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HomeMy WebLinkAboutM-80-0837l i- GOO Z ALL M N & HAM ILTO N me, Aldnage>ment Consultants 4330 @A5t Witt midmWAP SttHt§6A. MA13'YIANd 96614 9t1-2fd0 Af to C*ft 56I November 7, 1980 Mr, Richard Fosmoen , City Manager City Hall (Dinner Xey) Ci ty o f Mi atni 3500 Pan American Drive Miami, Florida 33133 Dear Mr. Fosmoen: Booz, Allen & Hamilton is pleased to respond to your request for additional assistance to improve the City's audit procedures and programs. This proposal results from our recent assignment with the City of Miami, which included a report reviewing current City "Audit Procedures and Programs". This proposal concerns the provision of implementation assistance in the installation of specific improvements recommended in that report. 1. OUR UNDERSTANDING OF THIS ASSIGNMENT Booz, Allen recently concluded its latest assignment for the City of Miami which included a report reviewing current "Audit Procedures and Programs" and recommending various improvements in these procedures and programs. They included: Establishment of an Advisory Audit Committee P.eorganization to create a separate Internal Audit Department reporting to the Assistant City Manager for Fiscal Affairs Establishment of City policy to require quarterly audit reviews by independent auditors Establishment of professional performance standards for future independent audits. e i Mr. Richard ftawdn November 7, 1990 Page Two In addition, other recommendations pertaining to the operations of the Finance Department as they relate to the auditing functions were submitted. The City Management has now indicated that it is interested in securing additional assistance to implement the above recommendations as rapidly as possible. A proposed Scope of Services to assist in implementing these recommendations in a series of tasks is attached. The tasks are set forth in the sequence that we recommended be followed. It should be noted that the sequence of tasks to be.accomplished and the time required to complete them are dependent upon action by the Mayor and City Commission and the Advisory Audit Committee. Consequently, the estimated time and charges to complete the attached Scope of Services contains some flexibility in recognition of that uncertainty. 2. STAFFING AND MANAGEMENT it is proposed to staff this assignment with the same key staff that developed the recommendations to be implemented --Porter W, Homer, as Project Manager and Eric S. Hanssen, as Consulting Associate --with John C. Newman, Vice President, as Officer -In - Charge. Both Mr. Homer and Mr. Hanssen have many years of experience in local government and with Miami City Government specifically. 3. TIME AND CHARGES Booz, Allen proposes to conduct this assignment on a "time and materials" basis within a maximum period of 120 days for a cost not to exceed $18,900, including all professional charges and related assignment expenses. Time charges will be based upon standard professional rates and invoiced as expended on a monthly basis. As with our most recent Miami assignment, the advantage of a "time and materials" contract is that Miami will be billed only for actual expenditures incurred in executing the "Scope of Work" as proposed. This is particularly important in this assignment in as much as time and cost for completion of the "Scope of Services" proposed is highly dependent upon action and decisions by the Mayor and City Commission, in the first instance, and the Advisory Audit Committee in the final analysis. Our proposal is based upon our assumption as to the maximum consultation effort required with these two bodies after completion of the research and drafting work. A maximum of six two-day visits to Miami for the entire assignment is included in this estimate. If less consultation assistance is utilized, the costs to the City of Miami will be billed at the lesser actual cost figure. The attached Scope of Services describes how we propose to conduct this assignment and the results the City can expect to A. # Mr- Richard Pogtoen November 7, 1980 P&qe Three achieve from the effort. We are pleased to have the opportunity to submit this proposal and look forward to working with you in the near future. If you have any questions about this proposal or with clarification of any aspect of it, please contact Mr. Romer or Mr. Haft8sen at (301)-951-2114. Porter W. Homer Approved: Christian S. oung Senior Vice resi nt Enclosure Very truly yours# BOOZ, AL= & HAMILTON Inc. i+ S.CO :qOP S,E,RVI CES This "Scope of 5'ervides" sets forth our proposal to assist the City of Miami in improving its audit procedures and programs in accordance with out report on this subject to Mr. Richard rosmoen, City Manager, dated September 19, 1980, That report set forth several policy recommendations, This proposal covers implementation assistance to effectuate those policy re Commendations. The following tasks and steps will be required: 1. TASX 1—PRERAR8 ORAPT tEC18tATtON ?OR YOUR tt= :. The purpose of this task is prepare a draft of the major legislative provisions establishing an Advisory Audit Committee for legal review by the City Attorney and administrative review by the City Manager. Upon approval, the legislation is to be submitted to the Mayor and City Commission by the City Manager. This task will require the following steps: Detailed research to establish and define the appropriate: Mission for the Advisory Audit Committee - Authority of the Advisory Audit Committee - Requisite qualifications for members of Advisory Audit Committee - Duties of the Advisory Audit Committee - Schedule of Advisory Audit Committee activities - Relationships of Advisory Audit Committee with the City's internal auditors, independent auditors, administrative staff, and other existing committees. Prepare draft legislative provisions for your legal reveiw Review draft legislation with City Manager and City Attorney Finalize draft legislation and submit to administra- tion for submission to Mayor and City Commission. 1 Ideally, this legislation should be considered by the Mayor and City Commission simultaneously with the legislation to be drafted as part of Task 2, 2. TASR_ 2--PRERAP2 DWkVT LtOISLATION FOR YOUR tj nnA , ptvtvt I F� The purpose of this task is to draft the Major legislative provisions establishing a Department of Internal Auditing for legal review by the City Attorney and administrative review by the City Manager, Upon approval, the legislation is to be submitted to the Mayor and City Commission by the City Manager. This task will require the following steps: Detailed research to establish and define the appropriate: - Mission for the Department of Internal Auditing - Authority of the Department of Internal Auditing - Duties of the Department of Internal Auditing - Relationships of Department of Internal Auditing with independent auditors and other existing committees Prepare draft legislative provisions for Your legal review Review draft legislation with City Manager and City Attorney Finalize draft legislation and submit to administra- tion for submission to Mayor and City Commission. Ideally, this legislation should be considered by the Mayor and City Commission simultaneously with the legislation to be drafted as part of Task 1. 3. TASK 3--MEET WITH THE ADVISORY AUDIT COMMITTEE TO ASSIST IN THE ORGANIZATION OF THE COMMITTEE AND ESTABLISHMENT OF OPERATING PROCEDURES The purpose of this task is to assist the Advisory Audit Committee, after its creation and appointment by the Mayor and City Commission, in understanding and carrying out its mission. This assistance should be sufficient to enable the Committee to commence its operations rapidly 2 and in conformity with the policy intentions of the Maybr, the City Commission and the City Manager. As part of this task, Soot, Allen will! Conduct detailed research and prepare an agenda for the first organizational meeting of the Advisory Audit Committee Attend the organizational meeting of the Advisory Audit Committee and assist in organizing actions Assist in orienting the Committee as to background of its creation and as to its mission Submit suggestions for appropriate operating procedures and activities for future meeting Attend subsequent meetings of the Advisory Audit Committee to assist in establishing: - Operating procedures for the Committee - Plan for activities of the Committee - Standards and Bid Specifications for future independent audit services. At this point, the Committee should feel confident of its ability to operate on its own in accordance with its charter of independence. 4. CONCLUSION It is estimated that this effort could be completed in ninety days. However, it may be prudent to allow more time for action by the Mayor and City Commission in establishing the Advisory Audit Committee and in appointing its members as well as start up operations by the Committee itself. Therefore, we would suggest a one hundred twenty day allowance for completion of this project. 3 0002 i ALLEN & HAMIL-TONine. IfistittrtrAd Anindgemetit C"o»sulttngDitWbft Mr. Richard f'oemoen City Manager City hail (Dinner Xey) City of Miami 3500 Pan American Drive Miami, Florida 33133 Dear Mr. Fosmoen: AJIO EASE' WEST HIGHWAY (9ttH tbA, MARYLANb 2C 614 O51.22bO AREA CObE 701 September 3, 1980 This will be the first of several interim "Letter Reports" to be submitted to you prior to the presentation of a final "Plan of Action Report" under the terms of our professional services agreement "to provide services for the improvement of the City's administrative services and processes" dated July 21, 1980. Under the terms of that agreement, one of the tasks to be undertaken is a "Review of Audit Procedures and Programs." Although we have not completed that review as of this date, we have performed sufficient analyses to submit the following recommendations to you: 1. Sufficient competent outside accounting assistance should be secured immediately to enable the City to close its financial books and records at the earliest possible date after the close of the current fiscal ear -- Based upon our observation and analysis, it is anticipated that the City will experience diffi- culty in expeditiously closing its books and preparing its records for independent audit examination after the close of the current fiscal year. Given the City's committment to quarterly independent audit reviews, which we fully support, it is vitally important that the City's financial record keeping be brought to an acceptable level of currentness and that the process of closing the books not absorb all of the City's accounting resources at the expense of meeting that currentness. Failure to do so will further strain the City's limited resources, will perpetuate tardy reporting, and will impose a costly overlapping work- load on the City's accounting personnel as quarterly audit review programs are commenced simultaneously. por these reasotig, it is our recoftinendation that a first prerequisite to establishing satisfactory audit procedures and programs is the necessary effort to bring the City's financial records to a current status as early as possible. 2. Consideration should be givento eXtend ng the 1reeery Independent_Audit Contract=t — The Current contract for independent audit serVices expires -with the completion of the current fiscal year's audit. Given the City's committment to a quarterly audit review program and its desire to establish new and more demanding Audit Procedures and Programs, this is not the time to change independent auditors. In our opinion, to do so would result in further delay of the production of timely and accurate financial information. In addition a change now would require city personnel to work simultaneously with two inde- pendent audit groups. Therefore, it is our opinion that this recommendation is also a necessary prere- quisite to establishment of new "Audit Procedures and Programs". We expect to complete our analysis and findings with respect to the matter of "Audit Procedures and Programs" in the next few weeks. However, it is felt that the above recommended actions are presently imperative and will in no way interfere with your freedom to deal with future recommendations regarding this subject. Indeed, it is felt that these actions will provide essential continuity for the transition into any new conditions that may occur as a result of our study for you. Very truly yours, BOOZ•ALLEN & HAMILTON Inc Porter W. Homer Approved: John C. Newman Vice President cfs MOOZ I ALLEN & WAW1ILTONific. Institutiond ,1lkuerget ent Cousultig Ditisien A33O EAST WE3t HIGAWAY dt HItSbA, MAAYLAW6 06614 gal-tt00 AAEA CODE 301 September 3t 1980 Mr. Richard Fosmoen City Manager City Hall (Dinner Xey) City of Miami 3500 Pan American Drive Miami, Florida 33133 Dear Mr. Posmoen: This will be the first of several interim "Letter Reports" to be submitted to you prior to the presentation of a final "Plan of Action Report" under the terms of our professional services agreement "to provide services for the improvement of the City's administrative services and processes" dated July 21, 1980. Under the terms of that agreement, one of the tasks to be undertaken is a "Review of Audit Procedures and Programs." Although we have not completed that review as of this date, we have performed sufficient analyses to submit the following recommendations to you: 1. Sufficient competent outside accounting assistance should be secured immediately to enable the City to close its financial books and records at the earliest possible date after the close of the current fiscal year -- Based upon our observation and analysis, it is anticipated that the City will experience diffi- culty in expeditiously closing its books and preparing its records for independent audit examination after the close of the current fiscal year. Given the City's committment to quarterly independent audit reviews, which we fully support, it is vitally important that the City's financial record keeping be brought to an acceptable level of currentness and that the process of closing the books not absorb all of the City's accounting resources at the expense of meeting that currentness. Failure to do so will further strain the City's limited resources, will perpetuate tardy reporting, and will impose a costly overlapping work- load on the City's accounting personnel as quarterly audit review programs are commenced simultaneously. Pot these reasons, it is our recomnendation that a first prerequisite to establishing satisfactory audit procedures and programsis the necessary effort to bring the City's financial records to a current status as early as possible. 2. Consideration should be .given_ to extending. the p�easeti' Independent_. Audit Cohttaet — The current contract for independent audit services expires with the completion of the current fiscal year's audit. Given the City's committment to a quarterly audit review program and its desire to establish new and more demanding Audit Procedures and Programs, this is not the time to change independent auditors, in our opinion, to do so would result in further delay of the production of timely and accurate financial information. in addition a change now would require City personnel to work simultaneously with two inde- pendent audit groups. Therefore, it is our opinion that this recommendation is also a necessary prere- quisite to establishment of new "Audit Procedures and Programs". We expect to complete our analysis and findings with respect to the matter of "Audit Procedures and Programs" in the next few weeks. However, it is felt that the above recommended actions are presently imperative and will in no way interfere with your freedom to deal with future recommendations regarding this subject. Indeed, it is felt that these actions will provide essential continuity for the transition into any new conditions that may occur as a result of our study for you. Very truly yours, BOOZ•ALLEN & HAAILTON Inc Pox ter W. Homer Approved: John C. Newman Vice President cfs 0002 ' AL LCN & WAMILTON i"c. AstitutiondI Jtd)dgement Clonsulting%itisiott d33O EASt Wttt HIGHWAY t1CtHt9bA, MANYL-AND 26614 9SI-2206 AhtA coot Sol September 3, 1980 Mr. Richard Posmoen City Manager City Hall (Dinner Key) City of Miami 1500 Pan American Drive Miami, Florida 33133 Dear Mr. rosmoen: This will be the first of several interim "Letter Reports" to be submitted to you prior to the presentation of a final "Plan of Action Report" under the terms of our professional services agreement "to provide services for the improvement of the City's administrative services and processes" dated July 21, 1980. Under the terms of that agreement, one of the tasks to be undertaken is a "Review of Audit Procedures and Programs." Although we have not completed that review as of this date, we have performed sufficient analyses to submit the following recommendations to you: 1. Sufficient competent outside accounting assistance should be secured immediately to enable the City to close its financial books and records at the earliest possible date after the close of the current fiscal year -- Based upon our observation and analysis, it is anticipated that the City will experience diffi- culty in expeditiously closing its books and preparing its records for independent audit examination after the close of the current fiscal year. Given the City's committment to quarterly independent audit reviews, which we fully support, it is vitally important that the City's financial record keeping be brought to an acceptable level of currentness and that the process of closing the books not absorb all of the City's accounting resources at the expense of meeting that currentness. Failure to do so will further strain the City's limited resources, will perpetuate tardy reporting,.and will impose a costly overlapping work- load on the City's accounting personnel as quarterly audit review programs are commenced simultaneously. Pot these rea96ns , it is our reoomtehdatioft that a first prerequisite to establishing Satisfactory audit Procedures and programs .s the necessary effort to bring the City's financial records to a current status as early as possible. . r,si�e at_io-,,,, shod,- , be_given to- extendinct the tires inaepe_ndeht_Audit contract — The current contract for independent audit services expires.wth the completion of the current fiscal year's audit. Given the City's oommittment to a quarterly audit review program and its desire to establish new and more demanding Audit Procedures and Programs, this is not the time to change independent auditors. In our opinion, to do so would result in further delay of the production of timely and accurate financial information. In addition a change now would require City personnel to work simultaneously with two inde- pendent audit groups. Therefore, it is our opinion that this recommendation is also a necessary prere- quisite to establishment of new "Audit Procedures and Programs". We expect to complete our analysis and findings with respect to the matter of "Audit Procedures and Programs" in the next few weeks. However, it is felt that the above recommended actions are presently imperative and will in no way interfere with your freedom to deal with future recommendations regarding this subject. Indeed, it is felt that these actions will provide essential continuity for the transition into any new conditions that may occur as a result of our study for you. Very truly yours, ✓ Gam? o/ �'��i: �'�a tw BOOZ•ALLEN & HAMILTON Inc Porter 11. Homer Approved: John C. Newman Vice President cfs MOO Z - ALLM N & HAM ILTO N it+c. Astitutionid,11,t»agrmefit ConsultingDI,Vsio» r330 EAST WE5t N' IGHWAY b THItSbA, MAIAVLANb t6614 951.2200 •hill CODE 301 geptdmber 3t 1980 Mr. Richard Rosmoen City Manager City Hall (Dinner Xey) City of Miami 3500 Pan American Drive Miami; Florida 33133 Dear Mr. Fosmoen: This will be the first of several interim "Letter Reports" to be submitted to you prior to the presentation of a final "Plan of Action Report" under the terms of our professional services agreement "to provide services for the improvement of the City's administrative services and processes" dated July 21, 1980. Under the terms of that agreement, one of the tasks to be undertaken is a "Review of Audit Procedures and Programs." Although we have not completed that review as of this date, we have performed sufficient analyses to submit the following recommendations to you! 1. Sufficient competent outside accounting assistance should be secured immediately to enable the City t close its financial books and records at the earliest possible date after the close of the current fiscal Wear -- Based upon our observation and analysis, it is anticipated that the City will experience diffi- culty in expeditiously closing its books and preparing its records for independent audit examination after the close of the current fiscal year. Given the City's committment to quarterly independent audit reviews, which we fully support, it is vitally important that the City's financial record keeping be brought to an acceptable level of currentness and that the process of closing the bcoks not absorb all of the City's accounting resources at the expense of meeting that currentness. Failure to do so will further strain the City's limited resources, will perpetuate tardy reporting, and will impose a costly overlapping work- load on the City's accounting personnel as quarterly audit review programs are commenced simultaneously. Por these reasons, it is our recommendation that a first prerequisite to establishing satisfactory audit procedures and programs is the necessary effort to bring the City'a financial records to a current status as early as possible. 2. Consideration should be given to extendiho the Dresent Independent Audit Contract — The current contract for independent audit services expires.with the completion of the current fiscal year's audit. Given the City's committment to a quarterly audit review program and its desire to establish new and more demanding Audit Procedures and Programs, this is not the time to change independent auditors. In our opinion, to do so would result in further delay of the production of timely and accurate financial information. In addition a change now would require City personnel to work simultaneously with two inde- pendent audit groups. Therefore, it is our opinion that this recommendation is also a necessary prere- quisite to establishment of new "Audit Procedures and Programs". We expect to complete our analysis and findings with respect to the matter of "Audit Procedures and Programs" in the next few weeks. However, it is felt that the above recommended actions are presently imperative and will in no way interfere with your freedom to deal with future recommendations regarding this subject. Indeed, it is felt that these actions will provide essential continuity for the transition into any new conditions that may occur as a result of our study for you. Very truly yours, BOOZ•ALLEN & HAMILTON Inc Porter W. Homer Approved: f� Y John C. Newman Vice President cfs =dr SOOZ - ALLEN & HAMILTON,,- Ahmigement Consultants 43.10 SA$4 WESt HIGHWAY OOMESbA. MAOYL-ANO 26614 951.2206 AAtA COOS 301 September 18, 1980 Mr. Richard Fosmoen City Manager City tall (Dinner Key) City of Miami 3500 Pan American Drive Miami, Florida 33133 Dear Mr. Fosmoen: This is the second of several--interim-"Letter Re orts" to be submitted to you prior to the presentation of a final "P-1an of Action Report" under the terms of our professional services agree- ment "to provide services for the improvement of the City's administrative services and processes" dated July 21, 1980. Under the terms of that agreement, one of the tasks to be accomplished was a review of the City of Miami's purchasing operations. This report presents findings, conclusions, and recommendations concerning the City of Miami's procurement process. The review of purchasing operations was performed to determine if the Purchasing Unit is: Minimizing costs for quality goods through increased competition Procuring goods for the user departments in a timely manner Maintaining adequate control over the procurement process. To make this assessment, interviews were conducted with Purchasing and Accounts Payable personnel as well as employees from user departments that frequently use purchasing services. In addition, the following data were reviewed: City Code and Charter Accounting and Fiscal Management Guidelines Manual Purchase order file Contract and competitive bid files. i Mr. Richard potmoen September 1$, 1980 Page Two A survey of local government purchasing operations was con- ducted to learn how the City of Miami's purchasing staff compared in site with other staffs that process a similar amount of purchases. Also, informal observations of purchasing employee productivity were made during the data collection period. The report is organized into the following sections: . The current procurement operation Commendable practices performed by the purchasing Unit Opportunities for improvement . Recommendations for changes and benefits that can be achieved. Our overall conclusion is that the Purchasing unit generally performs an effective job in procuring goods for City departments. There are, however, ways in which the purchasing process can be improved, and these are described in the attached report. A question has been raised as to the feasibility of local govern- ments -contracting for the procurement function with the private sector to improve the purchasing process. lie have contacted the National Institute of Governmental Purchasing as well as several cities who extensively contract for city services. Based on the information received, there are apparently no local governments who contract out the procurement function. Furthermore, it is not recommended as a desirable alternative. We appreciate the excellent cooperation we received from the City during this portion of the assignment and look forward to continuing our work with you during the remaining portion of the assignment. Yours very tr ly, BOOZ, ALLEN & HAMILTON Inc. Porter W. Homer Approved: John C. Newman Vice President n Rtyitw or THE CITY- OV _MIAMV S PURCHA81NG OPERATIONS 1. THt PURCHASING UNIT PROCURES ALL CITY DEPARTMENTS The City of Miami maintains a centralized purchasing operation that procures goods and services for all municipal departments.* Purchases can be made through contracts and blanket purchase order agreements as well as by single orders. In FY 78-79, the Purchasing Unit procured 35.7 million dollars worth of goods in response to 8,856 requisi- tions from the user departments. This represents a 36 percent increase in dollar volume over the last five years. The following paragraphs describe the responsibilities organization and procedures of the Purchasing Unit. The current role the user departments play in the procurement process is also detailed. (1) The Responsibilities of the Purchasing Unit Are Stated in the City's Charter and Code The City of Miami's Charter and Code specify the duties of the Purchasing Agent. These duties include making all purchases for the City and selling all real and personal property of the City not needed for public use. In addition, the Purchasing Agent is directed to: Draft or cause to be drafted specifications Forecast purchase requirements City-wide Maximize competition among qualified vendors Provide for the inspection and testing of goods delivered. Several of these duties, e.g., real property sales and specifications drafting„ have in practice been per- formed by other units within the City. t The Public Works Department is responsible for procuring contractual services for large construction projects. -1- (2) The Purchasing Unit is Organized _Withi In accordance with the City Charter, the Purchasing Unit is organized Within the Finance Department with the Purchasing Director reporting directly to the birector of Finance. The unit is currently made up of 13 positions --four of which are funded under the CETA program. Exhibit 1, following this page, presents the organi2ational structure of the Purchasing Unit. Purchasing staff members carry out duties typically performed by employees in their respective positions. There are, however, several exceptions: The buyers spend approximately 10 percent of their time typing --a clerical function The Buyer II's job duties are not significantly different from those of the Buyer I The Purchasing Agent spends a substantial amount of his time attending to the details of processing purchases requiring sealed competitive bids instead of delegating this function to a lower level employee. A detailed listing of the job duties of each employee is presented in Exhibit 2, on page 4. (3) Purchasing Employees Adhere to Certain Procedures When Purchasing Goods The procedures used to procure goods vary depending on the cost of the item. All goods estimated to cost less than $4,500 are processed by the buying staff. The Purchasing Agent personalty handles all purchase requests estimated to be over $4,500. The procedures* for processing requisitions for items costing less than $4,500 are as follows: * These procedures do not apply for Blanket Purchase Orders for goods under $4,500. The process by which Blanket Purchase Orders are issued is explained on page 9. -2- OFFICE SUPPLIES EXPENDITURE STOREROOM STAFF OJNTROL STAFF EXHIBIT I Organization of the Purchasing Unit I) I RE: CTO R OF FINANCI I PURCTIASINc AGENT SECRETARY I:L .- CLERICAL. STAFF ASSISTANT PURCHASING MANA(AEMENT A(;ENT TRAINEE (CE'PA) BUYING STAFF PUBLIC BUYERS I MANAt.Eh1L•:[9T INTERN I it, MANAGEMENT STOCK CLERK ACCOUNTANT I BUYER It (2) TRAMEE .TA. ('CETAk tCF )` WORKER TRAINEE ACCOUNT CLERK E POSITIONS) EXHIBIT 2 PURCHASING Employee Duties JOB DUTIES Purchasing agent Responsible for the overall management of the unit; spends up to 50% of his time processing purchases requiring sealed competitive bids; frequently communi- cates with using departments. Assistant Purchasing In charge of the day-t.^.-day supervisicn of the buying AGeilt and clerical start; assigns and reviews work of buyers; prepares a buyer performance report; attends surplus and confiscated roperty auctions; frequently communi- =ates with :si:,g epartments. -ELlyer iI, BLI�.'?rS procure ?oods and ser4ices not requiring sealed Public 161anagement competitive bids (under $4,500) . Cbtain telephone Intern , Management bids and written :;cotes from vendors; spend approxi- Trainee matey; 10 % of their da•:• lv,,cing purchase orders. There are no significant differences in ,rob content among the four positions. tccoi_.tant 1 and Determine if departmental funds are available for each Account Clerk purchase; prepare computer input data so that funds can be encumbered; assign purchase order number and distribute turchase order copies to appropriate units. Secretary 11 Assists tale Purchasing agent in preparing the formal bid = ackaaes which chiefly consists of typing and copying documents included in the packages; types correspondence and screens calls for the Purchasing Agent and the Assistant Purchasing agent. :danage.,ent Trainee Acts as a receptionist for the unit; legs in purchase requisitions and cash purchase orders; files purchase orders Stock Clerk and Operate the City's ventral Dffice supplies storerooms Ivor }per Trainee I Est. Cost of Request I Procedure I Less than $10 0 $100=$1,o00 $1,000-$4,500 Obtain at least one tele phone bid obtain at least three telephone bids Obtain at least three written quotations Each buyer is responsible for specific product Cate" gories. once assigned a purchase requisition, the buyer first identifies the item(s) to be bought. Frequently this is timer -consuming because the using department has not adequately described the product or service that they need. For example, often only a vague description of an item will be noted on the requisition (e.g., "one ice maker"). This results in the buyer taking time to contact the department to precisely determine what is desired. After the product has been identified, the buyer determines which vendors may sell the item. To do this they often consult the phone directory's yellow pages and their personal index card file of products sorted by vendor name. The buyers report, however, that they rarely check the Purchasing Unit's vendor file which contains descriptions of the companies that have completed an application to be placed on the bidders' list. Since the vendor file is not used to update the buyers' personal files, it is sometimes difficult for a new or smaller company to get appropriate consideration from a buyer.*. The buyers strictly abide by the procedures con- cerning the number of vendor quotations required for each price category. only bids acknowledging a price and availability of goods are eccented as satisfying bid requirements. A sample of purchase orders taken from the file revealed thac, with the exception of "single -source" items, all requisitions received at least the necessary number of quotations. See recommendation concerning vendor riles on page 19. —5— The performance of each buyer is tracked based on the amount of time required to process a requisition in each cost category. The following goals developed by the Purchasing agent represent the amount of elapsed time it should take to process each purchase, Along- side these figures are the average elapsed tittles it did take the buyerz to process requests for goods during April -Juke, 1980. Purchase Category % of Total Re ui_si tions_ Goa Days Actual tlapsedl me,,, _ Da: (<$100 40% 3.0 I 3.1 1 $100-1,000 43% 7.0 4.4 i j $1,000-4,500 17% 15.0 13.8 Since starting to track buyer performance in November, 1978, the average time to process a requisition has decreased 37 percent. The procedures necessary to process purchases requiring sealed competitive bids are more complex than the steps needed to process requisitions under $4,500. In FY 78-79, Purchasing processed 130 purchase requests requiring formal bid procedures. These pro- cedures along with the average time each requires to complete are presented in Exhibit 3, following this page. The sample of bid packages* for purchases over $4,500 revealed that 40 percent of the formal bid requests elicited less than three bids, while another 20 percent received exactly three responses. The reasons given by user department and purchasing employees for such a low vendor response are various but they generally include the following: Vendors do not carry the desired merchandise Vendors are reluctant to do business with the City because of: The City's reputation for late payment The "red tape" involved with submitting a bid * Twenty-four bid packages or approximately 18.0 percent of the annual total comprised the sample. -6- EXHIBIT 3 procedures for Formal. Bids Procedure Average Time -Reaui„reds Purchasing Unit obtains departmental request and prepares bid package 22.9 Purchasing Unit mails bid packages to vendors and advertises in the local newspapers; City Clerk receives and opens bids 21.0 Purchasing Unit forwards bids to the using depart:nen for review and waits for their recommendation 17.2 Purchasing tabulates bids, finalizes the bid package, and forwards recommendation to the City :Manager 3.1 A resolution awardinthe purchase is placed on the Commission's agenda (usuali... consent agenda) Commission passes resolution 15.7 after a performance bond and insurance certificate is received and -rerified (i:: applicable) , the purchase order or contract is issued 15.3 T'?TP.I 101.2 * The average times were developed based on information obtained from a sample of formal bid ,package prepared over the last year. 9 8pedifidations are overly testfictive in some cases Vendor's don't get involved because it is riot very profitable. Putchasing has recently begun to contact bt]usinesses who did not bid to determine and document the reason tot their lack of interest. There has been a wide variety of reasons given for dbMpahies not bidding, however, and the results of these dontacts have to far proved inconclusive. An analysis was conducted to determine the average length of time it takes to process a vendor payment. The leng.th of time was defined as the elapsed time between the invoice date and the date of the check. A sample of checks issued on Tune and August, 1980, was reviewed along with the appropriate invoices. It was determined that the average elapsed time for payment during those periods was 49.6 calendar days. A sample of checks issued on November, 1978, along with their supporting documents, was also reviewed to determine if there had been any change in the payment period over the last 1 1/2 years. Results indicated that there had been no significant change. It currently takes about the same amount of time for a vendor to be issued a check as it did over one year ago. There are a variety of factors contributing to this time lag. However, the primary one as determined by the survey is the delay caused by departments not promptly approving the receipt of merchandise and forwarding the necessary paperwork for processing. Without an approved reviewing report, Accounts Payable will not process an invoice for payment. Because of the delays in vendor payment, the City is rarely able to take advantage of cash discounts often offered by vendors for prompt payment. The only exception to this are purchases made with Cash Purchase Orders where the vendor is required to offer the City a discount.* Discounts often amount to two percent of the total cost of the merchandise, and consequently The Cash Purchase Order is described later in this section. Mc by riot taking advantage of them on regulatly-ordeted itdMt# the City is annually losing a substantial amount of Money. Aside from the regular purchase order and contract processes, the purchasing Unit also issues blanket purchase orders. These are open purchase orders that only state the vendor's name and specific dollar limit. They are generally used to buy items such as repair parts and are advantageous because they eliminate a certain amount of paperwork and enable the user depart- inept to acquire the needed goods in a short period of time. The procedures for issuing blanket purchase orders are quite different from those previously described for regular purchase orders. Blanket purchase orders for goods under $4,500 are not issued on the basis of competitive bids. Instead, they are issued for a specific dollar amount in response to a user department's request. although this procedure decreases the ability to reduce costs through vendor competition, Purchasing states that thev do not have enough staff to obtain competitive quotes for the many blanket orders that are issued by the unit* Another means of purchasing goods is through the Cash Purchase Order (CPO). The CPO combines a purchase order for goods with a check covering the cost of those items. It is issued to approved vendors for amounts of $500.00 or less. Its major advantages are that the City receives a discount for prompt payment and the vendor is pleased because payment is obtained immediately. in the last fiscal year, 429 cash purchase orders were issued representing a total dollar volume of over $150,000. Price discounts amounted to $3,626. (4) City Departments Play a Major Role in the Procurement Process Although Purchasing is the only unit authorized to procure goods on a regular basis, the user depart- ments are actively involved in many facets of the pro- curement process. Departments in general carry out the following functions: Develop specifications for goods and services being bought * See page 20 for the =ecortmendation on how blanket purchase orders should be issued. -9- A Recommend vendors especially for items costihq over $4,500 Maintain an expenditure control systeM fbt their department, which represents a dupli- cation of effort Expedite the delivery of goods Receive and inspect goods. Each of these functions and its impact on purchasing is described below. Develop specifications --The Purchasing Unit has just recently begun to maintain a speCi= fications file for commonly purchased goods. However, in the past and now to a great extent, Purchasing has relied on the department to develop and submit specifications for desired items. The department often writes these specifications based on a particular brand and consequently they may tend to be somewhat restrictive. Purchasing reviews these product descriptions and deletes any obvious refer- ences to a particular brand. However, rather than spend time revising the specifications to make sure they are completely open and unbiased, Purchasing will submit the specifications as they are, anticipating that a suitable number of vendors will offer bids. Usually enough bids are obtained for goods costing under $4,500. This, however, is often not the case for purchases requiring sealed competitive bids. Recommend vendors --The Purchasing Unit encour- ages the user departments to recommend vendors who may sell the items that the departments are requisitioning. Several of the major user departments maintain vendor files and perform their own vendor research. This enables them to submit a requisition with a suggested list of companies for Purchasing to contact. Maintain an expenditure control system --The departments that procure large amounts of goods maintain expenditure control systems similar to the one within the Purchasing Unit. They reportedly maintain these systems because the financial information they receive is often -10- 'IT _ __..._.1w. v late and inaccurate. They therefore fiiaihtaih separate records to make Sure funds are hot over -expended. At times these departtfhdhtal records are even more addurate than Purohasing's because the departments learn of additional appropriations of funds before the Purchasing Unit is informed. Representatives of one major department also report that if the financial information was more accurate and timely, their expenditure control staffs could be reduced, Expedite„ the .delivery__gf goods -=By practice, the user departments are primarily responsible for making sure that ordered goods are delivered. Vor the most part, the Purchasing Unit does not get involved after the purchase has been made. Receive and inspect goods —Purchased items can currently be delivered to a large number of locations throughout the City: Departments are responsible for receiving and inspecting goods; however, the procedures and staff used to do this vary considerably among department-. In discussions with Purchasing and accounts Payable personnel it has been stated that some employees accepting goods do not know the receiving procedures. This is especially true with departments that do not heavily use Purchasing services. This lack of knowledge can result in a delayed payment to the vendor because the appropriate form has not been promptly sent to the Accounts Payable Unit.* Purchasing does not maintain an open purchase order file, as specified by the Accounting and Fiscal Management Guidelines Manual, and consequently the Unit has no regular means to determine if and when goods are received and inspected." Purchasing management believes that Purchasing should take a stronger role in developing specifications, identifying prospective vendors, and maintaining See recommendation to limit receving points for :merchandise on page 25. ** See page 21 for the recommendation to maintain an open purchase order file. -11- follow-up on purchases made. They state; however, that they are currently unable to do this due to lack of sufficient staff. (5) The_Four has_in t rii _?rep.are5 Two ,Re ;dots Coi�ceYii_iKg PYOCU�eTi'1E�it ._Opera,to�►s Purchasing management currently generates an annual budget summary and a monthly buyer performance report. The budget summary==mandated by the code --includes information such as: 'umber of requisitions and purchase orders processed over the past year Total annual revenue produced from the sale of surplus and confiscated property The Purchasing Unit's goals and objectives for the coming year. The Buyer Performance Report summarizes monthly each buyer's procurement activity. This report identifies: The quantity of purchase orders each buyer processed in each cost category The average number of days* it took each buyer to process one purchase order The average number of days* it took to process one purchase order unit -wide. Currently there is no report illustrating the progress Purchasing is making in meeting its stated objectives, such as increasing the useage of cash purchase orders or increasing the purchasing activity with minority vendors. Savings that the unit is generating through improved procurement practices also go unreported. * :lumber of days represents elapsed titre. E -12- t 2. THE PURC1NG UNIT 14A5 A ONOMON A review of purchasing operations shows that the Purchasing Unit in general performs an effective job in procuring goods and services for the City. Commendable practices have been established in purchasing over the last several years, buring the operations review the following elements, helpful to an effective procurement operation, were identified. Buyers strive to obtain the necessary number of quotations when procuring goods; "no bids" from vendors do not satisfy the quotation requirementst multiple pruchase orders designed to skirt the quotation requirements are rejected. Files are in good order; the data contained in the bid packages are complete. Forms are efficiently designed to limit the amount of necessary typing. . Fiscal control is adequate; for example! Purchase order numbers are assigned The total dollar amounts of blanket purchase orders are encumbered Expenditure control maintains good control over funds expended. The Commission resolutions awarding purchases are generally placed on the Commission's consent agenda rather than being voted on individually. This expedites the procurement process and lessens the time the Commission must spend in approving requests for purchases. It also enables the Purchasing Agent to spend substantially less time at Commission meetings since his presence is unnecessary for items on the consent agenda. Buyer performance is evaluated on a monthly basis The cash purchase order system is innovative and saves the City thousands of dollars through prompt payment discounts. These practices have assisted the Purchasing Unit in main- taining a generally respcnsive operation. -13- 3 . FOR tMPROVEME The primary objectives of a Purchasing Unit are to: Minimize the costs for goods and services required by the user departments Procure goods and services for departments in a timely manner Maintain adequate control over the procurement process. There are opportunities for the Purchasing Unit to improve in each of these areas. Concerns which were identified during the operations review are described in the following pages. (1) The Purchasing Agent Is Currently Not Performing Duties Which Could Increase the Unit's Effectiveness Currently, the Purchsing Unit does not forecast purchase requirements City-wide, nor does it ensure that blanket purchase orders for goods under $4,500 receive competitive price quotations. By not fore- casting purchasing requirements, the City may be losing a substantial amount of money by ordering items individually rather than determining future City require- ments and entering into long-term price agreements. In addition, by not receiving competitive price quotations for goods under $4,500, the City may be paying unnecessarily higher prices due to lack of competition. (2) Formal Bids Frequently Receive Poor Vendor Response A sample of reviewed bid packages for purchases over $4,500 revealed that 40 percent of all formal bid requests received less than three bids. This is less than the number required for all purchases between $100 and $4,500. Over half (60 percent) of all requests elicited three or fewer bids. Currently, hundreds of thousands of dollars of City business is frequently receiving responses from only two vendors. This lack of competition may potentially be costing the City a substantial amount of money. -14- There are a variety of reasons given for this low vendor response, including: . Desired goods not supplied by the Vendor . Late payment to the vendor by the City . Overly restrictive specifications . Low profit margin. Although Purchasing cannot all of these problems, the in minimizing the influence (3) is expect to completely eliminate Unit can make progress of these factors. Which Should Primarily Be the Responsibility or the urc In addition to the sale of surplus personal property, one of the Purchasing agents prescribed duties is to sell real estate not needed by the City. in practice, however, this function is actually per- formed by the Property Manager of the Risk Management Unit. Although Risk Management appears to be doing a satisfactory job, it is the Purchasing Agent and not the Property Manager who is by charter responsible for these transactions. The Purchasing Unit presently depends on the user departments to develop product specifications. This is necessary in some instances where a complex or highly technical item is ordered. However, by relying on departments to prepare all specifications, purchasing may receive overly restrictive product descrip- tions for commonly -ordered items.* In addition, Purchasing relies on the departments to follow up on the delivery of goods. As a consequence, Purchasing has a difficult time evaluating vendor performance. (4) Lack of Understanding Concerning the Purchasing and Accounts Payable Procedures Delays the Procurement Process Many departmental employees do not completely under- stand the requisitioning and receiving procedures. Requisitions are often forwarded to Purchasing with incomplete product descriptions. This results in the buyers spending time contacting the department to determine what specifically is desired. Receiving reports are not promptly forwarded to Accounts Payable after the goods have been delivered often because either: See the recommendation concerning the development of specifications on page 24. —15— The departmental employee does not know what to do with the receiving report, or The employee(s) receiving and inspecting the goods does not promptly inform the employee who maintains the receiving report. Much of this problem stems from the large number of locations where goods can be delivered. Many employees receiving items are not stock clerks and do not under- stand the receiving and payment process, Although the AccountingaridFiscal Management Guidelines Manual describes departmental procurement procedures, these manuals are often not easily accessible to employees who are requisitioning and receiving goods. Since Accounts Payable will not issue a check until an approved receiving report or invoice is first obtained, misunderstanding concerning receiving procedures can delay vendor payment and damage the City's relations with vendors. (5) Expenditure Control is Hampered By Late and Incorrect Financial Information To perform its function, the Expenditure Control Section of the Purchasing Unit relies heavily on the monthly computerized financial data it receives. This information, however, is frequently inaccurate and often arrives late, The accountant in charge of ex- penditure control reports that it takes her approximately one week, in combination with her other duties, to update and correct the printout she receives. Other depart- ments that maintain expenditure control systems report similar problems. Eventually, departments will be equipped with on-line terminals which will provide employees with up-to-date balances by expenditure code. In the meantime, however, personnel has to rely on the computer printouts to control expenditures. It is therefore important that these reports be timely and accurate. The Purchasing Unit's Expenditure Control Section also has difficulty in promptly learning about appro- priations of additional funds to departments. Currently the Budget Unit inputs tfie necessary information into the data processing sysetm. Expenditure Control, however, is not informed of this transaction at the time it is made, and consequently, the accountant will -16- At times Withhold approval for a purchase because she mistakenly believes no funds are in the account. This lack of communication unnecessarily delays the procurement of goods needed by the bepartmebt. (6) The annual report issued by the Purchasing Agent cannot be used to thoroughly evaluate the Purchasing Unit's performance. Although tangible objectives are included in the report, there is no regular means of determining the progress Purchasing is making in meeting these stated objectives. Also, except for noting the cash purchase order discounts taken, the current report does not include the cost savings re- sulting from improved purchasing practices such as bulk purchasing. The Purchasing Unit plays a key role in containing costs for the City of Miami. It is, therefore, important to set goals for the Unit and regularly document the progress made in meeting those goals. (7) The Current Use of the Purchasing Unit's Employees Is Not Cost Efficient Certain employees are performing duties in- appropriate to their positions. The Purchasing Agent, for instance, spends up to half his time tending to the details of the formal bid process. This limits the amount of time he can spend improving and managing the operation. Moreover, this duty does not require the skill level of the Purchasing Agent. Buyers now spend approximately 10 percent of their time typing forms. Typing can be performed by clerical staff at less cost to the City. By re- quiring the buyers to type purchase orders and requests for written -quotations, less time can be devoted to processing departmental requisitions. There are no significant job differences between the Buyer I and the Buyer II. The requirements for the Buyer II position, however, are greater than those for the Buyer I, and consequently the Buyer II should be expected to perform at a higher skill level. By not giving the Buyer II more advanced responsibilities, Purchasing is not making the best use of their employees. -17- 4, The purchasing Unit does a generally effective job in performing its present duties, fihe Unit's role in the procurement process is limited, however, and should be expanded, Improvements Can be made which will result in. Minimizing the costs of goods and services while maintaining a satisfactory level of quality Ensuring that requisitions are processed with little or no delay Increasing the Purchasing Unit's control over the entire procurement process, These recommendations are described in the following pages. (1) Procurement costs Should be Minimized by Fore- casting Purchase Requirements, Maximizing Vendor Competition, and Taking Advantage of Cash Discounts Purchasing can contain and at times reduce costs for goods and services by forecasting purchase re- quirements City-wide and increasing vendor competition. An excellent Means of forecasting total volumes of required goods is through a purchasing calendar. Under this method, departments would be required to submit periodically use estimates of regularly ordered materials and supplies. The Purchasing Agent should publish and make available to all departments a schedule of contract and purchase dates. This schedule can then be used by departments in planning their requirements. The Purchasing Unit should be responsible for explaining the purchasing calendar to departmental employees and following up with the departments to make sure they understand.how to correctly complete it. Departmental deviations from the calendar should be discouraged and only allowed with the written consent of the Pur- chasing agent. It should be noted that Purchasing recently de- veloped a purchasing calendar. However, it was not successful because the user departments did not cooperate and the Purchasing Unit could not devote the necessary manpower to coordinate the forecasting effort -18- City-wide. it is important that Purchasing have the staff to spearhead this effort if a purdhasing calendar is. to be successful.* it is the Purchasing Unit's responsibility to maXifnige competition. To do this the unit should maintain an up-to-date vendor file and use this as a primary source for bidders' lists. This file should be revised regularly by: Adding vendors who have applied to be on the bidders' list Deleting vendors who have not responded to bid requests for a specified number of times Noting the types of merchandise that the vendors do and do not carry. The vendor file should also be used to update the Buyers' personal card files so that all companies that have submitted a bidder's application can get appropriate consideration. The Purchasing Unit should also make a concerted effort to identify vendors nationally as well as locally who sell those items which cost over $4,500 and are carried by few companies. This could be done by drawing up a questionnaire listing the type of goods needed and distributing it to firms listed in purchasing directories such as the Thomas Register. It is also important that Purchasing maintain a complete specifications file. This file should contain product descriptions prepared by the Purchasing Unit describing frequently -purchased items. Specifications for highly technical merchandise would still require the assistance of the user department. Purchasing, however, should critically review these department - initiated specifications to eliminate exclusionary requirements of language.** * The recommendation for expanding the Purchasing Unit's staff is explained on page 28. ** additional steps to ensure open specifications are described in the recommendation on page 24. -19- Another means of maximi2ing competition is by obtaining quotations for goods covered by blanket purchase orders,* It may be impractical to Obtain quotations for every item that may be acquired under a blanket order. The buyers, however- should strive to! estimate the costs of goods covered by blanket purchase orders in each product category Notify vendors of the estimated amount of business that they can expect for a specified period of time, and solicit price lists from these vendors covering the most fre- quently purchased goods issue blanket purchase orders to the vendors whose merchandise costs the least yet meets the user department's objectives, By doing this, Purchasing will foster competition which could result in lower costs to the City. Also, Purchasing will have a means of checking the prices charged for items to help ensure that the City is not over -charged. Due to the delays in paying vendors, the City is losing thousands of dollars annually because they are unable to take advantage of cash discounts offered by businesses for prompt payment. Departments, consequently, are obtaining fewer goods with their appropriated funds. To improve this situation, the following recommendations are made: The Purchasing Agent should schedule quarterly meetings with departmental personnel responsible for receiving goods to explain to them receiving procedures and the impor- tance of promptly forwarding an approved receiving report to Purchasing * Due to the nature of the purchase, blanket order requests for repair services should not be submitted through the quotation process. -20- it The Purchasing Unit should maintain an open purchase order file. Approved receiving reports should Continue to be forwarded to the Purchasing Unit where they should be matched with the open purchase order copy and then forwarded to Accounts Payable for payment. The purchase order file should be reviewed on a daily basis to identify those purchase orders that have gone for one week or more without having been matched with an approved receiving report. Purchasing should contact those departments that have not forwarded receiving reports to determine the reason for the delay and to expedite the process. The Accounts Payable Unit should record the cash discounts taken and prepare a monthly report stating the total discounts obtained for the month and comparing this figure with a planned monthly total established at the beginning of the fiscal year. This report should be forwarded along the normal chain of command up to the Assistant City Manager for Financial Affairs. By following these practices, the City should be able to maximize it buying power and improve relations with vendors. (2) The City of Miami Should Establish and Document a Policy Regarding Procurement With Minority Vendors City of Miami administrators are interested in developing a formal policy concerning procurements made with minority vendors. Currently, the Purchasing Unit adheres to an informal policy which holds that, "all things being equal" minority vendors will be given preference when a purchase is awarded. Minority vendor status is informally conferred on any business that appears in the Minority Business Guide and Directory for Miami. However, some of these companies according to the Purchasing Agent are quite large and giving them minority vendor status may or may not coincide with the objectives of the City commission and administration. -21- One of the budgetary performance objectives for the Purchasing unit is to increase the number of minority vendors that do business with the City. There are not formal means, however, of tracking Purchasing's performance in utilizing Minority vendors, and it appears from interviews with Purchasing personnel that the informal policy is largely ineffec- tive in increasing the minority vendors` share of City business. To expand minority vendor participation in City procurements, a formal policy should be established and documented. It is important that this policy be within the scope of existing law. it should also be recognized that no one procedure will automatically increase minority vendor participation. Rathert the City should strive to implement various methods which together can assist the City in meeting its objectives in this area. In developing a formal policy regarding minority vendors, the City should first define how a business would qualify for minority vendor status. This defi- nition should be based on the particular social and economic environment in Miami. The City Manager should then investigate with the assistance of the City Attorney the legality of introducing an ordinance stating that the City will give preference to minority vendors when awarding purchases. This ordinance could be similar to the one which currently gives preference to vendors located in the City of Miami. It is ' important though that the City specifically state what type of preference is to be given and that this policy be worded so as to fall within the scope of existing law. In addition, the Purchasing Unit should: the types of goods frequently minority vendors Obtain vend businesses. procurements of preference that will them in the purchasing applications Inf6t,tiation fiom each vendor regarding products sold should be incorporated into the central bidder's list and the buyers' personal files so that riiherity businesses can 4et appropriate consideration, Also dity Management at the outset of the fiscal yeat should establish a goal stating the desired dollar volume of business activity with minority vendors. The Purchasing Agent should record the amount of money spent with minority businesses each month. This figure should then be noted in the Purchasing Unit's monthly report along with the planned total, (3) The Purchasing Unit Should Improve Communication With User Departments to Expedite the Procuremen Process Lack of understanding of purchasing and paying procedures by the user departments has frequently delayed the procurement of goods and the payment for those goods. To improve communication, representatives of the Purchasing and accounts Payable Units should regularly meet with the departmental employees responsible for completing requisitions and receiving goods. These meetings should be used to: Describe the purchasing and accounts payable processes so that employees understand The most effective way 'Co complete the various forms The work flow from the time a requisition is initiated to the time a check is issued Suggest ways that departmental employees can expedite both processes Obtain feedback from the departments. These sessions should be scheduled on a quarterly basis. In addition, copies of Chapter 0900 of the Accounting and Fiscal Management Guidelines Manual should be distributed to all those employees concerned with requisitioning and receiving goods. This chapter -23- describes both procurement and receiving procedures and can serve as a guide for employees to refet to on a daily basis. ( 4 ) The Puteha5 inch Unit should increase its Con s In order to taximi2o Purchasing's effectiveness, specific steps should be taken to increase management and fiscal control over the procurement process, To do this the following recommendations are offered. The Purchasing Unit should ensure that product specifications are unbiased The number of receiving points for goods and supplies should be reduced and limited by specific guidelines The financial information received by the Purchasing Unit should be timely and accurate The Purchasing Agent should prepare a monthly report describing the Unit's prog- ress in meeting its objectives The Purchasing Agent should play a role in the sale of real property. Each of these recommendations is described in the following pages. Ensure open specifications Currently, the Purchasing Unit relies on the user departments to prepare product specifications. Since these specifications often describe desired brand -name items, they may be overly restrictive. To ensure more open specifications the Purchasing Unit should maintain a specifications file containing product descriptions for fre- quently purchased items. Although the departments would still be responsible for preparing specifications for highly technical or complex goods, Purchasing should critically review these descriptions and eliminate exclusionary requirements or language. -24- In addition, the Purchasing Agent should hold pre -bid conferences where interested vendors would be invited to come to discuss the City's requirements and the product specifiCations. If there was any exdlusionary language, it would probably surface at these. Meetings. Pre -bid conferences would not have to be held each time sealed competitive bids were elicited. Bather, a conference would only be necessary the first time the purchase of a particular product required sealed bids. after that the same specifica- tions could be used for future procurements. Purchasing should not rely on potential bidders to develop specifications. If the procurement is so complex that neither the Purchasing Unit nor the user department can develop adequate specifications, the Purchasing Agent. should either: Obtain the necessary specifications from the National Institute of Governmental Purchasing --a professional organization that maintains product descriptions on a variety of items, or Recommend to the City Manager that the services of an objective, professional company or individual be obtained to formulate the required specifications. The Citv should annually appropriate funds to the Purchasing Unit's budget for this purpose By doing this the City can eliminate the possibility of using specifications that are biased toward a particular vendor. Limit receiving points Goods are presently being delivered to numerous locations throughout the City. The Fire Department, for instance, receives deliveries at all of its fire stations. The large number of delivery points has decreased management control over the receiving and inspecting processes. In -25- one department, for example, the tasks of receiving goods, inspecting those goods, and forwarding a receiving report to AcCOunts Payable are all performed by separate individuals located in different areas of the City. Unless there is prompt and accurate communication among the responsible parties, it would be easy for the process to break down delaying the vendor's payment. It is also probable that departments have various methods of inspecting materials and supplies.. what may pass inspection in one department may be rejected in another. with so many delivery locations, it is difficult to monitor and control inspection procedures. There are several options that can be used to improve this situation. One of these options is to reduce the number of receiving points where merchandise can be delivered. Under this alternative deliveries should only be made to storerooms that contain large enough inventories to require maintaining inventory records. In addition, a central receiving point, under the auspices of the Finance Department, should be created to temporarily house items that are needed by units that do not maintain large inventories. This receiving point should be staffed by stock clerk personnel who would be responsible for logging in all goods received and preparing and forwarding receiving reports. If the merchandise is considered to be a fixed asset, the stock clerk should forward the appropriate information to Accounting so that the fisted assets inventory can be updated. This procedure, however, should be performed so as not to delay payment to the vendor. Deliveries of supplies such as sand and gravel should still be made at the job site. A central receiving point, however, could temporarily store many portable items resulting in more control over the receiving and inspecting process. This in turn could lead to improved relations with vendors doing business with Miami. -26- The City may well be able to establish a central receiving facility in one of its buildings. It is therefore recommended that the City revieW its facilities inventory to determine where a Central receiving point could be located. Improve__ firianoi_al _.information The Expenditure Control Section of the Purchasing unit heavily relies on computerized financial information to perform its job of checking funds availability. When this data arrives late and/or is inaccurate, Expenditure Control cannot carry out its function efficiently or effectively. To improve the accuracy and timeliness of this information, it is recommended that the Division of Management and Budget: Promptly notify Expenditure Control of any appropriations changes made by the Commission Investigate means of shortening the time required to obtain Report #01* By successfully implementing these recom- mendations, Expenditures Control will not have to spend as much time updating the computerized reports. Also, user departments should be able to reduce the time they devote to maintaining their own control systems since the computerized information will be more timely. Prepare monthly report To evaluate the Purchasing Unit more effectively, the Purchasing Agent should prepare a monthly performance report. This report should reflect progress made in achieving objectives set by City management Report '01 states the funds balances by expenditures code for each department. -27- at the beginning of the fiscal year. Included in the report should be perfomande indicators such as! Average time to process purchases in each dollar category Number of requisitions processed Volume of cash purchase orders issued and total amount of discounts received = Volume of purchases from minority vendors. (5) The purchasing Staff Should be Expanded to Perform Its Additional Responsibilities The Purchasing Unit presently performs a limited role in the overall procurement process which hinders the unit's effectiveness. In order to minimize costs, maximize competition, and maintain strong fiscal and management control, Purchasing should: Forecast purchase requirements City-wide . Maintain up-to-date vendor and specifications files Hold pre -bid con-erences for purchases over $4,500 Critically review specifications developed by user departments and eliminate exclusionary requirements or language Obtain competitive price quotations for items ordered under blanket purchase orders Hold quarterly meetings with departmental employees responsible for requisitioning and receiving goods Maintain an open purchase order file to assure timely deliveries, to expedite the payment process, and to evaluate vendor performance -28- Obtain greater participation from minority vendors Prepare a monthly status report for Manage- ment. It would be difficult, however, for Purchasing to conduct all of these additional duties with its current personnel complement. Many of the previously described functions are best performed by employees who have a high level of skill and substantial experience in the purchasing field. The Purchasing Agent and the Assistant Purchasing Agent meet these qualifications. Their time, however, is now spent on such tasks as tending to the details of the formal bid process and routinely assigning requisitions to buyers. As a result, they now do not have time to carry out -the responsibilities that would make Purchasing more effective. In addition, four out of the thirteen positions in Purchasing are funded by the CETA program. The employees that fill two of those positions serve in the important role of buyer. While the City saves a substantial amount in personnel costs by using CETA funds, these are marked disadvantages: It is difficult to recruit experienced individuals, within CETA limitations, who qualify to perform as buyers. One of the CETA buyer positions has been vacant for over a year due to lack of qualified applicants. Employees filling CETA positions spend approximately 200 hours per year attending classroom training sessions. This takes away from the time they can spend on their purchasing duties. Employees can cnly fill CETA positions for 18 months. Due to the temporary nature of these positions, turnover is high and time must be spent recruiting and training new employees. With these disadvantages, for Purchasing to operate staff. -29- it is frequently difficult with a full complement of A survey of local government purchasing operations was conducted to learn how the City of MiaMi't purchasing staff compared in size with other staffs that process a similar amount of purchases. The results of this survey, presented in Exhibit 4, following this page, show that Miami's Purchasing Unit liar relatively fewer employees than other locales given the total dollar volume that is expended through the Purchasing Unit. While the survey results should serve only as a guideline due to the different procurement procedures used by - various local governments, it does suggest that Miami's purchasing unit is understaffed to do an adequate job. Informal observations of the Purchasing staff made during the operations review showed that staff were consistently productive throughout the day. Although work output could be marginally increased, it would be difficult for the existing complement to carry out all of the duties that the Unit should be performing. To enable Purchasing to perform a more effective job, the Unit shoilld be authorized to expand its staff. Two options of doing this are presented as follows: Option I Organizational and functional changes --Add one Administrative Aide I and one Typist - Clerk I to the existing staff. Convert all four CBTA-funded positions to general fund positions. The duties of the Administrative Aide would be to: Review, assign, and check requisitions Attend auctions of surplus and confis- cated property Maintain the required payroll records Prepare the Buyer Performance Report and the recommended monthly purchasing status report. -3U- EXUIBIT 4 Survey Results Comparing Purchasing Dollar Volume with Number of Personnel . ■ City of Miami, Ft. 35.7 3 3 2 3 II* Yes *This total figure does not include the two stock clerk positions- Option II Except for the monthly status report, all of these tasks are currently conducted by the Assistant Purchasing Agent. By shifting these duties to an Administrative Aide I, the assistant Purchasing Agent can spend time critically reviewing department -initiated specifications and coordinating the procedures required for purchases over $4,500. gy transferring the details of the formal bid process to his assistant, the Purchasing Agent would have time to more effectively manage the purchasing operation as well as: - install a program for forecasting future purchase requirements Citywide i Hold pre -bid conferences for purchases over $4,500 - Obtain greater participation from minority vendors. The primary functions of the Typist Clerk would be to maintain an open purchase order — file and type requests to vendors for - written quotations. Converting the CETA funded positions to general fund positions would facilitate the recruiting and training of qualified employees. As a result, Purchasing should be able to operate more consistently with a full complement of seasoned staff. Estimated annual cost—$7 9, 000 Organization and functional changes --Add one Administrative Aide I and one Typist - Clerk I to the existing staff. However, convert only two CETA-funded positions to general fund slots. These converted positions should be filled by buyers. The other two CETA positions, filled by employees performing clerical duties, should continue to be federally funded. The changes in employee functions should be the same as described in Option I. Estimated annual cost—$57,000 -32- Ins»trtrnnel�t�dnagre�nt Cions�lit�� �F��sid�` � � j ; ', Aq J A33o EAST WEST NiGFWAY �39E11HE56A. MAfi'it:AN6 aodi 1 AHN &. NEWMAN VICE POES16tNt Mr. Richard Posmoen City Manager City gall (Dinner Xey) City of Miami 3500 Pan American Drive Miami, Florida 35135 Dear Mr. rosmoens e51-2909 A1iEA d6 t 261 September 19, 1980 This will be the third of several interim "Letter Reports" to be submitted to you pr�o"a"�r to the presentation of a final "Plan of Action Report" under the terms of our professional services agreement "to provide services for the improvement of the City's administrative services and processes" dated July 21, 1980. This report addresses the task of reviewing current City "Audit Procedures and Programs" and the submission of recommendations to improve the City's audit services. Our review has included a survey of rederal, state, and local governmental requirements and regulations; interviews with appropriate City personnel; discussions with the City's.independent auditors (Peat, Marwick, Mitchell and Co.); perusal of pertinent professional literature; and examination of publications by financial institutions and various rulemaking bodies. It is clear, from this review, that the general trend in both the public and private sectors is towards more stringent audit requirements. It is equally clear that a respond positively to this trend access to money markets as well failure by a public jurisdiction to can have an adverse effect on its as on its public credibility. For a jurisdiction as committed as Miami to a major program of capital improvements over the next several years through the issuance of debt instruments, this is a matter of crucial importance. Indeed, our findings indicate that compliance with aggressive audit standards and requirements is essential for the City of Miami's continued good standing with the money markets and with its citizen taxpayers. Mr. Richard Posmoen geptdmber 190 1980 page two The present City of Miami arraftgefl2nt9 for audit services are conventional and were considered adequate until quite recently. Essentially these arrangements consist of: A small in-house internal audit staff in the bepartment of Management and Budget A contract for annual independent audit reports with a pro- fessional firm of certified public accountants Separate professional contracts for audit services for special purposes such as federal grants. This basic pattern of audit services was institutionalized in 1976 when a five year contract was executed with the firm of peat, Marwick, Mitchell and Company to audit "the books, accounting records, and finances of the City for the fiscal years ending Septemzer 30, 1976 through 1980" in accordance with provisions of the Charter of the City of Miami. Recently that contract, as earlier recommended by our first "Letter Report," was extended for one year in the interests of attaining continuity and reliability of financial data. The original contract, a copy of which is attached as Exhibit I, required that the audit be conducted "in accordance with generally accepted auditing standards" and that "reports in draft form" be reviewed with "appropriate staff of the Finance Department, the Finance Director, and Internal Auditor of the City." This arrange- ment, considered acceptable at the time, put the Independent Auditor in the position of reporting directly to those being audited. Since the formulation and execution of that contract, much has happened to elevate and to strengthen the standards of acceptable audits. Generally, these pressures have eminated primarily from the accounting profession, the Securities and Exchange Commission (SEC) and the New York Stock Exchange (NYSE) originating in the exam- ination of private sector enterprises. Recently, because of increasing concern over state and local governments' weakening financial positions and inadequate financial reporting, these same forces are beginning to be bought to bear on public sector agencies and jurisdictions. A centerpiece of these evolving developments has been the question of utilizing an "audit committee" in the public sector. In the pri- vate sector, the audit committee consists of a group of non -management members of the Board of Directors who work with the independent Mr. Richard FOshoen September 19, lq$O pagd Three auditor to review if9terf'lal accounting dontrols as well as the results of independent audits. The audit Committee rose to the level of public consciousness because of revelations of questionable payments glade in alleged violation of the Foreign Corrupt Practices Act by various private sector concerns. Usually the audit committee consists of five non-managwatt members of the Hoard of Directors. However, the public sector has no directly comparable equivalent to the "non -management member." In addition, local government legislative bodies, the Miami Mayor and City Commission in this case, are usually fewer in number than private sector Boards of Directors. This tends to make the use of a special legislative committee inappropriate for this purpose. Recently, in response to growing interest in the question of using audit committees in the public sector, the Municipal Finance Officers Association issued a special bulletin on the subject. Their bulletin, issued in May 1980, was written by William B. Dillon and Morton Egol, partners in the firm of Arthur Anderson & Company. The bulletin, which is considered only as informational rather than as official position by the Municipal Finance Officers Association, states the case for the audit committee as follows: "we believe that most governmental units will conclude that a properly functioning audit committee will contribute to the quality of internal accounting controls and financial reporting. The greater the committee's independence, the greater investors and the general public will perceive that the political leadership is committed to sound fiscal management." A growing number of public jurisdictions appear to accept this kind of argument. Public jurisdictions presentiy utilizing some variation of the audit committee include: San Antonio, Texas Indianapolis, Indiana Reading, Pennsylvania Port of Los Angeles, California In its latest audit, Peat, Marwick, Mitchell & Co. has recommended that the City of Miami consider establishing an audit committee. In their management letter they contend that this "would have a very positive effect on the accounting and financial practices of the City." Other jurisdictions are considering the utilization of the audit committee concept. At the same time they are adopting more demanding audit standards as they are issued by recognized professional or regulatory agencies. _.. Mr. Richard PosMoen Saptmber 19, 1980 Page Four In general, the thrust of these changes has been towarda (1) more actual independence for the auditing function, (2) more stringent standards for what will constitute an acceptable audit "opinion" and (1) more openness in the audit procedures. MAJOR _RtCOMMtNDATIONS ., MMITTEb FOR iMPROVtMENT. OF _AUDIT PROGRAMS In our opinion, the City of Miami will serve itself and its tax- payers well by being responsive to these trends. Indeed, although some public jurisdictions have responded to these forces, Miami can assume a position of national leadership among local governments by moving boldly and aggressively at this time. Sy doing so, it is believed that Miami will also materially improve and strengthen its position in money markets and with its citizens. Accordingly, the following major recommendations are submitted for your consideration. 