HomeMy WebLinkAbout04-19-2016 Item 2, HermannCouncil Memorandum
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Date:
TO:
FROM:
VIA:
SUBJECT:
ENC:
April 18, 2016
Mayor and Council
COUNCIL MEETING: �4L-1t
ITEM NO.: P. -
APR 18 2016
Derek Johnson, Assistant City Manager/Interim Finance and IT Director
Greg Hermann, Principal Analyst
Katie Lichtig, City Manager
Item 2: Government Finai Of icers Association Recommendations for the
Finance and Information Technology Department
Recommendation Detail Reports
The Council Agenda Report for Item 2 regarding Government Finance Officers Association
Recommendations for the Finance and Information Technology Department includes the GFOA
Summary Report as an attachment. The Recommendation Detail Reports, attached here, are
available for review by the public and City Council online and in the City Clerk's Office.
Recommendation #1
Finance system
Replacement
Finance System Replacement Recommendation
GFOA recommends that the City purchase and implement a new financial system or enterprise
resource planning (ERP system). Many of the efficiency and effectiveness improvements
needed within the City's finance function will not be possible without a new finance system.
While there may be some benefit in investing to improve the current Pentamation system, GFOA
feels that any investments would ultimately just delay the implementation of a new financial
system. Those resources would be better served focusing on a long term solution. Implementing
a new financial system will provide a solid foundation for improving business process,
enhancing internal controls and security, providing greater capacity for analytics and decision
support, and will allow the City to take advantage of common functions and features that are not
in Pentamation such as self-service, workflow, and improved automation of many of the City's
time intensive tasks (bank reconciliation, reporting).
GFOA has developed an approach based on our extensive work with other local governments in
a similar situation to improve success with finance system procurement/implementation.
Recommendations
• GFOA recommends that the City first document and review its existing business
processes and then make decisions on process improvement goals. Definition of a "to -be"
or future state process is an essential first step in defining goals and requirements for the
new system.
• Determine an appropriate scope for the initial roll out of the system. GFOA recommends
that the City first establish a "core" set of functions to limit project risk.
• Develop functional requirements for the system. Functional requirements are written at a
detail level to identify "what" the new system would need to do within each business
process. The functional requirements would then be part of the City's Request for
Proposals (RFP).
• Develop and issue an RFP for ERP software and related implementation services
• Purchase and implement a new ERP system. GFOA estimates that from the beginning of
the project (where the City starts to review its business processes and requirements, the
project will take approximately three (3) years. At the conclusion of the project the City
would be "live" on a new financial and HR/payroll system.
Project Scope
' GFOA uses the terms "financial system" and "enterprise resource planning (ERP) system" synonymously.
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Recommendations — Finance System Replacement
GFOA recommends that the City's scope for its ERP project include the functionality listed
below. The scope of the project will deliver a "core financial" system and a "core HR/payroll"
system that can provide the capability to handle essential functions for finance, procurement and
other related areas. GFOA understands that human resource processes were outside the scope of
the initial project, however, the lack of an integrated system that combines these functions will
severely limit both.
Within this scope, limiting the project to these "core" functions will reduce risks and allow the
City to demonstrate "wins" and momentum earlier in the project. Core modules are determined
to be the set of functions so tightly integrated that removal of the module would have adverse
impacts on the other "core" modules. Features not included in core, would then be treated as
separate projects and planned and implemented after the initial sequence of phases.
Scope for ICRP Implementation
Core ERP
Financials (1)
HRIPsyroll (2)
• General Ledger / Treasury
• Personnel Administration
■ Purchasing / Contracts
• Position Control
• Accounts Payable
• Benefit Administration
• Accounts Receivable/Misc. Billing
• Leave Management/FMLA)
• Project Accounting
• Payroll
• Capital Assets
a Time Entry*
* Employee Self Service
* Note: GFOA is recommending that the City implement a standard time entry module included with most ERP
applications for basic time entry. For more advanced time collection systems such as time clocks it may be
beneficial to consider this part of a future project.
After completion of the scope listed above, GFOA could see advantages in also acquiring and
implementing a new utility billing system and new budget system. However, GFOA
recommends that implementation of those systems be done after completion of the ERP project.
Budget systems and utility billing systems will leverage information in the core financial
systems. Implementation of these systems is best with an established ERP system to build off of.
Also, while it is important to integrate these functions to an ERP system, the market provides for
best -of -breed alternatives that may provide an advantage over the ERP system module. This
would especially be true of the budget module. Many ERP system budget modules are not true
"budgeting" systems. They focus more on simply inputting data for budget control. Because of
the City's budget process is more advanced that most cities a standard ERP system budget
module would likely not be able to fully support the process.
Implementation Phases
To mitigate the risk of the large change that the City will face during the implementation and to
reduce the impact of limited resources on the project; GFOA recommends phasing the
implementation project with two sequential phases (plus a defined readiness phase). Phases
would overlap slightly, but would be staggered to create two "go -live" events.
