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2017-11-14 Policy & Services Committee Agenda Packet
Policy and Services Committee 1 MATERIALS RELATED TO AN ITEM ON THIS AGENDA SUBMITTED TO THE CITY COUNCIL AFTER DISTRIBUTION OF THE AGENDA PACKET ARE AVAILABLE FOR PUBLIC INSPECTION IN THE CITY CLERK’S OFFICE AT PALO ALTO CITY HALL, 250 HAMILTON AVE. DURING NORMAL BUSINESS HOURS. Tuesday, November 14, 2017 Special Meeting Community Meeting Room 6:00 PM Agenda posted according to PAMC Section 2.04.070. Supporting materials are available in the Council Chambers on the Thursday 10 days preceding the meeting. PUBLIC COMMENT Members of the public may speak to agendized items. If you wish to address the Committee on any issue that is on this agenda, please complete a speaker request card located on the table at the entrance to the Council Chambers/Community Meeting Room, and deliver it to the Clerk prior to discussion of the item. You are not required to give your name on the speaker card in order to speak to the Committee, but it is very helpful. Call to Order Oral Communications Members of the public may speak to any item NOT on the agenda. Action Items 1.Discussion and Recommendation to Council to Adopt Legislative Priorities for 2018 2.Discussion and Recommendation Regarding Permitting and Regulations for Bike Share Operators in the City of Palo Alto 3.Discussion of City Auditor's Community Services Department Fee Schedule Audit Recommendations and Recommend That the City Council Accept the Status of Audit Recommendations Report 3A. Staff Recommendation That the Policy and Services Committee Recommend the City Council Accept the Status Update on the Audit of Parking Funds 3B. Staff Recommendation That the Policy and Services Committee Recommend the City Council Accept the Status Update on the 2015 Utility Meter Audit: Procurement, Inventory and Retirement 3C. Staff Recommendation That the Policy and Services Committee Recommend the City Council Accept the Status Update on the 2013 Inventory Management Audit REVISED 2 November 14, 2017 MATERIALS RELATED TO AN ITEM ON THIS AGENDA SUBMITTED TO THE CITY COUNCIL AFTER DISTRIBUTION OF THE AGENDA PACKET ARE AVAILABLE FOR PUBLIC INSPECTION IN THE CITY CLERK’S OFFICE AT PALO ALTO CITY HALL, 250 HAMILTON AVE. DURING NORMAL BUSINESS HOURS. 4. Auditor's Office Quarterly Report as of September 30, 2017 Future Meetings and Agendas Adjournment AMERICANS WITH DISABILITY ACT (ADA) Persons with disabilities who require auxiliary aids or services in using City facilities, services or programs or who would like information on the City’s compliance with the Americans with Disabilities Act (ADA) of 1990, may contact (650) 329-2550 (Voice) 24 hours in advance. City of Palo Alto (ID # 8610) Policy and Services Committee Staff Report Report Type: Action Items Meeting Date: 11/14/2017 City of Palo Alto Page 1 Summary Title: 2018 Legislative Priorities Title: Discussion and Recommendation to Council to Adopt Legislative Priorities for 2018 From: City Manager Lead Department: City Manager Recommendation Staff recommends that the Policy and Services Committee discuss and recommend that the City Council adopt the City’s 2018 Legislative Priorities. Background A crucial component of the City’s Legislative Program is the Council-approved legislative priority document. This document informs staff and the City’s lobbyists on current policy issues that are particularly important to the City, while allowing for flexibility when unforeseen issues arise. Priority-setting is completed annually, to ensure the content reflects the City’s current priorities and remains legislatively relevant. This is a living document; one that, upon Council request or approval, can change to most accurately reflect current policy needs. The prior version was approved by Council on January 9, 2017. Discussion The proposed 2018 priorities contain prior years’ foundational principles of (1) protecting local revenue sources and preventing unfunded mandates, (2) protecting, seeking, and increasing funding for programs, projects, and services, which includes grant funding and allocations, and (3) protecting and increasing local government discretion. These principles overlay each of the priority items noted in the draft document (Attachment A) and provide further guidance to staff and lobbyists. Differences from the 2017 priorities The 2018 version continues many of the same themes as the 2017 guidelines. In refining the priorities for 2018, staff viewed the previous document through the lens of which issues might be ripe for 2018 and are squarely in the realm of state or federal City of Palo Alto Page 2 legislation. When viewed in this manner, some 2017 priorities do not appear on the draft 2018 document. For example, supporting “the private funding of a collection program for pharmaceutical waste” and opposing “efforts to include residual risk provisions federal flood insurance legislation” were removed, as in recent years, there was no legislation regarding these areas, and we do not foresee any. It should be noted that if legislation on these items appears, staff will return to Council with recommendations and to seek direction. This is true for any legislative issue not specifically captured that may impact the City. Further, some items do not appear in the 2018 version as they are already captured in a broader manner. For example, seeking “funding to improve the Palo Alto Airport” is not specifically included because the foundational principle to “protect, seek, and increase funding for programs, projects, and services” is already an overarching guideline. Lastly, the items bolded in Attachment A are new items for discussion, developed in reaction to evolving issues. Comparability to the Utilities Department guidelines The Utilities Advisory Commission (UAC) reviews and approves the Utilities Department’s legislative priorities each year. Staff works to ensure that the Utilities document is consistent with the Citywide priorities. The Utilities priorities, for example, set out comparable guidelines such as preserving local government flexibility, seeking funding, and advocating for locally-designed programs. Indeed, some of the City’s 2017 guidelines, those related to water conversation and storage, were removed from the City’s priorities as they already have a place in the Utilities guidelines. Timeline Staff brings this item for recommendation to Council to ensure the legislative lobbyists are prepared for the start of the state legislative session. The Legislature is scheduled to reconvene on January 3, 2018 and is expected to quickly pick up the work of moving those bills that did not pass in the last session. Specific legislative deadlines occurring in the first two months of the 2018 session are below: January 19: Last day for any committee to hear and report to the floor bills introduced in that house in 2017 January 31: Last day for each house to pass bills introduced in that house in 2017 February 16: Last day for bills to be introduced Additionally, the timing reflects the fact that the UAC is slated to discuss the Utilities Department’s 2018 priorities at its November meeting. City of Palo Alto Page 3 Attachments: Attachment A: 2018 federal and state legislative priorities The City of Palo Alto’s 2018 Federal and State Legislative Priorities Foundational Principles 1. Protect local revenue sources and prevent unfunded mandates 2. Protect, seek, and increase funding for programs, projects, and services 3. Protect and increase local government discretion. Oppose items that preempt or reduce the authority or ability of local government to determine how to effectively operate local programs, services, and activities Public Safety Protecting the health and safety of the community Transportation Deterring single occupancy drivers and alleviating local traffic congestion Supporting local and regional public transportation Seek funding for rail grade separations and other means of reducing the local impacts of regional transportation systems Promoting the ability of Cities to enforce a default speed limit for locally-controlled streets and arterials Environmental Reducing GHG emissions Reducing airplane noise and actively supporting such efforts Studying the efficacy and cost of residential electrification; promoting such programs if reasonable; promoting reasonable vehicle electrification programs Promoting the use of renewable resources, water conservation, and the flexible use of resources to support a healthy watershed and urban canopy Supporting a statewide ban on polystyrene containers and packaging materials Supporting advanced low emission vehicle technology and vehicle electrification Improving San Francisquito Creek, including seeking grant funding Financial Supporting the long-term stability of CalPERS and the ability of local governments to mitigate and manage with flexibility its pension obligations Protecting the funding of ambulance, paramedic, and other emergency services The City of Palo Alto’s 2018 Federal and State Legislative Priorities Supporting the continued deductibility of tax-exempt municipal bonds while monitoring tax reform efforts Promoting the ability of states to capture sales tax revenue on Internet purchases Public Employment Preserving local government’s ability to manage its own employment issues, including, but not limited to: employee hiring, evaluating, disciplining, and/or terminating and negotiating collective bargaining agreements with employees’ representatives Technology On a pilot basis, authorizing Palo Alto, and surrounding areas as needed, as a place for autonomous vehicle testing Supporting reasonable state and federal efforts surrounding policies such as strengthening cybersecurity, regulating drones and shared mobility services, preserving net neutrality, and pursuing smart city initiatives Housing Supporting the development and implementation of efficient and sustainable land use and building practices Other Supporting reasonable state action to update, implement, and refine processes, services, and programs affecting the City Protecting individual privacy and the equal treatment of all individuals Supporting the collaborative work of regional partners and Joint Powers Authorities of which the City is a member City of Palo Alto (ID # 8635) Policy and Services Committee Staff Report Report Type: Action Items Meeting Date: 11/14/2017 City of Palo Alto Page 1 Summary Title: Bicycle Share System Permitting Title: Recommendation Regarding Permitting and Regulations for Bike Share Operators in the City of Palo Alto From: City Manager Lead Department: Planning and Community Environment Recommendation Staff recommends that the Policy and Services Committee recommend that the City Council adopt a resolution (Attachment A) authorizing the City Manager to create a one-year pilot program regulating private bike share operations in the City of Palo Alto. The pilot program would only allow bike share operators that meet specific permit requirements to operate in Palo Alto and would expire on December 31, 2018, or upon adoption of permanent regulations by the City Council. Executive Summary Over the last year, the availability of stationless smart bikes and new funding models have attracted numerous vendors to the bike share business. Other cities have found that vendors can attempt to capture market share by placing their bikes on streets and sidewalks without benefits of permits or agreements, resulting in clutter and safety concerns when abandoned bikes block streets and sidewalks. The recommended action would create a permit process to guard against these negative consequences, and also take advantage of the bike share companies’ expertise and motivation to implement this emerging mobility option at very little cost to the City (i.e. only staff time to review and enforce permits). If neighboring cities implement similar programs, companies could operate across city boundaries, to the benefit of residents and employees. Staff proposes implementation of a one-year pilot program allowing bike share companies to operate subject to conditions of a permit issued by the City. Such a program would allow the City to gain experience with a program that would then inform more permanent permit requirements and guidelines. Background and Discussion City of Palo Alto Page 2 In 2017, significant changes occurred in the bike share industry that opened up new service delivery options. To better assess and understand these trends, staff recently met with four bike share operators who have expressed interest in providing bike share in Palo Alto and neighboring cities. Staff has also gathered information from some cities who have recently implemented these new bike share operating models. These trends can be summarized as follows and are discussed in more detail below: 1. Technology: Introduction of smart bikes and stationless systems expand potential service areas and system sizes and provide flexibility to adjust the service based on ridership demand. 2. Market Competition: Multiple bike share companies are expressing interest and are willing to provide services in the same geographic area. 3. Funding Responsibility: Bike share companies no longer expect cities to share in the costs of the bikes or services. 4. Government Role: Some jurisdictions are approaching bike share as a regulatory function rather than as a service procurement. Technology Smart bike systems have emerged in the last few years as a viable bike share option. These systems employ GPS and other technologies on the bike to track and manage the bike system. The bikes are reserved and managed through a Smart Phone app. The bikes can be locked to bicycle racks or other approved locations or, in some systems, are self-locking. These are referred to as stationless systems. Without the need to limit bike parking to specially designed docking stations, the parking/bike distribution options range from a free-floating system (bikes parked at any rack or other appropriate location) to one where the bikes can be parked only in bike share designated areas or racks. There are also hybrid models that combine designated parking for certain areas and free-floating for all other areas of a city. This allows for both higher bike densities in activity centers and broader distribution throughout a city for convenient access by a variety of users for all types of trips. Several bike share companies now utilize smart bikes, including Social Bicycles (SoBi), LimeBike, Spin, GoGo Bikes, MoBikes, and others. The photos below illustrate some of the smart bike systems: City of Palo Alto Page 3 Social Bicycles (SoBi) LimeBike (self-locking) City of Palo Alto Page 4 Spin—Example of Smart Phone App to Unlock Example of a Parking Area for Stationless Smart Bikes (bluegogo), with Self-Locking Bikes City of Palo Alto Page 5 Market Competition The number of bike share companies has been growing. A trend among other cities has been to allow for multiple bike share vendors to operate within the same geographic area. For example, both Spin and LimeBike are operating in Seattle and in South San Francisco. The City of San Francisco has rolled out a permit process that would allow other bike share operations in the city in addition to the Bay Area Bike Share (Ford Go-Bike) System. Palo Alto and neighboring cities have all been approached by multiple bike share companies wishing to provide services. The advantages of this market competition include the potential for faster deployment and more bikes being made available. In addition, these companies are competing for ridership, creating an incentive for good customer service, keeping the bikes in good working order, offering competitive prices, and making sure the bikes are located where they will generate ridership. In place of a “membership fee” approach, these systems are charging per ride, allowing users to select whichever bike is most conveniently located or the service that they find most cost-effective. The fees for a 30-minute ride range from $0.50 to $2.00. Funding Responsibility Past bike share programs have required significant government funding for start-up and operations. The Bay Area Bike Share (BABS) pilot program was originally funded through a combination of local, regional, and Federal grants. In 2016, the City of Palo Alto was working on an agreement with Motivate and SoBi to provide bike share services in Palo Alto that would have cost the city nearly $1 million. Motivate offered to enter into a similar agreement with Palo Alto at a capital cost of approximately $1 million to purchase 350 bikes plus another $300,000 to $400,000 in annual operating costs with the City bearing the responsibility to secure this funding through City funds, grants, or sponsorship. Palo Alto ultimately declined to participate in this program. Smart bike vendors are now offering the potential for quick implementation on a significant scale without any direct cost to the local community. Their business models are based on investors, sponsors, and user fees. Local agencies may incur some administrative costs in regulating the bike share programs and/or in providing designated parking areas such as bike racks and painted corrals, but they are not being asked to contribute funding to purchase or lease the bikes or to supplement the user fees. Government Role Some cities are now launching bike share programs through a regulatory system rather than procuring bike share services. Examples include: • Seattle launched a six-month pilot bike share permit program for a dockless, free-floating bike share system citywide in July 2017. Bike share operators capable of meeting specific permit requirements could pull the permits and begin operations. These permit requirements included bike safety features, parking, operations/customer service, data sharing/performance monitoring, and city fees and protections (insurance, indemnification, performance bonds). City of Palo Alto Page 6 Three months into operation, three bike share companies are providing the minimum of 500 bikes each and are planning to expand to 1,000 or more bikes. Current feedback from Seattle is that their pilot has been a success with very few issues regarding bike parking or abandonment/theft and they plan to take an ordinance to their City Council to formalize the program. • South San Francisco also launched a six-month pilot program in July 2017. The City entered into license agreements for use of the right-of-way backed up by encroachment permits with two bike share companies. The agreement allows bike users to park the bikes in a legal manner in the right-of-way but also defines certain designated parking areas to be used by the companies to rebalance the bikes. The agreement and permit include many of the same requirements as Seattle’s permit but are less detailed, especially in terms of bike safety features and parking. According to city staff, the pilot is going well with 400 bikes currently on the street generating approximately 500 trips a day. • San Francisco is served by the current Bay Area Bike Share system operated by Motivate, known as Ford GoBike, which continues to use a dock system for picking up and dropping off bikes. In March 2017, San Francisco adopted an ordinance for issuing permits to stationless bike share operators and finalized the permit application in July. Parking must be in a public bike rack or the furniture zone of the sidewalk. The permit requirements have similar provisions as the Ford GoBike program (e.g., bike-safety features, customer service, and rebalancing). They also have high start-up and annual renewal fees and extensive requirements related to serving low-income communities. At least two bike share companies have submitted applications but the permits have not been issued yet. Potential Program Strategies There are three models that have been used in recent years by cities for bike share programs. These include: • Solicitation of Vendor Proposals Through a Request for Proposals (RFP) Process—This approach has been used by several cities to select a single operator who would have exclusive rights in the City. These include SoBi systems in Portland, Santa Monica, and Sacramento. After the selection process, the city and the operator would enter into a service contract. Until recently, the city or region would have some financial responsibility or the vendor would have a sponsor to cover those costs. Some recent contracts (Sacramento for example) have eliminated any local funding, and in return, the city does not have any ownership of the system. An RFP process will typically require more staff effort to select an operator and develop a contract. Although it would give the City more control of the program, it could reduce the flexibility to take advantage of new advances in the bike share industry and the potential benefits of multiple vendors providing service in the City. • City Council Ordinance Establishing a Permit Process for Bike Share Vendors—This is a relatively new approach arising from the introduction of multiple stationless bike share operators. San Francisco adopted such an ordinance. In this approach, the permits would City of Palo Alto Page 7 incorporate City requirements for the operation and City compliance and enforcement provisions. A cost recovery permit fee will likely be required. The permit could also include a limit on the number of bikes for individual operators or collectively. A challenge with this approach is the limited experience of the new operators, which makes it difficult to fully define appropriate guidelines. There is also limited experience with administrative and enforcement costs for cities. • Pilot Program for Bike Share Companies to Operate under Specific Guidelines—A pilot program allows a city to learn more about the operator(s) and program prior to committing to a permanent program and developing final regulatory requirements. Seattle and South San Francisco have both launched such pilot programs with the intention of establishing permanent programs through ordinance or another means based on what they learn from the pilot. Proposed Program Approach Staff proposes the implementation of a one-year pilot program allowing bike share companies to operate subject to conditions of a permit issued by the City. The pilot program would be established through City Council resolution (Attachment A), and Bike Share companies could obtain an encroachment permit. Interim Bicycle Sharing System Permit Program Regulations (Attachment B) would establish rules and regulations governing the operation of bicycle sharing systems within the City of Palo Alto and ensure that such bicycle sharing systems are consistent with the safety and well-being of bicyclists, pedestrians, and other users of the public rights-of- way. Such a program would require little funding from the City (primarily staff time), be implemented more rapidly than an RFP or ordinance process, and allow the City to gain experience with a program that would then inform more permanent guidelines. The program would be based on Seattle’s and South San Francisco’s pilots but customized for Palo Alto. Below are some basic guidelines that staff recommends. Combine Designated Parking with Free-Floating Bikes Staff recommends utilizing the “hybrid” approach to parking requirements that combines both designated parking areas (corrals and/or racks) and free-floating bikes. In high-demand locations, bikes might be restricted to designated parking areas to reduce potential problems with parked bikes obstructing pedestrian traffic flow or creating a safety hazard. All other areas of the City could be served by free-floating bikes that may be parked at any location in the right-of-way acceptable for bike parking and/or on private property under an agreement between the bike share company and the property owner. Permit requirements would include performance standards for moving bikes parked incorrectly, rebalancing bikes, and ensuring bikes are not abandoned. Staff recommends requiring that at no time no more than fifty percent (50%) of a permittee's free-floating bicycles be located in the Downtown or California Avenue business districts to ensure that bicycles get dispersed throughout the City. It is expected that companies will closely monitor ridership and adjust bike density and location accordingly to maximize the City of Palo Alto Page 8 convenience of the greatest number of riders. The experience with bike deployment and ridership during the pilot may help inform an adjustment to this approach with permanent regulations. Minimum and Maximum Number of Bikes Staff recommends that under the pilot program, each vendor would be required to provide a minimum of 100 bikes, with a City cap of 700 bikes for all bike share companies collectively. In order to encourage electric bicycles fleets, electric bicycles shall be exempt from this maximum. This minimum will ensure that the company has a large enough presence to provide full-time staff within the City for rebalancing the bikes and responding to calls to move or repair bikes. The City maximum would help curtail possible problems with too many bikes that may be underutilized and cluttering the right-of-way. Safety, Operating, and Performance Requirements City requirements for each bike share company would include bike safety features, parking rules, operating and customer service performance standards, and data collection to monitor performance and effectiveness. Requirements would be set for quickly moving bikes parked in inappropriate areas, rebalancing bikes, and similar responsibilities of the bike share company. The City’s agreement or permit would also include provisions for insurance, indemnification, performance bonds, cost recovery fees, and the ability to terminate. Resource Impact Under the proposed pilot program, minimal costs are anticipated, primarily for staff time issuing permits and monitoring compliance. Separately staff efforts could be required if the City desires to establish designated parking areas such as bike racks and painted corrals. Policy Implications Development of an expanded bike share system is consistent with the following Comprehensive Plan and Bicycle + Pedestrian Transportation Plan goals, policies and projects: Comprehensive Plan: Goal T-1: Less Reliance on Single-Occupant Vehicles Policy T-3: Support the development and expansion of comprehensive, effective programs to reduce auto use at both local and regional levels. Bicycle + Pedestrian Transportation Plan: PR-5 Bike Share Program Bike share is consistent with goals outlined in the draft Sustainability and Climate Action Plan (SCAP) and has emerged as an important area of regional collaboration. Bike share was discussed at recent meetings of the City Manager’s Mobility Partnership (MMP), which includes Stanford University, the City of Menlo Park, the City of Mountain View, the