HomeMy WebLinkAbout04-19-2016 Item 02 Government Finance Officers Finance Association Recommendations for Finance and Information and Technology Department
Meeting Date: 4/19/2016
FROM: Derek Johnson, Assistant City Manager/Interim Finance and IT Director
Prepared by: Greg Hermann, Principal Analyst
SUBJECT: GOVERNMENT FINANCE OFFICERS FINANCE ASSOCIATION
RECOMMENDATIONS FOR THE FINANCE AND INFORMATION
TECHNOLOGY DEPARTMENT
RECOMMENDATION
Receive and file a report outlining recommendations from the Government Finance Officers
Association for the Finance and Information Technology Department.
DISCUSSION
Background
The 2015-2017 Financial Plan includes budgeted resources to support ongoing efforts to increase
the efficiency and effectiveness of City operations. In recent years, Public Works, Community
Development, and the Fire Department have all gone through an organizational assessment and
planning process to identify best practices for service delivery and cost containment. In fall 2015,
the City retained Government Finance Officers Association (GFOA) to engage in a similar
assessment for the Finance and Information Technology (FIT) Department.
GFOA's mission is to enhance and promote the professional management of governmental
financial resources by identifying, developing, and advancing fiscal strategies, policies, and
practices for the public benefit. The organization provides best practice guidance, consulting,
networking opportunities, publications including books, e-books, and periodicals, recognition
programs, research, and training opportunities for those in the public finance profession.
Given this breadth of knowledge and experience GFOA is able to offer independent, objective,
and best practice-focused consulting services for financial operations in local government. In
addition, their focus is to provide “real” and pragmatic solutions based on industry-leading
research with organizations located throughout North America.
Assessment Report
The purpose of this organizational assessment of the FIT department, specifically the finance
division, was to assess challenges with recruitment and retention of staff, assess workload
demands, and evaluate existing programs and processes and to determine areas for improvement.
The report is designed to assist the City with developing a strategic roadmap to improve
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organizational efficiency and effectiveness in these areas by implementing recogniz ed best
practices. While the report focused on the FIT department, because finance is the starting and
ending point of many business practices, the assessment makes recommendations that directly or
indirectly impact the entire City organization.
To conduct the assessment, GFOA facilitated focused group meetings with City staff,
interviewed individual members of FIT and other departments and reviewed process
documentation to identify key issues and opportunities. The issues identified in their report
represent opportunities that, in GFOA’s professional assessment, offer the City its best
opportunity for sustained improvement. GFOA identified four core issues:
Issue #1) Need for an integrated financial system
Issue #2) Need for a new chart of accounts
Issue #3) Business processes improvements
Issue #4) Role clarity and alignment
GFOA concluded that these four core issues, represented the most significant challenges faced
by the City’s finance function and cause ripple effects throughout all City departments . While
there have been attempts to address challenges in the FIT department in the past by allocating
temporary resources or re-locating functions to other departments, addressing anything outside of
these four core issues will only provide temporary relief. Ultimately, what is required for long
term sustainability of this key function are foundational changes and improvements. In short, the
City has deferred maintenance and investments in support departments, most especially the
finance function, and continued deferral is no longer sustainable, efficient, or effective.
The GFOA report recognizes that addressing these core issues will take time, a considerable
investment and concerted organizational focus. The biggest challenge will be to fundamentally
rethink how the City carries out its day to day administrative functions in light of significantly
changed financial, technological and operational realities and provide the adequate resources to
effectively manage the process changes.
In an attempt to provide some short-term relief to the current staffing workload challenges,
GFOA identified potential improvement strategies that the City can implement now to provide
temporary “quick wins” until longer term systemic changes can be achieved. The next step is to
develop an initial project plan with detailed action steps that capitalize on quick wins and
streamline business processes with existing staffing resources and technology. The longer term
steps include a comprehensive overhaul of business practices and systems. Based on feedback
from the City Council, staff will prepare a Significant Operating Program Change (SOPC) for
the Council’s consideration for the 2016-2017 Budget Supplement to implement a
comprehensive approach to strengthening support departments and business process
improvements.
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Overview of Core Issues Identified by the GFOA
Issue #1 - Need for an integrated financial system
The first issue identified is that the City needs to replace its existing financial system. This
system, known as Finance Plus, was purchased in 2005. GFOA recommends that the system be
replaced with a modern Enterprise Resource Planning (ERP) system. An ERP financial system
provides a technological platform to integrate operational areas such as accounting, budget,
human resources, purchasing, grants management, business licensing, and vendor contract
management into a centralized application. The Cities of Paso Robles and Santa Barbara are
both cities in the region that are currently in the process of implementing ERP systems.
Updates to the City’s existing financial system are no longer being developed by the company
and represent a “silo” technology that has very limited capability to integrate with other business
systems. As an example the City currently develops our budget using spreadsheets and because
the City financial system’s budget module is inactive this data has to be re-entered which is
highly inefficient (data entry and quality control). This hampers the City’s ability to operate as
efficiently and effectively as possible and utilize best practices for financial operations. This is a
significant recommendation as the implementation of a system requires a substantial investment
of both capital and staff and consultant resources. Implementation efforts usually occur over a
three to four year period. The direct costs to purchase and implement a system are projected to
be approximately $2.25 million.
