HomeMy WebLinkAboutStaff Report 4898
City of Palo Alto (ID # 4898)
Finance Committee Staff Report
Report Type: Action Items Meeting Date: 8/19/2014
City of Palo Alto Page 1
Summary Title: Various Municipal Code Changes reg. Fiscal Procedures and
ASD Roles and Responsibilities
Title: Municipal Code Changes regarding Review of Fiscal Procedures and
Role of City Auditor, Administrative Services Department's Roles and
Responsibil ities, and Lapse of Appropriations
From: City Manager
Lead Department: Administrative Services
Recommended Motion
The Finance Committee recommends that the City Council adopt the attached Ordinance
(Attachment A) eliminating Palo Alto Municipal Code section 2.08.145, titled “Consultation with
City Auditor” and amending Palo Alto Municipal Code section 2.08.150 titled “Department of
Administrative Services” and section 2.28.090, titled “Lapse of Appropriations.”
Executive Summary
With this report, staff recommends various Municipal Code changes to clarify the role of the
City Auditor in alignment with auditing standards regarding the review of fiscal procedures,
internal controls, and financial reporting requirements; aligns the roles and responsibilities of
the Administrative Services Department (ASD) and ASD Director to the current organizational
structure; and recommends that any appropriations require City Council approval for being
carried forward to the next fiscal year.
Background
This section of the report describes the various Municipal Code sections recommended for
elimination or amendment.
Description of existing Municipal Code Section 2.08.145 “Consultation with the City Auditor”
This section was added to Chapter 2.08 of the Municipal Code tit led “Officers and
Departments” in 1995. It directs that any finance and accounting procedures of the city, and
the reporting thereof, shall be established and maintained after consultation with the city
auditor. Since the adoption of the ordinance, the s tandards guiding the work of the City
Auditor have changed significantly, which has created a conflict of this section with updated
auditing standards.
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Description of existing Municipal Code Section 2.08.150 “Department of Administrative
Services”
This section describes the roles and responsibilities of the Administrative Services Department
and the Administrative Services Director. Since the adoption of this ordinance, the
organizational structure of the Administrative Services Department has changed as approved
through the annual budget processes.
Description of existing Municipal Code Section 2.28.090 “Lapse of appropriations”
The City Council approves appropriations at the department level for General Fund funded
departments, at the fund level for all funds except the General Fund, and at the project level for
Capital Improvement Fund projects. Municipal Code Section 2.28.090, titled “Lapse of
appropriations”, stipulates that the unencumbered balance of department and fund
appropriations shall lapse at the close of the fiscal year. Therefore, when staff is not able to
undertake a certain project or expend funds and requests to continue the project with the
dedicated funds, a limited number of operating budget reappropriations are brought forward
for Finance Committee and City Council consideration and approval. However, Capital project
appropriations are automatically carried forward by one fiscal year even when no funds are
expended, and thereafter, if some portion of the funds are expended, until the project is
completed.
Further, the same municipal code section states that reappropriations may be authorized by
majority vote of the city council from the unencumbered balance of the noncapital
appropriations of one fiscal year to the next fiscal year on a preliminary basis as of the
beginning of the new fiscal year. Final authorization shall be provided by the city council at the
same time as it approves the budget closing ordinance.
During the recent Finance Committee budget hearings, staff discuss ed bringing forward
changes to this Municipal Code section to align the treatment of capital budget appropriations
with operating budget appropriations. Further, staff seeks Committee approval to streamline
the process for annual reappropriations.
Discussion
This section of the report outlines the recommended changes to the Municipal Code as detailed
in the attached ordinance (Attachment A) regarding the role of the City Auditor as it pertains to
the review of fiscal procedures; aligning the roles and responsibilities of the Administrative
Services Department to the current organizational structure; as well as capital budget
reappropriations and preliminary approval of reappropriations.
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Role of City Auditor regarding Review of Fiscal Procedures
The Government Auditing Standards state that auditors should not perform a non -audit service
that may create a threat to their independence, such as performing a service that could later be
significant to an audit (“self-review threat”). This includes performing activities that are
considered management responsibilities that do not pertain directly to the operations of the
City Auditor’s Office. Specific examples provided as management responsibilities that would
impair an auditor’s independence are setting policies; accepting responsibility for designing,
implementing, or maintaining internal controls; and providing services that are intended to be
used as management’s primary basis for making decisions. As currently stated, Municipal Code
Section 2.05.145 infers that the Office of the City Auditor would be approving the Department
of Administrative Services’ finance and accounting procedures. Since this section is in conflict
with the current Government Auditing Standards, staff recommends eliminating this section of
the Municipal Code and amend Section 2.08.150 (a) (11) to still provide a role for the City
Auditor’s potential review finance and accounting procedures and internal controls, if
requested by the Administrative Services Department .