City of Palo Alto, the City of Redwood City and Joint Ventures Silicon Valley. City of Palo Alto Page 9 Environmental Review The proposed bike share project is exempt from the provisions of the California Environmental Quality Act (CEQA) pursuant to CEQA Guidelines Section 15061(b) (3) because it can be seen with certainty that the project will have no significant effect on the environment. Establishing a permit process for bike share companies will ensure the companies’ operations do not impede the use of streets and sidewalks, and is beneficial to the citizens of Palo Alto. Attachments: Attachment A - Resolution Authorizing Pilot Bike Share Permit Program Attachment B - Draft Bike Share Regulations NOT YET ADOPTED Resolution No. ________ Resolution of the Council of the City of Palo Alto Authorizing the City Manager to Establish a Pilot Program for a Bicycle Sharing System Permit Program The Council of the City of Palo Alto RESOLVES as follows: SECTION 1. Findings and Declarations. a. The City of Palo Alto seeks to implement a pilot program to permit the operation of bicycle sharing systems, including stationless or “free‐floating” bicycle sharing systems, for use by Palo Alto residents, workers, and visitors. b. Several bicycle sharing systems have expressed an interest in operations or begun operations within the City of Palo Alto. c. With the emergence of stationless bicycle sharing technologies, the absence of a pilot permitting program is likely to result in cluttered and obstructed sidewalks, uneven and inequitable distribution of bicycles, or other threats to public health and safety. SECTION 2. Pilot Program Regulations. a. The City Manager or his designee is hereby authorized to adopt, and from time to time amend, regulations governing the operation of bicycle sharing systems within the City of Palo Alto. Such regulations shall address, at a minimum, the following topics: 1. Bicycle safety; 2. Bicycle fleet deployment; 3. Permitted areas for bicycle parking; 4. Additional measures to ensure efficient and effective deployment of bicycle sharing systems in the City. b. The pilot program authorized by this resolution shall terminate upon the earlier of December 31, 2018 or the adoption of an ordinance regulating bicycle sharing systems by the Palo Alto City Council. SECTION 3. Environmental Review. The Council finds that the adoption of this resolution is exempt from review under the California Environmental Quality Act because it can be seen with certainty that there is no possibility of a significant effect on the environment as a result of the Bicycle Sharing System pilot program. INTRODUCED AND PASSED: AYES: NOT YET ADOPTED NOES: ABSENT: ABSTENTIONS: ATTEST: __________________________ _____________________________ City Clerk Mayor APPROVED AS TO FORM: APPROVED: __________________________ _____________________________ Deputy City Attorney City Manager _____________________________ Director of Development Services _____________________________ Director of Public Works Page 1 of 5 INTERIM BICYCLE SHARING SYSTEM PERMIT PROGRAM I. Policy Statement and Purpose The purpose of this policy is to establish rules and regulations governing the operation of bicycle sharing systems within the City of Palo Alto and to ensure that such bicycle sharing systems are consistent with the safety and well-being of bicyclists, pedestrians, and other users of the public rights-of-way. II. Scope This policy applies to any proposed deployment of bicycle sharing systems within the City of Palo Alto’s jurisdictional boundaries, pursuant to City Council Resolution No. XXXX. For the purposes of this policy, a “bicycle sharing system” is service offering bicycles for hire to the public on a short term basis. A “free-floating” or “stationless” bicycle sharing system involves the use of bicycles designed to be locked or secured from unauthorized use without the need for a bicycle rack, bicycle sharing station, or other structure. III. Procedures a. Any person seeking to operate a bicycle share program within the City of Palo Alto shall first obtain an encroachment permit from the Development Services Department conditioned on compliance with the Operating Regulations contained in this policy and any other conditions (including insurance, indemnity, and performance bond) established by the issuing official. No person shall operate a bicycle share program within the City except pursuant to such permit. b. The City Manager, in consultation with the City Engineer and Chief Transportation Official, shall establish Operating Regulations governing the operation of autonomous robots. All Permittees shall be required to comply with these regulations as they may be amended from time to time. IV. Operating Regulations a. Bicycles i. All bicycles meet the safety standards outlined in ISO 43.150 – Cycles, as well as the standards outlined in Code of Federal Regulations Title 16, Chapter II, Subchapter C, Part 1512 – Requirements for Bicycles. In addition, all bicycles shall meet the standards established in CVC section 21201, including for lighting during operation in darkness. ii. Electric bicycles shall be “Class 1” or “Class 2” electric bicycles only, as defined in California Vehicle Code (CVC) section 312.5. iii. Permittees shall provide easily visible contact information, including toll-free phone number and e-mail address, on each bicycle for members of the public to make relocation requests or to report other issues with the bicycle share program. All bicycles shall have a unique identifier that is easily visible on the bicycle. Page 2 of 5 iv. Permittees shall have a minimum fleet of 100 bicycles. Operators shall meet this fleet size within four weeks of permit approval by the City. Permit applicants shall include the proposed fleet size in their application. Permittees shall provide the City with two weeks’ notice of any plans to change their fleet size and shall comply with any updated permit conditions prior to implementing the change. v. The number of bicycles permitted under this pilot program shall be limited to a cumulative total of 700 bicycles between all permittees. Electric bicycles shall be exempt from this maximum. The City reserves the right to revoke a permit at any time and require that a permittee’s fleet of bicycles be removed from the City right-of-way within 30 days. b. Parking i. Permittees shall obtain an encroachment permit for any stations that require the installation and maintenance of structures within the public right-of-way. ii. For free-floating bicycle sharing systems, bicycles shall be parked upright on hard surfaces in the furniture zone of the sidewalk, at a bicycle rack, or in another area specifically designated for bicycle parking. iii. Bicycles shall not be parked in such a manner as to block the pedestrian clear zone area of the sidewalk; any fire hydrant, call box, or other emergency facility; bus bench; or utility pole or box. iv. Bicycles shall not be parked in such a manner as to impede or interfere with the reasonable use of any commercial window display or access to or from any building. v. Bicycles shall not be parked in such a manner as to impede or interfere with the reasonable use of any bicycle rack or news rack. vi. The City Manager, or his designee, reserves the right to determine certain block faces where free-floating bicycle share parking is prohibited or to create geo- fenced stations within certain areas where bicycles shall be parked. vii. Bicycles shall not be parked on blocks where the furniture zone is less than three feet wide, or where there is no furniture zone, for example, in neighborhoods with rolled curb. viii. On blocks without sidewalks, bicycles may be parked if the travel lane(s) and 6- foot pedestrian clear zone are not impeded. ix. Bicycles shall not be parked in the landscape/furniture zone adjacent to or within: 1. Transit zones, including bus stops, shelters, passenger waiting areas and bus layover and staging zones, except at existing bicycle racks; 2. Loading zones; 3. Disabled parking zone; 4. Street furniture that requires pedestrian access (for example - benches, parking pay stations, bus shelters, transit information signs, etc.); 5. Curb ramps; 6. Entryways; and 7. Driveways. Page 3 of 5 x. To the extent a permittee desires to park bicycles in areas other than the public right-of-way (e.g. parks, plazas, parking lots, private property, or transit stations), the permittee must first obtain the right to do so from the appropriate City department, property owner, or public agency and shall communicate this right to users through signage approved by the respective entity and/or through a mobile or web application. c. Operations i. Permittees shall maintain a staffed operations center within the San Francisco Bay Area, as defined by the Metropolitan Transportation Commission. ii. Permittees shall maintain a 24-hour customer service phone number for customers to report safety concerns, complaints, or to ask questions. iii. In the event a safety or maintenance issue is reported for a specific bicycle, that bicycle shall immediately be made unavailable to users and shall be removed within the timeframes provided herein. Any inoperable or unsafe bicycle shall be repaired before it is put back into service. iv. At no time shall more than fifty percent (50%) of a permittee’s free-floating bicycles be located in the Downtown or California Avenue business districts, as defined in Exhibit A. Permittees shall provide City staff with a direct contact to a representative who is capable of rebalancing the locations of free-floating bicycles within the City of Palo Alto. v. Permittees shall respond to requests for rebalancing, reports of incorrectly parked bicycles, or reports of unsafe/inoperable bicycles by relocating, re- parking, or removing the bicycles, as appropriate, within the following timeframes: 1. From 6:00 am to 6:00 pm on weekdays, not including holidays: within two hours of receiving notice, 2. All other times: within 10 hours of receiving notice. vi. In the event a bicycle is not relocated, re-parked, or removed within the timeframes specified herein, or a free-floating bicycle is parked in one location for more than 72 hours without moving, such bicycles may be removed by City of Palo Alto crews and taken to a City facility for storage at the expense of the permittee. vii. Permittees shall work with local businesses or other organizations to promote the use of bicycle helmets by system users through partnerships, promotional credits, and other incentives. viii. Permittees shall provide notice to all users by means of signage and through a mobile or web application that: 1. Bicyclists must yield to pedestrians on sidewalks; and 2. Helmets are encouraged for all users and required for minors (to the extent minors are permitted as users). d. Data Sharing Page 4 of 5 i. Permittees shall provide the City with real-time information on the entire Palo Alto fleet through a documented application program interface (API). Permittees are directly responsible for obtaining an API key from the City’s Transportation Division to which they will publish the data described below. The data to be published to the City API will include the following information in real time for every bicycle parked in the City of Palo Alto operational area: 1. Point location 2. Bicycle identification number 3. Type of bicycle (standard or electric) 4. Fuel level (if electric) ii. The City is permitted to display real-time data provided via the API and may publish real-time bicycle availability data to the public. iii. All permittees shall provide the following anonymized data for each trip record to inform and support safe and effective management of the bicycle share system, and for transportation planning efforts. Data will be submitted to the City via an API to be distributed by the City’s Transportation Division. Field name Format Description Company Name [company name]n/a Type of bicycle “Standard” or “Electric” n/a Trip record number xxx0001, xxx0002, xxx0003, … 3-letter company acronym + consecutive trip # Trip duration MM:SS n/a Trip distance Feet n/a Start date MM, DD, YYYY n/a Start time HH:MM:SS (00:00:00 –n/a End date MM, DD, YYYY n/a End time HH:MM:SS (00:00:00 –n/a Start location Census block n/a End location Census block n/a Bicycle ID number xxxx1, xxxx2, …Unique identifier for every bicycle, iv. All permitted operators will provide the following bicycle availability data for oversight of parking compliance and bicycle distribution by minutes. Data will be submitted to the City API. Field name Format Description GPS Coordinate X,Y n/a Availability Minutes n/a Availability start MM, DD, YYYY n/a Availability start HH:MM:SS (00:00:00 –n/a v. The City may, at its option, require Permittees to distribute a customer survey at the end of the pilot period. Page 5 of 5 vi. Permittees shall keep a record of maintenance activities and reported safety issues and collisions, including but not limited to bicycle identification number and maintenance performed. These records shall be sent to the City monthly and within three business days of any request by the City. vii. Permittees shall report the aggregated breakdown of customers by gender and age monthly. Gender must be reported as male, female, and non-binary. Age must be reported using these eight age groups: under 5, 5-17, 18-24, 25-34, 35-44, 45-54, 55-64, 65 and over. V. Effective Dates This policy shall be effective from the date of its approval by the City Manager and shall terminate upon the earlier of December 31, 2018 or the adoption of permanent legislation regulating bicycle sharing systems by the Palo Alto City Council. Approved: ___________________________ _______________ City Manager James Keene Date University Avenue Embarcadero Road El Camino Real Alma Street Alma Street Middlefield Road U niversi A l m a S t E m ba r c a de r o R o a Oxford Avenue Harvard enue Wellesley Street Princeton StreetOberlin Street Cornell Street Cambridge Avenue College AvenueWilliams Street Yale Street Staunton Court Oxford Avenue El C a mino R e al Churchill Avenue P a rk B o u le v ar d Park Avenue E scobita Aven ue Churchill Avenue S e q u oi a A v e n u e Maripos a Avenu e Castilleja Avenu e Mira m o nte A v e n u e M adron o Aven ue P ortola A v enue Manzanita Avenue Coleridge Avenue Leland Avenue Stanford Avenue Birch Street Ash Street Lowell Avenue Alma Street Tennyson Avenue Grant Avenue Sheridan Avenue Jacaranda Lane El Camino Real Sherman Avenue Ash Street Page Mill Road Mimosa Lane Pepper Avenue Olive Avenue AcaciaA Page Mill Road Ash Street College Avenue Cambridge Avenue New Mayfield Lane Birch Street California Avenue Park Boulevard Nogal Lane Rinconada Avenue Santa Rita Avenue Park Boulevard Seale Avenue W ashington Avenue Santa Rita Avenue Waverley Stree Bryant Street High Street E merso n Street Alma S treet Hig t Waverley Oaks Emerson Street Nev ada Avenue North California Avenue Santa Ramona S High Street North California Av Oregon Expresswa Homer Avenue Lane 8 W est M edi cal F o u n d a tio n Way Lane 7 West Lane 7 East E mb a r cade ro R oad E ncina A ve n u e El C a min o R e al U r b a n L a n e W ells Av enue Forest Avenue High Street Emerson Street Cha nning Avenue Alma Street Alma Street El Ca mino R eal Mitchell Lane enue Everett Avenue Lytton Avenue Lane 15 E High Street t Bryant Street La n e 6 E Lane 11 W Lane 21 Hi gh Street Gilman Street Ha milton Avenu e University Avenue Bryant Court Lan e 30 Floren ce Street Kipling Street Tass o Street Cowper Street Ruthven Avenue Hawthorne Avenue Lane 33 PaloAltoAvenue Everett Avenue Poe Street W averley Street Tasso Street Cowper Street alo Alto Avenue W ebster Street Everett Court Lytton Avenue Byron Street Street Middlefield Road Churchill Avenue Lowell Avenue Seale AvenueTennyso n Avenue Melville Avenue Cowper Street Tasso Street Webster Stre Byr Coleridge Avenue W averley Street Bryant Street Emerson Street Kellogg Avenue Kingsley Avenue Lane A W est Lane B W est Lane B East Lane D West Lane 59 East Whitman Court Kellogg AvenueEmbarcadero R o a d Kingsley Avenue Lincoln AvenueAddison Avenue Lincoln Avenue Forest Avenue Downing Lane Homer Avenue Lane D East Lane 39 Lane 56 Hamilton Avenue W ebster Street Waverley Street Kipling Street Bryant StreetRamona Street Addison Avenue Scott Street Byron Street Seneca Street Lytton Avenue Guinda Street aloAltoAve Fulton StreetMiddlefield Road Forest Avenue W ebster Street Kellogg Avenue Middlefield Road Byron Street W ebster Street Cowper Street Tasso Street Cowper Street Addison Avenue Lincoln Avenue Boyce Avenue Forest AvenueHamilton Avenu Homer Avenue Guinda Street Middlefield Road Channing Avenue Un Channing Avenue Addison Avenue Lincoln Avenue Regent Pl Guinda Street Lincoln Avenue Fulton Street Melville Avenue Byron Street Kingsley Avenue Melville Avenue Forest AvenueForest Somerset Pl Pitman Avenue Fife Avenue Forest Avenue Linco Coleridge Avenue Lowell Avenue Fulton StreetCowper Street Tennyson Avenue Middlefield Road Guind Webster Street Kirby Pl Kent Place Tevis Pl Martin Avenue Center Drive Harriet Street Wi l s o n S t r e e t Cedar Street Harker Avenue Greenwood Avenue Hutchinson Avenue Channing Avenue Hopkins Avenue E mb a r cad e r o Road Ashby Drive Dana Pitman Avenue Arcadia Place New Sharon Ct W Newell Road Parkinson Avenue Pine Street Kings La Ramona Street Addison AvenueChanning Avenue W averley Street Tennyson Avenue Seale Avenue M Sedro Lane Peral Lane Paulsen Ln Community Lane Lane 15 E Sheridan Avenue Emerson Street Lane 20 WLane 20 E University Avenue CalTrain RO W CalTrain RO W Emerson Street W averley Street Kipling Street Bryant Street Ramona Street Stanford Avenue Lane 12 WLane 5 E Lasuen Street Escondido Road Olmst e d Road L a n e B L a n e C Everett Avenue Homer Avenue Community Lane Greenwood Avenue Harker Avenue Parkinson Avenue Byron Street Emerson Street z Mall Abrams Court A ngell C ourt Arguello Way Arguello Way A very M all Ayrshire Farm Lane Barnes CourtBonair Sidin g Bo wdoin S C a m pus Drive Ca m pus Drive C a m pus Drive Campus Drive Campus Drive Campus Dr i v es Driv e C hurchill M all Comstock Circle Aboretum Road Blackwelder Court Cowell Ln ay Dud l ey Lane Escondido Road Escondido Road Escondido Road Galvez Mall G alv e z S tr e e t Galvez Street Galvez Street Hoskins Court Hulme Court Jen k i n sCour t Knight Way M a sters M all McFarland Court Memorial Way N elson M all Nelson Road Oberlin St Comstock Circle Escondido Mall Olmsted Road Olmsted R oad Olmsted R o ad Olmsted Road Olms t e d Road Palm Drive P a m pas L an e Quillen Ct Rosse Lane Running Farm Lane e rr a eet Serra Street S erra Street S erra Street Thoburn Court Wellesley St Wilbur Way Yale St Alma Street Alma Street Alma Street Alma Street Hawthorne Avenue Lytton Avenue S a m M c D on ald R o ad S a m M c D onald M all Bowdoin Lane Arguello Way Birch Street California AveBusiness District Downtown Palo Alto EvergreenMayfield RPP Downtown RPP This map is a product of the City of Palo Alto GIS This document is a graphic representation only of best available sources. Legend City Jurisdictional Limits Cal Ave Business District Downtown Palo Alto Assessment Parcel 0'800' Palo Alto Business DistrictsCITYOF PALO A L TO I N C O R P O R ATE D C ALIFOR N IA P a l o A l t oT h e C i t y o f A P RIL 16 1894 The City of Palo Alto assumes no responsibility for any errors. ©1989 to 2016 City of Palo Alto rtong, 2017-10-17 16:47:54 (\\cc-maps\Encompass\Admin\Personal\rtong.mdb) EXHIBIT A City of Palo Alto (ID # 8605) Policy and Services Committee Staff Report Report Type: Action Items Meeting Date: 11/14/2017 City of Palo Alto Page 1 Summary Title: CSD Fee Schedule Audit and Status Updates Title: Discussion of City Auditor's Community Services Department Fee Schedule Audit Recommendations and Recommend that the City Council Accept the Status of Audit Recommendations Report. From: City Manager Lead Department: Community Services Recommendation Staff recommends the Policy and Services Committee recommend that the City Council accept the attached Status of Audit Recommendations resulting from the City Auditor’s Community Services Department Fee Schedule Audit. Background The City Auditor’s Office issued an audit, the Community Services Department (CSD) Fee Schedule Audit on February 14, 2017 (Attachment A). The audit objective was to determine if department fees cover the cost of services to ensure: Financial sustainability of CSD programs; Customers pay the appropriate share of service costs, including direct costs and the indirect cost rate related to the service; City programs are subsidized in accordance with the City’s cost recovery policy and that the financial impact of subsidies on total cost recovery is clear. The City Auditor made three recommendations to strengthen the department’s cost recovery procedures and processes for monitoring program costs. The key recommendations were: The City Manager’s Office should coordinate with the City Attorney’s Office and the Administrative Services Department to revise the City’s cost recovery policy and Questica budget system procedures to clarify which fees are not subject to laws limiting fees to cost recovery. CSD should create a procedure to implement the City’s User Fee Cost Recovery Level Policy and incorporate relevant and useful elements from its existing “Class Cost Recovery Policy,” which can then be rescinded. CSD should work with the Administrative Services Department (ASD) and the Information Technology Department to configure SAP or include a requirement for the City of Palo Alto Page 2 proposed new enterprise resource planning system to align cost centers with CSD programs. Discussion The status of the audit recommendations is included in Attachment B. The City Manager’s Office, Administrative Services Department, and Community Services Department has implemented one of the three open recommendations and anticipates that the remaining two recommendations should be substantially completed by fall 2018. Recommendation #2 was implemented by updating CSD’s Cost Recovery Procedure to include use of the City’s three cost recovery groups, fee exceptions, and clear guidelines on how to determine cost recovery and how to monitor cost recovery, among other changes. Attachments: Attachment A: City Auditor’s Report: Community Services Department Fee Schedule Audit Attachment B: Status of Audit Recommendations Attachments: Attachment B: Status of Audit Recommendations Attachment A: City Auditor's Audit of the Community Services Department's Fee Schedule Community Services Department: Fee Schedules Audit 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) Agree, Partially Agree, or Do Not Agree and Target Date and Corrective Action Plan Status Implementation Update and Expected Completion Date Finding: Most Community Services Department (CSD) programs recover costs consistent with City policy; however, CSD does not consistently apply its cost recovery policies and procedures 1. The City Manager’s Office should coordinate with the City Attorney’s Office and the Administrative Services Department to revise the City’s cost recovery policy and Questica budget system procedures to clarify which fees are not subject to laws that limit fees to cost recovery; modify the cost recovery categories to allow for fees that recover more than costs, based on market rates; and configure the Questica budget system to support setting fees to recover more than 100 percent of costs when appropriate. ASD Concurrence: Agree Target Date: 6/30/2017 Action Plan: ASD staff will coordinate with the CMO, City Attorney and departments to revise and implement the recommendations. Not started. ASD and the CMO expect to begin the policy update shortly and will likely complete this recommendation by Fall 2018. 