Issue #2 - Need for a new chart of accounts
The second recommendation is to generate a new Chart of Accounts (COA) to simplify City’s
accounting and budgetary systems. A COA is a list of the accounts used to define each class of
items for which money or the equivalent is spent or received. The COA serves as the financial
“DNA” of an organization and if improvements to the City’s financial system and business
processes are to be realized; the City needs to “redo” its COA through an organization wide
effort. GFOA has extensive best practices and resources to guide the City through an overhaul of
the COA.
The City’s existing COA is unnecessarily complex and is a barrier to improving the City’s
business processes and financial management. The existing COA has resulted in proliferation of
side systems to create financial reports, poor reporting capabilities, and is inefficient and time
consuming to complete monthly bank reconciliations and to prepare for year-end processes, such
as the audit and Comprehensive Annual Financial Report (CAFR). While all of this work is
being accomplished and the City is receiving clean audits and awards for our CAFR the process
is complex and demanding on staff time.
Issue #3 - Business processes improvements
Many of the City’s business practices have served the City incredibly well over the years and
have been a benchmark for many other local governments. Customer expectations and choices
have advanced remarkably since the City purchased its current financial system in 2005 and
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today we offer many services that were not available (i.e. credit cards, online payments, etc.)
then. In an effort to keep up with the public’s needs, the City has developed business practices
within currently owned technology capabilities or have purchased side systems to provide
expanded services. Over time, the complexity and limitations of the mixture of financial and
side systems have become a barrier to continued innovation and improvement of business
practices. . Many of these side systems and processes exist in the operating departments and
standardizing business processes will allow for the centralization of support functions.
GFOA’s report identifies four different business processes that could substantially benefit from
new policies and practices. These include:
1) Purchasing
2) Salary and personnel budget process
3) Standardized cash management
4) Accounts payable.
The report includes recommendations for each of the four areas. It is worth noting that it is
possible for these process improvements to be simplified through a new ERP financial system.
Yet, in the absence of a new system, some process reengineer is recommended to ensure that the
city implements best practices and maximizes efficiencies to the extent possible given the
limitations created by the continued reliance of an outdated system and chart of accounts.
Issue #4 - Role clarity and alignment
The fourth issue is to improve role clarity and alignment within the department. GFOA has
identified numerous instances where finance staff has been assigned inconsistent (and
incompatible) tasks that decrease the efficiency and effectiveness of the department. Turnover in
the FIT department has resulted in a distribution of responsibilities and roles that GFOA
identified as a prime opportunity for efficiency improvements. The recommendations are to:
1) Reorganize the FIT department into two separate departments (Finance and IT), each led
by their own Director
2) Cleary define and align roles in the new Finance and IT Departments
3) Create service level agreements with all City departments to clarify the division of
responsibilities for tasks
4) Move the utility billing function to the Utilities Department.
FISCAL IMPACT
Staff has been working with GFOA to evaluate the one-time and ongoing fiscal impacts
associated with their recommendations. If implemented, the recommendations will require both
one-time and ongoing resources to purchase and implement a new ERP system. These costs
include staff to lead the required overhaul of business processes and to implement the ERP
system. Staffing would also be identified to support the reorganization into two departments and
continue service responsibilities.
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The estimated costs to purchase and replace the existing financial system with an ERP system is
$2.25 million. The estimated cost for San Luis Obispo is based on their direct costs for
purchasing the system with specific recommended adjustments identified by GFOA.
The report highlights the ripple effect of issues identified in the GFOA report to other
departments. These discussions day lighted the need for temporary resources in both the City
Attorney’s Office and Human Resources Departments.
A comprehensive SOPC for the 2016-2017 Supplement Budget is being developed to strengthen
the support departments (Finance, IT, HR, and City Attorney’s Office). The preliminary
estimates for the 2016-2017 Budget Supplement SOPC are ongoing costs of $266,500 and
onetime costs of $1.7 million. The 2016-2017 SOPC is being developed within the context of an
updated five year forecast that will be presented as part of the 2016-2017 Budget Supplement.
Additional resources will be requested as part of the 2017-2019 Financial Plan that will require
other one time and ongoing funding. This SOPC will propose a comprehensive approach to
strengthening and aligning staff and other resources in support departments so that they can
participate in the overhaul of business processes need to meet the service needs of the public and
other City departments. When additional analysis about workload is completed, ongoing
resources will also likely be needed in the City Attorney’s Office and Human Resources’
Department which will be integrated into a SOPC request for the 2017-2019.
These costs will clearly have a significant impact to the General Fund and all the enterprise
funds, but are necessary and urgent to implement the key GFOA recommendations. One time
and ongoing costs will be directly allocated and fairly distributed to the Enterprise Funds
pursuant to the Cost Allocation Plan and other applicable best practices.
It is estimated that it will take four to five years to implement all of GFOA’s recommendations.
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GOVERNMENT FINANCE OFFICERS ASSOCIATION
(GFOA)
RESEARCH AND CONSULTING CENTER
San Luis Obispo,
California
March 24, 2016
Organizational Assessment - Finance
Final
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Table of Contents
Section 1 - Introduction ................................................................................................ 3
Approach & Methodology ....................................................................................................... 3
Section 2 - Analysis and Recommendations .............................................................. 5
Issue 1) Need for an integrated financial system ............................................................... 5
Ripple Effects ......................................................................................................................... 6
Recommendations:................................................................................................................. 7
Quick Hit Recommendations: ................................................................................................. 8
Issue 2) Need for a new chart of accounts ......................................................................... 8
Ripple Effects ......................................................................................................................... 8
Recommendations:................................................................................................................. 8
Quick Hit Recommendations: ................................................................................................. 9
Issue 3) Business process improvements.......................................................................... 9
Ripple Effects ........................................................................................................................10
Recommendations:................................................................................................................10
Quick Hit Recommendations: ................................................................................................11
Issue 4) Role clarity and alignment ....................................................................................13
Ripple Effects ........................................................................................................................13
Recommendations:................................................................................................................13
Quick Hit Recommendations: ................................................................................................14
Section 3 – Recommendation Summary ................................................................... 15
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Section 1 - Introduction
In public sector organizations, the finance function plays an important and often complex role.
