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HomeMy WebLinkAbout2025-02-11 Policy & Services Committee Agenda PacketPOLICY AND SERVICES COMMITTEE Regular Meeting Tuesday, February 11, 2025 Council Chambers & Hybrid 7:00 PM Policy and Services Committee meetings will be held as “hybrid” meetings with the option to attend by teleconference/video conference or in person. Information on how the public may observe and participate in the meeting is located at the end of the agenda. The meeting will be broadcast on Cable TV Channel 26, live on YouTube https://www.youtube.com/c/cityofpaloalto, and streamed to Midpen Media Center https://midpenmedia.org. VIRTUAL PARTICIPATION CLICK HERE TO JOIN (https://cityofpaloalto.zoom.us/j/94618744621) Meeting ID: 946 1874 4621    Phone: 1(669)900‐6833 PUBLIC COMMENTS General Public Comment for items not on the agenda will be accepted in person for up to three minutes or an amount of time determined by the Chair. General public comment will be heard for 30 minutes. Additional public comments, if any, will be heard at the end of the agenda. Public comments for agendized items will be accepted both in person and via Zoom for up to three minutes or an amount of time determined by the Chair. Requests to speak will be taken until 5 minutes after the staff’s presentation or as determined by the Chair.  Written public comments can be submitted in advance to city.council@CityofPaloAlto.org and will be provided to the Council and available for inspection on the City’s website. Please clearly indicate which agenda item you are referencing in your subject line. PowerPoints, videos, or other media to be presented during public comment are accepted only by email to city.clerk@CityofPaloAlto.org at least 24 hours prior to the meeting. Once received, the  Clerk will have them shared at public comment for the specified item. To uphold strong cybersecurity management practices, USB’s or other physical electronic storage devices are not accepted. Signs and symbolic materials less than 2 feet by 3 feet are permitted provided that: (1) sticks, posts, poles or similar/other types of handle objects are strictly prohibited; (2) the items do not create a facility, fire, or safety hazard; and (3) persons with such items remain seated when displaying them and must not raise the items above shoulder level, obstruct the view or passage of other attendees, or otherwise disturb the business of the meeting. CALL TO ORDER PUBLIC COMMENT  Members of the public may speak in­person ONLY to any item NOT on the agenda. 1­3 minutes depending on number of speakers. Public Comment is limited to 30 minutes. Additional public comments, if any, will be heard at the end of the agenda. ACTION ITEMS 1.Office of the City Auditor Presentation of the Grant Management Audit Report 2.Office of the City Auditor Presentation of the Utility Billing Audit Report And Recommendation to City Council for Approval 3.Nonprofit Partnerships Workplan: Phased Approach Late Packet Report 4.Follow Up from 2025 Council Retreat ‐ Discussion on 2025 Umbrella Operating Strategies Guiding Council Priorities FUTURE MEETINGS AND AGENDAS Members of the public may not speak to the item(s) ADJOURNMENT 6.Nonprofit Partnerships Workplan: Phased Approach PUBLIC COMMENT INSTRUCTIONS Members of the Public may provide public comments to teleconference meetings via email, teleconference, or by phone. 1. Written public comments may be submitted by email to city.council@cityofpaloalto.org. 2. For in person public comments please complete a speaker request card located on the table at the entrance to the Council Chambers and deliver it to the Clerk prior to discussion of the item. 3. Spoken public comments for agendized items using a computer or smart phone will be accepted through the teleconference meeting. To address the Council, click on the link below to access a Zoom‐based meeting. Please read the following instructions carefully. You may download the Zoom client or connect to the meeting in‐ browser. If using your browser, make sure you are using a current, up‐to‐date browser: Chrome 30 , Firefox 27 , Microsoft Edge 12 , Safari 7 . Certain functionality may be disabled in older browsers including Internet Explorer. Or download the Zoom application onto your smart phone from the Apple App Store or Google Play Store and enter in the Meeting ID below. You may be asked to enter an email address and name. We request that you identify yourself by name as this will be visible online and will be used to notify you that it is your turn to speak. When you wish to speak on an Agenda Item, click on “raise hand.” The Clerk will activate and unmute speakers in turn. Speakers will be notified shortly before they are called to speak. When called, please limit your remarks to the time limit allotted. A timer will be shown on the computer to help keep track of your comments. 4. Spoken public comments for agendized items using a phone use the telephone number listed below. When you wish to speak on an agenda item hit *9 on your phone so we know that you wish to speak. You will be asked to provide your first and last name before addressing the Council. You will be advised how long you have to speak. When called please limit your remarks to the agenda item and time limit allotted. CLICK HERE TO JOIN    Meeting ID: 946‐1874‐4621   Phone: 1‐669‐900‐6833 Americans with Disability Act (ADA) It is the policy of the City of Palo Alto to offer its public programs, services and meetings in a manner that is readily accessible to all. Persons with disabilities who require materials in an appropriate alternative format or who require auxiliary aids to access City meetings, programs, or services may contact the City’s ADA Coordinator at (650) 329‐2550 (voice) or by emailing ada@cityofpaloalto.org. Requests for assistance or accommodations must be submitted at least 24 hours in advance of the meeting, program, or service. California Government Code §84308, commonly referred to as the "Levine Act," prohibits an elected official of a local government agency from participating in a proceeding involving a license, permit, or other entitlement for use if the official received a campaign contribution exceeding $500 from a party or participant, including their agents, to the proceeding within the last 12 months. A “license, permit, or other entitlement for use” includes most land use and planning approvals and the approval of contracts that are not subject to lowest responsible bid procedures and have a value over $50,000. A “party” is a person who files an application for, or is the subject of, a proceeding involving a license, permit, or other entitlement for use. A “participant” is a person who actively supports or opposes a particular decision in a proceeding involving a license, permit, or other entitlement for use, and has a financial interest in the decision. The Levine Act incorporates the definition of “financial interest” in the Political Reform Act, which encompasses interests in business entities, real property, sources of income, sources of gifts, and personal finances that may be affected by the Council’s actions. If you qualify as a “party” or “participant” to a proceeding, and you have made a campaign contribution to a Council Member exceeding $500 made within the last 12 months, you must disclose the campaign contribution before making your comments.  1 Regular Meeting February 11, 2025 Materials related to an item on this agenda submitted to the Board after distribution of the agenda packet are available for public inspection at www.CityofPaloAlto.org/agendas. POLICY AND SERVICES COMMITTEERegular MeetingTuesday, February 11, 2025Council Chambers & Hybrid7:00 PMPolicy and Services Committee meetings will be held as “hybrid” meetings with the option toattend by teleconference/video conference or in person. Information on how the public mayobserve and participate in the meeting is located at the end of the agenda. The meeting will bebroadcast on Cable TV Channel 26, live on YouTube https://www.youtube.com/c/cityofpaloalto,and streamed to Midpen Media Center https://midpenmedia.org.VIRTUAL PARTICIPATION CLICK HERE TO JOIN (https://cityofpaloalto.zoom.us/j/94618744621)Meeting ID: 946 1874 4621    Phone: 1(669)900‐6833PUBLIC COMMENTSGeneral Public Comment for items not on the agenda will be accepted in person for up to threeminutes or an amount of time determined by the Chair. General public comment will be heardfor 30 minutes. Additional public comments, if any, will be heard at the end of the agenda.Public comments for agendized items will be accepted both in person and via Zoom for up tothree minutes or an amount of time determined by the Chair. Requests to speak will be takenuntil 5 minutes after the staff’s presentation or as determined by the Chair.  Written publiccomments can be submitted in advance to city.council@CityofPaloAlto.org and will be providedto the Council and available for inspection on the City’s website. Please clearly indicate whichagenda item you are referencing in your subject line.PowerPoints, videos, or other media to be presented during public comment are accepted onlyby email to city.clerk@CityofPaloAlto.org at least 24 hours prior to the meeting. Once received,the  Clerk will have them shared at public comment for the specified item. To uphold strongcybersecurity management practices, USB’s or other physical electronic storage devices are notaccepted. Signs and symbolic materials less than 2 feet by 3 feet are permitted provided that: (1) sticks, posts, poles or similar/other types of handle objects are strictly prohibited; (2) the items do not create a facility, fire, or safety hazard; and (3) persons with such items remain seated when displaying them and must not raise the items above shoulder level, obstruct the view or passage of other attendees, or otherwise disturb the business of the meeting. CALL TO ORDER PUBLIC COMMENT  Members of the public may speak in­person ONLY to any item NOT on the agenda. 1­3 minutes depending on number of speakers. Public Comment is limited to 30 minutes. Additional public comments, if any, will be heard at the end of the agenda. ACTION ITEMS 1.Office of the City Auditor Presentation of the Grant Management Audit Report 2.Office of the City Auditor Presentation of the Utility Billing Audit Report And Recommendation to City Council for Approval 3.Nonprofit Partnerships Workplan: Phased Approach Late Packet Report 4.Follow Up from 2025 Council Retreat ‐ Discussion on 2025 Umbrella Operating Strategies Guiding Council Priorities FUTURE MEETINGS AND AGENDAS Members of the public may not speak to the item(s) ADJOURNMENT   oach PUBLIC COMMENT INSTRUCTIONS Members of the Public may provide public comments to teleconference meetings via email, teleconference, or by phone. 1.Written public comments may be submitted by email to city.council@cityofpaloalto.org. 2.For in person public comments please complete a speaker request card located on the table at the entrance to the Council Chambers and deliver it to the Clerk prior to discussion of the item. 3.Spoken public comments for agendized items using a computer or smart phone will be accepted through the teleconference meeting. To address the Council, click on the link below to access a Zoom‐based meeting. Please read the following instructions carefully. You may download the Zoom client or connect to the meeting in‐ browser. If using your browser, make sure you are using a current, up‐to‐date browser: Chrome 30 , Firefox 27 , Microsoft Edge 12 , Safari 7 . Certain functionality may be disabled in older browsers including Internet Explorer. Or download the Zoom application onto your smart phone from the Apple App Store or Google Play Store and enter in the Meeting ID below. You may be asked to enter an email address and name. We request that you identify yourself by name as this will be visible online and will be used to notify you that it is your turn to speak. When you wish to speak on an Agenda Item, click on “raise hand.” The Clerk will activate and unmute speakers in turn. Speakers will be notified shortly before they are called to speak. When called, please limit your remarks to the time limit allotted. A timer will be shown on the computer to help keep track of your comments. 4. Spoken public comments for agendized items using a phone use the telephone number listed below. When you wish to speak on an agenda item hit *9 on your phone so we know that you wish to speak. You will be asked to provide your first and last name before addressing the Council. You will be advised how long you have to speak. When called please limit your remarks to the agenda item and time limit allotted. CLICK HERE TO JOIN    Meeting ID: 946‐1874‐4621   Phone: 1‐669‐900‐6833 Americans with Disability Act (ADA) It is the policy of the City of Palo Alto to offer its public programs, services and meetings in a manner that is readily accessible to all. Persons with disabilities who require materials in an appropriate alternative format or who require auxiliary aids to access City meetings, programs, or services may contact the City’s ADA Coordinator at (650) 329‐2550 (voice) or by emailing ada@cityofpaloalto.org. Requests for assistance or accommodations must be submitted at least 24 hours in advance of the meeting, program, or service. California Government Code §84308, commonly referred to as the "Levine Act," prohibits an elected official of a local government agency from participating in a proceeding involving a license, permit, or other entitlement for use if the official received a campaign contribution exceeding $500 from a party or participant, including their agents, to the proceeding within the last 12 months. A “license, permit, or other entitlement for use” includes most land use and planning approvals and the approval of contracts that are not subject to lowest responsible bid procedures and have a value over $50,000. A “party” is a person who files an application for, or is the subject of, a proceeding involving a license, permit, or other entitlement for use. A “participant” is a person who actively supports or opposes a particular decision in a proceeding involving a license, permit, or other entitlement for use, and has a financial interest in the decision. The Levine Act incorporates the definition of “financial interest” in the Political Reform Act, which encompasses interests in business entities, real property, sources of income, sources of gifts, and personal finances that may be affected by the Council’s actions. If you qualify as a “party” or “participant” to a proceeding, and you have made a campaign contribution to a Council Member exceeding $500 made within the last 12 months, you must disclose the campaign contribution before making your comments. 