1. THE MAYOR AND CITY COMMISSION SHOULD APPOINT AN AUDIT COMMITTEE T!� /1[T[TT fT I'TT� TTitTT1 T\TT�T"1f1T1T T\T1T�TT !�TTT\TT The "Advisory Audit Committee" can provide a means of increasing confidence in the results of the City's outside audit, as well as in the overall financial position of the City. It can do so because: The outside auditor reports to the Committee rather than City Management► thereby reducing substantially the possi- bility that the auditor may be subjected to untoward influences by those who are responsible for maintaining the City's accounts. The Committee can provide a vehicle for the systematic review of the City's financial position without occupying undue amounts of time at Commission meetings. If properly selected and chartered, the Committee could be perceived by the public to be an apolitcal group whose sole purpose is to protect the public's interests. Appropriate legislation should be submitted to the Mayor and City Commission creating an "Advisory Audit Committee." The Committee should be charged with: Recommending selection of an independent auditor to the Mayor and City Commission Reviewing preliminary and final reports issued by the inde- pendent auditor Mr, Ridhard r6gffioen 8eptdMber 19, 1980 Page Pive Recommending acceptance and appropriate follow-up action to the independent auditor's rec=morid.ations. The Mission and charge of this committee should be complementary to but not overlapping with the already existing "Advisory Budget Committee." (1) The legislation creating the "Advisory Audit Committee" should spell out the committee's make-up. It should consist -of! One Member of the City Commission . The Assistant City Manager for Fiscal Affairs Three Citizens of Miami for Overlapping Three Year Terms. The three citizens of Miami should be required to have training and experience in the fields of finance, accounting, and -admini- stration. One of the three citizen members of the Committee should be elected as Chairman of the Committee. (2) The "Advisory Audit Committee" Should Establish Specifi- cations for Independent Audit Performance The legislation creating the "Advisory Audit Committee" should require them to recommend performance specifications for the selection of independent auditors to the Mayor and City Commission after appopriate discussion with representatives of the Administration and with the Mayor and entire City Commission. Once approved by the Mayor and Commission, the "Advisory Audit Committee" should: Seek quotations from qualified audit firms based upon the performance specifications Review the quotations Interview the best firms submitting quotations Recommend selection of one firm to the Mayor and Commission. a ■ Mr. Richard ftt moen Spetember 19, 15$0 Page Six It may be desirable for the City to provide outside aSSi:a- tande to the "Advisory Audit Committee" in establishing precedent procedures while Going through this process for the first time. (3 ) The legislation creating the "Advisory Audit Committee" should specify a minimum number of meetings to be held by the Committee. In reality the number of Meetings will depend on the complexity of the performance specifications adopted, the number of interim reports generated by the independent auditors, and the findings and recommendations contained in the final report. it would seem prudent that the legislation mandate a minimum of six meetings of the Committee annually while allowing the Committee to meet more often in its discretion. The primary purpose of the Committee's meetings, after assisting in selection of the independent auditors will be to review work in process, preliminary reports, and the final report. These efforts should culminate in a meeting with the City Commission and the Independent Auditors to review the final report and to discuss any follow-up action that may be required. (4) The "Advisory Audit Committee" Should Recommend For or Against Retention of the Independent Auditor at the Conclusion of Each Annual Audit The final annual duty of the Committee should be a recom- mendation to the Mayor and City Commission for or against retention of the firm who conducted the independent audit. This raises the question of what is an appropriate term for the inde- pendent auditors contract. There is no hard and fast answer to that question. A reasonable degree of continuity is desirable, but too much continuity may become undesirable from a number of standpoints. In the final analysis, this is a decision best made by responsible parties on the scene. Therefore, it is suggested that the best policy may be to call for quotations for a set number of years, five for example, with annual renewable options after the first year to be exercised by the Mayor and City Commission after receiving a review of performance and recommendation report from the "Advisory Audit Committee." Mr. Aidhard Vosfioen aeptember 10# 1980 Page seven The basic thrust of these recommendations is to create an accep- table public sector counterpart to the "outside audit committee" now sb prevalent in the private sector. In addition, to be pradtidal, these recommendations must recognize the prevailing circumstances in Miami. These include: A shall City Commission which militates against a Commission Committee A lack of "outside Commissioners comparable to outside Directors in the private sector, which mandates citizen members on the Committee. These recommendations, if fully and properly implemented, will provide the independent auditor with the necessary independence from those being audited but will still retain accountability for the independent auditor to the Mayor and City Commission. 2. THE PRESENT INTERNAL AUDIT DIVISION SHOULD BE A SEPARATE DEPART- MENT REPORTING DIRECTLY TO THE ASSISTANT CITY MANAGER FOR FISCAL AFFAIRS The present organizational structure of the City of Miami places the internal audit function for all City operations in the Department of Management and Budget as a Division. As such the Assistant Director for Internal Audits reports to the Director of Management and Budget who in turn reports to the Assistant City Manager for Fiscal Affairs. In order to provide the internal audit function th indenpendence expected by modern auditing standards and to complete as nearly as possible the replication of the private sector situation, it is recommended that appropriate legislation be introduced to the Mayor and City Commission creating a Department of Internal Auditing. It should be responsible to and report to the Assistant City Manager for Fiscal Affairs. The recommended legislation creating the Department of Internal Auditing should detail the mission of the Department. At a minimum, under the control and direction of the Assistant City Manager for Fiscal affairs, the following should be included: Revenue Audits Contractor Compliance Audits Lessee Compliance Audits Expenditure Audits Assistance for the Independent Auditor Cooperation with the Audit Advisory Committee. The Administrator may wish to include other responsibilities in the mission of this Department. Nit. Aidhard F69MOen 9epteMber 15, 1980 Page fight It should be clearly understood that the purpose of this recom- mendation is to provide the internal auditing functions with the degree of independence commensurate with the importance of its function while still retaining it as part of the administration. This is an important function for any administration or management to have available to it, but it gust still be a part of the admini- stration to be effective. 3. It is recommended that the "Advisory Audit Committee" as well as the Administration and the Mayor and City Commission be guided by standards issued by the above groups in seeking future independent audit services. Failure to require audits to these standards may result in a qualified audit opinion and/or a lowered rating for future bonds. At the same time, local circumstances and requirements must be considered in establishing specifications for independent audit invitations to be circulated to qualified audit firms. In the case of Miami, it will be necessary to require auditing reconciled to the requirements of the State mandated accounting system. However, there may be purely local concerns, such as a concern that insuffi- - cient income is being realized from a leased facility, that may properly be made the subject of emphasis in a particular audit. These considerations should be determined prior to issuing a call for independent audit proposals. It must be realized that the standards established by the organizations cited above are not static. They change from time to time. Indeed, the last five years have been a time of rapid change. As recently as March 1979, the National Council on Governmental Accounting issued its latest standards statements. They are effective for fiscal years that ended after June 30, 1980. They consist of: Statement 1--"Governmental Accounting and Financial Reporting Principals" Statement 2--"Grant, Entitlement, and Shared Revenue Accounting and Reporting by State and Local Government" Mr. Richard fosmoen Septitmber 19 , 1580 Page Nine Both statements are an updating of the 1968 statement by the National Committee on Governmental Accounting, published by the f Municipal Finance Officers Association entitled "Oovernmentai Accounting, Auditing, and Financial Reporting." This is a continuing effort which, along with other on -going efforts, will change "standards" in the future. It will be necessary for the "Audit Advisory Committee" to be kept abreast of these developments and to insure that Miami's audit standards keep pace with developments in the field. 4. CITY OFMIAMI SHOULD ADOPT A PERMANENT POLICY OF REQUIRING QUARTERLY AUDIT REVIEWS BY ITS INDEPENDENT AUDITORS Most private sector companies, particularly those registered with the Securities and Exchange Commission and with the New York Stock Exchange, close their books and perform an audit review quarterly. The results are reported to their Board of Directors and to the public. The primary reasons for this practice are for investor protection and for management control. In addition, the quarterly reviews facilitate the timely completion and issuance of annual audit and financial reports. For the same reasons, as well as others set forth below, it is recommended that these practices be adopted as permanent policy by the City of Miami. It is realized that the City is planning to follow this practice in 1980-81. This is commendable, but it should be continued even though this is not yet a prevalent practice in the public sector. In addition to the benefits set forth above, this will provide advantages described in the following sections. (1) Quarterly Audit Reviews Will Compel Timely Maintenance of the City's Financial Books and Records In the past the City's financial books and records have not been maintained on a current basis. The practice has been to wait until year-end closings are made to enter proper interfund changes as well as other entries. As a result the completion of the Annual Audit has been unduly complicated and delayed. More importantly, this practice has made it impossible for the City to know its real financial position at any given time except at the end of the fiscal year. Mt, Aidhard Fosfts efi September 19, 1980 Page ten (2) In the past the City ment or its Mayor and City financial status reports. cover this matter in more such reports be submitted On a quarterly baSis. (3) Quarterly Audi has been unable to provide its manage- Commisioners with timely; accurate Our "Flow of information" report will detail, but it is highly desirable that to the Mayor and City Commissioners nd Financial Reports Will Provide Financial Plans In the past the City Administration has maintained an informal surveillance of its overall financial position. Given the shortcomings of its past accounting practices, however, this was not adequate protection against a major unexpected revenue loss or expenditure requirement. Quarterly reports, as proposed herein, will formalize the review process and provide timely warning should events require a revision of the City's financial plans. There may be some concern that these recommendations will unduely raise the City's cost of financial administration. Initially they will increase costs, but eventually they should result in reduced audit costs compared to what they would otherwise be. More importantly, however, these recommendations will ehance Nliamils financial reputation with its citizens and investors in ways that will provide returns, both tangible and intangible, which will far outweigh any increased cost which may occur. Such costs should be viewed as a necessary invest- ment to protect Miami's credit and bond ratings in the money market and to protect the investment of Miami's taxpayers. 5. CITY OF MIAMI SHOULD ASSURE ITSELF OF ADEQUATE QUALITY FINAN- CIAL PERSONNEL TO RESPOND TO NEW REQUIREMENTS A major objective for the City of Miami should be to elevate its financial operations, particularly its internal accounting controls and public financial reporting, to new high levels of performance. The financial information issued by the City's Finance Department should become an unassailable bedrock of reliability. To accomplish this, sufficient numbers of quality personnel must be provided in the Finance Department and, in particular, in the Accounting Division. Provision of independent auditing services and Mr. Aidhard fosmoen September 10 t 1 §8 6 page eleven internal auditing personnel cannot be considered as a substitute for this. It is the Finance Department, and the Accounting Division in particular, that maintains the City's books and records. The primary internal accounting controls are exercised here and the financial reports are generated here. Inadequate personnel will provide inade- quate financial services and records. Auditing personnel can only detect and report these inadequacies. In the past inadequate procedures and, apparently, insufficient personnel have combined to produce unsatisfactory results. We believe it to be essential that the gap be closed: (1) Miami Should Establish Financial Performance Standards It is recommended that the City Administration adopt a set of performance standards it deems necessary to meet its require- ments. These standards should include such measures as: Number of working days to accomplish monthly closings and submit adequate monthly reports to all users Number of working days to prepare and present meaningful quarterly financial and budgetary status reports to the Mayor and City Commission Procedures required to accomplish quarterly indepen- dent audit reviews. Other standards of performance may also be desirable from the administration's standpoint. (2) Miami Should Determine Personnel Reauirements to Meet Financial Performance Standards and Take Necessary Steps to Secure Them Once the administration has established the performance standards it desires, an operating analysis of the Finance Department, particularly the Accounting Division, should be completed and the personnel requirements to meet the standards determined. appropriate steps should then be taken to secure and train the personnel as rapidly as possible. We expect to address this subject in more detail in our "Flow of Information" report. At that time, questions of types and fre- quencies of report generation will be considered as well as matters L Mr. Richard roambeft September 15# 1980 Page Twelvd of report distribution. in the context of this report, which reviews your current audit procedures and programs# it is appropriate that we recommend the beginning of administrative deliberations to determine personnel requirements for acceptable financial performance. We expect to submit our "Flow of information" report to you shortly. in the meantime, it is felt that the findings and redommen- dations contained herein are essential to securing satisfactory audit procedures and programs for the City of Miami. Very truly your BOOZ, ALLEN & HAMILTON Inc. Porter W. Homer Approved: /ohn C. Newman Vice President ;. - . s �,cn•�-•�••r,_.�. �,�. .-•'� �r�._--�;� _ yam. r-...; FIP=rI PUBLIC E"1. c.0[, i �S, FG l: PC��S lIC; AUDIT OF rl-E Ec{,r..5, r.:b t r �. i' �`_.� r•:� C�� G Cs VL L'�w`i`�Y VC-2 �Lt•-. i 1sc ..L =� E�•LT';G S 'r' 30, 197E `I"rr-FVX-H 1-'C, AT A COS - OF $3'0, OCO VCR F-E FUS-1 e-al `_T 5 D 0 t 100 FOR :.l-.Ci. By nlz aI=sT-Czq CF TV crj C L':J NNIi, 'r'1,0=1 A: Sec`.icn 1. ''at t`:e city nanaser s a•..ti-ciized to enter into a r•_ofessic; al s _rvice agree-mrit u-ith &-- fir. cf '.e~.t, Mitchell Du.blic accc ..•1tn—nts, for t�e-:--pcses Of = ?duatin ...w. audit of the bx.m, a..coL..�.g re-c-ords and finances Of City for the fiscal year ending 5?ptG?h.r 30, 176 1930, at- - cc-st cf $30,000 -'cr ttie first yea a a $50,000 for aac:: S.:::3c''quan24-- yea. PA.S"= AND 46-l-& is 22 day c_ .JU LY , 1_9710. r r'~ f .'tTT h-S i �11 �� i��.:!�i i.i • CITY CL7-F„ Ric_ A. FE^.PE: 11.1r% I Ci 1 y C01,11.61USMI-0.4 ' s 6`k#3l1$; . . ... ... .... i i r r'~ f .'tTT h-S i �11 �� i��.:!�i i.i • CITY CL7-F„ Ric_ A. FE^.PE: 11.1r% I Ci 1 y C01,11.61USMI-0.4 ' s 6`k#3l1$; . . ... ... .... i i �77 : S•+ y ur7• ,,y� y.. _ r PROFESSIONAL SERVtC99 AGRi:Ea'�.4T--- This Agreement entered into as of the 1st day of 15760 by and between the City of Miami, a municipal corporation of bade County, Florida, hereinafter referred to as "the City," and Peat, Marwick, Mitchell & Co., Certified public Accountants, hereinafter referred to as "the Auditors." W I T N E S S E T H: WHEREAS, Section of the Charter of the City of Miami, Florida, requires that the City shall provide annually for an audit of the accounts and finances of the City; and WHEREAS, the Auditors, as reflected by their statement of qualifications dated May 10, 1976, submitted to Mr. Joseph R. Paredes, Assistant City :Manager, incorporated herein and made a part hereof by reference, have expressed a desire to perform the required auditing services for the City, NOW, THEREFORE, the City and Auditors agree as follows: 1. TERM: This Agreement shall commence July 1, 1976, for the purpose of auditing the books, accounting records, and finances of the City for the fiscal years end— ing September 30, 1976 through 1980. 2. BASIC SERVICES: (a) The Auditors shall examine and report or, the financial statements and certain supplemental financial schedules of the funds and account groups of the City as listed in Exhibit I attached hereto. (b) The completion time for all audits, unless othe naise specified, shall be ninety days after the fiscal year end. For the audit of the fiscal year ending September 30, 1976, only, the Auditors will be allowed an additional four weeks for the completion of the audit. Such audit shall be conducted in accordance with generally accepted auditing standards and shall determine whether the City's financial statements are presented in accordance with generally accepted accounting principles as such generally accepter' acc.::ant ing priuc i plc. mented and modified from tire to time. Where applicable, Peat, Marwick, 'Mitchell S Co,. as the City's principal auditors, shall coordinate their work with any other auditor doing supplemental work for the City and the Internal. Auditing Divislon of the City, (e) The klditnrs shells during the• terdts af- this n eentent,fp a afA any# i.-.3sue reports relating to financial compliance taith covenants of Trust Agreetnefts, laces and regulations, efFiciency and economy of operations, systems A internal control, and operating and tanagenent procedures, These reports shall include findiuos and recommendations arising from their regular audit procedures and not from special studies, The Auditors shall review said reports in draft fort`: with appropriate staff of the Finance Department, the Finance Director, and Internal Auditor of the City. (d) The Auditors will not be responsible for the compilation and typing of the City's financial statements, annual report, or other financial data, all of which shall be accomplished by City personnel. (e) It is understood that City personnel will be responsible for the preparation of all schedules, analyses, and pro forma working papers requested by the Auditors and that the Internal Auditor of the City will supply a minimum of 400 hours assistance to the Auditors during the conduct of their examination. 3. EXTRA WORK: The Auditors, upon receipt of a written request from the City Manager or his designee, shall perform such additional work as may reasonably be required, including, but not limited to, special revenue audits, reviews of the Internal Auditor's department, reviews of Official Statements for offerings of securities bZ the City, neetings with Underwriters and attorneys in connection with offerings of securities and other requested services. 4, WORK PAPERS: For a period of three (3) years after completion of any word: provided herein, the Auditors shall make its work papers, records, and other evidence and documents relating to such work available to its successor and the City, including; its designees. The City and its representatives shall be entitled, at any time during such three (3) year period, to inspect such documents and to repre.:uca same at the City's expense, for which provisions will be ;.fade at the time the need for reproduction arises. Such access, inspection, and reproduction of wori:ing papur;, records, and other documents may hi: r stTi.tP;l bV thQ i .1=, r_o thIL portion of worr:ing papers which pertait: to Lhe:r auditing pro:C�Curc•a and the nature and extent of their audit testing, i ;ems. ....._ _ _�_.... . - , •.... .. ... ' __ � - -_ _ = .. - - - --_ l s, (a) The City shall pay the Auditots, as Compensation for the sefvices tequired pursuant to Paragraph 2 hereofy a fee not to exceed thirty TlWusand and z No/100 Dollars ($30i000) for the fiscal year ending September 30, 19761 and Fifty Thousand and No/100 Dollars ($50,000) for the fiscal years ending September 30, 1977 through 1980, to be calculated and billed based on the Auditors' prevailing standard hourly rate schedules which, at this date, art approximately as follows: Partner - Audit Supervisor - Audit Senior Accountant Staff Accountant Assistant Accountant $100.00 per hour 40.00 per hour 30.00 per hour 25.00 per hour 20.00 per hour It is understood and agreed that the foregoing fee is based upon the Auditors' estimate that approximately 2,000 hours will be required by the Auditors to complete the audit described in Paragraph 2 hereof. It is further understood and agreed that a review of said fee arrangement will be made if the anticipated 2,000 hours are exceeded by more than 10% as a result of the growth of the City's financial budget or as a result of significant deterioration in the quality of the City's record keeping. (b) Such fee shall be paid upon submission by the Auditors of bi-weekly billings; such bi-weekly billings shall be paid within fifteen (15) days of sub- mission. The City shall have the right to review and audit the time records and related records of the Auditors pertaining to any such billings. (c) The Auditors shall be reimbursed for travel, per diem or related expenses, typing, report reproduction and other charges. Reimbursement shall be limited to amounts allowable under Chapter 112.061, Florida Statutes. All expenses relating to travel shall be approved in advance by the City. (d) Compensation to the Auditors for extra work performed pursuant to Paragraph 3 of this Agreement shall be based on their prevailing standard hourly rate schedules and shall be subject to the provisions of sub -paragraphs (b) and U), above. 6. GEINE&IL (a) This Agreumem , or any interest herein, shall not be assigne4, transferred, or otherwise encumbered, under any circumstances. (b) The Auditots shall cotpl+ with the ptovisiohglof any and all Vedetal, State, County, and City Ordets) Statutes, Ordinahces, Rules, and Regulations which May pertain to the work required uhder this Agreement; including specifically those which pertain to "Conflicts of interest" and "Employment Discriminations" TERAI111AT1O1,:i OF AGREEMENT Either party may terminate this Agreement upon thirty (30) clays written notice to the other party; subject, however, to the reservation of the City's right to terminate this Agreement immediately, with or without notice, upon the determination of the Finance Director of the City that the services of the Auditors are not satisfactory, and upon communication of an appropriate rec-omnendation to the City Manager for disposition. IN WITNESS WHEREO^, the parties hereto have caused these presents to be executed by their respective officials thereinto duly authorized, this the day and year *first above written. Witnesses: ! PEAT, XARWICK, XITIC- ELL & CO., a partnership * & Attest: CITY OF MIAN'T, a municipal corporation of the State of lori•la By - City Clerk City Mlanaqerw APPROVED AS TO FOR% AND CORRECTNESS: Acting City Attorney JIM4 _ . .. ,. tRhibit i FUNDS TO .BE INCt l''DED UND'?, BAS1C„. SER"Ct9. 1, General Fund 2. Special kevenue Funds (a) Pensions (b) Publicity and Tourism (c) Lighting City 3. Debt Service Funds (a) General Obligation Debt Fund (b) Special Obligation Debt Funds Capital Improvement Bonds — Utilities Service Tax Bonds — Orange Bowl Bonds Incinerator Bonds 4. Intragovernmental Service Funds (a) Director of Public Properties (b) City Garage (c) :fotor Pool (d) Maintenance Division (e) Print -Wp (f) Stationery Stock 5. Federal Revenue Sharing Fund 6. Trust and Agency Fund 7. Enterprise Funds (a) Directors Office _ (b) Marine Stadium (c;) Orange Bowl Stadium (d) Miami Stadium (e) Marinas (f) 'Dinner i:ey Auditorium (g) Ray fron t Auditorium, (h) Dinner l:e; Leased Buildir. ; (i) ?t anti Springs Golf Course and `Ielreese Colf Courso ON Wdarehouse Property (k) Special Properties txhibit 1 Cage 2 �L S, Statesntnts nf 1,i0 (a) General Obligation Debt (b) Special Obligation balit 9, General Fixed Asset Group 10. General Obligation Bond 1`unds (Capital Projects) (a) Storm Sewers (b) Sanitary Sewers (c) Pollution Control (d) Police Facilities (e) Parks and Recreation Facilities (f) Bayfront Recreation Facilities (g) Highway Improvements (h) Convention Center (i) Fire Facilities (j) Sidewalks (k) Revolving Fund 11. Special Obligation Bond Fund • ,.r ..:.=:...�._:' - - - _.. - aria. W .Wr- A F F I D A V I T STATE OF FLORtDA: COUNTY OF DADF: 64,,e4 zu . Poeie-Ze- , being first duly sworn deposes and says that he is a Partner in the firm of Peat, Niarwick, Mitchell & Company and as such partner is authorized to bind Peat, Marwick, Mitchell & Company as Certified Public Accountants to the above and foregoing contract. S14ORN TO & SUBSCRIBED BEFORE r�DAY OF 1976. c :NOTARY PUBLIC 61 k�:t.'.a"y('eelQ LfiAT� OF i:ORtCd Cl L•`+.* Both Options enable purchasing ftiahaqeffient to spend additional time on ifftpOttaftt procurement tasks such as forecasting purchase requirements city-wide and critically reviewing specifications, They also provide additional clerical help to rhaifttain an open purchase order file and type requests for written quotations. The primary difference between the two is cost to the City. option 11 is less expensive since only two CtTA slots are recommended to be converted to general fund positions. There are a variety of other options. The two presented here; however, will allow the Purchasing Unit to perform additional duties which are necessary if Purchasing is to maximize its effectiveness. - 3 37 - ;bt��tst C�rtsrvJtaf:ts t8O OCT 22 PP. 3 , S? 4336 tASf Wt5T VOGRWAV BkfiHrE§bA. MA9VVLAN15 26614 061-flad ►A(tA c6bt 161 October 17, 1980 Mr. Richard Fosmoen City Manager City tali (Dinner Xey) City of Miami 3500 Fan American Drive Miami, Florida 33133 Dear Mr. Fosmoen: This will be the fourth of several interim "better Reports" to be submitted to you prior to the presentation of a final "Plan of Action Report" under the terms of our professional services agreement "to provide services for the improvement of the City's administrative services and processes" dated July 21, 1980. Under the terms of that agreement, one of the tasks to be accomplished was a review of the City of Miami's information system. This was to include the flow of financial and performance data. Our review was conducted to determine if: Each level of the City's organization was receiving the information it needed to properly discharge its duties The information was in a useful format and was received on a timely basis. Our overall conclusion is that the present flow of financial and performance information does not meet the requirements of the City of Miami. Furthermore, it is our conclusion that the develop- ment of such information systems is crucial to the City's efforts at cost containment and reduction. The systems recommended in this report should be implemented at the earliest feasible time. We appreciate the excellent cooperation that we have received from you and your staff during this portion of the assignment. We tit. Richard ftg=eft Odtober 20, 1080 PaqLs Two will be happy to aftawer any queationa ab(5ut this report or to aggiat you in any appropriate manner in your consideration of this report. Yotra very truly, 13662# '& ALLEN & HAMILTON Inc. Porter W. Homer Approved: 0 kLtv-v�� John C. Newman Vice President OP MIAMI'A INFORMATION SYSTEMS This report addresses the task of reviewing the present flow of performance and financial data within the admini- stration and to the City Commission, as well as the submission of recommendations to improve the flow of such information in terms of quality and timeliness. Our review has included a survey of the present infor= mation flow, from point of origin to the point of final utilization, for both financial and performance data. inter- views were conducted, on a sample basis, with originators of data and with users of data. The present system of Miami reports were reviewed. in addition, information systems being utilized by other local government jurisdictions were scrutinized. In reviewing the Miami reports, as well as those of other jurisdictions, their utility was evaluated on the basis of the following criteria! Pertinence --Contents of a report should be highly significant or relevant to the responsibilities of the intended reader. In general, as infor- mation flows upward, the amount of detail provided on any one function or activity will decrease, beginning with the point of origin and ending with the City Commission. Regularity --Information on functions or activities that are critical to the successful operation of the City should be monitored on a routine basis. Pertinent reports should be submitted to a distri- bution list in accordance with a prescribed, recurring plan, such as monthly or quarterly. Continuity --Each periodic report should contain data ro the same format as the previous report. The format should provide "pertinent" trend and comparative information. Clarity and Focus --The significance of the infor- mation should be readily apparent and should focus on only the most important aspects of performance or status. Raw, uninterpreted data are rarely useful at higher levels of management. -1- Tifbliness--Each report should be subtftitted to its "distribution list" within a period of tide after the those of the reportihq period that pdrMits Meaningful decisions to be fttade and appropriate maitageiiient actions to be taken. if a report is too late# it is not pertinent. In an overall sense# Our review was based upon a belief in the iinportande, even essentiality # of perforitahCe and financial data that meets the above criteria, tdithout such data, the administrators and policy Makers of a local government are reduced to habit and intuition in their decision -making. Evolving trends that are symptomatic of developing problems go undetected until a crisis occurs. From that point on, action and decision making are crisis oriented. This is not to say that an information system will prevent Crisis from occuring or guarantee sound decision making. It will, how- ever, enhance an organization's ability to deal with both. Finally, our review and our recommendations were tempered by a realization that no information system can be a cure-all. Everyone's diversified needs and desires for information cannot be satisfied without making the system so costly and so time consuming that it's value pales by comparison. A system that adivses the reader of an impor- tant future problem or of a pertinent accomplishment is useful. Either the problem or the accomplishment can be subjected to special analysis if it is needed. However, a system that also advises of minor problems or meaningless accomplishments is not useful. It becomes a burden. S 1. SUMMARY OF OUR CONCLUSIONS The current flow of information is inadequate in terms of the above criteria, as well as in light of the City's needs. There is a great deal of data, but it is at the departmental and divisional level. It is communicated to the management and to the Commission level on an "as needed" basis rather than on a regular organized basis. The present system is characterized by: A Lack of City-wide Cohesiveness --Information is concentrated at the departmental and divisional level. It is communicated to the management level and to the Commission level on a basis which tends to be oriented to Commission meeting requirements, crisis conditions, or eposodic criteria. -2- Over -reliance on Meetings --Verbal coffimunication5, in the form of staff meetings, or of one-on-one meetings are the prevailiftq mode of information transfer within the administration. This is not to suggest that such meetings should be eliminated. However, they should be reserved for more important, complex matters that are time -sensitive and supple- mented by an organized, city-wide data reporting system. A Lack_. of Use,ful., Timely.__Fina:ncial Data -"Although the production of monthly financial reports has improved in timeliness, the information provided is not in the most useful format and is still tardy. Most departments and divisions feel that it is necessary to keep their own books. Sufficient usable data is not provided at the management level and insufficient data is provided to the City Commis- sicn to allow them to exercise their oversight function. _Lack of Linkage Between Financial and Performance Data --At present, there is practically no effort to determine unit costs of production or service. The question of how many units of service will be received for each dollar appropriated for a particular function is unanswered. A Lack of Performance Goals --At present, there are no established goals by which actual performance can be judged. Such questions as whether revenue collections or expenditure trends are on target are unanswered. Also, there is little attempt to determine if service performance is meeting expected levels. An adequate information system will address these shortcomings. In so doing, the system will provide greater oversight capacity to the management and City Commission. The system should reduce the number of staff meetings now required. Staff meetings are useful, but should be limited to important, consequential matters. Finally, such a system should elevate the level of decision -making by allowing planning, performance evaluation, and problem anticipation to occur. Exhibit I, on the following page, delineates the major reports presently provided to the various management levels. -3- Given the City of Miami's already existent commitment to new systems installations► (e,g.► payroll) and to automated hardware dOnversion► it is recommended that an improved information system be developed on a gradual► phased -in basis. priorities fbr development bf an information system should be developed on a basis of need and on existing information at departmental or divisional levels in the interests of economy. These priorities should then be merged with already established systems development priorities, 2. Ut FINANCIAt DATA 5 It is recommended that first priority in developing information systems be given to the development of financial management information systems. This data is needed at all levels of the City organization. It should be timely and in a format that provides meaningful comparison of actual experience to budget allocations. This will require a dif- ferent format and analysis for different levels of the government organization. (1) The Mayor and City Commission Should Receive Quarterly Financial Data In order for the Mayor and City Commission to exercise their financial oversight responsibilities, it is recommended that they be provided each quarter a "Financial and Budget Report". It should include: By fund, detailed to major expenditure characters and revenue sources: - Revenues Anticipated (budgeted) - Revenues Collected (actual) - Expenditures Anticipated (budgeted) - Expenditures Made (actual) By fund. a written analysis of the City's budget position. Meaningful divergencies in actual experience versus anticipated experience should be examined and explained. Program changes necessitated by each fund analysis should be reported or recommended as required by law. -4- Y 4 txHialT i Major Reports Presently Received at Various Management Levels in the City of Miami on a Regular Basis MAYOR AND CITY COMMISSION Commission Meeting Agenda & Supporting Documents Capital Improvement Reports For Your Information (FYI) Documents Major Project Status Report Minutes of Meetings of Independent Boards & Committees CITY MANAGER AND ASSISTANT CITY MANAGERS Supporting Documents for Commission Meeting Agenda Capital Improvement Reports Original For Your Information Documents Finance Director's Monthly Finance Report Departmental Data for Major Project Status Report Commission Requests for Data and Complaint Handlirg DIRECTORS OF DEPARTMENTS AND DIVISIONS { t Impact upon the City's yearend fiscal position should be projected based upon information and analysis available each quarter. This impact analysis should be prepared for each fund, The Gity's over all financial position at the end of each quarter should be summarized and yearend projection made. This summary should set forth potential trouble areas and/or areas of potential expenditure savings or excess revenue collections. This report should be prepared by the Director of Management and Budget with the assistance of his staff. Preparation of the report should include appropriate consultation with the Director of Finance. The Report should be supervised by the Assistant City Manager for Fiscal Affairs and reviewed by the City Manager prior to submittal to the Mayor and City Commission. Exhibit II, on the following page, shows what a quarterly report on'the General Fund should contain. Figures used in this Exhibit are hypothetical. (2) The City Manager and Assistant City Managers Should Receive Appropriate Monthly And Quarterl Financial Data In order for the City Manager and his immediate staff to properly exercise their financial and budget responsibilities, it is recommended that they be pro- vided each month and each quarter appropriate financial and budget data. This should include: For the City Manager and Assistant City Manager for Fiscal Affairs: By fund, a monthly and quarterly report of actual expenditures compared to quarterly allotments detailed to major character expenditures (e.g., Personnel Services, Operating Expenses, Capital Outlay, Debt Service, and Capital Reserve) for each major appropriation (e.g., departmental and divisional). -- By fund, a monthly and quarterly report of actual revenue collections compared to quarterly estimates detailed to major revenue sources. -G- To: From: tXHISZT 11 Example of Vorm acid Content for Quarterly Financial and 8udclet Report to City CO=igeion January 20, 1980 The Mayor and Members of the City Commission The City Manager Subject: First Quarter Financial and Budget Report for the General Fund At the conclusion of the first quarter for fiscal 1979=80, both the revenues and expenditures for the General Fund are slightly ahead of expectations. Based upon experience to date, there is no reason to expect a substantial deviation in either revenue collections or expenditures from the original budget. The status of General Fund revenues and expenditures are set forth below. Category Property Taxes Franchise Taxes Utility Taxes Licenses and Permits Federal Shared Revenue State Shared Revenue Other Shared Revenue Charges for Services Fines and Forfeits interest Earnings Other TOTAL REVENUES Annual Budget $42,179,807 7,955,434 17,423,377 4,259,323 8,861,490 13,455,371 852,500 5,777,119 1,362,000 1,086,900 3,055,272 $106,268,593 —7— First Quarter Allotment $37,250,000 3,200,000 4,500,000 3,750,000 3,800,000 5,100,000 175,000 400,000 275,000 300,000 800,000 $59,550,000 First Quarter Actual $38,007,273 3,216,121 4,280,007 2,810,003 3,803,051 6,094,304 178,200 501,002 309,426 301,541 803,587 $60,304,515 f Cwteegq;ey. Personnel Services Operating Expenses Capital Outlay Debt Service Capital improvement Reserve Special Programs TOTAL tXH18tT 1I(2) EKPSNDITURES First Quarter Vint Quarter Annual_.audgot A11otme0t_-- _,._Actualy,..___ $79,822,946 $11,400,000 20,202,109 4450,000 14g,76o 32,000 i O.L ioi *0� =0" 6,093,778 1,825,000 $106,268,593 $23,507,000 ANALYSIS $11,182,148 4,394,217 31,912 - 0 - _0 1,874,329 523,482,806 with minor exceptions revenue collections are on target. The exceptions are: Utility _Taxes —Collections are below expectations by approximately $220,000, We are advised that electricity sales are lower than we anticipated. Utility officials feel that our first quarter estimate was too high originally. They believe that sales over the remaining nine months will justify our total revenue estimate. They expect a consider- able increase in sales during the second and third quarters of our fiscal year. we have made arrangements to monitor this situation on a monthly basis. Any further weakening of the City's financial position will be immediately reported to the Mayor and City Commission along with recommended remedial action. License and Permits —Collections are below expectations by approximately $940,000. Many businesses have failed to pay their business license fees on time. Apparently this is a reflection of the economic conditions locally. A survey of the major delinquent accounts indicates that we will collect most of the delinquent license fees shortly. We expect this under collection to remedy itself. State Shared Revenue —Collections are in excess of expec- tations by about $1,000,000. This results from a new payment schedule for state revenue sharing which accelerates payments to localities. In the final analysis, it is expected that total payments receiving during this fiscal year will approximate the original estimate. -8- With one exceptioh our expenditures are on target, the and exception ist Operat,ng___Expenses—This category of expenditures is about $150,000 over expectations. The primary reason is the higher than expected price of gasoline to operate the City's motor vehicle fleets We have established a program to control motor vehicle use more tightly. In addition, the Purchasing Agent has been directed to explore alternative sources of gasoline supply to replace our present supply contract which expires as of March 31 this year. In the meantime we will continue to monitor this cost overrun on a weekly basis, Unless the present trend reverses itself shortly, we will submit recommendations to the Mayor and Commission in the near future to transfer funds for this purpose. If the Mayor and members of the City Commission have further questions on this report or desire further data, I will be happy to respond. Pot the remaining assistant City ;tanagers: Sy fund, the same Monthly and quarterly expenditure and revenue inf6 oration as above but limited to the functions under their preview, The Director of Management and Budget should review monthly expenditure and revenue reports with the Director of Finance and report any unexpected develop- ments to the assistant City `Manager for Fiscal Affairs, who should advise the City Manager of such developments if necessary. (3) Directors of Departmentsand Divisions Should Receive_ Appropriate Monthly and Quarterly Financial Data In order for each of the Departmental and Divisional Directors to properly exercise financial and budgetary administrative controls and planning over their respective operations, it is recommended that they be provided for all activities under their tireview, the following: By fund and by activity account, a monthly and quarterly report of actual expenditures compared to quarterly allotments detailed to major character expenditures. By fund and by activity revenue account, a monthly and quarterly report of actual revenue collections compared to quarterly estimates. By fund and by activity account, a quarterly report of actual expenditures detailed to major character and line item level compared to total annual appropriations. Each Department and Divisional Director should review each report upon receipt and take appropriate action dependent upon the contents of those reports. 3. PROPOSED IMPLEMENTATION FOR RECODDIENDED FINANCIAL INFORMATION SYSTEM Financial responsibility is one of the primary duties imposed upon the officials of the City of Miami by State law and by the City Charter. The present financial system -10- provides too much data, too late to allow City officials to properly exercise this duty. This is particularly true for the Mayor# the City Cof%Missioh, the City Manager and the Department Diredtor's, Without timely; ACCurate information, decisions are necessarily made, Or not Made, in a vaduUm, The system proposed herein will Close that void by providing each level of the City organization the financial information it needs, when it needs it, and in appropriate format, In order to provide timely, pertinent financial infor- mation, a system of quarterly expenditure and revenue estimates must be established against which actual performance can be evaluated, The systemo if it is to be meaningful, should also encompass a system of controls to provide policy and top management personnel with an ability to respond to the system's indicators which may call for a change of fiscal plans. The major steps required to install the system, which are set forth below, occur after the annual budget is adopted by the Mayor and City Commission, Having just adopted its 1980-81 Budget, the City of Miami is in a good position to establish the system now. However, it must be accomplished rapidly in order to be meaningful in this crucial year for Miami. (1) Recommended Steps to Establish Quarterly Expenditure Allotments Immediately upon adoption of the annual budget by the Mayor and City Commission, the administration should distribute "quarterly allotment" forms to appropriate expenditure authorities in the City. These forms should contain figures, to line item detail under major character headings, representing the approved annual expenditure budget. Instructions for the completion of the forms by "authorized expenditure authorities" should be included. Basically, each expenditure authority is expected to divide each line item annual appropriation into logical, realistic quarterly expenditure plans. This does not mean an automatic division by four. A single Capital Outlay expenditure will occur in only one quarter. A special summer program will result in temporarily increased expenditure during those summer months. The completed "quarterly allotment" forms should be returned to the Department of Management and Budget. After review and approval, the forms should be for- warded to the Division of Accounting in the Finance Department and to the Division of Computer Operations in the Computers and Communications Department for posting -11- and budget administration putpcses. The purpose of the quarterly allotment system is to develop a realistid estifttate of the timing, by quarters, of expenditures during the fiscal year. These estifates , afftOnq other purposes, then becoite a standard against which adtual expenditures can be evaluated. A meaningful deviation from the standard, which is presumed to be valid Since it was prepared by the "authorized expenditure authority" and verified by the Department of Management and Budget, requires examination and appropriate corrective action. Exhibit III, on the following page, utilizes the recommended quarterly allotment form to illustrate the break down of one operation's annual appropriation into quarterly allotments: The figures used in the Exhibit are hypothetical. (2) Recommended Steps_ to Establish __Quarterly Reven Estimates The steps to be taken and the purposes to be served _ in establishing a system of quarterly revenue estimates are basically the same as those recommended for expenditure allotments. However, revenue accounts and persons responsible for revenue collections are the subjects covered. Completed forms are checked and processed _ through the same sequences as expenditure allotments. The purpose, establishment of a standard against which actual experience, or collections, can he evaluated, remains the same. Exhibit IV, following Exhibit III, illustrates the break down of one class of revenue accounts into quarterly estimates. The recommended form for this purpose is utilized. The figures are hypothetical. (3) Administration of the Quarterly Expenditure System The operating responsibility for administration of the quarterly expenditure system should rest with the Director of Management and Budget subject to oversight by the Assistant City Manager for Fiscal Affairs. The information flows to the City Manager and, through that person, to the Playor and City Commission. All Department and Division Directors are involved in the formulation of the system, but the Director of Finance and Director of Computers and Communications are also involved in additional and important ways. The former must adjust his accounting procedures to accomodate the system while the latter must adjust his programming to serve the system. -12- I 1.1 ;r EXHIBIT III Example of Quarterly Expenditure Allotment Form Account Total Quarterly Allotment Number Account budget Hirst Second Third Fourth Remarks ersonnel Servs. 22,804,8755,120,000 5,150,000 6,040,000 6,494,879,' i 001 Per. Full Time 15,310,12'3,805,000 3,820,000 3,900,000 3,785,129 1 Mandated Force Reduction Fourth Qtr.. 010 Unclassified 450,06 100,000 110,000 115,000 125,064 050 Overtime 91,9.1z 15,000 20,000 20,000 36,914 053 Holiday 590,18E 200,000 100,000 120,000 170,188 100 I'ICA Tax 62,00: 15,000 15,000 16,000 16,003 ` 110 Retirement 5,921,89 900,000 1,000,000 1,769,000 2,252,892 Mandated Increase for Third, Fourth= 150 Worker's Comp. 378,W 85,000 85,000 100,000 108,689 Qtr_ )perating Expense 471,15- 100,000 1,10,000 120,000 141,152 260 Prof. Services 57,511 37,515 6,000 6,000 8,000 Professional Consultant Fire Location. Study for First Quarter 410 Travel 12,43 8,000 1,000 1,000 2,434 Nat'l Fire Conference First Quarter 540 Utility -Electric 117,621 13,000 25,000 30,000 49,621 ! Rate Increase Anticipated 702 Mtr Vehical Part: 49,30( 8,000 20,000 10,0()0 11,300 Major Overhaul Ladder Truct Second Qtr. 715 Motor Fuel 53,19( 13,000 1.3,000 13,000 14,190 770 Mtr Pool Charges 181,09" 20,485 45,000 60,000 55,607 Based on Past Seasonal Use :apital Outlay 20,00( O 0 0 20,000 Single Purchase Fourth Qtr- New Dumps. 840 Equipment -New )ebt Service 20,00( 0 0 0 20,000 ,' 'apital Reserve Total 23,296,03 5,220,000 5,260,00( ,160,000 6,656,031 Department Num.LF. 09 partment Name ire Fiscal Yr Signature Date i II11 IIIIIIIIIIIIIIIIII1 - ' t SL =8181T 1v Example of Quarterly Revenue Estimate E6rm Account Nutthber Revenue Account Total Budget Estimate _ uaYteYl �3t]lfiate First Second Third Foutth xxx Utility Service 11,423,371 4,500,000 4,750,000 4,007,000 4,166,377 Taxes XXx Electricity 9,596,797 3,200,000 3,300,000 1,150,000 1,346,79E xxx Tel and Tel 6,202,722 900,000 1,020,000 1,850,000 2,432,122 Xxx water 822,383 200,000 200,000 210,000 212,383 xxx Gas 721,328 175,000 190,000 190,000 166,328 xxx Fuel Oil 60,148 25,000 40,000 7,000 8,148 -14- It is recommended that expenditure controls be exercised to only the major expenditure character detail by quarterly allotment for each major appropriation. This differs from the present practice of "line -item" expenditure controls annually for the appropriation figure, It is recommended -that all expenditures continue to be coded against the appropriate line -item as is presently done, This will maintain the City's historical accounting record, but controls to only the major expenditure character by quarter will reduce the detail necessary, under the present system, to provide users of the system needed information, Indeed, this change should reduce a presently unmanageable mass of detail to manageable proportions for all users of the system. It is envisioned, under this system that expendi= ture control would be inititally exercised by the Finance Director. The primary control would occur when the expenditure authority was advised that the quarterly allotment for a major appropriation expenditure charac- ter (e.g., Operating Expenses) was exhausted and that no further expenditures within that category would be processed until satisfactory arrangements are made. The Director of Management and Budget should also receive this advice. It would then be the responsibility of the expenditure authority to make needed arrangements which may consist of transferring funds, requesting a supplemental appropriation, or foregoing certain expenditures. The making of such arrangements would require the expenditure authority to consult with the Director of Management and Budget to effectuate such arrangements. Therefore, the system must include forms, regulations, and procedures for the following: Transfer of appropriation funds from one quarter's allocation to another quarter's allocation within the same appropriation or from one appropriation to another. Transfer of appropriation funds within one quarter's allocation and within one appropria- tion from one expenditure character to another expenditure character (e.g., Personnel Services to Operating Expenses). -15- Appropriation of additional funds to an existing or new appropriation account. The regulations and procedures to accomplish the ab6voo at well as any other contingencies that may be anticipated, mutt include standard forms and instructions for their use. Levels of approval required for different trans- actions must also be stated. VOr example, a transfer of funds within the same appropriation and within the same quarter might require approval by only the Director of Management and Budget while a transfer of funds between quarters and within the same appropriation might require an additional approval by the Assistant City Manager for Fiscal Affairs. A more far reaching budget adjustment might also include the City Manager's approval while appropriation of additional funds will require approval by the Mayor and City Commission, In all in- stances, the request for action should originate with the Department Director involved. (4) Administration of the Quarterly Revenue System The operating responsibility for administration of the quarterly revenue system should rest with the Director of Finance subject to oversight by the Assistant City Manager for Fiscal Affairs. The information flows to the City Manager and, through that person, to the Mayor and Cit,,,- Commission. Only those Department and Division Directors directly involved in revenue collections are involved in the system. Accounting systems and computer programs must be adjusted to serve the quarterly revenue system. The revenue system is more of a passive reporting system as compared to the expenditure system. There are major exceptions to this which will require constant monitoring and follow-up. Examples would include collections of the waste fee, which has recently been instituted. and the •various enterprise fund revenues. This should not be interpreted in anyway as denigration of the importance of revenue administration. -16- S A failure of any revenue sourde to melt its quarterly estivate should Cause the Diredtor of Finande to investigate and to take appropriate follow-up action With the responsible individual. The Director of Finance should monitor the progress of revenue oolleotions at least monthly, At the dOhClusion of eadh quarter, the Director of Finance should perform a Major exatthination of collections and project year end empedtations, The results of this OXamination should be Conveyed to the Director of Management and Budget for inclusion in the overall quarterly ''Vinancial and Budget Report", (5) Quarterly Staff_Meetihq to Review the Financial The City Manager should plan to hold a quarterly staff meeting to review results of each quarterly Financial and Budget Report. The meeting could be with his top staff, Assistant City Managers, or with top staff and Department Directors, The latter type of meeting would emphasize the importance of financial affairs and provide a sense of organizational unity. In any case, it will be important that the communications loop within the city administration be closed, that the results of the quarterly analysis be transmitted through out the organization. 4. BENEFITS RESULTING FROM THE RECOMMENDED FINANCIAL INFORMATION SYSTEM There are a number of advantages and benefits that can be expected to flow from the installation and utilization of the recommended quarterly "Financial and Budget" s�,stem. They include: Provision of timely and pertinent financial data to all levels of policy -making and administration within the City of Miami. Ability to anticipate problems and to execute mid- course changes in policy and programs when necessary. -17- Aeduded wotksload for the ACcounting Division beCauee of the elevation of expenditure controls from line itel"t`t detail to major character of expenditure level within separate appropriations. Delegation of financial authority to Department and Division Directors that is more commensurate with their responsibilities. Provision of overall cash -flow Guidelines for officials handling the City`s investment program. Ability to relate quarterly "Financial and budget" report findings to results of quarterly audit closings as previously recommended. Minimal requirements for revision of "FAMIS" system procedures to accommodate the new reporting system. This will result in minimal operating disruption. This is an ideal time for the City of Miami to initiate the recommended system inasmuch as its 1980-81 budget has been adopted recently by the Mayor and City Commission. Given the concern for cost containment and even for cost reduction, this recommended system will provide the means of reporting progress to the Mayor and City Commission_ that is not now available. It will also provide the means for better administrative financial management which is not now avail- able. Given the design and installation complexities in- herent in this system, as well as the time constraints faced by the City Administration, the City of Miami may wish to avail itself of outside installation and orientation assistance. 5. DEVELOPMENT OF TIMELY, USEFUL PERFORMANCE DATA SHOULD BE THE SECOND INFORMATION PRIORITY It is recommended that second priority in developing information systems be given to the development of performance data. This data, as is true of financial data, is needed at all levels of the City organization. It should also be timely and in a format that provides meaningful comparison of actual experience to planned objectives. However, contrary to the system development recommendation for financial data, it is recommended that development of a performance data system proceed at a more gradual phased -in pace. -18- This in no way implies that performance data is less important than financial data, Indeed► the eventual linkage of financial data and performance data, along with inclusion of such data in the budget making proeess, is essential if future decisions are to be made on facts rather than historical assumptions. However, this recommendation recognizes the limits of any organization to absorb and Utilize new systems within a short period of time. Accordingly, it is recommended that development of a performance data system commence with the utilization of data already being generated at operating levels in City Departments and Divisions. This will require the culling of available information and data to determine those that meet the criteria of: Pertinence for the intended readers at various organization levels. Continuity of production in order that reports can supply the same information on a continuing basis with historical comparisions to show trends. Timeliness in relation to the reporting period in order that reports will contain current information. Once this is accomplished, it will be necessary to determine the different data requirements for each organizational level of the City government commencing at the Division level and progressing through the Departmental level, the Assistant City Manager level, the City Manager, and finally the Mayor and City Commission. Generally, this type of data system, for any one operation, will resemble a pyramid in that the pertinent data at the operating level will form a broad information base. This is narrowed, on the basis of pertinency, at successive organizational levels and culminatinq at the apex, the Mayor and City Commission, with the most condensed information. Graphically, the system will appear as on the following page: -19- Data Required at %layof and City Cofiissibh . Data Required at City Manager Level Data Required at Attistaht City Mahajor Level Data Required at Department Level s Data Available at Division Level Subsequent iterations of the data system should be more responsive to user requirements at the upper organiza- tional levels. This will undoubtedly mandate new or additional record keeping and performance reports requiring output reports from field personnel. In addition; these later reports should incorborate planned performance goals for each reporting period. However, the first version of the data system should be based upon already available information in the interests of containing costs and of early operation of the system. (1) The Mayor and City Commission Should Receive Bi-Monthly Performance Data In order for the Mayor and City Commission to exercise their service and performance oversight responsibilities, it is recommended that they be provided every two months a "Performance Report". It should include: By Department, Significant performance data of pertinence to the Mayor and Commissioners. This should be data that can be produced regularly, compared to historical data, and compared to planned performance goals, For example, the Mayor and City Commissioners will be interested in knowing the police personnel hours utilized for active duty during the reporting period as opposed to the authorzed police personnel hours for the reporting period. They will probably not be interested in knowing the number of police personnel hours devoted to investigative -20- work. Hdweve'r, the Police Chief will probably be interested in knowing this. The numbers of performance data regularly reported to the Mayor and C0MMissioriers should be limited to the tefl or twelve most important indicators for each department, exhibit fit, on the following page illustrates what a bimonthly "Performance Report" to the Mayor and Commissioners concerning what the Police. -Department might contain. The format utilized is a standard format recommended for all "Performance Reports", however, the data contained therein is imaginary and illustrative rather than real and recommended. As set forth in the following implementation section of this report, the data to be utilized in the various "Performance Reports" should be decided only after consultation w l-th Department and Division Directors. The bi-monthly "Performance Report" for all City operations should be prepared by the Director of Management and Budget on the basis of data sub- mitted by operating Departments. Preparation of the report should be supervised by the Assistant City Manager for Fiscal Affairs. The City Manager should review and approve it prior to submission to the Mayor and City Commission. (2) The City Manager and Asisstant City Managers Should Receive Appropriate Monthly Performance Data In order for the City Manager and the Assistant City Manager to exercise their management oversight responsibilities properly, it is recommended that they be provided every month a "Performance Report". Thei:: report should include all data. contained in the "'Performance Report" submitted to the Mayor and City Commission as well as additional data appropriate to their oversight responsibilities. The City Manager and Assistant City Manager for Fiscal Affairs should receive "Performance Reports" for all operations while the remaining Assistant City Managers should receive reports for their respective areas of responsibility. These reports should include: -21- EXHIBIT V Example of Bi--Monthly Police Department Performance Report to Mayor and City Commission Department Police n Fr, Tndicator He ort PN Reporting Period Oct & NOV *79� D. � 1 y Monthly Trends L Yearly Trends Year to Last Year Yr. to Dt ear to, % Actual Actual This Two Mo. Actual % Date % Date Year to Last Year - This Two IisL Two YTtoDt Antici- Date to Date . � ,i,ci ast Year No Performance Indicator Months Months Last Two Mo. t Remarks Pated Actual Antual oated, O'nat- 1. Personnel Hours 414,800 400,106 103.67 414,800 400,106 385,220 103.67 103.86 OVaacancie Authorized 2. Personnel Hours 385,340 378,065 101.92 385,340 378,065 368,280 101.,Y-) 102.65, Utilized 6. Calls For Service 10,486 9,784 107.17 10,000 10,486 9,138 104.86 114-75 (A) Criminal 4,321 4,213 102.56 4,000 4,3221 4,015 108.02 107-62 (8) Nun -Criminal 6,165 5,571 110.66 6,000 6, 165 5,123 1012.75 120-31 S. Arrests 4,165 3,921 I06.22 N/A 4,165 3,879^ N/A 107.37 c By Department, 'i Significant performance data of pertinence to the City Manager and Assistant City Managers. It should be data capable of regular production, of comparison to his- torical data, and of comparison to planned performance goals, Exhibit VI, on the following page, illustrates what a monthly "Performance Report" to the Manager and Assistant City Managers concerning the Police Depart`• ment might contain. All "Performance Reports" should be received by the Director of Management and Budget. They should be reviewed on a City=Wide basis monthly by that office and inportant trends, emerging problems, or notable accomplishments should be reported to the City Manager and appropriate City Managers in writing. (3) hirectors of Departments and Divisions Should Receive Appropriate Monthly Performance Data In order for Directors of Departments and Divisions to properly exercise their administrative responsibilities, it is recommended that they receive each month appro- priate performance data. Their reports should include all data to be forwarded to the City Manager and Assistant City Managers as well as additional data appropriate to their administrative requirements. These reports should include: By Operation, Significant performance data of pertinence to Director of Departments or Divisions. The data should be produced regularly, com- pared to historical data, and contrasted to planned performance goals. Exhibit VII, following Exhibit VI, illustrates what a monthly "Performance Report" to the Police Chief concerning only the Police Department's patrol opera- tion might contain. -23- Police Activity All E,',X111BlT VI Example of Monthly Police Department Performance Report to City Manager and Asisstant City Managers Monthly Performance Indicator Rej"rt Reporting. Period oct. '79- Monthly Trends Yearly Trends Year to Year to 'leer t This month Date Year to Last Year Date Act - Actual Actual AntiCi- Date to Date Yr. 10 Ot Last Year 10 No. Performance Indicator This Mond Last M01101 Last Month pated Actual Actual Auticptd- To, Date Remarks, 1. Personnel Hours Auth. 210,800 210,0()0 1()0.00 210,800 210,8()0 203,360 100.00 10,3.65 Vancancie 2. Personnel flours 195,920 189,420 103.43 208,692 195,920 179,420 93.87 109.19 Utilized 3. Personnel Hours 7,44o 8,080 92.07 81000 7,440 13,540, 53-00 54-94 Vacation 4. Personnel Hours Sick 7,440 13,100 55.93 1,308 7,440, 10,,400 569.80 7,11-53 6. Calls for Service- 5,384 5,930 90.79 7,000 5,384 4,978 76-91 108-15 (A) Criminal 2,816 3,0014 9.1.61 3,000 2,816 2,923 9J. 86 96-33, (8) Non -Criminal 2,568 2,922 87.88 4,000 2,568 2,055, 64.20 1124-96 8. Arrests 2,178 1,987 109.6.1 N/A 2,178 1,869 N/A 116-53, EXHIBIT VII Example of Monthly Police Department lkpartmtnnt Police Performance Report to Police Chief - Activity - Patrul Monthly Performance Indicator Report Reporting, Period- Oct. 079, Monthly 'Trends Yearly `]'rends % Year to Year to ear to This Month Date Year to Last Year Date Act. Date W Actual Actual "-'-" Antici- Date to Date Yr. to Dt Last Year No Performance Indicator This Montt Last Month fast Month pated Actual Actual Anticptd. ro, Date Remarks 1. Personnel flours 105,400 991200 106.25 105,400 105,400 99,800 100_00 105-6I i LU:Vancancie., Authorized 2. Personnel flours 97,960 93,840 1.04..39 97,960 97,960 1811,460 100.0& 105_50. Utilized i 3. Personnel Hours 2,420 1,640 147.56 2,120 2,4202,160 114_15 112_03 Vacation 4. Personnel flours sick 3,020 3,81)0 79.47 3,320 3,020 3,000 90i.96 100_66 5, Personnel flours 2,480 - - 2,480 2,480 - - - Training 6. galls For Service 3,827 4,012 95.38 4,800 3,827 3,613 79P_72 105.92 (A) Criminal 1,731 11918 90.25 2,000 1,731 1,587 86.551 109.07 (B) Non -Criminal 2,096 3,094 67.74 2,800 2,096 2,026 74.85, 103+.45 7. Fullow-Up Investiga- 932 816 114.21 900 932 821 103.:55 l>F3..52' tions 8. Arrests 1,310 1,275 102.74 N/A 1,310 1,193 N/A 109080 (A) 11raffic 412 432 77.44 N/A 41.2 392 N/A 1105-10 (B) Criminal 318 218 145.87 N/A 318 281 N/A 113-16' (C) Juvenile 580 625 92.80 N/A 580 520 N/A 111_53 a I Each Director of a Department or Division should review their "performance Reports*' looking for important trends, efflerging problefi'ts, or notable Accom- plishments. appropriate follow-up action should be taken after each review. 5. 