Not only is finance tasked with performing the accounting functions, it also must serve in a
support role for many of the other departments. By coordinating budget, accounts payable,
purchasing, billing, distribution and collection of utility bills and business licenses, and other
functions, finance is a central player in the overall efficiency of the organization.
The purpose of this organizational assessment of the Finance and Information Technology (FIT)
department of the City of San Luis Obispo, California (the city), specifically the divisions of the
department focused on finance, is to determine areas for improvement. The assessment
included the FIT department, as well as other departments and staff that have a role in the
City’s financial activities. GFOA’s report is intended to assist the City’s executive management
with developing a strategic roadmap that will enable the organization to achieve desired
outcomes, adopt recognized best practices, and more effectively serve other city departments
and the public.
To conduct the assessment, GFOA facilitated focus group meetings with City staff, interviewed
individual members of the FIT department and other departments in the City, and reviewed
process documentation that is currently available to identify key issues and opportunities.
The issues identified in this report represent major areas that in GFOA’s opinion offer the City its
best opportunity for improvement. This report is not a comprehensive list of all opportunities for
improvement. Our approach to projects is to focus on providing practical guidance and
implementing improvements. As part of the conversations with City staff, comments may have
been mentioned that did not make it into this report. The exclusion of comments does not
necessarily indicate that GFOA did not feel that the issue was significant, but its improvement
strategy was not as clear or did not provide the same opportunity as those listed.
This report contains a prioritized list of opportunities and recommendations. At the City’s
request, we included both long-term recommendations that will provide the foundation for the
City’s finance function to be sustainable and successful over many years and short term
recommendations that can be implemented in a manner of weeks or months to relieve pressure
and provide near term improvements to make time to focus on the more strategic and long term
improvements.
GFOA has provided additional detail and explanation of its primary recommendations in
separate reports for each issue area. documents that
Approach & Methodology
• Information Gathering and Analysis - GFOA’s standard approach for assessments
such as the one conducted for the city is to use a combination of interviews with key
stakeholders and a document review process to understand the current situation within
the finance office along with other finance related functions – for example, purchasing,
contract management, and information technology systems. GFOA then compares the
information collected against similar organizations, recognized best practices, and our
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collective experience with other municipal clients to identify potential improvement
opportunities.
GFOA’s information gathering efforts with the city focused on the following areas using
the overall approach and methodology defined by the graphic below.
Supporting Tools and Inputs
Structure and Governance
Outcomes and Results
• Report Preparation & Recommendations - Following onsite work at the City, GFOA
reviewed materials and information gathered during and after interviews to identify
concerns and prioritize opportunities for improvement. Using our expertise, GFOA
conducted research and performed gap analyses between the City’s current state and
recognized industry best practices along with common practices adopted in local
government. Issues explained in this report identify those gaps where GFOA feels there
is room for improvement for the City. In making recommendations, GFOA attempted to
make suggestions for improvement to the underlying cause of the issue. As a result,
many recommendations appear to address core structural, organizational, or process
issues that will provide solutions for the long-term. Where possible, GFOA has also
attempted to identify smart and appropriate “quick wins” that will provide temporary relief
for the City and help free resources to focus on more long-term strategic improvement
efforts.
• Review & Action Planning - After the City has had an opportunity to review the issues
identified in this report and GFOA’s recommendations for improvement, GFOA will be
onsite to facilitate a discussion of the recommendations and assist with the preparation
of an Action Plan that the city can use to plan implementation activities and track
progress toward improvements. GFOA will use Microsoft project to create a project plan
that will track key milestones, tasks, and responsible individuals for the project(s). GFOA
would then be available to provide further details to the action plan or participate in
implementation efforts.
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Section 2 - Analysis and Recommendations
The focus of GFOA’s assessment was on the financial processes performed by the Finance and
Information Technology department (the “finance function”). Using the conceptual approach
communicated by the image displayed in Section 1, GFOA has identified a number of issues
that require attention by the City. GFOA has identified the City’s primary “core” issues as the
following:
Issue #1) Need for an integrated financial system
Issue #2) Need for a new chart of accounts
Issue #3) Business process improvements
Issue #4) Role clarity and alignment
These core issues, in GFOA’s opinion represent the most significant problems faced by the
City’s finance function. The ripple effects from these core issues contribute to the vast majority
of challenges within the finance function. Addressing other issues outside of this core may
provide temporary relief, but will ultimately fail to provide lasting improvement. However, GFOA
recognizes that addressing these core issues will take time. In an attempt to provide some
short-term relief to the current staffing workload challenges, GFOA has attempted to identify
potential improvement strategies that can be implemented now and provide temporary “quick
wins” until the long-term strategies can go into effect.
Issue 1) Need for an integrated financial system
The City does not have an integrated financial system that meets the needs of the organization.
The SunGard Pentamation system could be described as outdated, inefficient, and incomplete.