2 Regular Meeting February 11, 2025 Materials related to an item on this agenda submitted to the Board after distribution of the agenda packet are available for public inspection at www.CityofPaloAlto.org/agendas. POLICY AND SERVICES COMMITTEERegular MeetingTuesday, February 11, 2025Council Chambers & Hybrid7:00 PMPolicy and Services Committee meetings will be held as “hybrid” meetings with the option toattend by teleconference/video conference or in person. Information on how the public mayobserve and participate in the meeting is located at the end of the agenda. The meeting will bebroadcast on Cable TV Channel 26, live on YouTube https://www.youtube.com/c/cityofpaloalto,and streamed to Midpen Media Center https://midpenmedia.org.VIRTUAL PARTICIPATION CLICK HERE TO JOIN (https://cityofpaloalto.zoom.us/j/94618744621)Meeting ID: 946 1874 4621    Phone: 1(669)900‐6833PUBLIC COMMENTSGeneral Public Comment for items not on the agenda will be accepted in person for up to threeminutes or an amount of time determined by the Chair. General public comment will be heardfor 30 minutes. Additional public comments, if any, will be heard at the end of the agenda.Public comments for agendized items will be accepted both in person and via Zoom for up tothree minutes or an amount of time determined by the Chair. Requests to speak will be takenuntil 5 minutes after the staff’s presentation or as determined by the Chair.  Written publiccomments can be submitted in advance to city.council@CityofPaloAlto.org and will be providedto the Council and available for inspection on the City’s website. Please clearly indicate whichagenda item you are referencing in your subject line.PowerPoints, videos, or other media to be presented during public comment are accepted onlyby email to city.clerk@CityofPaloAlto.org at least 24 hours prior to the meeting. Once received,the  Clerk will have them shared at public comment for the specified item. To uphold strongcybersecurity management practices, USB’s or other physical electronic storage devices are notaccepted.Signs and symbolic materials less than 2 feet by 3 feet are permitted provided that: (1) sticks,posts, poles or similar/other types of handle objects are strictly prohibited; (2) the items do notcreate a facility, fire, or safety hazard; and (3) persons with such items remain seated whendisplaying them and must not raise the items above shoulder level, obstruct the view orpassage of other attendees, or otherwise disturb the business of the meeting.CALL TO ORDERPUBLIC COMMENT Members of the public may speak in­person ONLY to any item NOT on the agenda. 1­3 minutes depending onnumber of speakers. Public Comment is limited to 30 minutes. Additional public comments, if any, will be heard atthe end of the agenda.ACTION ITEMS1.Office of the City Auditor Presentation of the Grant Management Audit Report2.Office of the City Auditor Presentation of the Utility Billing Audit Report AndRecommendation to City Council for Approval3.Nonprofit Partnerships Workplan: Phased Approach Late Packet Report4.Follow Up from 2025 Council Retreat ‐ Discussion on 2025 Umbrella Operating StrategiesGuiding Council PrioritiesFUTURE MEETINGS AND AGENDASMembers of the public may not speak to the item(s)ADJOURNMENT 6.Nonprofit Partnerships Workplan: Phased Approach PUBLIC COMMENT INSTRUCTIONS Members of the Public may provide public comments to teleconference meetings via email, teleconference, or by phone. 1. Written public comments may be submitted by email to city.council@cityofpaloalto.org. 2. For in person public comments please complete a speaker request card located on the table at the entrance to the Council Chambers and deliver it to the Clerk prior to discussion of the item. 3. Spoken public comments for agendized items using a computer or smart phone will be accepted through the teleconference meeting. To address the Council, click on the link below to access a Zoom‐based meeting. Please read the following instructions carefully. You may download the Zoom client or connect to the meeting in‐ browser. If using your browser, make sure you are using a current, up‐to‐date browser: Chrome 30 , Firefox 27 , Microsoft Edge 12 , Safari 7 . Certain functionality may be disabled in older browsers including Internet Explorer. Or download the Zoom application onto your smart phone from the Apple App Store or Google Play Store and enter in the Meeting ID below. You may be asked to enter an email address and name. We request that you identify yourself by name as this will be visible online and will be used to notify you that it is your turn to speak. When you wish to speak on an Agenda Item, click on “raise hand.” The Clerk will activate and unmute speakers in turn. Speakers will be notified shortly before they are called to speak. When called, please limit your remarks to the time limit allotted. A timer will be shown on the computer to help keep track of your comments. 4. Spoken public comments for agendized items using a phone use the telephone number listed below. When you wish to speak on an agenda item hit *9 on your phone so we know that you wish to speak. You will be asked to provide your first and last name before addressing the Council. You will be advised how long you have to speak. When called please limit your remarks to the agenda item and time limit allotted. CLICK HERE TO JOIN    Meeting ID: 946‐1874‐4621   Phone: 1‐669‐900‐6833 Americans with Disability Act (ADA) It is the policy of the City of Palo Alto to offer its public programs, services and meetings in a manner that is readily accessible to all. Persons with disabilities who require materials in an appropriate alternative format or who require auxiliary aids to access City meetings, programs, or services may contact the City’s ADA Coordinator at (650) 329‐2550 (voice) or by emailing ada@cityofpaloalto.org. Requests for assistance or accommodations must be submitted at least 24 hours in advance of the meeting, program, or service. California Government Code §84308, commonly referred to as the "Levine Act," prohibits an elected official of a local government agency from participating in a proceeding involving a license, permit, or other entitlement for use if the official received a campaign contribution exceeding $500 from a party or participant, including their agents, to the proceeding within the last 12 months. A “license, permit, or other entitlement for use” includes most land use and planning approvals and the approval of contracts that are not subject to lowest responsible bid procedures and have a value over $50,000. A “party” is a person who files an application for, or is the subject of, a proceeding involving a license, permit, or other entitlement for use. A “participant” is a person who actively supports or opposes a particular decision in a proceeding involving a license, permit, or other entitlement for use, and has a financial interest in the decision. The Levine Act incorporates the definition of “financial interest” in the Political Reform Act, which encompasses interests in business entities, real property, sources of income, sources of gifts, and personal finances that may be affected by the Council’s actions. If you qualify as a “party” or “participant” to a proceeding, and you have made a campaign contribution to a Council Member exceeding $500 made within the last 12 months, you must disclose the campaign contribution before making your comments.  3 Regular Meeting February 11, 2025 Materials related to an item on this agenda submitted to the Board after distribution of the agenda packet are available for public inspection at www.CityofPaloAlto.org/agendas. POLICY AND SERVICES COMMITTEERegular MeetingTuesday, February 11, 2025Council Chambers & Hybrid7:00 PMPolicy and Services Committee meetings will be held as “hybrid” meetings with the option toattend by teleconference/video conference or in person. Information on how the public mayobserve and participate in the meeting is located at the end of the agenda. The meeting will bebroadcast on Cable TV Channel 26, live on YouTube https://www.youtube.com/c/cityofpaloalto,and streamed to Midpen Media Center https://midpenmedia.org.VIRTUAL PARTICIPATION CLICK HERE TO JOIN (https://cityofpaloalto.zoom.us/j/94618744621)Meeting ID: 946 1874 4621    Phone: 1(669)900‐6833PUBLIC COMMENTSGeneral Public Comment for items not on the agenda will be accepted in person for up to threeminutes or an amount of time determined by the Chair. General public comment will be heardfor 30 minutes. Additional public comments, if any, will be heard at the end of the agenda.Public comments for agendized items will be accepted both in person and via Zoom for up tothree minutes or an amount of time determined by the Chair. Requests to speak will be takenuntil 5 minutes after the staff’s presentation or as determined by the Chair.  Written publiccomments can be submitted in advance to city.council@CityofPaloAlto.org and will be providedto the Council and available for inspection on the City’s website. Please clearly indicate whichagenda item you are referencing in your subject line.PowerPoints, videos, or other media to be presented during public comment are accepted onlyby email to city.clerk@CityofPaloAlto.org at least 24 hours prior to the meeting. Once received,the  Clerk will have them shared at public comment for the specified item. To uphold strongcybersecurity management practices, USB’s or other physical electronic storage devices are notaccepted.Signs and symbolic materials less than 2 feet by 3 feet are permitted provided that: (1) sticks,posts, poles or similar/other types of handle objects are strictly prohibited; (2) the items do notcreate a facility, fire, or safety hazard; and (3) persons with such items remain seated whendisplaying them and must not raise the items above shoulder level, obstruct the view orpassage of other attendees, or otherwise disturb the business of the meeting.CALL TO ORDERPUBLIC COMMENT Members of the public may speak in­person ONLY to any item NOT on the agenda. 1­3 minutes depending onnumber of speakers. Public Comment is limited to 30 minutes. Additional public comments, if any, will be heard atthe end of the agenda.ACTION ITEMS1.Office of the City Auditor Presentation of the Grant Management Audit Report2.Office of the City Auditor Presentation of the Utility Billing Audit Report AndRecommendation to City Council for Approval3.Nonprofit Partnerships Workplan: Phased Approach Late Packet Report4.Follow Up from 2025 Council Retreat ‐ Discussion on 2025 Umbrella Operating StrategiesGuiding Council PrioritiesFUTURE MEETINGS AND AGENDASMembers of the public may not speak to the item(s)ADJOURNMENT6.Nonprofit Partnerships Workplan: Phased ApproachPUBLIC COMMENT INSTRUCTIONSMembers of the Public may provide public comments to teleconference meetings via email,teleconference, or by phone.1. Written public comments may be submitted by email to city.council@cityofpaloalto.org.2. For in person public comments please complete a speaker request card located on thetable at the entrance to the Council Chambers and deliver it to the Clerk prior todiscussion of the item.3. Spoken public comments for agendized items using a computer or smart phone willbe accepted through the teleconference meeting. To address the Council, click on the linkbelow to access a Zoom‐based meeting. Please read the following instructions carefully.You may download the Zoom client or connect to the meeting in‐ browser. If usingyour browser, make sure you are using a current, up‐to‐date browser: Chrome 30 ,Firefox 27 , Microsoft Edge 12 , Safari 7 . Certain functionality may be disabled inolder browsers including Internet Explorer. Or download the Zoom application ontoyour smart phone from the Apple App Store or Google Play Store and enter in theMeeting ID below.You may be asked to enter an email address and name. We request that youidentify yourself by name as this will be visible online and will be used to notify youthat it is your turn to speak.When you wish to speak on an Agenda Item, click on “raise hand.” The Clerk willactivate and unmute speakers in turn. Speakers will be notified shortly before theyare called to speak.When called, please limit your remarks to the time limit allotted. A timer will beshown on the computer to help keep track of your comments.4. Spoken public comments for agendized items using a phone use the telephone numberlisted below. When you wish to speak on an agenda item hit *9 on your phone so weknow that you wish to speak. You will be asked to provide your first and last name beforeaddressing the Council. You will be advised how long you have to speak. When calledplease limit your remarks to the agenda item and time limit allotted.CLICK HERE TO JOIN    Meeting ID: 946‐1874‐4621   Phone: 1‐669‐900‐6833Americans with Disability Act (ADA) It is the policy of the City of Palo Alto to offer its publicprograms, services and meetings in a manner that is readily accessible to all. Persons withdisabilities who require materials in an appropriate alternative format or who require auxiliary aids to access City meetings, programs, or services may contact the City’s ADA Coordinator at (650) 329‐2550 (voice) or by emailing ada@cityofpaloalto.org. Requests for assistance or accommodations must be submitted at least 24 hours in advance of the meeting, program, or service. California Government Code §84308, commonly referred to as the "Levine Act," prohibits an elected official of a local government agency from participating in a proceeding involving a license, permit, or other entitlement for use if the official received a campaign contribution exceeding $500 from a party or participant, including their agents, to the proceeding within the last 12 months. A “license, permit, or other entitlement for use” includes most land use and planning approvals and the approval of contracts that are not subject to lowest responsible bid procedures and have a value over $50,000. A “party” is a person who files an application for, or is the subject of, a proceeding involving a license, permit, or other entitlement for use. A “participant” is a person who actively supports or opposes a particular decision in a proceeding involving a license, permit, or other entitlement for use, and has a financial interest in the decision. The Levine Act incorporates the definition of “financial interest” in the Political Reform Act, which encompasses interests in business entities, real property, sources of income, sources of gifts, and personal finances that may be affected by the Council’s actions. If you qualify as a “party” or “participant” to a proceeding, and you have made a campaign contribution to a Council Member exceeding $500 made within the last 12 months, you must disclose the campaign contribution before making your comments.  