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Recommendations — Finance System Replacement
Implementation Schedule
2{11(1 21117
2018
2019
P11.9se
1
Readiness / RFP
2
Core Financials
3
Core HR/Payroll
= go -live
GFOA also developed the following alternative schedule for deployment of an ERP system.
While this approach would be viewed as "non -typical" it is also very achievable. By swapping
the rollout of HR/payroll and finance, the City would be able to start utilizing functionality
associated with the HR/payroll system sooner (payroll would go live in the first quarter of 2018).
With this approach, the chart of accounts would be finalized first. Following this, the financial
implementation would pause to focus on roll out of core HR/payroll functionality (HR, benefits,
leave, payroll). Any non-essential HR/payroll functionality would be deferred until a subsequent
go -live. Financials would then serve as a second phase going live at the end of the City's fiscal
year in 2019 (or later).
With this alternative schedule, the City would still be implementing one ERP system. GFOA
does not recommend that the City purchase and implement a stand-alone HR/payroll system
as a short term solution. The costs of such as system would be redundant with any ERP costs
and implementing best of breed systems have a tendency to make processes more complex and
more manual (because of introduction of shadow system).
= go -live
Readiness Activities
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Recommendations — Finance System Replacement
The primary activities and timelines for the Readiness/RFP phase listed above are defined here.
GFOA feels strongly that readiness is essential for a successful project. Many organizations
"cheat" on readiness activities and later in the project feel the pressure of having to essentially fit
these tasks in to the implementation project. GFOA's approach for project readiness includes the
following:
I) Business Process Analysis — For the City's business processes, GFOA recommends that
the City develop a process map (also called a process flow diagram or value stream map).
These documents provide a visual tool to analyze a given business process, and facilitates
the discovery of improvement opportunities. GFOA recommends a mapping process that
is highly collaborative and will involve participation of a wide variety of stakeholders.
This step is extremely important to the success of the project and allows various
stakeholders to better understand existing processes (including limitations and
inefficiencies). These meetings would be similar to those conducted by GFOA, but the
end product would be documentation of all existing processes (within scope) and the
discussion would occur at a more detailed level.
2) Requirements Development — For areas in scope, the City will develop a desired high
level business process flow and determine the overall "system agnostic" to -be process
that will be utilized as the basis for requirements documentation. Functional requirements
will then be developed to identify what the system would need to do to support the
business process. Requirements will be developed to focus on functional requirements
that define "what" needs to be completed (such as tasks, outputs, interfaces, calculations,
processing, etc.) and not on "how" the system or the organization handles tasks currently.
It is expected then that the requirements serve as the base document that establishes a
template for proposal comparisons, the scope of the implementation project, the base
level criteria for user acceptance testing, and the standard for post implementation
warranty.
3) RFP - Along with requirements development, the City should prepare an overall
procurement strategy that is designed to accomplish the organization's requirements and
business goals, and mitigate risks during the project. The procurement strategy will
highlight strategic choices for how the KFP is written and identify a specific plan for
moving forward into the procurement process.
When complete, the RFP document will incorporate information developed with many of
the other deliverables from this project including:
• Procurement terms and conditions
• Detailed vendor response templates
• Functional requirements
• Interface definition
• Technical documentation
• Key objectives / goals / critical success factors for the project
• Service Level Expectations
• Other information necessary for vendors to prepare detailed response that
meets the City's needs.
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Recommendations — Finance System Replacement
4) Proposal Evaluation - GFOA's methodology is based on a series of elevations that
"promote" proposals to the next level of evaluation. Through defined steps, vendors will
be evaluated and scored according to pre -defined criteria with the top vendors moving on
to compete at the next step. At the conclusion of a written proposal assessment, GFOA
would recommend that the City elevate three (3) proposals for the next phase.
5) Software Demos / Interviews — GFOA recommends that the City demo each of the
elevated proposals using a scripted demonstration (lasting approximately 3 days per
vendor) This ensures that vendors stay on task and demonstrate essential features of the
software, not marketing material or "bells and whistles." Demo scripts will be heavily
focused on the City's functional requirements. After demos, the City would elevate 2
vendors for the next step.
6) Implementation Planning (or Discovery) - Discovery serves as the City's final
opportunity to clarify unresolved issues before it makes its final elevation. Prior to
Discovery, the City will develop a Request for Clarification (RFC) letter that the vendors
will respond to. Then, during Discovery, each remaining vendor is invited back on-site
for one more day of presentation. During this presentation, any remaining issues with
software functionality, implementation approach, data conversion, or scope are clarified
and vendors are asked to make any necessary revisions to their proposal. The main focus
of this session is to plan the implementation so that the City and vendor can make
progress with a detailed Statement of Work (SOW). At the conclusion of Discovery, the
City will enter contract negotiations with one vendor.
7) Contract Negotiations — After Discovery, the City will need to finalize any necessary
contract documents.
8) Project Transition - Following contract execution, the City will have a period of
approximately 1-2 months prior to the start of the actual software implementation to
complete readiness activities and prepare for the start of the project.