As a result, City staff must perform extensive manual work arounds and utilize a variety of
shadow or additional systems to complete basic tasks that have become routine and/or
automated in most other municipal governments. Below are a few examples of missing
functionality:
1) Purchasing – The City does not have a central system to manage its purchasing
function. Purchase requisitions, purchase orders, and contracts are managed and
tracked manually by staff in both the FIT department and in other City departments. In
addition, without a purchasing system staff is left to manage encumbrances and budget
control manually.
2) Financial and Management Reporting – The system lacks modern reporting features
to inform staff, provide decision support, and provide accountability. Almost all
departments indicated that they rely on spreadsheets and other side systems to perform
basic functions such as budget-to-actual reporting, cost accounting, and payment
tracking. This creates manual work that is redundant and inefficient.
3) Project and Grant Accounting – When the City’s chart of accounts was configured in
the system, it did not provide the opportunity to track projects and grants in an
appropriate way. (See Issue #2) for more information. As a result department staff has
largely relied on side systems to track grant and project information.
4) Payroll / Human Resources - The City’s human resources and payroll processes are
manually intensive and inefficient, mostly due to the lack of an integrated HR/payroll
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system. Human resource processes require paper based approvals. There is a heavy
reliance on manual checklists and spreadsheets to calculate payroll – including some
payroll calculations that are done in Microsoft Excel.
In addition to the four areas listed above, many features common in most financial systems and
in use at many governments across the United States are not available to the City. As a result,
processes are not automated and what are simple tasks for other organizations require many
hours of work for City staff, and important controls or business rules are not enforced by the
system. Examples include:
o No systematic workflow
o No automated encumbrance accounting
o No system-generated notifications or alerts
o Lack of integrated modules
o Lack of robust security features
o Limited integration of third party systems
o No automated bank reconciliation
o No self-service features
o Minimal enterprise-wide use of system functions
The fact that the City’s staff completes as much as they do without these essential tools
is in itself an achievement. However, for a finance office to be considered high-
performing and meet the current needs and challenges that municipalities face, a quality
financial system is an essential tool.
Ripple Effects
As a result of not having a modern financial system, there are many ripple effects that have
reduced the effectiveness and/or efficiency of the finance function. GFOA found the following
areas for improvement.
• Reliance on manual processes – The City relies on many manual processes. Manual
processes are inefficient, limit the level of transparency into the process, are prone to
errors or inconsistency, and often result in redundant work.
• Informal Processes – City staff reported many processes that involve or originate with
communication of phone calls or emails. This type of process is difficult to track and is
susceptible to variation.
• Bank Reconciliation – The City’s bank reconciliation is overly complicated and requires
significant time. City staff reported that it takes an entire day to gather information for
bank reconciliation. The whole bank reconciliation process takes too much time.
• Proliferation of side systems – In almost every meeting GFOA conducted, staff
highlighted how side systems are used to perform critical finance functions. This is a
common occurrence in many organizations with weak financial systems. However,
existence of side systems only seems to exacerbate the situation and create the need
for more side systems as information is further fragmented and the primary system’s use
is further limited.
• Difficulty in obtaining financial information – The existence of side systems and the
difficulty in reporting from the main financial system has led to difficulty in easily
obtaining current financial information. For example, because commitments
(encumbrances and pre-encumbrances) are not tracked in the system from the
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beginning of the purchasing process budget-to-actual numbers cannot be reported
unless a side system is used. The existence of these systems (and the need to manually
duplicate information) presents the opportunity for errors. Different departments track
this information in different ways and without a reliable standard process.
• Roles and Responsibilities – One of the core guiding principles of efficient processes
and modern financial systems is that information is captured at its origination point. Once
information or data are captured in the system, it can be used throughout the
organization, tracked, and reported on. Because the City relies on many paper based
processes, it creates the need for staff in finance to spend time keying in information.
This effort is redundant and not an optimal use of finance staff time.
Recommendations:
A. Implement new ERP system - GFOA recommends that the City pursue a strategy to
implement a new enterprise resource planning (ERP) system that would include
financials, procurement, human resources, payroll and other related functions. Modern
ERP systems offer integrated functions combined with modern features such as self-
service, workflow, improved analytics, and automation of business process.
Implementation of a new ERP system is as much about process change as it is about
technology. For projects to be successful, an organization must simplify, streamline and
standardize processes, work diligently to train users and manage the overall
organizational change. In addition, organizations require focus on a shared vision and
the leadership to see the vision through. When implemented successfully, the ERP
system will put the needs of the organization above the needs of an individual
department and any diversion from this creates the risk to derail the effort. For this
reason, GFOA recommends that the City put a moratorium on new system
implementations until the core ERP system is established. Other projects will divert
resources and divert attention from the ERP system. Also, more importantly and more
detrimentally to the system, it will signal weakness in the City’s ERP vision.
B. Identify formal governance structure and document with project charter - The
scope of a financial system implementation project goes beyond the finance office and
IT office. The finance system is viewed by all organizations to conduct their business
and the approach to the project needs to consider all of these various stakeholders. In
addition, because of the many stakeholders, it is essential to clearly communicate
project expectations, roles, and decision authority. A formal governance structure and
project charter provides this clarity. GFOA recommends establishing a steering
committee made up of City executive leadership and management staff from key
stakeholder departments. The City would then establish a project team that identifies an
individual to serve as the “lead” for each process/functional area. Lastly, the governance
structure should identify subject matter experts or staff throughout the City that
contribute to processes/functions. Once a structure is identified, the City will need to
clearly define the role of each with respect to the project.
A project charter is a document that contains these descriptions along with overall goals
for the project, guiding principles, and a clear vision of project success.