Section 2.08.150 (a) (11):
The recommended changes to this section of the roles and responsibilities of the Administrative
Services Department (ASD) include a clarification that ASD coordinates only the financial audit
activities with the city auditor and external auditors and that accounting controls should be
established to meet generally accepted accounting principles rather than standard audit
requirements. The external auditors, as part of their audit, confirm that the procedures are
established in accordance with generally accepted accounting principles. Further, the
recommended changes include an amendment that ASD may seek advice from the City Auditor
in developing procedures, internal controls, and financial reporting requirements.
Roles and Responsibilities of the Administrative Services Department (ASD) and its Director
The recommended ordinance change of Section 2.08.150 aligns the Municipal Code to the
current organizational structure by updating the division names within ASD and removing the
responsibilities for the management of the City’s information technology function. In Fiscal
Year 2012, the Information Technology (IT) Department was established. Prior to being its own
department, IT was a division of the Administrative Services Department.
Capital Budget Reappropriations
With the ordinance change, staff recommends that unexpended and unencumbered capital
project appropriations also have to be requested to be reappropriated if they are to be carried
over from one fiscal year to the next in order to finish the project. For example, per the current
Municipal Code, if a project was added as part of the Fiscal Year 2014 Adopted Budget and
work did not commence, the funding would automatically carry forward to Fiscal Year 2015 . If
that same project did not commence in Fiscal Year 2015 as well, and no funds were expended,
it would be deemed a “lapsed” appropriation, and in order for the funding to be carried
forward to Fiscal Year 2016, the City Council would need to approve a reappropriation request.
This change would be implemented as part of the development of the FY 2016 budget . Capital
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project appropriations at the end of FY 2014 will be automatically reappropriated to FY 2015
per the current Municipal Code language.
Section 2.28.090:
With the ordinance change recommended as part of this report, a reappropriation request
would be required to carry the funds over to Fiscal Year 2015, due to the elimination of the
automatic reappropriations. In the example of the Fiscal Year 2014 project for which work did
not commence, the reappropriation could be requested as part of the Fiscal Year 2015
Proposed Capital Budget or through reappropriation requests during Fiscal Year 2015 as part of
or before closing the Fiscal Year 2014 budget.
With this change, staff will include all projects with budgeted appropriations in the annual
capital budget with a detailed project page and exception reporting on the status of a project.
Additionally, with the implementation of the new budget system, staff intends to provide the
City Council with additional information in the annual capital budgets. These enhancements
include more comprehensive expenditure information for multi-year capital projects, including
the total project costs, prior year expenditures, curren t year estimates, and estimated
expenditures falling outside the five year window of the capital improvement program, and
changes from the prior year. Further, it is anticipated that the annual capital budgets will
include overviews of each capital program, such as the Streets and Sidewalks Capital program
or the Electric Fund Capital program.
This recommended municipal code change, however, will add a significant number of project
pages to the Capital Budget. If this recommended municipal code ch ange had been in place for
the Fiscal Year 2015 Proposed Capital budget, another 148 projects would have been described
with a detailed project page. Therefore, staff also proposes to provide only description and
justification information for future proje cts (Year 2 to Year 5 of the five-year Capital
Improvement Plan) versus a detailed project page. Future projects are defined as projects for
which no funds are appropriated, since they are planned to be started between the second and
fifth year of the five-year capital project plan. With this change, 43 projects that had a detailed
project page in the Fiscal year 2015 Proposed Capital budget would no longer have a page, but
would be highlighted with a description and justification information. When these projects
become part of the first year of the five-year Capital Improvement Plan, staff will refine the
cost, scope, and feasibility of these projects and include a project detail page.
Preliminary Reappropriations
Currently, the Municipal Code allows for preliminary authorization of reappropriations by
majority vote of the City Council from the unencumbered and unexpended balance of
appropriations of one fiscal year to the next fiscal year prior to the annual closing of the budget.
The preliminary authorization to reappropriate funds is sometimes recommended by staff due
to the urgency of continuing a project prior to the City Council approval of the closing of the
annual budget, which usually occurs six months into the new fiscal year. The annual closing of
the budget occurs in conjunction with the approval of the Comprehensive Annual Financial
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Report (CAFR). Then, with the annual closing of the budget, staff seeks final authorization for
the reappropriations including those which were approved on a preliminary basis.