The following high-level schedule to complete all work described here for the project readiness
activities.
IM, $ s 6 7 $ 9 10 11
Task 1: Business Process Analysis
Task 2: Requirements
Task 3: RFP
Task 4: Proposal Assessment
Task 5: Demos
Task 6: Discovery
Task 7: Contract Negotiations
Task 8: Project Transition
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Recommendations — Finance System Replacement
Project Management
Having a strong project manager that can coordinate the project is essential to project success.
The City must be prepared for a project of this size and scope with a capable project
management team that can effectively support the project by managing all team members,
developing and implementing realistic timetables and project plans, and most importantly
maintaining ongoing communication with key stakeholders. The project manager must also be
prepared to manage the city resources (and eventually the vendor) and insist on completion and
quality of deliverables (see below). Project management should not be overlooked. The specific
resource in the City that assumes the role of project manager may not be someone with the most
functional knowledge.
The City should not underestimate the level of effort required to be the project manager (Note:
this effort is usually in addition to any type of functional commitment to the project). GFOA
has been involved in many projects where the project manager is overcommitted and the project
will inevitably suffer. Often project management responsibilities are skipped and the project
quickly becomes unorganized, documentation is not completed, and the project can fall behind
schedule.
• Project manager selection. Organizations have been successful in utilizing project
managers with a variety of backgrounds. Project managers do not need to be functional
or technical experts or long-time employees of the organization (although it does help).
Similarly, project managers do not need to be current employees of the City.
• Starting date for project manager. Identifying a project manager before the start of the
implementation project will help ensure a smooth transition to the vendor led project.
• Project manager training. If the City's chosen project manager does not have
experience working as a project manager on a large project before, training options are
available to help orient the project manager to a few key project management concepts
and tools. Past GFOA clients have found this training extremely useful.
Project Team
GFOA recommends that the City identify its project team early. Project teams involve a "lead"
resource and point of accountability for each functional area (or major process). Project teams
can also have support roles that play a vital part in the project. Many organizations struggle with
whom to select for the team and ultimately decide on "veteran" employees that can contribute
the most experience and knowledge of the organization. GFOA believes that to be successful in
the long-term, project teams need a mix of these experienced staff along with new employees the
organization feels will be key members of the City for the extended future. In addition, new
employees can present a fresh perspective and may be able to contribute ideas from outside the
organization. It is not recommended to put employees on the project right before expected
retirement.
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(D Recommendations —Finance System Re
For the City's project, GFOA feels that the City may be able to leverage the department analysts
to serve a large role on the project team. These resources would be familiar with the City, its
operations, and have some knowledge of the City's finance, HR, and payroll processes. The
analysts would then be joined by resources from the core departments to complete the project
team.
Project Staffing
Implementation projects will require significant City staff participation. The implementation
project can only proceed if the City provides adequate staff with necessary knowledge and
decision-making capability along with the ability to complete labor intensive implementation
tasks. For many organizations, GFOA (along with most vendors) would recommend that the
City identify a project team that can make the system implementation its number one priority.
Those resources would be essentially "removed" from their current role and that work backfilled.
For the City, GFOA realizes that this approach is not feasible and has developed general staffing
estimates based on GFOA's understanding of the City. However, the City should develop its
own required staffing for the project and clearly communicate that project responsibilities be
given a high priority.
The City should realize that many of the vendors that focus on smaller governments (what were
referred to as Tier II vendors) utilize a "homework" style approach to implementation where the
City is responsible for the vast majority of system configuration work and largely responsible for
determining appropriate staffing levels (further placing burden and stress on the government).
The vendor role in the project is to train City staff, but usually vendors take little responsibility
for assisting in actual implementation tasks. Therefore, vendors may be unaware of the actual
time it would take to implement a successful project. In addition, other tasks such as business
process improvement, documentation, and training material development, all of which are
essential to a quality project, would also be the responsibility of the City under this model.
GFOA believes that the best approach for the City would an alternative model in which there is
more active involvement from the vendor and the vendor takes more of a lead role during
implementation. These vendors, including those that typically focus on larger governments (Tier
I vendors) would have more experience with projects similar to the one the City is facing. Under
this model, project management, system documentation, configuration, and training material
development would be shared (or vendor) tasks relieving some of the burden on City resources.
With this model, the City also has a vendor that acts much more as an invested partner in the
implementation. If the City is reaching out to other counties or cities that have completed
projects, it is important to identify what model was used and which activities were completed by
City staff vs. the vendor. In the past, many governments have attempted to get by with less
staffing by "taking shortcuts" and not completing many of the implementation items widely
considered necessary for mitigating risks with projects. If the City is comparing its project to
other governments, it is important that it consider "like" projects using vendors with a similar
style.