2. After recommendation 1 is complete, CSD should create a procedure to implement the City’s User Fee Cost Recovery Level Policy and incorporate relevant and useful elements from its existing “Class Cost Recovery Policy,” which can then be rescinded. CSD’s new procedure should: a. Update and finalize the draft CSD program level cost recovery targets to be consistent with the ranges in the City policy. The procedure should clarify the rationale for targets assigned to programs and reference the City policy categories. b. Clarify exceptions to fees that are set to target specific cost recovery goals and that may impact rates for other service recipients and program cost recovery CSD Concurrence: Agree Target Date: 6/30/2017 Action Plan: Staff will develop a new CSD procedure with the following features: a. cost recovery targets in alignment with the City’s three Cost Recovery Level Groups and clarity around how the rationale for cost recovery levels for each major CSD activity as well as references to City policy categories b. a list of exceptions to fees and a rationale for each exception c. a clear process outlined for staff to use with instructions on who should assess costs, where the assessments are maintained, how they are reviewed, how Implemented . Staff have developed an updated procedure that includes all of the identified improvements including: use of the City’s three cost recovery groups, fee exceptions, and clear guidelines on how to determine cost recovery and how to monitor. Completion date: 10/25/17 2 Community Services Department: Fee Schedule Audit Recommendation Responsible Department(s) Agree, Partially Agree, or Do Not Agree and Target Date and Corrective Action Plan Status Implementation Update and Expected Completion Date levels, such as discounted rates for certain groups. c. Require CSD to annually assess whether cost recovery levels achieved targets and address obstacles and opportunities to meet targets. d. Describe how to use the fee-setting form to calculate service costs based on total costs for the service provided, including direct costs and an indirect cost rate calculated by OMB, and set fees that are consistent with the City’s cost recovery policy. To minimize administrative efforts, describe which classes/services may be grouped together when calculating costs (i.e., one form may cover more than one class). e. Require completion and review of the forms to ensure that class/service costs are known and that fees are set to recover costs consistent with targets. Clarify who is responsible to complete the forms, when the forms are completed, and who reviews and approves the forms. f. Establish a method to estimate a reasonably accurate minimum and maximum class enrollment number to enter in ACTIVE Net. The procedure should address what enrollment levels should prompt a review to determine whether to cancel a class or increase offerings to accommodate demand. to calculate service costs, how to group activities, and how frequently to do these assessments d. a process to incorporate cost recovery reviews into the Department’s existing internal quarterly budget review e. a process outlined for management responsibility and oversight to ensure that service cost calculations and fee setting occur when expected f. a process outlined for establishing minimum and maximum enrollments in Activenet and the rationale and evaluation of whether to proceed with classes enrolled below the minimum. Community Services Department: Fee Schedules Audit 3 Recommendation Responsible Department(s) Agree, Partially Agree, or Do Not Agree and Target Date and Corrective Action Plan Status Implementation Update and Expected Completion Date 3. CSD should work with ASD and the Information Technology Department to configure SAP or include a requirement for the proposed new enterprise resource planning system to align cost centers with CSD programs. CSD Concurrence: Agree Target Date: 7/1/2018 Action Plan: While we will begin working on this in earnest, realistically, we anticipate that we will not fully implement this recommendation for at least two budget cycles. We are currently working with ASD to better align CSD’s Cost Centers in SAP with our individual lines of business. We expect we will complete much of this recommendation by 7/1/2017 but that there will be additional clean up in the next budget year. Partly Implemented . CSD has worked with Budget Office staff to better align cost centers with CSD programs. Staff have already updated cost centers for the Children’s Theatre and Human Services and are in the process of updating Recreation, Teen Programs, and Cubberley. Staff have also reviewed CSD staff assignments to ensure that positions are assigned to the appropriate cost centers. Staff anticipates that this review of staff and budget by program should be substantially complete this fall but will likely require clean-up at the beginning of FY 2019. Expected Completion date: 11/1/18 CITY OF PALO ALTO OFFICE OF THE CITY AUDITOR April 17, 2017 The Honorable City Council Palo Alto, California Policy and Services Committee Recommendation to Accept the Community Services Department: Fee Schedule Audit The Office of the City Auditor recommends acceptance of the Community Services Department: Fee Schedule Audit. At its meeting on February 14, 2017, the Policy and Services Committee approved and unanimously recommended that the City Council accept the report. The Policy and Services Committee minutes are included in this packet. Respectfully submitted, Harriet Richardson City Auditor ATTACHMENTS: Attachment A: Community Services Department: Fee Schedule Audit (PDF) Attachment B: Policy and Services Committee Meeting Minutes Excerpt (February 14, 2017) (PDF) Department Head: Harriet Richardson, City Auditor Page 2 CITY OF PALO ALTO OFFICE OF THE CITY AUDITOR February 14, 2017 The Honorable City Council Palo Alto, California Community Services Department: Fee Schedule Audit In accordance with the Fiscal Year 2016 Annual Audit Work Plan, the Office of the City Auditor has completed the Community Services Department: Fee Schedule Audit. The audit report presents one finding with a total of three recommendations. The Office of the City Auditor recommends that the Policy and Services Committee review and recommend to the City Council acceptance of the Community Services Department: Fee Schedule Audit. Respectfully submitted, Harriet Richardson City Auditor ATTACHMENTS: Attachment A: Community Services: Fee Schedule Audit (PDF) Department Head: Harriet Richardson, City Auditor Attachment A Page 2 Attachment A Community Services Department: Fee Schedule Audit December 15, 2016 Office of the City Auditor Harriet Richardson, City Auditor Houman Boussina, Senior Performance Auditor Marisa Lin, FISCal Intern Attachment A Page intentionally left blank for double-sided printing Attachment A OFFICE OF THE CITY AUDITOR EXECUTIVE SUMMARY: Community Services Department: Fee Schedule Audit December 15, 2016 PURPOSE OF THE AUDIT The purpose of this audit was to determine if fees cover the cost of services provided as expected. REPORT HIGHLIGHTS Finding: Most Community Services Department (CSD) programs recover costs consistent with City policy; however, CSD does not consistently apply its cost recovery policies and procedures (Page 6) In FY 2016, six of eight Community Services Department (CSD) programs1 recovered service costs at rates consistent with the City’s 2015 User Fee Cost Recovery Level Policy. The policy does not require recovery of all service costs, and acknowledges that the City will subsidize some programs more than others depending on the level of benefit to the community versus the individual. CSD can refine and further implement existing fee-setting policies and procedures to ensure: • Financial sustainability of its programs. • Customers pay the appropriate share of service costs, including direct costs and the indirect cost rate related to the service. • City programs are subsidized in accordance with the City’s cost recovery policy and that the financial impact of subsidies on total cost recovery is clear. CSD does not consistently apply its cost recovery policies and procedures, and its internal policy’s four cost ranges are not aligned with the three cost recovery ranges in the City’s 2015 cost recovery policy. Implementing the City’s cost recovery policy and updates to procedures may result in changes to CSD’s cost recovery levels and overall 28 percent recovery rate. Key Recommendations: • The City Manager’s Office should coordinate with the City Attorney’s Office and the Administrative Services Department to revise the City’s cost recovery policy and Questica budget system procedures to clarify which fees are not subject to laws limiting fees to cost recovery. • CSD should create a procedure to implement the City’s User Fee Cost Recovery Level Policy and incorporate relevant and useful elements from its existing “Class Cost Recovery Policy,” which can then be rescinded. • CSD should work with the Administrative Services Department (ASD) and the Information Technology Department to configure SAP or include a requirement for the proposed new enterprise resource planning system to align cost centers with CSD programs. 1 We use the term “programs” throughout the audit as a generic reference to all services, programs, or activities that CSD offers to the public. Attachment A Page intentionally left blank for double-sided printing Attachment A TABLE OF CONTENTS Objective ................................................................................................................................................. 1 Background ............................................................................................................................................. 1 Scope ...................................................................................................................................................... 3 Methodology .......................................................................................................................................... 4 Finding: Most Community Services Department (CSD) programs recover costs consistent with City policy; however, CSD does not consistently apply its cost recovery policies and procedures .................... 6 Recommendations ........................................................................................................................... 10 Appendix 1: City of Palo Alto User Fee Cost Recovery Level Policy .................................................... 12 Appendix 2: Community Services Department Class Cost Recovery Policy ........................................ 14 Appendix 3: Community Services Department Expenses, Revenues, Subsidies, and Cost Recovery Percentages (FY 11 to FY 16) ......................................................................................................... 19 Appendix 4: City Manager’s Response ................................................................................................ 22 ABBREVIATIONS ASD Administrative Services Department CSD Community Services Department FY Fiscal Year GFOA Government Finance Officers Association OMB Office of Management and Budget Attachment A Page intentionally left blank for double-sided printing Attachment A INTRODUCTION Objective The purpose of this audit was to determine if fees cover the cost of services provided as expected. Background The City provides a variety of services to the public that benefit the entire community, individual residents, or businesses. The City has traditionally recovered a portion or all of the costs of certain services, which otherwise would have been paid from the General Fund or other sources. Each City department recommends a schedule of fees and rates for its services to the Administrative Services Department (ASD) and is required to collect and deposit fees in accordance with City policies and procedures. The City Manager issues an annual municipal fee schedule, which the City Council approves. Community Services Department Programs2 The Community Services Department (CSD) operates the Arts and Sciences; Open Space, Parks, and Golf; and Recreation and Cubberley Divisions and the Office of Human Services to provide a diverse range of programs and services designed to increase knowledge, creativity, artistic expression, physical activity, social assistance, and enjoyment of the outdoors. Although CSD charges fees for many services and programs, it provides some that do not charge fees based on City Council and management direction. The City’s fee schedule lists specific fees for facility rentals, golf services, open space and parks, and certain recreation activities and a range of fees for camps and classes. The specific fees for camps and classes are provided in CSD’s quarterly Enjoy! catalog. Calculating costs The Government Finance Officers Association (GFOA) recommends collecting cost data for a variety of purposes, including setting user fees and charges and identifying alternative service delivery options. The full cost of a service encompasses: • Direct costs, including the salaries, wages, and benefits of employees who deliver the service; materials and supplies; and other associated operating costs, such as utilities, rent, training, and travel. • Indirect costs, including shared administrative expenses within the work unit and in support functions outside the work unit 2 We use the term “programs” throughout the audit as a generic reference to all services, programs, or activities that CSD offers to the public. Attachment A (e.g., legal, finance, human resources, facilities,3 maintenance, technology). Shared costs should be apportioned by a transparent, systematic, and rational allocation methodology. General fund charges for services The City’s General Fund revenue includes “charges for services,” which includes fees for fire services to Stanford, paramedic services, golf-related activities, art and science classes, and plan checks. “Charges for services” was the City’s third largest source of revenue and comprised $25.4 million (14 percent) of the City’s General Fund revenue in Fiscal Year (FY) 2015. Legal framework Under California law, municipalities have wide discretion to establish charges for use of government facilities, including park entrance fees and facility rentals, and participation in elective services and programs, such as arts and recreation classes. Although the California Constitution, Article XIII C, as amended by Proposition 26 in November 2010 (“Prop. 26”), limits some types of user fees to the estimated reasonable cost of providing the service, it exempts the fees and charges addressed in this audit. For these fees, it is lawful for the City to establish charges at, below, or above the cost of providing the service. User Fee Cost Recovery Policy The City adopted a User Fee Cost Recovery Level Policy in May 2015 (see Appendix 1). Its purpose is to set cost recovery goals for City services. The policy acknowledges that fees should not be charged or should be low for services that benefit the entire community or for services that promote City goals and policies, such as healthy habits and environmental stewardship. The policy identifies three cost recovery levels and says that recreational activity fees should generally be set at the medium level, which means that fees would generally recover 30.1 percent to 70 percent of the related costs. The policy also states, however, that high-demand recreational activities may have a high cost recovery level due to high enrollment per class. The City began to align fees with the policy during the FY 2017 budget process. CSD Class Cost Recovery Policy The City adopted CSD’s Class Cost Recovery Policy in 2007 “as a guideline to establish cost-recovery targets for fee-based classes and camps within the divisions of Recreation & Golf, Arts & 3 According to a November 2013 City Manager report, the City does not include facility expense as a cost component to calculate cost recovery. Attachment A Sciences, and Open Space & Parks.”4 The policy identified four cost recovery groups, which represent the low to high ends of the cost recovery spectrum: • Group I: Community benefit • Group II: Majority community benefit • Group III: Equal community benefit and personal benefit • Group IV: Majority personal benefit The policy, which CSD developed as a result of an October 2006 audit recommendation, requires programs to be reviewed annually and fee adjustments to be made to ensure that established cost recovery levels are met. CSD drafted another document that assigned categories of classes and activities to a group. Scope Our original audit scope included financial information through FY 2015; however, the audit process extended through December 2016, which provided an opportunity to include certain FY 2016 financial information to assess the extent to which CSD’s fees recover the cost of its programs. We did not update background, sampling, and class enrollment information to include FY 2016 data. We did not assess fees that other departments, such as Planning and Community Environment and Development Services, charge for services that primarily benefit service recipients. We also excluded activities that primarily benefit the community and do not generate revenues. CSD’s cost recovery and fee setting policies and procedures cover only fee-based classes and camps. However, because cost recovery data for individual classes was not readily available, we focused our assessment on cost recovery for CSD divisions and programs overall. CSD did not have written procedures specific to other program areas. We did not benchmark Palo Alto’s CSD program cost recovery levels with other jurisdictions because other studies identified difficulties due to variations in service levels, service bundling, pricing structures, and methods of budgeting and accounting for revenues. For example, unlike most jurisdictions, CSD operates the Office of Human Services, the Children’s Theatre, the Art Center, an artist studio program, and the Junior Museum and Zoo. 4 CSD has reorganized since 2007 and now includes the Arts and Sciences; Open Space, Parks, and Golf; and Recreation and Cubberley Divisions and the Office of Human Services. Attachment A Methodology To accomplish our audit objective, we: • Interviewed Office of Management and Budget (OMB) and CSD staff responsible for fee setting to understand the relevant data and policies and procedures. • Obtained clarification from the City Attorney’s Office regarding laws and regulations applicable to CSD fees. • Conducted a risk assessment to identify and prioritize risks associated with setting fees. • Reviewed applicable laws and regulations, and fee setting best practices from the Government Finance Officers Association. • Reviewed published audit reports and included audit steps to address risks identified in the City’s 2006 audit report on CSD class cost recovery and relevant audit and technical reports from other jurisdictions. • Calculated CSD’s cost recovery rates from FY 2011 through FY 2016 by compiling and mapping relevant financial data from the City’s SAP system, CSD, and OMB. The SAP financial data consisted of actual City revenues and expenses, excluding noncash expenses such as depreciation. • Compared CSD’s cost recovery rates with ranges specified in the City’s cost recovery policy. • Reviewed a judgmental sample of CSD fees to assess the fee- setting process and alignment of cost recovery with the City’s cost recovery policy. • Reviewed CSD class enrollment data. Sampling methodology We judgmentally selected and reviewed a sample of 33 CSD fees to assess whether CSD’s cost recovery procedures are consistent with the City’s cost recovery goals and objectives. Our sample covered classes, camps, registration seasons, and varying participant and fee levels. Because this was a judgmental sample, our conclusions cannot be projected to the total population of CSD classes. Because expense data was not readily available for the 33 CSD classes in our sample, we could not assess whether cost recovery levels for each class were aligned with the City’s cost recovery policy. The finding provides an assessment of cost recovery for CSD programs overall, assuming that most classes or services within each program align with the same City policy cost recovery category. Attachment A Data reliability We assessed the accuracy and completeness of CSD revenue and class enrollment data in its ACTIVE Net recreation management software system by reconciling the data with the City’s SAP system and published CSD course catalogs. Based on these assessments and discussions with ASD accounting staff, we concluded that the data were sufficiently reliable for the purposes of this report. Because SAP data, which the City’s external financial auditor audits annually, is widely accepted as the source for financial data in the City, we relied on the data without assessing data reliability. Compliance with government auditing standards We conducted this audit of CSD class fees in accordance with our FY 2016 Annual Audit Work Plan and generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives. We would like to thank management and staff in the Administrative Services and Community Services Departments for their time, cooperation, and assistance during the audit process. Attachment A Finding Most Community Services Department (CSD) programs recover costs consistent with City policy; however, CSD does not consistently apply its cost recovery policies and procedures In FY 2016, six of eight Community Services Department (CSD) programs recovered service costs at rates consistent with the City’s 2015 User Fee Cost Recovery Level Policy. The policy does not require recovery of all service costs, and acknowledges that the City will subsidize some programs more than others depending on the level of benefit to the community versus the individual. CSD can refine and further implement existing fee-setting policies and procedures to ensure: • Financial sustainability of its programs. • Customers pay the appropriate share of service costs, including direct costs and the indirect cost rate related to the service. • City programs are subsidized in accordance with the City’s cost recovery policy and that the financial impact of subsidies on total cost recovery is clear. CSD does not consistently apply its cost recovery policies and procedures, and its internal policy’s four cost ranges are not aligned with the three cost recovery ranges in the City’s 2015 cost recovery policy. Implementing the City’s cost recovery policy and updates to procedures may result in changes to CSD’s cost recovery levels and overall 28 percent recovery rate. Most CSD programs recover costs at rates consistent with City policy CSD recovered $8.0 million (28 percent) of its $28.5 million in service costs in FY 2016 through fees and outside contributions. Exhibit 1 shows cost recoveries for CSD program areas. Based on the City’s 2015 User Fee Cost Recovery Policy, eight program areas would generally be expected to recover at least 30.1 percent of costs and four would generally be expected to recover 30 percent or less of costs. Although CSD has its own class cost recovery policy, it is applicable only to fee-based classes and camps and is not consistent with the City’s newer cost recovery policy, which has broader applicability. The amount of future cost recovery will depend on Council and City management decisions within the broad framework of the City policy. Attachment A Although the City’s User Cost Fee Recovery Level Policy was not expected to be implemented until the FY 2017 budget process, Exhibit 1 shows that six of CSD’s eight programs that would generally be expected to recover at least 30.1 percent of costs did so in FY 2016. • The cost recovery rate for the Junior Museum and Zoo is less than the policy range because the City does not currently charge admission fees to the facility, which is considered a community benefit. • The cost recovery rate for Theatre, Music, & Dance is lower because the Children’s Theatre does not charge to participate in productions, the City fully subsidizes the three theatre groups’ exclusive use of the Stern Community Theatre, and the theatre groups do not meet the City’s $90,000 revenue target for annual ticket sales that they provide to the City. CSD estimates that the EXHIBIT 1: CSD Cost Recovery by Program Area (Fiscal Year 2016) CSD Programs CURRENT POTENTIAL Expense (millions) Revenue (millions) Recovery Percentage General Fund Subsidy (millions) City Policy Cost Recovery RangeA CSD programs that should generally recover at least 30.1 percent of costsA 1. Art Center (Exhibitions & Visual Arts) $1.8 $0.8 43.2% $1.0 30.1% - 70% 2. Theatre, Music, & Dance $2.6 $0.8 29.8% $1.8 30.1% - 70% 3. Junior Museum and Zoo $2.9 $0.7 22.4% $2.3 30.1% - 70% 4. Aquatics $0.9 $0.4 44.8% $0.5 30.1% - 70% 5. Middle School Athletics $0.5 $0.3 61.3% $0.2 30.1% - 70% 6. Recreation $3.9 $2.1 53.6% $1.8 30.1% - 70% 7. Cubberley $2.1 $0.9B 45.3% $1.1 30.1% - 70% 8. Golf $1.8 $1.5 84.2% $0.3 70.1% - 100% CSD programs that should generally recover between 0% and 30% of costsA 9. Public Art, Concerts, & Art Partnerships $0.3 $0.0 1.0% $0.3 0% - 30% 10. Special Events $0.3 $0.0 5.8% $0.3 0% - 30% 11. Parks & Open Space $9.2 $0.5 5.0% $8.7 0% - 30% 12. Human Services $2.1 $0.0 0.5% $2.1 0% - 30% A Based on City of Palo Alto 2015 User Fee Cost Recovery Level Policy ranges as applied by the Office of the City Auditor. However, some activities within a program area may have different cost recovery expectations, including services that are either not expected to generate fees or warrant lower or higher fees due to their level of benefit to the community or individual. B Does not include revenue from leases managed by ASD that are not considered “charges for services.” Source: Office of the City Auditor cost recovery analysis based on City policy and SAP financial data. Attachment A theatre group subsidies have a combined value of about $500,000 annually. • Golf is the least subsidized program. Golf revenues surpassed expenses from FY 2011 through FY 2013 (see Appendix 3), but the City began subsidizing Golf in FY 2014 and recovered about 84 percent of costs in FY 2016. Some CSD programs do not have cost recovery objectives Exhibit 1 shows four programs that do not have significant cost recovery objectives: Public Art, Concerts, & Art Partnerships; Special Events; Parks & Open Space; and Human Services. Because most of the expenses for Parks & Open Space are for maintenance, there currently is limited opportunity to recover those costs. Cost recovery rates may reflect the Council’s policy to subsidize, in part or in full, services that benefit the public at large or promote health activities and educational enrichment to the community, but the City policy does not provide detailed expectations regarding subsidies for specific activities. CSD’s implementation of the City policy will help define where subsidies supplement or supplant fees for specific services. Cost recovery rates fluctuate from year to year CSD’s total cost recovery has ranged from a high of 34 percent in FY 2011 to a low of 28 percent in FY 2015 and FY 2016. The decline is mostly due to lower Golf revenues. Appendix 3 shows program expenses, revenues, general fund subsidies, and cost recoveries, by CSD program, from FY 2011 to FY 2016. CSD has not consistently applied its cost recovery policies and procedures CSD has developed policies and tools to meet cost recovery objectives but has not updated them since 2007 or consistently applied them. These include fee-setting templates, a draft document with specific program cost recovery targets, and a 2007 Class Cost Recovery Policy. The City’s policy does not acknowledge that state law exempts recreation programs and facility rentals from the cost recovery limits that apply to many other City services. Fee-setting templates and tools not consistently used CSD created a document to show the cost recovery targets for its programs and a fee-setting template to calculate fees based on projected costs, revenues, enrollment, and cost recovery targets. However, CSD does not have a process to ensure that the templates are completed, reviewed, and used, or that the targets in the templates align with the cost recovery target document. CSD had not used the template to set fees for any of the 33 classes and camps in our sample, although some program coordinators provided completed forms as examples for the audit. Updating the cost recovery target document and consistently using the templates Attachment A would help ensure compliance with the City’s 2015 User Fee Cost Recovery Level Policy. SAP not configured to help monitor cost recovery As shown in Exhibit 1, comparing cost recovery levels by program area with City policy cost recovery ranges is useful to assess if the City is meeting cost recovery objectives. The City’s SAP financial system tracks revenues and expenses by City department, division, fund, and cost centers that generally correspond to services. However, SAP cost centers are not aligned with program revenues and expenses. Calculating cost recovery by program area, including appropriately allocating indirect costs, requires a manual process to map SAP cost centers to program areas. Also, there is no procedure or tool to allocate division, department, and City indirect costs to program areas. Calculating cost recovery, including both direct and indirect costs, by program area can help CSD staff ensure that it sets fees at a level that meets the City’s cost recovery objectives. CSD Class Cost Recovery Policy not aligned with City policy and is redundant CSD has a 2007 Class Cost Recovery Policy but has not yet updated it to align it with the City’s 2015 User Fee Cost Recovery Level Policy, which was expected to be used starting with the FY 2017 budget process. CSD’s policy: • Only addresses fee-based classes and camps and excludes services such as golf green fees. • Has four cost-recovery groups with targets based on the benefit level to the community or the individual versus the three cost recovery groups in the City’s policy. • Has cost recovery targets that are based on direct cost plus overhead rates for department and City overhead; the City policy targets are based on total cost but does not specify how to include overhead. Class enrollment levels may affect anticipated cost recovery Of the 33 CSD classes we reviewed, 14 (42 percent) had enrollment that was less than the minimum or more than the maximum listed in ACTIVE Net. Because of this, we looked at FY 2015 enrollment levels in ACTIVE Net and found that 428 (19 percent) of the 2,238 activities or classes had actual enrollment under the stated minimum. CSD does not have written policies and procedures to ensure that class enrollment levels support the City’s cost recovery policy. Although CSD program coordinators use their judgment, based on knowledge of past enrollment levels, ideal class size, and room capacity to enter minimum and maximum enrollment levels in ACTIVE Net, they do not always cancel classes or limit enrollment based on these numbers. According to CSD staff, enrollment levels below the minimum in Attachment A ACTIVE Net may not adversely impact cost recovery for contracted classes because the contracts compensate instructors based on the number of enrollees. However, this does not consider that overhead costs for that class or activity may not be recovered or that the facility may have been better used for a different activity. State law exemption to cost recovery limit not reflected in policies and procedures The City’s 2015 User Fee Cost Recovery Level Policy; budget, fee setting, and publishing tool (i.e., the Municipal Fee Module of the City’s Questica budget system); and procedures to use the Municipal Fee Module limit fees the City can charge to 100 percent of service costs. This limit applies to fees for recreation services such as golf where market pricing may lawfully provide revenues that exceed costs. Prop. 26 exempts recreation programs and facility rentals from the cost recovery limits that apply to some service costs, such as permit or utilities fees. Minutes for various Council meetings show that fee-setting decisions were influenced by this misunderstanding of state law. Effects of lower than expected cost recovery Lower than expected cost recovery could result in: • The City subsidizing more programs than expected or not being able to offer some programs. • Some residents paying more or less than appropriate for services they benefit from. • The City not achieving its social goals and objectives, such as subsidizing low-income individuals, seniors, and/or youth, because it subsidizes other unintended individuals. Recommendations 1. The City Manager’s Office should coordinate with the City Attorney’s Office and the Administrative Services Department to revise the City’s cost recovery policy and Questica budget system procedures to clarify which fees are not subject to laws that limit fees to cost recovery; modify the cost recovery categories to allow for fees that recover more than costs, based on market rates; and configure the Questica budget system to support setting fees to recover more than 100 percent of costs when appropriate. 