1MPtEMEN TATION OF bevelopment of a sound, useful performance information system requires careful tailoring of a system that reflects an organization's on -going operations and which is responsive to the information requirements of the organization's leaders. The regular submission of standard data by the heads of various line operations forces them to think long term and to compare actual performance to anticipated performance. For middle and upper management, the regular receipt of standard data forces them to pay attention to basic operations rather than to the crisis of the day. It also provides an opportunity to look for trends that may warn of approaching problems. For policy makers and top management, the regular receipt of standard data allows them to see if their policy expectations are being fulfilled. None of these purposes will be fulfilled by a data system that provides too much information or is cluttered with interesting, but useless data. Therefore, it is essential that the performance information system recommended herein be based on a careful analysis of the responsibilities and functions of each level of management, and the information they need to execute their responsibilities. The development should be gradual in accordance with the following: First phase, built in data already heing generated at operating levels. Second phase, expanded to include planned objectives, where applicable, related to performance data already being generated. -26- il Third phase, expanded to include mote sophisti- cated performance measutes that are responsive to needs of policy makers and top Management, As early as is practical, this data Should be incorporated into the budget making and monitoring processes. eventually, they should be linked and integrated with financial data to produce perfortance•~cost data. Until that happens, Miami's policy makers and administration leaders must rely on faulted historical data 3 information that is blessed, but uproven as to its validity. (1) rman t and_Budget Staff Should be It is recommended, because of their familiarity with City operations, that personnel of the Department of Management and Budget be utilized to compile data and install procedures to institute the Performance Data System. In the interests of expediting the initiation and utility of the system, the City may wish to consider use of outside consulting assistance to guide the initial development efforts. The compilation and installation effort should include the following Survey of present data generation in City operations and tentative selection of data for inclusion in the system. Consultation with Directors of Departments and Divisions to secure agreement on use of data. Identification of individual positions in Departments and Divisions to be responsible for preparation of reports and forwarding them subject to review by Directors. Design of standard format for reports, establishment of time tables for report submissions, and designation of distribution system for reports. -27- Review of data, format, schedules, and procedures with City Manager and Assistant City Manager for Fiscal Affairs. The latter person should take responsibility for Coordination with the other Aasistant City Managers. When the system is ready for operation, the Department of Management and Budget should be responsible for preparing necessary regulations to implement the system. (2) Director of_ Nanagement and Budget Should Civ-V Eide Analysis of Reports Once the system is in operation, it is recommended that the Director of Management and Budget; with the assistance of his staff, be charged with the respon- sibility of analyzing monthly reports on a City-wide basis and of preparing the bi-monthly report to the Mayor and City Commission subject to oversight by the Assistant City Manager for Fiscal Affairs and final approval by the City Manager. The Director of Management and Budget, with his staff, should analyze reports for trends, developing problems, and outstanding accomplishments. It should be their responsibility to put the data into useful management and policy maker format. This office, under the Direction of the Assistant City Manager for Fiscal Affairs, should also be responsible for seeing that the organizational communication loop is closed. Departments and Divisions should hear from management as a result of these reports. Accomplishments should be recognized, problems should be discussed, and suggestions should be responded to. The system should not be allowed to become only an enforcement device in the eyes of operational personnel. (3) Director of Management and Budget Should be Responsible for Integration Into Finance and Budget Svstems and Future Development The Director of Management and Budget, under the supervision of the Assistant City Manager for Fiscal -28- supervision of the Assistant City Manager for Vi8dal affairs) should be charged with Operating and expanding the sy9ttfh. This should indlude! A phased expansion of the system to make it more responsive to City-wide needs, WE Planning and execution of a program to integrate performance data into the budget and finance systems. Once the system is reasonably operative, the Director of Management and Budget should undertake the develop= ment and installation of a system that will result in accurate preduction"Unit costs. This will result from a studied interrelation of financial cost data and performance data. obviously, the attainment of this latter goal will take time and effort. it will also require an investment of funds. However, it is believed that such a system is the key to informed decision making for both the short and long range cost reduction programs that Miami is undertaking. As such, this funding institutes a necessary frond -end investment in future cost containment programs. -29- supervision of the assistant City Manager for Fiscal affairs, should be charged with operating and expanding the system► 'phis should include A phased expansion of the system to make it more responsive to City-wide needs, Planning and execution of a program to integrate performance data into the budget and finance systems► Once the system is reasonably operative► the Director of Management and Budget should undertake the develop= ment and installation of a system that will result in accurate production -unit costs, This will result from a studied interrelation of financial cost data and performance data. Obviously, the attainment of this latter goal will take time and effort. It will also require an investment of funds. However► it is believed that such a system is the key to informed decision making for both the short and long range cost reduction programs that Miami is undertaking. As such, this funding institutes a necessary frond -end investment in future cost containment programs. Meftegifafir 60fisolmou 41.0 EASf WESt HIGHWAt ft-fiHtS6A, MARYLAND 96614 951•:t66 AAkA cbbt 361 October 200 1980 Mr. Richard Posmoen City Manager City Hall (Dinner Ivey) City of Miami 3500 Pan American Drive Miami, Florida 33133 Dear Mr. Fosmoen: This will be the fifth of several interim "Letter Reports" to be submitted to you prior to the presentation of a final "Plan of Action Report" under the terms of our professional services agreement "to provide services for the improvement of the City's administrative services and processes" dated July 21, 1980. Under the terms of that agreement, one of the tasks to be accomplished was the development of an approach to an improved resource allocation system. We examined the present Miami systems for: Budget making and administration Performance monitoring. In addition, we also studied budgeting and monitoring systems utilized in other local government jurisdictions. In general, our findings were that the present systems rely too much on historical data, and an assumption as to their validity, and that there are no validated cost and performance standards which current operations can be planned, managed and evaluated. It is our conclusion that the development and implementation of a resource allocation system, utilizing reliable cost and performance standards, is essential to the City's efforts to cope with its financial future in an intelligent, informed manner. Recommendations for the realization of such a system, as well as a recitation of other benefits to be expected, are detailed in our report. Mr, Richard FOMOdft October 20, 1980 Page TWO Our "Plan of Action Report" will be submitted to you shortly. Meanwhile, we want to express appreciation for the excellent Cooperation extended to us by You and your staff. We will be available to answer any questions concerning this report, or to assist you in any appropriate way. Yours very truly, Mono ALLEN & HAMILTON Ito. Porter W. Homer Approved. - John C. Newman Vice President EXAMINATION Cp MIAMI'S RESOURCE ALLOCATION SYSTEM In our fourth report, submitted previously, we described our analysis of the performance and financial data systems presently utilized by the City. That report, in addition to recommending Methods to improve the generation of information immediately pertinent to City administrators, pointed out the need for information that would provide a fundamental basis for assessing the relationship between performance achieved in a City function relative to the costs incurred. Broadly, the need is for information that will permit adminstrators to examine such questions such as: Quantitatively, what level of improvement or decrease in service can be expected from a given level of increase or decrease in the budget of function? What level of service output should have been delivered by a Department for the expenditures they incurred, and how does that compare to their actual level of output? To answer these questions, information is required that defines meaningful output measures for major City functions, establishes reasonable work standards, and links cost in- formation to performance information. With this kind of information, the City will be in a position to improve substantially its capacity to monitor and control the alloca- tion of its resources. The purpose of this report is to examine ways to improve Miami's capacity to monitor and control the allocation of its resources. Our examination has included a survey of the present budget making and administration system as well as the performance monitoring methods utilized by administrators in the City. Interviews were conducted with the Mayor and members of the City Commission, the City Manager and Assistant City Managers, and with Directors of Departments and Divisions. In depth interviews were conducted with staff of the Department of Management and Budget. -1- With few emceptions, the existing information systems, as well as the financial and performance data systems recommended in our fourth report, share a common limitations They provide information that permits the reader to compare current performance to performance in a prior periods but they do not provide an independent basis for determining whether the current performance or the prior period Performance was good or bad. to that sense, they all rest on historical data and an assumption of their validity. Present methods of operations and service delivery are assumed to be acceptable. Where are no cost standards or performance standards available to validate that judgement. The present budget and performance monitoring systems pro- vide no answers to such pertinent questions as What service level is attainable with a given appropriation of funds? What are the cost options of different service levels? What kind of service, delivery options are avail- able and what are the costs associated with each option? Is the actual unit cost of service provision comparable to the unit cost implied in the budget? Is the work production of service provision comparable to the planned production? The limitations noted above in Miami's current information systems are not unique to the City. In most respects, the techniques that are used to formulate budgets and to monitor performance have been those traditionally used by City governments for decades. It has only been in recent years that the pressures of limited revenue sources and rapidly escalating costs have forced local governments to seek more sophisticated tools to make the judgements that are required by these conditions. In our view, a resource allocation system, based on validated performance standards and unit costs, is required to deal adequately with current conditions and will provide the answers to these questions for policy -maker and administrator alike. Until answers to these questions are available, Miami's efforts to contain and/ or reduce costs must rest to a large degree on assumption and intuition, rather than fact. --2- s 2. otmOPMENT OF RESOURCE ALLOCATION _SYSTEM SHOULD BE It is recommended that development of a resource allocation system, based on validated performance standards and unit costs, be undertaken simultaneously with the develop- ment of the various information systems recommended in our fourth report. The Budget Analysts in the Department of Management and Budget should be utilizes: for the latter effort as well as to assist in developing appropriate departmental and divisional output reporting systems. At the same time, the Operations Analysts in the Department of Management and Budget should be trained in the work analysis techniques required to establish performance standards and link them to unit costs. Upon completion of training, this group should undertake studies in selected pilot operations. In arriving at this recommendation: the presently in- active Activity Reporting and Management System (ARMS) was evaluated to see if reactivation or revision of that system might shorten the time requirement to realize a viable resource allocation system. It was concluded that ARMS was not suitable for this purpose because it: Contained too much raw data Contained no element of analysis oriented towards operations management or policy review Contained no actual performance standards, only output measures. It was felt that the simultaneous efforts to establish output reporting systems and validation operations were more appropriate. This approach will provide the City with the ability to plan, monitor, and evaluate its service costs and performance levels. This capacity will be crucial to the City's ability to deliver_ services within its limited future income. (1) Installation of Reliable Department ana Division Output Reporting Is the First Step Towards -a Resource Allocation System An output report should provide information about the number of activities or production uni.ts of work - 3- completed during a set period of time (e . g. , a week) To be useful to managers and policy -makers , the output measures must characterize in a fundamental way the work perforated by the organi2ationai unit and, ideally, must be related directly to the objectives of the work. V,xamples of useful output measures are: Areas of park land mowed --for the Department of parks and Recreation Miles of curbs swept --for the Department of Sanitation Billings processed --for the Department of Finance. Basic data collected by such a system may include: A description or classification of work to be accomplished Time work began and ended Number of employees involved in the specific work Number of and types of equipment utilized in the specific work. These reports should be summarized in log books or charts to provide a sense of the frequency, type, and time requirements of work being completed in a unit of a Department or Division. It may be useful to compare work completed with work orders issued. This can provide turn around time data that is useful. In order to establish output reporting systems, the following steps should be taken: Identify those City operations, by Department and unit, where output reporting will be useful and productive to line managers, Department and Division Directors, and Managers as well as to budget activities. Interview administrators of units selected to obtain a task inventory of operations performed where output reporting could be both beneficial and feasible. -4- Design an output reporting system for each operation, based upon production units, complete with procedure, forms, user instructions and summary formats, Assist each operation in testing and installing the system developed. Establish distribution lists for reports. After the output reporting system has been installed and proven itself, administrators of the units involved should be encouraged to establish production goals against which work accomplished can be compared. Exhibit z, on the following page, shows what a planning and reporting output report might contain. Data used is hypothetical. (2) Development of Performance Validation Capacity Is Secoftd Sten Towards a Resource Allocation system A performance validation capacity should provide the City of Miami with in-house staff ability to conduct operations analysis studies of its various services. The objective of having such analysis ability is to be able to: Establish engineered performance standards Identify work method improvement opportunities Identify work simplification opportunities Design new operating systems to take advantage of work improvement or simplification opportunities Link performance standards to cost data to provide viable unit performance cost data. It is important to note that the process of establishing engineered work standards will often yield immediate productivity improvement benefits by identifying work improvement methods and better procedures for work scheduling and management. -5- EXHISIT t droundA MaimtfttahCe Weekly W6rk AdhddUle Planned d Voremaft 14, Johnson Personnel In Ctew 4 Week of 10/20/80 hour's �a�­�6_.­.__. L=Nb 4( urs, All. So ctual 7A 11�1 0 Fours I tp *Y Hours 4 j 'A. 11 ell, . . . . . . Total Hours LOCATION Planned —Actual 20 7 2 XXX Park 22 5;1 2 29 1A 30 XXX Boulevard 28 6 36 34 10 4 3 2 XXX Center 9 4 4 2 19 19 15 12 2 7 XXX Park 18 1 8 36 39 4 6 8 20 XXX Stadium 4 8 24 38 43 TOTALS 158 168� Equipment Assigned: 1 Gang Mower, 1 Tractor, 1 Tractor Edger, 1 Pick-2 The development of this Capacity will require the training of about six analysts. This will provide sufficient personnel to conduct three pilot validation studies initially and to expand the effort through the rest of the City operations over an extended period Of tifiie. Selection of operations for pilot validation studies should be Made carefully inasmuch as the results in these studies will set the tone for this operation. The required training should require approximately three to four weeks. Exhibit it, on the following page, sets forth a suggested training agenda. It anticipates both classroom work and field work. (3) Conduct of Pilot Work Ang4ys_ s Stiudies _I Third 5tepToward A Resource Allocation The purpose of the work analysis studies is to provide valid performance standards linked to unit costs which will replace historical assumptions as the basis for performance evaluation and decision making. Before committing itself to a complete resource allocation system, the City of Miami should first conduct pilot projects for two or three operations to illustrate the benefits of the proposed system and to refine the methodologies initially used. The pilot projects should be conducted in a step -wise fashion executing the following major tasks: Conduct an operations analysis --This involves initial data collection to establish operating procedures, staffing patterns, and equipment utilization levels. This data is essential to the development of method improvements and the identification of possible cost reduction or containment opportunities. Identify method improvements --This involves identification of ways of performing work activities more effectively or efficiently. This will enable productivity measures and work standards to be established on the basis of appropriate and efficient work methods. Develop productivity and performance measures and standards --This involves the conduct of work measurement studies to develop performance standards. These standards can be used to plan, schedule and monitor work performance. -7- EXMIT' if 8uggeeted Analyst Training Course Outline I. �Nfi�i�UCfitOtS Introductory reiharks Background descriptions of participants Purpose of training II. 'OVERVIEW OF GOVERNMENT ANALYSIS PROCESS 1. Defining an Assignment 2. Designing Preliminary Work Program 36 organizing the work to be done 4. Outlining and writing the final report: BOOZ, Allen format 5. Selling and implementing recommendations III. PRODUCTION MANAGEMENT AND CONTROL CONCEPTS: MUNICIPAL SERVICE APPLICATIONS 1. Production Management and Control: A Definition 2. Service Demands: Meaning, Source and Indicators 3. Response Scheduling and Deployment 4. Time to Perform: Methods, Measures and Applications 5. Balancing Resources: Labor, Capital and Inventories 6. Evaluating Performance IV. OPERATIONS REVIEW AND ANALYSIS 1. Objectives 2. Conducting an organizational review and analysis: principals and techniques 9X14tAtT It (2) 3► Data Collection Techniques E Gathering d0AUMehted data (e.g., reports and foams) Determining work distribution IhtetViewihq (2 exercises) Listing the components of the activity to be Measured (homework). 4. Products Notes from interview and work observations Collection of relevant departmental data Work distribution charts Activity element lists. V. METHODS IMPROVEMENT DEVELOPMENT 1. Objectives 2. Description of process used to develop improvements (exercise) Identify the activity needing improvement Flow charting Define the problem Analyze the facts Develop alternative improvement opportunities: The Methods Improvement Notebook Select the best alternative. 3. Sell improvements _ Install the selected alternative Follow up. EX1411AIT it (3) 4. products Documented improvements Summary of client responses to improVernents. VI. STANDARDS DEVELOPM9NT - 1. objectives 2. Definition of standard and a description of its components 3. Brief description of the history. of work measurement 4. Brief descriptions of the elements of work measurement Continous Time STudy Fixed Interval Measurement Random Interval Work Sampling Time Ladder. 5. Explanation of how to conduct a fixed interval measurement study Selecting the interval Summarizing the results (exercise). 6. Pace rating and its use (exercise) 7. Explanation of allowances 8. Products Standards for each routine/major work activity Benchmarks for less routine work activities Documentation, i.e.m time studies and summaries, for how each standard/benchmark was derived. 9. Field exercise VII + OtJ`f' t ML0gTpfi4d 1. objectives 2. Overview of output reporting formats 3. Explanation of how output measures are compiled and summarized 4. Key points to be aware of when monitoring output reporting 5. Products --completed output reporting sheets VIII. WORK LOAD FORECASTING 1. Objectives 2. An explanation of techniques used to forecase the work load Department records Time studies Supervisor's estimates. 3. Products --a month -by -month forecast of the department's annual work load IX. MANPOWER STAFFING 1. Objectives 2. Workload analysis 3. Explanation of how to determine staffing levels Calculation of allowances for sick and vacation leave Explanation of how to complete a staffing form (exercise) 4. Crew Analysis 6. Products --Manpower staffing plan projecting staffing require- ments over a year's time ExHtttT tt (5 ) X. MANAGEMENfi 5Gt#OiiLtNG ANb POtfiNG 1. Objectifies 2. Management scheduling Development of work scheduling formats (exercise) Assisting supervisors in implementing work scheduling methods. 3. Management reporting . Development of efficiency measures (exercise) . Development of effectiveness measures Explanation of formats used to guage departmental performance and graphically display progress Department's role Analysts' role. 4. Products Work scheduling formats Efficiency and effectivenss measures Management reporting format. XI. BUDGET AND FINANCIAL INTERFACE 1. Explanation of how to determine the costs associated with varying levels of service (exercise) Establish serttce levels and staffi' n=This u _.. involves the deterfhination of personnel, equipment and supply resources required to dbnduct work at a given service level. The casts of the resources required to provide the service level are also determined. ��si,.gt`►,_ t�eyel�5pment and i�t��eme�it_ ��po��.nc3 systems -This involves establishing reporting systems and procedures that are capable of being merged into existing reporting systems. The reports should enable appropriate personnel to monitor performance against standards and expenditures against budget. The pilot projects should enable administrators to determine if operations can be improved or if cost reductions can be expected. In addition, the pilot projects will allow the City to test the concept of resource allocation before committing itself to the system on a City-wide basis. The selection of operations for pilot project analysis should result from careful consideration by the Administration. Factors to be considered are: The number of analysts available for the project as well as their present experience and training. The level of data available in the operations considered. The degree to which the operations are composed of repetitive tasks that lend themselves to establishing time standards in a short time span. The degree of seasonal variations in the various operations. The attitude of key administrators toward the resource allocation concept and their participation in a pilot project. Some examples of City operations that could be considered for pilot projects are discussed below: Parks Maintenance --Many operation are reptitive observed, measured and -13- activities in this and, therefore, easily monitored. They are, eI however, seasonal in nature. The large number of'employees and various pieces of equipment Makes improvement opportunities more likely. Management staff in this department is reportedly already preparing to establish performance standards based on national averages. quipmen.t Maintenance —Some activities in this operation are repetitive and lend themselves to measurement. Much of the work is demand - responsive and, therefore, difficult to predict or schedule. Operations are reported to be systematically documented with costs being closely tracked. The complexity of establishing repair standards and performance measures may be offset by the importance of this support service, whose costs and charges affect many other departmental budgets and, operations in the city. Building Maintenance --Activities in this operation are of two types: routine preventive maintenance and emergency repairs. The former are repetitive activities on which standards can be developed; unscheduled repairs do not lend themselves easily to measurement and the development of standards. The problems of establishing performance measures and work scheduling and control systems are, in fact, the reason that management needs more accurate production data to determine actual staffing needs and productivity. Work measures can also be helpful when negotiating with outside vendors for contractual services. Other operations in the City also deserve consideration as potential pilot projects to be undertaken in the near future. The benefits and problems associated with each of these should also be carefully considered before a final determination is made. Other possible candidate areas for analysis include: Building inspection and permit issuance operations Street maintenance operations Sanitation collection and disposal operations. -14- Liven the urgency of this Matter and the desirability of having the experienced assistance in training City personnel and in conducting pilot projects, the City may wish to secure outside guidance for this phase of the effort. (4) Incorporation of linked performance standards and unit costs into the budget system is intended to provide a current cost and performance basis for decision making compared to the present reliance on historical data. In addition, this approach will enable City policy makers and administrators to have program or service oriented data --as well as traditional line item infor- mation --at their disposal when preparing and monitoring the budget. In order to accomplish this, the following steps should be taken: Determine revision of budget format necessary to accomodate performance and unit cost data. This format should be constructed to provide the Mayor and City Commission with meaningful data to assist them in their budget policy deliberations. Determine the performance and unit cost data that can be utilized in presenting budget to the Mayor and City Commission. Determine performance and unit cost data that can be utilized in budget administration activities and monitoring reports. This data should be more detailed than that presented in the budget to the Mayor and City Commission. Establish reporting procedures continuing production of data budget document. only in this administration monitor actual against the goals established and report that performance to City Comission. -15- to insure utilized in the way can the performance in the budget the Mayor and The performance and unit cost data utilized in the budget should be products of the regular reporting systems established in a City=wide basis. They should not require a separate reporting system. Exhibit tit, on the following page, illustrates how a.revised budget format might appear. It should be noted that this format continues the traditional bivision appropriation and line item expenditure and appropriation data. The selected performance and unit cost data supplements and explains the appropriation figures in program or service language. The Mayor and City Commission can determine the service to be provided for the funds they are being requested to appropriate. They can determine the unit costs of that service and they can decide whether that service is appropriate. 3. BENEFITS OF RESOURCE ALLOCATION SYSTEM Full implementation of the system recommended herein will require considerable time. The City of Miami cannot afford the investment of time or funds to place this system in operation overnight on a city-wide basis. More- over, to do so would be a mistake. Untimely haste would do away with the careful, in-house analytical effort that our recommendation envisions. Without that effort, this program will fail. In our view, this program should be viewed as a long term investment by the City in maintenance of service levels and cost containment. Without the data described in this report, such an effort will be extraordinarily difficult. There are other benefits to be realized from this over- all system. This is not just a program to enhance the budget making capacity of the City. Equally important is the ability to: Plan operations and costs Monitor results against planned objectives Enhance the effectiveness and efficiency of operations. These abilities are essential if Miami is to successfully cope with its financial future. -16- Personnel Services Operating Expenses Capital Outlay Debt Service Capital Reserve Total Positions FUNC`rION DXHI81T III PAtzCS OPtAATIONS $2,940,439 DM81ONAL, SUDOtT AND POSITION SUMAAAY Expended Expended 1976=77 1977.-18 $ $ 1,930,659 515,927 -0- -O= =0- $ -0=_ $ 2,446,586 149 Adopted Amended Requested 1978=79 1978-19 1979-80 $ 1,962,655 $ 2,100,543 $ 2,070,011 817,165 816,996 869,112 2,400 2,400 656 -0- -O- -0- -0- -0= -0- $ 2,782,220 $ 2,919,939 $ 2,940,439 142 142 130 This division is reponsible for the day-to-day maintenance of the City's park facilities. Maintenance includes mowing, removal of trash and debris, planting of shrubs and upkeep of physical facilities. BUDGET HIGHLIGHTS This request is $20,500 more than the FY 1978-79 Amended Budget. Personnel costs for the number of positions requested have increased by $120,612 as a result of union negotiations. °Program Data ZV6;4 01 oy�t� 4�y3e e qP /a4�O�,o ,e 4��ya�,yoti 0 Standard Hours Unit 25.80/acre 1.05 lin ft 0.18 lin ft 7.85 sto 6.05 our Planned Service Lev. Once Week Every 2 wks Every 4 wks Twice week 3 tms wk Program by Location Person hrs. Person hrs. Person hrs. Person hrs-. Person hrs. XXX Park 2500 - 2800 1000 1500 7800 XXX Boulevard 1800 2400 - - 4200 XXX Center 450 300 500 1200 - 2450 XXX Park 775 - - 600 600 1975 XXX Stadium 275 600 80 4800 3000 8755 XXX Park 12340 XXX Park 2750 800 1800 1240 1500 8090 TOTALS 9750 3500 11220 13040 8100 49610 -17- BOOZ , ALL MN & HAMILTON ihe. •330 EASt W@ST HIGHWAt 2tfHtSbA. MAAYLAN0 26614 6I.220o AfttA bo6E 161 October 27, 1980 Mr. Richard posmoen City Manager City gall (Dinner Xey) city of Miami 3500 pan American brive Miami, Rlorida 33133 Dear Mr. posmoen: This is the "plan of Action Report", and the fin -all report, to you under the terms o"r ;0'_ p o S" _Signal services agredmen"t' to provide services for the improvement of the City's administra- tive services and processes dated July 21, 1980. Under the terms of that agreement, this final report is to be a plan for realizing identified improvements set forth in previous reports. Those reports were: Immediate Accounting Assistance and Independent Audit Requirements Review of Purchasing Operations Review of Audit Procedures and Programs Review of Information Systems Examination of Resource Allocation Systems. Each of these reports contained a number of recommendations which are summarized in Exhibit I of this report. Three different implementation plans, each offering different completion schedules and requiring varying amounts of funding, are submitted for your consideration. They are: The recommended implementation plan --This calls for implementation of all recommendations within the shortest time possible --six months. We believe that this is what is needed, but that it cannot be achieved without substantial outside professional assistance. Mr. Richard Posmoen October 27o 1090 Page Two The first alternative int le tentat on i51an--T'h-' calls for implementation of only those recommendations considered essential to the integrity of Miami's financial operations. We believe this effort would require a lesser degree of outside assistance, but it would leave the other recommendations to be implemented by City personnel when staff time is available, The second alternative implementation plan==This calls for implementation of those recommendations considered essential to Miami's decision making capacity at the policy and management levels, It is believed that this will require less outside assistance than the full implementation plan. However, it would leave other recommendations to be implemented by City personnel as time and staff resources allowed. There are other implementation plans that are feasible, We have not attempted to exhaust the possibilities of implementation strategies recognizing that the final decision rests with the City of Miami and its assessment of its needs, we will be pleased to discuss other implementation approaches with you as time allows. The major thrust of all recommendations submitted to you is toward the improvement of administrative services and processes. Our findings revealed a constant lack of financial and performance data at the policy and management levels of the City. This data is the necessary foundation for sound decisions, both on the part of management and elected officials. Our recommendations are designed to close that gap as rapidly as possible by suggesting systems to provide the required information in a use- ful format on a timely basis. That information will enable policy makers and management to plan, monitor, and direct the City's affairs cn the basis of sound data. Without that data, neither group can properly execute its responsibilities. Our apprisal of the present situation in Miami is that the programs we have recommended will require some degree of outside professional assistance in the detailed planning and installation of the recommended improvements in systems and procedures. In general, the shorter the installation time is and the more complete the implementation plan is, the greater the need is for additional, temporary professional assistance. This assistance should be focussed to allow the City to: a 1 Mr, Richard P6t=en Odtober 2 7, 1980 'age Three Complete the projects at the earliest possible time Develop iti-house staff capacity► to operate the programA after installation Obviate the necessity of hiring additional permanent employees that might otherwise be required. In addition, it should contribute to the further development of present staff capacity to expand and utili2e the new information systems being recommended. we are available, as previously discussed with you, to appear in Miami to review our reports with anyone you designate. Of course, such a review would include answering questions about any aspect of the reports. In addition, we stand ready to assist you in any manner required in order to implement our recommendations. We appreciate and commend the candor and cooperation received from you and your staff during the assignment. As a result, our assignment with you has been enjoyable as well as meaningful. Yours very truly, OOZ, ALLEN & HAMILTON Inc. Porter W. Homer Approved: PLAN OP k _0 REPORT The pur$ose of this report is to integrate the recommenda— tions contained in our five previous reports into an implementa- tion plan. Those five reports were: tmmediate Accounting assistance and Independent Audit Requirements . Review of Purchasing Operations . Review of Audit Procedures and Programs Review of Information Systems Examination of Resource Allocation Systems Given the broad scope and complexity of the subjects and recommendations covered by these reports, our implementation plan is presented as a series of options fcr consideration by the City. All of the recommendations are important to Miami's fiscal health and integrity. However, some may be more important than others to the responsible policy leaders and administrators in Miami. Therefore, it is important that there be implementation options for the City's consideration. The options presented herein provide estimates of the time and expense required to act on recommended improvements where possible. However, all recommendations are included since it is believed that all are important. 1. IMPORTANCE OF FINDINGS AND RECOMMENDATIONS TO MIAMI ' S FINANCIAL FUTURE: The City of Miami, along with most other local governments in the United States, faces an increasingly stringent fiscal future. It has found it necessary to bring its property tax rate up close to the maximum legal level, to resort to a sanitation fee to maintain services, and to curtail many desirable services in order to live within its income. Although Miami and its tax base will continue to grow in the future, it must be expected that continued inflation, employee compensation requirements, and new service demands will outpace that growth. At the same time, Miami is committed to enter the money markets for capital improvements funding several times in future years. Together, these trends point to a growing future disparity between income and expenditures unless steps are taken to: -1- Cofitain and redu de costs tfftpY`C-ve operati6flal efficiency and pr6ductivity ffftptoiie the City's finandial integrity Our recofnoftdations are desighed to prov ide the City of Mi-AMi with the capadity to aocofflplish the above goals. it is believed that they dan best be attained by early and vigorous adti6h. Exhibit I, 6n the f6llowing page, sumarizes the Major recofinended action contained in our five reports. The importance of and implications of each of these recoMMendations to Miaftiti's situation is discussed below! (1) Relation ofRecommendations , ,to. -City's Viftancial IAte -fit _ __q _ _ . y in any organization, public or private, sound financial procedures and operations are a first prerequisite to general credibility. It is our recommendation that Miami give first priority to the improvement of its financial credibility. To accomplish this, we have recommended: Establishment of an Advisory Audit Committee, consisting of qualified citizen members and top level City officals, to assure openness and independence of audit operations. Establishment of a financial info-rmation system that will provide necessary planning and monitoring capacity for all levels of the City's policy -making and administrative apparatus. Establishment of a system of quarterly audit closings and financial reports that will provide early warning of problems requiring corrective action, as well as expedite completion of year-end audits. Hiring of sufficient numbers of qualified personnel, particularly in accounting operations, to assure the production of quality, timely financial records. it is felt that these measures are essential to establishing continuing credibility- with two important groups - potential buyers of Miami bonds and the tax paying citizens of Miami. (2) Relation of Recommendations to Cost Containment and Reduction Programs Clearly, the City of Miami, along with most other local governments, faces a financial challenge in attempting to maintain service levels, cope with inflationary costs, and to operate within its future restricted income sources. To accomplish this, Miami policy -makers and adiminstrators -2- =41Df 1 f 9W&±Y of Maj6t Rdd6ffniendAti6h8 by A6p6rt i+ Analysis of mediate Accounting Assistance and independent Audit Requirefidtits: Acquisition of sufficient outside accounting assistance to enable the City to realize earliest possible year end closing of financial books and records . Extension of independent audit contract. 2. Review of Purchasing Operations: :Minimize procurement costs by forecasting requirements, maximizing vendor competition, and taking advantage of cash discounts Establish policy for procurement with minority vendors Expedite procurements through improved communication with user departments Purchasing should ensure open specifications Purchasing should limit receiving points for delivery of purchases Purchasing should be provided more current financial information to execute expenditure control properly Purchasing staff should be expanded and up -graded. 3. Review of Audit Procedures and Programs: Creation and appointment of advisory :audit Committee to oversee independent audit Make present Internal Audit Division a separate Depart- ment reporting directly to Assistant City Manager for Fiscal affairs Require future independent audits to meet then current standards established by American Institute of Certified Public Accountants and National Council on Govern-ental Accounting - 3- f;WM T 1(2 ) Addpt policy of requiring quarterly audit reviews by independent auditot§ Secure adequate quality financial personnel to W.- be responsive to new requirements, 4. Review of Information Systems: Provide Mayor and City Commission quarterly financial data Provide City ;Tanager and Assistant City Managers monthly and quarterly financial data appropriate to their responsibilities Provide Directors of Departments and Divisions monthly - financial data appropriate to their responsibilities Establish quarterly expenditure allotments and controls Control expenditures to only the major character detail rather than the line item detail Establish quarterly revenue estimates and follow-up Provide Mayor and City Commission bi-monthly performance data Provide City 'Tanager and Assistant City `Tanagers monthly performance data appropriate to their responsibilities Provide Directors of Departments and Divisions monthly performance data appropriate to their responsibilities Development of performance data systems should be gradual. 5. i::amination of Resource Allocation Systems: Development of a resource allocation system, based on validated performance standards and unit costs, should be undertaken Output reporting systems are first requirement -4- DeVelopthent of petfottnance validation capacity is the the second tequiretnent Conduct of pilot performance validation studies is the third requirement Selection of operations for pilot performance validation studies is a fourth requirement Linkage of performance standards and unit costs in budget system is the final requirement. -5- ttuat have valid information on which they can make informed decisions. To addottplish this f we have rdd6MMeflded! Establishment of financial, information systdma that will provide timely, pertihtnt information, establishment of performance information systems that will provide performance planning and monitoring capacity for all levels of the City's policy -making and administrative organization. Development of an improved resource allocation system using a professionally trained in-house staff, that will provide linkage between financial and performance data resulting in measured unit cost standards for the delivery of services. These systems are necessary to provide a factual basis for important policy and administrative decisions in Miami rather than being required to rely on flawed and sometimes misleading historical data. Indeed, with these systems Miami can commence planning long term programs of cost containment. These programs can respond to future resource analysis on a planned basis rather than on a crisis basis. (3) Relation of Recommendations to Operational Efficiency and Productivity Programs If the City of Miami is to maintain its current service levels within future income limits, it must take appropriate steps to assure effective utilization _ of its funds. otherwise, future income limitations may force unnecessary service level reductions to be arbi- trarily in important or highly desirable programs. To provide the basis for effective fund utilization, we have recommended. Development, by appropriate training, of sufficient in-house staff capacity to conduct operations analysis of the City's services leading to the establishment of acceptable work standards. R9tablishMditt of a Resource Aliodat on 8y9tefnP based ofi the developed work staftdards, as a basis for future decisions conderning the utili2ati6ff of fuhdso persoffteit and equipment. Only with the establishMdflt of such standards can Miami assure itself of maximum effective utilization of its resources in providing services to its citi2ens. Installation of new purchasing procedures to increase competition for Miami's equipment and supply buying requirements. Hiring of a sufficient number of qualified purchasing personnel to carry out the recommended new purchasing procedures. These systems are essential if policy=makers and administrators are to be able to make decisions that will produce a maximum level of service for the investment made by Miami taxpayers. These systems will often identify work improve- ment methods during installation thereby providing early productivity improvements benefits. The recommendations in our reports are considered vital to Miami's financial future. However, they represent only a means to the realization of a sound financial future, not a solution in and of themselves. The Mayor and the City Commission in final analysis and initially the City's Administrative staff must make the sound, thoughtful decisions that will protect Miami's interests. These recommendations and the accompanying suggested systems will provide better information than is now avail- able. This information should be used as a basis for these decisions. If these recommendations and suggested systems are to be of maximum utility, they will be needed by the decision makers at the earliest possible time. 2. IMPORTANCE OF TAKING EARLY ACTION ON RECOMMENDATIONS Until the recommended procedural improvements and information systems contained in this series of reports are implemented, the decision makers in Miami, at the Mayor and City Commission level and at the management level, are in the position of acting with- out benefit of the best and most pertinent information. In approximately six months or less, the process of making the 1981-82 budget must commence. It is likely to be a more difficult budget to devise than the present one. Without the information and -7- monitotinj ayatems anticipated by the r6d6 Mendations in these five.teparts, the fiftalitation of the 1991-82 badget will be eaten More diffidult than necessary, Therefore, we have provided iMplem6fttation atrategies for exeduting these redoffftendations that vary in time and expense requirements, as well as the range of improvements addressed, it is felt that all recommendations can be implemented in approximately six months with professional outside assistance, At the other extreme are choices as to which recommendations to implement and the amount of outside assistance to be applied to these efforts. Some aspects of the implementation efforts cannot be successfully under= taken or completed without professional assistance from an outside source (e.g., Training of Operations Analysts in work analysis techniques); other portions of the implementation effort can be undertaken solely with in-house staff but will require substantially more time and direct management involvement to complete successfully than if professional assistance were acquired,, still other portions of the implementation effort can and should be undertaken by City personnel without out- side assistance. The choice of strategies and associated front-end investments will determine whether and how quickly the City can realize the substantial cost containment and reduction opportunities it seeks. Obviously, the number of possible options are many. We have limited ourselves to the presentation of three. We will be available to discuss others and to assess their associated costs. However, the main point to be realized, and acted upon, is the essential need for these management systems . 3. IMPLEMENTATION STRATEGIES The strategies, options, and costs set forth in this section are exclusive of the costs to provide additional or replacement personnel recommended for various operations such as accounting and purchasing. They relate to implemen- tation efforts required to realize the benefits of the recommendations made in our reports to the City of Miami. The use of outside professional assistance on a temporary basis is recommended in several areas in order to reduce implementation time, realize benefits as quickly as possible and avoid 'hiring additional full-time professional personnel. There are a variety of options available to the City in con- tracting for this assistance. The important point is to obtain experienced, well qualified assistance in areas where -g- they Are deeded in tie AdEt-ftrM td dModute the techhidel aapedts of implewntatim as opposed to operation, It is ettimud. # - �1 reaminiow ltdationa can be impie- tented in appi9tfsatel. sit months with appropriate outside assistande, It is esUnted that thi.a assistance will coat between $17S,000 and M.000 depending on a negotiated scope of work and the tailability of City Staff to assist in the implementation art. Direct city costs under this approach, other ths staff timer would be nottiinal. Annual operatitq costs tO operate and maintain the system should not exceed $50,W. Pxhibit II+ on the following page, illustrates the probabit sequence and scheduling of this effort= If the trite of Miad decides to exercise one of the implementation Strategies or options set forth below, or another grouping of inglame_ntation efforts, costs and completion times will 'xl froth the estimates set forth above which is premised on CMI ting the total implementation effort in shortest posaibl+e time. (1) Alternative Stlategy one --Implementation r of Financial 0erations This strategy would include implementation of the following recommendations Creatim cf an Advisory audit Committee and establistment of operating procedures Reorganiation to establish the City's internal audit Operation as a separate Department reportia; directly to the Assistant City Manager far Fiscal Affairs. Design, ievelopment and installation of a guarterlg financial reporting and control Sys tem Utilization of outside assistance in all aspects of this effort world requi:e a one-time outside expense ranging from $50,000 to $70,000. Staff time of affected City operations world be involved without meaningful additional expense. It is anticipated that continuing operating zosts w=?d be minimal, not exceeding $6 , 000 per year. UH19IT it Sequence and Scheduling of tmplementation program for all AeCOMMdndatione Utilitifig Outside Aseietanoe (Time in Menthe) Audit Procedures Draft Advisory Audit Committee Legislation Establish Advisory audit Committee Cperating Procedures Develop Specifica- tions for Independent Audit Contract Information Systems Establish Quarterly Allotment Procedures. Forms, and Regulations Plan Reporting Program adjustments Implement t2uarter'7 Reporting System Orient Budaet analysts on Performance Data Systems Select Appropriate Performance Indicators by De;,artment for each reporting Le,. -el Establish Performance Data Procedures, Forms and Regulations I:srlement nerfol-mance Data S: s tem Resource Allocation Systems Train Operations Analysts Select Operations for Pilot Studies Perform Pilot Project Analysis Establish output Reporting Systems Establish Validated Performance Standards Incorporate Validated Performance Standard Data into Budgeting and Reporting System ?,,;-, z:hasln3 Procedures Establish Listing of Improvements to be Installed Establish schedule for Installation C. iTt:r07eTents imp lament J41:_'J1.11,,? - rc : ^er: _S =2 IT it (2) ('Titre in M6ntha ) -11- I Utli2ati6g of outside asaistafide for only the necessary work to install the quarterly financial information and control systems, would require a one- time expenditure ragging from $35,000 to $45,000 for professional assistance, staff time would be involved more extensively in this option and completion time would be lengthened. Thereafter, operating costs should not exceed $6,000 annually. City staff would handle the implementation effort for creation of the Advisory Audit Committee as well as the creation of a separate Internal Audit Department, (2) Alternative Stratecty Two=�Implementation o P sion This would include implementation of the following recommendations Design, development and installation of a quarterly financial reporting and control system. Design, development and installation of a performance measurement information system. Design and development of a Resource Allocation System and installation of pilot projects. T'zis alternative differs from the first alternative strategy in several respects: They offer, successfully implemented, not only improved management information, but also substantial opportunities for containing or reducing existing expenditures. Resource allocation and productivity analysis systems, for example, traditionally identify cost reduction opportunities in excess of three times their own development and operating costs within two or three years. They respond directly to the Commission's and top management's concerns about reducing operating costs to meet limited revenues in a rational, monitorable wav -12- Two of the three recommendations --the performance measurement information and the resource allocation system --cannot be designedj developed and implemented by existing in-house staff without applying additional professional manpower and expertise. Utilization of outside expertise should be viewed as a one-time development effort whose costs should not exceed $100,000 to $135,000. Internal expenses of City staff time would initially be negligible. In fact,once in operation, all three systems are expected to have only minimal costs not exceeding $25,000.00 annually. Only the minimal utilization of outside assistance, limited to only the design of the financial system, the performance information system and the resource allocation system, including required training of City personnel, would require a one-time outside expense ranging from $75,000 to $100,000. This approach, how- ever, would require increasing both the staff size and levels of expertise in the Department of Management and budget and perhaps also in the Finance Department. The new staff members could take as much as four to six months to bring on -board since professionals :with the required experience are both difficult to find and generally already well -paid by governments. Development time for the systems would be expanded from the minimum estimate of six months to well over a year to eighteen months in as much as the preparation of the annual budget will take priority over the implementation of any new systems. These delays will probably result in postponing until 1982 the benefits that the City can realize from the recommended new systems. Other implementation options are dependent on the needs deemed most pressing by Miami's officials. tie will be happy to discuss any alternatives of interest to Miami leaders. Estimated cost and time requirements for such alternatives can be provided upon request. rM AL-L ItN & WAMILTONIme, JnStirarios r.�ianngc�rt � CORS016fig Dirisidn 4110 CAsf wEst miaHwAv OE HESOA, MARYLAND 20014 !RI-tlCiS •ftt► CuRR Jell S,opt-emher 3, 1980 Mr. Richard Posmoen City Manager City Hall (Dinner Xey) City of Miami 3500 Pan American Drive Miami, Florida 33133 Dear Mr. Fosmoeni This will be the first of several interim "Letter Reports" w to be submitted to you prior to the presentation of a final "Plan of Action Report" under the terms of our professional services agreement `to provide services for the improvement of the City's administrative services and processes" dated July 21, 1980. Under the terms of that agreement, one of the tasks to be undertaken is a "Review of Audit Procedures and Programs." Although we have not completed that review as of this date, we have performed sufficient analyses to submit the following recommendations to you: 1. Sufficient competent outside accounting assistance should be secured immediately to enable the City to close its tinancial books and records at the earliest possible date after the close of the current fiscal ear -- Based upon our observation and analysis, it is anticipated that the City will experience diffi- culty in expeditiously closing its books and preparing its records for independent audit examination after the close of the current fiscal year. Given the City's committment to quarterly independent audit reviews, which we fully support, it is vitally important that the City's financial record keeping be brought to an acceptable level of currentness and that the process of closing the books not absorb all of the City's accounting resources at the expense of meeting that currentness. Failure to do so will further strain the City's limited resources, will perpetuate tardy reporting, and will impose a costly overlapping work- load on the City's accounting personnel as quarterly audit review programs are commenced simultaneously. Por these reasons# it is our recommendation that a first prerequisite to establishing satisfactory auc#it procedures and programs is the necessary effort to bring the City's financial records to a current status as early as possible. 2 • Consideration should be given to extendi,nq the pronant Tnde.etident X'c it Contract The current contract for independent audit services expires with the completion of the current fiscal year's audit, Given the City's committment to a quarterly audit review program and its desire to establish now and more demanding Audit Procedures and Programs, this is not the time to change independent auditors. In our opinion, to do so would result in further delay of the production of timely and accurate financial information. in addition a change now would require City personnel to work simultaneously with two inde- pendent audit groups. Therefore, it is our opinion that this recommendation is also a necessary prere- quisite to establishment of new "Audit Procedures and Programs". We expect to complete our analysis and findings with respect to the matter of "Audit Procedures and Programs" in the next few weeks. However, it is felt that the above recommended actions are presently imperative and will in no way interfere with your freedom to deal with future recommendations regarding this subject. Indeed, it is felt that these actions will provide essential continuity for the transition into any new conditions that may occur as a result of our study for you. Very truly yours, l/; BOOZ•ALLEN & HAMILTON ?nc Porter W. Homer Approved: John C. Newman Vice President cfs rt BOOZ f ALL EN & HAMIL.TONIt)e. f ' 11.ta�ag�me»t Ce,�,�rrlta�ts 4330 EAST WE54 HIGHWAV SttHE55A. MAAYLANO 20614 991-2@oo •gtACO6E M September 18, 1980 Mr. Richard Fosmoen City Manager City Hall (Dinner Key) City of Miami 3500 Pan American Drive Miami, Florida 33133 Dear Mr. Fosmoen: This is the second of several interim "Letter Reports" to be submitted to you prior to the presentation of a final "Plan of Action Report" under the terms of our professional services agree- ment "to provide services for the improvement of the City's administrative services and processes" dated July 21, 1980. Under the terms of that agreement, one of the tasks to be accomplished was a review of the City of Miami's purchasing operations. This report presents findings, conclusions, and recommendations concerning the City of. Miami's procurement process. The review of purchasing operations was performed to determine if the Purchasing Unit is: Minimizing costs for quality goods through increased competition Procuring goods for the user departments in a timely manner Maintaining adequate control over the procurement process. To make this assessment, interviews were conducted with Purchasing and Accounts Payable personnel as well as employees from user departments that frequently use purchasing services. In addition, the following data were reviewed: City Code and Charter Accounting and Fiscal Management Guidelines Manual Purchase crder file Contract and competitive bid files. f i i— Mr. Richard Posmoen September 19, 1980 page Two A survey of local government purchasing operations was cony ducted to learn how the City of Miami's purchasing staff compared in size with other staffs that process a similar amount of purchases. Also, informal observations of purchasing employee productivity were trade during the data collection period. The report is organized into the following sections: The current procurement operation Commendable practices performed by the Purchasing Unit Opportunities for improvement Recommendations for changes and benefits that can be achieved. Our overall conclusion is that the Purchasing Unit generally performs an effective job in procuring goods for City departments. There are, however, ways in which the purchasing process can be improved, and these are described in the attached report. A question has been raised as to the feasibility of local govern- ments -contracting for the procurement function with the private sector to improve the purchasing process. We have contacted the National Institute of Governmental Purchasing as well as several cities who extensively contract for city services. Based on the information received, there are apparently no local governments who contract out the procurement function. Furthermore, it is not recommended as a desirable alternative. We appreciate the excellent cooperation we received from the City during this portion of the assignment and look forward to continuing our work with you during the remaining portion of the assignment. Yours very truly, BOOZ, ALLEN & HAMILTON Inc. Porter W. Homer Approved: John C. Newman Vice President I� l i. REVItW OF THE CITY OP MIAM 'E PURCRASINO OPEkATION8 t1REE 00008 The City of Miami maintains a centralized purchasing operation that procures goods and services for all municioal departments.* Purchases can be made through contracts and blanket purchase order agreements as well as by single orders. In FY 78-79, the purchasing Unit procured 35.7 million dollars worth of goods in response to 8,856 requisi- tions from the user departments. This represents a 36 percent increase in dollar volume over the last five years. The following paragraphs describe the responsibilities organization and procedures of the Purchasing Unit. The current role the user departments play in the procurement process is also detailed. (1) The Responsibilities of the Purchasing Unit Are Stated in the City's Charter and Code The City of Miami's Charter and Code specify the duties of the Purchasing Agent. These duties include making all purchases for the City and selling all real and personal property of the City not needed for public use. In addition, the Purchasing Agent is directed to: Draft or cause to be drafted specifications Forecast purchase requirements City-wide Maximize competition among qualified vendors Provide for the inspection and testing of goods delivered. Several of these duties, e.g., real property sales and specifications drafting, have in practice been per- formed by other units within the City. * The Public Works Department is responsible for procuring contractual services for large construction projects. -1- ( 2 ) The___Purchasiftq Unit __is Organi_2ed_ Withi In accordance with the City Charter, the Purchasing Unit is organized within the Finance beparttont with the Purchasing Director reporting directly to the birector of Finance. The unit is currently made up of 13 positions --four of which are funded under the CET program. Exhibit 1, following this page, presents the organizational structure of the Purchasing unit, Purchasing staff members carry out duties typically performed by employees in their respective positions. There are, however, several exceptions: The buyers spend approximately 10 percent of their time typing --a clerical function The Buyer IIIIs job duties are not significantly different from those of the Buyer I The Purchasing Agent spends a substantial amount of his time attending to the details of processing purchases requiring sealed competitive bids instead of delegating this function to a lower level employee. A detailed listing of the job duties of each employee is presented in Exhibit 2, on page 4. (3) Purchasing Employees adhere to Certain Procedures When Purchasing Goods The procedures used to procure goods vary depending on the cost of the item. All goods estimated to cost less than $4,500 are processed by the buying staff. The Purchasing Agent personally handles all purchase requests estimated to be over $4,500. The procedures* for processing requisitions for items costing less than $4,500 are as follows: * These procedures do not apply for Blanket Purchase orders for goods under $4,500. The process by which Blanket Purchase Orders are issued is explained on page 9. -2- ■ OFFICE SUPPLIES STOREROOM STAFF STOCK CLrRK WORKER TRAINEE (CETA) txPENDITURE CONTROL STAFF ACCOU14TANT i ACCOUNT CLERK IJ EXHIBIT 1 i of the purchasing Unit Organization DI RRCTOR OF FINANCE I T'11F01ASfMG SECRETARY [ I V CC,ERICRL STAFF ASSISTANT i MANAGEMENT PURCHASTNt; TRAINEE. AC;rNT (EFTA) i BUYING STAFF' PUBLIC NtANA(;F:41E[3T BUYERS I MANAGEMMf INTERN i TRAINEE 2) BUYER IT (CETAY POS MON (S ) EXHl9tT 2 employee buties JOB DuTits P:Irchasin, agent Responsible For the o,.erall management of the unit; spends up to 50% of his time processing purchases requiring sealed competitive bids; frequently; communi- cates with using departments. Assistant Purchasina In charge of the day-to-day supervision of the buying Agent and clerical staff; assigns and reviews work cf buyers; prepares a buyer perforrance report, attends surplus and confiscated nropert.: auctions; fre uentl% communi- cates with usi2.-: departments, Bu.,er II, "I_:ers I Procure goods and ser-.iCes not requirina sealed Public Management competitive bias t-undeL- S4,500). Obtain telephone Intern , Management bias and written _uctes from vendors; spend approxi- Trainee mately 10% of their day typing purchase orders. There are no significant differences in job content among the four positions. Accountant I and Determine if departmental funds are available For each Account Clerk purchase; prepare conputer input data so that funds can be encumbered; assign purchase order number and distribute ,.urchase order conies to appropriate units. Secretary II Management Trainee Stock Clark and Worker Trainee ;assists the Purchasing Agent in preparing the formal bid ackages which chiefly consists of typzng and copying documents included in the packages; types correspondence and screens calls for the Purchasinc_ Agent and the assistant Purchasinc Agent. Acts as a receiptionist for the unit; lots in purchase recsuisitions and cash purchase orders; files purchase orders Or_erate the Citf's Central Office sup.:lies storerooms Est, Cost of Request Procedure Less than $100 Obtain at least. one tele- phone bid $100-$1,000 Obtain at least three telephone bids $10000-S4,500 Obtain at least three written quotations Each buyer is responsible for specific product Cate- gories. once assigned a purchase requisition, the buyer first identifies the item(s) to be bought. Frequently this is time-consuming because the using department has not adequately described the product or service that they need. For example, often only a vague description of an item will be noted on the requisition (e.g., "one ice maker"). This results in the buyer taking time to contact the department to precisely determine what is desired. After the product has be determines which vendors may they often consult the phone and their personal index card by vendor name. The buyers r rarely check the Purchasing U contains descriptions of the completed an application to list. Since the vendor file buyers' personal files, it is a new or smaller company to g from a buyer.* en identified, the buyer sell the item. To do this directory's yellow pages file of products sorted eport, however, that they nit's vendor file which companies that have be placed on the bidders' is not used to update the sometimes difficult for et appropriate consideration The buyers strictly abide by the procedures con- cerning the number of vendor quotations required for each price category. Only bids acknowledging a price and availability of goods are eccented as satisfying bid requirements. A sample of purchase orders taken from the file revealed that, with the exception of "single -source" :iteims, all requisitions received at least the necessary number of quotations. See recommendation concerning vendor files on cage 19. -5- The performance of each buyer is tracked based on the amount of time required to process a requisition in each cost category. The following goals'developed by the purchasing Agent represent the amount of elapsed time it should take to process each purchase. Along- side these figures are the average elapsed times it did take the buyers to process requests for goods during Apri -Cune, 1930. Purchase I% Category. of 'Total p.e uisitidns Goal Days actual Elapsed 'Time -(Days),_.., <$100 40% 3.0 3.1 1 $100=1,000 43% 7.0 4.4 $1'000-4,500 17% 15.0 1368 Since starting to track buyer performance in :November, 1978, the average time to process a requisition has decreased 37 percent. The procedures necessary to process purchases requiring sealed competitive bids are more complex than the steps needed to process requisitions under $4,500. In FY 78-79, Purchasing processed 130 purchase requests requiring formal bid procedures. These pro- cedures along with the average time each requires to complete are presented in Exhibit 3, following this page. _ The sample of bid packages* for purchases over $4,500 revealed that 40 percent of the formal bid requests elicited less than three bids, while another 20 percent received exactly three responses. The reasons giver, by user department and purchasing employees for such a low vendor response are various but they generally include the following: Vendors do not carry the desired merchandise Vendors are reluctant to do business with the City because of: The City's reputation for late payment The "red tape" involved with submitting a bid * Twenty -tour bid packages or approximately 18.0 percent of the annual total comprised the sample. -6- txHIBIT 3 Procedures for Vortnal Bids Procedure Average Time Fequi_red* (ba s). Purchasing Unit obtains departmental request and prepares bid package 28.9 Purchasing unit mails bid packages to vendors and advertises in the local newspapers; City clerk receives and opens bids �1.0 Purchasing unit forwards bids to tine usinc department for review and waits for their recommendation 17.2 Purchasinc tabulates :.ids, finalizes `_he bid tackage, and forwards recc-,nendation to th'e Cit;: :•tanage r �.1 A resolution attiardina the purchase is placed on the �--ommissicn's agenda (us -call-.- :cns_nt 3Qcnda) ; Commission -asses resolution 15.7 After a nertormacnce bond and Insurance certificate is received and ':eri fied (i= ar_clica-b1e> , t he Purchase order cr contract _s issued 15.3 * The averace times were develored bused cn information obtained _`rcr a sample o MJ Specifications are Overly restrictive in some cases Vendors don't get involved because it is not very profitable. Purchasing has recently begun to contact businesses who did not bid to determine and document the reason for their lack of interest. There has been a wide variety of reasons given for companies not bidding, however, and the results of these contacts have so far proved inconclusive. An analysis was conducted to determine the average length of time it takes to process a vendor payment. The length of time was defined as the elapsed time between the invoice date and the date of the check. A sample of checks issued on June and August, 1980, was reviewed along with the appropriate invoices. It was determined that the average elapsed time for payment during those periods was 49.6 calendar days. A sample of checks issued on November, 19i8, along with their supporting documents, was also reviewed to determine if there had been any change in the payment period over the last 1 112 years. Results indicated that there had been no significant change. It currently takes about the same amount of time for a vendor to be issued a check as it did over one year ago. There are a variety of factors contributing to this time lag. However, the primary one as determined by the survey is the delay caused by departments not promptly approving the receipt of merchandise and forwarding the necessary paperwork for processing. Without an approved reviewing report, Accounts Payable will not process an invoice for payment. Because of the delays in vendor payment, the City is rarely able to take advantage of cash discounts often offered by vendors for prompt payment. The only exception to this are purchases made with Cash Purchase Orders where the vendor is required to offer the City a discount.* Discounts often amount to two percent of the total cost of the merchandise, and consequently * The Cash Purchase order is described later in this section. 8pedif ications are overly fdstrictive in some cases Vendors don't get involved because it is hot very profitable. pufchasing has recently begun to contact businesses who did not bid to determine and document the reasoh for their lack of interest. There has been a wide variety of reasons given for companies not bidding, however, and the results of these contacts have so far proved inconclusive. An analysis was conducted to determine the average length of time it takes to process a vendor payment. The length of time was defined as the elapsed time between the invoice date and the date of the check. A sample of checks issued on June and August, 1980, was reviewed along with the appropriate invoices. It was determined that the average elapsed time for payment during those periods was 49.6 calendar days. A sample of checks issued on November, 1978, along with their supporting documents, was also reviewed to determine if there had been any change in the payment period over the last 1 1/2 years. Results indicated that there had been no significant change. It currently takes about the same amount of time for a vendor to be issued a check as it did over one year ago. There are a variety of factors contributing to this time lag. However, the primary one as determined by the survey is the delay caused by departments not promptly approving the receipt of merchandise and forwarding the necessary paperwork for processing. Without an approved reviewing report, Accounts Payable Will not process an invoice for payment. Because of the delays in vendor payment, the City is rarely able to take advantage of cash discounts often offered by vendors for prompt payment. The only exception to this are purchases made with Cash Purchase Orders where the vendor is required to offer the City a discount.* Discounts often amount to two percent of the total cost of the merchandise, and consequently * The Cash Purchase Order is described later in this section. -8- by not taking advantage of then on regularly -ordered items+ the City is annually losing a subatantial amount of money. Aside froit the regular purchase order and contfact processes# the purchasing Unit also issues blanket purohase orders. These are open purchase orders that only state the vendor's name and specific dollar limit. They are generally used to buy items such as repair parts and are advantageous because they elifftinate a certain amount of paperwork and enable the user depart - inert to acquire the needed goods in a short period of time. The procedures for issuing blanket purchase orders are quite different from those previously described for regular purchase orders. Blanket purchase orders for goods under $4,500 are not issued on the basis of competitive bids. Instead, they are issued for a specific dollar amount in response to a user department's request. Although this procedure decreases the ability to reduce costs through vendor competition, Purchasing states that they do not have enough staff to obtain competitive quotes for the many blanket orders that are issued by the unit! Another means of purchasing goods is through the Cash Purchase Order (CPO). The CPO combines a purchase order for goods with a check covering the cost of those items. It is issued to approved vendors for amounts of $500.00 or less. Its major advantages are that the City receives a discount for prompt payment and the vendor is pleased because payment is obtained immediately. In the last fiscal year, 429 cash purchase orders were issued representing a total dollar volume of over $150,000. Price discounts amounted to $3,626. (4) City Departments Play a Major Role in the Procurement Process Although Purchasing is the only unit authorized to procure goods on a regular basis, the user depart- ments are actively involved in many facets of the pro- curement process. Departments in general carry out the following functions: Develop specifications for goods and services being bought * See page 20 for the recommendation on how blanket purchase orders should be issued. Recotmend vendors especially for items dosting over M 500 Maintain an expenditure control system for their department, whidh represents a dupli- datibn of effort Expedite the delivery of goods Receive and inspect goods. Each of these functions and its impact on purchasing is described below. Dey'elop_specifications_--The Purchasing Unit has just recently begun to maintain a speci= fications file for commonly purchased goods. However, in the past and now to a great extent, Purchasing has relied on the department to develop and submit specifications for desired items. The department often writes these specifications based on a particular brand and consequently they may tend to be somewhat restrictive. Purchasing reviews these product descriptions and deletes any obvious refer- ences to a particular brand. However, rather than spend time revising the specifications to make sure they are completely open and unbiased, Purchasing will submit the specifications as they are, anticipating that a suitable number of vendors will offer bids. Usually enough bids are obtained for goods costing under $4,500. This, however, is often not the case for purchases requiring sealed competitive bids. Recommend vendors --The Purchasing Unit encour- ages the user departments to recommend vendors who may sell the items that the departments are requisitioning. Several of the major user departments maintain vendor files and perform their own vendor research. This enables them to submit a requisition with a suggested list of companies for Purchasing to contact. Maintain an expenditure control system --The departments that procure large amounts of goods maintain expenditure control systems similar to the one within the Purchasing Unit. They reportedly maintain these systems because the financial information thev receive is often -10- late and inaccurate, They therefore maintain separate records to make sure funds are not over -expended. At times these departmental records are even more accurate than Rurchasing's because the departments learn of additional appropriations of funds before the Purchasing Unit is informed. Representatives of one major department also report that if the financial information was more accurate and timely, their expenditure control staffs could be reduced. Expedite _. the ._de l very_ o_f__..goo s.