The following table represents general staffing requirements for each phase of the project. For
example, the City would be responsible for providing the following resources to the project at the
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GRecommendations — Finance System Replacement
levels indicated for the duration of that phase identified. During the Phase 1 — beadiness
activities staff involvement would be relatively light (with the exception of vendor proposal
analysis and demos). During the period of the project where the City is implementing phase 2 —
Core financials, the would need the approximate 3 to 4 FTE. When the City moves to phase 3 —
HR/Payroll, the financial resource commitments would cease and the City would need to provide
resources for the HR/payroll phase. Cross phase resources would remain consistent throughout
the implementation project. However, the City should develop its own staffing plan keeping in
mind the implementation strategy that best suits the organization and that resource commitments
will vary by implementation activity.
Staffing Needs
Readiness Phase
During
Iun lenneutation
Cross 'Phase
Resource*
Effort % of FTF, **
Effort % of FTE **
Project Manager .25 to .50
.75-1.00
Technical Lead 0 to .25
.25-.50
Technical 5u ort 0
.25-.50
1- Core Financials
GL / Accounting Lead .10 to .25
.50
Procurement Lead .10 to .25
.50
Pro ects S up port .10 to .25
.25-.50
AR Support .10 to .25
.25-.50
Capital Assets Support .10 to .25
10-.25
Trainer 0
TBD
2 - Cure H R/Payroll
HR/Position Control Lead .10 to .25
.50
HR Support .10 to .25
.50
Benefits Lead .10 to .25
.50
Pa roll/ Time Entry Lead .10 to .25
.75
Trainer 0
TBD
* Note: GFOA listed "lead" roles separately from "support" roles. For a lead role, the resource would be
expected to have decision making authority over the functional area and contribute significantly to project tasks.
For the "support role, " the resource would be expected to contribute significantly to project tasks but much of the
decision making would be done by other resources (as part of overall integration of the system).
** Note: The level of effort identified is for the implementation project. Level of effort during project readiness
would be less.
Use of Third Party Consultants
Many organizations will utilize a third party consulting firm (or individual) to assist with ERP
planning and system selection. This advisor would be independent from the ERP software or
implementation firm. Third party consulting firms can play important roles on the project and
can help facilitate the process. Often third party consulting firms provide specialized industry
knowledge that can greatly assist in running the project and making informed decisions.
However, GFOA cautions that consultants cannot act on behalf of the City. The City will still
need to devote sufficient time to making decisions (and owning decisions) throughout the
process.
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Recommendation #2
Chart of Accounts
Chart of Account Recommendations
GFOA recommends that the City start over and create a new structure for the chart of accounts.
While the implementation of a new chart of accounts would likely be timed with the
implementation of a new financial system, defining the chart of accounts is something that the
City can/should begin work on now. For many organizations, work on the chart of accounts
begins too late and then major improvement opportunities are either rushed or missed. The chart
of accounts is the classification structure that underlies everything related to budget and finance
and plays an important role in virtually every other aspect of City administration in a system. It is
important that the City define a structure that works for both central departments and for the
operating departments. A well-designed chart of accounts will provide many benefits, most
notably being the reduction in use of side systems for detailed projects and grant tracking.
Because this process needs to involved many stakeholders, it will take time. Additionally, the
City will want to "test" or "challenge" the chart of accounts before implementation to ensure that
it meets the needs of both operating departments and the central departments. This process can
take time. As the City continues to progress through its readiness activities, time will be at a
premium as focus will shift towards vendor selection and implementation planning. It is
important to have the chart of accounts defined early so the City can properly focus on it.
Recommendations
GFOA would recommend a chart of account structure containing the following segments
o Fund
o Organizational Unit (can be department/division/business unit)
o Program
o Account / Object code
o Project
GFOA also recommends that the chart of accounts design fully incorporate use of a
project/sub ledger to capture additional detail needed at a department level.
GFOA recommends that the City focus on developing and maintaining a program/service
view to the chart of accounts. From GFOA's understanding of the City's budget process,
this type of perspective within the chart of accounts would be extremely useful in
demonstrating accountability by program.
GFOA recommends that the City significantly reduce the number of accounts. Using a
new financial system, the City will have the opportunity to use various modules and
subsystems to handle much of the detail that is currently in the City's chart of accounts.
Using the chart of accounts for summary financial information, but allowing the detail to
remain in the sub -system (and available through reporting and integration) will allow for
a much more simplified chart of accounts.
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Recommendations - Chart of Account
Chart of Account Guidelines
GFOA has developed the following guidelines to assist governments in developing a new chart
of accounts as part of an ERP implementation. For all projects, unless there are strict
requirements that a specific chart of account structure be used, GFOA recommends that
organizations take the opportunity of the ERP system implementation to develop a new chart of
accounts. This is especially true for the City given the current state of the existing chart of
accounts. Moving the existing chart of accounts to a new financial system would significantly
limit the features/functions of that new financial system. Below are GFOA's chart of accounts
development recommendations:
1. Start Over — When developing the chart of accounts, the City should start fresh and not
concern itself initially with mapping back to the existing chart of accounts. The City
should be reviewing its actual organizational structure and operations and build the chart
off of that rather than its existing chart of accounts. This will prevent the City from
replicating a problematic chart of accounts structure.