Section 2.28.090:
With the recommended Municipal Code change, staff proposes to reduce this two -step process
(preliminary and final reappropriation authorization) to one step , to be effective as part of the
development of the FY 2016 budget. If staff brings forward reappropriation requests prior to
the closing of the annual budget, the City Council may authorize such reappropriations, if the
Director of Administrative Services certifies that sufficient unencumbered and unexpended
funds are available for reappropriation.
Timeline
If the Finance Committee approves this Municipal Code change, then staff intends to bring
forward the ordinance in September 2014 for City Council consideration.
Resource Impact
With this recommended ordinance change, no resource impact is anticipated.
Environmantal
This is not a project under the California Environmental Impact Report.
Attachments:
Attachment A: ORD Amending Section 2.28 and 2.08 of PAMC (PDF)
NOT YET APPROVED
Ordinance No. ______
Ordinance of the Council of the City of Palo Alto Amending Section 2.28.090
(Lapse of Appropriation) of Chapter 2.28 (Fiscal Procedures), Repealing Section
2.08.145 (Consultation with City Auditor) and Amending Section 2.08.150
(Department of Administrative Services) of Section 2.08 (Officers and
Departments) of the Palo Alto Municipal Code
The Council of the City of Palo Alto ORDAINS as follows:
SECTION 1. Section 2.28.090 Lapse of appropriations of Chapter 2.28 of the Palo Alto
Municipal Code is amended to read as follows:
2.28.090 Lapse of appropriations.
The unencumbered balance of appropriations shall lapse at the close of the fiscal year.
Reappropriations may be authorized by majority vote of the city council from the
unencumbered balance of the noncapital appropriations of one fiscal year to the next fiscal
year on a preliminary basis as of the beginning of the new fiscal year before the approval of the
budget closing ordinance as long as the Director of Administrative Services certifies that
sufficient funds are available to be carried forward to the next fiscal year. Final authorization
shall be provided by the city council at the same time as it approves the budget closing
ordinance. However, unless amended by the council, the appropriations of capital
improvement funds for project expenditures shall continue in full force and effect until the
purpose for which each was made has been accomplished or abandoned. The purpose of any
capital appropriation shall be deemed abandoned if two years pass without any expenditure
from the appropriation.
SECTION 2. Section 2.08.145 Consultation with the City Auditor of Chapter 2.08 of
the Palo Alto Municipal Code is repealed in its entirety.
The finance and accounting procedures of the city, and the reporting thereof, shall be
established and maintained after consultation with the city auditor.
SECTION 3. Section 2.08.150 Department of Administrative Services of Chapter 2.08
(Officers and Departments) of the Palo Alto Municipal Code is amended to read as follows:
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2.08.150 Department of administrative services.
(a) The department of administrative services shall be under the control of a director of
administrative services (Chief Financial Officer (CFO)) who shall be accountable to the city
manager. The duties of the director of administrative services (CFO) shall be as follows:
……
(11) To coordinate audit activities with the city auditor and external auditors, to coordinate
internal audits and to establish accounting controls in accordance with standard audit
requirements. To establish and maintain finance and accounting procedures and internal
controls of the city including financial reporting requirements and to coordinate financial audit
activities with the city auditor and external auditors in accordance with generally accepted
accounting principles. The department may seek advice from the city auditor in developing
those procedures, internal controls, and financial reporting requirements.
……
(16) To plan and maintain the city's information systems to ensure that the automated systems,
including the computer and telecommunications systems, meet the city's short and long-term
goals;
……
(18)
(b) For organizational purposes, the department of administrative services shall consist of the
following divisions: finance (which includes Purchasing, Treasury, and Accounting), Real Estate,
Stores, Printing and Mailing, and Office of Management and Budget. budget and management
analysis, and information resources.
SECTION 4. The City Council finds that this ordinance is exempt from the provisions
of the California Environmental Quality Act pursuant to Section 15061(b)(3) of the California
Environmental Quality Act Guidelines, because it can be seen with certainty that there is no
possibility of significant environmental effects occurring as a result of the adoption of this
ordinance.
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SECTION 5. This ordinance shall become effective upon the commencement of the
thirty-first day after the date of its adoption.
INTRODUCED AND PASSED:
AYES:
NOES:
ABSENT:
ABSTENTIONS:
ATTEST:
__________________________ _____________________________
City Clerk Mayor
APPROVED AS TO FORM: APPROVED:
___________________________ _____________________________
Senior Asst. City Attorney City Manager
_____________________________
Director of Administrative
Services
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