, 2014, the City Council adopted the Budget Policies and Procedures Manual, which incorporates best practices recommended by GFOA and contains a debt management section that provides guidelines regarding use limitations, issuance, and repayment of debt. The Budget Policies and Procedures Manual is posted on the Finance Department page of the Citys website. (See page 6 of Budget Policies and Procedures Manual.)

  • California State Auditor's Assessment of Status: Fully Implemented
  • Completion Date: February 2014
  • Response Date: July 2014

Recommendation To: Vernon, City of

To ensure that the city council and public are well informed regarding proposed debt decisions, the city should provide summary information that clearly explains the costs, risks, and benefits related to the proposed decisions in its agenda packets, and should provide these in advance on its Web site.

Response

On February 4, 2014, the City Council adopted the Budget Policies and Procedures Manual, which provides for the method of communication of budget and financial information to the City Council and the public. Required communication includes website postings and written agenda materials. (See pages 12-13 of Budget Policies and Procedures Manual.)

  • California State Auditor's Assessment of Status: Fully Implemented
  • Completion Date: February 2014
  • Response Date: July 2014

Recommendation To: Vernon, City of

To ensure that it can demonstrate sufficient analysis and provide justification for its decisions on significant energy-related transactions, the city should develop an integrated energy strategy that examines all elements of its energy needs, sources, and objectives.

Response

The Gas & Electric Department is currently preparing an Integrated Resource Plan (IRP) that will outline the amount, type, and scheduling of resources needed to meet the Citys future energy needs at the lowest, reasonable cost. Once finalized, the IRP will be presented to City Council for adoption. The Department has established the Light & Power Department Policy and Procedure, Integrated Resource Plan Procedure to guide the preparation of the IRP. A copy of said document is included.

  • California State Auditor's Assessment of Status: Not Fully Implemented
  • Completion Date: July 2015
  • Response Date: July 2014

Recommendation To: Vernon, City of

To ensure that it can demonstrate sufficient analysis and provide justification for its decisions on significant energy-related transactions, the city should create a formal process and guidelines that include the following: identifying the benefits and risks of proposed transactions, quantifying the benefits and risks of proposed transactions, evaluating and comparing proposed transactions against alternative proposals, quantifying the impact of proposed transactions on short-term and long-term rates paid by the city's energy customers, seeking an independent validation of the fair market value of proposed transactions, and documenting and communicating the findings of the evaluation process to the city council.

Response

On February 4, 2014, the City Council adopted the Budget Policies and Procedures Manual, which establishes guidelines regarding planning, revenue development, investments, capital improvements, debt management, fixed assets, use of reserves, and inter-fund transfers. In some cases, consultants are used to assist with the various elements of the guidelines because they have specific, task-related expertise and resources. For example, in the case of a recent electric rate adjustment on July 1, 2014, the consulting services of Crossborder Energy and Michael Bell Management Consulting were utilized to provide specific expertise in addressing business risks and to ensure that appropriate electric rates were developed. As part of this analysis, scenarios were examined against alternative proposals which quantified proposed transactions on rates for a three year period. This provided an independent assessment and validation that was documented and communicated to City Council as part of the related public hearing held on June 17, 2014. A copy of the presentation made to City Council is included.

  • California State Auditor's Assessment of Status: Not Fully Implemented
  • Completion Date: February 2014
  • Response Date: July 2014

Recommendation To: Vernon, City of

If the city plans to continue to rely on the advice of its consultants when entering significant energy-related transactions, it should develop a process for the consultants to provide written documentation that would enable the city to satisfy the process and guidelines outlined in the previous two recommendations.

Response

The City has incorporated as standard language in its form contracts an Ownership of Work clause that requires all contract-related written and electronic documentation prepared by the contractor to be provided to the City whenever requested. In pertinent part, the Ownership of Work clause states that all reports, drawings, plans, specifications, computer tapes, floppy disks and printouts, studies, memoranda, computation sheets and other documents prepared by Contractor in furtherance of the work shall be the sole property of City and shall be delivered to City whenever requested. Contractor shall keep such documents and materials on file and available for audit by the City for at least three (3) years after completion or earlier termination of this Contract A copy of related sample documentation from Crossborder Energy is included.

  • California State Auditor's Assessment of Status: Fully Implemented
  • Completion Date: August 2013
  • Response Date: July 2014

Recommendation To: Vernon, City of

To minimize the continuing financial losses on the two currently outstanding interest rate swaps, the city should develop a clear process for deciding how it will terminate these swaps based on the cost and future risk to the city.

Response

On February 4, 2014, the City Council adopted the Budget Policies and Procedures Manual, which contains a section specifically addressing investment derivative monitoring, reporting requirements, and financial conditions or thresholds for termination. (See page 5 of Budget Policies and Procedures Manual.) The Finance Director is continuing to monitor the swap transactions to determine the appropriateness of partial or full terminations of the agreements.

  • California State Auditor's Assessment of Status: Fully Implemented
  • Completion Date: February 2014
  • Response Date: July 2014

Recommendation To: Vernon, City of

To ensure that any future decisions to enter into interest rate swaps are carefully considered, the city should develop and follow a process that thoroughly analyzes the risks and benefits of the potential swap transaction.

Response

On February 4, 2014, the City Council adopted the Budget Policies and Procedures Manual, which contains a section specifically addressing investments and examination/analysis of swap transactions. (See page 5 of Budget Policies and Procedures Manual.)

  • California State Auditor's Assessment of Status: Not Fully Implemented
  • Completion Date: February 2014
  • Response Date: July 2014

Recommendation To: Vernon, City of

To ensure that any future decisions to enter into interest rate swaps are carefully considered, the city should specifically disallow the use of derivatives for speculative purposes and should require the retention of the documents and analyses that support the decision to enter into the swap.

Response

On February 4, 2014, the City Council adopted the Budget Policies and Procedures Manual, which contains a debt management section that limits borrowing to use for capital improvements or projects that cannot be financed from current revenues. This section also provides guidelines for the issuance and repayment of debt. (See page 6 of Budget Policies and Procedures Manual.) Documents related to interest rate swaps are retained in accordance with the Citys Records Retention Policy (see pages 13-15), a copy of which is included.

  • California State Auditor's Assessment of Status: Not Fully Implemented
  • Completion Date: February 2014
  • Response Date: July 2014

Current Status of Recommendations

All Recommendations in 2014-041