2. Define Each Segment — Each segment of the chart of accounts should have a strict
definition that can be communicated and enforced. This will prevent internal
inconsistencies within the chart of accounts. For example, the City should universally
agree on what a "fund" is, what a "department" is, what a "program" is and not allow any
exceptions.
3. Don't Repeat or Bring Forward Ineffective Numbering or Accounts — Simply being
able to convert chart of account data or having the ability to re -use existing number
schemes is not always beneficial for the organization. As part of training and change
management activities for the ERP implementation, many policies, processes, and
systems will be changing. In many cases it is not a good idea to hold on to an old
taxonomy or vocabulary with the chart of accounts. The City's end-users will eventually
learn the new chart and dealing with the initial learning curve is better than dealing with
inefficiencies in the new chart of accounts for the length of time the new ERP system is
used.
4. Start Simple and Build -Out Detail — The City should identify major categories within
each segment and then work to build out detail. Again, this will help the City take a fresh
perspective to the chart of accounts and prevent any unnecessary replication of the old
chart. For example, when developing the object code listing, the City should first identify
major object code categories and then work to define detail to the extent necessary. This
will also help ensure that the overall chart is organized.
S. Don't Store Unnecessary Data - A well-developed chart of accounts will not require
new accounts to be frequently created. Most organizations attempt to keep the chart of
accounts relatively simple and high level and then utilize other components of the system
(example: the project ledger, AR charge codes, salary pay codes, work order detail, etc.)
to further define the detail. The will lessen the amount of maintenance required on the
chart of accounts
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Recommendations - Chart of Account
Common Chart of Account Structure
GFOA recommends that the City, and almost all other organizations, define a chart of accounts
with the following major components. Each one will track a slightly different type of
information as described by the blocks below. It will also enable the City to track all required
information for accounting, budgeting, and financial reporting.
Within each major component, the City could have one or more segments that define the level of
detail necessary for the City's tracking, managerial, and reporting needs. Potential options for
each could include those in the table below. GFOA has highlighted in bold the recommended
segments for the City's chart of accounts.
C nein I escri tion
Possible ftments
Fund is the self -balancing accounting unit
•
Fund
required for governmental accounting
•
Sub Fund
Organizational unit represents the
•
Department
organizational hierarchy represented by an
•
Division
org chart, listing of business units, or
.
Business Unit
locations that the City wants to track data for.
.
Location
Programs (also commonly called activity) are
•
Function
the services performed by organizational
.
Program
units. Each program should have a service
.
Activity
outcome (result produced). Typically
Sub -Activity
programs are ongoing and not limited to a
specific organizational unit
The object or account is the classification of
•
Object / Account
the balance sheet item, revenue, or expense.
For expense and revenue, this defines what
was spent or earned (example: supplies).
Projects are often used to track programs with
•
Project Roll Up
defined start and end dates or other events
.
(Additional segments
that would require additional detail beyond
defined as part of
the chart of accounts. Project costs would be
project/grant
summarized in this segment but broken out in
accounting
more detail in the project ledger. This allows
for detailed tracking department by
department.
Note: GFOA does not recommend that the City use all of the "possible segments." This list
was supplied as potential examples to select from. GFOA recommends that the City define its
chart of account segments using only those segment necessary and make an attempt to keep
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Recommendations - Chart of Account
this structure as simple as possible. GFOA has made recommendations with the bold entries
above.
Chart of Account Segment Considerations
GFOA used the common chart of account structure defined above to illustrate potential
considerations and decisions points that will need to be made within each segment. After
determining how many segments are most appropriate, the City will need to make decisions on
how many values to include and how each should be organized and numbered. For smaller
organizations, GFOA recommends that the chart be kept simple and additional segments not be
added unless necessary.
■ Funds
GFOA has observed that many cities create many new funds as a way of tracking information in
a legacy financial system because the system lacks the flexibility in the chart of accounts to add
segments and track projects, programs, or grants separately. As a result, governments have long;
list of "funds" many of which should not actually be tracked as separate funds. GFOA's Best
Practice advises governments "to establish clear criteria for determining whether a given "fund"
in its accounting system should be treated as a fund for purposes of external financial reporting.
The application of these criteria to individual "funds" should be documented and then
periodically reviewed to take into account changes in circumstances (for example, a significant
decrease in a revenue source reported as a separate special revenue fund). A government's
periodic review of its fund structure ought to specifically consider whether the goals of general
purpose external financial reporting could better be achieved by combining similar "funds" in the
accounting system into a single fund for financial reporting purposes."