After implementation, the project governance structure could be maintained in some
format to help guide overall use of the system. Many organizations use a steering
committee to evaluate and prioritize improvement opportunities with the system or the
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business case from any new systems that may be contemplated. It is important to make
sure that new systems are planned with the same ERP vision.
Quick Hit Recommendations:
C. Develop system inventory - Because of the City’s extensive use of side systems, it will
be important that the City inventory these systems. Moving forward, having an accurate
system inventory (including all spreadsheets and custom developed systems) will be
important to business process improvement efforts and the process to transition away
from the current environment to one that relies on a modern financial system.
Issue 2) Need for a new chart of accounts
The City’s chart of accounts is unnecessarily complex, redundant, ineffective, and makes
everything that the City does from a financial management perspective more difficult. A simpler
chart of accounts that is, organized, logical, well understood, and detailed enough to facilitate
organization wide planning (budgeting), tracking, reporting, and facilitation of business
processes is needed. The chart of accounts forms the foundation of not only the finance system
but of all financial transactions. GFOA has experience with organizations that have ended up
with a chart of accounts similar to the City’s current situation. It is often the result of growth,
inconsistent use over time, and an inflexibility of the system (or the set up) to accommodate
change. For example, based on conversations with staff, as the need for tracking new projects,
grants, or programs arose, the City would need to “force” the chart of accounts to handle this.
Often this resulted in using a segment for a purpose other than what was originally intended.
This then fragmented information, made reporting more difficult, and led to challenges that often
required shadow systems. As more and more was added, the City began running out of
available values. The result then was to start “fitting in” new accounts where there was room
which further weakened the chart of accounts. As a result, most departments use Microsoft
Excel to track key information.
Ripple Effects
• Proliferation of side systems – In almost every department, side systems have been
created to track financial information at a more detailed level than the chart of accounts
easily allows for. This includes projects, grants, programs, or initiatives. Every side
system then represents an instance of redundant data entry, potential error, and an
ongoing need for reconciliation and maintenance.
• Poor Reporting – The state of the City’s chart of accounts makes it extremely difficult to
extract or report quality information. As a result, the City does not get timely budget-to-
actual reports.
• Time Consuming End of Year Processes – As referenced above, the complex and
unorganized chart of accounts makes every process and transaction that the City
completes more difficult. This is especially true at year end where staff must reconcile
many different systems, perform adjusting entries, catch up with batch processes, etc.
Recommendations:
D. Identify team for CoA development – Chart of account development is an activity that
must include representatives from beyond finance. GFOA recommends that the City
establish a team made up of representatives from many departments to identify a
structure and help define values for the chart of accounts.
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E. Develop new chart of accounts – See separate report.
Quick Hit Recommendations:
F. Identify existing accounts that are not used – A large part of the complexity with the
City’s chart is due to the many accounts that are no longer used. Where possible the
City should combine accounts, eliminate old accounts, and attempt to simplify the
structure in the transition period before the new chart and new system are implemented.
In addition to making it easier in the short-term, it will also ease the transition to the new
chart and new system.
Issue 3) Business policy and process improvements
Many of the outdated and redundant business processes in use throughout the City can be
attributed to the lack of a financial system, as explained under issue #1. However, GFOA has
also identified a number of improvement opportunities independent from the financial system. In
general, the existence of a financial system will automate existing processes and will provide
some improvement. However, the system is only a tool and improvements based solely on the
tool will only go so far. Those business processes are explained below.
1) Purchasing - The City lacks an established and centralized purchasing position. The
existing system does not have dedicated, purchasing staff, that can to manage the
procurement of city goods and services and the management of city contracts. An
improved process would clarify roles and responsibilities regarding who will work on the
purchasing activities and reduce the effort to make City purchases and still be consistent
with City policies and State Law.
Any purchasing processes are run primarily through the departments with some
coordination by the finance staff. While finance is an approver at the end of the process,
the manual nature of the process can lead to inconsistency. GFOA also feels that the
assignment of purchasing roles within finance was not made in an effective way. For
example, one person is responsible for entering vendors, sending PO’s, and processing
payments creating potential issue with non-separation of duties. In addition, the current
function relies on unnecessary manual process. Every PO has a manual file folder
created where the total amount remaining on the PO is tracked.
In addition, finance staff focusing on accounting tasks are asked to be involved with the
bid and RFP process and then the subsequent management of contracts. This diversity
of role creates unnecessary confusion, timeliness issues and potentially work quality
issues. Purchasing is not typically a process where work can be set aside and then
batched at weekly intervals. Throughout GFOA’s meetings, staff often commented on
the inconsistent turnaround for purchasing tasks. Staff also commented that when
contacted, finance staff is often very good about turning around tasks that are time/date
sensitive. However managing purchasing workload based on philosophy of the
“squeaky wheel” is not sustainable in the long-term.
2) Salary and Personnel Budget Process - Every department head GFOA met with
expressed frustration with salary forecasting and personnel budgeting. Department
heads are not comfortable with the process to obtain system-generated data; the
process is cumbersome and unnecessarily complex. Department heads are using
Excel, not system data to budget for personnel and salaries. This is because the City’s
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Pentemation system does not have a budgeting or Human Resource Information System
(HRIS) tool that is commonly used to model and forecast salaries.
3) Standardized Cash Management - The City has many points of cash collection.
Revenue collection systems are not interfaced to the general ledger and the City does
not have a standardized process or technology across the organization. In most cities,
the various business functions require that revenue be collected at multiple locations.