-3By practice, the user departments are primarily responsible for making sure that ordered goods are delivered. For the most part, the Purchasing Unit does not get involved after the purchase has been made. Receive and inspect goods= -Purchased items can currently be delivered to a large number of locations throughout the City. Departments are responsible for receiving and inspecting goods; however, the procedures and staff used to do this vary considerably among departments. In discussions with Purchasing and Accounts Payable personnel it has been stated that some employees accepting goods do not know the receiving procedures. This is especially true with departments that do not heavily use Purchasing services. This lack of knowledge can result in a delayed payment to the vendor because the appropriate four. has not been promptly sent to the Accounts Payable Unit* Purchasing does not maintain an open purchase order file, as specified by the Accounting and Fiscal Management Guidelines Manual, and consequently the Unit has no regular means to determine if and when goods are received and inspected.** Purchasing management believes that Purchasing should take a stronger role in developing specifications, identifying prospective vendors, and maintaining See recommendation to limit receving points for merchandise on page 25. ** See page 21 for the recommendation to maintain an open purchase order file. -11- follow-up on purchases made. They state, however, that they are currently unable to do this due to lack of sufficient staff. (5) The purchasing (knit Prepares Two Reports Cot�Cerriing .PYcScu ement ,Op r t dns Purchasing management currently generates an annual budget summary and a monthly buyer performance report. The budget summary --mandated by the code --includes information such as: Number of requisitions and purchase orders processed over the past year Total annual revenue produced from the sale of surplus and confiscated property The Purchasing Unit's goals and objectives for the coming year. The Buyer Performance Report summarizes monthly each buyer's procurement activity. This report identifies: The quantity of purchase orders each buyer processed in each cost category The average number of days* it took each buyer to process one purchase order The average number of days* it took to process one purchase order unit -wide. Currently there is no report illustrating the progress Purchasing is :Waking in meeting its stated objectives, such as increasing the useage of cash purchase orders or increasing the purchasing activity with minority vendors. Savings that the unit is generating through improved procurement practices also go unreported. * Number of days represents elapsed time. -12- . 0 2. THE d=MLLY tVf'DCT1V,E_ _QPERATION A review of purchasing operations shows that the Purchasing Unit in general performs an effective job in procuring goods and services for the City. Commendable practices have been established in Purchasing over the last several years. During the operations review the following elements, helpful to an effective procurement operation, were identified. Buyers strive to obtain the necessary number of quotations when procuring goods; "no bids" from vendors do not satisfy the quotation requirements; - multiple pruchase orders designed to skirt the quotation requirements are rejected, Files are in good order; the data contained in the bid packages are complete. Forms are efficiently designed to limit the amount of necessary typing. Fiscal control is adequate; for example: Purchase order numbers are assianed The total dollar amounts of blanket purchase orders are encumbered Expenditure control maintains good control over funds expended. The Commission resolutions awarding purchases are generally placed on the Commission's consent agenda rather than being voted on individually. This expedites the procurement process and lessens the time the Commission must spend in approving requests for purchases. It also enables the Purchasing Agent to spend substantially less time at Commission meetings since his presence is unnecessary for items on the consent agenda. Buyer performance is evaluated on a monthly basis The cash purchase order system is innovative and saves the City thousands of dollars through prompt payment discounts. These practices have assisted the Purchasing Unit in main- taining a generally responsive operation. -13- 3. The primary objectives of a purchasing Unit are to Minimi2e the costs for goods and services required by the user departments Procure goods and services for departments in a timely manner Maintain adequate control over the procurement process. There are opportunities for the Purchasing Unit to improve in each of these areas. Concerns which were identified during the operations review are described in the following pages. (1) The Purchasing Agent Is Currently.-NotPerformirg Duties Which Could Increase the Unit's Effectiveness Currently, the Purchsing Unit does not forecast purchase requirements City-wide, nor does it ensure that blanket purchase orders for goods under $4,500 receive competitive price quotations. By not fore- casting purchasing requirements, the City may be losing a substantial amount of money by ordering items individually rather than determining future City require- ments and entering into long-term price agreements. In addition, by not receiving competitive price quotations for goods under $4,500, the City may be paying unnecessarily higher prices due to lack of competition. (2) Formal Bids Frequently Receive Poor Vendor Response A sample of reviewed bid packages for purchases over $4,500 revealed that 40 percent of all formal bid requests received less than three bids. This is - less than the number required for all purchases between $100 and $4,500. Over half (60 percent) of all requests elicited three or fewer bids. Currently, hundreds of thousands of dollars of City business is frequently receiving responses from only two vendors. This lack of competition may potentially be costing the City a substantial amount of money. -14- There are a variety of reAg6hs given for this low vendor response, including! . Desired goods not supplied by the vendor . Late payment to the vendor by the City . Overly restrictive specifications . Low profit margin. Although Purchasing cannot expect to completely eliminate all of these problems, the Unit can hake progress in minimi2ing the influence of these factors, (3) In addition to the sale of surplus personal property, one of the Purchasing agents prescribed duties is to sell real estate not needed by the City. In practice, however, this function is actually per- formed by the Property Manager of the Risk Management Unit. Although Risk Management appears to be doing a satisfactory job, it is the Purchasing Agent and not the Property Manager who is by charter responsible for these transactions. The Purchasing Unit presently depends on the user departments to develop product specifications. This is necessary in some instances where a complex or highly technical item is ordered. However, by relying on departments to prepare all specifications, purchasing may receive overly restrictive product descrip- tions for commonly -ordered items.* In addition, Purchasing relies on the departments to follow up on the delivery of goods. As a consequence, Purchasing has a difficult time evaluating vendor performance. (4) Lack of Understanding Concerning the Purchasing and Accounts Payable Procedures Delays the Procurement Process Many departmental employees do not completely under- stand the requisitioning and receiving procedures. Requisitions are often forwarded to Purchasing with incomplete product descriptions. This results in the buyers spending time contacting the department to determine what specifically: is desired. Receiving reports are not promptly forwarded to Accounts Payable after the goods have been delivered often because either: See the recommendation concerning the development of specifications on page 24. —15— The departmental efnployee does not know what to do with the receiving report, or The eMployee(S) receiving and inspecting the goods does not ptomptly inform the employee who Maifltains the receiving report. Much of this problem steams from the large number of locations where goods can be delivered. Many employees receiving items are not stock clerks and do not under- stand the receiving and payment process. Although the Accounting__and fiscal Managent_ Guidelines._ Manuel describes departmental procurement procedures, these manuals are often not easily accessible to employees who are requisitioning and receiving goods. Since Accounts Payable will not issue a check until an approved receiving report or invoice is first obtained, misunderstanding concerning receiving procedures can delay vendor payment and damage the City's relations with vendors. (5) Expenditure Control is Hampered By Late and Incorrect Financial Information To perform its function, the Expenditure Control Section of the Purchasing Unit relies heavily on the monthly computerized financial data it receives. This information, however, is frequently inaccurate and often arrives late. The accountant in charge of ex- penditure control reports that it takes her approximately one week, in combination with her other duties, to update and correct the printout she receives. Other depart- ments that maintain expenditure control systems report similar problems. Eventually, departments will be equipped with on-line terminals which will provide employees with up-to-date balances by expenditure code. In the meantime, however, personnel has to rely on the computer printouts to control expenditures. It is therefore important that these reports be timely and accurate. The Purchasing Unit's Expenditure Control Section also has difficulty in promptly learning about appro- priations of additional funds to departments. Currently the Budget Unit inputs tfie necessary information into the data processing sysetm. Expenditure Control, however, is not informed of this transaction at the time it is made, and consequently, the accountant will -16- at tinted Withhold appfoval the mistakenly believet no This lack of d6ml munication procurement of goods needed (6) for a purdhase because funds are in the addount, unnecessarily delays the by the bepartment, The annual report issued by the Purchasing Agent cannot be used to thoroughly evaluate the Purchasing Unit's performance, Although tangible objectives are included in the report, there is no regular means of determining the progress Purchasing is making in meeting these stated objectives. Also, except for noting the cash purchase order discounts taken, the current report does not include the cost savings re- sulting from improved purchasing practices such as bulk purchasing. The Purchasing Unit plays a key role in containing costs for the City of Miami. It is, therefore, important to set goals for the Unit and regularly document the progress made in meeting those goals. (7) The Current Use of the Purchasing Unit's Employees Isyot Cost Efficient Certain employees are performing duties in- appropriate to their positions. The Purchasing Agent, for instance, spends up to half his time tending to the details of the formal bid process. This limits the amount of time he can spend improving and managing the operation. Moreover, this duty does not require the skill level of the Purchasing Agent. Buyers now spend approximately 10 percent of their time typing forms. Typing can be performed by clerical staff at less cost to the City. By re- quiring the buyers to type purchase orders and requests for written -quotations, less time can be devoted to processing departmental requisitions. There are no significant job differences between the Buyer I and the Buyer II. The requirements for the Buyer II position, however, are greater than those for the Buyer I, and consequently the Buyer II should be expected to perform at a higher skill level. By not giving the Buyer II more advanced responsibilities, Purchasing is not making the best use of their employees. -17- 4. The Purchasing Unit does a generally effective job in performing its present duties. The unit's role in the procurement process is limited, however, and should be expanded. Improvements can be trade which will result in., Minimizing the costs of goods and services while maintaining a satisfactory level of quality Ensuring that requisitions are processed with little or no delay Increasing the Purchasing Unit's control over the entire procurement process. These recommendations are described in the following pages. (1) Procurement Costs Should be Minimized by Fore- casting_ Purchase Requirements, Maximizing Vendor Competition, and Taking Advantage of Cash Discounts Purchasing can contain and at times reduce costs for goods and services by forecasting purchase re- quirements City-wide and increasing vendor competition. An excellent Means of forecasting total volumes of required goods is through a purchasing calendar. Under this method, departments would be required to submit periodically use estimates of regularly ordered materials and supplies. The Purchasing Agent should . publish and make available to all departments a schedule of contract and purchase dates. This schedule can then be used by departments in planning their requirements. The Purchasing Unit should be responsible for explaining the purchasing calendar to departmental employees and following up with the departments to make sure they understand how to correctly complete it. Departmental deviations from the calendar should be discouraged and only allowed with the written consent of the Pur- chasing Agent. It should be noted that Purchasing recently de- veloped a purchasing calendar. However, it was not successful because the user departments did not cooperate and the Purchasing Unit could not devote the necessary manpower to coordinate the forecasting effort -18- City-wide, It is important that Purchasing have the staff to spearhead this effort if a purchasing calendar is to be suddessful.* It is the Purchasing Unit's responsibility to makiMi2e coMpetition. To do this the unit should maintain an up-to-date vendor file and use this as a primary Source for bidders' lists. This file should be revised regularly by! Adding vendors who have applied to be on the bidders' list beleting vendors who have not responded to bid requests for a specified number of times Noting the types of merchandise that the vendors do and do not carry. The vendor file should also be used to update the Buyers' personal card files so that all companies that have submitted a bidder's application can get appropriate consideration. The Purchasing Unit should also make a concerted effort to identify vendors nationally as well as locally who sell those items which cost over $4,500 and are carried by few companies. This could be done by drawing up a questionnaire listing the type of goods needed and distributing it to firms listed in purchasing directories such as the Thomas Register. It is also important that Purchasing maintain a complete specifications file. This file should contain product descriptions prepared by the Purchasing Unit describing frequently -purchased items. Specifications for highly technical merchandise would still require the assistance of the user department. Purchasing, however, should critically review these department - initiated specifications to eliminate exclusionary requirements of language.** * The recommendation for expanding the Purchasing Unit's staff is explained on page 28. ** Additional steps to ensure open specifications are described in the recommendation on page 24. -19- Another means of taxiMi2ing cotiipetition is by obtaining quotations for goods covered by blanket purchase orders.* It may be impractical to obtain quotations for every item that May be acquired under a blanket order. The buyers, however should strive to., Estimate the costs of goods covered by blanket purchase orders in each product category Notify vendors of the estimated amount of business that they can expect for a specified period of time, and solicit price lists from these vendors covering the most fre- quently purchased goods Issue blanket purchase orders to the vendors whose merchandise costs the least yet meets the user department's objectives. By doing this, Purchasing will foster competition which could result in lower costs to the City. Also, Purchasing will have a means of checking the prices charged for items to help ensure that the City is not over -charged. Due to the delays in paying vendors, the City is losing thousands of dollars annually because they are unable to take advantage of cash discounts offered by businesses for prompt payment. Departments, consequently, are obtaining fewer goods with their appropriated funds. To improve this situation, the following recommendations are made: The Purchasing Agent should schedule quarterly meetings with departmental personnel responsible for receiving goods to explain to them receiving procedures and the impor- tance of promptly forwarding an approved receiving report to Purchasing * Due to the nature of the purchase, blanket order requests for repair services should not be submitted through the quotation process. —20— The Purchasing Unit should Maintain an open purchase order file, approved receiving reports should continue to be forwarded to the Purchasing Unit whore they should be Matched with the open purchase order copy and then forwarded to accounts Payable for payment. The purchase order file should be reviewed on a daily basis to .identify those purchase orders that have gone for one week or more without having been matched with an approved receiving report. Purchasing should contact those departments that have not forwarded receiving reports to determine the reason for the delay and to expedite the process. The Accounts Payable Unit should record the cash discounts taken and prepare a monthly report stating the total discounts obtained for the month and comparing this figure with a planned monthly total established at the beginning of the fiscal year. This report should be forwarded along the normal chain of command up to the Assistant City Manager for Financial Affairs. By following these practices, the City should be able to maximize it buying power and improve relations with vendors. (2) The Citv of Miami Should Establish and Document _ a Policy Regarding Procurement With Minority Vendors City of Miami administrators are interested in developing a formal policy concerning procurements made with minority vendors. Currently, the Purchasing Unit adheres to an informal policy which holds that, "all things being equal" minority vendors will be given preference when a purchase is awarded. Minority vendor status is informally conferred on any business that appears in the Minority Business Guide and Directory for Miami. However, some of these companies according to the Purchasing Agent are quite large and giving them minority vendor status may or may not coincide with the objectives of the City commission and administration. -21- One of the budgetary performance objectives for the Purchasing Unit is to increase the number of minority vendors that do business with the City: There are not formal means, however, of tracking Purchasing's performance in utilizing minority vendors, and it appears from interviews with purchasing personnel that the informal policy is largely ineffec- tive in increasing the minority vendors' share of City business. To expand minority vendor participation in City procurements, a formal policy should be established and documented. It is important that this policy be within the scope of existing law. It should also be recognized that no one procedure will automatically increase minority vendor participation. Rather, the City should strive to implement various methods which together can assist the City in meeting its objectives in this area. In developing a formal policy regarding minority vendors, the City should first define how a business would qualify for minority vendor status. This defi- nition should be based on the particular social and economic environment in Miami. The City Manager should then investigate with the assistance of the City Attorney the legality of introducing an ordinance stating that the City will give preference to minority vendors when awarding purchases. This ordinance could be similar to the one which currently gives preference to vendors located in the City of Miami. it is ' important though that the City specifically state what type of preference is to be given and that this policy be worded so as to fall within the scope of existing law. In addition, the Purchasing Unit should: Identify the types of goods frequently sold by minority vendors Contact and explain to the vendors who sell those goods: How the City makes its procurements The type of preference that will be given to them in the purchasing process Obtain vendor applications from the minority businesses. -22- I InfoMation from each vendor regarding produets sold should be incorporated into the central bidder's list and the buyers' personal files so that minority businesses can get appropriate consideration, Also city management at the outset of the fiscal year should establish a goal stating the desired dollar volume of business activity with minority vendors. The Purchasing Agent should record the amount of money spent with minority businesses each month. This figure should then be noted in the Purchasing Unit's monthly report along with the planned total. (3) The Purchasing_Uni.t Should _Improve Communication With User Departments to Expedite the Procurement Process Lack of understanding of purchasing and paying procedures by the user departments has frequently delayed the procurement of goods and the payment for those goods. To improve communication, representatives of the Purchasing and Accounts Payable Units should regularly meet with the departmental employees responsible for completing requisitions and receiving goods. These meetings should be used to: Describe the purchasing and accounts payable processes so that employees understand The mcst effective way to complete the various forms The work flow from the time a requisition is initiated to the time a check is issued Suggest ways that departmental employees can expedite both processes Obtain feedback from the departments. These sessions should be scheduled on a quarterly basis. In addition, copies of Chapter 0900 of the Accounting and Fiscal Management Guidelines Manual should be distributed to all those employees concerned with requisitioning and receiving goods. This chapter -23- describes both procurement and receiving procedures and can serve as a guide for eriployees to refer to on a daily basis. ( 4 ) The PurChss fiq U s In order to Maximi2e Purchasing's effectiveness, specific steps should be taken to increase management and fiscal control over the procurement process. To do this the following recommendations are offered. The Purchasing Unit should ensure that product specifications are unbiased The number of receiving points for goods and supplies should be reduced and limited by specific: guidelines The financial information received by the Purchasing Unit should be timely and accurate — The Purchasing Agent should prepare a monthly report describing the Unit's prog- ress in meeting its objectives The Purchasing Agent should play a role in the sale of real property. Each of these recommendations is described in the following pages. Ensure open specifications Currently, the Purchasing Unit relies on the user departments to prepare product specifications. Since these specifications often describe desired brand -name items, they may be overly restrictive. To ensure more open specifications the Purchasing Unit should maintain a specifications file containing product descriptions for fre- quently purchased items. Although the departments would still be responsible for preparing specifications for highly technical or complex goods, Purchasing should critically review these descriptions and eliminate exclusionary requirements or language. -24- In addition, the Purchasing Agent should hold pre -bid conferences where interested vendors would be invited to come to discuss the City's requirements and the product specifications. If there was any exclusionary language, it would probably surface at these meetings. Pre -bid conferences would not have to be held each time sealed competitive bids were elicited, Mather, a conference would only be necessary the first time the purchase of a particular product required sealed bids, After that the same specifica- tions could be used for future procurements. Purchasing should not rely on potential bidders to develop specifications. If the procurement is so complex that neither the Purchasing Unit nor the user department can develop adequate specifications, the Purchasing Agent should either: Obtain the necessary specifications from the National Institute of Governmental Purchasing --a professional organization that maintains product descriptions on a variety of items, or Recommend to the City Manager that the services of an objective, professional company or individual be obtained to formulate the required specifications. The City should annually appropriate funds to the Purchasing Unit's budget for this purpose By doing this the City can eliminate the possibility of using specifications that are biased toward a particular vendor. Limit receiving points Goods are presently being delivered to numerous locations throughout the City. The Fire Department, for instance, receives deliveries at all of its fire stations. The large number of delivery points has decreased management control over the receiving and inspecting processes. In -25- one department, for example, the tasks of receiving goods, inspecting those goods, and forwarding a receiving report to Accounts Payable are all performed by separate individuals located in different areas of the City. Unless there is prompt and accurate communication among the responsible parties, it would be easy for the process to break down delaying the vendor's payment. It is also probable that departments have various methods of inspecting materials and supplies. what may pass inspection in one department may be rejected in another. with so many delivery locations, it is difficult to monitor and control inspection procedures. There are several options that can be used to improve this situation. One of these options is to reduce the number of receiving points where merchandise can be delivered. Under this alternative deliveries should only be made to storerooms that contain large enough inventories to require maintaining inventory records. In addition, a central receiving point, under the auspices of the Finance Department, should be created to temporarily house items that are needed by units that do not maintain large inventories. This receiving point should be staffed by stock clerk personnel who would be responsible for logging in all goods received and preparing and forwarding receiving reports. If the merchandise is considered to be a fixed asset, the stock clerk should forward the appropriate information to Accounting so that the fixed assets inventory can be updated. This procedure, however, should be performed so as not to delay payment to the vendor. Deliveries of supplies such as sand and gravel should still be made at the job site. A central receiving point, however, could temporarily store many portable items resulting in more control over the receiving and inspecting process. This in turn could lead to improved relations with vendors doing business with Miami. -26- The City may well be able to establish a central receiving facility in one of its buildings. it is therefore recoitunended that the City review its facilities inventory to determine where a central receiving point could be located. Improve financial information The Expenditure Control Section of the Purchasing Unit headily relies on computerized financial information to perform its job of checking funds availability. when this data arrives late and/or is inaccurate, Expenditure Control cannot carry out its function efficiently or effectively. To improve the accuracy and timeliness of this information, it is recommended that the Division of Management and Budget: Promptly notify Expenditure Control of any appropriations changes made by the Commission Investigate means of shortening the time required to obtain Report 1#O1* By successfully implementing these recom- mendations, Expenditures Control will not have to spend as much time updating the computerized reports. also, user departments should be able to reduce the time they devote to maintaining their own control systems since the computerized information will be more timely. Prepare monthly report To evaluate the Purchasing Unit more effectively, the Purchasing Agent should prepare a monthly performance report. This report should reflect progress made in achieving objectives set by City management Report ='O1 states the funds valances by expenditures code for each department. -27- at the beginning of the fiscal year. Included in the report should be performance indicators such as: Average time to process purchases in each dollar category Number of requisitions processed Volume of cash purchase orders issued and total amount of discounts received Volume of purchases from minority vendors. (5) The Purchasing Staff should be Expanded Perform Its Additional Responsibilities The Purchasing Unit presently performs a limited role in the overall procurement process which hinders the unit's effectiveness. In order to minimize costs, maximize competition, and maintain strong fiscal and management control, Purchasing should: Forecast purchase requirements City-wide Maintain up-to-date vendor and specifications files Hold pre -bid conferences for purchases over $4,500 Critically review specifications developed by user departments and eliminate exclusionary requirements or language Obtain competitive price quotations for items ordered under blanket purchase orders Hold quarterly meetings with departmental employees responsible for requisitioning and receiving goods Maintain an open purchase order file to assure timely deliveries, to expedite the payment process, and to evaluate vendor performance -28- Obtain greater participation from minority vendors Prepare a monthly status report for manage- Ment. It would be difficult, however, for purchasing to conduct all of these additional duties with its current personnel complement. Many of the previously described functions are best performed by employees who have a high level of skill and substantial experience in the purchasing field. The Purchasing Agent and the Assistant Purchasing agent meet these qualifications: Their time, however, is now spent on such tasks as tending to the details of the formal bid process and routinely assigning requisitions to buyers. As a result, they now do not have time to carry out the responsibilities that would make Purchasing more effective. In addition, four out of the thirteen positions in Purchasing are funded by the CETA proqram. The employees that fill two of those positions serve in the important role of buyer. while the City saves a substantial amount in personnel costs by using CETA funds, these are marked disadvantages: It is difficult to recruit experienced individuals, within CETA limitations, who qualify to perform as buyers. One of the CETA buyer positions has been vacant for over a year due to lack of qualified applicants. Employees filling CETA positions spend approximately 200 hours per year attending classroom training sessions. This takes away from the time they can spend on their purchasing duties. Employees can only fill CETA positions for 18 months. Due to the temporary nature of these positions, turnover is high and time must be spent recruiting and training new employees. With these disadvantages, it is frequently difficult for Purchasing to operate with a full complement of staff. -29- A survey of local 90verhMent purdhasing Operations was conducted to learn how the City of Miami's putchaKAq staff compared in site with other staffs that process a similar amount of purchases. The results of this survey, presented in Ahibit d, followity this page, show that Miami's Purchasing Unit has relatively fewer employees than other locales given the total dollar volume that is eXpended through the Purchasing (knit. While the survey results should serve only as a guideline due to the different procuremeht procedures used by various local governments, it does suggest that Miami's purchasing unit is under=staffed to do an adequate job. Informal observations of the Purchasing staff ;Wade during the operations review showed that staff were consistently productive throughout the day, Although work output could be marginally increased, it would be difficult for the existing complement to carry- out all of the duties that the Unit should be performing, To enable Purchasing to perform a more effective job, the Unit should be authorized to expand its staff. Two options of doing this are presented as follows: Option I Organizational and functional changes —Add one Administrative Aide I and one Typist - Clerk I to the existing staff. Convert all four CETA-funded positions to general fund positions. The duties of the Administrative aide would be to: Review, assign, and check requisitions Attend auctions of surplus and confis- cated property Maintain the required payroll records Prepare the Buyer Performance Report and the recommended monthly purchasing status report. -30- i EXIIIBIT 4 Survey Results Comparing Purchasing Dollar Volume with Number of Personnel DolIar volume Expenditure control Wcal Government. (MiII ions) Buyers Clerks Mgt_ CLTA Total Within. Dept_ • City of Atlanta, CA 20 0 3 2 - 11 No, City of Austin, TX 43 `_i 7 2 - 14 Yes City of Char.lot.te, NC 28 4 4 1 Yes. Cit.y of UorL WorLh, TX 17.5 3 4 2 .1 10 No Jefferson Parish, LA 40 1 4 2 - to No City of Nashville, TN 35 6 3 2 - It No City of Norfolk, VA 12 3 4 2 - `3 No City of Miami, FL 35.7 3 3 2 3 ll* Yes !li *This total figure clods not: include the two stock clerk positions. Option II Except for the monthly status report, all of these tasks are currently conducted by the Assistant Purchasing Agent. By shifting these duties to an Administrative Aide 1, the Assistant Purchasing Agent can Spend time critically reviewing department -initiated specifications and coordinating the procedures required for purchases over $4,500, By transferring the details of the formal bid process to his assistant, the Purchasing Agent would have time to more effectively manage the purchasing operation as well as: Instal! a program for forecasting future purchase requirements City=wide Hold pre -bid conferences for purchases over $4,500 Obtain greater participation from minority vendors. The primary functions of the Typist Clerk would be to maintain an open purchase order file and type requests to vendors for written quotations. Converting the CETA funded positions to general fund positions would facilitate the recruiting and training of qualified employees. As a result, Purchasing should be able to operate more consistently with a full complement of seasoned staff. Estimated annual cost—$79,000 Organization and functional changes —Add one Administrative Aide I and one Typist - Clerk I to the existing staff. However, convert only two CETA-funded positions to general fund slots. These converted positions should be filled by buyers. The other two CETA positions, filled by employees performing clerical duties, should continue to be federally funded. The changes in employee functions should be the same as described in Option I. Estimated annual cost—$57,000 -32- Both Options enable ptrdhatihq mAftAqeMeftt-, to spend additional time on iftipottaht prOduternent tasks such as forecasting purchase requirements City-wide and critically reviewing specifications, They also provide additional clerical help to Maintain an open purchase order file and type requests for written quotations. The Primary difference between the two is cost to the City. Option It is lets expensive giftde only two CtTA Slott are recommended to be converted to general fund positions. There are a variety of other options. The two presented here, however, will allow the Purchasing Unit to perform additional duties which are necessary if Purchasing is to maximize its effectiveness. M0 0 2 - ALLC N fat HAM (LTO N iAt. Ix�titrrt on l,l a+�agr tst VOSMIKAtDrt&W JdmN C. 1 tWmAm VICt 001t6lbW Mr. Richard Posmoen City Manaler City Hail Ginner Key) City of Miami 3500 Pan kmerican give Miami, Florida 13133 Dear Mr. Posmoen! 4336 tAP WtV r4i6M At OttktSbA, MAINVLANb AddI4 *41-*sni AStt coot 161 September 190 1086 This will be the third of several interim "Letter Reports" to be submitted to you prior to the presentation of a final "Plan of Action Report" under the terms of our professional services agreement "to provide services for the improvement of the City's administrative services and processes" dated July 21, 1980. This report addresses the task of reviewing current City "Audit Procedures and Programs" and the submission of recommendations to improve the City's audit services. Our review has included a survey of Federal, state, and local governmental requirements and regulations; interviews with appropriate City personnel; discussions with the City's.independent auditors (Peat, Marwick, Mitchell and Co.); perusal of pertinent professional literature; and examination of publications by financial institutions and various rulemaking bodies. It is clear, from this review, that the general trend in both the public and private sectors is towards more stringent audit requirements. It is equally clear that a failure by a public jurisdiction to respond posi-�ively to this trend can have an adverse effect on its access to money markets as well as on its public credibility. For a jurisdiction as committed as Miami to a major program of capital improvements over the next several years through the issuance of debt instruments, this is a matter of crucial importance. Indeed, our findings indicate that compliance with aggressive audit standards and requirements is essential for the -City of Miami's continued good standing with the money markets and with its citizen taxpayers. Mr, Richard Fosmoen September 10, 1086 Page Two PAVEMENT OF AUD T STANDARDS AN The present City of Miami arrangements for audit servicea are conventional and were considered adequate until quite recently. Essentially these arrangements consist of! A small in-house internal audit staff in the Department of Management and Budget A contract for annual independent audit reports with a pro" fessional firm of certified public accountants , Separate professional contracts for audit services for special purposes such as Federal grants. This basic pattern of audit services was institutionalized in 1976 when a five year contract was executed with the firm of Peat, Marwick, Mitchell and Ccmpany to audit "the books, accounting records, and finances of the City. for the fiscal years ending Septemoer 30, 1976 through 1980" in accordance with provisions of the Charter of the City of Miami. Recently that contract, as earlier recommended by our first "Letter Report;" was extended for one year in the interests of attaining continuity and reliability of financial data. The original contract, a copy of which is attached as Exhibit I, required that the audit be conducted "in accordance with generally accepted auditing standards" and that "reports in draft form" be reviewed with "appropriate staff of the Finance Department, the Finance Director, and Internal Auditor of the City." This arrange- ment, considered acceptable at the time, put the Independent Auditor in the position of reporting directly to those being audited. Since the formulation and execution of that contract, much has happened to elevate and to strengthen the standards of acceptable audits. Generally, these pressures have eminated primarily from the accounting profession, the Securities and Exchange Commission (SEC) and the New York Stock Exchange (NYSE) originating in the exam- ination of private sector enterprises. Recently, because of increasing concern over state and local governments' weakening financial positions and inadequate financial reporting, these same forces are beginning to be bought to bear on public sector agencies and jurisdictions. A centerpiece of these evolving developments has been the question of utilizing an "audit committee" in the public sector. In the pri- vate sector, the audit committee consists of a group of non -management members of the Board of Directors who work with the independent Mt. Richard rosmoen September Al 1080 Page Three auditor to -review internal accounting controls as well as the results of independent audits` The audit committee rose to the level of public consciousness because of revelations of questionable payments made in alleged violation of the Foreign Corrupt Practices„Act by various private sector concerns, Usually the audit committee consists of five noni-management members of the Board of Directors. however, the public.sector has no directly comparable equivalent to the "non -management members" In addition, local government legislative bodies, the Miami Mayor and City Commission in this case, are usually fewer in number than private sector Boards of Directors, This tends to make the use of a special legislative committee inappropriate for'this purposes Recently, in response to growing interest in the question of is using audit committees in the public sector, the Municipal Finance Officers Association issued a special bulletin on the subjects Their w bulletin, issued in May 1980, was written by William Bs Dillon and Morton Egol, partners in the firm of Arthur Anderson & Company.. The bulletin, which is considered only as informational rather than as official position by the Municipal Finance Officers Association," states the case for the audit committee as follows: "We believe that most governmental units will conclude that a properly functioning audit committee will contribute to the quality of internal accounting controls and financial reporting. The greater the committee's independence, the greater investors and the general public will perceive that the political leadership is committed to sound fiscal management." A growing number of public jurisdictions appear to accept this kind of argument. Public jurisdictions presently utilizing some variation of the audit committee include: San Antonio, Texas Indianapolis, Indiana Reading, Pennsylvania Port of Los Angeles, California In its latest audit, Peat, Marwick, Mitchell & Co. has recommended that the City of Miami consider establishing an audit committee. In their management letter they contend that this "would have a very positive effect on the accounting and financial practices of the City." Other jurisdictions are considering the utilization of the audit committee concept. At the same time they are adopting more demanding audit standards as they are issued by recognized professional or regulatory agencies. r Mr. Richard Potmoen September 19, 1080 Page pour In general, the thrust of these changed has been towards (1) Mora actual independence for the auditing function# (2) more stringent standards for what will constitute an acceptable audit "opinion" and —_ (3) More openness in the audit procedures. i MAJOR RECOM.MrNOAT TONS SUBMITT90 FOR IMPROVEMENT OF AUDIT PR20 S. In our opinion, the City of Miami will serve itself and its tak$ payers well by being responsive to these trends. Indeed, although some public jurisdictions have responded to these forces, Miami Can assume a position of national leadership among local governments by moving boldly and aggressively at this time. By doing so, it is believed that Miami will also materially improve and strengthen its position in money markets and with its citizens. Accordingly, the following major recommendations are submitted for your consideration, i 1. THE MAYOR AND CITY COMMISSION SHOULD APPOINT AN AUDIT COMMITTEt TO OVERSEE THE INDEPENDENT AUDIT The "Advisory Audit Committee" can provide a means of increasing confidence in the results of the City's outside audit, as well as in the overall financial position of the City. It can do so because: The outside auditor reports to the Committee rather than City Management, thereby reducing substantially the possi- bility that the auditor may be subjected to untoward influences by those who are responsible for maintaining the City's accounts. The Committee can provide a vehicle for the systematic review of the City's financial position without occupying undue amounts of time at Commission meetings. If properly selected and chartered, the Committee could be perceived by the public to be an apoliical group whose sole purpose is to protect the public's interests. Appropriate legislation should be submitted to the Mayor and City Commission creating an "Advisory Audit Committee." The Committee should be charged with: Recommending selection of an independent auditor to the Mayor and City Commission Reviewing preliminary and final reports issued by the inde- pendent auditor Mr, Richard Fotmden Septdmber 10, I H O Palo rive Recommending acceptance and appropriate follow-up action to the independent auditor's recommendations. The mission and charge of this committee should be complementary to but not overlapping with the already existing "Advisory Budget Committee." (1) The Membership of the "Advisory Audit Co-minittee" should, Consist of Five Persons Appointed by A.etion of the t�tayoY a�1d City Commission � ` - The legislation creating the "Advisory Au.iit Committee" should spell out the committee's make-up. It should consist -of: One Member of the City Commission The Assistant City Manager for Fiscal Affairs Three Citizens of Miami for Overlapping Three Year Terms. The three citizens of Miami should be required to have training and experience in the fields of finance, accounting, and admini- stration. One of the three citizen members of the Committee should be elected as Chairman of the Committee. (2) The "Advisory Audit Committee" Should Establish Specifi- cations for Independent Audit Performance The legislation creating the "Advisory Audit Committee" should require them to recommend performance specifications for the selection of independent auditors to the Mayor and City Commission after appopriate discussion with representatives of the Administration and with the Mayor and entire City Commission. Once approved by the Mayor and Commission, the "Advisory Audit Committee" should: Seek quotations from qualified audit firms based upon the performance specifications Review the quotations Interview the best firms submitting quotations Recommend selection of one firm to the Mayor and Commission. Mr, Aichard Fosmoen Spatamber- 1gt 1580 Page Six It may be desirable for the City to provide outside assis- tance to the "Advisory Audit Committee" in establishing precedent procedures while going through this process for the first time, (3) The "Advisory Audit Committee" Should Review Audit Result With the independent Auditors and Report to tayor and the City Commission The legislation creating the "Advisory Audit Committee" should specify a minimum number of meetings to be held by the Committee, In reality the number of meetings will depend on the complexity of the performance specifications adopted, the number of interim reports generated by the independent auditors, and the findings and recommendations contained in the final report, It would seem prudent that the legislation mandate a minimum of six meetings of the Committee annually while allowing the Committee to meet more often in its discretion. The prima4y purpose of the Committee's meetings, after assisting in selection of the independent auditors will be to review work in process, preliminary reports, and the final report. These efforts should culminate in a meeting with the City Commission and the Independent Auditors to review the final report and to discuss any follow-up action that may be required. (4) The "Advisory Audit Committee" Should Recommend For or Against Retention of the Independent Auditor at the - Conclusion of Each Annual Audit The final annual duty of the Committee should be a recom- mendation to the Mayor and City Commission for or against retention of the firm who conducted the independent audit. This raises the question of what is an appropriate term for the inde- pendent auditors contract. There is no hard and fast answer to that question. A reasonable degree of continuity is desirable, but too much continuity may become undesirable from a number of standpoints. In the final analysis, this is a decision best made by rdsponsible parties on the scene. Therefore, it is suggested that the best policy may be to call for quotations for a set number of years, five for example, with annual renewable options after the first year to be exercised by the Mayor and City Commission after receiving a review of performance and recommendation report from the "Advisory Audit Committee." Mr. Richatd rosmoen September 191 1080 page Seven The basic thrust of these recommendations is to create are accep- table public sector counterpart to the "outside audit committee" now SO prevalent in the private sector. In addition, to be practical, these recommendations must recognize the prevailing circumstances in Miami. These include! A small City Commission which militates against a Commission Committee A lack of "outside Commissioners comparable to outside Directors in the private sector, which mandates citizen members on the Committee. These recommendations, if fully and properly implemented, will provide the independent auditor with the necessary independence from those being audited but will still retain accountability for the independent auditor to the Mayor and City Commission. w 2. THE PRESENT INTERNAL AUDIT DIVISION SHOULD BE A SEPARATE DEPART- �IENT REPORTING DIRECTLY TO THE ASSISTANT CITY .MANAGER FOR FISCAL AFFAIRS The present organizational structure of the City of Miami places the internal audit function for all City operations in the Department of Management and Budget as a Division. As such the Assistant Director for Internal Audits reports to the Director of Management and Budget who in turn reports to the Assistant City Manager for Fiscal Affairs. In order to provide the internal audit function th indenpendence expected by modern auditing standards and to complete as nearly as possible the replication of the private sector situation, it is recommended that appropriate legislation be introduced to the Mayor and City Commission creating a Department of Internal Auditing. It should be responsible to and report to the Assistant City Manager for Fiscal Affairs. The recommended legislation creating the Department of Internal Auditing should detail the mission of the Department. At a minimum, under the control and direction of the Assistant City Manager for Fiscal Affairs, the following should be included: Revenue Audits Contractor Compliance Audits Lessee Compliance Audits Expenditure Audits Assistance for the Independent Auditor Cooperation with the Audit Advisory Committee. The Administrator may wish to include other responsibilities in the mission of this Department, Mr. Richard Posmoeft September 19, 1980 Page Light It should be clearly understood that the purpose of this recotn- mendation is to provide the internal auditing functions with the degree of independence commensurate with the importance of its function while still retaining it as part of the administration. This is an important function for any administration or management to have available to it; but it must still be a part of the admini- stration to be effective. 3. FUTURE INDEVENbENT AUDITS SHOULD REQUIRE PERFORMANCE TO STANDARDS ESTABLISHED BY THE AMERICAN INSTITUTE OF CERTIFIED PUBLIC ACCOUN- TANTS AND THE NATIONAL COUNCIL ON GOVERNMENTAL ACCOUNTING It is recommended that the "Advisory Audit Committee" as well as the Administration and the Mayor and City Commission be guided by standards issued by the above groups in seeking future independent audit services. Failure to require audits. to these standards may result in a qualified audit opinion and/or a lowered rating for future bonds. At the same time, local circumstances and requirements must be considered in establishing specifications for independent audit invitations to be circulated to qualified audit firms. In the case of Miami, it will be necessary to require auditing reconciled to the requirements of the State mandated accounting system. However, there may be purely local concerns, such as a concern that insuffi- - cient income is being realized from a leased facility, that may properly be made the subject of emphasis in a particular audit. These considerations should be determined prior to issuing a call for independent audit proposals. It must be realized that the standards established by the organizations cited above are not static. They change from time to time. Indeed, the last five years have been a time of rapid change. As recently as March 1979, the National Council -on Governmental Accounting issued its latest standards statements. They are effective for fiscal years that ended after June 30, 1980. They consist of: Statement 1--"Governmental Accounting and Financial Reporting Principals" Statement 2--"Grant, Entitlement, and Shared Revenue Accounting and Reporting by State and Local Government" Mr. Richard Fosmoen September 19, 1960 Bade Nine Both statements are an updating of the 1968 statement by the 1 11 OW National Committee on Covernmettal Accounting, published by the Municipal Finance Officers Association entitled "Governmental Accounting, Auditing, and Financial Reporting" This is a continuing effort which, along with other on -going efforts, will change "standards" in the future. Yt will be necessary for the "Audit Advisory committee" to be kept abreast of these developments and to � insure that Miami's audit standards keep pace with developments in the field. 4. CITY OF MIAMI SHOULD ADOPT A PERriANENT POLICY OF REQUIRING Most private sector companies, particularly those reqistered with the Securities and Exchange Commission and with the New York Stock Exchange, close their books and perform an.audit review quarterly. r, The results are reported to their Board of Directors and to the public. The primary reasons for this practice are for investor. protection and for management control. In addition, the quarterly reviews facilitate the timely completion and issuance of annual audit and financial reports. For the same reasons, as well as others set forth below, it is recommended that these practices be adopted as permanent policy by the City of Miami. It is realized that the City is planning to follow this practice in 1980-81. This is conunendable, but it should be continued even though this is not yet a prevalent practice in the public sector. In addition to the benefits set forth above, this will provide advantages described in the following sections. (1) Quarterly Audit Reviews Will Compel Timely Maintenance of the City's Financial Books and Records In the past the City's financial books and records have not been maintained on a current basis. The practice has been to wait until year-end closings are made to enter proper interfund changes as well as other entries. As a result the completion of the Annual Audit has been unduly complicated and delayed. More importantly, this practice has made it impossible for the City to know'its real financial position at any given time except at the end of the fiscal year. .; ■ Mr. Richard F68m6en September 19, 1980 Page Ten (2) Quartetly_.Audit Reviews Will Enable the Administration to Provide the M�l�rt�r and t e City Gomm si siotl with T. a !�. Meaningful Financier. F2eports to the past the City has been unable to provide its manag e ment or its Mayor and City Commisi_oners with timely, accurate financial status reports. Our "Flow of tnforination" report will cover this matter in more detail, but it is highly'desirable that such reports be submitted to the Mayor and City Commissioners on a quarterly basis. (3) Quarterly Audit Reviews and Financial Reports Will Provide' Timely warnings ot Need for Revision of Financial P ans In the past the City Administration has maintained an informal surveillance of its overall financial position. Given the shortcomings of its past accounting practices, however, this was not adequate protection against a major unexpected revenue loss or expenditure requirement. quarterly reports, as proposed herein, will formalize the review process and provide timely warning should events require a revision of the City's financial plans. There may be some concern that these recommendations will unduely raise the City's cost of financial administration. Initially they will increase costs, but eventually they should result in reduced audit costs compared to what they would otherwise be. More importantly, however, these recommendations will ehance Miami's financial reputation with its citizens and investors in ways that will provide returns, both tangible and intangible, which will far outweigh any increased cost which may occur. Such costs should be viewed as a necessary invest- ment to protect Miami's credit and bond ratings in the money market and to protect the investment of Miami's taxpayers. 5. CITY OF MIAMI SHOULD ASSURE ITSELF OF ADEQUATE QUALITY FINAN- CIAL PERSONNEL TO RESPOND TO NEW REQUIREMENTS A major objective for the City of Miami should be to elevate its financial operations, particularly its internal accounting controls and public financial reporting, to new high levels of performance. The financial information issued by the City's Finance Department should become an unassailable bedrock of reliability. To accomplish this, sufficient numbers of quality personnel must be provided in the Finance Department and, in particular, in the Accounting Division. Provision of independent auditing services and 41 Mr. Richard Posmoen September 10, 1980 Page glevefi internal auditing personnel cannot be considered as a substitute for this. ft is the Finance bepartment, and the Accounting Division in particular, that maintains the City's books and records. The primary internal accounting coni-rols are exercised here :,ind the financial reports are generated here. made-3uate personnel will provide inade- quate financial services and records. Auditing personnel can only detect and report these inadequacies. In the pest inadequate procedures and, apparently, insufficient personnel have combined to produce unsatisfactory results. We believe it to be essential that the gap be closed. (1) Miami Should Establish Financial Performance Standards It is recommended that the City Administration adopt a set of performance standards it deems necessary to meet its require- ments. These standards should include such measures as Number of working days to accomplish monthly closings and submit adequate monthly reports to all users Number of working days to prepare and present meaningful quarterly financial and budgetary status reports to the Mayor and City Commission Procedures required to accomplish quarterly indepen- dent audit reviews. Other standards of performance may also be desirable from the administration's standpoint. (2) Miami Should Determine Personnel Requirements to Meet Financial Performance Standards and Take Necessary Steps to Secure Them Once the administration has established the performance standards it desires, an operating analysis of the Finance Department, particularly the Accounting Division, should be completed and the personnel requirements to meet the standards determined. Appropriate steps should then be taken to secure and train the personnel as rapidly as possible. We expect to address this subject in more detail in our "Flow of Information" report. At that time, questions of types and fre- quencies of report generation will be considered as well as matters Mr. Richard PosMoefi September 19# 1990 Pala Twelve of report distribution. In the context of this reporto which reviews your current audit procedures and programs, it is .appropriate that we recommend the beginning of administrative deliberations to detomine personnel requirements for acceptable financial performance. We expect to submit our "Flow of information" report to you shortly. in the meantime, it is felt that the findings and recommen- dations contained heroin are essential to securing satisfactory audit procedures and programs for the City of Miami. Very truly yours, BOOZ, ALLEN & HAMILTON Inc. " w Porter W. Homer Approved: John C► Newman Vice President M002 , ALLEN & HAMILTONiem. .� anagrepnt 00fissimfits 4.1io EAST WEST HIGRWO 661-21da AptA coot iol October 17, 1990 Mr. Richard Posmoen City Manager City Hall (Dinner Xoy) City of Miami 3500 Pan American Drive Miami, Florida 13133 Dear Mr. Fosmoen: This will be the fourth of several interim "Letter Reports" to be submitted to you prior to the presentation of a final "Plan of Action Report" under the terms of our professional services agreement "to provide services for the improvement of the City's administrative services and processes" dated July 21, 1980. Under the terms of that agreement, one of the tasks to be accomplished was a review of the City of Miami's information system. This was to include the flow of financial and performance data. Our review was conducted to determine if: Each level of the City's organization was receiving the information it needed to properly discharge its duties The information was in a useful format and was received on a timely basis. Our overall conclusion is that the present flow of financial and performance information does not meet the requirements of the City of Miami. Furthermore, it is our conclusion that the develop- ment of such information systems is crucial to the City's efforts at cost containment and reduction. The systems recommended in this report should be implemented at the earliest feasible time. We appreciate the excellent cooperation that we have received from you and your staff during this portion of the assignment. We Mr. Richard ftftn6eh October 20, 1986 Page Two will be happy to answer any questions about this report or to assist you in any appropriate manner in Your consideration Of this report. Fours very truly, SOOZj ALLM & HAMILTON Inc. Porter W. Homer Approved! John C. Newman Vice President REVIEW OF THE CITY off.. M AMI ! S INFORMATION SYSTEMS he flow ofls report performancedandses the financialsk of data withining thetadmipresent ni+� stration and to the City Commission, as well as the submission of recommendations to improve the flow of such information in terms of quality and timeliness, Our review has included a survey of the present infor- mation flow, from point of origin to the point of final utilization, for both financial and performance data. Inter- views were conducted, on a sample basis, with originators of data and with users of data. The present system of Miami reports were reviewed. In addition, information systems being utilized by other .local government jurisdictions were scrutinized. In reviewing the Miami reports, as well as those of other jurisdictions, their utility was evaluated on the basis of the following criteria: Pertinence --Contents of a report should be highly significant or relevant to the responsibilities of the intended reader. In general, as infor- mation flows upward, the amount of detail provided on any one function or activity will decrease, beginning with the point of origin and ending with the City Commission. Regularity --Information on functions or activities that are critical to the successful operation of the City should be monitored on a routine basis. Pertinent reports should be submitted to a distri- bution list in accordance with a prescribed, recurring plan, such as monthly or quarterly. Continuity --Each periodic report should contain data in the same format as the previous report. The format should provide "pertinent" trend and comparative information. Clarity and Focus --The significance of the infor- mation should be readily apparent and should focus on only the most important aspects of performance or status. Raw, uninterpreted data are rarely useful at higher levels of management. -1- i'imelines.s-Each report should be subtitted to its "distributi.on list" within a period of time after the close of the reporting period that Permits, Meaningful dedisions to be made and appropriate nanagefient actions to be taken. If a teport is too late; it is not pertinent, In an overall sense, our review was based upon a belief in the importance, even essentiality, of performance and financial data that meets the above criteria. Without such data, the Administrators and policy Makers of a local government are reduced to habit and intuition in their decision=making. Evolving trends that are symptomatic of developing problems go undetected until a crisis occurs. Prom that point on, action and decision making are crisis oriented. This is not to say that an information system will prevent crisis from occuring or guarantee sound decision making. It will, how- ever, enhance an organization's ability to deal with both. Finally, our review and our recommendations were tempered by a realization that no information system can be a cure-all. Everyone's diversified needs and desires for information cannot be satisfied without making the system so costly and so time consuming that it's value pales by comparison. A system that adivses the reader of an impor- tant future problem or of a pertinent accomplishment is useful. Either the problem or the accomplishment can be subjected to special analysis if it is needed. However, a system that also advises of minor problems or meaningless accomplishments is not useful. It becomes a burden. I. SUMMARY OF OUR CONCLUSIONS The current flow of information is inadequate in terms of the above criteria, as well as in light of the City's needs. There is a great deal of data, but it is at the departmental and divisional level. It is communicated to the management and to the Commission level on an "as needed" basis rather than on a regular organized basis. The present system is characterized by: A Lack of City-wide Cohesiveness --Information is concentrated at the departmental and divisional level. It is communicated to the management level and to the Commission level on a basis which tends to be oriented to Commission meeting requirements, crisis conditions, or eposodic criteria. -2- Over- re.liAn(: e_ on Meetifigs—verbal comfimuhidati6hs, in the form of staff feetings, or of ofie-61ft-ohe Meetings are the preVailiM4 Bode Of information tran§fer within the Administration-. This is not to suggest that such meetings should be eliminated. However, they should be reserved for more important, complex matters that are time -sensitive and supple- mented by an organized, city-wide data reporting system. A Lack_ of _Useful, Timely Financial Data-Althoucjh the production of monthly financial reports has improved in timeliness, the information provided is not in the most useful format and is still tardy. Most departments and divisions feel that it is necessary to keep their own books. Sufficient usable data is not provided at the management level and insufficient data is provided to the City Commit- sicn to allow them to exercise their oversight function. A Lack of Linkage Between Financial and Performance Data --At present, there is practically no effort to determine unit costs of production or service. The question of how many units of service will be received for each dollar appropriated for a particular function is unanswered. A Lack of Performance Goals --At present, there are no established goals by which actual performance can be judged. Such questions as whether revenue collections or expenditure trends are on target are unanswered. Also, there is little attempt to determine if service performance is meeting expected levels. An adequate information system will address these shortcomings. In so doing, the system will provide greater oversight capacity to the management and City Commission. The system should reduce the number of staff meetings now required. Staff meetings are useful, but should be limited to important, consequential matters. Finally, such a system should elevate the level of decision -making by allowing planning, performance evaluation, and problem anticipation to occur. Exhibit I, on the following page, delineates the major reports presently provided to the various management levels. -3- iven the City of Miami's already existent commitment to new systems installations, (e.g,, payroll) and to automated hardware conversion, it is recommended that an iMproved information system be developed on a gradual# phased -in basis, priorities for development of an information system should be developed on a basis of need and on existing information at departmental or divisional levels in the interests of economy, These priorities should then be merged with already established systems development priorities. 2. LY 08EPUL VINANCIAL bATA S it is recommended that first priority in developing information systems be given to the development of financial management information systems. This data is needed at all levels of the City organization. It should be timely and in a format that provides meaningful comparison of actual experience to budget allocations. This will require a dif- ferent format and analysis for different levels of the government organization. (1) The -may r and City Commission should Receive Quarterly Financial Data In order for the Mayor and City Commission to exercise their financial oversight responsibilities, it - is recommended that they be provided each quarter a "Financial and Budget Report". It should include: By fund, detailed to major expenditure characters and revenue sources: - Revenues Anticipated (budgeted) - Revenues Collected (actual) - Expenditures Anticipated (budgeted) - Expenditures Made (actual) By fund, a written analysis of the City's budget position. Meaningful divergencies in actual experience versus anticipated experience should be examined and explained. Program changes necessitated by each fund analysis should be reported or recommended as required by law. -4- EXHISIT I Major Reports Sretdiltly Reoeived at Various Manageifteftt Leve1S ift the City of Miami oh a Hegulat Sari§ MAYOR AND CITY COMMISSION Commission Meeting Agenda & Supporting Documents Capital Improvement Reports For Your Information (FYI) Documents :Major Project Status Report Minutes of Meetings of Independent Boards S Committees CITY MANAGER AND ASSISTANT CITY MANAGERS Supporting Documents for Commission Meeting Agenda Capital Improvement Reports Original For Your Information Documents Finance Director's Monthly Finance Report Departmental Data for Major Project Status Report Commission Requests for Data and Complaint Handling DIRECTORS OF DEPARTMENTS AND DIVISIONS Each Director receives a variety of monthly reports covering regular activities and status of projects - 5-- V Impact upan the City's year-end fiscal position should be projected based upon information and analysis available each quarter. This impact analysis should be prepared for each fund, The C'ity's over all financial position at the end of each quarter should be SU=ari2ed and yearend projection made. This summary should set forth potential trouble areas and/or areas of potential expenditure savings or excess revenue collections. This report should be prepared by the Director of Management and Budget with the assistance of his staff. Preparation of the report should include appropriate consultation with the Director of Finance. The Report should be supervised by the Assistant City .tanager for Fiscal Affairs and reviewed by the City Manager prior to submittal to the Mayor and City Commission. Exhibit II, on the following page, shows what a quarterly report on the General Fund should contain. Figures used in this Exhibit are hypothetical. (2) The City Manager and Assistant City Managers Should Receive Appropriate P2onthl_y And Quarterl Financial Data In order for the City Manager and his immediate staff to properly exercise their financial and budget responsibilities, it is recommended that they be pro- vided each month and each quarter appropriate financial and budget data. This should include: For the City Manager and Assistant City Manager for Fiscal Affairs: - By fund, a monthly and quarterly report of actual expenditures compared to quarterly allotments detailed to major character expenditures (e.g., Personnel Services, Operating Expenses, Capital Outlay, Debt Service, and Capital Reserve) for each major appropriation (e.g., departmental and divisional). -- By fund, a monthly and quarterly report of actual revenue collections compared to quarterly estimates detailed to major revenue sources. -G- L M181T tt txatple of Form and Content for Quarterly Financial and Budget Report to City COflniSSiOh January 20, 1980 To: The Mayor and Members of the City Cormission From: The City Manager Subject: First Quarter Financial and Budget Report for the General Fund At the conclusion of the first quarter for fiscal 1979-80, both the revenues and expenditures for the General Fund are slightly ahead of expectations. Based upon experience to date, there is no reason to expect a substantial deviation in either revenue collections or expenditures from the original budget. The status of General Fund revenues and expenditures are set forth below. REVENUES First Quarter First Quarter Category Annual Budget Allotment Actual Property Taxes $42,179,807 $37,250,000 Franchise Taxes 7,955,434 3,200,000 Utility Taxes 17,423,377 4,500,000 Licenses and Permits 4,259,323 3,750,000 Federal Shared Revenue 8,861,490 3,800,000 State Shared Revenue 13,455,371 5,100,000 Other Shared Revenue 852,500 175,000 Charges for Services 5,777,119 400,000 Fines and Forfeits 1,362,000 275,000 Interest Earnings 11086,900 300,000 Other 3,055,272 800,000 TOTAL $106,268,593 $59,550,000 —7— $38,007,273 3,216,121 4,280,007 2,810,003 3,803,051 6,094,304 178,200 501,002 309,426 301,541 803,587 $60,304,515 MI$I'1 11 (2 ) EXPtIZITURES Pirst Quarter First Quarter Category , Annual.,_ Budget. A11ottneht._.... _ .Actual...._._ ., Personnel Services $79,822,946 $17,400,000 $11,182,348 Operating Expenses 20,202,109 4,250,000 4,3940217 Capital Outlay 149,760 32,000 31,912 Debt Service -0- -0- -0y Capital Improvement =0_ -0- -0- Reserve Special Programs 6,093,778 1,825,000 1,874,329 TOTAL $106,268,593 $23,507,000 $23,482,806 ANALYSIS With minor exceptions revenue collections are on target. The exceptions are: Utility Taxes —Collections are below expectations by approximately $220,000. We are advised that electricity sales are lower than we anticipated. Utility officials feel that our first quarter estimate was too high originally. They believe that sales over the remaining nine months will justify our total revenue estimate. They expect a conEider- able increase in sales during the second and third quarters of our fiscal year. We have made arrangements to monitor this situation on a monthly basis. Any further weakening of the City's financial position will be immediately reported to the Mayor and City Commission along with recommended remedial action, License and Permits —Collections are below expectations by approximately $940,000. Many businesses have failed to pay their business license fees on time. Apparently this is a reflection of the economic conditions locally. A survey of the major delinquent accounts indicates that we will collect most of the delinquent license fees shortly. We expect this under collection to remedy itself. State Shared Revenue —Collections are in excess of expec- tations by about $1,000,000. This results from a new payment schedule for state revenue sharing which accelerates payments to localities. In the final analysis, it is expected that total payments receiving during this fiscal year will approximate the original estimate. -8- EXHIMT li (3) With one exception our expenditures are on target, The one exception is: Operating Expenses —This category of expenditures is about S150,000 over expectations. The primary reason is the higher than expected pri-,:e of gasoline to operate the C-ty's motor vehicle fleet. We have established a program to control motor vehicle use more tightly, in addition, the Purchasing Agent has been directed to explore alternative sources of gasoline supply to replace our present supply contract which expires as of March 31 this year. In the meantime we will continue to monitor this cost overrun on a weekly basis. Unless the present trend reverses itself shortly, we will submit recommendations to the Mayor and Commission in the near future to transfer funds for this purpose. If the Mayor and members of the City Commission have further questions on this report or desire further data, I will be happy to respond. �Z n For the remaining Assistant City Hanagers., - By fund, the same monthly and quarterly expenditure and revenue information as above but limited to the functions under their preview, The Director of Management and budget should review monthly expenditure and revenue reports with the Director of Finance and report any unexpected develop- ments to the Assistant City Manager for Fiscal Affairs, who should advise the City i4anager of such developments if necessary. (3) Directors of Departments and Divisions Should Receive Appropriate Monthly and Quarterly Financial Data In order for each of the Departmental and Divisional Directors to properly exercise financial and budgetary administrative controls and planning over their respective operations, it is recommended that they be provided for all activities under their preview, the following: By fund and by activity account, a monthly and quarterly report of actual expenditures compared to quarterly allotments detailed to major character expenditures. ' By fund and by activity revenue account, a monthly and quarterly report of actual revenue collections compared to quarterly estimates. By fund and by activity account, a quarterly report of actual expenditures detailed to major character and line item level compared to total annual appropriations. Each Department and Divisional Director should review each report upon receipt and take appropriate action dependent upon the contents of those reports. 