4 Regular Meeting February 11, 2025 Materials related to an item on this agenda submitted to the Board after distribution of the agenda packet are available for public inspection at www.CityofPaloAlto.org/agendas. 6 2 0 6 Policy & Services Committee Staff Report From: City Manager Report Type: ACTION ITEMS Lead Department: City Auditor Meeting Date: February 11, 2025 Report #:2412-3952 TITLE Office of the City Auditor Presentation of the Grant Management Audit Report RECOMMENDATION The Office of the City Auditor recommends the Policy and Services Committee approve the results of the Grant Management Audit Report. BACKGROUND Baker Tilly, in its capacity serving as the Office of the City Auditor (OCA), performed a citywide risk assessment that assessed a wide range of risk areas, including strategic, financial, operational, compliance, technological, and reputation risks. The purpose of the assessment was to identify and prioritize risks to develop the annual audit plan. During the FY23 risk assessment, the OCA identified grant management processes as a potential area of risk and included this audit on the FY24 Audit Plan. ANALYSIS The objective of the Grant Management Audit was to: Determine whether the City has adequate internal controls to manage the grant lifecycle efficiently and effectively. The City receives incoming grant funding from various sources to support its services, including federal, state, and local grants. Most of the City’s grant funding comes from federal agencies. The OCA assessed the City’s efforts to date on the grant management lifecycle through interviewing key staff, analyzing policies and procedures, and selecting a sample of FY22-FY24 grants to assess whether grant performance standards, procurement, and reporting complied with grant requirements, City policies, and best practices. Audit findings and recommendations focused on three areas of improvement: Item 1 Item 1 Staff Report        Item 1: Staff Report Pg. 1  Packet Pg. 5 of 73  6 2 0 6 •The City’s lacks coordinated oversight of the City’s grant management efforts, resulting in inconsistent management across departments and the potential for non-compliance with grant requirements •While the City is actively pursuing grant opportunities, there is insufficient recordkeeping and internal reporting of active grants, resulting in limited monitoring and visibility of grant performance; and •The City does not consistently assess and track efforts in pursuit and management of grant opportunities to measure its return on investment. The attached report summarizes the analysis, audit findings, and recommendations. FISCAL/RESOURCE IMPACT The timeline and resource needs for implementation of management’s corrective action plans are identified by management within the attached report. STAKEHOLDER ENGAGEMENT The Office of the City Auditor worked with and would like to thank several departments for their assistance in conducting this audit including: Administrative Services, City Manager’s Office, Public Works, Planning & Development Services, Office of Transportation, Community Services, City of Palo Alto Utilities, Library, Police and Office of Emergency Services. ENVIRONMENTAL REVIEW Council action on this item is not a project as defined by CEQA because contracting for auditing services is an organizational or administrative activity that will not result in direct or indirect physical changes in the environment. CEQA Guidelines section 15378(b)(5). ATTACHMENTS Attachment A: Grant Management Audit Report, January 29, 2025 APPROVED BY: Kate Murdock, City Auditor Item 1 Item 1 Staff Report        Item 1: Staff Report Pg. 2  Packet Pg. 6 of 73  Item 1 Attachment A - Grant Management Audit Report January 29 2025        Item 1: Staff Report Pg. 3  Packet Pg. 7 of 73  Item 1 Attachment A - Grant Management Audit Report January 29 2025        Item 1: Staff Report Pg. 4  Packet Pg. 8 of 73  Item 1 Attachment A - Grant Management Audit Report January 29 2025        Item 1: Staff Report Pg. 5  Packet Pg. 9 of 73  Item 1 Attachment A - Grant Management Audit Report January 29 2025        Item 1: Staff Report Pg. 6  Packet Pg. 10 of 73  Item 1 Attachment A - Grant Management Audit Report January 29 2025        Item 1: Staff Report Pg. 7  Packet Pg. 11 of 73  Item 1 Attachment A - Grant Management Audit Report January 29 2025        Item 1: Staff Report Pg. 8  Packet Pg. 12 of 73  Item 1 Attachment A - Grant Management Audit Report January 29 2025        Item 1: Staff Report Pg. 9  Packet Pg. 13 of 73  Item 1 Attachment A - Grant Management Audit Report January 29 2025        Item 1: Staff Report Pg. 10  Packet Pg. 14 of 73  Item 1 Attachment A - Grant Management Audit Report January 29 2025        Item 1: Staff Report Pg. 11  Packet Pg. 15 of 73  Item 1 Attachment A - Grant Management Audit Report January 29 2025        Item 1: Staff Report Pg. 12  Packet Pg. 16 of 73  Item 1 Attachment A - Grant Management Audit Report January 29 2025        Item 1: Staff Report Pg. 13  Packet Pg. 17 of 73  Item 1 Attachment A - Grant Management Audit Report January 29 2025        Item 1: Staff Report Pg. 14  Packet Pg. 18 of 73  Item 1 Attachment A - Grant Management Audit Report January 29 2025        Item 1: Staff Report Pg. 15  Packet Pg. 19 of 73  Item 1 Attachment A - Grant Management Audit Report January 29 2025        Item 1: Staff Report Pg. 16  Packet Pg. 20 of 73  Item 1 Attachment A - Grant Management Audit Report January 29 2025        Item 1: Staff Report Pg. 17  Packet Pg. 21 of 73  Item 1 Attachment A - Grant Management Audit Report January 29 2025        Item 1: Staff Report Pg. 18  Packet Pg. 22 of 73  Item 1 Attachment A - Grant Management Audit Report January 29 2025        Item 1: Staff Report Pg. 19  Packet Pg. 23 of 73  Item 1 Attachment A - Grant Management Audit Report January 29 2025        Item 1: Staff Report Pg. 20  Packet Pg. 24 of 73  Item 1 Attachment A - Grant Management Audit Report January 29 2025        Item 1: Staff Report Pg. 21  Packet Pg. 25 of 73  Item 1 Attachment A - Grant Management Audit Report January 29 2025        Item 1: Staff Report Pg. 22  Packet Pg. 26 of 73  Item 1 Attachment A - Grant Management Audit Report January 29 2025        Item 1: Staff Report Pg. 23  Packet Pg. 27 of 73  Item 1 Attachment A - Grant Management Audit Report January 29 2025        Item 1: Staff Report Pg. 24  Packet Pg. 28 of 73  Item 1 Attachment A - Grant Management Audit Report January 29 2025        Item 1: Staff Report Pg. 25  Packet Pg. 29 of 73  Item 1 Attachment A - Grant Management Audit Report January 29 2025        Item 1: Staff Report Pg. 26  Packet Pg. 30 of 73  Item 1 Item 1 Supplemental Report        Item 1: Staff Report Pg. 27  Packet Pg. 31 of 73  Item 1 Item 1 Supplemental Report        Item 1: Staff Report Pg. 28  Packet Pg. 32 of 73  Item 1 Item 1 Supplemental Report        Item 1: Staff Report Pg. 29  Packet Pg. 33 of 73  6 2 0 8 Policy & Services Committee Staff Report From: City Manager Report Type: ACTION ITEMS Lead Department: City Auditor Meeting Date: February 11, 2025 Report #:2412-3953 TITLE Office of the City Auditor Presentation of the Utility Billing Audit Report And Recommendation to City Council for Approval RECOMMENDATION The Office of the City Auditor recommends the Policy and Services Committee recommend the City Council approve the results of the Utility Billing Audit Report. BACKGROUND Baker Tilly, in its capacity serving as the Office of the City Auditor (OCA), performed a citywide risk assessment that assessed a wide range of risk areas, including strategic, financial, operational, compliance, technological, and reputation risks. The purpose of the assessment was to identify and prioritize risks to develop the annual audit plan. During the FY 2023 risk assessment, the OCA identified utility billing as a potential area of risk and included this audit on the FY 2024 Audit Plan. ANALYSIS The objectives of the Utility Billing Audit were to: 1. Determine whether the internal controls over the utility billing process are adequate and working effectively to ensure billing is accurate and in compliance with the City's policies and regulations. 2. Determine whether billing adjustments are properly supported and approved. The City of Palo Alto Utilities Department provides the City of Palo Alto with five municipal utility services: electricity, natural gas, water, wastewater, and fiber optics. The City’s Public Works Department also provides refuse collection and processing for recycling, compost and garbage, wastewater treatment, and stormwater management services. Palo Alto is the only Item 2 Item 2 Staff Report        Item 2: Staff Report Pg. 1  Packet Pg. 34 of 73  6 2 0 8 city in California that owns and operates a full suite of municipal utility services, including electric, fiber optics, natural gas, water and wastewater. The OCA assessed the City’s efforts to date on the utility billing process through interviewing key staff, analyzing policies and procedures, and selected a sample of Utility Billing Invoices, Utility Billing Adjustments, Billing and Usage Exceptions, and Write-Offs of Uncollectable Accounts for testing to compare the process and controls against City policy and regulations, as well as developed process maps to identify internal controls and control gaps for the meter reading and utility billing adjustment process. Audit findings and recommendations focus on two areas of improvement: •The OCA found utility bills and adjustments are accurately calculated in compliance with City policies and regulations, however, some billing processes were not properly documented or approved; and •The OCA identified some internal control gaps in the Utility Billing Process that can be addressed to improve the overall process. The attached report summarizes the analysis, audit findings, and recommendations. FISCAL/RESOURCE IMPACT The timeline and resource needs for implementation of management’s corrective action plans are identified by management within the attached report. Implementation of the recommendations regarding updates to policies and procedures will be completed within existing resources, however, should new systems or system reconfigurations be necessary, financial implications will be brought forward as necessary. STAKEHOLDER ENGAGEMENT The Office of the City Auditor worked primarily with and would like to thank the City of Palo Alto Utilities department and other departments providing support services to the Utility Billing department for their assistance in conducting this audit. ENVIRONMENTAL REVIEW Council action on this item is not a project as defined by CEQA because contracting for auditing services is an organizational or administrative activity that will not result in direct or indirect physical changes in the environment. CEQA Guidelines section 15378(b)(5). ATTACHMENTS Attachment A - Utility Billing Audit Report January 15, 2025 APPROVED BY: Kate Murdock, City Auditor Item 2 Item 2 Staff Report        Item 2: Staff Report Pg. 2  Packet Pg. 35 of 73  1 January 15, 2025 City of Palo Alto Office of the City Auditor Utility Billing Audit Item 2 Attachment A - Utility Billing Audit Report        Item 2: Staff Report Pg. 3  Packet Pg. 36 of 73  Contents Baker Tilly Advisory Group, LP and Baker Tilly US, LLP, trading as Baker Tilly, operate under an alternative practice structure and are members of the global network of Baker Tilly International Ltd., the members of which are separate and independent legal entities. Baker Tilly US, LLP is a licensed CPA firm that provides assurance services to its clients. Baker Tilly Advisory Group, LP and its subsidiary entities provide tax and consulting services to their clients and are not licensed CPA firms. EXECUTIVE SUMMARY...................................................................................................1 INTRODUCTION...............................................................................................................5 DETAILED ANALYSIS.....................................................................................................9 AUDIT RESULTS............................................................................................................12 APPENDICES.................................................................................................................20 Item 2 Attachment A - Utility Billing Audit Report        Item 2: Staff Report Pg. 4  Packet Pg. 37 of 73  1 Executive Summary Purpose of the Audit Baker Tilly Advisory Group, LP (Baker Tilly), in its capacity serving as the Office of the City Auditor (OCA) for the City of Palo Alto (the City), conducted a Utility Billing Audit based on approved Task Order 4.26 as part of the City’s FY24 Audit Plan. The objectives of this audit were to: 1. Determine whether the internal controls over the utility billing process are adequate and working effectively to ensure billing is accurate and in compliance with the City's policies and procedures. 