However, each location should be following a consistent set of rules to make
coordination of the overall revenue collection effort more efficient.
4) Accounts Payable – The City lacks an efficient process for reviewing, approving, and
processing invoices because of the current lack of a complete financial system. The use
of the manual PO folder is inefficient and confusing. The process of running reports and
reconciling those reports to Excel spreadsheets and paper logs is redundant and
inefficient.
Ripple Effects
• Best” practices will help improve productivity and morale: GFOA reviewed
business processes across the finance function. In general, GFOA did identified
opportunities to , implement, and maintain financial management using best practices.
While it is clear that City staff are capable of this effort and in many cases have led
efforts independently to gain improvements, there has not been an organization-wide
effort or coordinated effort to adopt modern industry best practices. Technology and the
existing COA have been a significant barrier to this occurring.
The City should be commended for the initiatives completed so far, however GFOA feels
that without addressing the underlying “core” benefits were lessened and will continue to
be limited.
• Clearer Processes. GFOA defines clear processes or transparency as an overall
understanding of the subject. Process transparency or the ability for key process
stakeholders to understand both the approach and purpose to business process requires
that stakeholders understand both what decisions were made and how they were made.
Recommendations:
G. Establish a purchasing function - A city that is experiencing growth such as San Luis
Obispo, should have a dedicated purchasing department/division and resources to
manage vendors, the procurement of goods and services, and ongoing contracts. GFOA
recommends the City review and/or revise/create:
a. A revised set of purchasing policies
b. Revised purchasing processes
c. Revised purchasing thresholds / approval authority
d. Purchasing division with dedicated purchasing staff
H. Consider Pooled Cash Approach – It is generally considered a best practice to adopt
a pooled cash concept within the City where the City would manage all cash in one
“cash fund.” The relationship between the “cash fund” and other funds would be
maintained through due-to/due-from entries to identify the commitments of each fund for
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cash. This would allow all cash transactions to occur in one fund and from one bank
account.
I. Streamline Budget Process/Document – As stated above, the City puts considerable
effort into its budget process. GFOA is not recommending that the City eliminate any of
the budget process features that are effective and a core part of the City’s budgeting
culture (such as the citizen participation process). However, we are recommending that
the City carefully consider the purpose of each activity in the budget process and its
direct relationship on budget decisions. At its core, an organizations budget process
should be about identifying goals, determining the cost to achieve those goals, and then
making any necessary prioritization decisions. Staff commented that the City’s budget
document is difficult to prepare and can be difficult to understand. Because the City
spends such a large amount of time on the budget process and budget document,
GFOA feels that it could significantly reduce effort while still maintaining the important
elements the City is proud of and are effective. GFOA recommends that the City take a
fresh look at the budget document from a stakeholder perspective or consider surveying
various types of stakeholders to determine what is necessary in the budget document.
Quick Hit Recommendations:
J. Streamline purchasing process - The city department heads are required to provide a
purchasing report for purchases over $25,000 to the city manager for approval, even if
the funds for goods and services have been budgeted and approved in the budget
process (e.g. truck). This can be inefficient for department heads to provide a detailed
purchasing report to the city manager. These purchasing memos create a lot of extra,
work (emails and phone calls) for department staff, in addition to the city manager.
While GFOA acknowledges the level financial controls that the City wants to implement,
GFOA believes these purchasing memos to be unnecessary. GFOA considers that the
City identify a simple purchase requisition form that can be used for all purchases.
GFOA also recommends that the City modify its purchasing workflow and identify
alternate approvers (or potentially department only approvers) for small dollar amount
POs.
K. Hold departments accountable for quality – Staff made repeated comments during
interviews and focus group meetings (across many functional areas) that there was a
considerable amount of time spent correcting errors made at prior points in a process. In
some cases, the errors could be process requirements that are more difficult than
necessary for example, personnel forms require departments to add information that is
not germane to current transition. Regardless of the source or reason for the error,
GFOA recommends that the City focus on eliminating those errors and hold staff
accountable for “doing it right the first time.” GFOA advocates for a policy of “sending it
back” rather than fixing the error. In addition, City leadership will need to hold staff
accountable for quality.
L. Transfer responsibility for tracking POs to departments – The City’s purchasing
process is mostly run by departments (or the analysts) in departments due to the lack of
a procurement function. However, the FIT department manages all paperwork. To
reduce work temporarily, the City could require that the departments assume
responsibility for monitoring the POs, ensuring invoices match the PO, and that
payments don’t exceed the total PO amount, etc. FIT would be responsible for setting
policy and providing random checks/audits to ensure compliance with those policies.
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M. Develop revised cash handling policy – The City should define and document a
formal policy with respect to handling cash (including cash, checks, and credit card
transactions). The policy should:
a. Require standardization among all departments
b. Include internal control procedures
c. Require that departments accepting cash perform certain quality assurance steps
(potentially including: completing deposit slips, reconciling deposits, completing
City forms, etc.)
N. Consider automation or outsourced services – During the period of time when the
City is implementing long term solutions, the City may want to consider implementing
temporary changes to relieve staff from certain functions. These services could include
any of the following:
a. Lockbox services 1 – Lock box services will decrease the amount of processing
for City finance staff
b. Online payments – The City could implement an online electronic payment
portal for City invoices that would decrease the amount of time required for
processing payments.
c. Accounting services – Temporary staffing firms can provide accounting
resources to help reduce workloads from staff during the project transition.
d. Outsource to departments – For departments with regular cash handling
functions, the City could consider allowing those departments to make cash
deposits directly with the bank. The finance office would continue to play an audit
and reconciliation role, but reducing daily cash handling could free up staff time.
O. Identify appropriate service levels – In many cases, the City might have to accept that
current services levels are not sustainable during the project period (where staff have
additional responsibilities). It might be necessary to decrease service levels or suspend
performing certain tasks. For example the following options could be considered:
a. Shift away from batch processes – Reducing then number of batch processes
will reduce the time spent on these large manually intensive tasks. GFOA
recommends the City explore using on-time processing for functions such as
fixed asset acquisition, bank reconciliation, cash deposit handling and others.
b. Shift responsibility to departments and use finance staff to audit
process/transaction. – The City is in a position to leverage the analysts that
exist in the departments to play a larger role in finance activities. Many of these
analysts are performing finance tasks now in a redundant fashion. By pulling in
these analysts into a larger “team” effort to distribute work could free up
resources to focus on more strategic long-term initiatives.
c. Reduce counter hours – The City could reduce the hours that the finance
counter is open or reduce the service levels presented to either external or
internal customers.
1 In banking, a lock box is a service offered by commercial banks to organizations that simplifies collection
and processing of account receivables by having those organizations' customers' payments mailed
directly to a location accessible by the bank.
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Issue 4) Role clarity and alignment
GFOA reviewed the organization chart for the finance function. While it provides an assignment
of key processes to role, it does not provide sufficient guidance to staff carrying out those
duties. In addition, GFOA has identified numerous instances where finance staff has been
assigned inconsistent (and incompatible) tasks that decrease the efficiency of the role. In an
ideal structure, roles will be distributed to take advantage of skillsets and available staffing. The
distribution of work is important to producing high performance and the absence or ineffective
performance of roles is often a source of poor results. Key organizational roles are listed below.
• Executives - create vision, set priorities, and define business strategy
• Managers - align work with strategies and simplify-eliminate-automate work
• Supervisors - address exceptions so workers can conduct routine work
• Workers - perform routine tasks
In smaller organizations it is common and acceptable for some individuals to serve more than
one role. However, even if the same person is performing multiple roles, each role must be
performed well or the organization suffers. In addition, to perform well, the individuals in these
roles must understand the requirements of the role. In our review we identified some areas
where roles were not clear or simply not filled. As discussed above, this often becomes the
source of inefficiency or sub-optimal results. Using the above referenced organizational roles,
GFOA found the following:
1) The City has suffered from turnover at the department leadership level. As a result, the
department has lacked consistent leadership that could effectively set policy or vision for
the department or support staff. Staff at other levels then either had to fill this void or
continue to operate without clear direction. The department has benefited from the
current interim leadership, but filling the role on a permanent basis is necessary to
support lasting change.
2) With leadership turnover in the department, it also suffered from a lack of prioritization.
3) Each finance staff position often fulfilled a combination of “Manager,” “Supervisor,” and
“Worker,” roles. As a result, efficiency suffered and staff seemed to be interrupted
regularly leading to inefficiencies and an inability to meet stakeholder expectations for
turnaround times.
Ripple Effects
• Inability to Meet Stakeholder Expectations - Based on interviews with department
representatives, there is significant room for improvement in both setting expectations
and working to meet expectations. In many cases, City staff recognized the hard work of
finance staff, but also general lack of understanding of department functions. Almost all
discussions with focus groups and one-on-one interviews with city staff indicated
frustrations that roles and responsibilities among finance staff are not clear. This lack of
clarity of roles and responsibilities creates instances where work may be late, then
rushed to complete, and can result in instances were quality can be poor.
Recommendations:
P. Reorganize the FIT department into a finance department and an IT department –
GFOA believes that the City’s finance needs can be best served under a department
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that is allowed to focus on finance (the same would be true for IT and the City’s IT
needs). While GFOA believes that the current challenges are not caused by the
combined structure, implementing the necessary improvements will be much easier with
split departments. In addition, recruiting a replacement finance director with the
necessary finance and leadership skills will be easier if that individual also does not have
to oversee IT. (See separate report for more information).
Q. Clearly define roles for each position in FIT – GFOA reviewed the org chart that
identified the responsibilities and roles of each position. However, some responsibility
assignments are not clear and in areas where multiple positions contribute to a function,
it is not clear who has overall accountability for this function. (See separate report for
more information).
R. Create service level agreements for all central FIT functions – Setting clear
expectations and defining and documenting specific roles for business processes is
essential. For processes that cross departments, GFOA strongly recommends that the
City create and implement service level agreements to clearly set expectations. Service
level agreements are like contracts between departments to provide services and the
contract sets key terms (level of quality, turnaround time, escalation triggers, etc.). (See
separate report for more information).
S. Move utility billing function to the Utilities Department- Two finance staff that work on
utility billing collections have been physically moved out of the finance department into
utility billing to focus on collection efforts and customer service. This arrangement, while
not intended to be long term, has resulted in positive changes in utility billing operations.
Customer services complaints have improved as the number of complaints have been
reduced, collections have increased as staff have been able to focus on the collection of
late bills and changes payment plans, and utility billing has been able to document
processes and procedures that didn’t exist or were outdated. GFOA recommends that
these staff positions be permanently transferred out of the FIT department. With the
overall changes expected to the finance office, GFOA feels that it is best to separate
these positions from the FIT department prior to that split.
Quick Hit Recommendations:
T. Re-assign job responsibilities so FIT staff can specialize - Having staff specialize in
a limited set of the FIT department’s functions will allow staff to take ownership over the
issue, limit distractions, and manage workload.
U. Use analysts to provide back up to FIT – The challenges facing the FIT department
are challenges that face the entire organization. Helping the FIT department become
more efficient should not be the responsibility of FIT alone. As stated above, many
analysts already perform similar functions for their department and do so in a redundant
fashion without a system. GFOA recommends that the City work on leveraging these
resources more at the finance level during the City’s project period to implement the
long-term improvements.
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Section 3 – Recommendation Summary
GFOA has developed recommendations that have been inserted into this report and aggregated
below. GFOA will be reviewing these draft recommendations with City staff. GFOA will work with
the City to assist in the development and facilitation of the action plans. In addition, GFOA will
assist in providing best practice recommendations and conduct research where appropriate.
Recommendation Accountable Quick Win?
A Implement new financial system Executive Leadership
B Identify formal governance Executive Leadership
C Develop system inventory IT Yes
E Develop new chart of accounts Accounting Manager / FIT Staff /
Department Staff
F Identify unused accounts Accounting Manager / IT /
Department Staff
Yes
G Establish a purchasing function Purchasing manager
H Pooled cash FIT Leadership / Accounting
Manager
I Streamline budget process/document Executive Leadership / Budget
Manager
J Streamline purchasing process Purchasing Manager/ FIT
Leadership
Yes
K Hold departments accountable for quality Executive Leadership Yes
L Transfer responsibility for tracking POs to
departments
Executive Leadership Yes
M Develop cash handling policy Revenue Manager Yes
N Consider automation or outsourced
services
FIT Leadership/ FIT Staff Yes
O Identify appropriate service levels FIT Leadership Yes
P Reorganize the FIT department Executive Leadership
Q Clearly define roles for each position in
FIT
Finance Staff
R Create service level agreements for all
central FIT functions
Finance Staff / Departments
S Move utility billing staff to utility billing
Executive Leadership
T Re-assign job responsibilities so FIT staff
can specialize
Finance Staff Yes
U Utilize analysts within FIT Executive Leadership Yes
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GFOA Finance and IT
Assessment
Slide #2
Recommendation
Receive and file a report outlining recommendations
from the Government Finance Officers Association
for the Finance and Information Technology
Department.
Slide #3
Government Officers Finance
Association (GFOA)
Founded in 1906
Comprised of 18,000 members (federal,
state/provincial and local level throughout North
America
Federal Liaison Center
Operations and Marketing Center
Research and Consulting Center
Technical Services Center
Slide #4
Timeline
Initial discussions/agreement - June 2015
Data gathering (GFOA onsite)
October/November/December 2015
Draft report review (GFOA onsite) - February 2016
Final report - March 2016
Slide #5
Scope
Assessment of the FIT department:
Policies
Technology
Staffing
Processes
Internal Controls
Reporting
Outcomes
Business process improvement opportunities
Organizational structure of FIT
Staffing levels within FIT
Opportunities for quick wins/temporary solutions
Slide #6
Challenges and Opportunities
Slide #7
Challenges and Opportunities
“The fact that the City’s staff completes as
much as they do without these essential tools
is in itself an achievement. However, for a
finance office to be considered high-
performing and meet the current needs and
challenges that municipalities face, a quality
financial system is an essential tool.”
Slide #8
Process
Slide #9
#1 Need for an Integrated Financial
System
Limited or no functionality for critical finance functions
Purchasing
Project and grant accounting
Technology is old and no longer being modernized
Common productivity tools not implemented for the City
Workflow or automated features not available
RECOMMENDATION
Replace financial system with an Enterprise Resource
Planning (ERP) system
Slide #10
#2 Need for a new Chart of
Accounts
The chart of accounts severely limits the city functions
Budget control
Project accounting
Financial reporting
RECOMMENDATIONS
Develop a City wide team for a New Chart of Accounts
Develop and implement a new chart of Accounts
Slide #11
#3 Business Process Improvements
Purchasing
Budget development
Cash management
Accounts payable
RECOMMENDATIONS
Establish Purchasing Function
Streamline Budget Process/Document
Automation or outsourced services
Slide #12
#4) Role Clarity & Alignment
Staff turnover rate
Leadership focus
Inability to meet stakeholder
expectations
RECOMMENDATIONS
Reorganize FIT into two Departments: Finance- IT
Define new roles-functional and leadership alignment
Establish service level agreements
Move utility billing to Utilities Department
Slide #13
Ripple Effects
Finance is the hub of business activity.
Business processes: Typically start and end in Finance.
Improvements will benefit all supporting and operating departments.
Other support departments need to be engaged in business process improvement effort.
Support Departments-Resources need to match business needs and community expectations
Internal Support (HR, Legal Issues, Public Information, Financial)
External (Grantors, lenders, vendors, state and federal regulators)
Public (Transparency, performance measures, billing)
Slide #14
Anticipated Benefits
Improve customer service
Improve business processes and systems
Empower and promote engagement amongst
employees
Improve information and analysis
More data driven decisions
Prepare (both people and systems) to meet the
challenges today and that lie ahead
Slide #15
Next Steps
Implement Quick Wins
Finance Director Recruitment
2016-2017 Comprehensive Budget Request
Update IT Strategic Plan
Focus on new technologies
Continue Healthy and Smart
Begin Implementation of Recommendations
Slide #16
Recommendation
Receive and file a report outlining recommendations
from the Government Finance Officers Association
for the Finance and Information Technology
Department.