2. After recommendation 1 is complete, CSD should create a procedure to implement the City’s User Fee Cost Recovery Level Policy and incorporate relevant and useful elements from its existing “Class Cost Recovery Policy,” which can then be rescinded. CSD’s new procedure should: a. Update and finalize the draft CSD program level cost recovery Attachment A targets to be consistent with the ranges in the City policy. The procedure should clarify the rationale for targets assigned to programs and reference the City policy categories. b. Clarify exceptions to fees that are set to target specific cost recovery goals and that may impact rates for other service recipients and program cost recovery levels, such as discounted rates for certain groups. c. Require CSD to annually assess whether cost recovery levels achieved targets and address obstacles and opportunities to meet targets. d. Describe how to use the fee-setting form to calculate service costs based on total costs for the service provided, including direct costs and an indirect cost rate calculated by OMB, and set fees that are consistent with the City’s cost recovery policy. To minimize administrative efforts, describe which classes/services may be grouped together when calculating costs (i.e., one form may cover more than one class). e. Require completion and review of the forms to ensure that class/service costs are known and that fees are set to recover costs consistent with targets. Clarify who is responsible to complete the forms, when the forms are completed, and who reviews and approves the forms. f. Establish a method to estimate a reasonably accurate minimum and maximum class enrollment number to enter in ACTIVE Net. The procedure should address what enrollment levels should prompt a review to determine whether to cancel a class or increase offerings to accommodate demand. 3. CSD should work with ASD and the Information Technology Department to configure SAP or include a requirement for the proposed new enterprise resource planning system to align cost centers with CSD programs. Attachment A APPENDIX 1 – City of Palo Alto User Fee Cost Recovery Level Policy Attachment A Attachment A APPENDIX 2 – Community Services Department’s Class Cost Recovery Policy Attachment A Attachment A Attachment A Attachment A Attachment A APPENDIX 3 – Community Services Department Expenses, Revenues, Subsidies, and Cost Recovery Percentages (FY 11 to FY 16) Year CSD Programs/Divisions Expense Revenue General Fund Subsidy/Revenue5 Cost Recovery % FY 2 0 1 1 Art Center (Exhibitions & Visual Arts) $1,244,402 $450,597 $793,805 36% Public Art, Concerts, & Art Partnerships $203,404 $2,986 $200,418 1% Theatre, Music, & Dance $2,217,346 $553,620 $1,663,726 25% Junior Museum and Zoo $2,353,146 $551,066 $1,802,080 23% Aquatics $777,592 $469,109 $308,483 60% Middle School Athletic $460,362 $258,597 $201,765 56% Recreation $3,323,113 $1,646,006 $1,677,107 50% Special Events $226,955 $13,593 $213,362 6% Cubberley $1,825,519 $865,944 $959,575 47% Golf $2,076,378 $2,817,141 -$740,764 136% Parks & Open Space $7,107,273 $380,431 $6,726,842 5% Human Services $1,557,612 $14,027 $1,543,585 1% 2011 Total $23,373,103 $8,023,117 $15,349,985 34% FY 2 0 1 2 Art Center (Exhibitions & Visual Arts) $1,209,679 $303,594 $906,085 25% Public Art, Concerts, & Art Partnerships $230,632 $4,399 $226,233 2% Theatre, Music, & Dance $2,254,777 $548,622 $1,706,155 24% Junior Museum and Zoo $2,471,170 $512,266 $1,958,904 21% Aquatics $820,346 $500,110 $320,236 61% Middle School Athletic $516,139 $288,737 $227,402 56% Recreation $3,135,541 $1,493,968 $1,641,572 48% Special Events $131,480 $15,686 $115,794 12% Cubberley $1,959,129 $838,380 $1,120,749 43% Golf $1,951,978 $2,740,197 -$788,219 140% Parks & Open Space $7,948,316 $398,164 $7,550,152 5% Human Services $1,535,920 $11,996 $1,523,924 1% 2012 Total $24,165,107 $7,656,120 $16,508,987 32% 5 Negative values for Golf through FY 2013 mean that revenues exceeded expenses and the General Fund received revenue as a result. Attachment A Year CSD Programs/Divisions Expense Revenue General Fund Subsidy/Revenue5 Cost Recovery % FY 2 0 1 3 Art Center (Exhibitions & Visual Arts) $1,453,828 $522,431 $931,397 36% Public Art, Concerts, & Art Partnerships $240,109 -$264 $240,373 0% Theatre, Music, & Dance $2,107,253 $593,381 $1,513,872 28% Junior Museum and Zoo $2,361,788 $498,189 $1,863,599 21% Aquatics $834,692 $569,079 $265,613 68% Middle School Athletic $550,576 $346,143 $204,432 63% Recreation $3,031,055 $1,795,906 $1,235,149 59% Special Events $128,069 $21,580 $106,490 17% Cubberley $1,984,666 $905,257 $1,079,409 46% Golf $2,184,277 $2,528,484 -$344,207 116% Parks & Open Space $8,395,630 $418,449 $7,977,181 5% Human Services $1,479,075 $11,716 $1,467,359 1% 2013 Total $24,751,017 $8,210,351 $16,540,666 33% FY 2 0 1 4 Art Center (Exhibitions & Visual Arts) $1,502,846 $604,625 $898,221 40% Public Art, Concerts, & Art Partnerships $356,030 $5,943 $350,086 2% Theatre, Music, & Dance $2,443,410 $744,354 $1,699,056 30% Junior Museum and Zoo $2,516,689 $594,013 $1,922,676 24% Aquatics $787,284 $454,388 $332,896 58% Middle School Athletic $567,044 $305,118 $261,926 54% Recreation $3,050,877 $1,982,081 $1,068,796 65% Special Events $95,576 $12,738 $82,838 13% Cubberley $2,065,456 $844,367 $1,221,089 41% Golf $1,972,998 $1,761,100 $211,897 89% Parks & Open Space $9,018,480 $419,092 $8,599,387 5% Human Services $1,862,867 $14,532 $1,848,335 1% 2014 Total $26,239,555 $7,742,353 $18,497,202 30% Attachment A Year CSD Programs/Divisions Expense Revenue General Fund Subsidy/Revenue5 Cost Recovery % FY 2 0 1 5 Art Center (Exhibitions & Visual Arts) $1,672,498 $654,852 $1,017,646 39% Public Art, Concerts, & Art Partnerships $284,814 $1,520 $283,294 1% Theatre, Music, & Dance $2,476,064 $751,020 $1,725,045 30% Junior Museum and Zoo $2,757,841 $608,276 $2,149,565 22% Aquatics $856,545 $449,826 $406,719 53% Middle School Athletic $548,856 $314,146 $234,710 57% Recreation $3,413,008 $2,010,039 $1,402,969 59% Special Events $98,392 $22,037 $76,355 22% Cubberley $2,142,635 $840,003 $1,302,632 39% Golf $1,829,851 $1,576,872 $252,979 86% Parks & Open Space $9,177,995 $410,959 $8,767,036 4% Human Services $1,868,762 $9,588 $1,859,173 1% 2015 Total $27,127,262 $7,649,139 $19,478,123 28% FY 2 0 1 6 Art Center (Exhibitions & Visual Arts) $1,813,481 $783,217 $1,030,264 43% Public Art, Concerts, & Art Partnerships $316,328 $3,085 $313,243 1% Theatre, Music, & Dance $2,580,474 $769,582 $1,810,892 30% Junior Museum and Zoo $2,944,558 $659,974 $2,284,584 22% Aquatics $948,180 $424,848 $523,332 45% Middle School Athletic $517,671 $317,540 $200,132 61% Recreation $3,882,819 $2,079,900 $1,802,919 54% Special Events $286,205 $16,704 $269,501 6% Cubberley $2,080,703 $942,867 $1,137,836 45% Golf $1,839,437 $1,548,993 $290,444 84% Parks & Open Space $9,168,139 $460,215 $8,707,924 5% Human Services $2,084,917 $11,257 $2,073,660 1% 2016 Total $28,462,913 $8,018,182 $20,444,731 28% Attachment A APPENDIX 4 – City Manager’s Response Attachment A 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) Agree, Partially Agree, or Do Not Agree and Target Date and Corrective Action Plan Status Finding: Most Community Services Department (CSD) programs recover costs consistent with City policy; however, CSD does not consistently apply its cost recovery policies and procedures 1. The City Manager’s Office should coordinate with the City Attorney’s Office and the Administrative Services Department to revise the City’s cost recovery policy and Questica budget system procedures to clarify which fees are not subject to laws that limit fees to cost recovery; modify the cost recovery categories to allow for fees that recover more than costs, based on market rates; and configure the Questica budget system to support setting fees to recover more than 100 percent of costs when appropriate. ASD Concurrence: Agree Target Date: 6/30/2017 Action Plan: ASD staff will coordinate with the CMO, City Attorney and departments to revise and implement the recommendations. 2. After recommendation 1 is complete, CSD should create a procedure to implement the City’s User Fee Cost Recovery Level Policy and incorporate relevant and useful elements from its existing “Class Cost Recovery Policy,” which can then be rescinded. CSD’s new procedure should: a. Update and finalize the draft CSD program level cost recovery targets to be consistent with the ranges in the City policy. The procedure should clarify the rationale for targets assigned to programs and reference the City policy categories. b. Clarify exceptions to fees that are set to target specific cost recovery goals and that may impact rates for other service recipients and program cost recovery levels, such as discounted rates for certain CSD Concurrence: Agree Target Date: 6/30/2017 Action Plan: Staff will develop a new CSD procedure with the following features: a. cost recovery targets in alignment with the City’s three Cost Recovery Level Groups and clarity around how the rationale for cost recovery levels for each major CSD activity as well as references to City policy categories b. a list of exceptions to fees and a rationale for each exception c. a clear process outlined for staff to use with instructions on who should assess costs, where the assessments are maintained, how they are reviewed, Attachment A Recommendation Responsible Department(s) Agree, Partially Agree, or Do Not Agree and Target Date and Corrective Action Plan Status groups. c. Require CSD to annually assess whether cost recovery levels achieved targets and address obstacles and opportunities to meet targets. d. Describe how to use the fee-setting form to calculate service costs based on total costs for the service provided, including direct costs and an indirect cost rate calculated by OMB, and set fees that are consistent with the City’s cost recovery policy. To minimize administrative efforts, describe which classes/services may be grouped together when calculating costs (i.e., one form may cover more than one class). e. Require completion and review of the forms to ensure that class/service costs are known and that fees are set to recover costs consistent with targets. Clarify who is responsible to complete the forms, when the forms are completed, and who reviews and approves the forms. f. Establish a method to estimate a reasonably accurate minimum and maximum class enrollment number to enter in ACTIVE Net. The procedure should address what enrollment levels should prompt a review to determine whether to cancel a class or increase offerings to accommodate demand. how to calculate service costs, how to group activities, and how frequently to do these assessments d. a process to incorporate cost recovery reviews into the Department’s existing internal quarterly budget reviews e. a process outlined for management responsibility and oversight to ensure that service cost calculations and fee setting occur when expected f. a process outlined for establishing minimum and maximum enrollments in Activenet and the rationale and evaluation of whether to proceed with classes enrolled below the minimum. Attachment A Recommendation Responsible Department(s) Agree, Partially Agree, or Do Not Agree and Target Date and Corrective Action Plan Status 3.CSD should work with ASD and the Information Technology Department to configure SAP or include a requirement for the proposed new enterprise resource planning system to align cost centers with CSD programs. CSD Concurrence: Agree Target Date: 7/1/2018 Action Plan: While we will begin working on this in earnest, realistically, we anticipate that we will not fully implement this recommendation for at least two budget cycles. We are currently working with ASD to better align CSD’s Cost Centers in SAP with our individual lines of business. We expect we will complete much of this recommendation by 7/1/2017 but that there will be additional clean up in the next budget year. Attachment A POLICY AND SERVICES COMMITTEE TRANSCRIPT Page 1 of 19 Special Meeting Tuesday, February 14, 2017 Chairperson Wolbach called the meeting to order at 6:02 P.M. in the Community Meeting Room, 250 Hamilton Avenue, Palo Alto, California. [First 34 minutes recorded on a digital device] Chair Wolbach: Alright, let's call bring this meeting of the Policy and Services Committee to order. Present: DuBois, Kniss, Kou, Wolbach (Chair) Absent: Vice Mayor Kniss: Four present, exhausted Council Members. Oral Communications Chair Wolbach: Do we have any members of the public that would like to speak? Looks like we don’t have any Oral Communications. Agenda Items 1.Community Services Department: Fee Schedule Audit. Chair Wolbach: Let’s move onto our first Action Item of the evening. (Inaudible) Community Services Department Fee Schedule Audit. I’ll turn it over to our City Auditor. Harriet Richardson, City Auditor: Thank you. Good evening Mr. Chair and members of the Committee. Harriet Richardson, City Auditor. We’re here to present the audit of fee schedules in the Community Services Department. Houman Boussina, who’s sitting beside me was the lead auditor on that and we also had a Stanford intern, [phonetics] [Merser Lynn] who worked on that with us. She couldn’t attend tonight but she as a great asset to our office this past summer. Then, we also have Community Services Center to answer questions after. The audit objective was whether the fees – Attachment B TRANSCRIPT Page 2 of 19 Policy and Services Committee Special Meeting Transcript 02/14/17 community service fees for their projects cover the cost of services provided as expected. We focused the audit on CSD primarily, because other departments we identified that have fees for services had had some recent fee studies and CSD had not. CSD implemented a cost recovery policy in 2007 and in May 2015, the City adopted a Citywide user fee cost recovery level policy to set cost recovery goals for City services. We looked at the extent which CSD’s fee setting practices might need to be updated to align with the newer Citywide Cost Recovery Policy and because cost recovery data was not available for individual classes, we focused our assessment on cost recovery for CSD divisions and programs overall. I am going to turn the presentation over to Houman, who’s going to go through the audit (inaudible) findings and recommendations. Houman Boussina, Senior Performance Auditor: The Audit Report has one finding. Most CSD programs recover cost (inaudible) with City policy, however, CSD does not consistently apply its cost recovery policies and procedures. We found that CSD’s total cost recovery has ranged from a high of 34 percent in Fiscal Rear ‘11 to a low of 28 percent in Fiscal Year ‘15 and ‘16. The decline is mostly due to lower golf revenues. CSD has developed policies and tools to meet cost recovery objectives… Vice Mayor Kniss: Can I just ask quickly? Are you on Packet Page 16? Do you know where you are? (Crosstalk) Am I following along with the right one? Ms. Richardson: Did you get the handout? Vice Mayor Kniss: Yes. It should be the same. Council Member DuBois: Page 32 for the findings. Mr. Boussina: What I’m reading is (inaudible) bullets. Ms. Richardson: He’s using the PowerPoint notes. Yes. Vice Mayor Kniss: Ok, good. Mr. Boussina: Alright… Vice Mayor Kniss: We’re still waiting (inaudible) with the bouncing ball here. Ms. Richardson: I think you have – yeah, you have the separate hand out there. Attachment B TRANSCRIPT Page 3 of 19 Policy and Services Committee Special Meeting Transcript 02/14/17 Mr. Boussina: CSD has policies and tools to meet cost recovery objectives but has not updated them since 2007 or consistently applied them. CSD has a 2007 cost recovery policy but has not yet updated that to align with the City’s 2015 User Fee Cost Recovery Level Policy which was expected to be used starting with the Fiscal Year ‘17 budget process. The City’s 2015 User Cost Recovery Policy limits fee the City can charge to 100percent of service costs, however, Prop. 16 (inaudible) recreation programs such as golf and facility rentals, from the cost recovery limits where market pricing may provide revenues that exceed costs. Staff reports presented to Council when the City was developing its Cost Recovery Policy, misstated the requirements of the law, which influences decisions regarding the policy. As (inaudible) cost was another area we looked at. We found that they are not aligned with the program revenues and expenses. Calculating cost recovery by program area including appropriately allocating a direct cost requires a manual process currently (inaudible) cost centers to program areas. The Audit Report includes three recommendations. These include coordinating with the City’s Attorney’s office and ASD who provides the City’s Cost Recovery Policy and Questica procedures by which fees are not subject to laws limiting fees to cost recovery. Creating a procedure to implement the City’s User Fee Cost Recovery Policy and incorporating (inaudible) in useful elements from CSD’s existing Class Cost Recovery Policy which then can be rescinded and working with ASD and the IT Department to configure SAP to include a requirement for the proposed new ERP system to align cost centers with CSD programs. Just the correction, I may have said Prop. 16 instead of Prop. 26 as what exempts recreational grounds from the cost recovery limits. Alright… Ms. Richardson: That concludes our presentation and we’ll answer your questions and the departments here to answer your questions. Chair Wolbach: Ok, we’ll turn to Committee Members for questions or comments. Liz, (inaudible) you have some questions? Vice Mayor Kniss: Under – on Packet Page 16, you indicate that cost recovery rates for the Junior Museum and Zoo is less than the policy (inaudible) which the City doesn’t currently charge an admission fee for that facility which is great. (Inaudible) remember that. Just for the mic, I’m on Page 16 and close to the bottom of the Page. How do we go about making that kind of, somewhat subjective decision? This is a community benefit and therefore, I’m guessing that golf is not a community benefit because we recover far more of the cost there. My question is, how do we make that subjective decision… Ms. Richardson: I think… Attachment B TRANSCRIPT Page 4 of 19 Policy and Services Committee Special Meeting Transcript 02/14/17 Vice Mayor Kniss: …of does somebody else make it for us? Ms. Richardson: I think it is somewhat subjective. If you look at Packet Page 22, the City policy is there and (inaudible) cost recovery percentages in ranges which allow for some room within those ranges for the cost recovery should be. It can… as a community benefit – primarily a community benefit, the expectations at that – it might not recover anything or it might recovery up to 30 percent of the cost. When it’s an individual personal benefit, the expectations that it would likely cover 70 to 100 percent of the cost. There’s room within each of those ranges for some decision making and they aren’t hard set ranges. Vice Mayor Kniss: You fit them into these and make the best decision you can, right? Ms. Richardson: Correct. Vice Mayor Kniss: Golf is probably pretty easy. Maybe the Zoo is pretty easy. Which ones are hard to decide whether or not they’re being a good benefit? Is that your decision Rob? Rob de Geus, Community Services Director: Yeah, we look at the policy to give us guidance. Rob de Geus, Director of Community Service (inaudible) she’s the senior analyst for the department. The Junior Museum – this is a little tricky one. When we looked at that – (inaudible) we looked at the whole of the Junior Museum and Zoo and some of the programs within the Junior Museum (inaudible) may fit into different categories within the (inaudible). For instance, the exhibit in the Zoo is free and I think that’s going (inaudible) for the City, right? It’s not in that range of 30 percent-70 percent at least it hasn’t been the policy until now. While the summer camps and the classes and the fee-based programs in the schools – are fee-based and they fall within the range of the 30 percent-70 percent but the way the audit was done, they looked at the whole of the Junior Museum (inaudible) one program. Vice Mayor Kniss: One of the things that we’re always discussing is cost recovery. That’s one of our (inaudible). It just seems that there must be times when it’s somewhat difficult. I remember this decision a long time ago at the Children’s Theater and whether that was community or whether that was individual. I’m not making any new decisions or asking you to. I’m just curious as to how you made those and where the cost recovery does fit in. Glad (inaudible) – I don’t play golf so it’s good to see (inaudible), pretty well on the golf. Attachment B TRANSCRIPT Page 5 of 19 Policy and Services Committee Special Meeting Transcript 02/14/17 Ms. Richardson: We had – but golf is an example of where you can actually collect market rate and policy – the City policy right now, goes only up to 100 percent so one of our recommendations does focus on the recognition that you can go above that. This policy should be revisited to allow for opportunities where revenue can be generated for the City based on what the market will allow. Vice Mayor Kniss: Good thanks. Chair Wolbach: Lydia. Council Member Kou: I’m just trying to understand, being new to all of this. Which of the CSD programs – can your kind of elaborate a little bit more about how these programs fall into the recovery fee level policy – I mean the community wide – first there’s private benefit and then they’re 1, 2, 3, 4 over there on Page – Packet Page 21. Ms. Richardson: As far as – our office would not make that decision. Rob – someone answered already. It really depends on a bit on who – a lot on who's benefitting for it. Is it really a community-wide benefit? Is there some community benefit mixed with some individual benefit? Is it all individual benefit? Those are the types of things they would look at as they decide which one of these categories to fit it into. That’s where – when the CSD policy was established back in 2007, the City policy didn’t exist. The audit is really focusing on recommending that CSD, now that there’s a City policy. Look at the City policy and realign their programs to match. Council Member Kou: What is the percentage between resident and non- resident that uses all of these services? Mr. de Geus: It varies from program to program. It’s on average, I think, 70/30, 70 percent residents. With our summer camp program and swim lessons, it’s very high residents, 90 percent-95 percent. Some of our art programs for instance – studio – adult art program is really a regional (inaudible). We have almost 50 percent non-residents, 50/50. The Junior Museum and Zoo also sees a lot of non-residents because there’s not something like it nearby so we get people coming from a long way away. The golf course is the other example. We get a lot of non-residents which is not – which is typical for a golf course to see. (Inaudible) Vice Mayor Kniss: Could I piggyback on that because that’s really interesting? Chair Wolbach: Tom, do you mind if Liz just ends (inaudible) (crosstalk). Attachment B TRANSCRIPT Page 6 of 19 Policy and Services Committee Special Meeting Transcript 02/14/17 Vice Mayor Kniss: I promise – just a follow up (inaudible) because I think that’s just a good question, the resident versus not. In return, do many of our residents go to Mountain View or Melow Park (inaudible) could swim program and so forth? Is there any exchange there like we belong to the same club and therefore, we go back and forth because residency is so interesting? Are we – the real question I think would eventually be, are we subsidizing other communities to our own – for our own cost? I didn’t want to say the word. Mr. de Geus: There aren’t too many programs or any that I can think that is predominately non-resident. Actually, they’re majority resident and when we get non-residents they pay a little more. They don’t get the first… Vice Mayor Kniss: They do pay a little more. Mr. de Geus: …opportunity to register. Yeah, so residents get the first chance. Usually, it helps the bottom line to have -- to fill the class, fill the program. Vice Mayor Kniss: I didn’t realize they paid a little more. That’s good. We’re cost recovering. Thanks, Tom. Chair Wolbach: Tom. Council Member DuBois: First of all, Houman, thank you for the audit. It looks like it was a good audit. There was the finding about the SAP System I guess. I don’t know how quickly we’re going to get our new system but do we have a way to track requirements that we want to put into the new system? Ms. Richardson: One of the things that happing right now is that the new (inaudible) system is in the requirement development phase and the Department of Information and Technology has hired a consultant, [phonetics] [Plant Meran], who has met with all the departments and collected information about requirements. Now they’re re-meeting with departments and reviewing those requirements. We have been doing this, trying to identify in our audits some things that we know. I had requested a specific meeting with Plant Moran and IT – on what was that, about 5 or 6 months ago? Where we actually sat down with them and just talked about issues we identified in audits so that they would pick up on those things in case… Attachment B TRANSCRIPT Page 7 of 19 Policy and Services Committee Special Meeting Transcript 02/14/17 Council Member DuBois: Is there an ongoing way? Does Rob have to add it to the list for CSD or when you find something new that you want in the (inaudible) system? How do we make sure it doesn’t get lost? Ms. Richardson: I think the primary way is when the – we’re hoping departments can keep track but I think the primary way is when the RFP is ready to be issued, we are going to be looking at that and when we see that, we’ll do a cross check with some of our – with all of our outstanding recommendations and say, is there something we identified that we’re still missing? In some ways, the RFP will identify things in a very broad way and we might not be able to exactly say that’s a direct match but as they implement, there’ll be more discussion to make sure that that happens. Council Member DuBois: Ok. That would be great if the departments owned it in some way and just added it to their requirements. Mr. de Geus: I was just going to say, we expressed that same thing. We looked at the new system, what we would like to see and we would like to see a robust system that allows us to tie direct cost to programs so when we get questions about how much does it cost to run the pool? We can easily and quickly report. Council Member DuBois: This could be really helpful for you. What kinds of programs can go over 100 percent legally? Terence Howzell, Principal Attorney: Terence Howzell, City’s Attorney’s Office. Just direct your attention to Packet Page 11 which kind of lays out the legal framework and I think that accurately sets forth what the law is. Responding directly to your question, we can go – given that this is the services that are the subject of this audit, are excepted from the Prop. 26 requirements that we’ve all discussed at other context. Given these are (inaudible) recreation programs, we can exceed those… Council Member DuBois: So, all of these? Mr. Howzell: All of these that are subject to – of the audit. Council Member DuBois: Then can you include overhead and Capital Replacement Fund as part of the cost recovery? Mr. Howzell: You can as long – I think the only real challenge is making sure that you are just competitive in whatever market you're in but that – those are really the limits. Attachment B TRANSCRIPT Page 8 of 19 Policy and Services Committee Special Meeting Transcript 02/14/17 Council Member DuBois: Ok. It doesn’t even really apply to this? Mr. Howzell: No. Council Member DuBois: I did see one place where we offer classes when we have more than or less than the minimum amount. How did we decide to do that? Mr. de Geus: We did look at that. That was one of the findings that surprised us in the department to and we took a closer look and said, why is that happening? So many that seem to go forward with less than the minimum and so we looked into that further and we found a couple things. One, when classes were canceled – effectively canceled, they didn’t have any enrollment. They were not being subsequently canceled in the system. You actually have to go into the system and official cancel the class and so when we ran the numbers or the auditor ran the numbers, those classes came up as still active, even though they were effectively canceled. That was a big portion of why that number was there. In addition to that, what we found was several program areas had minimums that were really just too high. We have group lesson for products as an example, where if we get two out of four, we will go ahead with the class but we had set the minimums at three. I’m not sure why we did that because we would always go forward if there are two kids in that class. I think we need to relook at (inaudible) and make sure that they’re accurate. Council Member DuBois: Cool, thanks. I guess with the new Junior Museum, I think the plan is they are going to charge – start charging fees, right? Mr. de Geus: That’s correct. Council Member DuBois: That will… I mean overall, I think we make the right choices. I’m pretty comfortable with the levels of recovery and what we offer for free. I do think – do we have a golf course management company when the fold course opens? Mr. de Geus: We – (inaudible) to ask because we currently have three firms that we work with. We have Brightview Maintenance that does the maintenance at the golf course. Brad Lozares does the golf professional services and (inaudible) that own the restaurant. The (inaudible) makes sure everybody is working together. All of those contracts expire in April of 2018. We are currently thinking about how we might proceed with a new operator. Do we extend the contracts of the existing 3 or do we put out an RFP and bring in a new operator? One operator which we think is more effective ultimately. Have them come in before we re-open in November and Attachment B TRANSCRIPT Page 9 of 19 Policy and Services Committee Special Meeting Transcript 02/14/17 (inaudible) Council or something on that soon because that’s the direction (inaudible) now or the next couple months so we can have someone on board. Council Member DuBois: Yeah, this seems like a really interesting pricing question. It’s going to be (inaudible) of a golf course. Probably want to be the high end of the market rate I would think but you want it to be used, right? Some kind of expert like a golf course management company; seem like they could figure that out. Mr. de Geus: That’s the balance – we’ve been working closely with National Golf Course Foundation which is an organization that helps with price setting and finding a good operator. We will be working with them again as we put out this RFP if that’s the direction we go. We will have a discount for residents, certainly. To make sure that that’s (inaudible). Council Member DuBois: It will probably be – once brand new, it will probably be the highest and with that over time its (inaudible). I know it’s not in here, I’m just curious, the airport is not considered community service at all, right? Those fees? Mr. de Geus: Not yet. Council Member DuBois: Ok. I mean, wow. Is it just (inaudible) something at this point? Mr. de Geus: It’s kind of Public Works I think. We have an airport manager that’s managing it, Andy – I forget his last name… Mr. de Geus: …Swanson. (Inaudible) Council Member DuBois: I mean it’s off topic, do you guys know if we manage that as market rate for fees and things? Khashayar Alaee, Management Analyst: There’s a study underway to look at all the fees of the airport as well. I don’t know the specifics about it. From what I understand that those are being looked at too. In addition to the leases at the site. Council Member DuBois: Thanks. Chair Wolbach: Any other questions or comments? Let’s go back to – do the second round. Would either you want to go ahead then… Attachment B TRANSCRIPT Page 10 of 19 Policy and Services Committee Special Meeting Transcript 02/14/17 Council Member Kou: Chair, I still have questions is that ok? Chair Wolbach: Sure. Vice Mayor Kniss: Only one per night. Council Member Kou: I was just wondering what programs are here that are unique to Palo Alto within – different from say, Mountain View or Los Altos, that would draw in more out of towners and non-residents so we have that cost recoverage? Mr. de Geus: We have a number of unique programs and assets in Palo Alto because the Council and Communities invested in for many decades in parks and recreation services. I think the Children’s Theater – dedicated Children’s Theater are very, very unique. You don’t see that in other Cities. Even a municipally run Art Center in Palo Alto is also quite unique. Junior Museum and Zoo is another example of something that you don’t see in neighboring Cities and so it draws people from the region. Palo Alto is definitely an attraction. People come here to use our facilities, to come to our theaters. We have three theaters which is unusual for a town of our size. Council Member Kou: Three? Mr. de Geus: Yeah, the Community Theater, the Children’s Theater and the Cubberley Theater. They all have different – they operate differently from one another. Then we have playgrounds like the Magical Bridge Playground that gets people coming from Santa Cruz to the north end to participate in that universally accessible playground that has hundreds of people every day. (Inaudible) gets at your question but Palo Alto is a draw or a lot of the different activities and programs that we have; which has an impact on wear and tear and other thing but most of the fee-based programs across the realm non-residents pay and they pay more than Palo Alto residents. They stay in Palo Alto and hopefully spend a little money in Palo Alto. They get lunch or dinner or spend some money (inaudible). Council Member Kou: I guess what I’m trying to figure out is are we taking full advantage of the cost recovery for those that we can charge for? I know Magical Bridge is not – there’s not cost there. Mr. de Geus: There’s no cost. The City covers the full cost of the Magical Bridge Playground and it’s not inconsiderable because it wears down because of the amount of use it gets there. Attachment B TRANSCRIPT Page 11 of 19 Policy and Services Committee Special Meeting Transcript 02/14/17 Council Member Kou: I met with Magical Bridge people and they said that they like the show. Every other City who wants to have one, they come here to look at it and then there is definitely that wear and tear. When the… Vice Mayor Kniss: We should charge those other Cities. Council Member Kou: …the Junior Museum, when it comes back is there the cost – there’s a fee charge. Is it going to be the same where non-residents are going to have a high fee? Mr. de Geus: Yes. Council Member Kou: Ok. Very good. Thank you. Chair Wolbach: Liz, you had another question to? Vice Mayor Kniss: Yeah. (Inaudible) because we went late last night and I’m not totally absorbing some of it. The theater, music and dance; we’ve got three theater groups. We’ve got Theater Works. We’ve got Palo Alto Players? Mr. de Geus: Yep. Vice Mayor Kniss: Ok, Theater Works, Palo Alto Players and Vice Mayor Kniss: (Inaudible) that’s the one I hadn’t thought about. Those are – when you say they don’t meet the City’s $90,000 revenue target or in those (inaudible) provides to the City so on and so forth. Then you talk about the value annually. Why am I having some trouble with my math here? The theater group has to meet the $90,000 revenue target for annual sales and if they did meet it – even though it’s the $500 on the next that’s kind of (inaudible) me a little. Ms. Richardson: I can tell you what was explained to us during the audit. They have a target to generate a certain amount of revenue from each ticket that gets contributed to the City; that’s the $90,000. We’re at the bottom of Packet Page 16, top of Page 17. At $500,000 is the value of the City’s subsidies and that takes into consideration the cost of maintenance of the facility; utilities that are provided and that sort of thing. There isn’t right now an expectation where the portion of the ticket sales that the City gets to offset – to fully offset that – those cost so that’s where your $90,000, $500,000 are. Council Member DuBois: Does that include theater Staff as well? Yep. That’s probably the biggest part of it. Attachment B TRANSCRIPT Page 12 of 19 Policy and Services Committee Special Meeting Transcript 02/14/17 Vice Mayor Kniss: Does that also include – Theater Works is kind of interesting because they go back and forth between two theaters. Does that alter anything or not? Mr. de Geus: When we – the theaters come in and it’s pre-scheduled throughout the year and they each have approximately (inaudible) (crosstalk). Vice Mayor Kniss: You figure it out… Mr. de Geus: Yeah. Vice Mayor Kniss: … is what you’re saying. Mr. de Geus: Their participation and attendance have not been growing. That’s been a challenge for the theater groups that they have shared with us. Theater Works does pretty well but the other two… Vice Mayor Kniss: I know. Mr. de Geus: …they struggle a little bit. Vice Mayor Kniss: How about the Children’s Theater? Have you listed that separately somewhere? I just remember one awful year we tried to raise the ticket prices a dollar and needless to say, we never did. Mr. de Geus: I think that’s here, right? Vice Mayor Kniss: Yes. Mr. de Geus: The Children’s Theater… Vice Mayor Kniss: Pardon? Mr. de Geus: There’s a policy or a philosophy – I’m not sure what you call it but the Children’s Theater does not have a pay to play program. Kids sign up to be in a play, they don’t need to pay for that. The parents do pay for costumes, they pay for tickets to go see the play but we do not (inaudible) charge the kids to participate in the Children’s Theater and that’s been a long stand tradition… Vice Mayor Kniss: It has been, right. Attachment B TRANSCRIPT Page 13 of 19 Policy and Services Committee Special Meeting Transcript 02/14/17 Mr. de Geus: … at the theater. Vice Mayor Kniss: I think it’s worth reiterating because there’s really no cost recovery there and – but there is a cost to maintaining the theater. Just what Tom has talked about the Staff and the backstage crew. Mr. de Geus: The Children’s Theater has some cost recovery. Those kids also take acting lessons and singing lessons and all of those are fee-based programs. We have the friends of the Children’s Theater. By the way, we have five friend’s groups in community service that support – they are tremendous in what they do for the department but the friends of the Children’s Theater -- is that when that topic came up, should we charge pay to play? The friend's group stepped up and said, we will pay. We will raise money and pay. They pay, I want to say $50,000 or something annually to support the theater. Vice Mayor Kniss: There’s no appetite for charging Children’s Theater anymore that we do, I know there isn’t. Ms. Richardson: I just want to add something. When Rob mentioned the friend's group, that reminded me of another thing where with – during the audit, there’s not a clear way to identify where those subsidies from the friend's groups are coming into offset program cost. The new ERP system could potentially help with that so you could really get a full sense, not just of what the cost of a program is? What’s revenue are being generated through fees? What costs the City is paying because you really have three revenue sources; fees, General Fund and those friend’s groups and being able to link those altogether would give a much better picture of what’s going on. Council Member DuBois: Are those friends amount showing up in here? Not at all? Ms. Richardson: No, we couldn’t identify how they (inaudible) (crosstalk)… Council Member DuBois: The theaters at 30 percent but the friend's money is on top of that? Mr. de Geus: Yes. Council Member DuBois: Great. Yeah, it would be good to see that. Attachment B TRANSCRIPT Page 14 of 19 Policy and Services Committee Special Meeting Transcript 02/14/17 Mr. de Geus: Some of it is really considerable. It’s remarkable what the friends of the Junior Museum have been able to do. They just now hit their 25-million-dollar goal rebuilding… Vice Mayor Kniss: Astonishing. Mr. de Geus: Yeah. Amazing residents and non-residents that just love the program and are willing to put that much into it and spend money and ask for money to support a City program like that. The Palo Alto Art Center Foundation is the same way. I mean, they raised over 4 million dollars to renovate -- as you know, is the Palo Alto Art Center. They raised $100,000 or more a year to support programs which are also not represented here. Council Member DuBois: Well, that’s pretty big. Vice Mayor Kniss: They – at least the Art Center has a paid developer. I don’t know about Theater Works whether they do or not. Mr. de Geus: Each of the friend – every friend's group or most have some type of Staff to help the development … (Crosstalk). Vice Mayor Kniss: Somebody who attracts that development work. Mr. de Geus: Particularly ones that have a membership program like the Junior Museum and Zoo. They have a robust membership program. The Art Center does as well. The Recreation Foundation not so much in the friends of Palo Alto parks. They are really project based. They raise money for a specific park or playground. Vice Mayor Kniss: You know that would be fun to know Tom, is how many friend’s groups there are because I have a feeling there are 20 or 25. Mr. de Geus: We have many partners that support us like Save the Bay and Acterra, the two (inaudible) but there’s 5 foundations that exist, non-profits, just to raise money for the City of Palo Alto in a specific program area. Council Member Kou: Can you name them? Mr. de Geus: Yeah, there’s the Friends of the Children's Theater, Friends of the Junior Museum and Zoo, Friends of Palo Alto parks, the Palo Alto Art Foundation, and the Palo Alto Recreation Foundation. They’re the… Council Member DuBois: That’s a lot of (inaudible). Attachment B TRANSCRIPT Page 15 of 19 Policy and Services Committee Special Meeting Transcript 02/14/17 Mr. de Geus: They’re a different department -- there is a Friend’s of the Library, also raise a lot of money and sell used books and other things in generating a couple $100,000 for the libraries. Vice Mayor Kniss: Theater Works has something called Their Inner Circle, where they raise money as well. Council Member DuBois: Those are expenses we don’t see (inaudible). Chair Wolbach: Alright. Any other questions for now? Vice Mayor Kniss: Not at the moment. Chair Wolbach: Tom, do you have a couple more? Council Member DuBois: I would just make us move that we accept the audit for (crosstalk). Chair Wolbach: Mind if I ask a couple questions first? Council Member DuBois: Oh, certainly. Sorry. (Crosstalk). Chair Wolbach: I’ll try to be quick because I know we all want to get out of here. It’s Valentine’s Day and we did have quite a meeting last night. Just a few questions. First, the goals on – just stepping back a little bit, right, to think about the goals for a second on Packet Page 6. Ensuring financial stability – I mean, obviously, that’s something I think we want to be in favor of. Customers paying appropriate shares of the costs and (inaudible) programs are subsidized in accordance with the City’s Cost Recovery Policy. I think these are generally pretty good goals but I just want to make sure we are all thinking about that in the context of this. I don’t really have a question there but in that context, looking at a couple of other things here. On Packet Page 10 at the top listing the objectives of the audit. In kind of getting towards what the impact of the audit will be. Does this audit obligate CSD to seek more cost recovery or does it just offer a recommendation? Then it’s totally up to the director or the City Manager to make that determination. Ms. Richardson: It doesn’t direct them to seek new cost recovery. What it does is it makes a recommendation to ensure that they’re – now that the City has a City-wide policy, that their cost recovery practices align with the City policy and that they look at the cost – the actual cost which was hard for us to really identify on a class by class basis. I don’t think it’s necessary that they identify it to class by class but they do need to know on a program Attachment B TRANSCRIPT Page 16 of 19 Policy and Services Committee Special Meeting Transcript 02/14/17 level basis at least, what it’s costing them so that they can set their fees appropriately. The goal is really and the recommendation is to really make sure that what they charge aligns with the City policy but before they can necessarily do that, that City policy needs to be revisited to allow for market level recovery when that’s appropriate. Chair Wolbach: Ok. Going – actually looking at Packet Page 20, Item C, where it talks about – it says, requires CSD to annually assess whether cost recovery levels achieved targets and addressed obstacles and opportunities to meet targets. I actually wonder if there are times where Council will actually want to be one of those obstacles, right? Really my question here is knowing that there may be times where – I really – let me step back a second and say, I think this audit is really useful because I think it does help get us towards a better understanding and help the department have a better understanding in coordination and alignment with the City policies. Then when it comes time to make a determination or make a decision about how much to charge for a program? Obviously, Council may have a sense about a particular program where we want to charge more or maybe even more likely, where we want to charge less than the director or the City Manager may recommend because we see an equity issue or we see some need in the community – a benefit to the community of having a lower fee for – especially for residents. I just wanted to check – as a reminder for all of us, what the process is for when Council wants to say, we actually want to see a lower fee? That would come to us as a separate – that would be a separate agenda item, right? Whether it’s at Policy and Services or at full Council, talking about the Fee Schedule itself separately from the audit of the Fee Schedule. Ms. Richardson: I would agree. Let Rob speak for a second but I also want to say, we didn’t (inaudible) wrote that. We didn’t envision Council as being the type of obstacle (crosstalk) (inaudible). We were thinking that more once there was some sort of agreement and there was something that was unexpected that caused them not to be able to meet – that they would look at that and say, why can’t we meet this target. Kind of like a performance measure. What causes you not to meet that measure? Chair Wolbach: Right. I was taking it a bit poetically, you say. Taking liberties but again, when Council wants to weigh in on the fees themselves. That will come back to us. Will that come to P&S or will that come to – does that come to full Council or does that come to finance. Mr. de Geus: It goes to Finance… Chair Wolbach: That’s right. Attachment B TRANSCRIPT Page 17 of 19 Policy and Services Committee Special Meeting Transcript 02/14/17 Mr. de Geus: …Committee. I think to you question Chair Wolbach, we – and we currently are preparing the ’18 Budget – and I see Kiely over there and we talk at length about fees and revenues and what is reasonable. What does the policy say? We know that costs are going up and so to keep up with even today’s cost recovery level means fees need to go up to maintain that. What does that mean? Does that create a barrier for participation or not so there are some real trade-offs that we have to consider? You’re right, it comes to the Finance Committee and the full Council as part of the budget process and the (inaudible) Fee Schedule. Chair Wolbach: Right and I think that that’s important for us to just remember that Staff, you guys will do your best to implement the policy but then, ultimately – I know you guys know that this Council is never afraid to weigh in if we wanted to tweak something in the details. My last question is, just as far as implementing the recommendations. I actually wanted to think about a few different departments here; CDS, ASD – I see a representative here (inaudible) and the City’s Attorney’s Office and IT, are all named in the recommendations. I was just wondering if we had a sense of what the administrative burden of implementing this audit might be in – even in a qualified rather than or qualitative rather than quantitative sense. I don’t know if any of those departments want to weigh in or if there’s any thinking on the administrative burden that Staff would like to share with us? Just so that we have a sense of what the implementation would look like. Mr. de Geus: I can begin – that’s a good question. I don’t think it’s a huge administrative (inaudible). I think most of it falls to CSD to manage. The cost recovery policy that was drafted and approved in 2007 is not very different than the one that the Council approved as the City-wide policy so there are some tweaks we need to make. The template tools and consistency, we’ve already begun working on that. We’re going to be working closely with Office of Management Budget and ASD to make sure that that’s going to work. I don’t think – first of all, we agree with all the recommendations and I don’t think it’s a big burden. I would add and I was going to say this at the beginning but I’ll just say it now. Thanks to the auditor for the work that they did. I mean, we – as you know, the department does a lot. Community Services does a great deal – all across the community and is very diverse and you don’t always get the time to do deep dives into fee settings and other things. It’s actually very helpful to have a report like this and we this will help us do our homework better. Chair Wolbach: Great. Well, that’s it for my questions. Vice Mayor Kniss: Just one last thing. What are you most popular…? Attachment B TRANSCRIPT Page 18 of 19 Policy and Services Committee Special Meeting Transcript 02/14/17 Chair Wolbach: Don’t forget your mic. Vice Mayor Kniss: What are the most popular programs? I frequently hear parents say, I just never can get my kids into those summer programs or I can’t get into the afterschool whatever it is or we waited in line – use to be for preschool family and things like that. So, that’s school, not you but what do you – if you were going to expand what you’re doing. Where would you do it? Mr. de Geus: The two that come to mind that we see waitlist consistently is the Junior Museum and Zoo and the Palo Alto Art Center. I think largely a testament to the Staff that runs those programs, phonetics Karen Kienzel and John Aikin are the two managers. The unique facilities and they’re constantly reinventing the program and it’s a combination of fun but also science and education which just people love. They just do a really nice job with it and it’s a unique facility. People want to be in Zoo Camp and there’s only one Zoo and so there’s only so much – that gets filled up immediately. Those are the two that come to mind that is really, really popular. Within the recreate division we have more opportunity to add kids and participants because a lot of the programs are in community centers and on athletic fields so we can have 30 or 40 or even more – Foothills Park we had 55 kids at every camp and we have several camps. We have over 150 children and they do fill up but there’s just a lot of space whereas Zoo Camp, it’s 12-15 kids and that’s all we can really accommodate to make sure the experience is a quality one. Vice Mayor Kniss: Yeah, no it’s an enormous and varied department and very visible in the community. Chair Wolbach: Thank you. (Crosstalk) I think somebody was making a Motion? Who wanted to go ahead and make it? Vice Mayor Kniss: Tom did and I seconded it. Chair Wolbach: Tom, let's just make it official. MOTION: Council Member DuBois moved, seconded by Vice Mayor to recommend the City Council accept the Community Services Department Fee Schedule Audit. Vice Mayor Kniss: Amen. Attachment B TRANSCRIPT Page 19 of 19 Policy and Services Committee Special Meeting Transcript 02/14/17 Chair Wolbach: Seconded by Vice Mayor Kniss. Vice Mayor Kniss: Yes. Chair Wolbach: Any discussion? Alright. Vice Mayor Kniss: Thanks, guys. Chair Wolbach: All in favor of the Motion? Alright. Vice Mayor Kniss: Good job. MOTION PASSED: 4-0 Chair Wolbach: Looks like it passes unanimously. Thank you all. Vice Mayor Kniss: Go forth and raise the fees. Attachment B City of Palo Alto (ID # 8529) Policy and Services Committee Staff Report Report Type: Action Items Meeting Date: 11/14/2017 City of Palo Alto Page 1 Summary Title: Update status of parking funds audit Title: Staff Recommendation That the Policy and Services Committee Recommend the City Council Accept the Status Update on the Audit of Parking Funds From: City Manager Lead Department: Planning and Community Environment Recommendation Staff recommends that the Policy and Services Committee recommend that the City Council accept the attached Status of Audit Recommendations regarding the Audit of Parking Funds. Background In December 2015, the City Auditor’s Office issued an audit of parking funds (Staff report 6404). The purpose of the audit was to determine if the City’s parking in‐lieu and parking permit fees are collected, accounted for, and used in accordance with applicable laws, regulations, policies, and governing documents. Staff members from Planning and Community Environment, Administrative Services, Public Works, the City Attorney’s Office, Police, and Community Services have jointly worked to address the recommendations. Of the eight recommendations identified in the audit, five have been completed, two require ongoing work, and one is expected to be complete when the new downtown parking garage is constructed. For recommendation 1.1, bond defeasement was completed in June, 2016. For recommendation 1.2, all refunds were complete by April, 2017. For recommendation 1.3, staff collected the fees in March, 2015. For recommendation 1.4, municipal code updates were approved by City Council in November, 2016. Parking-in-lieu fees, along with other impact fees, were then programmed into the Accela permitting system so they could be collected along with fees for service, standardizing the calculation, collection and record-keeping. For recommendations 1.5, 2.1, and 2.2, a workgroup has been formed consisting of 3A Packet Pg. 2 City of Palo Alto Page 2 staff from the departments listed above. This group meets at least quarterly to create high level procedures that establish roles and responsibilities for budgeting and parking fund management. The role of the workgroup and the status on audit recommendations are covered in more detail in Attachment A. Attachments: Audit status update after staff report changes 3A Packet Pg. 3 STATUS OF AUDIT RECOMMENDATIONS AUDIT OF PARKING FUNDS – ISSUED 12/15/15 PAGE 1 The City Manager has reviewed and provided the following responses 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 addressed. Recommendation Responsible Department Original Target Date and Response Current Status Implementation Update and Expected Completion Date Finding 1: The City does not have policies and procedures to ensure that it accurately calculates and assesses parking in-lieu fees and tracks expenditures related to construction of public parking spaces. 1.1. ASD defease and reduce the bond debt by the $1,790,295 that was inadvertently drawn down from the garage bond proceeds and the $240,402 of double-counted garage expenditures. Administrative Services Concurrence: Partially agree Target Date: Depends upon action. If Council prefers to transfer, this can be done as part of the midyear budget adjustment, which will be completed in March or April. If Council chooses to defease the bonds, this should be completed by June. If the decision is to offset debt service, then property owners will see in 2016/2017 property tax bills. Action Plan: City staff will explore with its Financial Advisor whether it is more efficient and cost-effective to follow the Audit’s recommendation to defease $1.79 million in assessment district bonds or to offset annual upcoming assessments to downtown property owners. This information will be presented to Council prior to receiving Council direction. Complete October 2017 Management Update: On June 6, 2016 City Council approved (CMR ID # 6993) defeasing $2 million in par amount of the 2012 University Avenue Off-Street Parking Assessment District bonds. On June 28, 2016, the defeasement was completed resulting in cash savings of $2.5 million and net present saving of $0.5 million. Annual (cash) savings ranged from $79 thousand annually to Sept. 2022 then increasing to $254 thousand annually to Sept. 2030. Completion Date: June 28, 2016 1.2. PCE work with the City Attorney’s Office to initiate refunds for the four overpaid development projects shown in Exhibit 4. Planning and Community Environment; City Attorney Concurrence: Partially agree Target Date: Begin immediately Action Plan: The City Attorney will examine 101 Lytton to determine if some of the alleged overpayments could be construed as community benefits under the PC ordinance, rather than in-lieu fees. In the case of 240 Hamilton, PCE caught the clerical error and Complete October 2017 Management Update: 101 Lytton was refunded $146,080 in June, 2016. 564 University was refunded $63,526 in June, 2016. 240 Hamilton was refunded $56,000 in June, 2015. Refunds of $4,640 for 135 Hamilton and an additional $2,320 for 240 Hamilton were refunded in April, 2017. 3A.a Packet Pg. 4 At t a c h m e n t : A u d i t s t a t u s u p d a t e a f t e r s t a f f r e p o r t c h a n g e s ( 8 5 2 9 : U p d a t e s t a t u s o f p a r k i n g f u n d s a u d i t ) STATUS OF AUDIT RECOMMENDATIONS AUDIT OF PARKING FUNDS – ISSUED 12/15/15 PAGE 2 Recommendation Responsible Department Original Target Date and Response Current Status Implementation Update and Expected Completion Date refunded $56,000 in June, 2015 for the overpayment of $7,000 for each of the eight spaces. Completion Date: April 2017. 1.3. PCE bill for the underpayment shown in Exhibit 4 for the project at 180 Hamilton Avenue. Planning and Community Environment Concurrence: Agree Target Date: Completed March 2015 Action Plan: The $182,250 in parking in-lieu fee that was inadvertently not billed under the agreement cited in this report has been collected by the City. Payment was received and revenue posted on March 12, 2015. Complete October 2017 Management Update: This recommendation was completed and revenue posted March 12, 2015. Completion Date: March, 2015 1.4. PCE, ASD, and Public Works coordinate with each other and the City Attorney’s Office to revise the Municipal Code to clarify: How to calculate and adjust the parking in-lieu fee, including clarifying what costs should be included when calculating the fee. When to collect the fee and the rate to be used. Reporting requirements. Other updates, if necessary, that could help ensure that the fee will reasonably reflect the approximate cost of constructing new garage spaces. Planning and Community Environment, Public Works, City Attorney, Administrative Services Concurrence: Agree Target Date: Impact fee collection process – In Process; Municipal Code review - Begin Immediately; Updating Fee - Defer Action Plan: PCE initiated an impact fee project almost a year ago to automate the calculation and collection of impact and in- lieu fees using Accela, the City’s permit system. This will ensure consistent calculation and improve tracking and monitoring of these fees. The final step of this project is aligning the Municipal Code with Accela by revising the Municipal Code for all impact and in-lieu fees to make them as uniform as possible for rate calculation and time of payment. The department has been working with the City Attorney’s office to develop suggested Municipal Code changes for consideration by the City Council. This is a major work effort which has taken a backseat to other initiatives. Departments will work together to review Complete October 2017 Management Update: ●Code updates to correct confusing fee calculation language were approved by City Council on November 28, 2016. This language included fee costs to be included, when to collect the fee, the rate to be used, and reporting requirements. Following this change, the Planning Department was able to start using the Accela permitting system to provide impact fee estimates and collect impact fees at the Development Center. Three staff trainings of appropriate Planning and Development Services staff were conducted and procedures created on the Accela Impact Fee process. Transition has been smooth. With impact fees automated in Accela, calculation and record keeping are improved. ●In keeping with the municipal code, any update of the fee due to parking garage construction will be deferred until final design is complete. 3A.a Packet Pg. 5 At t a c h m e n t : A u d i t s t a t u s u p d a t e a f t e r s t a f f r e p o r t c h a n g e s ( 8 5 2 9 : U p d a t e s t a t u s o f p a r k i n g f u n d s a u d i t ) STATUS OF AUDIT RECOMMENDATIONS AUDIT OF PARKING FUNDS – ISSUED 12/15/15 PAGE 3 Recommendation Responsible Department Original Target Date and Response Current Status Implementation Update and Expected Completion Date the Municipal Code and recommend additional changes to update the code, clarifying reporting requirements and removing areas of contradiction and confusion. Updating the parking in-lieu fee will be deferred until final design is completed for new parking garage(s). Changes to the in- lieu fee amount and calculation method may require a nexus study. Completion Date: November,2016 1.5. After updating the Municipal Code, PCE, ASD, and Public Works work together to develop written policies and procedures to: Clarify roles and responsibilities for applying the Municipal Code requirements and monitoring compliance. Ensure that the parking in-lieu fee is calculated, collected, and reported accurately, consistently, and timely. Ensure that appropriations, funding sources, actual revenues, and capital expenditures are accurately and completely tracked during the life of each CIP project. Verify final project costs for accuracy, close out the project, and release unused project funds upon completion of the project. Ensure that complete records related to the costs of planning and constructing a garage(s) are Planning and Community Environment, Administrative Services, Public Works, City Clerk Concurrence: Partially agree Target Date: 2016 Action Plan: Staff concurs that enhanced coordination and communication should occur among PCE, PW, and ASD regarding the parking in-lieu fee. However, rather than creating detailed procedures, staff recommends prioritizing the code amendments referenced above and developing a simple, high level protocol that briefly outlines the steps and responsibilities for calculating and charging the parking in- lieu fee. ● The PCE impact fee and in-lieu fee project mentioned above will ensure consistent and timely fee calculation. Accela will flag the need for fee payment before permit signoff. ● Ensuring that appropriations, funding sources, actual revenues, and capital expenditures are accurately and completely tracked during the life of each CIP project is the goal of every department. ● A process for verifying final project costs In process October 2017 Management Update: ●PCE’s project to program impact fees into Accela (permitting system), is now complete and operational. The steps and responsibilities for calculating and charging the parking in-lieu fee are covered in the new procedures written by staff for impact fee assessment and collection via Accela. Accela programming includes a block to the issuance of a building permit until impact fees have been paid. ●The new Downtown Parking Garage design is now underway and staff is considering the necessary procedures to ensure appropriations, funding sources, and capital expenses are accurately and completely tracked during the life of each new parking garage CIP project. ● A workgroup consisting of PCE, PWD, ASD, CSD, and PD has been formed and meets quarterly to discuss the parking funds and coordinate budgeting. A subgroup of appropriate departments will craft a simple high-level protocol for collecting, documenting, and verifying final project costs concurrent with 3A.a Packet Pg. 6 At t a c h m e n t : A u d i t s t a t u s u p d a t e a f t e r s t a f f r e p o r t c h a n g e s ( 8 5 2 9 : U p d a t e s t a t u s o f p a r k i n g f u n d s a u d i t ) STATUS OF AUDIT RECOMMENDATIONS AUDIT OF PARKING FUNDS – ISSUED 12/15/15 PAGE 4 Recommendation Responsible Department Original Target Date and Response Current Status Implementation Update and Expected Completion Date retained for the entire period for which they serve as the basis for calculating the parking in-lieu fee. Communicate and train staff on the policies and procedures. and identification of the responsible department will be included in the high level protocol mentioned above. ● The goal of retaining complete records related to the costs of planning and constructing garages will require a clarification in the City’s Records Retention Policy. The Policy does not clearly identify the need to retain these records in perpetuity nor does it identify the responsible department. The responsible departments will raise this issue with the City Clerk’s office. the design, construction, and closing of the new Downtown Parking Garage CIP project, and for using the garage parking space inventory and cost information to calculate the revised parking-in-lieu fee, consistent with the Municipal Code. ●Staff is working with the City Clerk’s office to identify and update areas of the Records Retention Schedule which require updating to ensure total costs for garage construction are retained for at least the period of time for which they serve as the basis for calculating the parking in-lieu fee. Expected Completion Date: Winter 2020 (the expected completion date of the New Downtown Parking Garage) Finding 2: Combining College Terrace RPP and Crescent Park NOP parking permit revenues and not fully tracking and analyzing financial and performance data reduced the ability to make informed decisions. 2.1. PCE and ASD work together to establish supplemental policies and procedures to ensure that: Roles and responsibilities for managing parking programs and parking permit funds are clearly defined and assigned, including responsibility for tracking all expenditures associated with each parking permit program activity. Budgeting and fee-setting procedures are coordinated among PCE, ASD, and Police and Administrative Services, Planning and Community Environment, Public Works, Police Concurrence: Partially agree Target Date: Immediate Action Plan: ● Staff concurs that enhanced coordination and communication should occur among PCE and ASD regarding residential parking programs and funds. Staff has taken steps to start this process with the development of the Fiscal Year 2017 budget. ● Staff will coordinate to determine budgeting and fee-setting procedures based upon analyses. Practically, these are often In process October 2017 Management Update: ● The above mentioned working group, established in response to this audit, meets quarterly to define areas of responsibility and enhance coordination and communication on all parking funds. The working group will be involved in future budget development. ● PCE and ASD worked together on parking programs and funds in building the FY18 budgets for RPP programs. Data to date was used to project revenues and expenses for Fiscal Year 2018 proposed RPP budgets. In addition, the recent City of Palo Alto Parking 3A.a Packet Pg. 7 At t a c h m e n t : A u d i t s t a t u s u p d a t e a f t e r s t a f f r e p o r t c h a n g e s ( 8 5 2 9 : U p d a t e s t a t u s o f p a r k i n g f u n d s a u d i t ) STATUS OF AUDIT RECOMMENDATIONS AUDIT OF PARKING FUNDS – ISSUED 12/15/15 PAGE 5 Recommendation Responsible Department Original Target Date and Response Current Status Implementation Update and Expected Completion Date are based on analysis of budgeted and actual revenues and expenditures, including trend analysis. based on estimates due to limitations inherent in the program’s structure and the inconsistent timing of revenue receipts. Management Study recommendations were used to provide analysis and inform the budgeting of downtown parking programs. Expected Completion Date: June 2018, as budgeting for FY 2018 is completed, although the working group will continue. 2.2. PCE identify financial and performance data required for effective program evaluation, and work with ASD and Police to establish data tracking and monitoring procedures and assignment. This should also occur prior to implementing each new program. This includes: Defining and communicating which cost center and general ledger account is used to budget and capture each revenue and expenditure item in the SAP system to allow effective monitoring of program performance. Ensuring that financial transactions are recorded in the SAP system and necessary reporting capabilities are made available to allow efficient monitoring of program revenues and expenditures. Aligning the program year with the City’s fiscal year to improve use of existing data and simplified program analysis. Planning and Community Environment, Administrative Services, Police Concurrence: Partially agree Target Date: Fiscal Year 2017 Action Plan: ● PCE currently works with OMB to establish separate cost centers for new programs prior to initiation. For example, before the launch of the Downtown RPP, cost center 60239020 was established to isolate program expenses and revenues. ● PCE will work with other departments building the budgets for parking programs so that transactions can be more accurately captured in the financial system. PCE will request a Parking Analyst position in the Fiscal Year 2017 budget in order to efficiently monitor programs and provide reporting information. ● Aligning the program year with the fiscal year will have a significant impact on the capacity of Revenue Collections staff. The biggest renewal of parking permits for City garages is in the December/January and June/July timeframes. Moving the program year will result in parking permit renewals to be due in July, adding to the already significant workload of Revenue Collections and impacting customer service. Aligning In process October 2017 Management Update: ●Since this audit was released, the Evergreen Park- Mayfield RPP and Southgate RPP areas have been added. Consistent with other RPP programs, PCE worked with OMB to create separate cost centers for these RPPs to isolate the expenses and revenues for each program. ● Members of the parking working group with impacts to a residential parking budget are working together to refine budgets and capture each revenue and expenditure item in the SAP system. For instance, as an outcome of the audit, the Police Department simplified the recording of their expenses and revenues to the College Terrace fund from a complicated process to a smoother, more timely process and increased the journal entry capture of these financial impacts from once to twice per year. ●PCE requested and received a Transportation Program Analyst II position to monitor programs and provide reporting information. ●It is still not feasible to line up program years for all parking programs with fiscal years, particularly for RPP pilots since they do not start or end with a fiscal year. If RPP programs were all lined up so that their program years aligned with the City’s fiscal year, customer 3A.a Packet Pg. 8 At t a c h m e n t : A u d i t s t a t u s u p d a t e a f t e r s t a f f r e p o r t c h a n g e s ( 8 5 2 9 : U p d a t e s t a t u s o f p a r k i n g f u n d s a u d i t ) STATUS OF AUDIT RECOMMENDATIONS AUDIT OF PARKING FUNDS – ISSUED 12/15/15 PAGE 6 Recommendation Responsible Department Original Target Date and Response Current Status Implementation Update and Expected Completion Date Exploring opportunities to streamline and reduce manual processes, where possible. the program year with the fiscal year should be considered once all permits are fully available online. ● Staff concur that streamlining and reducing manual processes would be beneficial. While it is not feasible to completely automate all programs immediately, staff’s eventual goal is to accurately and completely streamline processes through automation. service would suffer since all RPP permit holders would be renewing at the same time. By staggering start and end dates, the workload for permit renewal is more evenly distributed. ●Automation of parking programs is still a goal the department is pursuing for all programs. Recommendations of the Downtown Parking Management study at the Council’s 4/11/17 meeting included procurement of a consolidated permitting and citation processing software system. At the request of Council, the parking study is on the agenda for the October 17th Finance Committee meeting. Expected Completion Date: June 2018, although the working group will continue. 2.3. PCE improve the reliability and usefulness of its annual report to the City Council on the parking programs by: Including financial and performance data for effective program decision making. Assigning staff with fiscal responsibility and knowledge to review the Resource Impact section of the report. Planning and Community Environment Concurrence: Agree Target Date: Fiscal Year 2017 Action Plan: Staff concurs that financial and performance data should be included in the annual report. Staff also concurs that resource impact sections should be reviewed by knowledgeable staff. Complete October 2017 Management Update: Due to the heightened interest in parking programs and the addition of new RPP neighborhoods since the audit was complete, PCE takes parking reports to Council on an ongoing basis. Financial and performance data are included, when available. (For example, performance data are not available for the initiation of pilots.) Through the City’s review process for City Manager Reports, fiscally knowledgeable staff are included for review of these reports prior to the report going to Council. Expected Completion Date: March 2017 3A.a Packet Pg. 9 At t a c h m e n t : A u d i t s t a t u s u p d a t e a f t e r s t a f f r e p o r t c h a n g e s ( 8 5 2 9 : U p d a t e s t a t u s o f p a r k i n g f u n d s a u d i t ) City of Palo Alto (ID # 8557) Policy and Services Committee Staff Report City of Palo Alto Page 1 Report Type: Action Items Meeting Date: 11/14/2017 Summary Title: Status Update of Audit Recommendations for Inventory Management Audit Title: Staff Recommendation that the Policy and Services Committee Recommend the City Council Accept the Status Update on the 2013 Inventory Management Audit From: City Manager Lead Department: Utilities Recommendation Staff recommends the Policy and Services Committee recommend that the City Council accept the attached Status of Audit Recommendations for the 2013 Inventory Management Audit. Background The City Auditor’s Office previously issued an audit with objectives to determine if the City has adequate controls to ensure accuracy and completeness of inventory records, accountability for inventory transactions, and safeguarding of inventory. The City's Stores Warehouses (Stores), a division of ASD, is the warehousing and logistical arm of the City, housing over 3,500 items at two facilities located at the Municipal Services Center (MSC) and the Regional Water Quality Control Plant (RWQCP). The Public Works Department is responsible for the maintenance, security, and safety of City structures where the City’s inventory is stored. The Utilities Department responds to emergencies on a 24/7 basis and maintains inventory for five utility services (electric, gas, water, sewer, fiber) Since the 2013 Inventory Management Audit, Utilities, Public Works and Administrative Services have established new policies, procedures and processes to improve consistency, recordkeeping, and access to warehouse stock. Staff in both Public Works and Utilities (along with Purchasing and Stores staff) has made significant strides to count and track goods managed outside the SAP inventory system. Security for City goods has been enhanced by more strictly limiting access cards to the MSC warehouse, installing a cage to protect computer equipment, and installing a new card access system and camera coverage at the RWQCP. The Departments have completed 10 of the 14 recommendations. The recommendations and actions taken for completion are listed in the attached document (Attachment A). 3C Packet Pg. 19 City of Palo Alto Page 2 The attached report also provides an update of the status of the four open recommendations. For recommendations 1, 3, and 6, Utilities is in the process of implementing a mobile inventory management app for smartphones and tablets to effectively manage materials (valued at greater than $100) and emergency parts stored outside of the warehouse. Recommendation 8 is in progress in regards to identifying, reviewing and updating the different categories for materials. Staff expects to have this completed by January 2018. Attachments: Attachment A: Inventory Management Update October 2017_Final 3C Packet Pg. 20 STATUS OF AUDIT RECOMMENDATIONS INVENTORY MANAGEMENT – ISSUED 12/31/13 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 Implementation Update and Expected Completion Date Finding 1: ASD and City departments should implement inventory management policies and procedures citywide to achieve the City’s inventory goals and objectives. 1. ASD and City departments should implement the City’s inventory management policies and procedures citywide to achieve inventory goals and objectives. Administrative Services (lead) Remaining Department Responsible: Utilities 6/30/14 Citywide policies and procedures will be reviewed, updated, and shared with all departments cited in this audit. Inventory goals and objectives will be stressed and implemented where it is cost- effective to do so. In Progress October 2017 Management Update: ASD conducted the follow-up outlined in the October 7, 2014 Staff Report and the attached Policy, Process & Procedures Document. Recommendation completed for ASD, Public Works, and IT. Utilities has requested that an exception be added in the policies and procedures governing items valued at less than $100 stored outside the warehouse (i.e. sheds, North Dock, substations). These consumables are excluded from physical inventory counts such as nuts, bolts, washers, pipe fittings, gloves, hard hats, and small tools. Most of these items have high turnover and are purchased in bulk rather than individual units. The time and cost involved in recording these materials will greatly exceed the value of the materials. Utilities is working with Stores on the return process for unused materials after completion of a project. Utilities will be piloting an inventory tracking system with barcode scanning capability to track and monitor materials valued at greater than $100 stored outside the warehouse. Expected Completion Date: June 2018 ATTACHMENT A 3C.a Packet Pg. 21 At t a c h m e n t : A t t a c h m e n t A : I n v e n t o r y M a n a g e m e n t U p d a t e O c t o b e r 2 0 1 7 _ F i n a l ( 8 5 5 7 : S t a t u s U p d a t e o f STATUS OF AUDIT RECOMMENDATIONS INVENTORY MANAGEMENT – ISSUED 12/31/13 PAGE 2 Recommendation Responsible Department Original Target Date and Response Current Status Implementation Update and Expected Completion Date June 2014 Management Update: When the audit was presented to the Finance Committee in February 2014, the Finance Committee requested that staff return in 6 months (August 2014) to provide a status update. Due to various scheduling conflicts, the meeting has been moved from August 19 to October 7, at which time the Finance Committee will hear staff’s responses to and the implementation plan for the Auditor’s findings and recommendations. Since the Auditor’s Recommendation Status update report ends June 30, 2014, staff will provide status responses to the audit in the FY 2015 Recommendation Status update report. Expected Completion Date: 10/31/14 2. ASD should review its inventory accounting policies and correct any misstatements in the City’s accounting records. Administrative Services 5/31/14 ASD has reviewed issues raised by the Auditor and has found no material misstatements in its FY 2013 financial records and CAFR. ASD believes its accounting policies are reasonable. Accounting policies and records, however, will be reviewed as staff responds to Recommendation 1. Complete October 2017 Management Update: Inventory items, which the audit found as potential financial misstatements, were reviewed. A majority of the items identified have been recategorized as non-valued items or are part of a Capital Improvement Project; neither creating a financial misstatement. External Auditor Macias Gini & O’Connell found no material misstatements in past CAFR reports. June 2014 Management Update: When the audit was presented to the Finance Committee in February 2014, the Finance Committee requested that staff return in 6 months (August 2014) to provide a status update. Due to various scheduling conflicts, the meeting has been moved from August 19 to October 7, at which time the Finance Committee will hear staff’s responses to and the implementation plan for the Auditor’s findings and recommendations. Since the Auditor’s Recommendation Status update report ends June 30, 2014, staff will provide status responses to the audit in the FY 2015 Recommendation Status update report. Expected Completion 3C.a Packet Pg. 22 At t a c h m e n t : A t t a c h m e n t A : I n v e n t o r y M a n a g e m e n t U p d a t e O c t o b e r 2 0 1 7 _ F i n a l ( 8 5 5 7 : S t a t u s U p d a t e o f STATUS OF AUDIT RECOMMENDATIONS INVENTORY MANAGEMENT – ISSUED 12/31/13 PAGE 3 Recommendation Responsible Department Original Target Date and Response Current Status Implementation Update and Expected Completion Date Date: Completed and awaiting Auditor’s verification Finding 2: ASD should improve controls to ensure the accuracy of recorded inventory. 3.ASD should update and enforce inventory count policies and procedures to help ensure consistent and accurate inventory records. The update should at minimum require blind inventory counts, sufficient documentation of counts and adjustments, and appropriate segregation of duties. ASD should consider implementing controls included in the GAO publication titled “Executive Guide Best Practices in Achieving Consistent, Accurate Physical Counts of Inventory and Related Property.” Administrative Services Remaining Department Responsible: Utilities 6/30/14 •ASD has implemented blind inventory counts and appropriate segregation of duties at the MSC warehouse and will continue to improve. Limited staffing at the MSC does make segregation of duties challenging. •To achieve greater accuracy in counts at the RWQCP warehouse as well as segregation of duties, additional staffing is necessary. Staff from Public Works and ASD propose to evaluate the costs and benefits of the recommendation and report back to Council. •Staff will strive to implement controls cited in GAO publication and inform Council of its progress. In Progress October 2017 Management Update: ASD has implemented the GAO’s best practices in the warehouse. ASD is conducting blind inventory counts at the warehouse. ASD conducts a full inventory count at fiscal year-end to ensure accuracy and accountability of inventory on hand. Constant SAP auto-generated inventory cycle counts are performed to maintain an accurate inventory. Utilities is conducting semi-annual inventory counts of materials valued over $100 and emergency parts stored in MSC sheds, North Dock and substations. Utilities will be piloting an inventory tracking system with barcode scanning capability to track and monitor materials valued at greater than $100 stored outside the warehouse. Expected Completion Date: June 2018 June 2014 Management Update: When the audit was presented to the Finance Committee in February 2014, the Finance Committee requested that staff return in 6 months (August 2014) to provide a status update. Due to various scheduling conflicts, the meeting has been moved from August 19 to October 7, at which time the Finance Committee will hear staff’s responses to and the implementation plan for the Auditor’s findings and recommendations. Since the Auditor’s Recommendation Status update report ends June 30, 2014, staff will provide status responses to the audit in the FY 2015 Recommendation Status update report. Expected Completion Date: 10/31/14; All policies and procedures and responsibilities for this recommendation are in place; will go live on 10/31/14 3C.a Packet Pg. 23 At t a c h m e n t : A t t a c h m e n t A : I n v e n t o r y M a n a g e m e n t U p d a t e O c t o b e r 2 0 1 7 _ F i n a l ( 8 5 5 7 : S t a t u s U p d a t e o f STATUS OF AUDIT RECOMMENDATIONS INVENTORY MANAGEMENT – ISSUED 12/31/13 PAGE 4 Recommendation Responsible Department Original Target Date and Response Current Status Implementation Update and Expected Completion Date after Finance Committee review Finding 3: Inventory records do not evidence accountability for all inventory transactions. 4.ASD should update and enforce inventory transaction policies and procedures to ensure there is proper authorization and accountability for all transactions. The update should, at minimum, require approved reservations prior to issuance of inventory and separation of the following incompatible roles: a) custody of inventory, b) counting of inventory, and c) making adjustments to inventory. Administrative Services 6/30/14 •ASD will reassess its transaction policies and procedures to ensure proper authorization and accountability within its warehouses and whether additional FTE will be needed to achieve the separation of the “incompatible” roles. •Systems, current and new, will be assessed to maximize use of the reservation system. There may be situations, like an emergency, where goods may be withdrawn without a reservation. Staff will work to reconcile this situation. Complete with Alternative Implement ation (exception for emergency requests) October 2017 Management Update: In collaboration with other departments, ASD has developed policies and procedures for material handling. Except for emergency requests, all warehouse materials and supplies must be entered and processed in the SAP system prior to issuance. Emergency requests are permitted, as needed to deploy crews to their repair destinations without delay. In these instances, the supervisor is notified immediately to submit a reservation for the pulled materials. Staff is abiding to the material handling policy and have addressed the issue of incompatible roles. In the event of an after-hours emergency, authorized personnel may use his/her card to enter the warehouse, create an After- Hours Pull Sheet listing the parts to be taken from the warehouse, and then pull the needed parts. The following morning, the Storekeeper will verify that the Pull sheet is accurate, and process in SAP. June 2014 Management Update: When the audit was presented to the Finance Committee in February 2014, the Finance Committee requested that staff return in 6 months (August 2014) to provide a status update. Due to various scheduling conflicts, the meeting has been moved from August 19 to October 7, at which time the Finance Committee will hear staff’s responses to and the implementation plan for the Auditor’s findings and recommendations. Since the Auditor’s 3C.a Packet Pg. 24 At t a c h m e n t : A t t a c h m e n t A : I n v e n t o r y M a n a g e m e n t U p d a t e O c t o b e r 2 0 1 7 _ F i n a l ( 8 5 5 7 : S t a t u s U p d a t e o f STATUS OF AUDIT RECOMMENDATIONS INVENTORY MANAGEMENT – ISSUED 12/31/13 PAGE 5 Recommendation Responsible Department Original Target Date and Response Current Status Implementation Update and Expected Completion Date Recommendation Status update report ends June 30, 2014, staff will provide status responses to the audit in the FY 2015 Recommendation Status update report. Expected Completion Date: 10/31/14; All policies and procedures and responsibilities for this recommendation are in place; will go live on 10/31/14 after Finance Committee review 5.ASD should avoid use of generic user accounts. ASD should consult with the IT Department to determine an appropriate alternative to using a generic account to issue inventory. Administrative Services 1/31/14 ASD is working with IT and SAP personnel to change user accounts from generic to specific, identifiable staff. Complete October 2017 Management Update: ASD has removed the generic storekeeper account. All storekeepers have specific user accounts. June 2014 Management Update: When the audit was presented to the Finance Committee in February 2014, the Finance Committee requested that staff return in 6 months (August 2014) to provide a status update. Due to various scheduling conflicts, the meeting has been moved from August 19 to October 7, at which time the Finance Committee will hear staff’s responses to and the implementation plan for the Auditor’s findings and recommendations. Since the Auditor’s Recommendation Status update report ends June 30, 2014, staff will provide status responses to the audit in the FY 2015 Recommendation Status update report. Expected Completion Date: Completed and awaiting Auditor’s verification Finding 4: The City’s warehouses have significant quantities of unused or infrequently used inventory. 6.ASD should identify, formalize, and communicate inventory management goals and objectives to City departments. Administrative Services Remaining Department Responsible: Utilities 6/30/14 Once current policies and procedures are reviewed and updated and inventory management goals and objectives are reaffirmed, they will be discussed and left with departments. In Progress October 2017 Management Update: Recommendation completed for ASD, Public Works, and IT. Policies and procedures were developed with and approved by departments. They include a definition of the goals and objectives of those policies and procedures. The procedures incorporate internal controls that ensure the responsible use of public funds and efficiency of 3C.a Packet Pg. 25 At t a c h m e n t : A t t a c h m e n t A : I n v e n t o r y M a n a g e m e n t U p d a t e O c t o b e r 2 0 1 7 _ F i n a l ( 8 5 5 7 : S t a t u s U p d a t e o f STATUS OF AUDIT RECOMMENDATIONS INVENTORY MANAGEMENT – ISSUED 12/31/13 PAGE 6 Recommendation Responsible Department Original Target Date and Response Current Status Implementation Update and Expected Completion Date operations, including the safeguarding of assets, the reliability and completeness of information reporting, and compliance with laws and regulations. Utilities staff routinely monitors inventory to manage appropriate classification of maintenance, emergency and obsolete parts/materials. Inventory minimum and maximum levels are reviewed semi-annually. Utilities will be piloting an inventory tracking system with barcode scanning capability to track and monitor materials valued at greater than $100 stored outside the warehouse. Expected Completion Date: June 2018 June 2014 Management Update: When the audit was presented to the Finance Committee in February 2014, the Finance Committee requested that staff return in 6 months (August 2014) to provide a status update. Due to various scheduling conflicts, the meeting has been moved from August 19 to October 7, at which time the Finance Committee will hear staff’s responses to and the implementation plan for the Auditor’s findings and recommendations. Since the Auditor’s Recommendation Status update report ends June 30, 2014, staff will provide status responses to the audit in the FY 2015 Recommendation Status update report. Expected Completion Date: 10/31/14; All policies and procedures and responsibilities for this recommendation are in place; will go live on 10/31/14 after Finance Committee review 7.ASD should update existing policies and develop new policies and procedures to address the following: •Roles and responsibilities for managing inventory levels Administrative Services 6/30/14 ASD will update its policies & procedures, to include a review of Muni Code requirements, and work with departments to: a) clearly define responsibilities for managing Complete October 2017 Management Update: ASD has implemented the policies and procedures regarding roles and responsibilities for managing inventory levels, reporting slow-moving or dead stock, and transitioning of new materials as required. 3C.a Packet Pg. 26 At t a c h m e n t : A t t a c h m e n t A : I n v e n t o r y M a n a g e m e n t U p d a t e O c t o b e r 2 0 1 7 _ F i n a l ( 8 5 5 7 : S t a t u s U p d a t e o f STATUS OF AUDIT RECOMMENDATIONS INVENTORY MANAGEMENT – ISSUED 12/31/13 PAGE 7 Recommendation Responsible Department Original Target Date and Response Current Status Implementation Update and Expected Completion Date •Management of slow-moving or dead stock •Transitioning to new materials inventory levels; b) periodic reports will be sent to departments to identify dead stock; c) departments will coordinate with ASD when new materials are ordered and replace old inventory. The warehouse provides semi-annual lists of slow-moving goods to the respective departments. Departments report back to the warehouse and identify materials that are obsolete or being phased out and adjust the minimum and maximum level quantity if necessary. Inventory forms have been established for new, replacement, one time and discontinued materials. The forms are routed for approval by Engineering, Operations and Stores via Docusign. Emergency materials are reported separately in the inventory turnover metrics. Slow-moving or dead stock are identified through appropriate SAP transactions (ZMMR05). If changes to existing stock or an addition of a new part/material is identified, staff completes the Inventory Stock Request Form and submits the form through DocuSign for the appropriate approvals from Utilities Engineering, the Warehouse Supervisor and Purchasing. June 2014 Management Update: When the audit was presented to the Finance Committee in February 2014, the Finance Committee requested that staff return in 6 months (August 2014) to provide a status update. Due to various scheduling conflicts, the meeting has been moved from August 19 to October 7, at which time the Finance Committee will hear staff’s responses to and the implementation plan for the Auditor’s findings and recommendations. Since the Auditor’s Recommendation Status update report ends June 30, 2014, staff will provide status responses to the audit in the FY 2015 Recommendation Status update report. Expected Completion Date: 10/31/14; All policies and procedures and responsibilities 3C.a Packet Pg. 27 At t a c h m e n t : A t t a c h m e n t A : I n v e n t o r y M a n a g e m e n t U p d a t e O c t o b e r 2 0 1 7 _ F i n a l ( 8 5 5 7 : S t a t u s U p d a t e o f STATUS OF AUDIT RECOMMENDATIONS INVENTORY MANAGEMENT – ISSUED 12/31/13 PAGE 8 Recommendation Responsible Department Original Target Date and Response Current Status Implementation Update and Expected Completion Date for this recommendation are in place; will go live on 10/31/14 after Finance Committee review 8.ASD should consult with the IT Department and other City departments to ensure staff: •Identifies and uses key SAP inventory management reports. •Appropriately configures and updates SAP parameters affecting inventory levels. Administrative Services 3/31/14 •ASD has worked and will continue to work with SAP staff to use and develop SAP inventory management reports. A list of these reports will be included by Target Date. •Parameters affecting inventory levels will be explored and updated as needed. In Progress October 2017 Management Update: The Warehouse staff provides a customized SAP “ZMMR05” report semi-annually of slow-moving goods to the respective departments. The report contains material lead time, stock quantity, minimum and maximum stock threshold, year to date usage and average monthly life usage. This report assists the Supervisors with determining whether the minimum and maximum needs to be adjusted, whether a part should be classified as “emergency” because it is slow moving or whether a part should be removed from stock entirely. Materials should be identified by staff as one of the following categories: “Emergency”, “Maintenance”, “Delete” or “Obsolete”. “Delete” is defined as a material that no longer exists in the system, whereas “Obsolete” is a material being phased out. Staff is in the process of identifying, reviewing and updating these categories for all materials. Expected Completion Date: January 2018 June 2014 Management Update: When the audit was presented to the Finance Committee in February 2014, the Finance Committee requested that staff return in 6 months (August 2014) to provide a status update. Due to various scheduling conflicts, the meeting has been moved from August 19 to October 7, at which time the Finance Committee will hear staff’s 3C.a Packet Pg. 28 At t a c h m e n t : A t t a c h m e n t A : I n v e n t o r y M a n a g e m e n t U p d a t e O c t o b e r 2 0 1 7 _ F i n a l ( 8 5 5 7 : S t a t u s U p d a t e o f STATUS OF AUDIT RECOMMENDATIONS INVENTORY MANAGEMENT – ISSUED 12/31/13 PAGE 9 Recommendation Responsible Department Original Target Date and Response Current Status Implementation Update and Expected Completion Date responses to and the implementation plan for the Auditor’s findings and recommendations. Since the Auditor’s Recommendation Status update report ends June 30, 2014, staff will provide status responses to the audit in the FY 2015 Recommendation Status update report. Expected Completion Date: 10/31/14; All policies and procedures and responsibilities for this recommendation are in place; will go live on 10/31/14 after Finance Committee review Finding 5: The City should improve physical security over its inventory. 9.The Public Works Department should perform a citywide physical access risk assessment in collaboration with the Utilities Department, Office of Emergency Services, IT Department, and the Police Department in order to effectively identify, prioritize, and address access control weaknesses. Public Works 12/31/14 •Public Works has and is interacting with departments to address access control weaknesses. Hard keys are being transitioned to a card entry system. •A thorough review of those with access cards to the MSC warehouse has been conducted and the number of people with access has been reduced. •A cage extension and a card access system have been added to a City Hall storage facility for IT equipment. •Public Works will be working with other departments to identify further improvements such as an improved camera system at the MSC. Complete October 2017 Management Update: MSC and RWQCP security measures are completed. Public Works has completed a comprehensive evaluation of access control with all departments. •Where feasible hard keys have been eliminated and card access systems have been installed. •A review of Card Access to the MSC warehouse has been conducted and access has been reduced to essential staff only. •The storage facility at City Hall for IT has been fully caged and card readers have been installed. •A new camera system has been installed at the MSC and is fully functioning. •Security guards are staffed at the main gate of the MSC to improve security measures. June 2014 Management Update: When the audit was presented to the Finance Committee in February 2014, the Finance Committee requested that staff return in 6 months (August 2014) to provide a status update. Due to various scheduling conflicts, the meeting has been moved from August 19 to October 7, at which time the Finance Committee will hear staff’s 3C.a Packet Pg. 29 At t a c h m e n t : A t t a c h m e n t A : I n v e n t o r y M a n a g e m e n t U p d a t e O c t o b e r 2 0 1 7 _ F i n a l ( 8 5 5 7 : S t a t u s U p d a t e o f STATUS OF AUDIT RECOMMENDATIONS INVENTORY MANAGEMENT – ISSUED 12/31/13 PAGE 10 Recommendation Responsible Department Original Target Date and Response Current Status Implementation Update and Expected Completion Date responses to and the implementation plan for the Auditor’s findings and recommendations. Since the Auditor’s Recommendation Status update report ends June 30, 2014, staff will provide status responses to the audit in the FY 2015 Recommendation Status update report. Expected Completion Date: 12/31/14; MSC and WQCP security measures are completed. Public Works staff will collaborate with the City’s OES Director for recommendations and guidance working toward a citywide risk assessment. 