2. Determine whether billing adjustments are properly supported and approved. Report Highlights Finding 1: (Page 12) The OCA found utility bills and adjustments are accurately calculated in compliance with City policies; however, certain billing adjustments and account write-offs were not properly documented or approved per City policy. Overall, the OCA concluded that there is a robust utility billing process in place and found that utility bills are accurate and in agreement with rates annually established by the City. The OCA noted the following positive observations: •For all utility billing invoices tested, the OCA concluded that billing was accurate and in compliance with City policies as we found no test exceptions. •Utility billing is appropriately reviewed for exceptions. •The implementation of AMI meters will provide an opportunity to reduce both the frequency and magnitude of adjustments as it will enable the City of Palo Alto Utilities (CPAU) Department to have more timely access to usage data. While billing adjustments are properly billed, the OCA identified some instances in which utility billing adjustments were not properly documented or approved during the period tested. The OCA selected a sample of adjustments from FY 2023 – FY 2024 for testing. The OCA tested all categories of adjustments, which include consumption, miscellaneous debit/credit, water leak, and GreenWaste adjustments. Out of 60 adjustments tested, there were 10 exceptions noted. These exceptions were primarily due to documentation and approval errors. The OCA observed the following: •For 6 adjustments tested, there was no IC WEB (Interaction Center Webclient) interaction record as the processor did not note the adjustment in SAP per the Processing Adjustments procedural document. Item 2 Attachment A - Utility Billing Audit Report        Item 2: Staff Report Pg. 5  Packet Pg. 38 of 73  2 EXECUTIVE SUMMARY •For 1 miscellaneous adjustment tested, a Customer Service Specialist (CSS) approved transactions above their authority level. •For 1 miscellaneous adjustment tested, there was no Adjustment Form submitted to verify proper approval. •For 1 miscellaneous adjustment tested, the Invoice Cancellation Form was incorrectly filled out by the CSS to include the incorrect invoice document number. •For 1 consumption adjustment tested, an adjustment was incorrectly entered in the Adjustment Log due to a typographical error; however, the correct amount was entered into SAP. Therefore, this did not result in a billing error to the customer. When proper approvals for adjustments are not obtained and documented, there is potential for inappropriate adjustments, financial losses, or fraud. As approval is currently obtained via DocuSign or manually entered in the Adjustment Log, there is an increased possibility for improper approval due to human error. Additionally, the OCA identified some instances when account write-offs of stale-dated checks were not properly approved during the period tested. The OCA selected a sample of 25 account write-offs of uncollectable utility accounts during FY 2023 – FY 2024 for testing. During the period tested, collections were put on hold from March 4th, 2020 – October 2023 due to COVID-19. Therefore, the OCA did not test the collections process. Out of 25 account write-offs tested, there were 4 exceptions noted. The OCA observed that for all 4 stale-dated check write-offs sampled, the support was not attached to the Quarterly Utilities Invoice Cancellation Memorandum and Form (Quarterly Memo) for proper approval per the City Write-off Policy for Utilities Bad Debt. By omitting support for review and approval, this could lead to inaccurate financial reporting as not all write-offs are properly reviewed. Key Recommendations We recommend that the City review the adjustments process to determine if there are ways to automate approvals in the billing system rather than relying on manual processes which can increase the possibility for human error. Otherwise, the City should review the current Processing Adjustments procedural document to ensure it is comprehensive and includes all necessary steps for accurately recording and reviewing adjustments. The City should determine if an IC WEB interaction record should be submitted for all miscellaneous adjustments and ensure this process is implemented by the CPAU Department. Additionally, if automation is not possible, the City could consider enhancing the procedural document by incorporating a checklist for both the processor and the approver of the adjustment. The approver checklist should include steps to reconcile adjustments entered in SAP with supporting documentation. By defining these steps in a checklist, the reviewer is more likely to identify any data entry errors before approving an adjustment. The CPAU Department should provide regular training Item 2 Attachment A - Utility Billing Audit Report        Item 2: Staff Report Pg. 6  Packet Pg. 39 of 73  3 EXECUTIVE SUMMARY sessions for staff on any updated procedures and the importance of accurate data entry and review. Lastly, we recommend that the City maintain the practice of incorporating stale-dated check support in the Quarterly Memo and integrate this procedure into training materials or official policies. This will help ensure employees consistently follow this important step and prevent any potential oversights. Finding 2: (Page 16) Two internal control gaps in the utility billing process should be addressed to prevent potential errors and inefficiencies. The OCA identified some internal control gaps in the utility billing process, specifically related to segregation of duties and timely resolution of billing adjustments. •First, the utility billing process does not currently instruct staff on the proper segregation of duties to ensure that the same person processing a consumption adjustment is not the same person approving the adjustment. We noted that for 3 consumption adjustments tested, the same individual processed and approved the adjustments on the Adjustment Log. Segregating duties helps an organization reduce the risk of errors and fraud by distributing responsibilities and accountability among multiple people and/or departments. •Second, outstanding investigations are not regularly reviewed to ensure prompt resolution of billing adjustments. Despite the CSS’s responsibility to follow up on outstanding Service Notifications (SNs), there is no regular, formal review process for these outstanding investigations. While such instances appear to be rare, we noted an example where this lack of a structured review led to a prolonged open investigation for more than 2 months (77 days) after the initial customer complaint and unresolved customer bill, causing delays in resolution. Delays in resolving billing issues can lead to inaccurate financial records and operational inefficiencies as well as customer frustration and dissatisfaction. Key Recommendations We recommend that the CPAU update the utility billing process to include a control to ensure proper segregation of duties between processing and approving adjustments. Without proper segregation of duties, there is a risk of potential error or fraud, as an individual can self-authorize an adjustment without adequate review. Additionally, we recommend that the City consider implementing a regular, periodic review process for outstanding billing adjustments to prevent prolonged unresolved billing issues. The City should establish specific timeframes for reviewing outstanding adjustments and maintain thorough documentation of these reviews. This approach will enable the CPAU Department to better monitor the timeliness and effectiveness of resolving investigations and billing adjustments. Item 2 Attachment A - Utility Billing Audit Report        Item 2: Staff Report Pg. 7  Packet Pg. 40 of 73  4 EXECUTIVE SUMMARY The City should provide ongoing training and support for CSSs and Field Service Technicians to ensure they are equipped to handle billing adjustments efficiently and effectively. Item 2 Attachment A - Utility Billing Audit Report        Item 2: Staff Report Pg. 8  Packet Pg. 41 of 73  5 Introduction 1 utilities-at-a-glance-fy-2023_final.pdf 2 https://www.cityofpaloalto.org/Departments/Utilities/Customer-Service/Utilities-at-a-Glance Objective The objectives of this audit were to: 1. Determine whether the internal controls over the utility billing process are adequate and working effectively to ensure billing is accurate and in compliance with the City's policies and procedures. 2. Determine whether billing adjustments are properly supported and approved. Background The CPAU Department provides the City with five municipal utility services: electricity, natural gas, water, wastewater, and fiber optics. The City’s Public Works Department also provides refuse collection and processing for recycling, compost and garbage, wastewater treatment, and stormwater management services. Palo Alto is the only city in California that owns and operates a full suite of municipal utility services, including electric, fiber optics, natural gas, water and wastewater. These services benefit thousands of customers, including residential, commercial, and City facilities. In FY 2023, there were 30,002 electric; 20,533 water; and 23,837 natural gas customer accounts, the majority of which were residential households1. See table below for breakout by customer type (residential, commercial, or City). See below FY 2023 financial highlights (in thousands) per utility2: Electric Water Natural Gas City 142 345 36 Commercial 3,640 3,572 2,202 Residential 26,220 16,616 21,599 26,220 16,616 21,599 3,640 3,572 2,202 142 345 36 0 5,000 10,000 15,000 20,000 25,000 30,000 35,000 Residential Commercial City Number of Customer of Accounts in FY 2023 By Utility & Customer Type Item 2 Attachment A - Utility Billing Audit Report        Item 2: Staff Report Pg. 9  Packet Pg. 42 of 73  6 INTRODUCTION 3 https://www.cityofpaloalto.org/files/assets/public/v/1/administrative-services/financial-reporting/annual-comprehensive-financial-reports- acfr/current-2011-cafrs/city-of-palo-alto-acfr-single-audit-fy2024-final-unsercured.pdf Electricity led with the highest sales revenue of $171,605 (in thousands) in FY 2023. Per the FY 2024 Annual Comprehensive Financial Report, electric operating revenue totaled $131,273, $164,556, and 178,549 in FY 2022, 2023, and 2024 (amounts in thousands). The average monthly residential bill totaled $451.84 in FY 2023. See chart below for a breakout by utility: Per the FY 2024 Annual Comprehensive Financial Report3, due to the COVID-19 pandemic, the City Council aimed to provide economic relief for residential and commercial utility customers by directing staff to maintain lower rate increases over several years without compromising the safety and integrity of the utility systems. As the City and the economy continues to transition into a steadier state, rates were approved to increase in FY 2024 for all utility services except electric, which decreased, and refuse, which remained flat, resulting in a $11.11, or 3.01%, increase for the average residential bill. $171,605 $72,474 $41,802 $20,694 $2,629 $29,542 $0 $20,000 $40,000 $60,000 $80,000 $100,000 $120,000 $140,000 $160,000 $180,000 $200,000 Electric Natural Gas Water Wastewater Fiber Optics Refuse Sales Revenue Interest, Fees & Other Revenue Commodity Purchase Costs Operating Costs FY 2023 Financial Highlights (in thousands) $103.23 $125.15$107.99 $48.64 $50.07 $16.76 Electric Gas Water Sewer Refuse Stormwater FY 2023 Average Monthly Residential Bill by Utility Item 2 Attachment A - Utility Billing Audit Report        Item 2: Staff Report Pg. 10  Packet Pg. 43 of 73  7 INTRODUCTION 4 Government auditing standards require an external peer review at least once every three (3) years. The last peer review of the Palo Alto Office of the City Auditor was conducted in 2017. The Palo Alto City Council approved a contract with Baker Tilly U.S, LLP for internal audit services for October 2020 through June 2022 with an extension through June 2025. City Council appointed Kate Murdock, Audit Manager in Baker Tilly’s Risk Advisory practice, as City Auditor in May 2024. As a result of transitions in the Audit Office and peer review delays due to the COVID pandemic, an external peer review is targeted for 2025. It should be noted that Baker Tilly’s most recent firmwide peer review was completed in October 2021 with a rating of “Pass”. The scope of that peer review includes projects completed under government auditing standards. A report on the next firmwide peer review should be available in 2025. As of the writing of this report, CPAU management staff reported the City has installed approximately 80% of advanced or smart electric, gas, and water meters as part of the Advanced Metering Infrastructure (AMI) project. Staff reported that AMI implementation will likely be completed by Spring 2025.The AMI meters will empower customers to utilize energy and water more efficiently, better enable customer adoption of distributed energy resources (DER) such as solar photovoltaics, energy storage, and electric vehicles, and enable the timely detection of water leaks. AMI will also enable Utilities to optimize operations and improve reliability by reducing restoration time for outages. Scope The OCA obtained utility billing records from FY 2023 to FY 2024 and assessed whether internal controls over the utility billing process and billing adjustments are working effectively and in compliance with the City's policies. Methodology To achieve the audit objectives, the OCA performed the following procedures: •Interviewed the appropriate individuals to gain an understanding of the organizational structure, processes, and controls related to utility billing. •Analyzed City policies and procedures to identify the criteria to be used for evaluation of control design and effectiveness. •Selected a sample of utility billing invoices, utility billing adjustments, billing and usage exceptions, and write-offs of uncollectable accounts for testing to compare the process and controls against City policies. •Developed Meter Reading and Utility Billing Adjustments process maps, identifying internal controls and control gaps. •Completed audit report of findings, conclusions, and recommendations based on the supporting evidence gathered. Compliance Statement This audit activity was conducted from June 2024 to December 2024 in accordance with generally accepted government auditing standards, except for the requirement of an external peer review4. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings, observations, and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings, observations, and conclusions based on our audit objectives. Organizational Strengths During this audit activity, we noted the expertise and responsiveness demonstrated by the CPAU Department, notably the Director of Customer Service, Credit & Collections Manager, and the Customer Service Manager. We greatly appreciate staff participating in interviews and providing a substantial amount of documentation for testing. Item 2 Attachment A - Utility Billing Audit Report        Item 2: Staff Report Pg. 11  Packet Pg. 44 of 73  8 INTRODUCTION The OCA greatly appreciates the support of the departments involved in conducting this audit activity. Thank you! Item 2 Attachment A - Utility Billing Audit Report        Item 2: Staff Report Pg. 12  Packet Pg. 45 of 73  9 Detailed Analysis Utility Billing Process and Controls The utility billing function must accurately measure a customer’s usage and bill customers for their electricity, water, and gas usage based on current utility rates. The Utility Billing Memo provides a summary of the utility billing process in the City of Palo Alto. It outlines the procedures performed for meter reading, billing and invoicing, and processing adjustments. Meter Reading Meter readings for natural gas, electric, and water consumption are required within a 27 to 33-day period. The SAP CCS system, a customer information system, generates a daily meter read route file, which is given to 7 to 9 Meter-Readers. They visit customer addresses to record readings using handheld or drive-by devices. These readings are batch uploaded to the CCS system nightly. For residents with Advanced Metering Infrastructure (AMI) meters, data is transmitted via radio signals to pole-mounted antennas and substations, then stored in the Head End System (HES). The data is verified, stored in the Meter Data Management System (MDMS), and uploaded to the billing system for processing. If meter readings fall outside pre-programmed tolerance bands, the system generates an exception report. CSSs perform an “Implausibles” review of these exceptions using account history to determine if the readings are reasonable. If accuracy is in question, a “check-read” is requested. Once validated or corrected, the account proceeds to the next billing step. If exceptions remain, the account cannot proceed to invoicing. The City also accepts monthly self-readings from customers, which are subjected to the same tests as those by Meter Readers. Billing and Invoicing Invoices are pre-numbered and created in the CCS system, which Customer Service and Credit Collections use to track the outstanding balance owed by customers, usage statistics, past due amounts, etc. Billing charges that appear out-of-range must pass a “Billing Outsorts” review to ensure they are reasonable. If charges fail standard financial controls, an exception report is generated for further review by Customer Service staff. Accounts failing validation are held from invoice processing until manually released. Monthly customer invoices are created in the CCS system and update the Accounts Receivable (A/R) account balance in the SAP FI-CA system nightly. This system tracks customer payments, late fees, and account adjustments. Adjustments Item 2 Attachment A - Utility Billing Audit Report        Item 2: Staff Report Pg. 13  Packet Pg. 46 of 73  10 DETAILED ANALYSIS Adjustments are initiated from various sources, including customer disputes or exceptions flagged during the “Implausibles” or “Billing Outsorts” reviews. Account adjustments and credits are prepared by Utilities Customer Service staff. Before processing, these are reviewed and approved by varying levels of Utilities management based on organizational level and financial limits. If the adjustments exceed internal signing authority limits, additional reviews and approvals from external departments are required. Financial Authorization Levels and Signing Authority: •Customer Service Specialist – Authorized to approve billing adjustments up to $500 per transaction per account. •Customer Service Specialist Lead – Authorized to approve billing adjustments of up to $2000 per transaction per account. •Manager, Utilities Credit and Collection - Authorized to approve billing and financial transactions up to $19,999 per transaction. •Manager, Utilities Customer Service - Authorized to approve billing and financial transactions up to $19,999 per transaction. •Assistant Director, Utilities Customer Support Services Division- Authorized to approve billing and financial transactions up to $65,000 per transaction. •General Manager, Utilities Department –Authorized to approve billing and financial transactions greater than $65,000. Twice per month the SAP ZCAR002 report of adjustments/credits is generated by the billing system. Utilities Credit and Collections staff review the report to make sure that the scheduled transactions and adjustments have been processed correctly in the billing system. See Appendices for flowcharts showing the abbreviated current processes and controls in place. Write-off Policy for Utilities Bad Debt A quarterly memorandum requesting approval for “Utility Invoice Cancellation” is submitted by the Utilities Credit Collection Specialist, reviewed by the Utilities Back Office, and approved by the Manager of Utilities Customer Service and the Utilities Assistant Director of Customer Support Service. Utilities Debt Collection Guidelines. Accounts are defined by their aging as follows: Item 2 Attachment A - Utility Billing Audit Report        Item 2: Staff Report Pg. 14  Packet Pg. 47 of 73  11 DETAILED ANALYSIS •1 to 30 days Current – No action •31 to 90 days Past Due – Automated system letter generation •91 to 180 days Delinquent – Internal Collections while customer account is in an Active Status •181 days to 3 years Collection Agency - External Collections while customer account is in an Inactive Status and Accounting calculates Allowance for Doubtful Customers and Bad Debt •4+ years and beyond Write-off - Cancellation of Uncollectible Utilities Accounts Receivable and Write-off The exceptions below are all considered automatic cancellation of uncollectible utilities accounts receivable and write-off: •Amounts <$25 and 91+ days •Discharged/Uncollectible Bankruptcies and 1+ days •Verified deceased and 1+ days •Deemed as uncollectible by external collection agency The thresholds below require signatures of approval before write-off occurs: •$.01 or more Signed by Assistant Director of Customer Support Services •$10,000 or more Signed by Director of Utilities Department and Director of Administrative Services Department • $25,000 or more Signed by City Manager or Assistant City Manager Item 2 Attachment A - Utility Billing Audit Report        Item 2: Staff Report Pg. 15  Packet Pg. 48 of 73  12 AUDIT RESULTS Audit Results Finding 1: The OCA found utility bills and adjustments are accurately calculated in compliance with City policies; however, certain billing adjustments and account write- offs were not properly documented or approved per City policy. Overall, the OCA concluded that there is a robust utility billing process in place and found that, based on our testing, utility bills are accurately calculated. During our assessment of the City’s policies and procedures as well as testing of internal controls over the utility billing process, the OCA concluded that the process is working as intended. Specifically, the OCA performed testing over utility billing invoices, utility billing adjustments, billing and usage exceptions, and write-offs of uncollectable accounts to compare the process and controls against City policies. For all utility billing invoices tested, the OCA concluded that billing was accurate and in compliance with City policies as we found no test exceptions. On a monthly basis, utility billing invoices are generated from SAP based on monthly usage and the City Council approved rates. These are then billed to customers. To test the completeness and accuracy of utility billing invoices, the OCA selected an invoice from each account class (Residential Single Family, Residential Multi Family, Commercial, Industrial, Public Facilities Non-City, City, and Residential Multi Family Master Meter) during FY 2023 – FY 2024. This resulted in a sample size of 7 invoices. In our testing of utility billing invoices, we found no exceptions. For all invoices tested, the utility rates billed on the customer invoice aligned with City Council approved rates and the invoice amount and usage was accurately reflected in the system-generated reports from SAP. Utility billing is appropriately reviewed for exceptions. Prior to customer billing of invoices, CPAU generates a daily exception report and reviews it for implausible and billing outsorts exceptions. The exception reports flag when meter readings or billing charges fall outside pre-programmed tolerance bands and need to be reviewed to ensure they are reasonable. If exceptions are deemed reasonable during a daily review, they are released for billing. However, if the accuracy of an exception is in question, it is investigated further and may result in an adjustment. The OCA tested a sample of implausibles and billing outsorts exceptions from randomly selected dates during FY 2023 – FY 2024. The OCA randomly selected 4 dates from each year that fell between FY 2023 - FY 2024. The OCA tested 1 implausible and 1 billing outsort for each date, excluding one date from testing that did not have Outsorts or Implausibles Item 2 Attachment A - Utility Billing Audit Report        Item 2: Staff Report Pg. 16  Packet Pg. 49 of 73  13 AUDIT RESULTS 5 https://www.cityofpaloalto.org/files/assets/public/v/1/administrative-services/financial-reporting/annual-comprehensive-financial-reports- acfr/current-2011-cafrs/city-of-palo-alto-acfr-single-audit-fy2024-final-unsercured.pdf Exception Report. This resulted in testing 22 samples. In our testing of implausibles and billing outsorts exceptions, we found no exceptions. For all implausibles and billing outsorts exceptions tested, the exception reports included appropriate amounts based on established parameters and were properly reviewed by the CSS to evaluate whether the readings are determined to be reasonable before released for billing or resulting in an adjustment. With the implementation of AMI Meters, the City is confident that there will be a reduction in the number and magnitude of adjustments. With the implementation of Advanced Metering Infrastructure (AMI) Meters in FY 2024, the CPAU Department will be able to flag high usage of meters on a daily rather than monthly basis. This will enable more timely detection of possible water leaks or meter read errors. Additionally, customers will be able to track their own meter usage as the AMI system can share usage information with customers. According to the FY 2024 Annual Comprehensive Financial Report5, the City has installed approximately 38,000 or 40% electric, gas, and water AMI meters. As of the writing of this report, staff reported that CPAU has installed approximately 80% of water meters. Additionally, CPAU staff indicated that AMI implementation will likely be completed by Spring 2025. The OCA identified some instances in which utility billing adjustments were not properly documented, supported, or approved during the period tested. Utility billing adjustments are initiated from a few different sources: 1) Customer calls to question or dispute billings; 2) Incorrect read identified while processing “Implausible” exceptions; 3) Miscellaneous billing adjustments submitted to CSS for addition to the account, 4) Incorrect billing charges are identified while processing “Billing Outsorts” exceptions, and 5) annual reconciliation of the refuse service data. Any of the above actions may result in a consumption or miscellaneous adjustment. Consumption adjustments primarily result from incorrect reads identified while processing implausibles exceptions. Miscellaneous adjustments result from credit/debiting a customer account for billing discrepancies, a water leak credit, or from periodic emails received from GreenWaste, a waste collection service provider for the City of Palo Alto, to process refuse adjustments. See table below: Adjustment Type Table Adjustment Type Adjustment Cause Consumption Implausibles Exceptions Billing Discrepancies / Billing Outsorts ExceptionsMiscellaneous Water Leak Credit Item 2 Attachment A - Utility Billing Audit Report        Item 2: Staff Report Pg. 17  Packet Pg. 50 of 73  14 AUDIT RESULTS GreenWaste Adjustment The City has a Processing Adjustments procedural document in place which describes the steps taken to process adjustments. See Appendix B: Utility Billing Adjustment Process Map for the abbreviated current processes and controls in place for processing adjustments. The OCA requested a population of adjustments from FY 2023 – FY 2024 to select a sample for testing. The OCA sampled all categories of adjustments and determined that the following sample sizes were appropriate using AICPA sample size guidance: 25 consumption adjustments and 35 miscellaneous adjustments (13 miscellaneous debit/credit adjustments, 12 water leak adjustments, and 10 GreenWaste adjustments). This totaled a sample size of 60 adjustments tested for FY 2023 – FY 2024. Out of 60 adjustments tested, there were 10 exceptions noted. These exceptions were primarily due to documentation and approval errors. The OCA observed the following: •For 6 adjustments tested, there was no IC WEB interaction record. The Processing Adjustments procedural document states that the CSS goes to IC WEB to note the account for Miscellaneous Adjustments. Failure to note the adjustment in IC WEB results in gaps in documentation used internally by the CPAU Department. •For 1 miscellaneous adjustment tested, a CSS approved transactions above their authority level. When the CSS entered signatures in DocuSign, they accidentally placed the signature and date block in the wrong place on the Miscellaneous Adjustment Form. The absence of proper approval from the appropriate authorization level and signing authority can result in inaccurate or unauthorized adjustments. •For 1 miscellaneous adjustment tested, there was no Miscellaneous Adjustment or Invoice Cancellation Form submitted. The Processing Adjustments procedural document states that the CSR (Utilities Customer Service Center Representative) will fill out an Invoice Cancellation Form if the entire invoice needs to be cancelled. Failing to submit the Invoice Cancellation Form results in gaps in documentation and does not allow verification of proper review and approval of the invoice cancellation. •For 1 miscellaneous adjustment tested, the Invoice Cancellation Form was incorrectly filled out by the CSS to include the incorrect Invoice Document Number. This resulted in a data entry error on the Invoice Cancellation Form. •For 1 consumption adjustment tested, an