• Organizational Units
As stated above, many organizations create one or more segments to refer to the organizational
unit. These segments can include department, division (sub -section of department), or any other
vocabulary used to create the organizational structure (typically supervisory and personnel
reporting structures). When developing the chart of accounts and defining segments, it is
important that all information within a segment is kept consistent. Also, because each segment
code can only be used once, GFOA would recommend the City consider numbering hierarchical
relationships with prefix numbers that identify the grouping. In the example below, all divisions
belonging to the finance department begin with 10. For smaller organizations, it is likely that
one segment is sufficient (only department).
par orent
:?l iynl c®r
Department
Division
Number
Division -
10
Finance
1010
Accounting
1020
Purchasing
1030
Revenue
1040
Budget
20
Police
2010
Office of Chief
2020
Patrol
2030
Investigation
2040
Jail
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Recommendations - Chart of Account
• Program/Activity
The example stated in the previous section would therefore not apply to programs or activities.
For most governments, these programs would not be limited to one department as divisions are
not the same as the programs they provide so a different numbering method would be required.
In the examples below, all programs /activities would be created under the example roll -up
number by major function. While this may be similar to organizational unit or department, the
City should avoid establishing a 1:1 relationship between organizational unit and program (as not
all police programs are focused on public safety and presumably the police is not the only
department that contributes to public safety).
Example Number
Description
10000
General Government
20000
Public Safe
30000
Transportation
40000
Health and Welfare
50000
Recreation
60000
Conservation andPlannin
70000
Facilities
80000
Business Enterprises
• Object
As stated earlier, GFOA recommends that most cities develop a new object code listing and take
this opportunity to clear up and organize the set of object codes used throughout the
organization. GFOA's experience with many other governments is that similar to fund, object
codes are created to track projects, grants, and programs that should be tracked in other segments
of the chart of accounts. GFOA offers the following structure for object codes as an example.
Within each major category, additional detail can be defined. Note: This structure is provided as
an example. GFOA recommends that the City develop a structure that meets its needs.
Example Number
Type
Description
10000
Asset
Assets
10100
Asset
Cash
10200
Asset
PettyCash
10300
Asset
Restricted Cash With Fiscal Agent
11500
Asset
Investments
12000
Asset
Receivables
12200
Asset
Short -Term Receivables
12300
Asset
Interest Receivables
12400
Asset
Due From Other Governments
14000
Asset
Due From Other Funds
Page 5 of 8
Recommendations - Chart of Account
Example Number
Typ e
Description
15000
Asset
Non - Current Asset
15100
Asset
Long Term Receivable
15200
Asset
Other Assets
15400
Asset
Property Held For Resale
15500
Asset
Capital Assets
20000
Liability
Liability
21000
Liability
Current Liability
21100
Liabilitj
Accounts Payable
21200
Liability
Accrued Liabili
21300
Liability
Payroll Liabili
21400
Liability
Other Current Liability
22000
Liability
Due To Other Funds
25000
Liability
Non -Current Liability
25100
Liability
Non -Current Accrued Liability
25200
Liability
Other Non -Current Liability
25300
Liability
Deferred/Unearned Revenue
25400
Liability
Long Term Debts
25500
Liability
Asset Forfeiture
30000
Fund
Balance
Fund Balance
40000
Revenue
Revenue
41100
Revenue
Property Taxes
41200
Revenue
Special Assessment Revenue
41300
Revenue
Sales Taxes
41400
Revenue
Other Taxes
41600
Revenue
Franchise Fees
41800
Revenue
Inter overnmental Revenue - Federal
41900
Revenue
Intergovernmental Revenue - State
42100
Revenue
Intergovernmental Revenue - County
42200
Revenue
Intergovernmental Revenue - Local Agency
42300
Revenue
Fines & Forfeiture
42400
Revenue
License
42500
Revenue
Permits
43000
Revenue
Fees And Charges For Services
43400
Revenue
Other Fees
43500
Revenue
Utility Fees
44000
Revenue
Investment Income
45000
Revenue
Internal Service Charges
Page 6 of 8
rio
Recommendations - Chart of Account
Exam le Number
Type
DescrP tion
46000
Revenue
Other Revenue
49000
Revenue
Other Resources - Operating Transfers In
50000
Expense
Employee Services
51000
Expense
Salaries And Wages
51100
Expense
Salaries And WNes
51200
Expense
Paid And Unpaid Leave
51300
Expense
Premium Pa
55000
Expense
Employee Benefits
55100
Expense
Employee Benefits
55300
Expense
Workers Compensation Premium
60000
Expense
Operating Expenditures
61000
Expense
Maintenance & Utilities
61100
Expense
Maintenance
61500
Expense
Utilities
62000
Expense
Su lies & Services
62100
Expense
Supplies
62200
Expense
Services
62300
Expense
Travel & Education Expenditures
62500
Expense
Internal Service Charges
63000
Ex ense
Debt Service
70000
Expense
Capital Expenditures
90000
Other
Other Resource Use
• Project
The project segment often acts as an "optional" segment that allows the organization to track
additional detail (in addition to the segments described above) and allows the "project ledger to
be used — opening up additional segments for more detailed tracking of and flexibility with
expenses and revenues (purple segments below). Use of the project segment therefore does not
need to be limited to capital projects; however this will likely be one of the more common uses.