3, PROPOSED IMPLEMENTATION FOR RECOMMENDED FINANCIAL INFOPJIATION SYSTEM Financial responsibility is one of the primary duties imposed upon the officials of the City of Miami by State law and by the City Charter. The present financial system -10- provides too much data, too late to allow City officials to properly exercise this duty. This is particularly true for the Mayor, the City Commission, the City Manager and the Department Directors, Without timely; accurate informatioht decisions are necessarily made, or not made, in a vaCtIM, The system proposed herein will close that void by providing each level of the City organization the financial information it needs, when it needs it, and in appropriate format, In order to provide timely, pertinent financial infor- mation, a system of quarterly expenditure and revenue estimates must be established against which actual performance can be evaluated. The system, if it is to be meaningful, should also encompass a system of controls to provide policy and top management personnel with an ability to respond to the system's indicators which may call for a change of fiscal plans. The major steps required to install the system, which are set forth below, occur after the annual budget is adopted by the Mayor and City Commission. Having just adopted its 1980-81 Budget, the City of Miami is in a good position to establish the system now. however, it must be accomplished rapidly in order to be meaningful in this crucial year for Miami. (1) Recommended Steps to Establish Quarterly Expenditure Allotments Immediately upon adoption of the annual budget by the Mayor and City Commission, the administration should distribute "quarterly allotment" forms to appropriate expenditure authorities in the City. These forms should contain figures, to line item detail under major character headings, representing the approved annual expenditure budget. Instructions for the completion of the forms by "authorized expenditure authorities" should be included. Basically, each expenditure authority is expected to divide each line item annual appropriation into logical, realistic quarterly expenditure plans. This does not mean an automatic division by four. A single Capital Outlay expenditure will occur in only one quarter. A special summer program will result in temporarily increased expenditure during those summer months. The completed "quarterly allotment" forms should be returned to the Department of Management and Budget. After review and approval, the forms should be for- warded to the Division of Accounting in the Finance Department and to the Division of Computer Operations in the Computers and Communications Department for posting -11- and budget administration purposes, The purpose of the duarterly allotment system is to develop a realistic estimate of the tiMifi1, by quarters, of expenditures durinc! the fiscal year. These estimates, afnonq other purposes, then become a standard against which actual expenditures can be evaluated, A meaningful deviation from the standard, which is presumed to be valid since it was prepared by the "authorized expenditure authority" and verified by the Department of Management and tudget, requires examination and appropriate corrective action. Exhibit lll, on the following page, utilizes the recommended quarterly allotment form to illustrate the break down of one operation's annual appropriation into quarterly allotments. The figures used in the Exhibit are hypothetical. (2) Recommended Stens to Establish Quarterli Revenue The steps to be taken and the purposes to be served in establishing a system of quarterly revenue estimates are basically the same as those recommended for expenditure allotments. However, revenue accounts and persons responsible for revenue collections are the subjects covered. Completed forms are checked and processed through the same sequences as expenditure allotments. The purpose, establishment of a standard against which actual experience, or collections, can be evaluated, remains the same. Exhibit IV, following Exhibit III, illustrates the break down of one class of revenue accounts into quarterly estimates. The recommended form for this purpose is utilized. The figures are hypothetical. (3) Administration of the Quarterly Expenditure System The operating responsibility for administration of the quarterly expenditure system should rest with the Director of Management and Budget subject to oversight by the Assistant City :tanager for Fiscal Affairs. The information flows to the City Manager and, through that person, to the P4ayor and City Commission. All Department and Division Directors are involved in the formulation of the system, but the Director of Finance and Director of Computers and Communications are also involved in additional and important ways. The former must adjust his accounting procedures to accomodate the system while the latter must adjust his programming to serve the system. -12- EXHIBIT III Example of Quarterly Expenditure Allotment Form Quarterly Allotment Account Number Account Total Bud et Remarks First Second Third Fourth Personnel Servs. 22,804,87�5,120,000 5,.150,000 6,040,000 G,494,879 001 Per. Full Time 15,310,12�3,805,000 3,820,000 3,900,000 3,785,129 Mandated Force Reduction, Four-th Qtr_ U10 1 Inclas:zified 450,064 100,000 1.10,000 115,000 125,064 050 Overtime 15,OU0 20,000 20,000 36,-�14 053 Holiday 590,18t 200,000 100,000 120,000 170,188 lU0 FICA Tax 62,00. 15,00() 15,000 16,000 ; 16,00.3 I 110 Retirement 5,921,89• 900,000 1,000,000 1,769,000 2,252,892 Mandated Increase for Third, Fourth 150 Worker's Comp. 378,68( 85,000 85,000 100,000 108,689 Qtr. perating Expense- 471,15, 100,000 110,000 120,000 141,.152 260 Prof. Services 57,51 37,515 6,000 6,000 8,000 ' Professional Consultant Fire Location,. Study for First Quarter 410 Travel 12,43 8,000 1,000 1,000 2,434 Nat"l Fire Conference First quarter 540 Utility -Electric 117,621 13,000 25,000 30,000 49,621. Rate Increase Anticipated 702 Mtr Vehical Part_ 49,30( 8,0()0 20,000 10,000 11,300 ` Major Overhaul Ladder Truct Second►Qttr. 715 Motor Fuel 53,1131 13,000 13,000 13,000 14,190 770 Mtr Pool Charges 181,09 20,485 45,000 60,000 55,607 Based on Past Seasonal: Use apital Outlay 20,00( U 0 0 20,000 i Siny,le Purchase Fourth,Qtr. New Pumps 840 Equipment -New 20,00( 0 0 0 20,000 •bt Service t Capital Reserve Total 23,296,03 5,220,000 5,260,00( ,160,000 6,656,031 Department Num.Department Name Fiscal Yr. Signature Date 09 Fire tX9181T IV Example bf Quarterly ReVeftue Estimate r6tt1 Account Number Revenue Account Total Budget_ Estimate uartefl Estimate First Second Third Fourth xxx Utility Service 17,423,377 4,500,000 4,150,000 4,007,000 4,166,377 Taxes xxx Electricity 9,596,197 3,200,000 3,300,000 1,750,000 1,346,196 xxx Tel and Tel 6,202,722 900,000 1,020,000 1,850,000 2,432t122 xxx Water 822,383 200,000 200,000 210,000 212,383 xxx Gas 721,328 175,000 190,000 190,000 166,328 xxx Fuel Oil 80,148 25,000 40,000 7,000 8,148 -14- It is recommended that expenditure controls be exercised to only the major expenditure dharadter detail by quarterly allotment for each Major appropriation. This differs frog the present practice of "lifle-it6th" expenditure controls annually for the appropriation figure.. It is recommended that all expenditures continue to be coded against the appropriate line=item as is presently done. This will maintain the City`s historical accounting record, but controls to only the major expenditure character by quarter will reduce the detail necessary, under the present system+ to provide users of the system needed information. Indeed, this change should reduce a presently unmanageable mass of detail to manageable proportions for all users of the system. It is envisioned, under this system that expendi- ture control would be inititally exercised by the Finance Director. The primary control would occur when the expenditure authority was advised that the quarterly allotment for a major appropriation expenditure charac- ter (e.g., Operating Expenses) was exhausted and that no further expenditures within that category would be processed until satisfactory arrangements are made. The Director of Management and Budget should also receive this advice. It would then be the responsibility of the expenditure authority to make needed arrangements which may consist of transferring funds, requesting a supplemental appropriation, or foregoing certain expenditures. The making of such arrangements would require the expenditure authority to consult with the Director of Management and Budget to effectuate such arrangements. Therefore, the system must include forms, regulations, and procedures for the following: Transfer of appropriation funds from one quarter's allocation to another quarter's allocation within the same appropriation or from one appropriation to another. Transfer of appropriation funds within one quarter's allocation and within one appropria- tion from one expenditure character to another expenditure character (e.g., Personnel Services to Operating Expenses). -15- Appropriation of additional funds to aft existing of new appropriation account. The t"egulations and ptocedutes t6 adcotnplish the ab6Vd t at well as any other contingendies that shay be anticipated, Must include standard forms and instructions for their use. Levels of approval required for different trans actions trust also be stated, For example, a transfer of funds within the same appropriation and within the s mile quarter might require approval by only the Director of Management and Budget while a transfer of funds between quarters and within the same appropriation might require an additional approval by the Assistant City Manager for Fiscal Affairs, A more far reaching budget adjustment might also include the City Manager's approval while appropriation of additional funds will require approval by the Mayor and City Commission. to all in- stances, the request for action should originate with the Department Director involved. (4) Administration of the Quarterly Revenue System The operating responsibility for administration of the quarterly revenue system should rest with the Director of Finance subject to oversight by the Assistant City Manager for Fiscal Affairs. The information flows to the City Manager and, through that person, to the Mayor and City Commission. Only those Department and Division Directors directly involved in revenue collections are involved in the system. Accounting systems and computer programs must be adjusted to serve the quarterly revenue system. The revenue system is more of a passive reporting system as compared to the expenditure system. There are major exceptions to this which will require constant monitoring and follow-up. Examples would include collections of the waste fee; which has recently been instituted: and the •carious enterprise fund revenues. This should not be interpreted in anyway as denigration of the importance of revenue administration. -16- A failure of any revenue source to Meet its quarterly estimate should cause the Director Of Finance to investigate and to take appropriate follow-up adtion with the responsible individual, The Director of Fihande should Monitor the progress of revenue collections at least monthly. At the conclusion of each quarter, the Director of Finance should perform a major exafflination of collections and project year end expectations. The results of this examination should be conveyed to the Director of Management and Budget for inclusion in the overall quarterly "Financial and Budget Report". ( 5 ) Quarterly Staff Meeting to -Review , the ,Financial The City Manager should plan to hold a quarterly staff meeting to review results of each quarterly Financial and Budget Report. The meeting could be with his top staff, Assistant City Managers, or with top staff and Department Directors: The latter type of meeting would emphasize the importance of financial affairs and provide a sense of organizational unity. In any case, it will be important that the communications loop within the city administration be closed, that the _ results of the quarterly analysis be transmitted through out the organization. 4. BENEFITS RESULTING FROM THE RECOMMENDED FINANCIAL INFORMATION SYSTEM There are a number of advantages and benefits that can be expected to flow from the installation and utilization of the recommended quarterly "Financial and Budget" system. They include Provision of timely and pertinent financial data to all levels of policy -making and administration within the City of Miami. Ability to anticipate problems and to execute mid- course changes in policy and programs when necessary -17- d Reduced Work^load for the Accounting Division because of the elevation of expenditure controls fram line item detail to Major character of expenditute level Within separate appropriati6n8. Delegation of financial authority to Department and Division Directors that is more commensurate with their responsibilities. Provision of overall cash -flow guidelines for officials handling the City's investment program. Ability to relate quarterly "Financial and Budget" report findings to results of quarterly audit closings as previously recommended. Minimal requirements for revision of "FAMIS" system procedures to accommodate the new reporting system. This will result in minimal operating disruption. This is an ideal time for the City of Miami to initiate the recommended system inasmuch as its 1980-81 budget has been adopted recently by the Mayor and City Commission. Given the concern for cost containment and even for cost reduction, this recommended system will provide the means of reporting progress to the Mayor and City Commission_ that is not now available. It will also provide the means for better administrative financial management which is not now avail- able. Given the design and installation complexities in- herent in this system, as well as the time constraints faced by the City Administration, the City of Miami may wish to avail itself of outside installation and orientation assistance. 5. DEVELOPMENT OF TIMELY, USEFUL PERFORMANCE DATA SHOULD BE THE SECOND INFORMATION PRIORITY It is recommended that second priority in developing information systems be given to the development of performance data. This data, as is true of financial data, is needed at all levels of the City organization. It should also be timely and in a format that provides meaningful comparison of actual experience to planned objectives. However, contrary to the system development recommendation for financial data, it is recommended that development of a performance data system proceed at a more gradual phased -in pace. -18- This in no way implies that performance data is less important than financial data, Indeed, the eventual linkage Of financial data and performande data, along with inclusion Of such data in the budget fhakifyg pYodess, is essential if future dedisionS are to be made on facts rather than historical assumptions, However, this recommendation redogn ies the limits of any organization to absorb and utilize new systems within a short period of time. Accordingly, it is recommended that development of a performance data system dommende with the utilization of data already being generated at operating levels in City Departments and Divisions. This will require the culling of available information and data to determine those that meet the criteria of: Pertinence for the intended readers at various organization levels. Continuity of production in order that reports can supply the same information on a continuing basis with historical comparisions to show trends. Timeliness in relation to the reporting period in order that reports will contain current information. Once this is accomplished, it will be necessary to determine the different data requirements for each organizational level of the City government commencing at the Division level and progressing through the Departmental level, the Assistant City Manager level, the City Manager, and finally the Mayor and City Commission. Generally, this type of data system, for any one operation, will resemble a pyramid in that the pertinent data at the operating 'level will form a broad information base. This is narrowed, on the basis of pertinency, at successive organizational levels and culminating at the apex, the Mayor and City Commission, with the most condensed information. Graphically, the system will appear as on the following page: 19-- r - Data Requited at Mayor and City Comission = Data Required at City Manager Level Data Required at Assistafit City Mahalat Level Data Required at DepartMent teVel Data available at Division Level Subsequent iterations or the data system should be more responsive to user requirements at the upper organi2a- tional levels, This will undoubtedly mandate new or additional record keeping and performance reports requiring output reports from field personnel. In addition, these later reports should incoroorate planned performance goals for each reporting period. However# the first version of the data system should be based upon already available information in the interests of containing costs and of early operation of the system. (1) The Mayor and City Commission Should Receive Bi-Monthly Performance Data In order for the Mayor and City Commission to exercise their service and performance oversight responsibilities, it is recommended that they be provided every two months a "Performance Report". It should include: By Department, Significant performance data of pertinence to the Mayor and Commissioners, This should be data that can be produced regularly, compared to historical data, and compared to planned performance goals. For example, the Mayor and City Commissioners will be interested in knowing the police personnel hours utilized for active duty during the reporting period as opposed to the authorzed police personnel hours for the reporting period. They will probably not be interested in knowing the number of police personnel hours devoted to investigative -20- work. HbWever, the Police Chief will probably be interested in knowing this+ The numbers of performance data regularly reported to the Mayor and Commissioners should be limited to the ten or twelve most important indidators for each departfftent. Exhibit Vt on the following page illustrates what a bimonthly "Performance Report" to the Mayor and Commissioners concerning what the Police. -Department might contain. The format utilized is a standard format recommended for all "Performance Reports", however, the data contained therein is imaginary and illustrative rather than real and recommended. As set forth in the following implementation section of this report, the data to be utilized in the various "Performance Reports" should be decided only after consultation with Department and Division Directors. The bi-monthly "Performance Report" for all City operations should be prepared by the Directcr of Management and Budget on the basis of data sub- mitted by operating Departments. Preparation of the report should be supervised by the Assistant City Manager for Fiscal Affairs. The City Manager should review and approve it prior to submission to the Mayor and City Commission. (2) The City Manager and Asisstant City_ Managers Should Receive Appropriate Monthly Performance Data In order for the City Manager and the Assistant City Manager to exercise their management oversight responsibilities properly, it is recommended that they be provided every month a "Performance Report". Thei:: report should include all data contained in the "Performance Report" submitted to the Mayor and City Commission as well as additional data appropriate to their oversight responsibilities. The City Manager and Assistant City Manager for Fiscal Affairs should receive "performance Reports" for all operations while the remaining Assistant City Managers should receive reports for their respective areas of responsibility. These reports should include: -21- EXHIBIT V Example of Bi--Monthly Police Department Performance Report to Mayor and City Commission Department volice Reportinq Period Oct & Nov '79� AcUwty- Mouthly Trends Yearly Trends tf. Year to Last Year ear )(r- to Dt ear to, Actual Actual This Two M. Date Year to Last Year Actual % ate Date Phis Iwo Last Two Antici- Date to Date '. to Dt )(,- V. - a Dt ast Year Antici-ast tio Perforutaiwe Indicator Months Months [,art Iwo Mo. Pated Actual a�te Remarks 1. Ilursomiel hours 414,800 400,100 I03.67 414,800 400,106 385,220 10,3-67 1013-86 os. vancanciie Authorizvd 2. Iler-ioutiel. Hours 385,340 378,065 101.92 385,340 378,065 368,280 101.92 102'-65 uttlized 6. Calls For Service 10,486 9,784 107.17 10,000 10,486 9,,138 104-86 114-75 (A) Criminal 4,321 4,213 102.56 4,000 4, 3:! 1 4,015 108-02 10,7-62 (13) Non -Criminal 6,165 5,571 110.66 6,000 6,165 5,123 102.75 120'. 33 B. ArresU 4,165 3,921, 106.22 N/A 4,165 3,879 N/A I07.37 By Department, Significant performance data of pertinence to the City Manager and assistant City Managers. It should be data capable of regular production, of comparison to his- torical data, and of comparison to planned performance goals. Exhibit V2, on the following page, illustrates what a monthly "performance Report" to the Manager and Assistant City Managers concerning the police Depart- ment might contain. All "performance Reports" should be received by the Director of Management and Budget. They should be reviewed on a City -Wide basis monthly by that office and inportant trends, emerging problems, or notable accomplishments should be reported to the City Manager and appropriate City Managers in writing. (3) nirectors of Departments and Divisions Should Receive Appropriate Monthly Performance Data In order for Directors of Departments and Divisions to properly exercise their administrative responsibilities, it is recommended that they receive each month appro" priate performance data. Their reports should include all data to be forwarded to the City Manager and _ Assistant City Managers as well as additional data appropriate to their administrative requirements. These reports should include: By Operation, Significant performance data of pertinence to Director of Departments or Divisions. The data should be produced regularly, com- pared to historical data, and contrasted to planned performance goals. Exhibit VII, following Exhibit VI, illustrates what a monthly "Performance Report" to the Police Chief concerning only the Police Department's patrol opera- tion might contain. -23- EXHIBIT VI Example of Monthly Police Department Performance Report to City Manager and Asisstant City Managers [k:l�artmeiat Police: Activity All Monthly Performance Indicator Report Reporting Period Oct. "790 Monthly Trends Yearly Trend's % Year to Year to, Ye�r to This Month [late Year to Last Year Date Act_ Dare % Actual Actual---~--- Antici- Date to Date Yr. to Dt Last Year No I>erformance Judicator Chis Monti Last 4Tonth Nast Monthpated Actual Actual Anticptd- To Date I Remarks I. Personnel [lours Auth. 210,800 210,000 100.0o 210,800 210,800 :203,360 100.00 103_65, 30 Vancancie 2. Personnel !lours 195,920 189,420 103.43 208,692 195,920 179,420 93.87' 10g.19 Utilized 3. Personnel Hours 7,440 8,OE30 92.07 81000 7,440 13,540 93.00 54_94 Vacation 4. Personnel Hours Sick 7,440 13,300 55.93 1,308 7,440 10,400 568.80 71_53 6. Calls for service 5,384 5,930 90.79 7,000 5,384 4,978 76.91 1081-15 (A) Criminal 2,816 3,008 9.3.61 3,000 2,816 2,923 93.86 96_33 (B) Non -Criminal 2,568 2,922 87.88 4,000 2,568 2,055 64_20 124_96 B. Arrests 2,178 1,987 109.61 N/A 2,178 1,869 N/A 116.53 EXHIBIT VII Example of Monthly Police Department Performance Report to Police Chief Department- Police -� Activity Patrol Monthly Performance Indicator Report Reporting Period Oct.`790 Monthly Trends Yearly Trend's Year to Year to ear to Act. Date % % This Month Date Year to Last Year pate Actual Actual --- Antici- Date to Date Yr. to Dt Last Year No Performance Indicator This Mor►t}Last Month Last Monthpated Actual Actual Anticptd. To Date Remarks 1. Personnel flours 105,400 99,200 106.25 105,400 105,400 99,800 100.00 105_61 0- Vancancie ' Authorized 2. Personnel !lours 97,960 93,840 104.39 97,960 97,960 j89,460 100.00 10.9_50 Uti l.i ud 3. Personnel Hours 2,420 1,640 147.50 2,120 2,420 2,160 114-15 112'..0-3 Vacation 4. Persomiul !lours Sick 3,020 3,800 79.47 3,320 3,020 i 3,000 i 90.96 100_66 5. Personnel flours 2,480 - - 2,480 2,480 � - - Training G. Calls For Service 3,827 4,012 95.38 4,800 3,827 3,613 79_72 105.92 (A) Criminal 1,731 11918 90.25 2,000 1,731 1,587 86.55 109-07 (13) tion-Criminal 2,096 3,094 67.74 2,800 2,096 2,026 74.85 103.45 7. Follow -Up Investiga- 932 816 114.21 900 932 821 103.55 113_52 Lions 8. Arrests 1,310 1,275 102.74 N/A 1,310 1,193 N/A 109t_80 (A) Traffic 412 432 77.44 N/A 412 392 N/A 105-10 I- (8) Criminal 318 218 145.87 N/A 318 281 N/A 113.16 (C) Juvenile 580 625 92.80 N/A 580 520 N/A 111.53 aI J J I- each Director of a Department or Ditj`iSi6n should review their "performance Reports" looking for important trends, emerging problems, or notable aCCom- piishments, Appropriate follow-up aotion should be taken after each review. 5. IMpLFMtNTATION OF Rt Development of a sound, useful performance information system requires Careful tailoring of a system that reflects an organization's on -going operations and which is responsive to the information requirements of the organization's leaders. The regular submission of standard data by the heads of various line operations forces them to think long term and to compare actual performance to anticipated performance. For middle and upper management, the regular receipt of standard data forces them to pay attention to basic operations rather than to the crisis of the day. It also provides an opportunity to look for trends that may ;warn of approaching problems. For policy makers and top management, the regular receipt of standard data allows them to see if their policy expectations are being fulfilled. None of these purposes will be fulfilled by a data system that provides too much information or is cluttered with interesting, but useless data. Therefore, it is essential that the performance information system recommended herein be based on a careful analysis of the responsibilities and functions of each level of management, and the information they need to execute their responsibilities. The development should be gradual in accordance with the following: First phase, built in data already being generated at operating levels. Second phase, expanded to include planned objectives, where applicable, related to performance data already being generated. -26- s Third phase, expanded to include more sophisti- cated performance measures that are responsive to needs of policy makers and top manageffient. As early as is practical, this data should be incorporated into the budget making and monitoring processes. Eventually, they should be linked and integrated with financial data to produce performance ---cost data. Until that happens, Miami's policy makers and administration leaders must rely on faulted historical data - information that is blessed, but uproven as to its validity. (1) Management and _.Budget 5taf-Should Performance Data -System In Coopera Departments It is recommended, because of their familiarity with City opewations, that personnel of the Department of management and Budget be utilized to compile data and install procedures to institute the performance Data System. In the interests of expediting the initiation and utility of the system, the City may wish to consider use of outside consulting assistance to guide the initial development efforts. The compilation and installation effort should include the following: Survey of present data generation in City operations and tentative selection of data for inclusion in the system. Consultation with Directors of Departments and Divisions to secure agreement on use of data. Identification of individual positions in Departments and Divisions to be responsible for preparation of reports and forwarding them subject to review by Directors. Design of standard format for reports, establishment of time tables for report submissions, and designation of distribution system for reports. -27- Review of data, format, schedules, acid procedures with City Manager and Assistant City Manager for Fiscal Affairs, The latter person should tame responsibility for coordination with the other Assistant City Managers. When the system is ready for operation, the Department of Management and Budget should be responsible for preparing necessary regulations to implement the system, (2) Director of Management and Budget_ Should Prepa once the system is in operation, it is recommended that the Director of Management and Budget, with the assistance of his staff, be charged with the respon- sibility of analyzing monthly reports on a City-wide basis and of preparing the bi-monthly report to the Mayor and City Commission subject to oversight by the Assistant City Manager for Fiscal Affairs and final approval by the City Manager. The Director of Management and Budget, with his staff, should analyze reports for trends, _ developing problems, and outstanding accomplishments. It should be their responsibility to put the data into useful management and policy maker format. This office, under the Direction of the Assistant City Manager for Fiscal Affairs, should also be responsible for seeing that the organizational communication loop is closed. Departments and Divisions should hear from management as a result of these reports. Accomplishments should be recognized, problems should be discussed, and suggestions should be responded to. The system should not be allowed to become only an enforcement device in the eyes of operational personnel. (3) Director of !Management and Budget Should be Responsible for Integration Into Finance and Budget Systems and Future Development The Director of Management and Budget, under the supervision of the Assistant City Manager for Fiscal -28- supervision of the assistant City Manager for Visdal affairs, should be Charged with operating and ekpandiflg the system► This should include: A phased expansion of the system to matte it more responsive to City-wide needs. planning and execution of a program to integrate performance data into the budget and finance sys terns. Once the system is reasonably operative, the Director of Management and Budget should undertake the develop- ment and installation of a system that will result in accurate preduction-unit costs. This will result from a studied interrelation of financial cost data and performance data. Obviously, the attainment of this latter goal will take time and effort. It will also require an investment of funds. However; it is believed that such a system is the key to informed decision making for both the short and long range Cost reduction programs that Miami is undertaking. As such, this funding institutes a necessary frond -end investment in future cost containment programs. /9 002 i A L•z L C.n N & H A M I L T O N (t1C 4330 EAST WEST HIGHWAY 9EtHESDA, MARYLAND a6M4 95-2200 ♦QEA COOt 301 October 20 ► 1980 ,Mr, Richard Fosmoen City Manager City Hall (Dinner Key) City of Miami 3500 Pan American Drive Miami, Florida 33133 Dear Mr. Fosmoen: This will be the fifth of several interim "Letter Reports" to be submitted to you prior to the presentation of a final "Plan of Action Report" under the terms of our professional services agreement "to provide services for the improvement of the City's administrative services and processes" dated July 21, 1980. Under the terms of that agreement, one of the tasks to be accomplished was the development of an approach to an improved reserve alloca- tion system. the examined the present Miami systems for: Budget raking and administration Performance monitoring. In addition, we also studied budgeting and monitoring systems utilized in other local government jurisdictions. In general, our findings were that the present systems rely too much on historical data, and an assumption as to their validity, and that there are no validated cost and performance standards against which current operations can be evaluated. It is our conclusion that the development and implementation of a resource allocation system, utilizing reliable cost and performance standards, is essential to the City's efforts to cope with its financial future in an intelligent, informed manner. Recommendations for the realization of such a system, as well as a recitation of other benefits to be expected, are detailed in our report. Mf- Richatd Postoeh Odtober 20 , lg 80 Page two Out "plan of Action Report" will be submitted to you shortly. Meanwhile, we want to express appreciation for the excellent cooperation extended to us by you and your staff. we Will be available to answer any questions concerning this report, or to assist you in any appropriate way. Yours very truly, SOOZ, AtttN & HAMILTON Inc. Porter W. Homer Approved, / John C. Newman Vice President 8XAMINATION OF MIAMI15 RPESOURCE ALLOCATION SYSTEM In our fourth report, submitted previously, we described our analysis of the performance and financial data systems presently utilized by the City, That report, in addition to recommending methods to improve the generation of information immediately pertinent to City administrators, pointed out the need for information that would provide a fundamendal basis for assessing the relationship between performance achieved in a City function relative to the costs incurred. Broadly, the need is for information that will permit adminstrators to examine such questions such as: Quantitatively, what level of improvement or decrease in service can be expected from a given level of increase or decrease in the budget of function? What level of service output should have been delivered by a Department for the expenditures they incurred, and how does that compare to their actual level of output? To answer these questions, information is required that defines meaningful output measures for major City functions, establishes reasonable work standards, and links cost in- formation to performance information. With this kind of information, the City will be in a position to improve substantially its capacity to monitor and control the alloca- tion of its resources. The purpose of this report is to examine ways to improve Miami's capacity to monitor and control the allocation of its resources. Our examination has included a survey of the present budget making and administration system as well as the performance monitoring methods utilized by administrators in the City. Interviews were conducted with the Mayor and members of the City Commission, the City Manager and Assistant City Managers, and with Directors of Departments and Divisions. In depth interviews were conducted with staff of the Department of Management and Budget. -1- 1 OUR F'lN=08 With few exceptions, the existing information systefts, as well as the financial and performance data systems recommended in our fourth report, share a common limitation. They provide information that permits the reader to compare current performance to performance in a prior period, but they do not provide an independent basis for determining whether the current performance or the prior period performance was good or bad. In that sense, they all rest on historical data and an assumption of their validity. Present methods of operations and delivery services are assumed to be acceptable. There are no cost standards or performance standards available to validate that judgement. The present budget and performance monitoring systems pro- vide no answers to such pertinent questions as: What service level is attainable with a given appropriation of funds? What are the cost options of different service levels? What kind of service,delivery options are avail- able and what are the costs associated with each option? Is the actual unit cost of service provision comparable to the unit cost implied in the budget? Is the work production of service provision comparable to the planned production? The limitations noted above in Miami's current information systems are not unique to the City. In most respects, the techniques that are used to formulate budgets and to monitor performance have been traditonally used by City governments for decades. It has only been in recent years that the pressures of limited revenue sources and rapidly escalating costs have forced local governments to seek more sophisticated tools to make the judgements that are required by these conditions. In our view, a resource allocation system, based on validated performance standards and unit costs, is required to deal adequately with current conditions and will provide the answers to these questions for policy -maker and administrator alike. Until answers to these questions are available, Miami's efforts to contain and/ or reduce costs must rest to a large degree on assumption and intuition, rather than fact. -2- 2. T or TTON SySTM S It is recommended that development of a resource allocation system, based On validated performance Standards and unit costst be undertaken simultaneously with the develop - dent of the various information systems recommended in our fourth report. The Budget Analysts in the Department of Management and Budget should be utilize6 for the latter effort as well as to assist in developing appropriate departmea tal and divisional output reporting systems. At the same time, the Operations Analysts in the Department Of Management and tudget should be trained in the work analysis techniques required to validate performance standards and unit costs. Upon completion of training, this group should undertake validation studies in selected pilot operations. In arriving at this recommendation; the presently in- active Activity Reporting and Management System (ARMS) was evaluated to see if reactivation or revision of that system might shorten the time requirement to realize a viable resource allocation system. It was concluded that ARMS was not suitable for this purpose because it: Contained too much raw data Contained no element of analysis oriented towards management or policy review Contained no Element of operations validation. It was felt that the simultaneous efforts to establish output reporting systems and validation operations were more appropriate. This approach will provide the City with the ability to plan, monitor, and evaluate its service costs and performance levels. This capacity will be crucial to the City's ability to deliver services within its limited future income. (1) Installation of Reliable Dep Output Reporting Is the Firs Resource Allocation System artment and Division t Step Towards a An output report should provide information about the number of activities or production units of work -3- completed during a set period of time (e.g,, a week), To be useful to managers And policy -makers p the output measures must characterize in a fundamental way the work performed by the Organizational unit and, ideallyp Must be related directly to the objectives of the work. Examples of useful output ffieasurea are Areas of park land iilowed==for the Department Of Parks and Recreation Miles of curbs swept --for the Department of Sanitation Billings processed— for the Department of finance. Basic data collected by such a system may include: A description or classification of work to be accomplished Time work began and ended Number of employees involved in the specific ` work Number of and types of equipment utilized in the specific work. These reports should be summarized in log books or charts to provide a sense of the frequency, type, and time requirements of work being completed in a unit of a Department or Division. It may be useful to compare work completed with work orders issued. This can provide turn around time data that is useful. In order to establish output reporting systems, the following steps should be taken: Identify those City operations, by Department and unit, where output reporting will be useful and productive to line managers, Department and Division Directors, and Managers as well as to budget activities. Interview administrators of units selected to obtain a task inventory of operations performed to be the subject of output reporting. -4- y Design an output reporting system for each operation, based upon production units, complete with procedure, for9ms, tiger instructions and Summary formats. Assist each operation in testing and installing the system developed. Establish distribution lists for reports. After the output reporting system has been installed and proven itself, administrators of the units involved should be encouraged to establish production goals against which work accomplished can be compared. Exhibit I, on the following page, shows what a planning and reporting output report might contain. Data used is hypothetical. (2) Development of Performance Validation Capacity Is Second Step Towards a Resource Allocation Svstem A performance validation capacity should provide the City of Miami with in-house staff ability to conduct operations analysis studies of its various services. The objective of having such analysis ability is to be able to: Establish engineered performance standards Identify work method improvement opportunities Identify work simplification opportunities Design new operating systems to take advantage of work improvement or simplification opportunities Link performance standards and cost data to provide viable unit performance cost data. It is important to note that the process of establishing engineered work standards will often yield immediate productivity improvement benefits by identifying work improvement methods and better procedures for work scheduling and management. -5- LEGEND EXHIBIT t Grounds Mainettanoe Weekly Work Schedule Johnson � Planned Foreman Personnel in Crew `4_a Week of 10 20 80 Hours - - - - Actual Hours 3y sy wa 4° A ssy 3 LOCATION Qom- ��'�o.� ���' Gyo QjQ{o Total Hours S Planned Actual. 2 XXX Park /22 /9� 2 29 33� XXX Boulevard ;28 6 36 34 10 4 3 2 XXX Center 9 4 4 2 19 19 15 12 2 7 XXX Park 18 11 2 8 36 39 4 6 8 20 XXX Stadium 4 8 7 24 38 43 TOTALS 158 168� Equipment Assigned: 1 Gang Mower, 1 Tractor, 1 Tractor Edger, 1 Pick-up -6- The development of this capacity will require the training of about six analysts. This will provide sufficient personnel to conduct three pilot validation studies initially and to expand the effort through the rest of the City operations over an extended period of time. Selection of operations for pilot validation studies should be made carefully inasmuch as the results in these studies will set the tone for this operation. The required training should require approximately three to four weeks. Exhibit 11p on the following page, sets forth a suggested training agenda. It anticipates both classroom work and field work. (3) Conduct of.,P Is Third Ste System Performance Validation Studies ards A Resource Allocation The purpose of performance validation studies is to provide valid, linked performance standards and unit costs which will replace historical assumptions as the basis for performance evaluation and decision making. Before committing itself to a complete resource allocation system, the City of Miami should first conduct pilot projects for two or three operations to illustrate the benefits of the proposed system and to refine the needed methodologies The pilot projects should consist of the following basic analysis. Operations Analysis --This involves initial data collection to establish operating procedures, staffing patterns, and equipment utilization. This data is essential to the development of method imprbvements and the identification of possible cost reduction or containment opportunities. Method Improvements --This involves identification of ways of performing work activities more effectively or efficiently. This will enable productivity measures and work standards to be established on the basis of appropriate and efficient work methods. Productivity and Performance Measurements --This involves the conduct of work measurement studies to develop performance standards. These standards can be used to plan, schedule and monitor work performance. -7- tXMIT it 8uggestecl Ahalyst Training Course outline 1. INTRODUCTION Introductory remarks Background descriptions of participants Purpose of training II. OVERVIEW OF GOVERNMENT ANALYSIS PROCESS 1. Defining an Assignment 2. Designing Preliminary Work Program 3. Organizing the work to be done 4. Outlining and writing the final report: Booz, Allen format 5: Selling and implementing recommendations III. PRODUCTION MANAGEMENT AND CONTPOL CONCEPTS: MUNICIPAL SERVICE APPLICATIONS 1. Production Management and Control: A Definition 2. Service Demands: Meaning, Source and Indicators 3. Response Scheduling and Deployment 4. Time to'Perform: Methods, Measures and Applications 5. Balancing Resources: Labor, Capital and Inventories 6. Evaluating Performance IV. OPERATIONS REVIEW AND ANALYSIS 1. Objectives 2. Conducting an organizational review and analysis: principals and techniques - 8- 46 MISIT It (2) 3. Data Collection Techniques Gathering documented data (e.g., reports and forms) Determining work distribution Interviewing (2 exercises) Listing the components of the activity to be measured (homework): 4. Products Notes from interview and work observations Collection of relevant departmental data Work distribution charts Activity element lists. V. METHODS IMPROVEMENT DEVELOPMENT 1. Objectives 2. Description of process used to develop improvements (exercise) Identify the activity needing improvement Flow charting Define the problem Analyze the facts Develop alternative improvement opportunities: The Methods Improvement Notebook Select the best alternative. 3. Sell improvements Install the selected alternative Follow up. UHVV tT it (1) 4. Products Documented improvements Summary of client responses to improvements. Vl. STANDARDS DEVELOPMENT 1. Objectives 2. Definition of standard and a description of its components 3. Brief description of the history of work measurement 4. Brief descriptions of the elements of work measurement - . Continous Time STudy Fixed Interval Measurement Random Interval Work Sampling Time Ladder. 5. Explanation of how to conduct a fixed interval measurement study Selecting the interval Summarizing the results (exercise). — 6. Pace rating and its use (exercise) 7. Explanation of allowances 8. Products Standards for each routine/major work activity Benchmarks for less routine work activities Documentation, i.e.m time studies and summaries, for how each standard/benchmark was derived. — 9. Field exercise -10- VII. OUTPUT REPORTING 1. Objectives 2. Overview of output reporting formats 3. Explanation of how output measures are compiled and summarized 4. Key points to be aware of when monitoring output reporting 5. Products completed output reporting sheets VIII. WORK LOAD FORECASTING 1. Objectives 2. An explanation of techniques used to forecase the work load Department records Time studies Supervisor's estimates. 3. Products --a month -by -month forecast of the department's annual work load IX. MANPOWER STAFFING 1. Objectives 2. workload analysis 3. Explanation of how to determine staffing levels Calculation of allowances for sick and vacation leave Explanation of how to complete a staffing form (exercise) 4. Crew Analysis 6. Products --Manpower staffing plan projecting staffing require- ments over a year's time -11- t MtMT tl (s ) X, V"AGEMENT SCHEDULING AND REPORTING 1. objectives 2, Management scheduling Development of work scheduling formats (exercise) Assisting supervisors in implementing work scheduling methods. 3, Management reporting Development of efficiency measures (exercise) Development of effectiveness measures Explanation of formats used to guage departmental performance and graphically display progress Department's role Analysts' role. 4. Products work scheduling formats Efficiency and effectivenss measures Management reporting format. - XI. BUDGET AND FINANCIAL INTERFACE 1. Explanation of how to determine the costs associated with varying levels of service (exercise) -12- Service te,Vpl$, aAd, ,8taffuirig—This involves the determination of personnel, equipment and supply resources required to conduct work at a given service level. The costs of the resources required to provide the service level are also determined. Reorting 8ysteins--This involves establishing reporting systems and procedures that are capable of being merged into existing reporting systems. The reports should enable appropriate personnel to monitor performance against standards and expenditures against budget. The pilot projects should enable administrators to determine if operations can be improved or if cost reductions can be expected. In addition, the pilot projects will allow the City to test the concept of resource allocation before committing itself to the system on a city-wide basis. The selection of operations for pilot project application should result from careful consideration by the Administration. Factors to be considered are: The number of analysts available for the project as well as their experience and training. The level of data available in the operations considered. The degree of repetition among the candidate operations. The degree of seasonal variations in the various operations. The attitude of key administrators toward the pilot project concept. Some examples of City operations that could be considered for pilot projects are discussed below: Parks Maintenance --Many activities in this operation are repetitive and therefore easily measured and monitored. They are, -13- howevetr seasonal in nature. The large nuifibet of employees and various pieces of equipfiefit Makes imptoveiftent opportunities More likely. Management staff in this department is reportedly already preparing to establish performance standards based on national averages, gqui meat Maintenance=Some activities in this _p:v__ operation are repetitive and lend themselves to measurement. Much of the work is demand - responsive and, therefore, difficult to predict or Schedule, operations are reported to be systematically documented with costs being closely tracked. The complexity of establishing repair standards and performance measures may be offset by the importance of this support service, whose costs and charges affect many other departmental budgets and operations in the City. Building_Maintenance--Activities in this operation are of two types: routine preventive maintenance and emergency repairs. The former are repetitive activities on which standards can be developed; unscheduled repairs do not lend themselves easily to measurement and the development of standards. The problems of establishing performance measures and work scheduling and control systems are, in fact, the reason that management needs more accurate production data to determine actual staffing needs and productivity. Work measures can also be helpful when negotiating with outside vendors for contractual services. Other operations in the City also deserve consideration as potential pilot projects to be undertaken in the near future. The benefits and problems associated with each of these should also be carefully considered before a final determination is made. Other possible candidate areas for analysis include: Building inspection and permit issuance operations Street maintenance operations Sanitation collection and disposal operations. -14- .ic Given the urgency of this ,`Clatter and the desirability of having experienced assistance in training City Personnel and in conducting pilot projects, the City may wish to secure outside guidance for this phase of the effort. (4) Linkage of Performance _stand, e Budoet SVsteM I Incorporation of linked performance standards and unit costs into the budget system is intended to provide a current cost and performance basis for decision making compared to the present reliance on historical data. In addition, this approach will enable City policy makers and administrators to have program or service oriented data, in addition to traditional line item information, at their disposal in their budget policy decision making and in their budget administration monitoring activities. In order to accomplish this, the following steps should be taken: Determine revision of budget format necessary to accommodate performance and unit cost data. This format should be constructed to provide the Mayor and City Commission with meaningful data to assist them in their budget policy deliberations. Determine performance and unit costs data to be utilized in presenting budget to the Mayor and City Commission. Determine performance and unit cost data to be utilized in budget administration monitoring reports. This data should be more detailed than that presented in the budget to the Mayor and City Commission. Establish reporting procedures continuing production of data budget document. Only in this administration monitor actual against the goals established and report that performance to City Commission. -15- to insure utilized in the way can the performance -. in the budget the Mayor and tXHI81T III PARX8 OPtRATIONS $2040t439 DIVISIONAL, 8tjb=`.I` ANb POSITION 8UMMRY Expended Expended Adopted Amended Requested 1976-,77 19 77=78 1978=79 1978-19 1975-80, Personnel Services $ $ 1,930,659 $ 1,962,655 $ 2,100,543 $ 2,070,011 - Operating Expenses 515,927 817,165 816,996 869,772 Capital Outlay -0- 2,400 2,400 656 Debt Service -0- =O= _0 "O� Capital Reserve -0= -0- =0- Total $, -0- $ 2,446,586 $ 2,782,220 $.2,919,_939 $ 2,940,439 - Positions 149 142 142 130 - FUNCTION This division is reponsible for the day-to-day maintenance of the City's park facilities. Maintenance includes mowing, removal of trash and debris, planting of shrubs and upkeep of physical facilities. BUDGET HIGHLIGHTS This request is $20,500 more than the FY 1978-79 Amended Budget. Personnel costs for the number of positions requested have increased by $120,612 as a result of union negotiations. Program Data y�g e� o4 oo� ya o�' o'`' • s°' ,4 ;��°' dye a�,y 5 Validated Unit Cost 25.80/acre 1.05 lin ft 0.18 lin ft 7.85 sto 6.05 our Planned Service Lev. Once Week Every 2 wks Every 4 wks Twice week 3 tms wk Program by Location Prsnl/hours Prsnl hours Prsnl ours Pnisl hours Prsnl hours Prsnl hours XXX Park 2500 2800 1000 1500 7800 XXX Boulevard 1800 2400 - 4200 XXX Center 450 300 500 1200 - 2450 XXX Park 775 - - 600 600 1975 XXX Stadium 275 600 80 4800 3000 8755 XXX Park 3000 0 3640 4200 00 12 340 XXX Park 2750 800 1800 1240 1500 8090 TOTALS 9750 3500 11220 13040 8100 45610 -16- The perfottance and unit cost data utilized in the budget should be products of the regular reporting systems established in a Citywide basis. They should not require a separate reporting system. Exhibit III, on the following page, illustrates how a revised budget format might appear, it should be noted that this format continues the traditional Division appropriation and line item expenditure and appropriation data. The selected performance and unit Cost data supplements and explains the appropriation figures in program or service language. The Mayor and City Commission can determine the service to be provided for the funds they are being requested to appropriate. They can determine the unit costs of that service and they can decide whether that service is appropriate. 3. BENEFITS OF RESOURCE ALLOCATION SYSTEM Full implementation of the system recommended herein will require considerable time. The City of Miami cannot afford the investment of time or funds to place this system in operation overnight on a city-wide basis. More- over, to do so would be a mistake. Untimely haste would do away with the careful, in-house analytical effort that our recommendation envisions. Without that effort, this program will fail. In our view, this program should be viewed as a long term investment by the City in maintenance of service levels and cost containment. Without the data described in this report, such an effort will be extraordinarily difficult. There are other benefits to be realized from this over- all system. This is not just a program to enhance the budget making capacity of the City. Equally important is the ability to: Plan operations and costs Monitor results against planned objectives Enhance the effectiveness and efficiency of operations. These abilities are essential if Miami is to successfully cope with its financial future. -17- M002 , ALLMN & HAMILTON ihe. Ajjb €Att WES't HIGHWAY 0 tHM9bA, MAAVLAN6 26 614 951•ffoo A*tA COOS 301 October 27, 1980 Mr. Richard Fosmoen City Manager City Hall (Dinner Xey) City of Miami 3500 pan American Drive Miami, Florida 33133 Dear Mr. Fosmoen: This is the "Plan of Action Report", and the final report, to you under the terms of our professional services agreement to provide services for the improvement of the City's administra- tive services and processes dated July 21, 1980. Under the terms of that agreement, this final report is to be a plan for realizing identified improvements set forth in previous reports. Those reports were: Immediate Accounting Assistance and independent Audit Requirements Review of Purchasing Operations Review of Audit Procedures and Programs Review of Information Systems Examination of Resource Allocation Systems. Each of these reports contained a number of recommendations which are summarized in Exhibit I of this report. Three different implementation plans, each offering different completion schedules and requiring varying amounts of funding, are submitted for your consideration. They are: The recommended implementation plan --This calls for implementation of all recommendations within the shortest time possible --six months. We believe -,.-that this is what is needed, but that it cannot be achieved without substantial outside professional assistance. 0002 . ALLCN & HAMILTON ihe. 4230 EASt WEST WIGHWAY WHEtbA, MAAYLANLS 96014 951 •2200 AREA Cdot 301 October 2 7 t 1980 Mr. Richard posmoen City Manager City Hall (Dinner Xey) City of Miami 3500 pan American Drive Miami, plorida 31183 bear Mr. Fosmoen t This is the "Plan of Action Report", and the final report, to you under the terms of our professional services agreement to provide services for the improvement of the City's administra- tive services and processes dated July 21, 1980. Under the terms of that agreement, this final report is to be a plan for realizing identified improvements set forth in previous reports. _ Those reports were: _ Immediate Accounting Assistance and independent Audit Requirements Review of Purchasing operations Review of Audit Procedures and Programs Review of Information Systems Examination of Resource Allocation Systems. Each of these reports contained a number of recommendations which are summarized in Exhibit I of this report. Three different implementation plans, each offering different completion schedules and requiring varying amounts of funding, are submitted for your consideration. They are: The recommended implementation plan --This calls for implementation of all recommendations within the shortest time possible --six months. We believe -.,that this is what is needed, but that it cannot be achieved without substantial outside professional assistance. Mr, Pidhard Poamaen October 270 1906 Page Two The . i t_ lte atitte_._implemen_ta,ti_d .,_p1.an��This calls for iMt5leMentatiofi of only those recommendations considered essential to the integrity of Miami's financial operations. we believe this effort would require a lesser degree of outside assistance, but it Would leave the other recommendations to be implemented by City personnel when staff time is available. The second altern_atiyg ,implementation. plan --This calls for implementation of those recommendations Considered essential to Miami's decision making capacity at the policy and management levels. It is believed that this will require less outside assistance than the full implementation plan. However, it would leave other recommendations to be implemented by City personnel as time and staff resources allowed. There are other implementation plans that are feasible. We have not attempted to exhaust the possibilities of implementation strategies recognizing that the final decision rests with the City of Miami and its assessment of its needs. We will be pleased to discuss other implementation approaches with you as time allows. The major thrust of all recommendations submitted to you is toward the improvement of administrative services and processes. Our findings revealed a constant lack of financial and performance data at the policy and management levels of the City. This data is the necessary foundation for sound decisions, both on the part of management and elected officials. Our recommendations are designed to close that gap as rapidly as possible by suggesting systems to provide the required information in a use- ful format on a timely basis. That information will enable policy makers and management to plan, monitor, and direct the City's affairs on the basis of sound data. Without that data, neither group can properly execute its responsibilities. Our apprisal of the present situation in Miami is that the programs we have recommended will require some degree of outside professional assistance in the detailed planning and installation of the recommended improvements in systems and procedures. In general, the shorter the installation time is and the more complete the implementation plan is, the greater the need is for additional, temporary professional assistance. This assistance should be focussed to allow the City to: Mr, Aichard fosmoen October 2 7, 19 $0 Page Three Complete the projects at the earliest possible time A% Develop in-house staff capacity to operate the programs after installation Obviate the necessity of hiring additional permanent employees that Might otherwise be required. In addition, it should contribute to the further development of present staff capacity to expand and utilize the new information systems being recommended. We are available, as previously discussed with you, to appear — in Miami to review our reports with anyone you designate. of course, such a review would include answering questions about any aspect of the reports. In addition; we stand ready to assist you in any manner required in order to implement our recommendations. We appreciate and commend the candor and cooperation received from you and your staff during the assignment. As a result, our assignment with you has been enjoyable as well as meaningful. Yours very truly, OOZ , ALLEN & FiAMILTON Inc. Porter W. Homer Approved: John C. Newman Vice President PLM dV.,_ ACTION 109T The purpose of this report is to integrate the recoMenda- tions contained in our five previous reports into an implementa- tion plan. Whose five reports were: Immediate Accounting assistance and Independent Audit Requirements Review of Purchasing Operations Review of Audit Procedures and Programs Review of Information Systems Examination of Resource Allocation Systems Given the broad scope and complexity of the subjects and recommendations covered by these reports, our implementation plan is presented as a series of options for consideration by the City. All of the recommendations are important to Miami's fiscal health and integrity. However, some may be more important than others to the responsible policy leaders and administrators in Miami. Therefore, it is important that there be implementation options for the City's consideration. The options presented herein provide estimates of the time and expense required to act on recommended improvements where possible. However, all recommendations are included since it is believed that all are important. 1. IMPORTANCE OF FINDINGS AND RECOMMENDATIONS TO MIAMI'S FINANCIAL FUTURE: The City of Miami, along with most other local governments in the United States, faces an increasingly stringent fiscal future. It has found it necessary to bring its property tax rate up close to the maximum legal level, to resort to a sanitation fee to maintain services, and to curtail many desirable services in order to live within its income. Although Miami and its tax base will continue to grow in the future, it must be expected that continued inflation, employee compensation requirements, and new service demands will outpace that growth. At the same time, Miami is committed to enter the money markets for capital improvements funding several times in future years. Together, these trends point to a growing future disparity between income and expenditures unless steps are taken to: -1- Contain and reduce costs Improve operational efficiency and productivity Improve the City's financial integrity Our recommendations are designed to provide the City of Miami with the capacity to accomplish the above goals. It is believed that they can best be attained by early and vigorous action. 8xhibit I, on the following page, summarizes the major recommended action contained in our five reports. The importance of and implications of each of these recommendations to Miami's situation is discussed belowe (1) Relation of Recommendations to City's Financial Integrity In any organization, public or private, sound financial procedures and operations are a first prerequisite to general credibility. It is our recommendation that Miami give first priority to the improvement of its financial credibility. To accomplish this, we have recommended: Establishment of an Advisory Audit Committee, consisting of qualified citizen members and top level City officals, to assure openness and independence of audit operations. Establishment of a financial info-rmation system that will provide necessary planning and monitoring capacity for all levels of the City's policy -making and administrative apparatus. Establishment of a system of quarterly audit closings and financial reports that will provide early warning of problems requiring corrective action, as well as expedite completion of year-end audits. Hiring of sufficient numbers of qualified personnel, particularly in accounting operations, to assure the production of quality, timely financial records. It is felt that these measures are essential to establishing continuing credibility with two important groups - potential buyers of Miami bonds and the tax paying citizens of Miami. (2) Relation of Recommendations to Cost Containment and Reduction Programs Clearly, the City of :Miami, along with most other local governments, faces a financial challenge in attempting to maintain service levels, cope with inflationary costs, and to operate within its future restricted income sources. To accomplish this, Miami policy -makers and adiminstrators -2- i summary of Major Aeoommeftdetioha by Report 1. Analysis of mediate Accounting Assistance and Independent Audit Requirements. s Acquisition of sufficient outside accounting assistance to enable the City to realize earliest possible Wr year end closing of financial books and records Extension of independent audit contract. 2. Review of Purchasing Operations: Minimize procurement costs by forecasting requirements, maximizing vendor competition, and taking advantage of cash discounts Establish policy for procurement with minority vendors Expedite procurements through improved communication with user departments Purchasing should ensure open specifications Purchasing should limit receiving points for delivery of purchases Purchasing should be provided more current financial information to execute expenditure control properly Purchasing staff should be expanded and up -graded. 3. Review of Audit Procedures and Programs: Creation and appointment of Advisory_ Audit Committee to oversee independent audit %ake present Internal Audit Division a separate Depart- ment reporting directly to Assistant City :tanager for Fiscal Affairs Require future independent audits to meet then current standards established by American Institute of Certified Public Accountants and National Council on Governmental Accounting -3- 2XHIBIT 1(2) Adopt policy of tequirin g quatterly audit tevidW§ by independent auditors Secure adequate quality financial personnel to be responsive to new requirements. 4. Review of Information Systems: Provide Mayor and City Commission quarterly financial data Provide City Manager and Assistant City Managers monthly and quarterly financial data appropriate to their responsibilities Provide Directors of Departments and Divisions monthly financial data appropriate to their responsibilities Establish quarterly expenditure allotments and controls Control expenditures to only the major character detail rather than the line item detail Establish quarterly revenue estimates and follow-up Provide Mayor and City Commission bi-monthly performance data Provide City Manager and Assistant City `Tanagers monthly performance data appropriate to their responsibilities Provide Directors of Departments and Divisions monthly performance data appropriate to their responsibilities Development of performance data systems should be gradual. 5. Examination of Resource Allocation Systems: Development of a resource allocation system, based on validated performance standards and unit costs, should be undertaken Output reporting systems are first requirement -4- EM41BIT 1(3) Uevelopthait of perfortance validation tapdcitY is the the second requirefflent Conduct of pilot performance validation studies is the third requirement Selection of operations for pilot performance validation studies is a fourth requirement Linkage of performance standards and unit costs in budget system is the final requirement. —5- 9 mutt have valid ift!6 tatiofi on whidh they dan hake infomed decisions. To adCftplish this, we have tecoiWeftded: establishment of financial information systems that will provide timely, pertinent inforMation. establishment of performance i:nformation systems that will provide performance planning and monitoring capacity for all levels of the City's policy -making and administrative organisation. Development of an improved resource allocation system using a professionally trained in=house staff, that will provide linkage between financial and performance data resulting in measured unit cost standards for the delivery of services. These systems are necessary to provide a factual basis for important policy and administrative decisions in Miami rather than being required to rely on flawed and sometimes misleading historical data. Indeed, with these systems Miami can commence planning long term programs of cost containment. These programs can respond to future resource analysis on a planned basis rather than on a crisis basis. (3) Relation of Recommendations to Operational Efficiency and Productivity Programs If the City of Miami is to maintain its current service levels within future income limits, it must take appropriate steps to assure effective utilization of its funds. Otherwise, future income limitations may force unnecessary service level reductions to be arbi- trarily in important or highly desirable programs. To provide the basis for effective fund utilization, we have recommended: Development, by appropriate training, of sufficient in-house staff capacity to conduct operations analysis of the City's services leading to the establishment of acceptable work standards. Establishment of a itesource A116dati6n Syatem, based on the develdped w6tk standards, as a basis fOr future dediti6nt c6neerning the utili2ati6tt Of funds, personnel, and dquipftent. Only with the establishment of sudh standards can Miami assure itself of maximum effedtiV6 utili2ation of its resources in providing Servides to its citizens, Installation of new purchasing prodedures to increase competition for Miami's equipment and supply buying requirements Hiring of a sufficient number of qualified purchasing personnel to carry out the recommended new purchasing procedures: These systems are essential if policy -makers and administrators are to be able to make decisions that will produce a maximum level of service for the investment made by Miami taxpayers. These systems will often identify work improve- ment methods during installation thereby providing early productivity improvements benefits. The recommendations in our reports are considered vital to Miami's financial future. However, they represent only a means to the realization of a sound financial future, not a solution in and of themselves. The Mayor and the City Commission in final analysis and initially the City's Administrative staff must make the sound, thoughtful decisions that will protect Miami's interests. These recommendations and the accompanying suggested systems will provide better information than is now avail- able. This information should be used as a basis for these decisions. If these recommendations and suggested systems are to be of maximum utility, they will be needed by the decision makers at the earliest possible time. 2. IMPORTANCE OF TAKING EARLY ACTION ON RECOMMENDATIONS Until the recommended procedural improvements and information systems contained in this series of reports are implemented, the decision makers in Miami, at the Mayor and City Commission level and at the management level, are in the position of acting with- out benefit of the best and most pertinent information. In approximately six months or less, the process of making the 1981-82 budget must commence. It is likely to be a more difficult budget to devise than the present one. Without the information and m6ft tarinli systems anticipated by the red6MMendati6ns in These five reports, the finali2ation of the 19$ -82 btdget will be even Mere difficult than necessary. Wherefore# we have provided implementation strategies for executing these redommendations that vary in time and expense requireMents , as well as the range of iitprovements addressed. It is felt that all recommendations can be implemented in approximately six months with professional outside assistance. At the other eXtreme are choices as to which recommendations to implement and the amount of outside assistance to be applied to these efforts. Some aspects of the implementation efforts cannot be successfully under- taken or completed without professional assistance from an outside source (e.g., 'Training of Operations Analysts in work analysis techniques) ; other portions of the implementation effort can be undertaken solely with in-house staff but will require substantially more time and direct management involvement to complete successfully than i'f professional assistance were acquired; still other portions of the implementation effort can and should be undertaken by City personnel without out- side assistance. The choice of strategies and associated front-end investments will determine whether and how quickly the City can realize the substantial cost containment and reduction opportunities it seeks. Obviously, the number of possible options are many. We have limited ourselves to the presentation of three. We will be available to discuss others and to assess their associated costs. However, the main point to be realized, and acted upon, is the essential need for these management systems. 3. IMPLEMENTATION STRATEGIES The strategies, options, and costs set forth in this section are exclusive of the costs to provide additional or replacement personnel recommended for various operations such as accounting and purchasing. They relate to implemen- tation efforts required to realize the benefits of the recommendations made in our reports to the City of Miami. The use of outside professional assistance on a temporary basis is recommended in several areas in order to reduce implementation time, realize benefits as quickly as possible and avoid hiring additional full-time professional personnel. There are a variety of options available to the City in con- tracting for this assistance. The important point is to obtain experienced, well qualified assistance in areas where -8- w lhoflitorinq systems Ahti.dipAted by the redofnefidAtiofls in these :field . reports , the finali tatiofi of the 19 8 l- 92 bodge t Will be eVdf► more difficult than necessary. Therefore, we have pravided iMpleffientation strategies for executing these recommendations that Vary in time and eXpente requirements, as Well as the range of improvements addressed. tt is felt that all recbMftm ndations can be implemented in approximately six months with professional outside assistance. At the other extreme are choices as to which recommendations to implement and the amount of outside assistance to be applied to these efforts. Some aspects of the implementation efforts cannot be successfully under- taken or completed without professional assistance from an outside source (e.g., 'Training of Operations Analysts in work analysis techniques), other portions of the implementation effort can be undertaken solely with in-house staff but will require substantially more time and direct management involvement to complete successfully than if professional assistance were acquired; still other portions of the implementation effort can and should be undertaken by City personnel without out- side assistance. The choice of strategies and associated front-end investments will determine whether and how quickly the City can realize the substantial cost containment and reduction opportunities it seeks. Obviously, the number of possible options are many. We have limited ourselves to the presentation of three. We will be available to discuss others and to assess their associated costs. However, the main point to be realized, and acted upon, is the essential need for these management systems. 3. IMPLEMENTATION STRATEGIES The strategies, options, and costs set forth in this section are exclusive of the costs to provide additional or replacement personnel recommended for various operations such as accounting and purchasing. They relate to implemen- tation efforts required to realize the benefits of the recommendations made in our reports to the City of Miami. The use of outside professional assistance on a temporary basis is recommended in several areas in order to reduce implementation time, realize benefits as quickly as possible and avoid hiring additional full-time professional personnel. There are a variety of options available to the City in con- tracting for this assistance. The important point is to obtain experienced, well qualified assistance in areas ::here -8- they afe heeded in the sYio.rt�te�i tb e�e�ute the te�ht�i:cal 1s�ects cif i�ple�tentatiofi �� dppd�ed to 6perat.at� tt is esti��ted that all re cc�m�endat�:dt�s can be �tplc� t�entec� iri appr�x�atey six Months With appropriate c�utscle assistance. ft is est�iatec� that this assistance wild ci�st between $1��,Obb and $�bd►Obd depending on � negotiated scope of wont and the availability of pity staff to assist iri the implei�entati.dn effort. Direct pity casts under this approach, other than staff time, would be noitirlal. �nnua]. operating costs to operate and maintain the system should riot exceed $50,OOd. exhibit lI; tin the fol].Owing page, illustrates the probable sequence and scheduling of this effort. tf the pity of Miami decides to exercise one of the implementation strategies or options set Earth below, or another grouping of implementation efforts, costs and completion times will vary from the estimates set forth above which is premised on completing the total implementation effort in shortest possible time. (1) Alta Re co This strategy would include implementation of the following recommendations: Creation of an Advisory Audit Committee and establishment of operating procedures Reorganization to establish the City's internal audit operation as a separate Department reporting directly to the Assistant City .Manager for Fiscal Affairs. Design, development and installation of a quarterly financial reporting and control system Utilization of outside assistance in all aspects of this effort would require a one-time outside expense ranging from $50,000 to 570,000. Staff time of affected City operations would be involved without meaningful additional expense. It is anticipated that continuing operating costs :o�otIid be :�:inimal, rot eticeeding $G, 000 per year. EXHISIT 1 Sequeiice end 8ehedtiliftq of tMpleMentation' PrograM for all Reec5ttMendation5 Utililiftq Outside Assistance Audit Procedures Draft Advisory Audit Committee Legislation Establish Advisory Audit Committee Operating Procedures Develop Specifica- tions for Independent Audit Contract Information Systems Establish Quarterly Allotment Procedures, Forms, and Regulations Plan Reporting Program Ad-ustments Implement Quarterly Reporting System Orient 3udcet Analysts on Performance Data Systems Select Appropriate Per-forriance indic3tors Derartment fir eac:: Reporting Level Establish Perormance Data Procedures. Forms and Reaulations Impiemenc Perf^r^iance Data S,.stem (Tine Tn Mcnths ) -10- Resource Allocation Systems Train Operations Analysts r Select Operations for Pilot Studies Perform Pilot Project Analysis Establish Output Reporting Systems Establish Validated Performance Standards Incorporate Validated Performance Standard Data into Budgeting and Reporting System Purchasin. Procedures Stablish Listing of Imcrovements to be Installed -stablish schedule for Installation of Imcrovements Implement S"chedule lmr:ro�-ements ( Time tx M6nths ) -11- Utili2Ati0n of outside assistance for only the neces9ary work to install the quarterly financial information and control systems, would require a one- time expenditure ranging from $35,000 to $45,000 for professional assistance. Staff time would be involved more extensively in this option and completion time would be lengthened. Thereafter, operating costs should not exceed $6,000 annually. City staff would handle the implementation effort for creation of the Advisory Audit Committee as well as the creation of a separate Internal Audit Department. (2) Alternative Strategy_Two=- Implementation , of Recommendations Essential to Improving Oyet Decision Making Capacity_ at. Policy and Manacrement Levels This would include implementation of the following recommendations Design, development and installation of a quarterly financial reporting and control system. Design, development and installation of a performance measurement information system. Design and development of a Resource Allocation System and installation of pilot projects. This alternative differs from the first alternative strategy in several respects: They offer, successfully implemented, not only improved management information, but also substantial opportunities for containing or reducing existing expenditures. Resource allocation and productivity analysis systems, for example, traditionally identify cost reduction opportunities in excess of three times their own development and operating costs within two or three years. They respond directly to the Commission's and top management's concerns about reducing operating costs to meet limited revenues in a rational, monitorable wav -12- Two of the three recommendationa—the perf6tManoe measurement information and the resoutoe allocation system—dannot be designed, developed and implemented by existing in-house staff without applying additional professional manpower and expertise. Utilization of outside expertise should be viewed as a one-time development effort whose costs should not exceed $100,000 to $135,000. Internal expenses of City staff time would initially be negligible. In fact,once in operation, all three systems are expected to have only minimal costs not exceeding $25,000.00 annually. Only the minimal utilization of outside assistance, limited to only the design of the financial system, the performance information system and the resource allocation system, including required training of City personnel, would require a one-time outside expense ranging from $75,000 to $100,000, This approach, how- ever, would require increasing both the staff size and levels of expertise in the Department of I2anagement and budget and perhaps also in the Finance Department. The new staff members could take as much as four to six months to bring on -board since professionals with the required experience are both difficult to find and generally already well -paid by governments. Development time for the systems would be expanded from the minimum estimate of six months to well over a year to eighteen months in as much as the preparation of the annual budget will take priority over the implementation of any new systems. These delays will probably result in postponing until 1982 the benefits that the City can realize from the recommended new systems. Other implementation options are dependent on the needs deemed most pressing by Miami's officials. We will be happy to discuss any alternatives of interest to Miami leaders. Estimated cost and time requirements for such alternatives can be provided upon request. -13- EXHIBIT I droUndg MaiftefttAnce Weekly Wotk gdhedtlle .4, 36hhson 4 '0/80 d 0 tafftcul Pqrsofthel In Crew .4d�ek o'f re 01 ti ctual, Hours 4v — 74our� oral :�OurS WCATION xctual XXX Park 22 2 29 334 30 XXX Soulevard 28 6 36 34 10 4 3 2 xX: x Center 9 4 4 2 i9 19 15 12 2 7 XXX Park 36 39 4 6 20 XXX Stadium/4 /8/ 2/4 38 43 TOTALS 158 16a� Equipment Assigned: I Gang Mower, I Tractor, 1 Tractor Edger, I Pick-up -* 8 0 - 8 .3 7 Personnel Services S Operating Expenses Capital outlay Debt Service Capital Reserve Ek 181T ill PARKS OPERATIONS 52,940,439 DIVISIONAL BUDGET AND POSITION SUMMIkY Expended Expended S 1,?30,659 _0J =jJ= _0- Adopted 1978-79 5 1,962,655 811,165 2,400 =0= Amended 1918_tt9 S 2,100,541 816,996 2,400 =q = =u= Reques ted 19'9-80 5 2,J�O,Jli 869;=r`2 656 =L= Total S 0 S 2,446,586 S 2,782,220 5 2,319,9.39 2,?40,439 _ ._ . Positions 149 142 142 130 FUNCTION This division is reponsible for the day-to-day maintenance of the City's park facilities. Maintenance includes ;Wowing, removal of trash and debris, planting of shrubs and upkeep of physical facilities. BUDGET HIGHLIGHTS This request is $20,500 more than the FY 1978-79 Amended Budget. Personnel costs for the number of positions requested have increased by $120,612 as a result of union negotiations. Program Data 4-, ao� �04 o a' �o �ya'"y�a `SyaaAy`•a y `y, °asap. Standard Hours/Unit 25.80/acre 1.05/lin ft 0.18/lin ft 7.85 stc 6.05'hour Planned Service Lev. Once Week Eve ry 2 wks,Every 4 wks Twice week 3 tans wk Program by Location Person hrs. Person hrs. Person hrs. Person hrs. p-rqnn 1, Person hrs. XX Park 2500 2800 1000 1500 7800 :XX Boulevard 1800 2400 4200 'M Center 450 300 500 1200 - 2450 M Park 775 600 600 1 9 75 XXX Stadium 4800 3000 8755 XXX Pa=k 3000 0 3640 4200 IqOo '' :40 XXX Park 1 2750 800 1800 124o 1500 3090 TOTALS 9750 3500 11220 12040 8100 4 cn 1 u 61 + tt MOOZ - ALLEN & HAMILTON1tic. ,ltanageffirnr 00fisidunts 4330 tA§t WvtSt 410"*AP §VH1 g3A, MARiYLAN6 26614 451•2t00 AAtA coot ibi November 7 f 1980 Mr. Hichard Fosmoen City Manager City Hall (Dinner Key) City of Miami 3500 Pan American Drive Miami, Florida 33133 Dear Mr. Fosmoen: r Booz, Allen & Hamilton is pleased to respond to your request for additional assistance to improve the City's audit procedures and programs. This proposal results from our recent assignment with the City of Miami, which included a report reviewing current City "Audit Procedures and Programs". This proposal concerns the provision of implementation assistance in the installation of specific improvements recommended in that report. 1. OUR UNDERSTANDING OF THIS ASSIGNMENT Booz, Allen recently concluded its latest assignment for the City of Miami which included a report reviewing current "Audit Procedures and Programs" and recommending various improvements in these procedures and programs. They included: Establishment of an Advisory Audit Committee P.eo rganization to create a separate Internal Audit Department reporting to the Assistant City Manager for Fiscal Affairs Establishment of City policy to require quarterly audit reviews by independent auditors Establishment of professional performance standards for future independent audits. , go—s37 Mr, #i dhafd Poetftaen Havet hdr 71 1990 Page Two In addition, other red6MMil ndations pertaining the Finance bopartment as they relate to the were submitted. The City Management has now interested in seduring additional assistance above recommendations as rapidly as possible. to the operations of auditing functions indicated that it is to implement the A proposed Scope' of Services to assist in implementing these recommendations in a series of tasks is attached. The tasks are set forth in the sequence that we recommended be followed. it should be noted that the sequence of tasks to be -accomplished and the time required to complete them are dependent upon action by the Mayor and City Commission and the Advisory Audit Committee. Consequently► the estimated time and charges to complete the attached Scope of Services contains some flexibility in recognition of that uncertainty. 2. STAFPTNG_ AND MANAGEMENT It is proposed to staff this assignment with the same key staff that developed the recommendations to be implemented --Porter W. Homer, as Project Manager and Eric S. Hanssen, as Consulting Associate --with John C. Newman, Vice President, as officer -In - Charge. Both Mr. Homer and Mr. Hanssen have many years of experience in local government and with Miami City Government specifically. 3. TIME AND CHARGES Booz, Allen proposes to conduct this assignment on a "time and materials" basis within a maximum period of 120 days for a cost not to exceed $18,900, including all professional charges and related assignment expenses. Time charges will be based upon standard professional rates and invoiced as expended on a monthly basis. As with our most recent Miami assignment, the advantage of a "time and materials" contract is that Miami will be billed only for actual expenditures incurred in executing the "Scope of Work" as proposed. This is particularly important in this assignment in as much as time and cost for completion of the "Scope of Services" proposed is highly dependent upon action and decisions by the Mayor and City Commission, in the first instance, and the Advisory Audit Committee in the final analysis. Our proposal is based upon our assumution as to the maximum consultation effort required with these two bodies after completion of the research and drafting work. A maximum of six two-day visits to Miami for the entire assignment is included in this estimate. If less consultation assistance is utilized, the costs to the City of Miami will be billed at the lesser actual cost figure. The attached Scope of Services describes how we propose to conduct this assignment and the results the City can expect to Mr. Richard Pogt6oft NoVeMber 7, 1980 Page Throe achieve from the effort. We are pleased to have the opportunity to submit this proposal and look forward to working with you in the near future. if you have any questions about this proposal or With clarification of any aspect of it, please contact Mr. Homer or Mr. Hansen at (301)-951-2114. Porter W. Homer Approved: &U&4014.0 Christian � Senior Vice Enclosure Very truly yours, 80-837 S c t or _8tgtttczg This "Scope of Services" sets forth our proposal to assist the City of Miami in improvinq its audit procedures and programs in accordance with our report on this subject to Mr. Richard Vo8moen ► City Man aqe r ► dated September 19 , 1980. That report set forth several policy recommendations. This proposal covers implementation assistance to effectuate those policy recommendations. The foliowinq tasks and steps will be required: 1. TASX l--PREPARE DRAFT DEGtStATIdN POR YbUR t9nAt The purpose of this task is prepare a draft of the major legislative provisions establishing an Advisory Audit Committee for legal review by the City Attorney and administrative review by the City Manager. Upon approval., the legislation is to be submitted to the Mayor and City Commission by the City Manager, This task will require the following steps: Detailed research to establish and define the appropriate., - Mission for the Advisory Audit Committee - Authority of the Advisory Audit Committee - Requisite qualifications for members of Advisory Audit Committee - Duties of the Advisory Audit Committee - Schedule of Advisory Audit Committee activities - Relationships of Advisory Audit Committee with the City's internal auditors, independent auditors, administrative staff, and other existing committees. Prepare draft legislative provisions for your legal reveiw Review draft legislation with City Manager and City Attorney Finalize draft legislation and submit to administra- tion for submission to Mayor and City Commission. 1 Ideally, this legislation should be Considered by the Mayor and City Commission simultaneously with the legislation to be drafted as part of Task 2 2 = TA8X 2=PREPARE DPAPT DEGIStATION FOR YOUR LEOAI, REVIEW CREATE A NE;d DEPARTMENT OF TNTFRNAt.: AitnTTTNC. uFDnRrrTNr. The purpose of this task is to draft the major legislative Provisions establishing a Department of Internal Auditing for legal review by the City Attorney and administrative review by the City Manager. Upon approval; the legislation is to be submitted to the Mayor and City Commission by the City Manager. This task will require the following steps: Detailed research to establish and define the appropriate: - Mission for the Department of Internal Auditing Authority of the Department of Internal Auditing = Duties of the Department of Internal Auditing - Relationships of Department of Internal Auditing with independent auditors and other existing committees . Prepare draft legislative provisions for your legal review Review draft legislation with City Manager and City Attorney Finalize draft legislation and submit to administra- tion for submission to Mayor and City Commission. Ideally, this legislation should be considered by the Mayor and City Commission simultaneously with the legislation to be drafted as part of Task 1. 3. TASK 3--11IEET WITH THE ADVISORY AUDIT COMMITTEE TO ASSIST IN THE ORGANIZATION OF THE COMMITTEE AND ESTABLISHNIE'NT OF OPERATING PROCEDURES The purpose of this task is to assist the Advisory Audit Committee, after its creation and appointment by the Mayor and City Commission, in understanding and carrying out its mission. This assistance should be sufficient to enable the Committee to commence its operations rapidly 2 and in conformity with the policy intentions of the -Mayot, the City COtMMigtidn and the City Manager. As part of this task, 9062, Allen will! Conduct detailed research and prepare an agenda for the first organigational meeting of the Advisory Audit Committee Attend the organi2ational meeting of the Advisory Audit Committee and assist in organ.2ing actions Assist in orienting the Committee as to background Of its creation and as to its mission Submit suggestions for appropriate operating procedures and activities for future meeting Attend subsequent meetings of the Advisory Audit Committee to assist in establishing: - Operating procedures for the Committee Plan for activities of the Committee - Standards and Bid Specifications for future independent audit services. At this point, the Committee should feel confident of its ability to operate on its own in accordance with its charter of independence. 4. CONCLUSION It is estimated that this effort could be completed in ninety days. However, it may be prudent to allow more time for action by the Mayor and City Commission in establishing the Advisory Audit Committee and in appointing its members as well as start up operations by the Committee itself. Therefore, we would suggest a one hundred twenty day allowance for completion of this project. 3 8Q-8 37 • ,a li AOO Z ALLM N & HAM ILTO N ine. InstitutrondlAhnAgenRtnt tonsultingDivisron A310 LASt WI SE F416MWAY dttHIkS6A, MARVLAN6 90614 951=2f00 AAtA coot ioI September 3, 1980 Mr. Richard Vosmoen City Manager City Hall (Dinner Ivey) City of Miami 3500 pan American Drive Miami, Florida 33133 Dear Mr. Fosmoen: This will be the first of several interim "Letter Reports" to be submitted to you prior to the presentation of a final "Plan of Action Report" under the terms of our professional services agreement "to provide services for the improvement of the City's administrative services and processes" dated 7uly 21, 1980. Under the terms of that agreement, one of the tasks to be undertaken is a "Review of Audit Procedures and Programs." Although we have not completed that review as of this date, we have performed sufficient analyses to submit the following recommendations to you: 1. Sufficient competent outside accounting assistance should be secured immediately to enable the City to close its financial books and records at the earliest possible date after the close of the current fiscal ear -- Based upon our observation and analysis, it is anticipated that the City will experience diffi- culty in expeditiously closing its books and preparing its records for independent audit examination after the close of the current fiscal year. Given the City's committment to quarterly independent audit reviews, which we fully support, it is vitally important that the City's financial record keeping be brought to an acceptable level of currentness and that the process of closing the books not absorb all of the City's accounting resources at the expense of meeting that currentness. Failure to do so will further strain the City's limited resources, will perpetuate tardy reporting, -And will impose a costly overlapping work- load on the City's accounting personnel as quarterly audit review programs are commenced simultaneously. 80-837 2. For these reasons► it is our recommendation that a first prerequisite to establishing satisfactory audit procedures and prograffts is the necessary effort to bring the City's financial records to a current status as early as possible. p year's audit. completion of the Current fiscal ' Civen the City's committment to a quarterly audit review program and its desire to establish new and more demanding Audit Procedures and Programs, this is not the time to change independent auditors. in our opinion, to do so would result in further delay' of the production of timely and accurate financial information. In addition a change now would require City personnel to work simultaneously with two inde- pendent audit groups. Therefore, it is our opinion that this recommendation is also a necessary prere- quisite to establishment of new "Audit Procedures and Programs". We expect to complete our analysis and findings with respect to the matter of "Audit Procedures and Programs" in the next few weeks. However, it is felt that the above recommended actions are presently imperative and will in no way interfere with your freedom to de with future recommendations regarding this subject. Indeed, it is felt that these actions will provide essential continuity for the transition into any new conditions that may occur as a result of our study for you. Very truly yours, BOOZ • ALLEN & HAIv1ILTON Inc Porter W. Homer Approved: John C . Neiman Vice President cfs 8002 , ALLM 1V & HAM (LTO N (iie. Institution,11.11"anngtffient Consulting Dirision Mr. Richard Fosmoen City Manager City Hall (Dinner Key) City of Miami 3500 Pan American Drive Miami, Florida 33133 Dear Mr. Posmoen: e336 EASt WESfi H16HWAY bttHt56A, MAFOYLAN6 0-061 i 0514206 AMEA CODE 301 September 3, 1930 This will be the first of several interim "Letter Reports" to be submitted to you prior to the presentation of a final "Plan of Action Report" under the terms of our professional services agreement "to provide services for the improvement of the City's administrative services and processes" dated July 21, 1980. Under the terms of that agreement, one of the tasks to be undertaken is a "Review of Audit Procedures and Programs." Although we have not completed that review as of this date, wee have performed sufficient analyses to submit the following recommendations to you: 1. Sufficient competent outside accounting assistance should be secured immediately to enable the City to close its financial books and records at the earliest possible date after the close of the current fiscal ear -- Based upon our observation and analysis, it is anticipated that the City will experience diffi- culty in expeditiously closing its books and preparing its records for independent audit examination after the close of the current fiscal year. Given the City's committment to quarterly independent audit reviews, which we fully support, it is vitally important that the City's financial record keeping be brought to an acceptable level of currentness and that the process of closing the books not absorb all of the City's accounting resources at the expense of meeting that currentness. Failure to do so will further strain the City's limited resources, will perpetuate tardy reporting, and will impose a costly overlapping work- load on the•City's accounting personnel as quarterly audit review programs are commenced simultaneously. ;y GOOZ - ALLEN & WAMILTONinc. Instrtvtf'onol,tlaRag tr»t c`onsulring Ditision Mr. Richard rosmoen City Manager City Hall (Dinner Key) City of Miami 3500 Pan American Drive Miami, Florida 33133 Dear Mr. Fosimoen: A116 tAtt Wt$t RtdAWAV bttHLSbA, MAAVL-ANDS 96614 ssi-ftoo ARIA cobt 9di September 3 r 1980 This will be the first of several interim "Letter Reports" to be submitted to you prior to the presentation of a final "Plan of Action Report" under the terms of our professional services agreement "to provide services for the -improvement of the City's administrative services and processes" dated July 21, 1980. Under the terms of that agreement, one of the tasks to be undertaken is a "Review of Audit Procedures and Programs." Although we have not completed that review as of this date, wee have performed sufficient analyses to submit the following recommendations to you: 1. Sufficient competent outside accounting assistance should be secured immediately to enable the City to close its financial books and records at the earliest possible date after the close of the current fiscal Wear -- Based upon our observation and analysis, it is anticipated that the City will experience diffi- culty in expeditiously closing its books and preparing its records for independent audit examination after the close of the current fiscal year. Given the City's committment to quarterly independent audit reviews, which we fully support, it is vitally important that the City's financial record keeping be brought to an acceptable level of currentness and that the process of closing the books not absorb all of the City's accounting resources at the expense of meeting that currentness. Failure to do so will further strain the City's limited resources, will perpetuate tardy reporting, and will impose a costly overlapping work- load on the•City's accounting personnel as quarterly audit review programs are commenced simultaneously. For these reasons, it is our recoriitohdation that a first prerequisite to establishing satisfactory audit procedures and programs is the necessary effort to brine the City's financial records to a current status as early as possible. 2. Coftsideration should be._given .to ,e�PPOA_ the present Independent Audit _Contract — The current contract for independent audit services expires- -with the completion of the current fiscal year's audit: Given the City's comrnittment to a quarterly audit review program and its desire to establish new and more demanding Audit Procedures and Programs, this is not the time to change independent auditors. In our opinion, to do so would result in further delay. of the production of timely and accurate financial information. In addition a change now would require City personnel to work simultaneously with two inde- pendent audit groups. Therefore, it is our opinion that this recommendation is also a necessary prere- quisite to establishment of new "Audit Procedures and Programs". We expect to complete our analysis and findings with respect to the matter of "Audit Procedures and Programs" in the next few weeks. However, it is felt that the above recommended actions are presently imperative and will in no way interfere with your freedom to deal with future recommendations regarding this subject. Indeed, it is felt that these actions will provide essential continuity for the transition into any new conditions that may occur as a result of our study for you. Very truly yours, ell, U-__ BOOZ • ALLEN & HAMILTON Inc Porter 11. Homer Approved: John C. Newman Vice President cfs Jr IfistitutidndtVonsurring Ditisies &JiO EASt Witt AldA i9At Ot-tr4bbA. MA14YLAN15 245614 !§M-99d6 AftkA coot iol September 3# 1030 Mr. Richard P'osmoen City Manager City Hall (Dinner Xey) City of Miami 1500 pan American Drive Miami, Florida 33118 Dear Mr. Posmoen: This will be the first of several -interim "Letter Reports" to be submitted to you prior to the presentation of a final "Plan of Action Report" under the terms of our professional services agreement "to provide services for the improvement of the City's administrative services and processes" dated July 21, 1980. Under the terms of that agreement, one of the tasks to be undertaken is a "Review of Audit Procedures and Programs." Although we have not completed that review as of this date, we have performed sufficient analyses to submit the following recommendations to you: 1. Sufficient competent outside accounting assistance should be secured immediately to enable the City to close its financial books and records at the earliest possible date after the close of the current fiscal ear -- Based upon our observation and analysis, it is anticipated that the City will experience diffi- culty in expeditiously closing its books and preparing its records for independent audit examination after the close of the current fiscal year. Given the City's committment to quarterly independent audit reviews, which we fully support, it is vitally important that the City's financial record keeping be brought to an acceptable level of currentness and that the process of closing the books not absorb all of the City's accounting resources at the expense of meeting that currentness. Failure to do so will further strain the City's limited resources, will perpetuate tardy reporting,•.and will impose a costly overlapping work- load on the City's accounting personnel as quarterly audit review programs are commenced simultaneously. por these reasans, it is our recommendation that a first prerequisite to establishing satisfactory audit procedures and programs, is the necessary effort to bring the City's financial records to a current status as early as possible. _. 2. Consideration should be liven td e�t_enclin Independept Audit Contract — The current contract for independent audit services expires' -with the .I completion of the current fiscal year's audit. Given the City's committment to a quarterly audit' review program and its desire to establish new and more demanding Audit Procedures and Programs, this is not the time to change independent auditors. In our opinion, to do so would result in further delay . of the production of timely and accurate financial information. In addition a change now would require City personnel to work simultaneously with two inde- pendent audit groups. Therefore, it is our opinion that this recommendation is also a necessary prere- quisite to establishment of new "Audit Procedures and Programs". 7. We expect to complete our analysis and findings with respect to the matter of "Audit Procedures and Programs" in the next few weeks. However, it is felt that the above recommended actions are presently imperative and will in no way interfere with your freedom to deal with future recommendations regarding this subject. Indeed, it is felt that these actions will provide essential continuity for the transition into any new conditions that may occur as a result of our study for you. Very truly yours, BOOZ•ALLEN & HAMILTON Inc Porter W. Homo Approved: John C. Newman Vice President cfs .1 M O Z i ALLE N& HAM ILa1 O IV imc. Ifistitutinndl,thn'tgemtnt elonsultiug Ditislbtt Oio SAS+ WEST HIGHWAY §ktHk§6A. MAAVLANb 96614 991-2tbo AAtA cobt 301 September 3t 1980 Mr. Richard Fosmoen City Manager City Mall. (Dinner Rey) City of Miami 3500 pan American Drive Miami, Florida 33133 Dear Mr. Fosmoen: This will be the first of several interim "Letter Reports" to be submitted to you prior to the presentation of a final "Plan of Action Report" under the terms of our professional services agreement "to provide services for the improvement of the City's administrative services and processes" dated July 21, 1580. Under the terms of that agreement, one of the tasks to be undertaken is a "Review of Audit Procedures and Programs." Although we have not completed that review as of this date, we have performed sufficient analyses to submit the following recommendations to you: 1. Sufficient competent outside accounting assistance should be secured immediately to enable the City to close its financial books and records at the earliest possible date after the close of the current fiscal dear -- Based upon our observation and analysis, it is anticipated that the City will experience diffi- culty in expeditiously closing its books and preparing its records for independent audit examination after the close of the current fiscal year. Given the City's committment to quarterly independent audit reviews, which we fully support, it is vitally important that the City's financial record keeping be brought to an acceptable level of currentness and that the process of closing the books not absorb all of the City's accounting resources at the expense of meeting that currentness. Failure to do so will further strain the City's limited resources, will perpetuate tardy reporting, and will impose a costly overlapping work- load on the"City's accounting personnel as quarterly audit review programs are commenced simultaneously. i Por these reasons, it is our recommendation that a first prerequisite to establishing satisfactory audit procedures and programs is the necessary effort to bring the City's financial records to a current status as early as possible. 2. Consideration n to extending the orese Independent Audit Contract — The current contract for independent audit services expires -.with the completion of the current fiscal year's audit. Given the City's committinent to a quarterly audit review program and its desire to establish new and more demanding Audit Procedures and Programs, this is not the time to change independent auditors. In our opinion, to do so would result in further delay. of the production of timely and accurate financial information. In addition a change now would require City personnel to work simultaneously with two inde- pendent audit groups. Therefore, it is our opinion that this recommendation is also a necessary prere- quisite to establishment of new "Audit Procedures and Programs". We expect to complete our analysis and findings with respect to the matter of "Audit Procedures and Programs" in the next few weeks. However, it is felt that the above recommended actions are presently imperative and will in no way interfere with your freedom to deal with future recommendations regarding this subject. Indeed, it is felt that these actions will provide essential continuity for the transition into any new conditions that may occur as a result of our study for you. Very truly yours, BOOZ • ALLEN & HAP$ILTON Inc Porter W. Homer Approved: Y John C . Newman Vice President cfs Nesag-emaft G'ensa�tarrts 4330 EASt WESt FttdNWA* bttHtAbA, MA14Yl:AIWO 26614 95t- 2266 Al*tA COCC idt septdmber la, 1980 Mr. Richard Fosmoen City Manager City fall (Dinner Key) City of Miami 3500 Pan American Drive Miami, Florida 33133 Dear Mr. Fosmoen: This is the second of several interim "Letter Reports" to be submitted to you prior to the presentation of a final "Plan of Action Report" under the terms of our professional services agree- ment "to provide services for the improvement of the City's administrative services and processes" dated July 21, 1980. under the terns of that agreement, one of the tasks to be accomplished was a review of the City of Miami's purchasing operations. This report presents findings, conclusions, and recommendations concerning the City of Miami's procurement process. The review of purchasing operations was performed to determine if the Purchasing Unit is: Minimizing costs for quality goods through increased competition Procuring goods for the user departments in a timely manner Maintaining adequate control over the procurement process. To make this assessment, interviews were conducted with Purchasing and Accounts Payable personnel as well as employees from user departments that frequently use purchasing services. In addition, the following data were reviewed: City Code and Charter Accounting and Fiscal Management Guidelines Manual Purchase.order file Contract and competiti:•e bid files. Mr. Richard Fosmoen September Ito 1980 %age Two A survey of local government purchasing operations Was con- ducted to learn how the City of Miami's purchasing staff compared in size with other staffs that process a similar amount of purchases. Also, informal observations of purchasing employee productivity were made during the data collection period. The report is organized into the following sections: The current procurement operation Commendable practices performed by the Purchasing Unit Opportunities for improvement Recommendations for changes and benefits that can be achieved. Our overall conclusion is that the Purchasing Unit generally performs an effective job in procuring goods for City departments. There are, however, ways in which the purchasing process can be improved, and these are described in the attached report. A question has been raised as to the feasibility of local govern- ments -contracting for the procurement function with the private sector to improve the purchasing process. We have contacted the National Institute of Governmental Purchasing as well as several cities who extensively contract for city services. Based on the information received, there are apparently no local governments who contract out the procurement function. Furthermore, it is not recommended as a desirable alternative. We appreciate the excellent cooperation we received from the City during this portion of the assignment and look forward to continuing our work with you during the remaining portion of the assignment. Yours very truly, -14 BOOZ, ALLEN & HAMILTON Inc. Porter W. Homer Approved: John C. Newman 8 n- S 3 7 ",ce President REVIEW OF THE _CITY CAP MIAMI' S PURCMA81NO OPERATIONS 1. THE PURCHA81= UNIT PROCURES 00008 AND SUPPLIES FOR The City of Miami maintains a centralized purchasing operation that procures goods and services for all municipal departments.* Purchases can be made through contracts and blanket purchase order agreements as well as by single orders. In FY 78-79, the Purchasing Unit procured 35.7 million dollars worth of goods in response to 81856 requisi- tions from the user departments. This represents a 36 percent increase in dollar volume over the last five years. The following paragraphs describe the responsibilities organization and procedures of the Purchasing Unit. The current role the user departments play in the procurement process is also detailed. (1) The Responsibilities of the Purchasing unit Are Stated in the City's Charter and Code The City of Miami's Charter and Code specify the duties of the Purchasing Agent. These duties include _ making all purchases for the City and selling all real and personal property of the City not needed for public use. In addition, the Purchasing Agent is directed to: Draft or cause to be drafted specifications Forecast purchase requirements City-wide Maximize competition among qualified vendors Provide for the inspection and testing of goods delivered. Several of these duties, e.g., real property sales and specifications drafting, have in practice keen per- formed by other units within the City. * The Public Works oepartment is responsible fcr :procurina contractual services :or Tara a _onstruction projects. (2) The purchasing tfnit is Organized Within Finance DObAttftlent to accordance with the City Charter, the purchasing Unit is organized within the Finance Department with the Purchasing Director reporting directly to the Director of Finance. The unit is currently made up of 11 positions" -four of which are funded under the MA program. Exhibit 1, following this pages presents the Organizational structure of the Purchasing unit, Purchasing staff members carry out duties typically performed by employees in their respective positions. There are, however, several exceptions: The buyers spend approximately 10 percent of their time typing --a clerical function The Buyer II's job duties are not significantly different from those of the Buyer I The Purchasing Agent spends a substantial amount of his time attending to the details of processing purchases requiring sealed competitive bids instead of delegating this function to a lower level employee. A detailed listing of the job duties of each employee is presented in Exhibit 2, on page 4. (3) Purchasing Employees Adhere to Certain Procedures When Purchasing Goods The procedures used to procure goods vary depending on the cost of the item. All goods estimated to cost less than $4,500 are processed by the buying staff. The Purchasing Agent personally handles all purchase requests estimated to be over $4,500. The procedures* for processing requisitions for items costing less than S4,500 are as follows: * These procedures do not apply for Blanket Purchase -rders for roods under $4,500. The process by which Blanket ?urchase Orders are issued is explained on page 9. _ ►+WIr�O IIIIIII EXHIBIT 1� Organization of the Purchasing Unit O DT ItI,C7r�R � OF, I'INAidCT; l PURCHASING AGIiNT SL•'CRL:4'ARY I T f Ci.T?Rrc'AL STAPI•' ASSISTANT PURCHASING MANA(,L•'MENT AGENT TRAI NEE {OFF CE SUPPLIES EXPENDITURE - STOREROOM STAFF CONTROL STAFF BUY1W, STAY' I'URLIC I�iTYi:PS 1 I•IAIIA(',F:MFN1' INTEPT! STOCK CLERK :ACCOUNTANT I BUYER II (2) 'I'I?,St•NEE (( ETA) (,'I"I'A1 i WORlWR -TRAINEE 1 1 ACCOUNT CLERK I(CETA) I POSITIONS) EXHISIT 2 PURCHASINO tfftployee Duties JOB DUTiB,5 Purchasing agent Responsible for the overall management of the unit; spends up to 50% of his time processing purchases requiring sealed competitive bids; frequently communi- cates with usina departments. Assistant Purchasing in charge of the day-to-day supervisicn of the buying agent and clerical staff; assigns and reviews :cork of buyers prepares a buyer performance report; attands surplus and confiscated z=nert-, auctions; fre-::uent1v communi- cates %wi ", using departments. Su er I , Buvers I Procure goods and ser,.ices not requiring• sealed Public Management competiti<:e bids (under 34,500) . Obtain telephone Intern , Management bids and :•;ritten .uotes from vendors; spend approxi- Trainee mately 10% of their day typina purchase orders. There are no sianificant differences in job content amcng the four positions. accoantant 1 and Determine if departmental funds are available for each AccO.;nt Clerk urchase; prepare computer input data so that `kinds can be encumbered; assign purchase order number and distribute purcase order copies to appropriate units. �eGr:tar_' iI assists t:he curchasina agent in preparing the formal 17 _`3C:dCCS which :-lied consists 'Df t.... _ and cop}•in, documents inci-tided In the packac:es ; `.1'_,es correspondence and screens calls for the Purchasing Aaent and the Assistant Purchasina agent. :Ila na.:ement rrZi.nee Acts as a rece,_1znist :Or t e .::`.it; lows .n : urchase re'.:ulsit:.ciis a!I d ,:as:h irclhase :r dors; __ le0 urC.haSe orders Stocr. Clerk ::Ili] .erat%a t:he --1t�.'s _-entral sL.:_Lplli es storer..onnis ?porker :rair.et tst. Cost of Request procedure Less than $100 Obtain at least one tele- phone bid $100=$10000 Obtain at least three telephone bids $1400-$4,500 Obtain at least three written quotations Each buyer is responsible for specific product Cate= gories. Once assigned a purchase requisition, the buyer first identifies the items) to be bought, Frequently this is time-consuming because the using department has not adequately described the product or service that they need. For example, often only a vague description of an item will be noted on the requisition (e.g., "one ice maker"). This results in the buyer taking time to contact the department to precisely determine what is desired. After the product has b determines which vendors may they often consult the phone and their personal index: car by vendor name. The buyers rarely check the Purchasing contains descriptions of the completed an application to list. Since the vendor file buyers' personal files, it i a new or smaller company to from a buyer. een identified, the buyer sell the item. To do this directory's yellow pages d file of products sorted report, however, that they Unit's vendor file which companies that have be placed on the bidders' is not used to update the s sometimes difficult for get appropriate consideration The buvers strictly abide by the procedures con- cernina the number or vendor each price category. Only and availability or goods a bid requirements. A sampla from the file revealea t;Aat, "single -source" items, all least the necessary number quotations required fcr bids acknowledging a price re cccented as satisfying of purchase orders taken with the exception of recuisitions received at or quotations. See reco=endatiz)n .oncernina vendor files on page ..:- $0-8 37. r• r the per'forMance of each buyer is tracked based on the amount of time required to process a requisition in each cost category. The following goals developed by the Purchasing Agent represent the amount of elapsed time it should take to process each purchase. Along- side these figures are the average elapsed times it did take the buyers to process requests for goods during April -dune, 1990. Purchase -- Gateaor % of Total Requisitions Goal nays _ Actual elapsed! ._TiMe. .__(ba_ s_ <$100 40% 3.0 3.1 $100-1,000 434 7.0 4.4 $1,000-4,700 17% 15.0 13.8 Since starting to track buyer performance in November, 1978, the average time to prccess a requisition has decreased 37 percent. The procedures necessary to process purchases requiring sealed competitive bids are more complex than the steps needed to process requisitions under $4,500. In FY 78-79, Purchasing processed 130 purchase requests requiring formal bid procedures. These pro- cedures along with the average time each requires to complete are presented in Exhibit 3, following this page. The sample of bid packages* for purchases over $4,500 revealed that 40 percent of the formal bid requests elicited less than three bids, while another 20 percent received exactly three responses. The reasons given by user department and purchasing employees for such a low vendor response are various but trev generally include the following: Vendors do not carry the desired merchandise Vendors are reluctant to do business with the Citv because of: The City's reputation for late payment The "red tape" involved with submitting a bid * ::vent•. -i sr bid -;a c :ayes a upro.x im ate Iy 13. ; cement <.)z the annua: _ar.a: !_.:e ..a�.le. EMSIT Pr000dures for Formal Bids Ave rage Time Procedure Rcrrui r.=A* f tlaitcl Purchasing Unit obtains departmental request and prepares bid package 28.9 Purchasing Unit mails bid packages to vendors and advertises in the local newspapers, City Clerk receives and opens bids 21.0 Purchasing Unit forwards bids to the using depart -men for review and waits for their recommendation 17.2 Purchasing tabulates bids, finalizes the bid packages) and forwards recomr,.endation to the Cit•; Manacaer 3.1 A resolution awarding the purchase is placed on the CArinissiont s aver da (:,hsuall% ccnsent agenda) J Coramisslon :,-asses resolution 15.7 After a perfor-mance bond and insurance certificate is received and verified ii= applicabie) , the purchase order or contract is issued 15.3 TOTAL 1 101.2 * The averac;e *kites were develared based on information obtained from a sc3mt le Of formal bi•.^. _ ackage prepared the last year. 8pedifidation§ are overly restrictive in 9offid dagtg Vendors don't get iftVdlVdd because it is not very Profitable. Purchasing has recently begun to contact bUgihesaod who did not bid to determine and document the reason for their lack of interest, There has been a wide variety Of rea§6ft9 given for companies not bidding, however, and the results of these contacts have so far Proved inconclusive. Aft analysis was conducted to determine the average length of time it takes to process a vendor payment. The length of time was defined as the elapsed time between the invoice date and the date of the check, A sample of checks issued on June and August, 1980, was reviewed along With the appropriate invoices. It Was determined that the average elapsed time for payment during those periods was 49.6 calendar days. A sample of checks issued on November, 19718, along with their supporting documents, was also reviewed to determine if there had been any change in the payment period over the last 1 1/2 years. Results indicated that there had been no significant chance. It currently takes about the same amount of time for a vendor ACO be issued a check as it did over one year ago. There are a variety of factors contributing to this time lag. However, the primary one as determined by the survey is the delay caused by departments not promptly approving the receipt of merchandise and forwarding the necessary paperwork for processing. ►4ithout an approved reviewing report, Accounts Payable will net process an invoice for payment. Because of the delays in vendor payment, the City is rarely able to take advantage of cash discounts often offered by vendors for prompt payment. The only exception to this are purchases made with Cash Purchase Orders where the vendor is required to offer the City a discount.* Discounts often amount to two percent of the total cost of the merchandise, and consequently The Cash Purchase Order Is descrih-_d later ir. this section. by not taking advantage of them on regularly -ordered iteMs r the city it annually 168ifig a substantial amount of money. Aside from the regular purchase order and dontradt peg8g # thesPurehasing Unit also issues blanket purchaseThese are open purchase orders that only state the vendor's nave and specifid dollar limit. They are generally used to buy items such as repair parts and are advantageous because they eliminate a certain amount of paperwork and enable the user depart'° men t to acquire the needed goods in a short period of time. The procedures for issuing blanket purchase orders are quite different from those previously described for regular purchase orders. Blanket purchase orders for goods under $4,500 are not issued on the basis of competitive bids. Instead, they are issued for a specific dollar amount in response to a user department's request. Although this procedure decreases the ability to reduce costs through vendor competition, Purchasing states that they do not have enough staff to obtain competitive quotes for the many blanket orders that are issued by the unit.* Another means of purchasing goods is through the Cash Purchase Order (CPO). The CPO combines a purchase order for goods with a check covering the cost of those items. It is issued to approved vendors for amounts of $500.00 or less. Its major advantages are that the City receives a discount for prompt payment and the vendor is pleased because payment is obtained immediately. In the last fiscal year, 429 cash purchase orders were issued representing a total dollar volume of over $150,000. Price discounts amounted to $3,626. (4) City Departments Play a Major Role in the Procurement Process Although Purchasing is the only unit authorized to procure goods on a regular basis, the user depart- ments are actively involved in many facets of the pro- curement process. Departments in general carry out the following functions: _ Develop specifications for goods and services b being oug;' * See page 1-0 for the recormendation on hcw blanket purchase orders should be issued. cm Redoffifrlend vendors especially for items costing over $4,500 Maintain an expenditure control system for their depatttftent, which represents a dupli- cation of Effort Expedite the delivery of goods Receive and inspect goods. Each of these functions and its impact on purchasing is described below. Developspecifications—The Purchasing ?nit has just recently begun to maintain a speci- fications file for commonly purchased goods. However, in the past and now to a great extent, Purchasing has relied on the department to develop and submit specifications for desired items. The department often writes these specifications based on a particular brand and consequently they may tend to be somewhat restrictive. Purchasing reviews these product descriptions and deletes any obvious refer- ences to a particular brand. However, rather than spend time revising the specifications to make sure they are completely open and unbiased, Purchasing will submit the specifications as they are, anticipating that a suitable number of vendors will offer bids. usually enough bids are obtained for goods costing under $4,500. This, however, is often not the case for purchases requiring sealed competitive bids. Recommend vendors --The Purchasing Unit encour- ages the user departments to recommend vendors who may sell the items that the departments are requisitioning. Several of the major user departments maintain vendor files and perform their own vendor research. This enables them to submit a requisition with a suggested list of companies for Purchasing to contact. Maintain an expenditure control system --The departments that procure large amounts of goods maintain expenditure control systems similar to the one ;within the Purchasing Grit. They reportedly maintain these systems because the financial information then receive is often late and ifiacduf:ate. they therefore ftlaifttaih sepafate records to slake sure funds are not over -expended. At tides these departmental redords are even more accurate than Purchasing's because the departments learn of additional appropriations of funds before the Purchasing Unit is informed. Representatives of one major department also report that if the financial information was more accurate and timely, their expenditure control staffs could be reduced. Fxped te_the delyety_„of gdodg�-By practice, the user departments are primarily responsible for making sure that ordered goods are delivered. For the most part, the Purchasing Unit does not get involved after the purchase has been made. Receive and inspect goods==Purchased items Can currently be delivered to a large number of locations throughout the City. Departments are responsible for receiving and inspecting goods; however, the procedures and staff used to do this vary considerably among departments. In discussions with Purchasing and Accounts Payable personnel it has been stated that some employees accepting goods do not know the receiving procedures. This is especially true with departments that do not heavily use Purchasing services. This lack of knowledge can result in a delayed payment to the vendor because the appropriate form has not been promptly sent to the Accounts Payable Unit.* Purchasing does not maintain an open purchase order file, as specified by the Accounting and Fiscal Management Guidelines Manual, and consequently the Unit has no regular means to determine if and when goods are received and inspected.** Purchasing ;management believes that Purchasing should take a stronger role in developing specifications, identifying prospective vendors, and maintaining * See r,_•cc=endation to limit recevinq points for :merchandise on page 25. ** See page 21 for the reccrriendation to :maintain an open purchase order File. r] follOW-Up on purchases Made. They stater however, that they are currently unable to do this due to lack of sufficient staff. (5) s purehasing Inanageffient currently generates an annual budget suntit►ary and a Monthly b'iyer perforMance reports The budget sU=ary--mandated by the eode--includes information such as Number of requisitions and purchase orders processed over the past year 41 Total annual revenue produced from the sale of surplus and confiscated property The Purchasing Unit's goals and objectives for the coming year. The Buyer Performance Report summarizes monthly each buyer's procurement activity. This report identifies: The quantity of purchase orders each buyer processed in each cost category The average number of days* it took each buyer to process one purchase order The average number of days* it took to process one purchase order unit -wide. Currently there is no report illustrating the progress Purchasing is making in meeting its stated objectives, such as increasing the useage of cash purchase orders or increasing the purchasing activity with minority vendors. Savings that the unit is generating through improved procurement practices also go unreported. of : at s ret. ?sen�:5 rp TRH pURCH�,SiI. d UNIT HA8 �, (itat l M!�L E�p�C'i't�,'E OP�IkAt ON A review of purchasing operations shows that the purchasing Unit in general performs, an effective job in procuring goods and services for the City. Commendable practices have been established in Purchasing over the last several years. During the operations review the following elementsj helpful to an effective procurement operation, were identified. Buyers strive to obtain the necessary number of quotations when procuring goods; "no bids" from vendors do not satisfy the quotation requirements; multiple pruchase orders designed to skirt the quotation requirements are rejected. Files are in good order; the data contained in the bid packages are complete. Forms are efficiently designed to limit the amount of necessary typing. . Fiscal control is adequate; for example: Purchase order numbers are assigned The total dollar amounts of blanket purchase orders are encumbered Expenditure control maintains good control over funds expended. The Commission resolutions awarding purchases are generally placed on the Commission's consent agenda rather than being voted on individually. This expedites the procurement process and lessens the time the Commission must spend in approving requests for purchases. It also enables the Purchasing Agent to spend substantially less time at Commission meetings since his presence is unnecessary for items on the consent agenda. Buver performance is evaluated on a monthly basis The cash purchase order system is innovative and saves the Citv thousands of dollars through prompt payment discounts. These practices have assisted the Purchasing Unit in main- taining a 3enerally respcnsive operation. -13- 80-8i7 , 0 34 The primary objectives of a Purchasing Unit are to: Minimi2e the costs for goods and services required by the user departments Procure goods and services for departments in a timely manner Maintain adequate control over the procurement process. There are opportunities for the Purchasing Unit to improve in each of these areas: Concerns which were identified during the operations review are described in the following pages. (1) The Purchasing_Agent Is Currently Not Performing Duties Which Could Increase the Unit's Effectivenes Currently, the Purchsing Unit does not forecast purchase requirements City-wide, nor does it ensure that blanket purchase orders for goods under $4,500 receive competitive price quotations. By not fore- casting purchasing requirements, the City may be losing a substantial amount of money by ordering items individually rather than determining future City require- ments and entering into long-term price agreements. In addition; by not receiving competitive price quotations for goods under $4,500, the City may be paying unnecessarily higher prices due to lack of competition. (2) Formal Bids Frequently Receive Poor Vendor Resoonse A sample of reviewed bid packages for purchases over $4,500 revealed that 40 percent of all formal bid requests received less than three bids. This is less than the number required for all purchases between $100 and $4,500. Over half (60 percent) of all requests elicited three or fewer bids. Currently, hundreds of thousands of dollars of City business is frequently receiving responses from only two vendors. This lack Of competition may potentially be costing the City a substantial amount of monev. -14- There are a Variety of reasons given for this low vendor respottep including: besired goods not supplied by the vendor Late paytent to the vendor by the City Overly restrictive specifications Low profit margins Although Purchasing cannot expect to completely eliminate all of these problem8t the Unit Gan Flake progress in minimizing the influence of these factors. (1) in addition to the sale of surplus personal property, one of the Purchasing agents prescribed duties is to sell real estate not needed by the City. in practice, however, this function is actually per= formed by the Property Manager of the Risk Management Unit. although Risk Management appears to be doing a satisfactory job, it is the Purchasing Agent and not the Property Manager who is by charter responsible for these transactions. The Purchasing Unit presently depends on the user departments to develop product specifications. This is necessary in some instances where a complex or highly technical item is ordered. However, by relying on departments to prepare all specifications, purchasing may receive overly restrictive product descrip- tions for commonly -ordered items.* In addition, Purchasing relies on the departments to follow up on the delivery of goods. As a consequence, Purchasing has a difficult time evaluating vendor performance. (4) Lack of Understanding_ Concerning the Purchasing and accounts Pay2ble Procedures Delays the Procurement Process .,land departmental employees do not completely under- stand the requisitioning and receiving procedures. Requisitions are often forwarded to Purchasing with incomplete product descriptions. This results in the buyers spending time contacting the department to determine what specifically is desired. Receiving reports are not arcmptl_: forwarded to accounts Payable after the goods have been delivered often because either: See the reccmmendation concerning _ e .evelocnent of specifications on page 24. -1�- The departmental employee does not know what to do with the receiving report, or The etttployee (s) redeiving and inspecting the goods does not promptly inform the employee who maintains the receiving report. Much of this problem stems from the large number of locations where goods daft be delivered. Many employees receiving items are not stock clerks and do not under- stand the receiving and payment process. although the AcCountin and risca_1, Maftagement_, Cu delines_ Manual descr bes departmental procurement procedures, these manuals are often not easily accessible'to employees who are requisitioning and receiving goods. Since Accounts Payable will not issue a check until an approved receiving report or invoice is first obtained, misunderstanding concerning receiving procedures can delay vendor payment and damage the city's relations with vendors. (5) Expenditure Control is Hampered By Late a Incorrect Financial Information To perform its function, the Expenditure Control Section of the Purchasing Unit relies heavily on the monthly computerized financial data it receives. This information, however, is frequently inaccurate and often arrives late. The accountant in charge of ex- penditure control reports that it takes her approximately one :week, in combination with her other duties, to update and correct the printout she receives. Other depart- ments that maintain expenditure control systems report similar problems. Eventually, departments will be equipped with en -line terminals which will provide employees with up-to-date balances by expenditure code. In the meantime, however, personnel has to rely on the computer printouts to control expenditures. It is therefore important that these reports be timely and accurate. The Purchasing Unit's Ependiture Control Section also has difficulty in promptly learning about appro- priations of additional funds to departments. Currently the Budget Unit inputs the necessary information into the data processing sysetm. Extend iture Control, however, is not in-ormed of this transaction at to time it is :Wade, and consequently, the accountant will -1s- at Wes Withhold approval she Mistakenly believes no This lack of coWdQication procurement of goods heeded (6) for a purchase beeause funds are in the a CWnt. unnecessarily delays the by the Department. The annual report issued by the Purchasing Agent cannot be used to thoroughly evaluate the purchasing Unit's performance. Although tangible Objectives are included in the report, there is no regular means of determining the progress Purchasing is making in meeting these stated objectives. also, except for noting the cash purchase order discounts taken, the current report does not include the cost savings re- sulting from improved purchasing practices such as bulk purchasing. The Purchasing Unit plays a key role in containing costs for the City of Miami. It is, therefore► important to set goals for the Unit and regularly document the progress made in meeting those goals. (7) The Current Use of the Purchasing Unit's Employees Is Not Cost Efficient Certain employees are performing duties in- appropriate to their positions. The Purchasing Agent, for instance, spends up to half his time tending to the details of the formal bid process. This limits the amount of time he can spend improving and managing the operation. Moreover, this duty does not require the skill level of the Purchasing Agent. Buyers new spend approximately 10 percent of their time typing forms. Typing can be performed by clerical staff at less cost to the City. By re- quiring the buyers to type purchase orders and requests for written -quotations, less time can be devoted to processing departmental requisitions. There are no significant job differences between the Buyer I and the Buyer II. 'The requirements for the Buyer II position, however, are greater than these for the Buyer I, and consequently the Buyer II should be expected to perform at a higher skill level. By not giving the Buyer II more advanced responsibilities, Purchasing is not making the Nest use of their employees. _;- 4. The purchasing Chit does a generally effective job in performing its present duties. The Unit's role in the procurement process is limited, however, and should be expanded. Improvements can be made which will result in! Minimizing the costs of goods and services while maintaining a satisfactory level of quality Ensuring that requisitions are processed with little or no delay Increasing the purchasing Unit's control over the entire procurement process. These recommendations are described in the following pages. (1) procurement Costs Should be Minimized by _Fore.. casting Purchase Requirements, Maximizing Vendor Competition, and Taking Advantage of Cash Discounts Purchasing can contain and at times reduce costs for goods and services by forecasting purchase re- quirements City-wide and increasing vendor competition. An excellent means of forecasting total volumes of required goods is through a purchasing calendar. Under this method, departments would be required to submit periodically use estimates of regularly ordered materials and supplies. The Purchasing Agent should publish and make available to all departments a schedule of contract and purchase dates. This schedule can then be used by departments in planning their requirements. The Purchasing Unit should be responsible for explaining the purchasing calendar to departmental employees and following up with the departments to make sure they understand how to correctl;• complete it. Departmental deviations from the calendar should be discouraged and only allowed with the written consent of the Pur- chasing Agent. It should be noted that Purchasing recent-1 de- veloped a purchasing calendar. However, it was not successful because the user departments did not cooperate and the Purchasing Unit could not devote t:.e necessarymanpower to coordinate the forecasting Lf_ort -is- City-wide, It is important that Purchasing have the staff to spearhead this effort if a purchasing calendar is to be suddessful.* It is the Purchasing Unit's responsibility to rnaXimi2e competition, To do this the unit should maintain an up-to-date vendor file and use this as a primary source for bidders' lists, This file should be revised regularly by: Adding vendors who have applied to be on the bidders' list Deleting vendors who have not responded to bid requests for a specified number of times Noting the types of merchandise that the vendors do and do not carry. The vendor file should also be used to update the Buyers' personal card files so that all companies that have submitted a bidder's application can get appropriate consideration. The Purchasing Unit should also make a concerted effort to identify vendors nationally as well as locally who sell those items which cost over $4,500 and are carried by few companies. This could be done by drawing up a questionnaire listing the type of goods needed and distributing it to firms listed in purchasing directories such as the Thomas Register. It is also important that Purchasing maintain a complete specifications file. This file should contain product descriptions prepared by the Purchasing Unit describing frequently -purchased items. Specifications for highly technical merchandise would still require the assistance of the user department. Purchasing, however, should critically review these department - initiated specifications to eliminate exclusionary requirements of language." * The recommendation for expanding the i'tir :hasinQ _nit' s staff is explained on page '8 ** Additional ste_rs to insure open specifications are described in the recc-nmendati-- . :,,n :_Ace 24. -i3- Another f'teans of MAXiMi2ing competition is by obtaining quotations for goods coveted by blanket purchase orders.