adjustment was incorrectly entered in the Adjustment Log, due to a typographical error, however, the correct amount was updated in SAP. Therefore, this did not result in a billing error to the customer. Item 2 Attachment A - Utility Billing Audit Report        Item 2: Staff Report Pg. 18  Packet Pg. 51 of 73  15 AUDIT RESULTS When proper approvals for adjustments are not obtained and documented, there is potential for inappropriate adjustments, financial losses, or fraud. As approval is currently obtained via DocuSign or manually entered in the Adjustment Log, there is an increased possibility for improper approval due to human error. Some account write-offs of stale-dated checks were not properly approved during the period tested. The City collects customer payments and adjusts A/R for cash received. Accounts that are aged past 30 days are considered “past due” and may be escalated to internal collections, an external collections agency, and eventually written off, as demonstrated in the table below: Customer Account Aging Table Aging Period Categorization Action Taken 1 to 30 days Current No action 31 to 90 days Past Due Automated system letter generation 91 to 180 days Delinquent Internal Collections 181 days to 3 years Collection Agency External Collections 4+ years Write-off Cancellation of A/R and Write-off Cancellation of uncollectable utilities A/R and write-off occurs during the following exceptions: •Aged 4+ years •Amounts <$25 and 91+ days •Discharged/Uncollectible Bankruptcies and 1+ days •Verified deceased and 1+ days •Deemed as uncollectible by external collection agency For invoice cancellation and write-off of customer accounts, a Quarterly Utilities Invoice Cancellation Memorandum and Form (Quarterly Memo) is submitted for review and approval of cancellation of uncollectible utilities accounts receivable and write-off. The OCA selected a sample of 25 account write-offs of uncollectable utility accounts during FY 2023 – FY 2024 for testing. During the period tested, collections were put on hold on March 4th, 2020 – October 2023 due to COVID-19. Therefore, the OCA did not test the collections process. Out of 25 account write-offs tested, there were 4 exceptions noted. The OCA observed that for all 4 stale-dated check write-offs sampled, the support, showing proper approval for the write-off, was not attached to the Quarterly Memo per the City Write-off Policy for Utilities Bad Debt. By omitting support for review and approval, this could lead to inaccurate financial reporting if all write-offs are not properly reviewed. Per discussion with the CPAU Department, these were unintentionally omitted from the reports by an employee in training. The amounts of each stale-dated check did not exceed $25. Per review of the FY 24-25 1st Item 2 Attachment A - Utility Billing Audit Report        Item 2: Staff Report Pg. 19  Packet Pg. 52 of 73  16 AUDIT RESULTS Quarter Memo, the OCA observed that stale-dated check write-offs were properly included in the attached support. Recommendation We recommend that the City review the adjustments process to determine if there are ways to automate approvals in SAP rather than relying on manual processes which can increase the possibility for human error. Otherwise, the City should review the current Processing Adjustments procedural document to ensure it is comprehensive and includes all necessary steps for accurately recording and reviewing adjustments. The City should determine if an IC WEB interaction record should be submitted for all miscellaneous adjustments and ensure this process is implemented by the CPAU Department. Additionally, if automation is not possible, the City could consider enhancing the procedural document by incorporating a checklist for both the processor and the approver of the adjustment. The approver checklist should include steps to reconcile adjustments entered in SAP with supporting documentation. By defining these steps in a checklist, the reviewer is more likely to identify any data entry errors before approving an adjustment. The CPAU Department should provide regular training sessions for staff on any updated procedures and the importance of accurate data entry and review. Lastly, we recommend that the City maintain the practice of incorporating stale-dated check support in the Quarterly Memo and integrate this procedure into training materials or official policies. This will help ensure employees consistently follow this important step and prevent any potential oversights. Management Response Responsible Department(s): CPAU Concurrence: Agree Target Date: Q4 CY 2025 Action Plan: Staff concur with the audit finding regarding the benefits of automation in mitigating human error. As the Office of the City Auditor (OCA) acknowledges, automation is not always feasible or readily attainable. Currently, staff adhere to the established standard operating procedures outlined in the Processing Adjustments procedural document to ensure accurate processing. To further address the finding, we will undertake the following actions: •Automation Assessment: Staff will assess the effort and costs associated with automating the adjustment process within the current SAP environment. These specifications will be considered during the development of the next system upgrade. •Procedural Enhancement: Staff will revise the Processing Adjustments procedural document to incorporate a reference to an adjustment checklist. This will enhance clarity and ensure all necessary steps are followed. Item 2 Attachment A - Utility Billing Audit Report        Item 2: Staff Report Pg. 20  Packet Pg. 53 of 73  17 AUDIT RESULTS Furthermore, to ensure comprehensive clarity and consistency across all related processes, the following areas within the procedural document will be reviewed and updated as needed: inclusion of the ICWEB interaction record with each adjustment; clarification of training requirements and documentation expectations at each staff/approval level; all processes, including the quarterly write-off process, reflect appropriate backup and review procedure expectations in the checklist. Targeted changes include: •Adjustments (Misc. Adjustments, Invoice Cancellations, Green Waste Adjustments, Water Leak Credits) are to be submitted in DocuSign for approval process, according to the Authority Level. •Adding that an IC WEB interaction record is required for adjustments. (Misc. Adjustments, Invoice Cancellations, Green Waste Adjustments, Water Leak Credits) •Review and update the Miscellaneous Adjustment and Invoice Cancellation forms including process for checking data in the form prior to approving and processing. Process to include steps to verify information in SAP. •Review and update Adjustment Log. Include steps to verify information in SAP before providing approval. Clarifying approval process, to include screenshots of the steps. •The City’s Quarterly Write off training instructions will add the process to include the stale dated checks on the Quarterly Write-Off Memo Finding 2: Two internal control gaps in the utility billing process should be addressed to prevent potential errors and inefficiencies. Through our testing and analysis of the process map, the OCA identified some internal control gaps in the billing process, specifically related to segregation of duties and timely resolution of billing adjustments. The CPAU Department does not enforce proper segregation of duties between processing and approving consumption adjustments. The utility billing process does not currently instruct staff on the proper segregation of duties to ensure that the same person processing a consumption adjustment is not the same person approving the adjustment. In the current utility billing process, the same individual can both record and self- approve adjustments. For 3 consumption adjustments tested, the same individual processed and approved the adjustments on the Adjustment Log. The absence of segregation of duties between processing and approving consumption adjustments can result in inadequate review and increased risk for potential errors or fraud. The City can minimize these risks by utilizing more than one person to complete they types of tasks. Segregating duties helps an organization reduce the risk of errors and fraud by distributing responsibilities and accountability among multiple people and/or departments. Outstanding investigations are not regularly reviewed to ensure prompt resolution of billing adjustments. Item 2 Attachment A - Utility Billing Audit Report        Item 2: Staff Report Pg. 21  Packet Pg. 54 of 73  18 AUDIT RESULTS Adjustments can originate from various sources, such as customer billing disputes or when atypical billing and/or consumption amounts are during review via exception reports. If the accuracy of a customer bill is in question, the CSS opens a Service Notification (SN) in SAP to investigate the potential issue. After the SN is created, a Field Service Technician conducts a further review of the meter. The CSS is responsible for monitoring the status of any outstanding SNs. Despite the CSS’s responsibility to follow up on outstanding SNs, there is no regular, formal review process for these outstanding investigations. This lack of a structured review can lead to prolonged open investigations and unresolved customer bills, causing delays in resolution. We noted an example where this lack of a structured review led to a prolonged open investigation for more than 2 months (77 days) after the initial customer complaint and unresolved customer bill, causing delays in resolution. Delays in resolving billing issues can lead to inaccurate financial records and operational inefficiencies as well as customer frustration and dissatisfaction. Recommendation We recommend that the City consider implementing a control to ensure proper segregation of duties between processing and approving adjustments. Without proper segregation of duties, there is a risk of potential error or fraud, as an individual can self-authorize an adjustment without adequate review. Additionally, we recommend that the City consider implementing a regular, periodic review process for outstanding billing adjustments to prevent prolonged unresolved billing issues. The City should establish specific timeframes for reviewing outstanding adjustments and maintain thorough documentation of these reviews. This approach will enable the CPAU Department to better monitor the timeliness and effectiveness of resolving investigations and billing adjustments. The City should provide ongoing training and support for CSSs and Field Service Technicians to ensure they are equipped to handle billing adjustments efficiently and effectively. Management Response Responsible Department(s): CPAU Concurrence: Agree Target Date: Q4 CY 2025 Action Plan: Staff concur that standardized processes and robust internal controls are essential for mitigating the risks of errors and fraud. As noted in the prior response, staff are revising the Processing Adjustments procedural document to include a reference to a comprehensive adjustment checklist, ensuring all required steps are clearly delineated and consistently followed. The Processing Adjustments procedural document and the new checklist will incorporate the following enhancements: •Clear Approval Authorities: A review and update of approval authorities will be conducted, specifying both dollar thresholds and appropriate signing authority. Item 2 Attachment A - Utility Billing Audit Report        Item 2: Staff Report Pg. 22  Packet Pg. 55 of 73  19 AUDIT RESULTS •Implausibles Documentation: The Implausibles documentation will be revised to include a documented process for managing outstanding investigations. •Training Expectations: Consistent with the above, training expectations related to the revised procedures and controls will be clearly outlined within the documentation. To further strengthen oversight and segregation of duties, staff will facilitate coordination between the Utilities Department and the Administrative Services Department providing an independent review of these procedure revisions to ensure their effectiveness and alignment with the City’s internal control practices. Review and update Implausibles documentation to include a process for these outstanding investigations, which includes checkpoints for follow up. •Review DocuSign documentation to include expectations for review steps and timely approvals deadlines. •Coordinate training with CSR, CSS for follow up procedures for Service Notifications investigations. •Project coordinator currently working on checklist and updated policies and procedures for follow up on billing investigations. •Completion target is resolutions within two billing cycles. •Communicate with Meter Shops on timely resolution of field issues. Additional Observations: 1. Formalizing and more consistently documenting adjustments may improve efficiency The CSR/CSS manually inputs adjustments into the Adjustment Log, an excel sheet kept by the CPAU Department. When entering an adjustment in the log, the CSR/CSS notes the reasoning for the adjustment in the “Adjustment Reason” and/or “Notes” column of the log. Per the OCA’s observation of the adjustment documentation in the adjustment logs, we noted that there were blank rows, and a variety of adjustment reasons and notes entered in the Adjustment Log. The adjustment notations did not follow a consistent naming convention or provide a clear and detailed reasoning for the adjustment. The CPAU Department could enhance the adjustment documentation process by creating a bank of approved adjustment reasons (reason codes) and notes to ensure consistency throughout the process. Additionally, by formalizing notations of adjustments and the reasoning, the reviewer could better understand the adjustment justification and ensure that it was appropriate. Item 2 Attachment A - Utility Billing Audit Report        Item 2: Staff Report Pg. 23  Packet Pg. 56 of 73  20 AUDIT RESULTS 6 7 KPIS and Metrics That Your Utility Needs to Know - Silver Blaze Solutions 7 7 KPIs to Streamline Utility Billing 2. Formally tracking key Utility Billing indicators could aid CPAU in monitoring performance over time CPAU management said they do not formally track utility billing Key Performance Indicators (KPIs) but do monitor some indicators periodically. There are several utility billing KPIs that could help the utility track its billing function