The project ledger (also called "job ledger" or "sub ledger") can define unique attributes by
project. Like all other chart of account segments having a clear plan for how to use the chart of
accounts and being consistent and compliance with the plan is key.
=1
Page 7 of 8
r;0
Recommendations - Chart of Account
The following are common features that Abe a good fit for the project segment (and project
ledger).
• Capital projects
• Operating projects with defined start and end dates (grants)
• Events (Disaster clean-up)
• Expenses that relate to numerous revenue sources
• Activities / Events that require high levels of detail
• Unique department by department tracking needs (project segment can typically be set
differently project by project).
Use of a project ledger (sub ledger) can provide many benefits in tracking and managing
projects. For example:
1) Allows, for unique information to be tracked project by project without complicating the
general ledger. The sub ledger allows for a unique structure to each project. This allows
the general ledger to remain relatively simple and static while accommodating various
tracking needs. For example, the project ledger can be used to track phase, task, location,
district, reimbursable vs. non -reimbursable or other attribute for a project for reporting
purposes.
2) Relate expenditures to multiple revenue sources. The project ledger and project
accounting modules of systems allow for tracking multiple revenue sources on a project.
This is helpful when associated project expenses with one or multiple revenue sources
(such as federal grants, state grants, local match, debt financing, etc.). Revenue sources
can be identified on each project and then allocation schedules used to draw against
specific revenue sources. This allows for scenarios where the system handles
transactions related to taking federal grants first (up to a limit) and then splitting
expenditures 50/30 between state and local funding.
3) Project billing. The project ledger can be used to accumulate costs for project billing.
This is often used for grant projects where the City would need to make a request for
reimbursement. The project settings can then often be configured to determine
appropriate eligible vs. non eligible expenditures, apply an overhead rate, and integrate to
accounts receivable.
4) Tracking of additional information. In using the project ledger, many systems have the
capability of tracking additional detail along with the project. This information could be
used to classify the project (type of project), manage approvals (project manager), or for
reporting purposes.
Page 8 of 8
Recommendation #3
Service Level
Agreements
Service Level Agreement Recommendations
GFOA recommends that the City establish service level agreements between departments.
Service level agreements can be simple agreements between departments that define
expectations. For example, if the finance department is responsible for issuing purchase orders
(PO) for all departments, the service level agreement would define when and how often those
POs are created and the expected time for processes. Similarly, if departments are responsible
for submitting information to finance, a service level agreement can define acceptable quality
standards and deadlines. With an organization such as the City, where departments must depend
on each other for successful delivery of service, these simple agreements can help improve
communication and hold departments accountable.
Service Level Agreements
A service level agreement is a contract between provider and customer that defines the minimum
standards for provision of that service. Service level agreements also clearly identify the
expectations and roles on both parties. The most important part of a services level agreement
(and what GFOA sees as the biggest improvement going forward) is that the provider (often
finance) and the customer (often the department) will agree on expectations. This makes it much
easier to hold both departments accountable.
If expectations are not met (by either provider or customer) a service level agreement provides
an escalation path to remedy the situation and hopefully prevent it from occurring in the future.
Having a pre -determined path of escalation will also help communication.
To develop a service level agreement both the provider and customer must discuss expectations
and agree together on acceptance performance (and how to measure it). Effective service levels
should:
• Be reasonable and realistic. Service level agreements should identify expected and
agreed upon service levels (not future goals)
• Allow for measurement. Service levels need to be monitored and should be monitored
with clear and well understood metrics / performance measures.
• Reviewed periodically and refined if necessary
Page 1 of 3
GDRecommendations — Service Level Agreements
Use of Service Level Agreements
If the City has outsourced any services, it likely has service level agreements with an external
contractor. Examples could include: janitorial services, solid waste removal, etc. In each case,
the contact with the external vendor would define acceptable performance (levels of cleanliness,
frequency of service, etc.). Achievement of the service level or completion of the service to the
standards listed in the service level agreement then entitles the vendor to payment.
Even though the City's departments would not be providing payment to each other, the concept
of a service level agreement is still applicable to manage the relationship between departments.
Within finance, there are numerous examples of potential service level agreements. Some
include:
1) Purchasing Order creation
2) Contract review
3) Processing of AP payments
4) Process of payroll changes
5) Time entry submission
6) Invoice creation
7) Cash handling procedures
8) Many more
Developing Service Level Agreements
GFOA recommends following an organized process for developing service level agreements,
such as the process listed below.
1) Executive Approval. The City should get executive level approval that service level
agreements will be developed. Since the City will not be exchanging payment for
services, the method to hold departments accountable to the service level standards is
through the City's management structure. Top executives must support the concept of
managing with service level agreements.
2) Establish representatives from each department to discuss service levels. Developing
service level agreements requires communication between departments. GFOA
recommends establishing small teams to work out the agreements.
3) Identify format for all City-wide service. level agreements. The City will want a
standard format for developing service level agreements. This consistency will help with
overall understanding and adoption.