* it fray be imptadtical to obtain quotations for every item that may be acquired under a blanket order. The buyers] however should strive to! estimate the costs of goods covered by blanket purchase orders in each product category Notify vendors of the estimated amount of business that they Can expect for a specified period of time, and solicit price lists from these vendors covering the most fre- quently purchased goods Issue blanket purchase orders to the vendors whose merchandise costs the least yet meets the user department's objectives. By doing this, Purchasing will foster competition which could result in lower costs to the City. Also, Purchasing will have a means of checking the prices charged for items to help ensure that the City is not over -charged. Due to the delays in paying vendors, the City is losing thousands of dollars annually because they are unable to take advantage of cash discounts offered by businesses for prompt payment. Departments, consequently, are obtaining fewer goods with their appropriated funds. To improve this situation, the following recommendations are made: The Purchasing Agent should schedule quarterly meetings with departmental personnel responsible for receiving goods to explain to them receiving procedures and the impor- tance of promptly forwarding an approved receiving report to Purchasing * --ue to the nature of the purchase, blanket order requests for r�_' 3ir services SaOUIu i+Ot be submitted hro:Q. t:12 +T110t3t;CI', process. The Purchasing Unit should Maintain an open purchase order file. Approved receiving reports should continue to be forwarded to the purchasing Unit where they should be matched with the open purchase order copy and then forwarded to Accounts Payable for payment. The purchase order file should be reviewed on a daily basis to identify those purchase orders that have done for one week or more without having been matched with an approved receiving report. Purchasing should contact those departments that have not forwarded receiving reports to determine the reason for the delay and to expedite the process. The Accounts Payable unit should record the cash discounts taken and prepare a monthly report stating the total discounts obtained for the month and comparing this figure with a planned monthly total established at the beginning of the fiscal year. This report should be forwarded along the normal chain of command up to the assistant City :Manager for Financial Affairs. By following these practices, the City should be able to maximize it buying power and improve relations with vendors. (2) The Cite of Miami Should Establish and Document a Policy Regarding Procurement With Minority Vendors+ City of :Miami administrators are interested in developing a formal policy concerning procurements made with minority vendors. Currently, the Purchasing_ Unit adheres to an informal policy which holds that, "all things being equal" minority vendors will be given preference when a purchase is awarded. Minority vendor status is informally conferred on any bus?ness that appears in the Minority Business Guide and Directory for Miami. However, score of these companies according to the Purchasing Agent are quite large and giving them minority vendor status may or may, not coincide with the objectives of the City commission and administration. _21 dine of the budgetary performance objectives for the Purchasing Unit is to increase the iiuffiber of minority vendors that do business with the City, There are not formal means, however, of tracking Purchasing's performance in utliging minority vendors, Purchasing personnel that the informal policy is and it appears from interviews with Pug rchasin ineffec- the in increasing the minority vendors share of City business, To expand minority vendor participation in City procurements, a formal. policy should be established and documented, It is important that this policy be within the scope of existing law. It should also be recognized that no one procedure will automatically increase minority vendor participation. Rather, the City should strive to implement various methods which together can assist the City in imeeting.,its objectives in this area, In developing a formal policy regarding minority vendors, the City should first define how a business would qualify for ,minority vendor status. This defi- nition should be based on the particular social and economic environment in Miami. The City Manager should then investigate with the assistance of the City Attorney the legality of introducing an ordinance stating that the City will give preference to minority vendors when awarding purchases. This ordinance could be similar to the one which currently gives preference to vendors located in the City of Miami. It is ' important though that the City specifically state what type of preference is to be given and that this policy be worded so as to fall within the scope of existing law. In addition, the purchasing Unit should: Identify the types of goods frequently sold by :minority vendors Contact and explain to the vendors who sell those goods: How the Cit%r makes its procurements The type of preference that will be given to them in the purchasing process Obtain vendor applications frcm the minority businesses. lnfotmation from each vendor regarding products sold should be incorporated into the central bidder's list and the buyers' personal files so that minrity businesses can let appropriate consideration. Also city Managelfient at the outset of the fiscal year should establish a goal stating the desired dollar volume of business activity with minority vendors. The Purchasing Agent should record the amount of money spent with minority businesses each Month. This figure should then be noted in the Purchasing Unit's monthly report along with the planned total. (3) The Purchasin With User Dep Process g Unit 5 artments uld Imoroye_Communication o Expedite the Procurement Lack of understanding of purchasing and paying procedures by the user departments has `requently delayed the procurement of goods and the payment for those goods. To improve communication, representatives of the Purchasing and Accounts Payable Units should regularly meet with the departmental employees responsible for completing requisitions and receiving goods. These meetings should be used to: Describe the purchasing and accounts payable processes so that employees understand The most effective way to complete the various forms The work flow from the time a requisition is initiated to the time a check is issued Suggest ways that departmental employees can expedite both processes Obtain feedback from the departments. These sessions should be scheduled on a quarterly basis. In addition, copies of Chapter 0900 of the Accounting and Fiscal Management Guidelines Manual should be distributers to all those employees concerned with requisitioning and receiving goods. This chapter - 2 31 - describes both pr6duf6mont and receiving procedures and can serve as a guide for employees to refer to on a daily basis, (4) The Put _.Unit Should Increase It In order to maximite Purchasing's effectiveness, specific steps should be taken to increase management and fiscal control over the procurement process, To do this the following recommendations are offered, The Purchasing unit should ensure that Product specifications are unbiased The number of receiving points for goods and supplies should be reduced and limited by specific guidelines The financial information received by the Purchasing Unit should be timely and accurate The Purchasing Agent should prepare a monthly report describing the Unit's prog- ress in meeting its objectives The Purchasing Agent should play a role in the sale of real property. Each of these reconunendations is described in the follotaing pages. Ensure open specifications Currently, the Purchasing Unit relies on the user departments to prepare product specifications. Since these specifications often describe desired brand -name items, they may be overly restrictive. To ensure more open specifications the Purchasing Unit should maintain a specifications file containing product descriptions for fre- quently purchased items. Although the departments would still be responsible for preparing specifications for highly technical or complex goods, Purchasing should critically review these descriptions and eliminate ex clusicnary requirements or language. -24- It addition, the Purchasing Agent should hold pre -bid conferences where interested Vendors would be invited to come to discuss the C ty's requirdments and the product specifications. if there was any exclusionary language, it would probably surface at these. Meetings. Pre -bid conferences would not have to be held each time sealed competitive bids were elicited. Rather, a Conference would only be necessary the first time the purchase of a particular product required sealed bids. After that the same Specifica- tions could be used for future procurements. Purchasing should not rely on potential bidders to develop specifications. If the procurement is so complex that neither the Purchasing Unit nor the user department can develop adequate specifications, the Purchasing Agent should either: obtain the necessary specifications from the National Institute of Governmental Purchasing --a professional organization that maintains product descriptions on a variety of items, or Recommend to the City Manager that the services of an objective, professional company or individual be obtained to formulate the required specifications. The City should annually appropriate funds to the Purchasing Unit's budget for this purpose By doing this the City can eliminate the possibility of using specifications that are biased toward a particular vendor. Limit receiving points Goods are presently being delivered to numerous locations throughout the Cite. The Fire Department, for instance, receives deliveries at all of its fire stations. The large number of delivery points has decreased management control over to receiving and inspecting processes. In -23- one department, for example, the tasks of receiving goods, inspecting those goods, and forwarding a receiving report to Adcoufits Payable are all performed by separate individuals located in different areas 6E the City. Unless there is prompt and accurate communication ainond the responsible parties, it would be easy for the process to break down delaying the vendor`s payment. It is also probable that departments have various methods of inspecting materials and supplies. What may pass inspection in one department may be rejected in another. With so many delivery locations, it is difficult to monitor and control inspection procedures. There are several options that can be used to improve this situation. One of these options is to reduce the number of receiving points where merchandise can be delivered. Under this alternative deliveries should only be made to storerooms that contain large enough inventories to require maintaining inventory records, in addition, a central receiving point, under the auspices of the Finance Department, should be created to temporarily house items that are needed by units that do not maintain large inventories. This receiving point should -be staffed by stock clerk personnel who would be responsible for logging in all goods received and preparing and forwarding receiving reports. If the merchandise is considered to be a fixed asset, the stock clerk should forward the appropriate information to accounting so that the fixed assets inventory can be updated. This procedure, however, should be performed so as not to delay pa`,nent to the vendor. Deliveries of supplies such as sand and gravel should still be made at the job site. A central receiving point, however, could temporarily store many portable items resulting in more control over the receiving and inspecting process. This in turn could lead to improved relations with vendors doing business with Miami. -2U- The City may well be able to establish a central receiving facility in one of its buildings, It is therefore recommended that the City review its facilities inventory to determine where a central receiving point could be located Improye ,financial„ Oformation The Expenditure Control Section of the Purchasing Unit heavily relies on computerized financial information to perform its job of checking funds availability, 'When this data arrives late and/or is inaccurate, Expenditure Control cannot carry out its function efficiently or effectively. To improve the accuracy and timeliness of this information, it is recommended that the Division of Management and Budget: - Promptly notify Expenditure Control of any appropriations changes made by the Commission - Investigate :Weans of shortening the time required to obtain Report 401* By successfully implementing these recom- mendations, Expenditures Control will not have to spend as much time updating the computerized reports. Also, user departments should be able to reduce the time they devote to maintaining their own control systems since the computerized information will be more timely. Prepare monthly report To evaluate the Purchasing Unit more effectively, the Purchasing Agent should prepare a monthly performance report. This report should reflect progress made in achieving objectives set by City management Report 401 states the funds balances 1 }y expendit.:rrzs code fcr each 3ec:artment. at the belinning of the f isoal year lndluded in the report should be perforiftafidd indicators such as: Average time to prodess purchases in each dollar category Number of requisitions processed Volume of cash purchase orders issued and total amount of discounts received Volume of purchases from' minority vendors. ( 5 ) The Purchasing Staff Should be Expanded_ to Perform_ Its Additional__Responsibilities The Purchasing Unit presently performs a limited role in the overall procurement process which hinders the unit's effectiveness. In order to minimize costs, maximize competition, and maintain strong fiscal and management control, Purchasing should: Forecast purchase requirements City-wide Maintain up-to-date vendor and specifications files Hold pre -bid conferences for purchases over $4,500 Critically review specifications developed by user departments and eliminate exclusionary requirements or language Obtain competitive price quotations for items ordered under blanket purchase orders Hold quarterly meetings with departmental employees responsible for requisitioning and receiving goods Maintain an open purchase order file to assure timely deliveries, to expedite the payment process, and to evaluate vendor performance -23- Obtain greater participation froth r1ihority vendors Prepare a Monthly status to -port for manage - Mont, It would be difficult, however, for Purchasing to conduct all of these additional duties with its current personnel complement. Many of the previously described functions are best performed by employees who have a high level of skill and substantial experience in the -purchasing field. The Purchasing Agent and the Assistant Purchasing Agent meet these qualifications. Their time, however, is now spent on such tasks as tending to the details of the formal bid process and routinely assigning requisitions to buyers. As a result, they now do not have time to carry out the responsibilities that would make Purchasing more effective. In addition, four out of the thirteen positions in Purchasing are funded by the CETA program. The employees that fill two of those positions serve in the important role of buyer. While the City saves a substantial amount in personnel costs by using CETA funds, these are marked disadvantages: It is difficult to recruit experienced individuals, within CETA limitations, who qualify to perform as buyers. One of the CETA buyer positions has been vacant for over a year due to lack of qualified applicants. Employees filling CETA positions spend approximately 200 hours per year attending classroom training sessions. This takes away from the time they can spend on their purchasing duties. Employees can only fill CETA positions for 18 months. Due to the temoorary nature of these positions, turnover is high and time must be spent recruiting and training new employees. With these disadvantages, it is frequently di°ficult for Purchasing to overate with a full complement or staff. -29- A survey of local government purchasing operations was conducted to learn how the City of Miami's purchasing staff compared in site with other staffs that process a similar mount of purchases. The results of this survey# presented in Exhibit 4, following this page, show that 4iami's Purchasing Unit has relatively fewer employees than other locales given the total dollar volume that is expended through the Purchasing unit. While the survey results should serve only as a guideline due to the different procurement procedures used by various local governments, it does suggest that Miami's purchasing unit is under=staffed to do an adequate job. Informal observations of the Purchasing staff made during the operations review showed that staff were consistently productive throughout the day. Although work output could be marginally increased, it would be difficult for the existing complement to carry out all of the duties that the Unit should be performing. To enable Purchasing to perform a more effective job, the Unit should be authorized to expand its staff. Two options of doing this are presented as follows: Option I Organizational and functional changes --add one Administrative Aide I and one Typist - Clerk I to the existing staff. Convert all four CETA-funded positions to general fund positions. The duties of the Administrative Aide would be to: - Review, assign, and check requisitions - attend auctions of surplus and confis- cated property - .Maintain the recuired oavroll records - Prepare the Buyer Performance Report and the recommended monthly purchasing status rencrt. EXHIBIT 4 Survey Results Cotnparing Purchasing Dollar Volume with Number of Personnel i L'ity ul Miami, F1. 1 V).7 3 3 2 3 1t* Yes "'1'Itis tot.,sl figure does not ittetude the two stock clerk positions_ It tzs�i�utie�at��fa�a��nt�r L�es.rylti�g.�i�rsies :ldHN d, NEWMAN vide 00tS16eNT Mr. Richard Rosmoen City Manager City Hall Ginner Key) City of Miami 3500 pan American Drive Miami, Florida 33131 Dear Mr. Fosmoen: yU!n1 i5 1t 1 �i -11. eAtt WE§T R1414WMI UtlEfimP_saA, MAi YL-Af4 S AdMA ddl-good Al*tA C66t 161 September 19, 1990 This will be the third of several interim "Letter Reports" to be submitted to you prior to the presentation of a final "plan of Action Report" under the terms of our professional services agreement "to provide services for the improvement of the City's administrative services and processes" dated July 21, 1980: This report addresses the task of reviewing current City "Audit Procedures and Programs" and the submission of recommendations to improve the City's audit services. Our review has included a survey of Federal, state, and local governmental requirements and regulations; interviews with appropriate City personnel; discussions with the City's,independent auditors (Peat, Marwick, Mitchell and Co.); perusal of pertinent professional literature; and examination of publications by financial institutions and various rulemaking bodies. It is clear, from this review, that the general trend in both the public and private sectors is towards more stringent audit requirements. It is equally clear that a failure by a public jurisdiction to respond positively to this trend can have an adverse effect on its access to money markets as well as on its public credibility. For a jurisdiction as committed as Miami to a major program of capital improvements over the next several years through the issuance of debt instruments, this is a matter of crucial importance. Indeed, our findings indicate that compliance with aggressive audit standards and requirements is essential for the City of Miami's continued good standing with the money markets and with its citizen taxpayers. Mr. Richard Fotmoofi September 19► 1980 page Two THE The present City of Miami arrangements for audit services are conventional and were considered adequate until quite recently. Essentially these arrangements consist of! A small in=house internal audit staff in the Department of Management and Budget A contract for annual independent audit reports with a pro- fessional firm of certified public accountants Separate professional contracts for audit services for special purposes such as Federal grants. This basic pattern of audit services was institutionalized in 1976 when a five year contract was executed with the firm of peat, Marwick, Mitchell and Company to audit "the books, accounting records, and finances of the City for the fiscal years ending Septemoer 30, 1976 through 1980" in accordance with provisions of the Charter of the City of Miami. Recently that contract, as earlier recommended by our first "Letter Report," was extended for one year in the interests of attaining continuity and reliability of financial data. The original contract, a copy of which is attached as Exhibit I, required that the audit be conducted "in accordance with generally accepted auditing standards" and that "reports in draft form" be reviewed with "appropriate staff of the Finance Department, the Finance Director, and Internal Auditor of the City." This arrange- ment, considered acceptable at the time, put the Independent Auditor in the position of reporting directly to those being audited. Since the formulation and execution of that contract, much has happened to elevate and to strengthen the standards of acceptable audits. Generally, these pressures have eminated primarily from the accounting profession, the Securities and Exchange Commission (SEC) and the New York Stock Exchange (NYSE) originating in the exam- ination of private sector enterprises. Recently, because of increasing concern over state and local governments' weakening financial positions and inadequate financial reporting, these same forces are beginning to be bought to bear on public sector agencies and jurisdictions. A centerpiece of these evolving developments has been the question of utilizing an "audit committee" in the public sector. In the pri- vate sector, the audit committee consists of a group of nor. -management members of the Board of Directors who work with the independent Mr. Richard Posmoen September 19, 1980 Page Three auditor to review internal accounting controls as well as the results of independent audits. The audit committee rose to the level of public consciousness because of revelations of questionable payments Made in alleged violation of the Foreign Corrupt Practices Act by various private sector concerns, Usually the audit committee consists of five non -management members of the Board of Directors. However, the public sector has no directly comparable equivalent to the "non -management member." In addition, local government legislative bodies, the Miami Mayor and City Commission in this case, are usually fewer in number than private sector Boards of Directors. This tends to make the use of a special legislative committee inappropriate for this purpose. Recently, in response to growing interest in the question of using audit committees in the public sector, the Municipal Finance Officers Association issued a special bulletin on the subject. Their bulletin, issued in May 1980, was written by William B. Dillon and Norton Egol, partners in the firm of Arthur Anderson & Company. The bulletin; which is considered only as informational rather than as official position by the Municipal Finance officers Association, states the case for the audit committee as follows: "We believe that most governmental units will conclude that a properly functioning audit committee will contribute to the quality of internal accounting controls and financial reporting. The greater the committee's independence, the greater investors and the general public will perceive that the political leadership is committed to sound fiscal management." A growing number of public jurisdictions appear to accept this kind of argument. Public jurisdictions present?-y utilizing some variation of the audit committee include: San Antonio, Texas Indianapolis, Indiana Reading, Pennsylvania Port of Los Angeles, California In its latest audit, Peat, :Marwick, Mitchell & Co. has recommended that the City of Miami consider establishing an audit committee. In their management letter they contend that this "would have a very positive effect on the accounting and financial practices of the City." other jurisdictions are considering the utilization of the audit committee concept. At the same time they are adopting more demanding audit standards as they are issued by recognized professional or regulatory agencies. Mr. Richard Potmoen September lot 1990 Page rout In general, the thrust of these changes has been towards (1) more actual independence for the auditing function, (2) More stringent standards for whet will constitute an acceptable audit "opinion" and (3) more openness in the audit procedures. MAJOR RECOMMENDATIONS SUBMITTEb POR IMPROVEMENT OF AUDIT PROGRAMS In our opinion, the City of Miami will serve itself and its tax- payers well by being responsive to these trends. Indeed, although some public jurisdictions have responded to these forces, Miami can assume a position of national leadership among local governments by moving boldly and aggressively at this time. By doing so, it is believed that Miami will also materially improve and strengthen its position in money marketa and with its citizens. Accordingly, the following major recommendations are submitted for your consideration. 1. THE :MAYOR AND CITY COMMISSION SHOULD APPOINT AN AUDIT COMMITTEE TO OVERSEE THE INDEPENDENT AUDIT The "Advisory Audit Committee" can provide a means of increasing confidence in the results of the City's outside audit, as well as in the overall financial position of the City. It can do so because: The outside auditor reports to the Committee rather than City Management, thereby reducing substantially the possi- bility that the auditor may be subjected to untoward influences by those who are responsible for maintaining the City's accounts. The Committee can provide a vehicle for the systematic review of the City's financial position without occupying undue amounts of time at Commission meetings. If properly selected and chartered, the Committee could be perceived by the public to be an apolitcal group whose sole purpose is to protect the public's interests. Appropriate legislation should be submitted to the :Mayor and City Commission creating an "Advisory Audit Committee." The Committee should be charged with: Recommending selection of an independent auditor to the Mayor and City Commission Reviewing preliminary and final reports issued by the inde- pendent auditor Mr, Richard posmoon September 15, 1080 pago Five Recommending acceptance and appropriate follow—up action to the independent auditor's recommendations. The mission and charge of this committee should -be complementary to but not overlapping with the already existing "advisory Budget Committee." (1) The Membership of,the "Advisory,Audit Committee" Consist of Five Persons A000inted by Action of t Citv Commission The legislation creating the "Advisory audit Committee" should spell out the committee's make-up. It should consist•ofe one Member of the City Commission . The Assistant City Manager for Fiscal Affairs Three Citizens of Miami for Overlapping Three Year Terms. The three citizens of Miami should be required to have training and experience in the fields of finance, accounting, and admini- stration. One of the three citizen members of the Committee should be elected as Chairman of the Committee. (2) The "Advisory Audit Committee" Should Establish Specifi- cations for Independent Audit Performance The legislation creating the "Advisory Audit Committee" should require them to recommend performance specifications for the selection of independent auditors to the Mayor and City Commission after appopriate discussion with representatives of the Administration and with the Mayor and entire City Commission. Once approved by the Mayor and Commission, the "Advisory Audit Committee" should: Seek quotations from qualified audit firms based upon the performance specifications Review the quotations Interview the best firms submitting auotations Recommend selection of one firm to the Mayor and Commission. Mr. Richard Posmoen spetember 19, 1980 Page gix It may be desirable for the City to provide outside assis- tafiee to the "Advisory Audit Committee" in establishing precedent procedures while going through this process for the first time. (3 ) The legislation creating the "Advisory audit Committee" should specify a minimum number of meetings to be held by the Committee. In reality the number of meetings will depend on the complexity of the performance specifications adopted, the number of interim reports generated by the independent auditors, and the findings and recommendations contained in the final report. It would seem prudent that the legislation mandate a minimum of six meetings of the Committee annually while allowing the Committee to meet more often in its discretion. The primary purpose of the Committee's meetings, after assisting in selection of the independent auditors will be to review work in process, preliminary reports, and the final report. These efforts should culminate in a meeting with the City Commission and the Independent Auditors to review the final report and to discuss any follow-up action that may be required. (4) The "Advisory Audit Committee" Should Recommend For or Against Retention of the Independent auditor at the Conclusion or Each Annual audit The final annual duty of the Committee should be a recom- mendation to the Mayor and City Commission for or against retention of the firm who conducted the independent audit. This raises the question of what is an appropriate term for the inde- pendent auditors contract. There is no hard and fast answer to that question. A reasonable degree of continuity is desirable, but too much continuity may become undesirable from a number or standpoints. In the final analysis, this is a decision best made by responsible parties on the scene. Therefore, it is suggested that the best policy may be to call for quotations for a set number of vears, five for example, with annual renewable options after the first year to be exercised by the Mayor and City Commission after receiving a review of performance and recommendation report from the "Advisory Audit Committee." Mr. Richard roafhoen September 19, 1980 Page Seven The basic thrust of these recommendations is to create an adedp- table public sector cauntefpart to the "outside audit committee,, now so prevalent in the private sector, fn addition, to be practical, these recommendations must rec6gfti2e the prevailing circumstances in Miami. These include: A small City Commission which militates against a Commission Committee A lack of "outside Commissioners comparable to outside Directors in the private sector, which mandates citizen members on the Committee. These recommendations, if fully and properly implemented, will provide the independent auditor with the necessary independence from those being audited but will still retain accountability for the independent auditor to the Mayor and City Commission. 2. THE PRESENT INTERNAL AUDIT DIVISION SHOULD BE A SEPARATE DEPART- MENT REPORTING DIRECTLY TO THE ASSISTANT CITY MANAGER FOR FTCI'JT. ArrATT?C The present organizational structure of the City of Miami places the internal audit function for all City operations in the Department of Management and Budget as a Division. As such the Assistant Director for Internal Audits reports to the Director of Management and Budget who in turn reports to the Assistant City Manager for Fiscal Affairs. in order to provide the internal audit function th indenpendence expected by modern auditing standards and to complete as nearly as possible the replication of the private sector situation, it is recommended that appropriate legislation be introduced to the Mayor and City Commission creating a Department of Internal Auditing. It should be responsible to and report to the Assistant City Manager for Fiscal Affairs. The recommended legislation creating the Department of Internal Auditing should detail the mission of the Department. At a minimum, under the control and direction of the Assistant City Manager for Fiscal affairs, the following should be included: Revenue Audits Contractor Compliance audits Lessee Compliance Audits Expenditure Audits Assistance for the Independent Auditor Cooperation with the audit ydvisory Committee. The Administrator may wish to include other responsibilities in the mission of this Department. Mr. Ridhard P6tmotn September lot 1080 Page Eight It should be clearly understood that the purpose of this recom- mendation is to provide the internal auditing functions with the degree of independence commensurate with the importance of its function while atilt retaining it as part of the administration. This is an important function for any administration or management to have available to it, but it must still be a part of the adminli= stration to be effective. 3. FUTURE tNDEP9NDENT AUDITS SHOULD REQUIRE P ESTABLISHED BY THE AMERICAN INSTITUTE OF CERTIFIED PUBLIC ACCOUN- TIONAL C It is recommended that the "Advisory Audit Committee" as well as the Administration and the Mayor and City Commission be guided by standards issued by the above groups in seeking future independent audit services. Failure to require audits to these standards may result in a qualified audit opinion and/or a lowered rating for future bonds. At the same time, local circumstances and requirements must be considered in establishing specifications for independent audit invitations to be circulated to•qualified audit firms. In the case of Miami, it will be necessary to require auditing reconciled to the requirements of the State mandated accounting system. However, there may be purely local concerns, such as a concern that insuffi- - cient income is being realized from a leased facility, that may properly be made the subject of emphasis in a particular audit. These considerations should be determined prior to issuing a call for independent audit proposals. It must be realized that the standards established by the organizations cited above are not static. They change from time to time. Indeed, the last five years have been a time of rapid change. As recently as March 1979, the National Council on Governmental Accounting issued its latest standards statements. They are effective for fiscal years that ended after June 30, 1980. They consist of: Statement 1--"Governmental Accounting and Financial Reporting Principals" Statement 2--"Grant, Entitlement, and Shared Revenue Accounting and Reporting by State and Local Government" Mr. Ridhard Fosmoen September 19, 1190 Page 'Mine Eoth statements are an updating of the 1968 statement by the National CoMittee on Covernmental Accounting, published by the Municipal Finance Officers Association entitled "Covernmental Accounting, Auditing, and Financial Reporting." This is a continuing effort which, along with other on=doing efforts, will change "standards" in the future. It will be necessary for the "Audit Advisory Committee" to be kept abreast of these developments and to insure that Miami's audit standards keep pace with developments in the field. 4. CITY OF MIAMI S A PERMANENT POLICY OF _REQUIRING Most private sector companies, particularly those registered with the Securities and Exchange Commission and with the New York Stock Exchange, close their books and perform an audit review quarterly. The results are reported to their Board of Directors and to the public. The primary reasons for this practice are for investor protection and for management control. In addition, the quarterly reviews facilitate the timely completion and issuance of annual audit and financial reports. For the same reasons, as well as others set forth below, it is recommended that these practices be adopted as permanent policy by the City of Miami. It is realized that the City is planning to follow this practice in 1980-81. This is commendable, but it should be continued even though this is not yet a prevalent practice in the public sector. In addition to the benefits set forth above, this will provide advantages described in the following sections. (1) Quarterly audit Reviews Will Compel Timely Maintenance of the Citv' s Financial Books and Records In the past the City's financial books and records have not been maintained on a current basis. The practice has been to wait until year-end closings are made to enter proper inter -fund changes as well as other entries. As a result the completion of the Annual Audit has been undulv complicated and delayed. More importantly, this practice has made it impossible for the City to know its real financial position at any given time except at the end of the fiscal year. Mr. Richard P69ffi6dh geptetnber 19, 1096 Pace fiery (2) In the past the City has been unable to provide its manage•► nment or its Mayor and City ComMis oriers with tilitely j accurate financial status reports. Our "Flow of information" report will cover this Matter in more detail, but it is highly desirable that such reports be subrnitted to the Mayor and City Commissioners on a quarterly basis. (3 ) Quarterly, audit _Reviews_ and Financial Reports `:••Till Provide In the past the City administration has maintained an informal surveillance of its overall financial position. Given the shortcomings of its past accounting practices, however, this was not adequate protection against a major unexpected revenue loss or expenditure requirement. Quarterly reports, as proposed herein, will formalize the review process and provide timely warning should events require a revision of the City's financial plans. There may be some concern that these recommendations will unduely raise the City's cost of financial administration. Initially they will increase costs, but eventually they should result in reduced audit costs compared to what they would otherwise be. More importantly, however these recommendations will ehance Miami's financial reputation with its citizens and investors in ways that will provide returns, both tangible and intangible, which will far outweigh any increased cost which may occur. Such costs should be viewed as a necessary invest- ment to protect Miami's credit and bond ratings in the money market and to protect the investment of Miami's taxpayers. 5. CITY OF MIAMI SHOULD ASSURE ITSELF OF ADEQUATE QUALITY FINAN- CIAL PERSONNEL TO RESPOND TO NEVI REQUIREMENTS A major objective for the City of Miami should be to elevate its financial operations, particularly its internal accounting controls and public financial reporting, to new high levels of performance. The financial information issued by the City's Finance Department should become an unassailable bedrock of reliability. To accomplish this, sufficient numbers of quality personnel ;rust be provided in the Finance Department and, in particular, in the Accounting Division. Provision of independent auditing services and r Mr. Aidhard Vot toen Septditber 19, 1990 Page 21even internal auditing personnel cannot be considered as a substitute for this, it is the Finance bepartment, and the Accounting bivision in particular, that maintains the City's books and records. The primary internal accounting controls are exercised here and the financial reports are generated here. Inadequate personnel will provide inade- quate financial services and records. Auditing personnel can only detect and report these inadequacies. in the past inadequate procedures and, apparently, insufficient personnel have combined to produce unsatisfactory results. We believe it to be essential that the gap be closed. (1) Miami Should Establish Financial Performance Standards It is recommended that the City Administration adopt a set of performance standards it deems necessary to meet its require- ments. These standards should include such measures as: Number of working days to accomplish monthly closings and submit adequate monthly reports to all users Number of working days to prepare and present meaningful quarterly financial and budgetary status reports to the Mayor and City Commission Procedures required to accomplish quarterly indepen- dent audit reviews. Other standards of performance may also be desirable from the administration's standpoint. (2) Miami Should Determine Personnel Rec_uirements to ,feet Financial Performance Standards and Take Necessary Stea_s to Secure Them Once the administration has established the performance standards it desires, an operating analysis of the Finance Department, particularly the Accounting Division, should be completed and the personnel requirements to meet the standards determined. Appropriate steps should then be taken to secure and train the personnel as rapidly as possible. We expect to address this subject in more detail in our "Flow of Information" report. At that time, questions of tapes and fre- quencies of report generation will be considered as well as matters Mt. Richard P69=en September 19, 1080 DA46 Twelve of report distribution, in the d6ftteRt Of this report, which reviews your current audit procedures and pt6qrAm9t it is appropriate that we recommend the beginning of administrative deliberations to determine personnel requirements for acceptable financial performance. We expect to submit our "`low of Information" report to you shortly, in the meantime, it is felt that the findings and recommen- dations contained herein are essential to securing satisfactory audit procedures and programs for the City of Miami. Very truly 4U�l yours, BOOZ, ALLEN & HAMILTON Inc. Porter W. Homer Approved: 4 J, hn C. Ne%man Vice President A _ . L .-i+ t'��J:.:'JL .1_., i:.,'i �71'c�,.i �':� i__� -r—+i � - .� -•-� 1J �IL::L: . 11� j 1 �� J•j~�I.._a t L•L r�'_yl�:.f'-'.. T.• Ci t..l•..i':: �.• j #tlr,L /•�L'._.�ilci YV:;tJl.r V7 E��rVI. 'i _ �.♦• � 5) L. r'" tJ^• �iJr. •r L+ 4 , FOR M VC!",y�;J�' Ci su :1..lvC• j .".�.rGLiic. AIM C t`•�.l ui� C: liii✓ CI 0� l�I: .'1 t V �f i+ i ti.�i ld �it'�a �-{{•�•- TT++ ��•a1 . r` -j t .:.,r•:..; :: p . 9 = r+ ate{ �••n :.a 3V j �� !li �iiwr✓�fl :i.,.. j tNl A Lal.'. 5=' Z--. �=ZOL7rn BY is- CIF T r Cr _ Sea: on 1. at t°e Cit7j M-axager s a';tuhfl_-.::3 to ent -- it» a C•:.oi-ssic i. .l ►c.'"Ace a ee-,,_.:it F:'ith the &Li=,,. C= c'e...zt, i•`.a'^• ic"t Mitchell �• r'C.' �?+�+� � C!iiLi�=� GL:3"I�..vL'►1�-t...�5i fn: .... of the boo..t s, acccv_nt,.�.g records and £s. r_ces al "he Citr Of ii2c"1 iv_ the fiscal yea—r ending Sept-e•.'bar 30, 10 l vJ{_ C: y30,O✓1J _l.i.. theL.-J- ve= and50J00I: _.., ..._C:l S..:.,..e.r'1,. VC.... PASS . L;D 7�T . = "a- � day c= 1 J LY , 57-. .��,., � t•. _5'`, �^ .a -. { r r. C i * : r � L �Ci: _gin 1 i .-,T CITY CLE"%': ►1r. �YOR 1•l, C1 Y co,"I!AI,155;0:3 �'•�re-t�fl� w�tr j U H fee 11 ... 1,., .' f7 --aver . .. .. .�.•r..A.-� .-�1..�:. ...� .. .. -�1. .-.. 1. _ _ i- .! i I --MAEZ.. ... - . ':- PROFESStONAh S�RVLCggAGREF-MEN T " This Agreement entered into as of the 1st ..__ day of 19760 by and between the City of Miami, a municipal corporation of Dade County, rlorida, hereinafter referred to as "the City," and Peat, ►-lnmick, Mitchell 6 Co., Certified Public Accountants, hereinafter referred to as "the Auditors.` WITH E S S ETH-. tMEREAS, Section of the Charter of the City of :•iiami, Florida, requires that the City shall provide annually for an audit of the accounts and finances of the City,, and UMEREAS, the Auditors, as reflected by their statement of qualifications dated 'fay 10, 1976, submitted to Mr. Joseph F. Paredes, Assistant City ,tanager, incorporated herein and made a part hereof by reference, have expressed a desire to perform the required auditing services for the City, NOW, THEREFORE, the City and :Auditors agree as follows!. 1. TERA! : This Agreement shall commence July 1, 1976, for the purpose of auditing the books, accounting records, and finances of the City for the fiscal years end- ing September 30, 1976 through 1980. 2. BASIC SERVICES: (a) The Auditors shall examine and report on the financial statements and certain supplemental financial schedules of the funds and account groups of the City as listed in Exhibit I attached hereto. (b) The completion time for all audits, unless othe naise specified. shall be ninety days after the fiscal year end. For the audit of the fiscal year ending September 30, 1976, only, the Auditors will be allowed an additional four weeks for the completion of the audit. Such audit shall be conducted in accordance with generally accepted auditing standards and shall determine •:hither the: City's financial statements are presented in accordance with generally accLpLe-u JC_'Jl::1L�;1^. �i2.iT1CJ' icF as P l.'t'♦.�r Lr. 1c :Zr n,., i ric,cii�l :rc. SWIPj merited and modified from time to time. Where applicable, Peat, Man:ick, `Sitchcil b Co., as the City's principal auditors, shall coordinate their work with any other auditor doing supplemental work for the City and the Internal {'Auditing Ilivisioti of the City. C C) - The Auditu 3 shallg dut'f6w, and _ i t,sue reports relating .to financial co^pliahce %,:ith covenants of Trust Agtee-ments i laws and regulations, efficiency and economy of operati.ofts, systems (A internal co-,jtrol$ and operating and hanagemeiit procedures. These reports shall include fi►idii►os and recoTtImendations arising from their regular audit procedures nad not from special studies. The Auditors shall review said reports in draft form with appropriate staff of the finance Department, the finance Director, and tnternal Auditor of the City, (d) The Auditors will not be responsible for the compilation and typing of the City's financial statements, annual report, or other financial data, all of u hich shall be accomplished by City personnel. (e) It is understood that City personnel will be responsible for the preparation of all schedules, analyses, and pro forma working papers requested by the Auditors and that the Internal Auditor of the City will supply a minimum of 400 hours assistance to the Auditors during the conduct of their examination. 3. EXTRk WORK: The Auditors, upon receipt of a written request :rom the City Manager or his designee, shall perform such additional work as may reasonably be required, including, but not limited to, special revenue audits, reviews of the Internal Auditor's department, reviews of Official Statements for offerings of securities by the City, meetings with Underwriters and attorneys in connection with offerings of securities and other requested services. 4. WORK PAPERS: For a period of three (3) years after completion of any word: provided herein, the Auditors shall make its work papers, records, and other evidence and documents relating to such work available to its successor and the City, including its designees. The City and its representatives shall he entitled, at any time during such three (3) year period, to inspect such documents and to repro uce same at the City's expense, for which provisions will be made at the ti-re tile - reed for rc•production arises. Such access, inspection, and repro.tuctio,t of ri't*0r(jS, and other dOCLM0_1)'65 m:1j' b,: ae8trictod by tilt. AU_AL,11'a AZI ro ttj:it porL1011 of worlking papers which pertaii: to Lhe`r auditing procodurat. and the nature and extent of their audit testing, 46 (�) The AuJiturs rias oc Ehis nreement¢taepsre and i.:;si+e reports relating .to financial cospliance with covenants of Trust Agreements) laws and regulations, off is iency' and econoiny of operations, sy'steras (A internal control, and operating and management procedures. These reports shall include findii,es and recot.mendations arising from their regular audit procedures and not from special. studies. The Auditors shall review said reports in draft fort with appropriate staff of the Finance Department, the finance Director, and Internal Auditor of the City. (d) The Auditors will not be responsible for the compilation and typing of the City's financial statements; annual report, or other financial data, all of which shall be accomplished by City personnel. (e) It is understood that City personnel will be responsible for the preparation of all schedules, analyses, and pro forma working papers requested by the Auditors and that the Internal Auditor of the City will supply a minimum of 400 hours assistance to the Auditors during the conduct of their examination. 3. EXTRA WORK: The :auditors, upon receipt of a written request from the City Manager or his designee, shall perform such additional work as may reasonably be required, including, but not limited to, special revenue audits, reviews of the Internal Auditor's department, reviews of Official Statements for offerings of securities by the City, meetings with Underwriters and attorneys in connection with offerings of securities and other requested services. 4. WORK PAPERS: For a period of three (3) years after completion of any work provided herein, the Auditors shall make its work papers, re.:ords, and other evidence and documents relating to such work available to its successor and the City, includin;; its designees. The City and its representatives shall he entitled, at any time during such three (3) year period, to inspect such documerts and to repro uce sa:e at the City's expense, for which provisions will be made at the time the nl-�d for rt•production arises. Such access, inspection, and r�.,pro.iiiction of o rc.:fl�; E1..1 ��'I .�, l".'�'��1"t;ti, �liiii ��Li1cI- doctimonts nay b,: . :sari _ ted by the Au:. Lol- :iS (_CI ttlat porLioll of tgarkin- papers which pertail: to t.hu--'r auditing pro:oduro-, anti the nature and e=:tent of their audit resting - _ _ :. H -Ce eftt a rr �) The ALIditue3 8ili l # uu�irts� trt�±• EeYl 3 of this l�l , pr par i.t-,sue reports relating to financial compliance taith covenants of Trlist Agree,a,ents, la,.tis and raoulations, efficiency and economy of operations) systems A internal control, and operating and tiatagerent procedLures, These reports shall include findi►tos and recommendations arising from their regular audit prol:Ldures and noL from special studies. The Auditors shall review said reports in dtaft form with appropriate staff of the Finance Departmcnt, the finance Ui.rector, and Tnternal Auditor of the City, i (d) The Auditors will not be responsible for the compilation and typing of the City)s financial statements* annual report, or other financial data, all of trhich shall be accomplished by -City personnel. (e) It is understood. that City personnel will be responsible for the preparation of all schedules, analyses, and pro forma working papers requested by the Auditors and that the Internal Auditor of the City will supply a minimal of 400 hours assistance to the Auditors during the conduct of their examination. 3. E.MU% WORK: _. The auditors, upon receipt of a written request from the City Nanac;er or his designee, shall perform such additional work as may reasonably be required, including, but not limited to;cspecial revenue audits, reviews of the Internal Auditor's department, reviews b'f Official Statements for offerings of securities by the City, meetings with -L'ndi'i-writers and attorneys in connection with offerings of securities and other requested services. 4. WORK PAPERS: For a period of three_.(3) years after completion of any wore: provided herein, the Auditors shall make its work papers, records, and other evidence and docummiients relating to such work'available to its successor and the City, including,; its designees, The City and .its representatives shall he entitled, at any time during such three (3) year pexknd, to inspect such doCUMC.ts and to repro tice at tile City's expense, for which provisions will be zmade at the ti^e Ole nc-eii [��2' roprJducLlon arises. Such accoss, il1SpCCtiO:l, a:ld rcrJrO.ttiC:ttion .:` tli; p:11�'1.., r� i'C�1"clti, ;jljd oL.her dOC:tlT-.!t2ll't:d may b': :aL'r:�CP � by thu. A"l_!1LJrs 1n l: tl til:li parLloit Of Warr:inn papers '.:11iCh purta Ll: L:1 L`.1R._r arid, tlnit, e, pr; ''d it rOt. and the nature and extent of their audit testier,, t (c) Thz ALIjitotzi shall during the ten is -of this Aiie-ementjlrpiepate anA teports rotating 'to financial comt liance with covenants of Trust AgteemmeCSts, la,.cs and regulations, of fic tency and eLonotny of operations, systems cry inLettial cc-atrol, and operating and management procedures. These reports shall ir.ctude finditios and reco-:.iaendations arising _`rota their regular audit procedures and not from special studies. The Auditors shall review said reports in draft ford with appropriate staff of the Finance Department, the Finance Director, and internal Auditor of the City. (d) The Auditors will not be responsible for the compilation and typing of the City's financial statements, annual report, or other financial data, all of which shall be accomplished by City personnel. (e) It is understood that City personnel will be responsible for the preparation of all schedules, analyses, and pro forma working papers requested by the Auditors and that the Internal Auditor of the City will supply a minimum of 400 hours assistance to the Auditors during the conduct of their examination. 3. EXTZA WORK, The Auditors, upon receipt of a written request -from the City Manager or his designee, shall perform, such additional Mork as ray reasonably be required, including, but not limited to, special revenue audits, reviei:-s of the Internal Auditor's department, reviews of Official Statements for offerings of securities by the City, meetings with Underwriters and attorneys in connection with offerings of securities and other requested services. 4. WORK PAPERS: For a period of three (3) years after completion of any work provided herein, the Auditors shall make its work papers, records, and other evidence and documents relating to such work available to its successor and the City, including; its designee;. The City and its representatives shall be entitled, at -Inv titno during such three (3) year period, to inspect such documents and to repro- uco 5a::e at the City's expense, for which provisions will be =ade at the time the reid d for r. prJCtuction arises. Such across, inspection, and rc[iroduction a p,j; F." r 'i.��l'l!t , :tnd OLher docur.,en-ts ixiy l•L' si:r_�:ted by tl:u nz; ro Cli:1t portion of worLinn pupers crhich pertnit: to Lheir auditing pro.:oduro--, and the nature and e::tent of their auc;it testing, 54 (a) The city shall pay the Auditorst as compensation for the services required pursuant to paragraph 2 hereof, a fee not to exceed Thirty Thousand and N6/100 Dollats ($30000) for the fiscal year ending September 30, 19760 and fifty Thousand and N0/100 Dollars ($50,000) for the fiscal years ending September 310, 1977 through 1980, to be calculated and billed based on the Auditors' prevailing standard hourly rate schedules which, at this date, are approximately as follows: Partner - Audit $100,00 per hour Supervisor = Audit 40.00 per hour Senior Accountant 30.00 per hour Staff Accountant 25.00 per hour Assistant Accountant 20,00 per hour It is understood and agreed that the foregoing fee is based upon the Auditors' estimate that approximately 2,000 hours will be required by the Auditors to complete the audit described in Paragraph 2 hereof. It is further understood and agreed that a review of said fee arrangement will be made if the anticipated 2,000 hours are exceeded by more than 10% as a result of the growth of the City's financial budget or as a result of significant deterioration in the quality of the City's record keeping. (b) Such fee small be paid upon submission by the Auditors of bi-weekly billings; such bi-weeltly billings shall be paid within fifteen (15) days of sub- mission. The City shall have the right to review and audit the time records and related records of the Auditors pertaining to any such billings. (c) The Auditors shall be reimbursed for travel, per diem or related expenses, typing, report reproduction and other charges. Reimbursement shall be limited to amounts allowable under Chapter 112.061, Florida Statutes. Al] e:;panses relating to travel shall be approved in advance by the City. (d) Compensation to the Auditors for extra work performed pursuant to Paragraph 3 of this Agreement shall be based on their prevailing standar,: hourly i-aty schedules and shall be subject to the provisions of sub -paragraphs (h) mid (-•) , 11)ove. 6, GEi:Ei�L%L (a) This A.-reement, or any interest herein, shall. not br assi-ned, transferred, or otherwise encumbered, under any circumstances, _33 (b) The Auditofs shall comply with the provision) of any and all Vedetal, State, County, and City Orders, Statutes, Ordinances, Rules, and kegulations which may pertaih to the Work taq wired under this Agreements including specifically those which pertaih to "Con`licts of Interest" and "Empl.oyrietit Discrimination." TERMINATIO:•i OF AGREE:•',F N! Either party may terminate this Agreerent upon thirty (30) days written notice to the other party; subject, however, to the reservation of the City's right to terminate this Agreement immediately, with or without notice, upon the determination of the Finance Director of the City that the services of the Auditors are not satisfactory, and upon communication of an appropriate reco,m,nendation to the City Manager for disposition. IN WITNESS WHEREOF, the parties hereto have caused these presents to be executed by their respective officials thereinto duly authorized, this the day and year first above written. Witnesses PEAT, MARWICK, X.1-4CHELL & CO., a partnership Attest: CITY OF MIAMI, a municipal corporation of the State of Flori,2a City Clem CIt_ Manaqer APPROVED AS TO F --n': AtJ^ CORRECT.:ESS : Acting City Attorney Exhibit I t F UN DS TO -BF INCLUDED UNDER ,BASIC SMVICES j• � � 1, General Fund 2+ Special Revenue Funds (a) Pensions (b) publicity and Tourism, (c) Lighting, City 3, Debt Service Funds (a) General Obligation Debt Fund (b) Special Obligation Debt Funds - Capital Improvement Bonds - Utilities Service Tax Bonds Orange Bowl Bonds Incinerator Bonds 4. Intragovernmental Service Funds (a) Director of Public Properties (b) City Garage (c) Motor Pool (d) Maintenance Division (e) Print Shop (f) Stationery Stock 5. Federal Revenue Sharing Fund 6. Trust and Agency Fund 7. Enterprise Funds (a) Directors Office (b) Marine Stadium (Q) Orange Bowl Stadium (d) Miami Stadium (e) Marina.; (f) Dinner 1'e- A,,v1itoriw-1 (S,) Ba.;front Auciitoriu,:. (h) Dinner l:e Leasc-d i.;uildin.,; , (i) iliami Spring:; Golf CourS and ;iOlydeGO C,olf COUr:;a (j) j.areliouse Proper t; (k) Special Propvrties so - 6 ,. 5:.hibit i Fatie 2 3. Statements of 1,11) (a) General Obligation Debt (b) Special Obtigation Dabt 9. General Fixed Asset Group 11). General Obligation blond Funds (Capital Projects) (a) Storm Sewers, (b) Sanitary Sewers (c) Pollution Control (d) Police Facilities (e) Parks and Recreation Facilities (f) Bayfroat Recreation Facilities (g) Highway Improve -meats o_ (h) Convention Center (i) Fire Facilities (j) Sidewalks (k) Revolving Fund 11. Special Obligation Bond Fund i __. ... - i. I STATE OF FLORtDA: COUNTY OF DADE : being first duly sc7orn deposes and says that he is a Partner in the firm of Peat, Marwick, Mitchell & Company and as such partner is authorized to bind Peat, 14an•7ick, Pitchell & Company as Certified Public Accountants to the above and foregoing contract. L SE• OMN TO & SUBSCRIBED BEFORE HE THIS4L—DAY OF- 1976. N0TAI:Y PUBLIC �.��^�'!,� 7•!•IIC ^, T.T. ., e r� �:r ��i..•va (� 9w ��1 C..�,•'w�.�1.y',J' �ialiv�lf"� �*:iw»i ArS•iC/ Ahfiqtmr»t e6ftsaltdAts 180 Mr. Richard posmoen City Manager City Hail (Dinner Key) City of Miami 3500 pan American Drive Miami, Florida 53133 Dear Mr, posmoen: OCT 22 41:26 LASt WkSt rodmWAt II&MC65A, MA14?LANC 96614 s31- tioo A4t► eodt ioi October 170 1980 This will be the fourth of several interim "Letter Reports" to be submitted to you prior to the presentation of a final "Man of Action Report" under the terms of our professional services agreement "to provide services for the improvement of the City's administrative services and processes dated July 21, 1980. Under the terms of that agreement, one of the tasks to be accomplished was a review of the City of Miami's information system. This was to include the flow of financial and performance data. our review was conducted to determine if: Each level of the City's organization was receiving the information it needed to properly discharge its duties The information was in a useful format and was received on a timely basis. Our overall conclusion is that the present flow of financial and performance information does not meet the requirements of the City of Miami. Furthermore, it is our conclusion that the develop- ment of such information systems is crucial to the City's efforts at cost containment and reduction. The systems recommended in this report should be implemented at the earliest feasible time. We appreciate the excellent cooperation that we have received from you and your staff during this portion of the assignment. We ► 30-S37 #I f Mr, Aidhard r6amdn Odt6bdr 200 1080 Page Two will be happy to answer any questions about this report or to assist you in any appropriate manner in your d6fttideratibft of this report. Yours very truly, BOOZi ALLM & HAMILTON Inc. Porter W. Homer Approved: C. /L6uLI%4-r%- John C. Newman Vice President #j RVIEW OF THE CITY OF MIAMV A INFORMATION SYSTEMS This report addresses the task of reviewing the present flow of performance and financial data within the admini= Stration and to the City Commistion, as well as the submission of recommendations to improve the flow of such information in terms of quality and timeliness. our review has included a survey of the present infor- mation flow, from point of origin to the point of final utilization, for both financial and performance data, inter- views were conducted, on a sample basis, with originators of data and with users of data. The present system of Miami reports were reviewed. In addition, information systems being utilized by other local government jurisdictions were scrutinized. in reviewing the Miami reports, as well. as those of other jurisdictions, their utility was evaluated on the basis of the following criteria: Pertinence --Contents of a report should be highly significant or relevant to the responsibilities of the intended reader. In general, as infor- mation flows upward, the amount of detail provided on any one function or activity will decrease, beginning with the point of origin and ending with the City Commission. Regularity --Information on functions or activities that are critical to the successful operation of the City should be monitored on a routine basis. Pertinent reports should be submitted to a distri- bution list in accordance with a prescribed, recurring plan, such as monthly or quarterly. Continuity --Each periodic report should contain data in the same format as the previous report. The format should provide "pertinent" trend and comparative information. Clarity and Focus --The significance of the infor- mation -should be readily apparent and should focus on only the most important aspects of performance or status. Raw, uninterpreted data are rarely useful at higher levels of management. -1- TiMelif Ogg' --Each report should be SubMitted to its "a stFibuti6h list" within a period of time after the dose Of the reporting period that permita meaningful deci§ions to be Made and appropriate Managdment actions t:o be taken. if a report is too late, it is not pertinent, In an overall sense, our review was based upon a belief in the importance, even essentiality, of performance and financial data that meets the above criteria. Without such data, the administrators and policy makers of.a local government are reduced to habit and intuition in their decision -making. Evolving trends that are symptomatic of developing problems go undetected until a crisis occurs. From that point on, action and decision making are crisis oriented. This is not to say that an information system will prevent crisis from occuring or guarantee sound decision making. It will, how- ever, enhance an organization's ability to deal with both. Finally, our review and our recommendations were tempered by a realization that no information system can be a cure-all. Everyone's diversified needs and desires for information cannot be satisfied without making the system so costly and so time consuming that it's value pales by comparison. A system that adivses the reader of an impor- tant future problem or of a pertinent accomplishment is useful. Either the problem or the accomplishment can be subjected to special analysis if it is needed. However, a system that also advises of minor problems or meaningless accomplishments is not useful. It becomes a burden. 1. SUMMARY OF OUR CONCLUSIONS The current flow of information is inadequate in terms of the above criteria, as well as in light of the City's needs. There is a great deal of data, but it is at the departmental and divisional level. It is communicated to the management and to the Commission level on an "as needed" basis rather than on a regular organized basis. The present system is characterized by: A Lack of City-wide Cohesiveness --Information is concentrated at the departmental and divisional level. It is communicated to the management level and to the Commission level on a basis which tends to be oriented to Commission meeting requirements, crisis conditions, or eposodic criteria. -2- r 80.837 , Over -reliance, a ori_ Aeet n-g-4--Verbal coffutunications, in the form of staff meetings, or of ofie-anyone Meetings are the prevailing Bode of information transfer within the administration. This is not to suggest that such meetings should be eliminated. However# they should be reserved for more important, complex matters that are time -sensitive and supple- mented by an organized, citywide data reporting system. A Lack _ofUseful,, Timely __Pit aticial ' Data -Althouc3h the production of monthly financial reports has improved in timeliness, the information provided is not in the most useful format and is still tardy. Most departments and divisions feel that it is necessary to keep their own books. Sufficient usable data is not provided at the management level and insufficient data is provided to the City Commis- sicn to allow them to exercise their oversight function. A Lack of Linkage Between Financial and Performance Data --At present, there is practically no effort to determine unit costs of production or service. The question of how many units of service will be received for each dollar appropriated for a particular function is unanswered. A Lack of Performance Goals --At present, there are no established goals by which actual performance can be judged. Such questions as whether revenue collections or expenditure trends are on target are unanswered. Also, there is little attempt to determine if service performance is meeting expected levels. An adequate information system will address these shortcomings. In so doing, the system will provide greater oversight capacity to the management and City Commission. The system should reduce the number of staff meetings now required. Staff meetings are useful, but should be limited to important, consequential matters. Finally, such a system should elevate the level of decision -making by allowing planning, performance evaluation, and problem anticipation to occur. Exhibit I, on the following page, delineates the major reports presently provided to the various management levels. -3- liven the City of Miami's Glfeady existent d6thMitment to new systems installations, (e.g., payroll) and to automated hardware conversion, it is recommended that an improved information system be developed on a gradual, phased -in basi94 priorities for development of an information system should be developed on a basis of need and on existing information at departmental or divisional levels in the interests of economy. These priorities should then be merged with already established systems development priorities. 2. DVELOPMENT OF _TIMM _USVUL_ FINANCIAL ._.DAT It is recommended that first priority in developing information systems be given to the development of financial management information systems. This data is needed at all levels of the City organization. It should be timely and in a format that provides meaningful comparison of actual experience to budget allocations. This will require a dif- ferent format and analysis for different levels of the government organization. (1) The Mayor and City Commission Should Receive Quarterly Financial Data In order for the Mavor and City Commission to exercise their financial oversight responsibilities, it is recommended that they be provided each quarter a 'IFinancial and Budget Report". It should include: By fund, detailed to major expenditure characters and revenue sources: - Revenues Anticipated (budgeted) - Revenues Collected (actual) - Expenditures anticipated (budgeted) - Expenditures 22ade (actual) By fund, a written analysis of the C.ity's budget position. Meaning4�ul divergencies in actual experience versus anticipated experience should be examined and explained. Program changes necessitated by each fund analysis should be reported or recommended as required by law. -4- . a .. r ExRit1T t Major Aeportt Presently Received at carious Management Leve1A in the City of Miami on a Regular BaSiS MAYOR_ AND ._CITY GOMMISSION , Commission Meeting Agenda & Supporting Documents Capital Improvement Reports For Your Information (FYI) Documents Major Project Status Report Minutes of Meetings of Independent Boards & Committees CITY MANAGER AND ASSISTANT CITY MANAGERS Supporting Documents for Commission Meeting Agenda Capital Improvement Reports Original For Your Information Documents Finance Director's :4onthly Finance Report Departmental Data for Major Project Status Report Commission Requests for Data and Complaint handling DIRECTORS OF DEPARTMENTS AND DIVISIONS Each Director receives a variety of monthly reports covering regular activities and status of projects -5- Impact upon the City's year-end fiscal position should be projected based upon information and analysis available each quarter. This impact analysis should be prepared for each fund. Tie City's over all financial position at the end of each quarter should be summarised and year-end projection made. This summary should set forth potential trouble areas and/or areas of potential expenditure savings or excess revenue collections. This report should be prepared by the Director of Management and Budget w1th the assistance of his staff. Preparation of the report should include ,appropriate consultation with the Director of Finance. The Report should be supervised by the Assistant City :tanager for Fiscal Affairs and reviewed by the City Manager prior to submittal to the Mayor and City Commission. Exhibit II, on the following page, shows what a quarterly report on the General Fund should contain. Figures used in this Exhibit are hypothetical. (2) The City Manager and Assistant City Managers Should Receive Appropriate Monthly And Quarterly Financial Data In order for the City L"tanager and his immediate staff to properly exercise their financial and budget responsibilities, it is recommended that they be pro- vided each month and each quarter appropriate financial and budget data. This should include: For the Cite Manager and Assistant City .Manager for Fiscal Affairs: By fund, a monthly and quarterly report of actual expenditures compared to quarterly allotments detailed to major character expenditures (e.g., Personnel Services, Operating Expenses, Capital Outlay, Debt Service, and Capital Reserve) for each major appropriation (e.g., departmental and divisional). -- By fund, a monthly and quarterly report of actual revenue collections compared to quarterl., estimates detailed to major revenue sources. -G- MMIT It txample of P6rm and Content for Quarterly Financial and Budget Report to (itY CofFMiseion January 20, 1980 Tot The Mayor and Members of the City CoMMission From: The City Manager Subject: First Quarter Financial and Budget Report for the General Fund At the conclusion of the first quarter for fiscal 1979-80, both the revenues and expenditures for the General Fund are slightly ahead of expectations, Based upon experience to date, there is no reason to expect a substantial deviation in either revenue collections or expenditures from the original budget. The status of General Fund revenues and expenditures are set forth below. REVENUES First Quarter First Quarter Category Annual Budget Allotment Actual Property Taxes $42,179,807 537,250,000 $38,007,273 Franchise Taxes 7,955,434 3,200,000 3,216,121 Utility Taxes 17,423,377 4,500,000 4,260,007 Licenses and Permits 4,259,323 3,750,000 2,810,003 Federal Shared Revenue 8,861,490 3,800,000 3,SO3,051 State Shared Revenue 13,455,371 5,100,000 6,094,304 Other Shared Revenue 852,500 175,000 178,200 Charges for Services 5,777,119 400,000 501,002 Fines and Forfeits 1,362,000 275,000 309,426 Interest Earnings 1,086,900 300,000 301,541 Other 3,055,272 300,000 803,587 TOTAL $106,268,593 S59,550,000 $60,304,515 a EXHI T 11(2) t pxm? 1DItgkES_ First Quarter �i.f st ¢tiartef Cite, ot. _nu1 kudclet1]otnent__.._... Personnel Services $79,822,946 $17,400,000 $17,182,348 operating txpehses 20,202,109 4,250,000 4,394,217 Capital Outlay 149,760 32,000 31,912 Debt Service =0= =0- =0= Capital tmprovement =0j Reserve Special Programs 6,093,718 1,825,000 1,874,329 TOTAL $106,268,593 $23,507,000 $23,482,806 ANALYSIS With minor exceptions revenue collections are on target. The exceptions area Utility Taxes --Collections are below expectations by approximately $220,000. We are advised that electricity sales are lower than we anticipated. Utility officials feel that our first quarter estimate was too high originally. Thev believe that sales over the remaining nine months will justify our total revenue estimate. They expect a consider- able increase in sales during the second and third quarters of our fiscal year. we have made arrangements to monitor this situation on a monthly basis. any further weakening of the City's financial position will be immediately reported to the Mayor and City Commission alone wit", recommended remedial action. License and Permits —Collections are below expectations by approximately $940,000. Many businesses have railed to pay their business license fees on time. Apparently this is a reflection of the economic conditions locally. A survey of the major delinquent accounts indicates that we will collect most of the delinquent license fees shortly. We expect this under collection to remedy itself. State Shared Revenue --Collections are in excess of excec- tations by about $1,000,000. This results from a new payment schedule for state revenue sharing which accelerates payments to localities. to the final analysis, it is expected that total payments receiving during this fiscal year will approximate the original estimate. -8- With one exception our expenditures are on target. The one exception is: Operating„ExperinsesYThis category of expenditures is about $150,000 over expectations: The primary reason is the higher than expected price of gasoline to operate the City's motor vehicle fleet. We have established a program to control Motor vehicle use more tightly. In addition, the Purchasing Agent has been directed to explore alternative sources of gasoline supply to replace our present supply contract which expires as of March 31 this year. In the meantime we will continue to monitor this cost overrun on a weekly basis. Unless the present trend reverses itself shortly, we will submit recommendations to the Mayor and Commission in the near future to transfer funds for this purpose. If the Mayor and members of the City Commission have further questicns on this report or desire further data, I will be happy to respond. ^g_ Pot the retraining Assistant City Managers By fund, the same monthly and quarterly expenditure and revenue information as above but limited to the functions under their pteView, The Director of Management and Budget should review monthly expenditure and revenue reports with the Director of Finance and report any unexpected develop" ment5 to the Assistant City Manager for Fiscal Affairs, who should advise the City Manager of such developments if necessary, (3) Directors of Departments and DivisionsShould Receive_ Appropriate Monthly and Quarterly Financial Data In order for each of the Departmental and Divisional Directors to properly exercise financial and budgetary administrative controls and planning over their respective operations, it is recommended that they be provided for all activities under their preview, the following: By fund and by activity account, a monthly and quarterly report of actual expenditures compared to quarterly allotments detailed to major character expenditures. By fund and by activity revenue account, a monthly and quarterly report of actual revenue collections compared to quarterly estimates. By fund and by activity accountt a quarterly report of actual expenditures detailed to major character and line item level compared to total annual appropriations. Each Department and Divisional Director should review each report upon receipt and take appropriate action dependent upon the contents of those reports. 3. PROPOSED IMPLE:KENTATION FOR RECONIMENDED FINANCIAL INFORMATION SYSTEM Financial responsibility is one of the primary duties imposed upon the officials of the City of Miami by State law and by the City Charter. The present financial system 0, 80-837 Pot the remaining Assistant City Managers: By fund, the same monthly and quarterly expenditure and revenue information as above but limited to the functions under their preview, The biredtor of Management and Budget should review monthly expenditure and revenue reports with the bisector of Finance and report any unexpected develop - meets to the Assistant City Manager for Piscal Affairs, who should advise the City Manager of such developments if necessary, (3) Directors of Departmentsand Divisions Should Receive Anorooriate Monthly and Quarterly ancial Data In order for each of the Departmental and Divisional Directors to properly exercise financial and budgetary administrative controls and planning over their respective operations, it is recommended that they be provided for all activities under their preview, the following: By fund and by activity account, a monthly and quarterly report of actual expenditures compared to quarterly allotments detailed to major character expenditures. By fund and by activity revenue account, a monthly and quarterly report of actual revenue collections compared to quarterly estimates. By fund and by activity account, a quarterly report of actual expenditures detailed to major character and line item level compared to total annual appropriations. Each Department and Divisional Director should review each report upon receipt and take appropriate action dependent upon the contents of those reports. 3, PROPOSED IMPLEMENTATION FOR RECOMMENDED FINANCIAL INFOP-IIATION SYSTEM Financial responsibility is one of the primary duties imposed upon the officials of the City of Miami by State law and by the Cit: Charter. The present financial system -10- w 80-837 Provides too much data, too late to allow City officials to properly ekereise this duty. This is particularly true fdr the Mayor, the City COMMissiont the City Manager and the Department biredtors, Without timely; accurate information, decisions are necessarily made, or not made, in a vacuum. The system proposed herein will close that void by providing each level of the City organization the financial information it needs, when it needs it, and in appropriate format, In order to provide timely, pertinent financial infor- mation, a system of quarterly expenditure and.revenue estimates must be established against which actual performance can be evaluated, The system, if it is to be meaningful, should also encompass a system of controls to provide policy and top management personnel with an ability to respond to the system's indicators which may call for a change of fiscal plans. The major steps required to install the system, which are set forth below, occur after the annual budget is adopted by the Mayor and City Commission. Having just adopted its 1980-81 Budget, the City of Miami is in a good position to establish the system now. However, it must be accomplished rapidly in order to be meaningful in this crucial year for Miami. (1) Recommended Steps to Establish Quarterly Expenditure Allotments Immediately upon adoption of the annual budget by the Mayor and City Commission, the administration should distribute "quarterly allotment" forms to appropriate expenditure authorities in the Citv. These forms should contain figures, to line item detail under major character headings, representing the approved annual expenditure budget. Instructions for the completion of the forms by "authorized expenditure authorities" should be included. Basically, each expenditure authority is expected to divide each line item annual appropriation into logical, realistic quarterly expenditure plans. This does not mean an automatic division by four. A single Capital Outlay expenditure will occur in only one quarter. A special summer program will result in temporarily increased expenditure during those summer months. The completed "quarterly allotment" forms should be returned to the Department of Management and Budget. After review and approval, the forms should be for- warded to the Division of Accounting in the Finance Department and to the Division of Computer Operations in the Computers and Communications Department for posting and budget administration purposes. The purpose of the quarterly allotment system is to develop a realistic estimate of the timing, by quarters, of expenditures during the fiscal year. These estifftates, among other purposes, then become a standard against which actual expenditures can be evaluated. A meaningful deviation from the standard► which is presumed to be valid since it was prepared by the "authorized expenditure authority" and verified by the Department of Management and Eudget, requires examination and appropriate corrective action. Exhibit III, on the following page, utilizes the recommended quarterly allotment form to illustrate the break down of one operation's annual appropriation into quarterly allotments. The figures used in the Exhibit are hypothetical. (2) Recommended_ Steps to Establish Quarterly _Revenue Estimates The steps to be taken and the purposes to be served in establishing a system of quarterly revenue estimates are basically the same as those recommended for expenditure allotments. However, revenue accounts and persons responsible for revenue collections are the subjects covered. Completed forms are checked and processed through the same sequences as expenditure allotments. The purpose, establishment of a standard against which actual experience, or collections, can be evaluated, remains the same. Exhibit IV, following Exhibit III, illustrates the break down of one class of revenue accounts into quarterly estimates. The recommended form for this purpose is utilized. The figures are hypothetical. (3) Administration of the Quarterly Expenditure System The operating responsibility for administration of the quarterly expenditure system should rest with the _ Director of Management and Budget subject to oversight _ by the Assistant City Manager for Fiscal Affairs. The information flows to the City Manager and, through that person, to the Mayor and City Commission. All Department and Division Directors are involved in the formulation of the system, but the Director of Finance and Director of Computers and Communications are also involved in additional and important ways. The former must adjust his accounting procedures to accomodate the system while the latter must adjust his prcgramming to serve the system. -12- EXHIBITIII Example of Quarterly Expenditure Allotment Form Acc�ottr� t 'Total t;)udrturly Al10tment , First Second Third Fourth tJ►rn+! trr Ac:cut►nt Budget Remarks Aersunr►el Survs. 22,804,87"5,120,000 5,1.5U,000 6,040,000 6,494,879 ►u)1 Pur. Pull Tiuwc: 15,310,12c3,805,000 3,820,000 3,900,000 3,785,129 Mandated Force Reduction Fourth, Qtr.. 0b) I h I c I ass i f ied 450,06- 100,000 110,000 115,000 � 125,064 05(1 uvercimt� 91,91, 1.5,000 20,000 20,OuO 36,914 W.)3 flu]iday 590,1W 200,000 100,000 120,000 170,I88 lt►t► PICA 'I'dx 62,00: 15,000 15,000 16,000 16,00.3 llu Retirument 5,921,89: 900,000 1,000,000 1,769,000 2,252,892 Mandated -Increase for Third„ Fourth: 11)0 Wurkur's Cump. 378,681. 85,000 85,000 100,000 108,68y Qtr. )berating Expense: 471,15' 100,000 110,000 120,000 141,152 2t.0 Nruf. Survicus 57,51`. 