performance over time and improve its effectiveness and efficiency. Based on our analysis of a few industry publications, use of such indicators can help management make more informed decisions, improve operations and increase customer satisfaction67. Some of these indicators include: •Billing Error Rate – percentage of total bills that have errors •Customer Satisfaction Score – a direct measure of satisfaction with services provided •Collection Rate – percentage of billed amount received within a specific time frame •Percentage of On-Time Payments – percentage of payments that were paid timely •First Contact Resolution Rate – percentage of customer inquiries or issues resolved during the first interaction Tracking KPIs over time can help an organization see trends, note when performance either improves or worsens, and determine what areas may need assessment. Item 2 Attachment A - Utility Billing Audit Report        Item 2: Staff Report Pg. 24  Packet Pg. 57 of 73  21 Appendices Item 2 Attachment A - Utility Billing Audit Report        Item 2: Staff Report Pg. 25  Packet Pg. 58 of 73  22 Appendix A: Meter Reading Process Map Item 2 Attachment A - Utility Billing Audit Report        Item 2: Staff Report Pg. 26  Packet Pg. 59 of 73  23 Appendix B: Utility Billing Adjustment Process Map Item 2 Attachment A - Utility Billing Audit Report        Item 2: Staff Report Pg. 27  Packet Pg. 60 of 73  Policy & Services Committee Staff Report Report Type: ACTION ITEMS Lead Department: City Manager Meeting Date: February 11, 2025 Report #:2501-4076 TITLE Nonprofit Partnerships Workplan: Phased Approach This report will be a late packet report published on February 6, 2024. Item 3 Item 3 Staff Report        Item 3: Staff Report Pg. 1  Packet Pg. 61 of 73  Policy & Services Committee Staff Report From: City Manager Report Type: ACTION ITEMS Lead Department: City Manager Meeting Date: February 11, 2025 Report #:2501-4049 TITLE Follow Up from 2025 Council Retreat - Discussion on 2025 Umbrella Operating Strategies Guiding Council Priorities RECOMMENDATION Recommendation for the Policy and Services Committee to continue the discussion of proposed 2025 Umbrella Operating Strategies from the 2025 Council Retreat. BACKGROUND On January 25, 2025, Council held its Annual Priority Setting Retreat. Part of the discussion was the concept of developing umbrella operating strategies to guide Council’s work and focus in 2025, in addition to the Council Values, Priorities, and Objectives. The four Umbrella Operating Strategies discussed were: •Reduce employee vacancy rate by further accelerating the rate of filling open positions so staff is in place to execute on priorities. •Take a more cautious approach to budgeting decisions in light of economic uncertainty and a new [federal] administration. •Increase effectiveness and channels of communication to/from our residents. •Structure committees for optimum effectiveness. To further develop these concepts and establish a thoughtful framework that will support the Council in advancing its priorities, this topic was referred for additional discussion at the Policy and Services Committee. ANALYSIS The Council Annual Retreat is an opportunity to revisit and review its annual priorities to ensure they reflect making progress on important and critical issues affecting the community. There are various key inputs that inform this discussion including community feedback through Item 4 Item 4 Staff Report        Item 4: Staff Report Pg. 1  Packet Pg. 62 of 73  various surveys, a review of previous year accomplishments, and Council feedback on proposed Priorities for the year. This includes a set of values that the Palo Alto City Council holds to help guide decisions that: 1. Balance revenues and expenses, now and in the future. 2. Are environmentally sustainable, now and in the future. 3. Will integrate equity into our decisions, considering how decisions affect people differently based on their identity or circumstances. 4. Create a healthy, safe and welcoming community for all. 5. Will safeguard public trust through transparent practices and open communication. 6. Will embrace innovation. At the 2025 retreat, Umbrella Operating Strategies were proposed to provide an overarching approach to managing an issue, reflecting a long-term or multidimensional perspective. The draft Umbrella Operating Strategies are listed below. For reference, staff have added references to existing Council actions that relate: Proposed Umbrella Operating Strategies Related Council Actions 1. Reduce employee vacancy rate by further accelerating the rate of filling open positions so staff is in place to execute on priorities Employee vacancies and vacancy rates are reviewed by the Finance Committee as part of the annual budget approval process. In addition, this has been identified this as a performance indicator in the City Manager’s evaluation. 2. Take a more cautious approach to budgeting decisions in light of economic uncertainty and a new [federal] administration Council Value – Balance revenues and expenses, now and in the future; also reflected in Council-adopted Budget Development Principles. 3. Increase effectiveness and channels of communication to/from our residents Council Value – Will safeguard public trust through transparent practices and open communication. 4. Structure committees for optimum effectiveness This was a specific topic of discussion at the 2025 retreat, with action taken on committees for 2025 resulting in the addition of the Rail, Retail, Climate Action, and Cubberley ad hoc committees. The Committee may discuss the proposed Umbrella Operating Strategies and make a recommendation to the full Council. Item 4 Item 4 Staff Report        Item 4: Staff Report Pg. 2  Packet Pg. 63 of 73  FISCAL/RESOURCE IMPACT No fiscal impact known at this time. STAKEHOLDER ENGAGEMENT The Council began this discussion at the January 25, 2025 retreat. APPROVED BY: Ed Shikada, City Manager Item 4 Item 4 Staff Report        Item 4: Staff Report Pg. 3  Packet Pg. 64 of 73  Policy & Services Committee Staff Report From: City Manager Report Type: ACTION ITEMS Lead Department: City Manager Meeting Date: February 11, 2025 Report #:2501-4038 TITLE Nonprofit Partnerships Workplan: Phased Approach RECOMMENDATION Staff recommends the Policy & Services Committee review and recommend City Council approval of a phased approach to enhancing nonprofits partnerships, beginning with process improvements for nonprofit requests for funding through the FY 2026 City Budget process, which fall outside currently-established funding processes. BACKGROUND In June 2022, the Policy and Services Committee received a report from the City Auditor focused on identifying risks related to nonprofit agreements and provided corresponding recommendations for improvement.1 Key recommendations included defining clear service level expectations and performance management and evaluation on all nonprofit and lease agreements, as well as quantifying non-monetary support to determine appropriate compensation for nonprofits’ use of City-owned properties. The City of Palo Alto’s nonprofit partnerships play a vital role in delivering essential community services, yet the existing policies and processes for managing these relationships lacks consistency, transparency, and accountability. The absence of standardized service level agreements, performance metrics, and predictable funding processes has resulted in inefficiencies and unclear expectations for both the City and nonprofit partners. Additionally, the need for flexibility in funding emerging needs must be balanced with long-term stability for nonprofit organizations. The nonprofit partnership workplan seeks to establish a clear framework that aligns nonprofit partnerships with Council priorities, ensures fairness and 1 June 14, 2022, Policy and Services Committee Meeting: https://cityofpaloalto.primegov.com/Public/CompiledDocument?meetingTemplateId=6282&compileOutputType= 1 Item 3 Item 3 Late Packet Report Item 3: Staff Report Pg. 1 Packet Pg. 65 of 73  inclusion in resource allocation, and strengthens financial and performance accountability while maintaining the agility to respond to evolving community needs. On October 28, 2024, the Council held a study session to provide feedback on a framework for strengthening the City’s practices in nonprofit partnership engagement, funding, support, and evaluation.2 The framework laid out a set of foundational principles that reflect fundamental goals and values that guide the establishment and pursuit of partnerships. Through their discussion, the Council provided feedback on principles presented, revised accordingly here: 1.Impact-oriented Focus and Accountability: Partnerships will identify intended outcomes and prioritize unmet needs, and incorporate appropriate measures and reporting, while reflecting the nature of the engagements and avoiding unnecessary administrative processes. 2.Service Alignment: Programs and services should align with the Council's priorities and identified community needs. 3.Fairness, Open Access, Equity, and Inclusion: The City will maintain visibility and consistency in its partnership processes, to both the nonprofit community and public at large. Resource allocations will consider and prioritize accessibility of the resulting services to all community members, with particular attention to underserved and vulnerable populations. 4.Flexibility for Special Circumstances: The City Council will need the ability to act quickly when needed to respond to special circumstances. As discussed at the study session, next steps would include returning to Council with recommendations for policy adjustments and new process and procedures. The Council provided feedback that the refinement of the principles happen at the Policy and Services Committee. Given that developing and implementing the workplan will take time, staff recommends a phased approach with a near-term goal of establishing an initial process improvement in time for the FY 2026 budget process. ANALYSIS Staff recommends that the Policy and Services Committee recommend an initial phase of process improvements for nonprofit requests for funding in the FY 2026 City Budget, which fall outside currently established funding processes. This would be similar to a grant program. Recognizing that actual submissions may vary widely in nature and amount of funding requested, this proposed first phase would set general expectations in alignment with the principles discussed above. 2 October 28, 2024, Council Study Session: https://cityofpaloalto.primegov.com/Portal/Meeting?meetingTemplateId=14449 Item 3 Item 3 Late Packet Report Item 3: Staff Report Pg. 2 Packet Pg. 66 of 73  Staff seeks Committee feedback and a recommendation on whether to proceed with a phased approach to implementing the nonprofit partnership workplan as proposed. Each year, the Council receives a handful of nonprofit funding requests through the City’s annual budget. Unlike grants requested through the City’s Human Services Resource Allocation Program (HSRAP) or Community Development Block Grant (CDBG) processes, requests to the City’s budget have varying levels of clarity and justification. Further, there is currently no method for evaluating nor reviewing such requests beyond ad hoc consideration at the Finance Committee and/or full City Council. To address this gap, staff proposes taking a first step toward the overall goals of clarity in nonprofit partnerships through the upcoming budget cycle. This would be accomplished by establishing a process through which any nonprofit funding provided through the FY 2026 budget would adhere to the principles stated above. The remainder of this report details a proposal for how this can be accomplished. For ease in reference, this proposal is referred to as the “Nonprofit Partnerships Workplan Phase 1” or NPW Phase 1. Should the City Council agree to proceed with this approach, staff can develop a more intuitive title for this program. A key dimension of NPW Phase 1 would be to require that any nonprofit request for funding through the City budget process be submitted in a form and timeframe that would enable transparent and timely review. Recognizing that the FY2026 budget process will occur within the next few months, the proposed Phase 1 process would consist of the following elements: 1.Funding Availability - Determine and communicate the total funding expected to be available, as well as funding sources to the extent affecting eligible uses. 2.Eligibility and Criteria - Define any qualifications required to be eligible for funding. 3.Application and Evaluation Process and Timeframe – Establish and communicate a clear process for submitting and reviewing requests that nonprofits can reasonably participate in. 4.Monitoring and Reporting - Set as applicable any requirements for tracking use of funds, outcomes, and associated responsibilities. As a starting point for the Policy & Services Committee and Council consideration, staff has prepared suggestions under each of the elements. 1. Funding Availability Item 3 Item 3 Late Packet Report Item 3: Staff Report Pg. 3 Packet Pg. 67 of 73  While recognizing that a specific funding target for nonprofits has not yet been set by the City Council, action from last year’s budget process3 provides a starting place for NPW Phase 1 funding availability: A “City Events and Programming” line item was established with ongoing funding of $235,000. These funds have not been committed to specific nonprofits for FY 2026 or beyond, though a portion has been envisioned to support community event contribution requests. Staff would recommend that if used to advance the nonprofit partnerships workplan, $50,000 be allocated for community events and $185,000 be allocated more broadly for nonprofits under NPW Phase 1. The $50,000 would be available for grants similar to Know Your Neighbors grants, but for city- wide events planned by community members or local organizations for the benefit of the entire community at up to $5,000 per event. Funding would be allocated to qualifying proposers on a first-come-first-served basis. The Community Services Department is developing a grant process to distribute these funds. The remaining $185,000 would be available through NPW Phase 1, and available through the process description that follows. As the FY 2026 budget picture comes into focus, the City Council may wish to modify this amount based on funding availability. The planned Mid-Year Budget review on February 24, 2025 will provide the next opportunity to consider the overall fiscal context. 