4) Discuss service levels. The most important part of developing service level agreements is
to discuss acceptance performance, customer needs, and how both parties can work
together more effectively. There is no substitute for honest conversations.
5) Agree on service level. Both parties must agree on the service level expectation.
Page 2 of 3
GRecommendations — Service Level Agreements
6) Identify metric. Once the service level is agreed to, metrics must be developed to
objectively measure performance against the service level standard. Without objective
measures, compliance with the service level agreement is subjective and will suffer from
the same expectation issues as not having service level agreements.
7) Implement and monitor service levels. Once implemented, service level agreements
must be monitored. The City does not need to implement additional processes to track
service level agreements, however, there should be some reporting and communication
on current performance against the standards. While this will represent additional
workload, GFOA feels it is important for the gains in communication.
8) Determine frequency of service level agreement review. Service level agreements
should be reviewed at least annually or every two years to make sure that the agreed upon
service level is still meeting the needs of provider and customer.
Example Service Level Agreement Format
The following is an example of a service level agreement template. GFOA would recommend
that the City identify its own format that works to meet its needs. However, with any format,
GFOA also recommends that it be simple.
Customer:
Department X
Provider:
Purchasin
Service.
Review and Create POs
Service Description
The FIT department will review all signed purchase requisitions for
compliance with the City's purchasing policies and available budget.
Purchase orders will be converted on Thursday of every week and sent
to vendors the following day.
Provider Mule.
■ Review purchase requisitions for errors and compliance
• Convert purchase requisitions to purchase orders
a Send purchase orders to vendor with copy to department
Customer Role:
. All purchase requisitions will be provided prior to 10 AM on
Thursday morning.
• All purchase requisitions will be provided without errors
Minimum Standards
. All purchase requisitions submitted by 10 AM on Thursday will
be converted by end of day
o Purchase requisitions submitted after 10 AM will be held
until following week.
Purchase requisitions containing errors to account code or with
available budget will be returned to departments for correction
Exceptions
. Departments are allowed one "emergency" PO each month that
will be processed within 24 hours after receipt by purchasing.
Page 3 of 3
Recommendation ##4
Role Clarity and
Alignment
Role Clarity and Alignment Recommendation
GFOA recommends that the City's current Finance and Information Technology (FIT)
department be split into two separate departments. Each department would be led by a director
(finance director and IT director) that would be able to provide specific focus on each area. In
addition, GFOA is recommending that the City re -organize the positions under the finance
division (new finance department) to provide better role clarity and productivity (efficiency).
Current Position Structure
The table below identifies the current positions in the finance division as listed on the City's
functional org chart (dated 10/30/15). GFOA has also identified comments for each role. In
general, it appears that roles and responsibilities were assigned based on which resource had
availability at the time or based on the strategy to cross train as many finance positions to
participate in the department's activities. While this has led to a department that can work well
together as a team, GFOA also feels that this is a contributing factor to increased workloads and
the lower levels of efficiency.
o,v tion
Rale
,votes /C'o ""rents
FIT Director
Director for Finance and IT
This position (as it currently exists) is a
leadership position that does not perform the
financial management functions that would be
common from a finance director or CFO.
Finance Operations
Manage Revenue & Accounting
The roles/responsibilities for the finance
Manager
Divisions
operations manager are similar to what would
• Manage Debt Service
commonly be found at the finance director level,
• Prepare Quarterly Expense Reports
an accounting manager (or controller) level, and
• Reconcile Investments and Debt
an accountant level.
Accounts
• Calculate Quarterly Interest
Moving forward GFOA recommends clarifying
Allocation
and focusing this role at an accounting manager
Track Fixed Assets
(or controller level). This position would be a
• Produce Grant Claim for CDBG
management position and act as chief
• Collaborate for budget prep
accountant. More routine accouting tasks would
• Produce quarterly Measure Y (G)
be reassigned or delegated.
report Track revenue trends
• Assist with Cost Allocation Plan
• Year End reports and journal entries
r Liaison for External Audit
• Prepare State Controller's Office
reports
• Prepare County reports
Page 1 of 6
Recommendations — FIT Reorganization
(D
Page 2 of 6
• CAFR preparation
Senior Accountant
• Supervise/Support —
_
This position's responsibility is spread into areas
AP/Payroll/Accountant
beyond a "normal" senior account. Having
• Special Projects —
responsibility for AP and payroll likely distracts
AP/Payroll/Accountant
from accounting functions (and likewise with
• Approvals—AP/Payroll/Accountant
the accounting functions impact on AP and
• General Ledger —Fund
Payroll).
Reconciliation
• Reporting —General Financial
Reporting
_
Accountant
• Bank Rec
The responsibilities associated with bank
• Journal Entries
reconciliation, journal entries, cash receipts, and
• Cash Receipt Post
contract management are not compatible.
• Non -Construction Contracts
• Payroll
Accounting Assistant
III
• Payroll Deductions
• PERS Reporting
• Intellitime Questions
Accounting Assistant II
• