Report 2011-131 Recommendations and Responses in 2015-041

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 2014-041 Response Not Implemented as of Most Recent Response
City of Vernon 3 39 24 11 10

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

The following language will be added to Compensation Policy II-3, Section 3 - Plan Maintenance and presented to the City Council at its November 3, 2015 meeting for adoption:

"However, the City at its sole discretion may hire a consultant with experience and expertise in the area of salary surveys to conduct a classification and/or compensation study. To ensure internal pay equity and citywide pay comparisons, the salary survey methodology approved by the City Council for employee groups shall be the same methodology used when conducting salary surveys for the executive and management groups.

3b. Prevailing rates of pay based upon the approved comparable labor market survey."

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

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

The City has examined the CSA's comments and will incorporate additional specificity regarding transfers from the power department including circumstances, limits, and permissible uses of the transferred revenue. This will be incorporated as part of the annual update of the Budget Policies and Procedures manual and will be presented to the City Council for approval. The clerical error in the Budget Policies and Procedures manual has been corrected. The appropriate maximum transfer rate is 15%.

  • California State Auditor's Assessment of Status: Not Fully Implemented
  • Completion Date: July 2016
  • Response Date: October 2015

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

As of September 28, 2015, five (5) previous employees are awaiting CalPERS appeal hearings. All other matters have been resolved and the City of Vernon has taken corrective action as instructed by CalPERS.

  • California State Auditor's Assessment of Status: Fully Implemented
  • Completion Date: September 2015
  • Response Date: October 2015

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 City Council approved Resolution 2015-10 on March 3, 2015 to address that all contracts contain a well-defined scope of work and deliverables to ensure that a sufficiently detailed invoice can be measured against.

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

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

New contracts and amended contracts are routed to various responsible departments to ensure compliance with the requirements of the City's Competitive Bidding and Purchasing Ordinance The routing process is done via the Contract/Amendment Signature Routing Form.

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

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 being addressed taking into consideration Post GASB 68 matters. City Council will be briefed on various options available to fund the deficit. Some options may include issuing pension bonds, increase general taxes and reduce operating expenses.

  • California State Auditor's Assessment of Status: Not Fully Implemented
  • Completion Date: July 2016
  • Response Date: October 2015

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 Director's fiscal year 2013-2014 2nd Quarter Financial Update to the City Council identified the need to address the General Fund and governmental activities structural deficit through the budget process. As part of the briefing of the fiscal year end 2015 financial statements, an indepth discussion and information will be provided on the general fund and governmental activities' structural deficit. Council will be briefed on options that will reduce the deficit amount. This will be further addressed on quarterly financial reports to the Council and in the 2016 budget cycle.

  • California State Auditor's Assessment of Status: Not Fully Implemented
  • Completion Date: July 2016
  • Response Date: October 2015

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 City's 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.

  • California State Auditor's Assessment of Status: Not Fully Implemented
  • Completion Date: July 2016
  • Response Date: October 2015

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

The City will provide additional framework of the various actions that are taken into consideration when analyzing energy financial transactions in the Budget Policies and Procedures manual. This will include recognition of the use of financial analysis, scenarios, and cost impact of decisions being made. This will be incorporated in the annual update of the Budget Policies and Procedures manual and will be presented to the City Council for approval.

  • California State Auditor's Assessment of Status: Not Fully Implemented
  • Completion Date: July 2016
  • Response Date: October 2015

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

The City will update the Budget Policies and Procedures manual to document the steps taken prior entering into future interest rate swaps. These steps will include financial analysis, risk and benefits, legal review, and approval from City council prior to entering into a transaction.

  • California State Auditor's Assessment of Status: Not Fully Implemented
  • Completion Date: July 2016
  • Response Date: October 2015

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

The City will add clarifying language in the Budget Policies and Procedures manual that that there will be no derivatives entered into for speculative purposes. The Budget Policies and Procedures manual will be updated to document the various steps taken prior entering into any future interest rate swaps. These steps will include financial analysis, risk and benefits, independent examination, and approval from City council prior to entering into a transaction. This will be presented to City Council as part of the annual update of the Budget Policies and Procedures manual.

  • California State Auditor's Assessment of Status: Not Fully Implemented
  • Completion Date: July 2016
  • Response Date: October 2015

Current Status of Recommendations

All Recommendations in 2015-041