2. Eligibility and Criteria Eligibility. As the Committee explores this element, consideration should be given to applicant eligibility. Historically, requests for funding have come from a range of organizations including educational institutions and grassroots groups, many of which are nonprofits but not necessarily so. For FY 2025, the funding proposed to be used for NPW Phase 1 was allocated to one-time funding for the following organizations: United Nations Association Film Festival ($45,000), 3rd Thursdays ($40,000), Magical Bridge ($150,000), and Environmental Volunteers Foothills Nature Preserve ($11,000). While the FY 2025 allocations were categorized as city events and programming, staff is recommending that NPW Phase 1 specify that ALL requests for direct funding through the City budget follow the submittal process described here. Should the Committee and City Council wish to limit requests to specific uses (such as city events and programming) or continue the FY 2025 allocations, the funding availability and/or eligibility should be adjusted accordingly. 3 FY 2025 Budget Adoption June 17, 2024: https://cityofpaloalto.primegov.com/meetings/ItemWithTemplateType?id=5334&meetingTemplateType=2&comp iledMeetingDocumentId=10470 Item 3 Item 3 Late Packet Report Item 3: Staff Report Pg. 4 Packet Pg. 68 of 73  In evaluating equity and access to funding, eligibility criteria could consider prior City funding received. Should existing grantees have the same level of access as new applicants? Should awardees be eligible to apply annually? Best practices in grant eligibility and access often address the question of balance between new and prior recipients. This includes ensuring fairness and access for new applicants-allowing for innovative programs and service delivery- while also considering the sustainability and continuity for existing grantees. Additionally, a nonprofit’s budget should reflect a diverse funding portfolio to reduce financial risk and ensure long-term sustainability. Given that NPW Phase 1 is a new concept, staff would recommend that prior grantees be eligible to receive funding and would be considered along with any new requests. However, staff recommends this should be revisited in the next year of funding. Criteria. Community grants are often evaluated by the expected service and value to the community, often referred to as public benefit; however, public benefit can be subjective and challenging to define and measure. One way to approach this discussion is to focus on aligning the program to Council Priorities. The Adopted 2025 Priorities are: Implementing Housing Strategies for Social & Economic Balance Climate Action and Adaptation, & Natural Environment Protection Economic Development & Retail Vibrancy Public Safety, Wellness & Belonging Other best practices to consider when evaluating requests are: Community reach- such as number of Palo Alto residents served. Equity impact- assess whether the organization serves underserved or underrepresented groups, if applicable. Alignment with goals- evaluate whether service/program aligns with Council Priorities. Program/service delivery- assess nonprofit’s capacity to deliver on program/service goals. New or existing grantee- does the organizational currently receive funds from the City and/or have a pending application through an established process? Should this funding be reserved for new organizations and initiatives? Or be limited to the number of consecutive years it can be awarded? Existing City process/program- is there an established program/process in place that could accommodate the request? Funding type- should the grant be considered for start-up seed money, capital projects, or limited to established programs or services? Funding/service alignment with other jurisdictions- is the program more aligned with services provided by the county or state? Item 3 Item 3 Late Packet Report Item 3: Staff Report Pg. 5 Packet Pg. 69 of 73  Acknowledging that the City already provides substantial grants to various social services and operates with limited resources, it is important to stay focused and clear on the goal and purpose of this grant program to maximize its effectiveness. Staff will use the criteria recommended by the Committee and approved by the City Council to develop an application form that identifies the information required from applicants in order to evaluate the relative impact of each application to meet the stated criteria. Again, as NPW Phase 1 is a new concept, staff recommends that the information and time required from applicants be minimized while providing the data needed to enable informed City Council decision-making. For example, the application form could allow for a narrative description of how a proposal advances Council priorities, limited to one page. 3. Application and Evaluation Process and Timeframe Application. Establishing NPW Phase 1 in time for the FY 2026 budget cycle will require expedited action by the Committee and City Council in order to provide clear guidance to nonprofit organizations enabling them to provide the information required, then ultimately City Council approval of funding allocations by June 2025. As envisioned at this point, funding would be available for the period July 1, 2025 – June 30, 2026. While this timeframe may not be ideal for all requests, it would establish a baseline process that could be expanded on in the future. Evaluation. Once an application process is defined, a corresponding evaluation process must also be established. This would implement the evaluation criteria. At this point, given the wide range of potential applicants, staff would propose that NPW Phase 1 funding be open to all 501c(3) nonprofit organizations. Similarly, given the range of potential applications staff has not developed proposed evaluation criteria, other than providing guidance on best practices referenced above. Should the Committee and City Council wish to focus potential applicants, staff can develop guidance and an evaluation process accordingly based on the available timeframe. A question for the Committee and City Council is the evaluation process. This could range from full City Council review and selection of proposals to Finance Committee evaluation, to establishment of an advisory body to develop recommendations. Recognizing the limited time available for the upcoming budget cycle, at this point staff is proposing the City Council review proposals and award grants directly. The City Council may also wish to specify any other procedural steps, such as the timing and method of disclosures on relationships with the nonprofits applying for funding. In determining what needs to be provided in a proposal for evaluation, a best practice to consider is establishing funding thresholds that would scale evaluation needs, for example smaller requests could be approved relatively quickly if they meet the defined criteria. As such, should the Committee and City Council wish to place a dollar limit on potential grants, staff would recommend streamlining the application and review process accordingly. Item 3 Item 3 Late Packet Report Item 3: Staff Report Pg. 6 Packet Pg. 70 of 73  Timeframe. In order to integrate with the FY 2026 budget calendar, the following outlines a potential timeframe for implementation of NPW Phase 1. Staff notes that this is an ambitious timeframe, which reinforces the importance of a streamlined process to the extent possible: Option 1. Action Date P&S recommendation to proceed with NPW Phase 1 March 11 City Council approval to proceed with NPW Phase 1 March 24 City release of a Notice of Funding Availability to local Nonprofits April 1 Proposals for funding due from Nonprofits May 9 City Council approval of funding awards June 2 City Council budget adoption includes funding appropriation and grantees June 16 Alternatively, the Committee and City Council could consider determining the funding available as part of the FY 2026 budget, then awarding the grants after budget adoption. This would provide nonprofits with more notice and a longer application period. The revised timeframe would reflect the following: Option 2. Action Date P&S recommendation to proceed with NPW Phase 1 March 11 City Council approval to proceed with NPW Phase 1 April 14 City release of a Notice of Funding Availability to local Nonprofits (90 days)May 1 Budget adoption includes funding allocation for NPW Phase 1 implementation June 16 Proposals for funding due from Nonprofits July 30 City Council reviews and approves funding awards August 25 4. Monitoring and Reporting One of the areas identified for improvement by the 2022 Nonprofit Audit Report is how the City measures nonprofit partnership effectiveness through monitoring and reporting requirements. Considering the nature of NPW Phase 1, a scaled approach to service outcomes and reporting requirements should be evaluated, as this would affect the level of detail expected on applications and responsibilities of grantees. This may also affect nonprofit organizations’ decision to apply for funding, so should be considered up-front. It is considered a best practice to require expenditure reporting for all grant funding, including one-time small grant awards, particularly if the goal is to ensure accountability and transparency. This includes any specific prohibitions on the use of grant funds. Having grantees report on how the funds were used and the outcomes achieved can help track its community Item 3 Item 3 Late Packet Report Item 3: Staff Report Pg. 7 Packet Pg. 71 of 73  impact, ensure the funds were spent as intended, and provide insights for future funding decisions. However, the reporting requirements can be scaled down to match the size and scope of the grant to avoid undue burden on grantees. For example: Small Grants (< $5K) Reporting requirement: brief annual report (1-2 pages) summarizing key activities and basic financial and impact highlights. Financial Reporting: self-certification of compliance with grant terms, which could include requesting financial reports. Medium Grants ($5K-$100K) Reporting requirement: semi-annual reporting including service outcomes and performance metrics. Financial Reporting: depending on risk*, recommend an independently prepared compilation report or reviewed financial statements (such as by a CPA), or IRS Form 990 if applicable Large Grants (>$100K) Reporting requirement: quarterly or semi-annual service outcomes, performance metrics, and a year-end impact report. Financial Reporting: recommend an independently prepared compilation report or reviewed financial statements (such as by a CPA). *Associated risks could include funding size and dependency (lack of diversified funding portfolio), fiscal stability and performance history, type of service and impact on vulnerable populations and nonprofit governance and operational capacity, to name a few. Consistent with the Nonprofit Audit, staff will also review the City’s administrative responsibilities associated with these grants to ensure adequate resourcing and expectations. Next Steps: Staff proposes that the Policy and Services Committee further develop NPW Phase 1 over the next two meetings, with final recommendations to be presented for Council review in late March or early April. Through this process, staff will fill in details on the process and expectations of all stakeholders involved. Subject to City Council authorization to proceed with NPW Phase 1 and its successful implementation, staff envisions that next phases of the Nonprofit Partnerships Workplan would include subsequent Committee and City Council consideration of the applicability of nonprofit partnership principles to other grants, as well as service and lease agreements. This would be initiated in the summer. Staff envisions that this may include recommending appropriate policy Item 3 Item 3 Late Packet Report Item 3: Staff Report Pg. 8 Packet Pg. 72 of 73  adjustments and programs that modify existing nonprofit partnerships over time to ensure alignment with the NPW principles. FISCAL/RESOURCE IMPACT No resources are required to support the discussion outlined in this report. Subject to City Council approval to fund the proposed NPW Phase 1 in the FY 2026 budget, the Citywide Events and Programming appropriation established by Council would be involved. Specifically, the FY 2025 Adopted Budget provided $246,000 in funding for the following citywide events and programming: United Nations Association Film Festival ($45,000), 3rd Thursdays ($40,000), Magical Bridge ($150,000), and Environmental Volunteers Foothills Nature Preserve ($11,000). Ongoing, $235,000 would be budgeted annually to fund citywide events and programming, and staff was tasked with developing a process in FY 2025 to evaluate and allocate the ongoing funding for citywide events and programming. As part of the FY 2025 budget wrap-up meeting with the Finance Committee, discussion occurred regarding the administrative responsibilities for developing a funding process for these cultural events, including reviewing applications, invoices, receipts, and processing payments, which could be managed by staff within the Community Services Department. No additional resources were added for FY 2025; however, if the program expanded in future years, additional staff resources may be required to sustain the increased workload, assuming 1.0 Administrative Associate III at a cost of approximately $125,000 annually. STAKEHOLDER ENGAGEMENT Stakeholder engagement is underway with nonprofit partners through dedicated listening sessions to gather feedback on the principles of the nonprofit framework. The first session was held in December 2024, with a second scheduled for February 10, 2025. To ensure ongoing transparency and participation, the City will launch a dedicated webpage to provide updates, highlight key developments, and share upcoming opportunities for nonprofits to engage and provide input. ENVIRONMENTAL REVIEW Council action on this item is not a project as defined by the California Environmental Quality Act (CEQA). CEQA Guidelines section 15378(b)(2). ATTACHMENTS Attachment A: None APPROVED BY: Ed Shikada, City Manager Item 3 Item 3 Late Packet Report Item 3: Staff Report Pg. 9 Packet Pg. 73 of 73