10.The Public Works Department should develop policies and procedures to address the management of citywide physical security. Policies and procedures should address: a.Designation of roles and responsibilities to ensure physical security controls appropriately restrict and monitor access. b.Management (administration) and proper use of the City’s access control systems. c.Processing departmental requests to grant or modify employees’ physical access. d.Granting restricted access to non-employees. e.Ensuring access is timely modified or revoked when roles and responsibilities change. Public Works 12/31/14 •Public Works staff will make improvements to existing policies and procedures to address citywide physical security. •The department is in the process of working with IT, OES, and Police to address items a-e. PW is, for example, evaluating non- employee access to CNG filling equipment. Complete October 2017 Management Update: MSC and RWQCP security measures are completed. Public Works has completed a comprehensive evaluation of access control with all departments. •Where feasible hard keys have been eliminated and card access systems have been installed. •A review of Card Access to the MSC warehouse has been conducted and access has been reduced to essential staff only. •A new camera system has been installed at the MSC and is fully functioning. •Security guards are staffed at the main gate of the MSC to improve security measures. In addition to supervisors and leads, Utilities has granted warehouse access to specific night crew members who are first responders for emergencies and unexpected work. Utilities will review and update the list of employees with warehouse access on a semi-annual basis. June 2014 Management Update: When the audit was presented 3C.a Packet Pg. 30 At t a c h m e n t : A t t a c h m e n t A : I n v e n t o r y M a n a g e m e n t U p d a t e O c t o b e r 2 0 1 7 _ F i n a l ( 8 5 5 7 : S t a t u s U p d a t e o f STATUS OF AUDIT RECOMMENDATIONS INVENTORY MANAGEMENT – ISSUED 12/31/13 PAGE 11 Recommendation Responsible Department Original Target Date and Response Current Status Implementation Update and Expected Completion Date to the Finance Committee in February 2014, the Finance Committee requested that staff return in 6 months (August 2014) to provide a status update. Due to various scheduling conflicts, the meeting has been moved from August 19 to October 7, at which time the Finance Committee will hear staff’s responses to and the implementation plan for the Auditor’s findings and recommendations. Since the Auditor’s Recommendation Status update report ends June 30, 2014, staff will provide status responses to the audit in the FY 2015 Recommendation Status update report. Expected Completion Date: Completed and awaiting Auditor’s verification 11.The Public Works Department should configure the fleet access control system to support the City’s security goals and objectives or determine if the AMAG Technology, Inc. Symmetry Security Management System should replace it. Public Works 6/30/14 Prior to the audit, PW staff was in the process of converting the Fleet access control system to the AMAG system. The AMAG technology access control system is expected to be implemented by FY end. Complete October 2017 Management Update: Public Works has installed the AMAG system at the MSC front gate. This system identifies vehicles entering the MSC. Utilities and Public Works have installed GPS tracking devices on its entire fleet to improve emergency response time, employee safety and operational efficiency. June 2014 Management Update: When the audit was presented to the Finance Committee in February 2014, the Finance Committee requested that staff return in 6 months (August 2014) to provide a status update. Due to various scheduling conflicts, the meeting has been moved from August 19 to October 7, at which time the Finance Committee will hear staff’s responses to and the implementation plan for the Auditor’s findings and recommendations. Since the Auditor’s Recommendation Status update report ends June 30, 2014, staff will provide status responses to the audit in the FY 2015 Recommendation Status update report. Expected Completion Date: 12/31/14 3C.a Packet Pg. 31 At t a c h m e n t : A t t a c h m e n t A : I n v e n t o r y M a n a g e m e n t U p d a t e O c t o b e r 2 0 1 7 _ F i n a l ( 8 5 5 7 : S t a t u s U p d a t e o f STATUS OF AUDIT RECOMMENDATIONS INVENTORY MANAGEMENT – ISSUED 12/31/13 PAGE 12 Recommendation Responsible Department Original Target Date and Response Current Status Implementation Update and Expected Completion Date 12.The Public Works Department should review and update AMAG Technology, Inc. Symmetry Security Management System access authorization records to ensure access card holders can be uniquely identified. Access cards (especially generic or group cards) should only be assigned with a documented and approved business need. Public Works 6/30/14 Public Works will evaluate the current access control database and remove any access cards that are not uniquely identified. Only uniquely identified access cards will be issued in the future. Complete October 2017 Management Update: Public Works reviewed the access control database and removed all access cards that were not uniquely identified. According to the new policy, only uniquely identified access cards are issued. Public Works will review and monitor the database on an ongoing basis. June 2014 Management Update: When the audit was presented to the Finance Committee in February 2014, the Finance Committee requested that staff return in 6 months (August 2014) to provide a status update. Due to various scheduling conflicts, the meeting has been moved from August 19 to October 7, at which time the Finance Committee will hear staff’s responses to and the implementation plan for the Auditor’s findings and recommendations. Since the Auditor’s Recommendation Status update report ends June 30, 2014, staff will provide status responses to the audit in the FY 2015 Recommendation Status update report. Expected Completion Date: Completed and awaiting Auditor’s verification 13.The Public Works Department should assess the adequacy of records of individuals assigned keys and take necessary corrective action to ensure the accuracy and completeness of the records. The Public Works Department should identify and prioritize replacement or rekeying of locks for high risk areas if records do not identify who is in Public Works 12/31/14 PW will review physical key records and update them to reflect the current issuance of keys. The current key system is in process of being replaced, card readers will be added to key locations, and cameras will be installed in specific locations. The latter will be done in concert with Police, OES, and IT. Complete October 2017 Management Update: Public Works has reviewed and updated all the physical key records to reflect authorizied issuance of keys. All of the exterior doors of City facilities have been rekeyed with the new Schlage Primus key system. Primus keys are a one of a kind configuration made/ coded specifically for Palo Alto. The manufacturer guarantees no other organization will be given this code/ configuration. Detailed records are kept for all keys issued for this new Schlage Primus system by Facilities staff. 3C.a Packet Pg. 32 At t a c h m e n t : A t t a c h m e n t A : I n v e n t o r y M a n a g e m e n t U p d a t e O c t o b e r 2 0 1 7 _ F i n a l ( 8 5 5 7 : S t a t u s U p d a t e o f STATUS OF AUDIT RECOMMENDATIONS INVENTORY MANAGEMENT – ISSUED 12/31/13 PAGE 13 Recommendation Responsible Department Original Target Date and Response Current Status Implementation Update and Expected Completion Date possession of the keys or if the keys issued were of the type that can be duplicated. June 2014 Management Update: When the audit was presented to the Finance Committee in February 2014, the Finance Committee requested that staff return in 6 months (August 2014) to provide a status update. Due to various scheduling conflicts, the meeting has been moved from August 19 to October 7, at which time the Finance Committee will hear staff’s responses to and the implementation plan for the Auditor’s findings and recommendations. Since the Auditor’s Recommendation Status update report ends June 30, 2014, staff will provide status responses to the audit in the FY 2015 Recommendation Status update report. Expected Completion Date: 12/31/14 14.The Public Works Department should improve physical security at the City Hall storage area. Appropriate actions include, but are not limited to, enforcing appropriate key or card access controls and securing areas that have inadequate fencing. Public Works 12/31/14 A review of City storage areas is underway. As stated above IT equipment at City Hall is now caged and will be caged at MSC warehouse as well. Public Works is evaluating new access controls. Complete October 2017 Management Update: The storage facility at City Hall and MSC for IT has been fully caged and card readers have been installed for authorized access. June 2014 Management Update: When the audit was presented to the Finance Committee in February 2014, the Finance Committee requested that staff return in 6 months (August 2014) to provide a status update. Due to various scheduling conflicts, the meeting has been moved from August 19 to October 7, at which time the Finance Committee will hear staff’s responses to and the implementation plan for the Auditor’s findings and recommendations. Since the Auditor’s Recommendation Status update report ends June 30, 2014, staff will provide status responses to the audit in the FY 2015 Recommendation Status update report. Expected Completion Date: Completed and awaiting Auditor’s verification 3C.a Packet Pg. 33 At t a c h m e n t : A t t a c h m e n t A : I n v e n t o r y M a n a g e m e n t U p d a t e O c t o b e r 2 0 1 7 _ F i n a l ( 8 5 5 7 : S t a t u s U p d a t e o f CITY OF PALO ALTO OFFICE OF THE CITY AUDITOR November 14, 2017 The Honorable City Council Palo Alto, California Auditor's Office Quarterly Report as of September 30, 2017 RECOMMENDATION The City Auditor’s Office recommends the Policy and Services Committee review and recommend to the City Council acceptance of the Auditor’s Office Quarterly Report as of September 30, 2017. SUMMARY OF RESULTS In accordance with the Municipal Code, the City Auditor prepares an annual work plan and issues quarterly reports to the City Council describing the status and progress towards completion of the work plan. This report provides the City Council with an update on the first quarter for FY 2018. Respectfully submitted, Harriet Richardson City Auditor ATTACHMENTS: Attachment A: Auditor's Office Quarterly Report as of September 30, 2017 (PDF) Department Head: Harriet Richardson, City Auditor Page 2 Quarterly Report as of September 30, 2017 Office of the City Auditor “Promoting honest, efficient, effective, economical, and fully accountable and transparent city government.” Attachment A PAGE 2 Fiscal Year (FY) 2018 First Quarter Update (July – September 2017) Overview The audit function is essential to the City of Palo Alto’s public accountability. The mission of the Office of the City Auditor, as mandated by the City Charter and Municipal Code, is to promote honest, efficient, effective, economical, and fully accountable and transparent city government. We conduct performance audits and reviews to provide the City Council and City management with information and evaluations regarding how effectively and efficiently resources are used; the adequacy of internal control systems; and compliance with policies, procedures, and regulatory requirements. Taking appropriate action on our audit recommendations helps the City reduce risks and protect its good reputation. Activity Highlights •We published and presented the audit of water meter billing accuracy. •We published and presented the continuous monitoring audit of overtime. •All audit staff participated in a three-day training for audit report writing. •City Auditor Harriet Richardson led a peer review team for Norfolk, Virginia. Audit and Project Work Below is a summary of our audit and project work for the first quarter of FY 2018: Title Objective(s) Start Date End Date Status Results/Comments Enterprise resource planning (ERP) Planning Audit: Data and System Governance and Security Evaluate the adequacy of data and system governance and security in the current SAP system and make recommendations to ensure that identified deficiencies are corrected for the new ERP system. 05/17 12/17 In Process The audit is in the field work phase, and we expect to complete the audit in late 2017. ERP Planning Audit: Data Reliability and Integrity Evaluate the integrity and reliability of data in the current SAP system and make recommendations to ensure that identified deficiencies are corrected prior to transferring data to the new ERP system. 05/17 02/18 In Process This will be a series of reports that focus on different aspects of data reliability or specific data sets. Our first two audits will be on data standardization and a specific data set. These are currently in the planning phase, and we expect to complete them in early 2018, with more audits to follow. ERP Planning Audit: Separation of Duties Evaluate the adequacy of separation of duties for various activities in the current SAP system and make recommendations to ensure that identified deficiencies are corrected for the new ERP system. 05/17 02/18 In Process The audit is in the planning phase, and we expect to complete it early 2018. Attachment A PAGE 3 Title Objective(s) Start Date End Date Status Results/Comments Code Enforcement Audit Evaluate code enforcement policies and practices for responsiveness, consistency, and follow-up. Resident opinions to help inform our audit will be gathered through a custom citizen survey, as described below. 05/17 03/18 In Process The audit is in the field work phase. We expect to complete the audit in early 2018. ERP Nonaudit Service Provide advisory services to the Department of Information Technology regarding its planning of a new ERP system. 09/16 Ongoing We attended 13 strategic and tactical team meetings during the first quarter of FY 2018 and provided verbal and written advice based on our technical expertise and best practice information readily available to us. We also met with IT staff biweekly to discuss specific issues requiring immediate attention. Custom Citizen Survey Conduct a citizen survey, separate from the annual National Citizen Survey™, to obtain resident opinions about code enforcement activities and the built environment. 06/17 12/17 In process The National Research Center mailed the survey to 3,000 residents. We have received the raw data from the National Research Center and are currently compiling it into a report and analyzing the results. National Citizen Survey™ Obtain resident opinions about the community and services provided by the City of Palo Alto and benchmark our results against other jurisdictions. 06/17 01/18 In process The National Research Center has mailed the survey to 3,000 residents and is currently in the data collection phase. We expect to receive the results in mid- December and to analyze them by early January. Audit Plan Update We currently have a limited scope item on our audit plan to evaluate the rules and processes used to establish the business registry and make recommendations to help clean up the data and ensure accuracy in the future. The Development Services Department is planning to do a condensed survey and will request only basic information (e.g., business name, type of business, and location) for the 2018 reregistration process. The department will hire a consultant to collect more complete baseline data of which businesses operate in Palo Alto and make recommendations for how to update the information in the future. Based on that, the Auditor’s Office does not plan to conduct this audit in FY 2018. The Development Services Director will provide a separate update to Council regarding the actions the department is taking to improve the accuracy and completeness of the business registry. Attachment A PAGE 4 Other Monitoring and Administrative Assignments Below is a summary of other assignments as of September 30, 2017: Title Objective(s) Status Results/Comments City Auditor Advisory Roles Provide guidance and advice to key governance committees within the City. Ongoing The City Auditor serves as an advisor to the Utilities Risk Oversight Committee and Information Security Steering Committee. We are also serving as an advisor for the strategic and technical planning groups for planning the new ERP system (see comment in the Audit and Project Work section above). Sales and Use Tax Allocation Reviews 1)Identify businesses that do business in Palo Alto that may have underreported or misallo- cated their sales and use tax and submit inquiries to the state for review and tax reallocation. 2)Monitor sales taxes received from the Stanford University Medical Center Project and notify Stanford of any differences between their reported taxes and state sales tax information, in accordance with the development agreement. 3)Provide Quarterly Status Updates and Sales Tax Digest Summaries for Council review. Ongoing 1)Total sales and use tax recoveries for the first quarter of FY 2018 were $10,381 from our inquiries and $7,732 from the vendor’s inquiries, for a total of $18,113 for the quarter and fiscal year-to-date. Due to processing delays at the State Board of Equalization, 50 potential misallocations are waiting to be researched and processed: 13 from our office and 37 from the vendor. 2)We receive calendar-year sales tax information for the Stanford Medicine development project about six months after the end of the calendar year. We will report the 2017 sales tax information for this project in our June 2018 quarterly report. The City has received $2,896,941 for calendar years 2011 through 2016 as a result of this agreement. 3)Quarterly sales tax reports are published on the Office of the City Auditor website at www.cityofpaloalto.org/gov/depts/aud/reports/default.asp. Status of Audit Recommendations Sixty recommendations were open at the beginning of the first quarter of FY 2018, plus an additional 26 that were reported to us as closed but that we had not yet verified. Of those 26, we verified 24 as closed and 2 as still open. We verified that another 9 were closed, and we added 13 recommendations during the first quarter of FY 2018, for a total of 66 recommendations still open at the end of the first quarter. All but one of the past-due status reports are scheduled to be presented to the Policy and Services Committee before December 2017. Below is a summary of the open audit recommendations as of September 30, 2017: Audit Title and Report Date Due Date and Prior Status Report Dates Total Recommendations/ Number Open Summary of Open Recommendations Citywide Cash Handling and Travel Expense Issued 09/15/10 Due – 02/18 08/22/17 11/10/15 09/23/14 09/10/13 10/22/12 04/19/11 Recommendations: 11 Open: 1 Implemented during quarter: 0 Review practice of reimbursing employee meals when not in a travel status and report the amounts as income to employees to conform to Internal Revenue Service requirements. Attachment A PAGE 5 Audit Title and Report Date Due Date and Prior Status Report Dates Total Recommendations/ Number Open Summary of Open Recommendations Inventory Management Issued 02/18/14 Due – 05/18 11/02/17 09/23/14 Recommendations: 14 Open: 4 We reported 12 of the 14 recommendations as completed last quarter but had not yet verified the status. This report confirms that 12 of the 14 were completed but 2 of the 12 are still in progress, in addition to the 2 that were still open. •Implement City’s inventory management policies and procedures •Update and enforce inventory count policies and procedures to ensure consistent and accurate inventory records •Identify, formalize, and communicate inventory management goals and objectives to City departments •Ensure staff identify and use key SAP inventory management reports and appropriately configure and update SAP parameters that affect inventory levels Utility Meters: Procurement, Inventory, and Retirement Issued 03/10/15 Due – 05/18 11/02/17 Recommendations: 15 Open: 1 We reported 14 of the 15 recommendations as completed last quarter but had not yet verified the status. This report confirms that all 14 were completed. •Correct purchase order documents to accurately reflect engineering specifications NOTE: Two recommendations are closed because they are deemed to be no longer relevant. Police Department: Palo Alto Animal Services Issued 04/22/15 09/20/17 03/22/16 Recommendations: 8 Open: 0 Implemented during quarter: 8 N/A – all recommendations are closed Parking Funds Issued 12/15/15 Due – 05/18 11/02/17 Recommendations: 8 Open: 3 Implemented during quarter: 1 •Develop policies and procedures to clarify roles and responsibilities and ensure accurate calculation and reporting of parking-in-lieu fees •Establish policies and procedures to clarify roles and responsibilities for parking programs and parking permit funds •Identify financial and performance data required for effective evaluation of parking program Attachment A PAGE 6 Audit Title and Report Date Due Date and Prior Status Report Dates Total Recommendations/ Number Open Summary of Open Recommendations Disability Rates and Workers’ Compensation Issued 05/10/16 Past Due None Recommendations: 15 Open: 15 Implemented during quarter: 0 •Allocate sufficient resources to implement and maintain and monitor compliance with the City’s Injury and Illness Prevention Program •Update the safety manual/supplemental tools •Review departmental procedures and safety requirements to ensure they align with citywide policies and procedures •Identify useful safety statistics, their recipients, and reporting frequency, and develop an automated process for providing the statistics •Identify and provide industry-specific ergonomics and general wellness training opportunities •Address the disability leave benefits incorrectly reported as compensation to CalPERS •Review claims that had differences in additional city benefits and correct any errors identified •Determine optimal structure, update tools and procedures, and allocate sufficient and skilled resources to ensure accuracy of benefit eligibility and work status of injured employees •Ensure that data for managing disability leave is accurately captured through SAP time reporting •Provide online access to claims data and establish procedures for granting, monitoring, and removing access and safeguarding data •Streamline workers’ compensation reporting process and improve accuracy/completeness of claim forms •Monitor and follow-up on third-party administrator’s performance against key contract terms •Streamline third-party administrator’s reporting processes •Clarify workers’ compensation in City budget •Identify useful performance measures and establish procedures to ensure reliable reporting Attachment A PAGE 7 Audit Title and Report Date Due Date and Prior Status Report Dates Total Recommendations/ Number Open Summary of Open Recommendations Cable Franchise and Public, Education, and Government (PEG) Fees Issued 06/14/16 Due – 02/18 08/22/17 Recommendations: 9 Open: 7 Implemented during quarter: 0 •Assess ongoing need for PEG fees; place fees in restricted account until decisions are made about use of fees •Determine whether to allocate unrestricted funds, instead of PEG fees, to subsidize the Media Center’s operations. •Send letters to cable companies to demand payment of underpaid franchise and PEG fees •Work with cable companies to ensure accuracy of address databases and assign separate billing codes for each Cable Joint Powers service area •Develop criteria for assessing the accuracy of future cable franchise and PEG fee payments and require more detail with payment remittances •Assign responsibility for the cable communications program and provide effective oversight of the program •Draft an ordinance to update the Palo Alto Municipal Code based on clarified assignment of responsibility Community Services Department (CSD): Fee Schedule Audit Issued 02/14/17 Due – 05/18 11/14/17 Recommendations: 3 Open: 3 Implemented during quarter: 0 •Revise City’s cost recovery policy to align with relevant laws and reconfigure the Questica budget system to support fees that recover more than 100 percent of costs •Establish procedures in CSD to align with the City’s updated cost recovery policy •Configure SAP or the new ERP system to align cost centers with CSD programs Continuous Monitoring: Payments Issued 04/13/17 Due – 02/18 None Recommendations: 7 Open: 7 Implemented during quarter: 0 •Build a continuous monitoring process into the new ERP system to identify potential duplicate invoices and seek recovery of duplicate payments •Update invoice processing policies and procedures to facilitate identification of duplicate payments •Review unconfirmed potential duplicate payments and prioritize recovery of confirmed duplicate payments •Update policies and procedures to clarify guidance for creation of vendor master records and develop standardized coding vendor records •Build a continuous monitoring process into the new ERP system to identify duplicate, incomplete, or unused vendor records •Develop a requirement for the proposed ERP system to support entry of multiple vendor addresses when needed •Clean vendor master file before merging data into new ERP system Attachment A PAGE 8 Audit Title and Report Date Due Date and Prior Status Report Dates Total Recommendations/ Number Open Summary of Open Recommendations Green Purchasing Practices Issued 04/13/17 Due – 02/18 None Recommendations: 8 Open: 8 Implemented during quarter: 0 •Clearly define department(s) responsible for implementing green purchasing policies and determine if additional staffing and funding are needed to implement the policies •Align Municipal Code with green purchasing policies •Develop consolidated procedures to implement green purchasing policies •Educate City staff on green purchasing policies •Evaluate quality of 40 percent postconsumer fiber paper towels, monitor janitorial contractor’s use of cleaning and paper products, and evaluate feasibility of including additional green products in janitorial contract •Evaluate if new e-procurement system or other technology solution can help with tracking and reporting green purchases and establish appropriate green purchasing performance measures •Require vendors to provide data on amounts of green products and services that City purchases from them •Develop and implement a process to formally document the assessment of battery-electric and plug-in hybrid vehicles Utilities Department: Cross Bore Inspection Contract Issued 06/01/17 Due – 02/18 None Recommendations: 4 Open: 4 Implemented during quarter: 0 •Prioritize uninspected sewer pipelines for inspection and disclose potential inspection challenges in future contract solicitations •Identify and update missing data in laterals database •Incorporate relevant provisions from National Association of Sewer Service Companies’ contract template in future sewer inspection contracts •Identify gaps in staff expertise and develop a training and certification plan for field staff who will monitor field inspections Attachment A PAGE 9 Audit Title and Report Date Due Date and Prior Status Report Dates Total Recommendations/ Number Open Summary of Open Recommendations Accuracy of Water Meter Billing Issued 08/16/17 Due – 05/18 None Recommendations: 11 Open: 11 Implemented during quarter: 0 •Correct billing errors identified •Investigate 123 other meter records with discrepancies and correct as necessary •Review and correct meter records for meters larger than 2 inches •Explore options for addressing equity in meter size rates •Until new ERP system is implemented, implement a temporary monitoring or reporting system to identify and correct discrepancies that may result in billing errors and ensure new ERP system has controls to prevent and identify such discrepancies •Develop a policy and procedures to report significant, systemic infrastructure changes to Council and update City of Palo Alto Utilities’ (CPAU) Rules and Regulations as needed •Seek direction from Council before proceeding with installing additional electronic meters •Determine if installed eMeters should be replaced and if billing adjustments are required Continuous Monitoring: Overtime Issued 09/06/17 Due – 05/18 None Recommendations: 2 Open: 2 Implemented during quarter: 0 •Explore potential of developing a continuous monitoring process for overtime •Form a work group to design standardized overtime management processes in the new ERP environment Fraud, Waste, and Abuse Hotline Administration The hotline review committee, composed of the City Auditor, the City Attorney, and the City Manager, or their designees, meets as needed to review hotline-related activities. We did not receive or close any hotline complaints 9 0 0 00 2 4 6 8 10 Q1 Q2 Q3 Q4 Number of Implemented Recommendations by Quarter 31 22 13 0 20 40 60 80 100 Number of Open Recommendations FY 18 FY 17 Prior Fiscal Years Attachment A PAGE 10 during the first quarter of FY 2018, and no prior complaints remain open. The chart below summarizes the status of complaints received in each fiscal year since the hotline was implemented. Source: City of Palo Alto hotline case management system as of September 30, 2017 7 3 2 15 9 00 2 4 6 8 10 12 14 16 FY 2013 FY 2014 FY 2015 FY 2016 FY 2017 FY 2018 Status of Complaints Received by Fiscal Year Closed Complaints Open Complaints Attachment A