37,5.15 6,000 6,000 8,000 ProEessional Consultant Fire Location Study for First Quarter 4lu 'i'rdvul 12,43, 8,000 1,000 1,000 2,434 1 Nat"1 Fire Conference First Quarter ',•1U t)tility-Electric 117,621 13,000 25,000 30,0uO 49,621 Rate Increase Anticipated Mtz- Vuhical Part: 49,3Ut 8,000 20,000 10,000 11,300 Major Overhaul Gadder ')'rust Second Qtr. %1`Ij N'stuz 1•'11u.1 53,19t 13,00u 13,000 13,000 14,190 770 Mt.r fool Chdryus 181,og.. 20,485 45,t)OU 60,000 55,607 Based on Past Seasonal Use dhital Outlay 20,00t 0 0 0 20,000 Single Purcliase Fourth Qtr. New, Pumps, t;4t1 bluibn►e:r,t-New 20,00t 0 0 0 i 20,000 icrl.t Service t herezvu t Total 23,296,03 5,220,000 5,260,00( ,160,000 1-1,656,031 1k:1)<trt►n(a+t Nu►n. )upart:muut IJatne Fiscal Yr. Signature Date Fire I II II II1111IIIIIIIIIIIIII�■1111�1111��111111�1 i i ) ExatafT tv Examplo of ouartttly Abvttue EStimatd t6rft Acoouht Nuctlber AtVenue lccouht Total Budget Estimate ute EsEiiate First Second Third Fourth xxx Utility Service 17,423,311 4,500,000 4,750,000 4,007,000 4,166,377 Taxes xxx Electricity 9,596,797 3,200,000 3,300,000 1,750,000 1,146,196 xxx Tel and Tel 6,202,722 900,000 1,020,000 108500000 2,432,722 xxx Water 822,383 200,000 200,000 210,000 212,381 xxx Gas 721,328 175,000 190,000 190,000 166,328 xxx Fuel Oil 80,148 25,000 40,000 7,000 8,148 -14- 80-837 It is ted6ffiffiended that expenditure do-fttr6l§ be oketdiged to only the major expenditure character detail by quarterly allotment for each major appr6priat,on. This difttra from the present practice of "line-iteffto expenditure controls annually for the approVriati6ft figure. It is fed=ffionded that all expenditures continue to be coded against the appropriate line -item as is presently done. This will maintain the City's historical accounting record, but controls to only the major expenditure character by quarter will reduce the detail necessary, under the present system, to Provide users of the system needed information. Indeed, this change should reduce a presently unmanageable mass of detail to manageable proportions for all users of the system. it is envisioned, under this system that expendi- ture control would be inititally exercised by the Finance Director, The primary control would occur when the expenditure authority was advised that the quarterly allotment for a major appropriation expenditure charac- ter (e.g., Operating Expenses) was exhausted and that no further expenditures within that category would be processed until satisfactory arrangements are made. The Director of Management and Budget should also receive this advice. It would then be the responsibility of the expenditure authority to make needed arrangements which may consist of transferring funds, requesting a supplemental appropriation, or foregoing certain expenditures. The making of such arrangements would require the expenditure authority to consult with the Director of Management and Budget to effectuate such arrangements. Therefore, the system must include forms, regulations, and procedures for the following: Transfer of appropriation funds from one quarter's allocation to another quarter's allocation within the same appropriation or from one appropriation to another. Transfer of appropriation funds within one quarter's allocation and within one appropria- tion from one expenditure character to another expenditure character (e.g., Personnel Services to Operating Expenses). _15- Appropriation of additional funds to an exirtting or new appropriation account. The regulatiohs and procedures to accomplish the above, At well as any other contingohCies that may be anticipated, must include standard forms and instructions for their use. Levels of approval required for different trans- actions must also be stated. For example, a transfer Of funds within the same appropriation and within the same quarter might require approval by only the Director of Management and Budget while a transfer of funds between quarters and within the same appropriation might require an additional approval by the Assistant City Manager for Fiscal Affairs, A more far reaching budget adjustment might also include the City Manager's approval while appropriation of additional funds will require approval by the Mayor and City Commission. In all in- stances, the request for action should originate with the Department Director involved. (4) Administration of the [ivarterly Revenue System The operating responsibility for administration of the quarterly revenue system should rest with the Director of Finance subject to oversight by the Assistant City Manager for Fiscal Affairs. The information flows to the City Manager and, through that person, to the Mayor and City Commission. only those Department and Division Directors directly involved in revenue collections are involved in the system. accounting systems and computer programs must be adjusted to serve the quarterly revenue system. The revenue system is more of a passive reporting system as compared to the expenditure system. There are major exceptions to this which will require constant monitoring and follow-up. Examples would include collections of the waste fee; which has recently been instituted and the various enterprise fund revenues. This should not be interpreted in anyway as denigration of the importance of revenue administration. -iG- A failure of any revenue source to Meet its quarterly estimate should cause the Director of Pihande to investigate and to take appropriate follow-tp action with the responsible individual, The Director of Finance should monitor the progress of revenue collections at least monthly. At the conclusion of each quarter, the Director of Finance should perform a Major emamination Of collections and project year end expectations. The results of this examination should be Conveyed to the Director of Management and Budget for inclusion in the overall quarterly "Financial and Midget Report". (5) Quart rly_Staff _Meeting to "iew the The City Manager should plan to hold a quarterly staff meeting to review results of each quarterly Financial and Budget Report, The Meeting could be with his top staff, Assistant City Managers, or with top staff and Department Directors. The latter type of meeting would emphasize the importance of financial affairs and provide a sense of organizational unity. In any case, it will be important that the communications loop within the city administration be closed, that the results of the quarterly analysis be transmitted through out the organization. 4. BENEFITS RESULTING FROM THE RECOMMENDED FINANCIAL INFORMATION SYSTEM There are a number of advantages and benefits that can be expected to flow from the installation and utilization of the recommended quarterly "Financial and Budget" system. They include: Provision of timely and pertinent financial data to all levels of policy -Making and administration within the City of :Miami. Ability to anticipate problems and to execute mid- course changes in policy and programs when necessary -17- Q�;�'? Reduced work=load for the Accounting Division because of the elevation of expenditure controls from line item detail to Major character of e.tpenditure level within separate appropriations. Delegation of financial authority to Department and Division Directors that is more commensurate with their responsibilities, Provision of overall rash=flow guidelines for officials handling the City's investment program. Ability to relate quarterly "Financial and Sudget" report findings to results of quarterly audit closings as previously recommended. Minimal requirements for revision of 11FAMIS" system procedures to accommodate the new reporting system. This will result in minimal operating disruption. This is an ideal time for the City of Miami to initiate the recommended system inasmuch as its 1980-81 budget has been adopted recently by the Mayor and City Commission. Given the concern for cost containment and even for cost reduction, this recommended system will provide the means of reporting progress to the Mayor and City Commission that is not now available. It will also provide the means for better administrative financial management which is not now avail- able. Given the design and installation complexities in- herent in this system, as well as the time constraints faced by the City Administration, the City of Miami may wis.1 to avail itself of outside installation and orientation assistance. 5. DEVELOPMENT OF TIMELY, USEFUL PERFORMANCE DATA SHOULD BE THE SECOND INFORMATION PRIORITY It is recommended that second priority in developing information systems be given to the development of performance data. This data, as is true of financial data, is needed at all levels of the City organization. It should also be timely and in a format that provides meaningful comparison of actual exverience to planned objectives. However, contrary to the system development recommendation for financial data, it is recommended that development of a performance data system proceed at a more gradual phased -in pace. -18- This in no way implies that performance data is less important than financial data, lndeed, the eventual linkage of financial data and performance data, along with inclusion of such data in the budget Making process, is essential if future decisions ate to be made on facts rather than historical assumptions, however, this recommendation recognizes the limits of any organization to absorb and utilize new systems within a short period of time. Accordingly, it is recommended that development of a performance data system commence with the utilization of data already being generated at operating levels in City Departments and Divisions, This will require the culling of available information and data to determine those that meet the criteria of: Pertinence for the intended readers at various organization levels. Continuity of production in order that reports can supply the same information on a continuing basis with historical comparisions to show trends. Timeliness in relation to the reporting period in order that reports will contain current information. Once this is accomplished, it will be necessary to determine the different data requirements for each organizational level of the City government commencing at the Division level and progressing through the Departmental level, the Assistant City Manager level, the City Manager, and finally the Mayor and City Commission. Generallv, this type of data system, for any one operation, will resemble a pyramid in that the pertinent data at the operating level will form a broad information base. This is narrowed, on the basis successive organizational levels and apex, the Mayor and Cit•. Commission, information. Graphically, the system the following page. _19- of pertinency, at culminating at the with the most condensed will appear as on Data Required at Mayor and City Comissi6h Data Required at City Manager Level Data Required at Assistant City Manager Level L Data Required at Departtent Level y Data Available at. Division Level Subsequent iterations of the data systen should be more responsive to user requirements at the upper orgatii2a- tional levels, This will undoubtedly mandate new or additional record keeping and performance reports requiring output reports from field personnel. In addition, these later reports should incorporate planned performance goals for each reporting period. However, the first version of the data system should be based upon already available information in the interests of containing costs and of early operation of the system. (1) The Mavor and City Commission Should Receive Bi-Monthly Performance Data In order for the mayor and City Commission to exercise their service and performance oversight responsibilities, it is recommended that they be provided every two months a "Performance Report It should include: By Department, Significant performance data of pertinence to the Iiayor and Commissioners. This should be data that can be produced regularly, compared to historical data, and compared to planned performance goals. For example, the Mayor and City Commissioners will be interested in knowing the police personnel hours utilized for active du"- -:-during the reporting period as opposed to the authorzed police personnel hours for the reporting period. They will probably not be interested in knowing the number of police personnel hours devoted to investigative work, HdWever, the police Chief will Probably be interested in knowing this, The numbers of performance data regularly reported to the Mayor and Commissioners should be limited to the ten or twelve most important indicators for each department, Bxhibit V, on the following page illustrates what a bi-monthly "Performance Report" to the Mayor and Commissioners concerning what the Police. -Department might contain. The format utilized is a standard format recommended for all "Performance Reports", however, the data contained therein is imaginary and illustrative rather than real and recommended. As set forth in the following implementation section of this report, the data to be utilized in the various "Performance Reports" should be decided only after consultation with Department and Division Directors. The bi-monthly "Performance Report" for all City operations should be prepared by the Director of Management and Budget on the basis of data sub- mitted by operating Departments. Preparation of the report should be supervised by the Assistant City Manager for Fiscal Affairs. The City Manager should review and approve it prior to submission to the Mayor and City Commission. (2) The City Manager and Asisstant City Managers Should Receive Appropriate Monthly Performance Data In order for the City Manager and the Assistant City Manager to exercise their management oversight responsibilities properly, it is recommended that they be provided every month a "Performance Report". Thei:: report should include all data contained in the "Performance Report" submitted to the Mayor and City Commission as well as additional data appropriate to their oversight responsibilities. The Cite Manager and Assistant Cite Manager for Fiscal Affairs should receive "Performance Reports" for all operations while the remaining Assistant City Managers should receive reports for their respective areas of responsibility. These reports should include: --21- I EXHIBIT V Example of Bi--Monthly Police Department Performance Report to Mayor and City Commission indicator R-anort Reporting Period Oct &, Nov '79, -40 L Oil yr ex 4 I-Ionthly Trends Yearly Trends Year to Last Year Dt Yr. to Dt r- to Year to Year c Lua I Actual This Two MO. Date Year to Last Year Actual % Actual % Date % Date Y.- - to Dt - 0 Dt Antici- qAr NliLi %-JO I 1"Ist Two Antici� Date to Date Last Last Year vurfurmaiwu Indicator Months Months "ast 'Iwo f"o ,at Actual A�tual att d Remarks Hours 414,800 400,106 103.67 414,800 400,106 385,220- 103-67 103-86, Ovancancle Attth"iizud V,-Itjonn.1 Hour.; 385,340 378,065 101.92 385,340 378,065 368,280 101.92 102.65 z,!d Calla For S,:rvic� 10,486 9,784 107.17 10,000 10,486 9,138 104 - 86; 114-75 (A) Criminal 4,321 4,213 102.56 4,000 4,321 4,015 108-02 1017-62 (Ii) lJon-criminal 6,165 5,571 110.06 6,000 6,165 5,123 1102.75 120.33 At ic.,; Ui 4-165 3,9211 106.22 N/A 4,165 3,879 N/A 107- 37 By Department, Significant performance data of pertinence to the City Manager and Assistant City Managers, It should be data capable of regular production, of comparison to his- torical data# and of comparison to planned performance goals, Exhibit VIt on the following page, illustrates what a Monthly "Performance Report" to the Manager and Assistant City Managers concerning the Police Depart- ment might contain. All "Performance Reports" should be received by the Director of Management and Budget, They should be reviewed on a City -Wide basis monthly by that office and inportant trends, emerging problems, or notable accomplishments should be reported to the City Manager and appropriate City Managers in writing. (1) Directors of Departments and Divisions Shoul Receive Anorooriate Monthly Performance Data In order for Directors of Departments and Divisions to properly exercise their administrative responsibilities, it is recommended that they receive each month appro- priate performance data, Their reports should include all data to be forwarded to the City Manager and Assistant City Managers as well as additional data appropriate to their administrative requirements. These reports should include: By Operation, Significant performance data of pertinence to Director of Departments or Divisions. The data should be produced regularly, com- pared to historical data, and contrasted to planned performance goals. Exhibit VII, following Exhibit VI, illustrates .chat a monthly "Performance Report." to the Police Chief concerning only the Police Department's patrol opera- tion might contain. -23- EXIIIBIT VI Example of Monthly Police Department Performance Report to City Manager and Asisstant City Hartagers Police Actj vj ty pIonthly Performance Indicator Report Reporting Period oct- '79. Monthly Trends Yearly Trends Year to IV Yt. Act. e "r to"- I to 't This Month Date Year to Last Year Actual Actual Antici- [late t o, Date INV,-- Yr- t. At Last Year Last Month t4o.vortoj-manc,�! Indicator [this Monti Last. Month pated Actual Actual Anticptd- T. Date Remarks I. 11�rlxojw ul 11(jur:; Auth. 210,800 210,000 1.()O.()u 210,800 210,800 203,360 IOU. 00 10,3_65 i0 Vancancle 21. I'vit;('11nul Hours 195,920 189,420 103.43 208,692 195,920 179,420 93.87 1090-19+ lit j I izud 1. 110'ars 7,440 8,0k3o 92.07 8,000 7,440 13,540 93.00 54-94 4. flouts Sick 7,440 13,3oO 55.93 1,308 7,440 10,400 568-80 71-53 0. Call:i for Survicu 5,384 5,930 90.79 7,000 5,384 4,978 76-91 108+-15 (A) Ctiudnl 2,816 3,008 93.61 3,000 2,816 2,9,23 93.86 96.331 (H) N011-Cl-illifildl 2,568 2,922 87.88 4,000 2,568 2,055. 64.20 124.96 If. AVL"�•tit. 2,178 1,987 109.61 H/A 2,178, 1,869 NIX, 116-53 Police I It:l,a I t IIk:II t Activity PatrU1 EXHIBIT VII Example of Monthly Police Department Performance Report to Police Chief Monthly Performance Indicator Report Reporting Period Oct. 179F 1•lonthly Trends Yearly Trends o r to Year to Date Act. ear to, Date This Month e Year to Last Year Actual Actual :Antici- Date to Date Yr. to Dt ast Year -- Nu.11orform.,nce Indicator this I-lontl last Month last Month ed Actual Actual it Anticptd_ Ta Date Remarks 1. 1'erz.om►el Iluurs 105,400 99,200 106.25 105,400 105,400 199,800 100..00 105_61 0, vancancie, Aiithorizc:d i 2 11et:;ur►nc1 liuurs 97,960 93,840 104.39 97,960 97,960 89,460 100.001 1090.5& Ut.iliZud i. I'vt:;uuuel Huur:; 2,420 1,640 147.56 2,120 2,420 2',160 114.15 112.03+ V,.► Lr.i t. i (it i 4. Pcr:,unnul hours Sick 3,020 3,800 79.47 3,320 3,020 3,000 90.96 100.66 '�. 1'Q1':;0t111C:1 liour!i 2,480 - - 2,480 2,480 - - - TrainiI►y t,. Ua 1 1:,; FGr Servi cc 3,827 4,012 95.38 4,800 3,827 3,613 79'_72 105.92 (A) Critnival 1,731 11918 90.25 2,000 1,731 1,587 86.55 109.0.7' (Is) Ilan-Crimindl 2,0(jO 3,094 67.74 2,800 2,096 2,026 74.85 103.45 7. t„11uw-lJl, II►ve;tiya- 932 816 114.21 900 932 821 103.55 113_52' tiuns 8. Arrt::;ts 1,310 1,275 102.74 N/A 1,310 1,193 N/A. 109_80 (A) Traf fi c 412 432 77.44 N/A 412 392 N/A 105.10' (10 CtiIII iIla1 318 218 145.87 N/A 318 281 N/A 113.16' (C) Juvuui le 580 625 92.80 N/A 580 520 N/A 111-531 5. Bach bifect6r of a Department or bivision should. review their "performance deports" looking for important trends, emerging problems, or notable acebm- pliShMeftta. Appropriate follow-up action Should be taken after each review. H bev'elopMent of a sound, useful performance information system requires careful tailoring of a system that reflects an organization's on -going operations and which is responsive to the information requirements of the organization's leaders. The regular submission of standard data by the heads Of various line operations forces them to think long term and to compare actual performance to anticipated performance. For middle and upper management, the regular receipt of standard data forces them to pay attention to basic operations rather than to the crisis of the day. It also provides an opportunity to look for trends that may warn of approaching problems. For policy makers and top management, the regular receipt of standard data allows them to see if their policy expectations are being fulfilled. None of these purposes will be fulfilled by a data system that provides too much information or is cluttered with interesting, but useless data. Therefore, it is essential that the performance information system recommended herein be based on a careful analysis of the responsibilities and functions of each level of management, and the information they need to execute their responsibilities. The development should be gradual in accordance with the following: First phase, built in data already heing generated at operating levels. Second phase, expanded to include planned objectives, where applicable, related to performance data already being generated. �E- Third phase, expanded to include more sophistim dated perforihande Measures that are respohtive to needs of policy makers and top Management, As early as is pradtidal, this data should be incorporated into the budget making and monitoring processes. 2Ventually, they should be linked and integrated with financial data to produce performance -cost data. until that happens, Miami's policy makers and administration leaders must rely on faulted historical data - information that is blessed, but uproven as to its validity. (1) Ri1 t Staff S M It is recommended, because of their familiarity with City operations, that personnel of the Department of Management and Budget be utilized to compile data and install procedures to institute the Performance Data System. In the interests of expediting the initiation and utility of the system, the Cite may wish to consider use of outside consulting assistance to guide the initial development efforts. The compilation and installation effort should include the followinab Survey of present data generation in City operations and tentative selection of data for inclusion in the system. Consultation with Directors of Decartments and Divisions to secure agreement on use of data. Identification of individual positions in Departments and Divisions to be responsible for preparation of reports and forwarding them subject to review by Directors. Design of standard format for establishment of time tables submissions, and designation system for reports. reports, for report of distribution 80-837 Aoview of data, format, schedules, and procedures with City Manager and Assistant City Manager for Fiscal Affairs: the latter person should take responsibility for coordination with the other Assistant City Managers. When the system is ready for operation, the Department of Management and Budget should be responsible for preparing necessary regulations to implerient the system. (2) Director of___t4a acieme_nt _an-d _Budge.tShoul.d_ Ptepare Once the system is in operation, it is recommended that the Director of Management and Budget, with the assistance of his staff, be charged with the respon= sibility of analyzing.monthly reports on a Citywide basis and of preparing the bi-monthly report to the Mayor and City Commission subject to oversight by the Assistant City Manager for Fiscal Affairs and final approval by the City Manager. The Director of Management and Budget, with his staff, should analyze reports for trends, developing problems, and outstanding accomplishments. It should be their responsibility to out the data into useful management and policy maker format. This office, under the Direction of the Assistant City Manager for Fiscal affairs, should also be responsible for seeing that the organizational communication loop is closed. Departments and Divisions should hear from management as a result of these reports. Accomplishments should be recognized, problems should be discussed, and suggestions should be responded to. The system should not be allowed to become only an enforcement device in the eyes of operational personnel. (3) Director of Management and Budget Should be Responsible for Intecrration Into Finance and Budget Systems and Future Development The Director of Management and Budget, under the supervision of the Assistant City Manager For Fiscal -28- a supervision of the Assistant City Raflager for Visdal affairs, should be charged with operating and expanding the aystoffis This should include! A phased expansion of the systeM to make it More responsive to City-wide needs, planning and etecution of a program to integrate performance data into the budget and finance systems. Once the system is reasonably operative, the Director of Management and Budget should undertake the develop= Mont and installation of a system that will result in accurate preduction=unit costs: This will result from a studied interrelation of financial cost data and performance data. Obviously, the attainment of this latter goal will take time and effort. it will also require an investment of funds. However, it is believed that such a system is the key to informed decision making for both the short and long range cost reduction programs that Miami is undertaking. As such, this funding institutes a necessary frond -end investment in future cost containment programs. _2q_ A. i ALLMN & HAMILTONma. Minagrissht ORSIV tffits 43io Wt WkSt g1614wAt OttHtSbA, MARYLAND 26611 66149966 •RA ebbt ids October 20, 1980 Mr. Richard Fosmoen City Man age r City Hall (Dinner Key) City of Miami 3900 Ran American Drive Miami., Florida 33133 Dear Mr. Fosmoen: This will be the fifth of several interim "Letter Reports" to be submitted to you prior to the presentation of a final "Man of Action Report" under the terms of our professional services agreement "to provide services for the improvement of the City's administrative services and processes" dated July 21, 1980. Under the terms of that agreements one of the tasks to be accomplished was the development of an approach to an improved resource allocation system. We examined the present Miami systems for: Budget making and administration Performance monitoring. In addition, we also studied budgeting and monitoring systems utilized in other local government jurisdictions. In general, our findings were that the present systems rely too much on historical data, and an assumption as to their validity, and that there are no validated cost and performance standards which current operations can be planned, managed and evaluated. It is our conclusion that the development and implementation of a resource allocation system, utilizing reliable cost and performance standards, is essential to the City's efforts to cope with its financial future in an intelligent, informed manner. Recommendations for the realization of such a system, as well as a recitation of other benefits to be expected, are detailed in our report. . & . 0 Mr. Richard roamooft October 20# 1990 pdgd Two our "Plan of Action Report" will be Submitted to YOU Shortly, Meanwhile# we want to express appreciation for the excellent cooperation extended to us by you and your staff. We will be available to answer any questions concerning this report, or to assist you in any appropriate way. Yours very truly, S6'0Z;t L8 ;IIAMILTON Znc". Porter W. Homer Approved: John C. Newman Vice President � 0 .W 46 =MnA _ON OP- MIAMI's SOURGE AI,LOGATIOtd SYSTEM to our fourth report, submitted previously, we described our analysis of the performance and financial data systems presently utilized by the City. That report, in addition to recommending Methods to improve the generation of information immediately pertinent to City administrators, pointed out the need for information that would provide a fundamental basis for assessing the relationship between performance achieved in a City function relative to the costs incurred. Broadly, the need is for information that will permit adminstrators to examine such questions such as Quantitatively, what level of improvement or decrease in service can be expected from a given level of increase or decrease in the budget of function? What level of service output should have been delivered by a Department for the expenditures they incurred, and how does that compare to their actual level of output? To answer these questions, information is required that defines meaningful output measures for major City functions, establishes reasonable work standards, and links cost in- formation to performance information. With this kind of information, the City will be in a position to improve substantially its capacity to monitor and control the alloca- tion of its resources. The purpose of this report is to examine ways to improve Miami's capacity to monitor and control the allocation of its resources. Our examination has included a survey of - the present budget making and administration system as well as the performance monitoring methods utilized by administrators in the City. Interviews were conducted with the Mayor and members of the City Commission, the City Manager and Assistant City Managers, and with Directors of Departments and Divisions. In depth interviews were conducted with staff of the Department of Management and Budget. jw l Y OR 1/V LJ11V kjS With few emceptiens, the existing information systems, as well as the finalcial and performance data systems recommended in our fourth report, share a common limitation. They provide information that permits the reader to compare current performance to Performance in a prior period, but they do not provide an independent basis for determining whether the current performance or the prior period performance was good or bad. In that sense, they all rest on historical data and an assumption of their validity. Present methods of operations and service delivery are assumed to be acceptable. There are no cost standards or performance standards available to validate that judgement. The present budget and performance Monitoring systems pro- vide no answers to such pertinent questions as What service level is attainable with a given appropriation of funds? What are the cost options of different service levels? What kind of service,delivery options are avail- able and what are the costs associated with each option? Is the actual unit cost of service provision comparable to the unit cost implied in the budget? Is the work production of service provision comparable to the planned production? The limitations noted above in Miami's current information :systems are not unique to the City. In most respects, the techniques that are used to formulate budgets and to monitor performance have been those traditionally used by City governments for decades. It has only been in recent years that the pressures of limited revenue sources and rapidly escalating costs have forced local governments to seek more sophisticated tools to make the judgements that are required by these conditions. In our view, a resource allocation system, based on validated performance standards and unit costs, is required to deal adequately with current conditions and will provide the answers to these questions for policy -maker and administrator alike. Until answers to these questions are available, Miami's efforts to contain and/ or reduce costs must rest to a large degree on assumption and intuition, rather than fact. -2- A6 21 S It is redOMMOnded that development of a resource allocation system, based on validated performance standards and unit costs, be undertaken simultaneously with the develop - meat of the various information systemz recommended in our fourth report. The budget Analysts in the Department of Management and Budget should be utilized for the latter effort as well as to assist in developing appropriate departmental and divisional output reporting systems. At the same time, the Operations Analysts in the, Department C. of Management and Budget should be trained in the work analysis techniques required to establish performance standards and link them to unit costs6 upon completion of training► this group should undertake studies in selected pilot operations. In arriving at this recommendation: the presently in- active Activity Reporting and Management System (ARMS) was' evaluated to see if reactivation or revision of that system might shorten the time requirement to realize a viable resource allocation system. It was concluded that ARMS was not suitable for this purpose because it: Contained too much raw data Contained no element of analysis oriented towards operations management or policy review Contained no actual performance standards, only output measures. It was felt that the simultaneous efforts to establish output reporting systems and validation operations were more appropriate. This approach will provide the City with the ability to plan, monitor, and evaluate its service costs and performance levels. This capacity will be crucial to the City's ability to deliver services within its limited future income. (1) Installation of Reliable Department and Division Output Reporting Is the First Step Towards -a Resource Allocation Svstem An output report should provide information about the number of activities or production units of work -3- 80,g.4,7 Y I d completed during a set period of time (etg,, a week), TO be useful td managars and policy -rakers, the output measures must characteri2a in a fundamental way the work performed by the organi2ational unit and, ideally, must be related directly to the •objectives of the work. Examples of useful output measures are Areas of park land mowed= -for the Department of parks and Recreation Miles of curbs swept --for the Department of sanitation billings processed= -for the Department of pinance : Basic data collected by such a system may include: A description or classification of work to be accomplished Time work began and ended Number of employees involved in the specific work Number of and types of equipment utilized in the specific work. These reports should be summarized in log books or charts to provide a sense of the frequency, type, _ and time requirements of work being completed in a unit of a Department or Division. It may be useful to compare work completed with work orders issued. This can provide turn around time data that is useful. In order to establish output reporting systems, the following steps should be taken: Identify those City operations, by Department and unit, where output reporting will be useful and productive to line managers, Department and Division Directors, and Managers as well as to budget activities. Interview administrators of units selected to obtain a task inventory of operations performed where output reporting could be both beneficial and feasible. -4- 0 Design an output reporting system for each operation, based upon production units► complete with procedure► forms, user instructions and summary formats. - Assist each operation in testing and installing I the system developed. I Establish distribution lists for reports. After the output reporting system has been installed and proven itself► administrators of the units involved should be encouraged to establish production goals against which work accomplished can be compared. Exhibit I, on the following page, shows what a planning and reporting output report might contain. Data used is hypothetical. (2) Development of performance Validation Capacity is Second Sten Towards a Resource Allocation System A performance validation capacity should provide the City of Miami with in-house staff ability to conduct operations analysis studies of its various services. The objective of having such analysis ability is to be able to: Establish engineered performance standards Identify work method improvement opportunities Identify work simplification opportunities Design new operating systems to take advantage of work improvement or simplification opportunities Link performance standards to cost data to provide viable unit performance cost data. It is important to note that the process of establishing engineered work standards will often yield immediate productivity improvement benefits by identifying work improvement methods and better procedures for work scheduling and manaqement. -5- EXHIMT I aroundg Ma nantanca Wd(�kly Work 8dhf§duid H. Johnson - 4 10/20/80 Planned.breaii_ Pprsonnol 1�i Os ... _ week o LEGM H�Surs — ,' o� cruel ,�� �� �a � •, Hour _ 4 � � cy , y w+ y�� Total Fours — FTION V �� G �' Planned Actual 20 7 2 XXX Park 22 9� 2 29 334 .__. 1728 XXX Boulevard 1/6 36 10 4 3 XXX Centor z 9 4 4 19 19 15 12 2 7 XXX Park 18 1 2 8 36 39 6 8 20 XXX Stadium Z4� g 7 24 38 43 TOTALS 158 168� Equipment Assigned: 1 Gang Mower, I Tractor, I Tractor Edger, 1 Pick -Up —6— S. The development of this capacity will rewire the training of about six analysts. This will provide sufficient personnel to conduct three pilot validation studies initially and to expand the effort through the rest of the City operations over an extended period of time. Selection of operations for pilot validation studies should be made carefully inasmuch as the results in these studies will set the tone for this operation. The required training should require approximately three to four weeks. txhibit II, on the following page, sets forth a suggested training agenda. It anticipates both classroom work and field work. (3) Conduct of Pilot work Ana_ysi The purpose of the work analysis studies is to provide valid performance standards linked to unit costs which will replace historical assumptions as the basis for performance evaluation and decision making. Before committing itself to a complete resource allocation system, the City of Miami should first conduct pilot projects for two or three operations to illustrate the benefits of the proposed system and to refine the methodologies initially used. The pilot projects should be conducted in a step -wise fashion executing the following major tasks: Conduct an operations analysis --This involves zn,tial data collection to establish operating procedures, staffing patterns, and equipment utilization levels. This data is essential to the development of method improvements and the identification of possible cost reduction or containment opportunities. Identify method improvements --This involves identification of ways of performing work activities more effectively or efficiently. This will enable productivity measures and work standards to be established on the basis of appropriate and efficient work methods. Develop productivity and performance measures and standards --This involves the conduct of work measurement studies to develop performance standards. These standards can be used to plan, schedule and monitor work performance. -7- A. EXHittT It Suggttted Analyet Training COUrgo OUtline tntroduotory remarkt Background descriptions of participants Purpose of training II . OVEAVIEiW OP GOVERNMENT ANALYSIS _ PROCESS ' 1. Defining an Assignment 2. Designing Preliminary Work Program 3. Organizing the work to be done 4. Outlining and writing the final report: Booz, Allen format S. Selling and implementing recommendations III. PRODUCTION MANAGEMENT AND CONTROL CONCEPTS: MUNICIPAL SERVICE APPLICATIONS 1. Production Management and Control: A Definition 2. Service Demands: Meaning, Source and Indicators 3. Response Scheduling and Deployment 4. Time to Perform: Methods, Measures and Applications 5. Balancing Resources: Labor, Capital and Inventories 6. Evaluating Performance IV. OPERATIONS REVIEW AND ANALYSIS 1. Objectives 2. Conducting an organizational review and analysis: principals and techniques 8— EXHttfT it (2) 3bata Collection TedhnigUes fathering documented data (e.g., reports and fors) DeterMining work distribution Interviewing (2 exercises) . Listing the components of the activity to be Measured (homework) . 4. Products Notes from interview and work observations Collection of relevant departmental data Work distribution charts Activity element lists. V. METHODS IMPROVEMENT DEVELOPMENT 1. Objectives 2. Description of process used to develop improvements (exercise) Identify the activity needing improvement Flow charting Define the problem Analyze the facts ME Develop alternative improvement opportunities: The Methods Improvement Notebook Select the best alternative. 3. Sell improvements Install the selected alternative Follow up. -9- n" ftlir ft ( 1) 4, pgoducta Wetmented improvements SuMMary of Client responses to improvements. VT. STANDARDS DEVELOPMENT 1. Objectives 2. Definition of standard and a description of its components 3. Brief description of the history of work measurement 4. Brief descriptions of the elements of work measurement continous Time STudy Fixed Interval Measurement Random Interval Work Sampling Time Ladder. 5. Explanation of how to conduct a fixed interval measurement study Selecting the interval Summarizing the results (exercise). 6. Pace rating and its use (exercise) 7. Explanation of allowances S. Products Standards for each routine/major work activity Benchmarks for less routine work activities Documentation, i.e.m time studies and summaries, for how each standard/benchmark was derived. 9. Field exercise -10- V11, OtftpU' mo!=14d 1. dbjectives Overview of output reporting formats 3. Explanation of how output measures are compiled and summarised 4. Key points to be aware of when monitoring output reporting 51 Products —completed output reporting sheets , V111. WORK IAAD FORECASTING 1. objectives 2. An explanation of techniques used to forecase the work load Department records Time studies Supervisor's estimates. 3. Products --a month -by -month forecast of the department's annual work load IY. MANPOWER STAFFING 1. Objectives 2. Workload analysis 3. Explanation of how to determine staffing levels Calculation of allowances for sick and vacation leave Explanation of how to complete a staffing form (exercise) 4. Crew Analysis 6. Products --Manpower staffing plan projecting staffing require- ments over a year's time -11- EXHIMT If(s) 1. Objedti"A 2. Management scheduling Development of work scheduling formats (exercise) Assisting supervisors in implementing work scheduling Methods. 3. Management reporting Development of efficiency Measures (exercise) Development of effectiveness measures Explanation of formats used to quage departmental performance and graphically display progress Department's role Analysts' role. 4. Products Work scheduling formats Efficiency and effectivenss measures Management reporting format. XI. BUDGET AND FINANCIAL INTERFACE 1. Explanation of how to determine the costs associated with varying levels of service (exercise) 80-837 i s ib .sh service leveLs and starfi --This involves the detaMination of personnel, equipfflent and supply resources required to conduct work at a given service level. The costs of the resources required to provide the service level are also determined. Do SA - & deVaI6, moot an i. ► lei 6kt wee Orti n systems--Thia involves establishing reporting systems and procedures that are capable of being merged into existing reporting systems, The reports should enable appropriate personnel to monitor performance against standards and expenditures against budget. • The pilot projects should enable administrators to determine if operations can be improved or if cost reductions can be expected. In addition, the pilot projects will allow the City to test the concept of resource allocation before committing itself to the system on a Citywide basis. The selection of operations for pilot project analysis should result from careful consideration by the Administration. Factors to be considered are: The number of analysts available for the project as well as their present experience and training. The level of data available in the operations considered. The degree to which the operations are composed of repetitive tasks that lend themselves to establishing time standards in a short time span. The degree of seasonal variations in the various operations. The attitude of key administrators toward the resource allocation concept and their participation in a pilot project. Some examples of City operations that could be considered for pilot projects are discussed below: Parks Maintenance --Many activities in this operation are rep titive and, therefore, easily observed, measured and monitored. They are, -13- W however, seasonal in nature. The large number of dmployees and various pieces of equipment hakes improvement opportunities more likely. Management ataff in this department is reportedly already preparing to establish performance standards based on national averages. tguipYtlgnt _Maintenaf"1C:o—Some activities in this operation are repetitive and lend themselves to measurement. Much of the Mork is demand - responsive and, therefore, difficult to predict or schedule. Operations are reported to be systematically documented with costs being closely tracked. The complexity of establishing repair standards and performance measures may be offset by the importance of _ this support service, whose costs and charges affect many other departmental budgets and - operations in the city. — Building Maintenance --Activities in this operation are of two types: routine preventive maintenance and emergency repairs. The former are repetitive activities on which standards can be developed; unscheduled repairs do not lend themselves easily to measurement and the development of standards. The problems of establishing performance measures and work scheduling and control systems are, in fact, the reason that management needs more accurate production data to determine actual staffing needs and productivity. Work measures can also be helpful when negotiating with outside vendors for contractual services. Other operations in the City also deserve consideration as potential pilot projects to be undertaken in the near future. The benefits and problems associated with each of these should also be carefully considered before a final determination is made. Other possible candidate areas for analysis include: Building inspection and permit issuance operations Street maintenance operations Sanitation collection and disposal operations. -14- liven the utgendy of this Matter And the desirability of havifij the ekperieftded assistance in training City personnel and in dotidudting pilot projects, the City may With to seduce outside guidance for this phase of the effort. (4) Incorporation of linked performance standards and unit costs into the budget system is intended to provide a current cost and performance basis for decision making compared to the present reliance on historical data. In addition, this approach will enable City policy makers and administrators to have program or service oriented data --as well as traditional line item infor- mation --at their disposal when preparing and monitoring the budget. In order to accomplish this, the following steps should be taken: Determine revision of budget format necessary to accomodate performance and unit cost data. This format should be constructed to provide the Mayor and City Commission with meaningful data to assist them in their budget policy deliberations. Determine the performance and unit cost data that can be utilized in presenting budget to the Mayor and City Commission. Determine performance and unit cost data that can be utilized in budget administration activities and monitoring reports. This data should be more detailed than that presented in the budget to the Mayor and City Commission. Establish reporting procedures continuing production of data budget document. only in this administration monitor actual against the goals established and report that performance to City Comission. -15- to insure utilized in the way can the performance in the budget the Mayor and The performande and unit cost data utilited in the budget should be products of the regular reporting systems established in a City-wide basis. They should not require a separate reporting system. Exhibit III, on the following page, illustrates how a revised budget format night appear, It should be noted that this format continues the traditional Division appropriation and line iteftl expenditure and appropriation data. The selected performance and unit cost data supplements and explains the appropriation figures in program or service language. The Mayor and City Commission can determine the service to be provided for the funds they are being requested to appropriate. They can determine the unit costs of that service and they can decide whether that service is appropriate. 3. BENEFITS OF RESOURCE ALLOCATION _.SYSTEM Full implementation of the system recommended herein will require considerable time. The City of Miami cannot afford the investment of time or funds to place this system in operation overnight on a city-wide basis. More- over, to do so would be a mistake. Untimely haste would do away with the careful, in-house analytical effort that our reconunendation envisions. Without that effort, this program will fail. In our view, this program should be viewed as a long term investment by the City in maintenance of service levels and cost containment. without the data described in this report, such an effort will be extraordinarily difficult. There are other benefits to be realized from this over- all system. This is not just a program to enhance the budget making capacity of the City. Equally important is the ability to: Plan operations and costs Monitor results against planned objectives Enhance the effectiveness and efficiency of operations. These abilities are essential if Miami is to successfully cope with its financial future. -16- i t i PAWS OPEAATIONS $2t540t439 MV1810NAL 13UbOtT AND POSITION 8UMMARY Expended Expended Adopted Amended Requested _1976=7.7 1917-78 19'78-�79 1978-79 9_9-80.._. _ Personnel Services $ $ 1,930,659 $ 1,962,655 $ 2,100,543 $ 2,0701.011 Operating Expenses 515,927 811,165 816,996 869,772 Capital Outlay =0= 2,400 2,400 656 Debt Service =0= -0- -0=0 =0= Capital Reserve =0= =0- -0- -0= Total $ -0-_ $ 2,446,586 $ 2,782,220 $ 2,919,939 $ 2,940039 Positions 149 142 142 130 FUNCTION This division is reponsible for the day-to-day maintenance of the City's park facilities. Maintenance includes mowing, removal of trash and debris, planting of shrubs and upkeep of physical facilities. BUDGET HIGHLIGHTS This request is $20,500 more than the FY 1978-79 Amended Budget. Personnel costs for the number of positions requested have increased by $120,612 •1 �G —L� ..L� ura a� rv. ..�.. yr .r.—�.. ..`.7—�--�—�••.�• Program Data �y�A act oQ.o° p, ;yay 4,�, �c�waaY ,Standard-Hours/Unit 25.80/acre 1.05/lin ft 0.18 lin ft 7.85 stop 6.05/hour Planned Service Lev. Once Week Ever✓ 2 wks Every 4 wks 'Twice week 3 tms a wk Program by Location Person hrs. Person hrs. Person hrs. Person.-hrs. PPY.Za Person hrs. XXX Park 2500 - 2800 1000 1500 7800 XXX Boulevard 1800 2400 - - 4200 XXX Center 450 300 500 1200 - 2450 XXX Park. 775 - - 600 600 1975 XXX tadi m 275 600 8 4800 3000 8755 XXX Pa n 364 42 00 ? 340 XXX Park 2750 1 800 1800 111140 1500 8090 TOTALS 9750 3500 11220 13040 8100 4 -17- L` MOOZ - AL LMN & HAMii TON ime. Ai36 EAST Wt9t HIGHWAY WH§§6A, MAAYLANb P.6614 S91.2260 AAtA C66t a61 October 2 7, 1580 Mr. Richard Posmoen City Manager City Hall Ginner Rey) City of Miami 3500 Pan American Drive Miami, Florida 33133 Dear Mr. Fosmoen: This is the "Plan of Action Report", and the final report, to you under the terms of our professional services agreement to provide services for the improvement of the City's administra- tive services and processes dated July 21, 1980. Under the terms of that agreement, this final report is to be a plan for realizing identified improvements set forth in previous reports. Those reports were: Immediate Accounting Assistance and Independent Audit Requirements Review of Purchasing Operations Review of Audit Procedures and Programs Review of Information Systems Examination of Resource Allocation Systems. Each of these reports contained a number of recommendations which are summarized in Exhibit I of this report. Three different implementation plans, each offering different completion schedules and requiring varying amounts of funding, are submitted for your consideration. They are: The recommended implementation elan --This calls for implementation of all recommendations within the shortest time possible --six months. We believe that this is what is needed, but that it cannot be achieved without substantial outside professional assistance. i J. Mr. Aidhard Ei 9m6en October 27, 19$0 Page Two The first alternative imblementat ors c1an��This calls for iMPlementatioh of only those recoMffidndationa considered essential to the integrity of Miami's financial operations. We believe this effort would a require lesser degree of outside assistance, but it � - g would leave the other recommendations to be implemented by City personnel when staff time is available. The, second alternative implementation tan=This calls fog implementation of those recommendations considered essential to Miami's decision Making capacity at the policy and management levels. it is believed that this will require less outside assistance than the full implementation plan. However, it would leave other recommendations to be implemented by City personnel as time and staff resources allowed. There are other implementation plans that are feasible. We have not attempted to exhaust the possibilities of implementation strategies recognizing that the final decision rests with the City of Miami and its assessment of its needs. We will be pleased to discuss other implementation approaches with you as time allows. The major thrust of all recommendations submitted to you is toward the improvement of administrative services and processes: Our findings revealed a constant lack of financial and performance data at the policy and management levels of the City. This data is the necessary foundation for sound decisions, both on the part of management and elected officials. Our recommendations are designed to close that gap as rapidly as possible by suggesting systems to provide the required information in a use- ful format on a timely basis. That information will enable policy makers and management to plan, monitor, and direct the City's affairs on the basis of sound data. Without that data, neither group can properly execute its responsibilities. Our apprisal of the present situation in Miami is that the programs we have recommended will require some degree of outside professional assistance in the detailed planning and installation or the recommended improvements in systems and procedures. in general, the shorter the installation time is and the more complete the implementation plan is, the greater the need is for additional, temporary professional assistance. This assistance should be focussed to allow the City to: Mr. Richard rostnoen October 27, 1980 Pale Three . Complete the projects at the earliest possible time . Develop in-house staff capacity to operate the programs after installation Obviate the necessity of hiring additional permanent employees that might otherwise be required. In addition, it should contribute to the further development of present staff capacity to expand and utili2e .the•new information systems being recommended. , We are available, -as previously discussed with you► to appear in Miami to review our reports with anyone you designate. Of course, such a review would include answering questions about any aspect of the reports. In addition, we stand ready to assist - you in any manner required in order to implement our recommendations. We appreciate and commend the candor and cooperation received from you and your staff during the assignment. As a result, our assignment with you has been enjoyable as well as meaningful. Yours very truly, BOOZ, ALLEN & HAMILTON Inc. Porter W. :-comer Approved: .o�� John C. Newman Vice President P"�At� d� AC"�IOM R�PC�Rfi The Purpose of this report is to integrate the reoor enda- tions contained in our five previous reports into an implementa- tion plan, Those five reports were.. Immediate Accounting Assistance and Independent Audit Requirements Review of Purchasing Operations Review of Audit Procedures and Programs ` Review of Information Systems Examination of Resource Allocation Systems Given the broad scope and complexity of the subjects and recommendations covered by these reports, our implementation plan is presented as a series of options for consideration by the City. All of the recommendations are important to Miami's fiscal health and integrity. However, some may be more important than others to the responsible policy leaders and administrators in Miami. Therefore, it is important that there be implementation options for the City's consideration. The options presented herein provide estimates of the time and expense required to act on recommended improvements where possible. However, all recommendations are included since it is believed that all are important. 1. IMPORTANCE OF FINDINGS AND RECOMMENDATIONS TO MIAMI'S FINANCIAL FUTURE The City of Miami, along with most other local governments in the United States, faces an increasingly stringent fiscal future. It has found it necessary to bring its property tax rate up close to the maximum legal level, to resort to a sanitation fee to maintain services, and to curtail many desirable services in order to live within its income. Although Miami and its tax base will continue to grow in the future, it must be expected that continued inflation, employee compensation requirements, and new service demands will outpace that growth. At the same time, Miami is committed to enter the money markets for capital improvements funding several times in future years. Together, these trends point to a growing future disparity between income and expenditures unless steps are taker. to: { i. Contain and (:educe dosts tMpfcve 6perational effididridy aftd praductivity lfftpf:ove the City `a fihafte al. iftteltitY Our rec6ff0tftdati6n9 are designed tc provide the City of Miaffti with the eapaeity to aeeofnplish the above goals. It is bel eVdd that they can best be attaihed by early and vigorous adtioft. Exhibit I, on the follawiftg page, sufftifftariies the ftlajdr reeofftMdfided adtioft eaftta .fted in our five reports, The iMp6rtande of afYd iMplidations of each of these reeof moftdatians to Miami's Situati6fi is discussed below: (1) Re1Atl0 o_f ._Recommendations to C tv',s,_ 'in t�i_al._ 1nte Yit In any organization, public or private, sound financial procedures and operations are a first prerequisite to general credibility. It is our recommendation that Miami give first priority to the improvement Of its financial credibility. To accomplish this, we have recommended: Establishment of an Advisory Audit Committee, consisting of qualified citizen members and top level City officals, to assure openness and independence of audit operations. Establishment of a financial information system that will provide necessary planning and monitoring capacity for all levels of the City's policy -making and administrative apparatus. - Establishment of a system of quarterly audit closings and financial reports that will provide early warning of problems requiring corrective action, as well as expedite completion of year-end audits. Hiring of sufficient numbers of qualified personnel., particularly in accounting operations, to assure the production of quality, timely financial records. It is felt that these measures are essential to establishing continuing credibility with two important groups - potential buvers of Miami bonds and the ta:. paying citizens of Miami. (2) Relation of Recommendations to Cost Containment and Reduction Programs Clearly, the City of Miami, along with most other local governments, faces a financial challenge in attempting to maintain service levels, cope with inflationary costs, and to operate within its future restricted income sources. To accomplish this, Miami policy -makers and adi�ninstrators -2- i A e1tt 1 t guftary ai Majet ReC±ei'hTndhdAti6n§ by R(§156rt 1 Analysis of t adiate Accounting Assistance and Independent Audit Requirai$ents: Acquisition of sufficient outside accounting assistance to enable the City to realise earliest possible year end closing of financial books and records Extension of independent audit contract, 2. Review of Purchasing Operations: 1p Minimize procurement costs by forecasting requirements, maximising vendor competition, and taking advantage of cash discounts Establish policy for procurement with minority vendors Expedite procurements through improved communication with user departments Purchasing should ensure open specifications Purchasing should limit receiving points for delivery' of purchases Purchasing should be provided more current financial information to execute expenditure control properly Purchasing staff should be expanded and up -graded. 3. Review of audit Procedures and Programs: Creation and appointment of Advisory audit Committee to oversee independent audit Make present Internal .audit Division a separate Depart- ment reporting directly to Assistant City `Tanager for Fiscal affairs Require future independent audits to meet then current standards established by American Institute of Certified Public accountants and �:ational Council on Governmental Accounting -3- E.1 ISI 1(2) Adopt policy of gequiting quarterly audit teviewa by independent auditors Secure adequate quality financial personnel to be responsive to new requirements. 4, keview of infotmation Systems: Provide ;mayor and City Commission quarterly financial data P Provide City Manager and assistant City ;tanagers monthly and quarterly financial data appropriate to their responsibilities Provide Directors of Departments and Divisions monthly financial data appropriate to their responsibilities Establish quarterly expenditure allotments and controls Control expenditures to only the major character detail rather than the line item detail Establish quarterly revenue estimates and follow-up Provide Mayor and City Commission bi-monthly performance data Provide City :tanager and Assistant City `tanagers monthly performance data appropriate to their responsibilities Provide Directors of Departments and Divisions monthly performance data appropriate to their responsibilities Development of performance data systems should be gradual. 5. Examination of Resour.2e allocation S stems: Development of a resource allocation system, based on validated performance standards and unit costs, should be undertaken Output reporting systems are first requirement -4- bevel6pttent of perfdrMfice Validation ca0deity is the the second tequirethont Conduct of pilot perfomance validation studies is the thitd requirement Selection of operations for pilot petfotiaance validation studies is a fourth requirement Linkage of performance standards and unit costs in budget system is the final requirement, ..5_ a • i must have valid liftforiftati6ft an which they can make informdd decisions, TO acdoriplish this, we have redommended! Establishment of f ftandial informatidn systems that will provide tiliely, pertinent information. Establishment of performance information systems that will provide performance planning and monitoring capacity for all levels of the City's policy -making and administrative organi2ation. Development of an improved resource allodation system using a professionally trained in-house staff, that will provide linkage between financial and performance data resulting in measured unit cost standards for the delivery of services. These systems are necessary to provide a factual basis for important policy and administrative decisions in Miami rather than being required to rely on flawed and sometimes misleading historical data. Indeed, with these systems Miami can commence planning long term programs of cost containment. These programs can respond to future resource analysis on a planned basis rather.than on a crisis basis. (3) Relation of Recommendations to Operational Efficiency and Productivity Programs If the City of Miami is to maintain its current service levels within future income limits, it must take appropriate steps to assure effective utilization of its funds. Otherwise, future income limitations may force unnecessary service level reductions to be arbi- trarily in important or highly desirable programs. To provide the basis for effective fund utilization, we have recommended: Development, by appropriate training, of sufficient in-house staff capacity to conduct operations analysis of the City's services leading to the establishment of acceptable work standards. -5- 80-8 37 tatablishm6ht, of a Resol rde Allodation Systen►, based on the developed work standards, as a basis for future decisions concerning the utilization of funds, personnelp and equip tent. Only with the establishment of such standards can Miami assure itself of maxifflum effective utilization of its resources in providing services to its citizens. Installation of new purchasing procedures to increase competition for Miami's equipment and supply buying requirements. Hiring of a sufficient number of qualified purchasing personnel to carry out the recommended new purchasing procedures. _ These systems are essential if policy -makers and administrators are to be able to make decisions that will produce a _ maximum level of service for the investment made by Miami taxpayers. These systems will often identify work improve- ment methods during installation thereby providing early productivity improvements benefits. The recommendations in our reports are considered vital to Miami's financial future. However, they represent only a means to the realization of a sound financial future, not a solution in and of themselves. The Mayor and the City Commission in final analysis and initially the City's Administrative staff must make the sound, thoughtful decisions that will protect Miami's interests. These recommendations and the accompanying suggested systems will provide better information than is now avail- able. This information should be used as a basis for these decisions. If these recommendations and suggested systems are to be of maximum utility, they will be needed by the decision makers at the earliest possible time. 2. IMPORTANCE OF TAKING EARLY ACTION ON RECOM!NIENDATIONS Until the recommended procedural improvements and information systems contained in this series of reports are implemented, the decision makers in Miami, at the Mayor and City Commission level and at the management level, are in the position of acting with- out benefit of the best and most pertinent information. In approximately six months or less, the process of making the 1981-82 budget must commence. It is likely to be a more difficult budget to devise than the present one. Without the information and -7- monitoring systems anticipated by the recommendations in these five .reportsf the finali2ati.on of the 1981-8-2 btdget will be even mare difficult than necessary. Therefore, we have provided implementation strategies for executing these recommendations that vary in time and expense requirements, as well as the range of improvements addressed. It is felt that all recommendations can be iinplemented in approximately six months with professional outside assistance. At the other extreme are choices as to which recommendations to implement and the amount of outside assistance to be applied to these efforts'. Some aspects of the implementation efforts cannot be Successfully under- taken or completed without professional assistance from an outside source (e.g., Traininq of Operations Analysts in work analysis techniques); other portions of the implementation effort can be undertaken solely within -house staff but will require substantially more time and direct management involvement to complete successfully than if professional assistance were acquired; still other portions of the implementation effort can and should be undertaken by City personnel without out- side assistance. The choice of strategies and associated - front -end investments will determine whether and how quickly the City can realize the substantial cost containment and reduction opportunities it seeks. Obviously, the number of possible options are many. We have limited ourselves to the presentation of three. We will be available to discuss others and to assess their associated costs. However, the main point to be realized, and acted upon, is the essential need for these management systems. 3. IMPLE1ENTATION STRATEGIES The strategies, options, and costs set forth in this section are exclusive of the costs to provide additional or replacement personnel recommended for various operations such as accounting and purchasing. T.".e:: relate to implemen- tation efforts required to realize the benefits of the recommendations made in our reports to the City of Miami. The use of outside professional assistance on a temporary basis is recommended in several areas in order to reduce implementation time, realize benefits as quickly as possible and avoid 'hiring additional full-time professional personnel. There are a variPt.,,• of options available to the Citr in con - There for this assistance. The important point is to obtain experienced, well qualified assistance in areas where -a- they are needed in the chart-teM to execute the tedP iiidal aspects 8f ift51dMefitati8n as 6pp6sed td 6peteti6iix It is estifiated that all iecof[mietldat ons dan be iftple= Mented in approkimately six Months with appropfiate outside ass istande. It is estifiated that this assistance will Cost between $175,000 and $200,000 depending on a negotiated Scope of work and the availability of City Staff to assist in the implementation effort. biredt City costs under this approach, other than Staff time, world be nominal, Annual operating costs to operate and Maintain the systern should not exceed $50,000. Exhibit Il, on the following pdc illustrates the probable Sequence and'scheduling of this ef= If the City of Miami decides to exercise one of the implementation strategies or options set forth below, or another grouping of implementation efforts, costs and completion times will vary from the estimates set forth abo; which is premised on completing the total implementation effort in shortest possible time. (1) Alternative Strategy one -=Implementation Recommendations Essential Onlv to the In cial Ooerations This strategy would include implementation of the following recommendations: Creation of an Advisory audit Committee and establishment of operating procedures Reorganization to establish the City's intern audit operation as a separate Department reporting directly to the Assistant City Manager for Fiscal affairs. Design, development and installation of a quarterly financial reporting and control system Utilization of outside assistance in all aspects of t'.:-- effort would require a one-time outside expense ranging from $50,000 to $70,000. Staff time of affected City operations would be involved without meaningful additional expense. It is anticipated that continuing operating costs :could .-.e minimal, not exceeding $G , 000 per year. -9- GAL MT 11 $equetiee acid Sdheduling of Ithpiethefttatidti Program for all ftedonmendetidtie Utili2inq Outside Asaistahe6 Audit Procedures Draft Advisory Audit Committee Legislation Establish Advisory Audit Committee Cperatin g Procedures Develop Specifica- tions for Independent Audit Contract Information Systems Establish Quarterly Allotzent Procedures, Forts, and Regulations Plan Reporting Program adjustrents Implement Quarterly Reporting System Orient Budaet analvsts on Performance Data Systems Select =^rrocriate Performance Indicators Danartment 'or eaC-1 F?ei Jr=ii td`:el Establish Performance Data Procedures, Forms and Regulations Implenent Per:ormance Data Svsten _Zr0_ ( Time tti Months) Resource Allocation Systeriis Trait Operations Ahalys is Select Operations for Pilot Studies Perform Pilot Project Analysis Establish output Reporting Systems Establish Validated Performance Standards Incorporate Validated Performance Standard Data into Budgeting and Reporting System P::r=ha,sinv Procedures Establish Listing of imorovements to be Installed Establish schedule for Installation of Im:�rovements Implement Schedule 21MI91T it (Time to Months) IMF---] A- ` utili2at on of outside assistance for only the necessary work to install the quarterly financial information and control systems, would require a one- time expenditure ranging front .$3 , 000 to $0 , 000 for professional assistance. Staff time would be involved more extensively in this option and completion time would be lengthened. Thereafter, operating costs should not exceed $6,000 annually. City staff would handle the implementation effort for creation of the Advisory Audit COMMittee as well as the creation of a separate Internal Audit Department. (2) Alternative Strategy Two--Im lemen cision Making Capacity _at_PO This would include implementation of the following recommendations: Design, development and installation of a quarterly financial reporting and control system. Design, development and installation of a performance measurement information system. Design and development of a Resource Allocation System and installation of pilot projects. This alternative differs from the first alternative strategy in several respects: They offer, successfully implemented, not only improved management information, but also substantial opportunities for containing or reducing existing expenditures. Resource allocation and productiv it:: anal}Isis s:: stems , for example, traditionally identify cost reduction opportunities in excess of three times their own development and operating costs within two or three years. They respond directly to the Commission's and top management's concerns about reducing operating costs to meet limited revenues in a rational, moni to rable way -12- TWO of the three redbmmendations--the perfo=ance measurement information and the resource allocation systeM­cannot be designed, developed and implemented by existing in-house staff without applying additional professional manpower and expertise, Utilization of outside expertise should be viewed as a one-time development•effort whose costs should not exceed $100,000 to $135,000, Internal expenses of City staff time would initially be negligible. in fact, once in operation; all three systems are expected to have only minimal costs not exceeding $25,000.00 annually. Only the minimal utilization of outside assistance, limited to only the design of the financial system, the performance information system and the resource allocation system, including requited training of City personnel, would require a one-time outside expense ranging from $75,000 to $100,000. This approach, how- ever, would require increasing both the staff size and levels of expertise in the Department of :4anagement and budget and perhaps also in the Finance Department. The new staff members could Llake as much as four to six months to bring on -board since professionals with the required experience are both difficult to find and +' generally already well -paid by governments. Development time for the systems would be expanded from the minimum estimate of six months to well over a year to eighteen months in as much as the preparation of the annual budget will take priority over the implementation of any new systems. These delays will probably result in postponing until 1982 the benefits that the City can realize from the recommended new systems. Other implementation options are dependent on the needs deemed most pressing by Miami's officials. We will be happy to discuss an,; alternatives of interest to Miami leaders. Estimated cost and time requirements for such alternatives can be provided upon request. -13- �.{ani le tf Fbr1 and Cbnt=_r. L26r QuartiArly izr+andial and Budget Report tb City CbIt�tlissiofi . anuat*. 20, 1980 o: he maYor and Members of the :ity Cd=issioii Frog: The Cit•t ;Manager Subject: First quarter Fi.:ancial and 3udaet Teport for the General Fund At the Conclusion of the first quarter for fiscal 1?73-9C, both the revenues and expenditures for the General =and are alahtiv ahead of expectations. Based upon experience to date, there is no reason to erect a substantial deviation in either revenue collectizns or expenditures from the original budget. The status .if :;eneral Fund revenues and expenditures are set fort: below. RE'.'LJIt ES — '_rst :carter _ i _ _ tivarter — '`?a Annual 3udce_ A-1ctment c_uay 'Prccerty :axes $42,179,807 $3 ,250,300 538,007,2-3 'ranchise Taxes 7,955,434 31200,000 3,216,121 :;tility Taxes 17,423,377 4,500,000 4,280,007 Licenses and Permits 4,259,323 3,750,000 2,310,COB .ederal Shared Revenue 3,361,49C 313001000 3,303,051 State shared Revenue 13,455,371 5,100,300 5,.:94,304 Other Shared Revenue 35111500 175 , 00C 173120C Charges for Seviices :,7;'.,?l9 400,000 :01,002 Fines and Forfeits i,3621000 273,000 309,426 ::.serest Earnings 1,086,�?00 30C,000 301,541 Other 3,055,272 3001000 303,58", TCTAL S106,Z.68,593 S:9155C,000 S60,304,515 4 C TEX _:�..• =first darter first ¢uarter ?ersohnel Ser'tices 519,822,946 - '',400,300 11 ,182,348 0erati7ci expenses 2012021109 4,250,000 4,394,21` — capital Outlay 149,760 32,300 31,912 Debt See,01Ce "apital Improvement Re se r,tte Special Proctrams 6,393,178 =,325,300 1,8 4,329 - CiA, $106,268,593 523,501,300 323,482,006 ANALYS rS With minor exceptions revenue collections are on target. she exceptions are: Utility :axes —Collections are elzw _xrecta_ions approximately 'Se are eie_:ra_.. - sales are 1cwer than we 1s feel that our fire ::c .. _ . :ri3i:a. he^ oe_ieve -Gaz sale _ n:ne-..lcnthe will usti`_ our total revenue estimate. They expect a consider- able increase in sales during the second and third zuarters of our fiscal year. We have made arrangements to monitor this situation on a monthly basis. any further weakening of the Citv's financial gositicn will be immediately reported to the Mayor and City: Commission along with recommended remedial action. License and Permits —Collections are below expectations by approximately 3940,000. Many businesses have failed to pay their business license fees on time. apparently this is a reflection of the economic conditions locally. A survey of the ma or delinquent accounts indicates that we will collect most of the delinquent license fees shortly. We expect this under collection to remedy itself. State Shared Revenue —Collections are in excess of expec- tations by about s1,'300,000. This results from a new :ayment schedule for state revenue sharing which accelerates :aiments to localities. T-n the final analysis, it is expected that total pa_. -rents receiving during this fiscal year will approximate the original estimate. 8:{HISI T li i I ) '4ith one exception our emtenditures are on target. IM one 4me4bti6n is: OoeratinQ, x eases—This-atecor;i .f empenditures is about 5150,000 over expectations, The primat+l reason is the higher than expected price of gasoline to operatethe �it'j's totor vehicle fleet, We have established a prograM to control motor vehicle use more tichtly. tr. addition, tze ?grchasinc agent has been directed to explore alterratile sources of gasoline supply to replace our present supply contract which expires as of Karch 31 this year. in the meantime we will continue to monitor this cost overrun on a weekly basis. Jnless the :resent trend reverses itself shorty, we will submit recommendations to the :Mayor and=ommission in the near future to transfer funds gucr this purpose. Zf the Mayor and members of the City Commission have 'urther ?uesticns on this report or desire further data, . will be nappy to respcnd. t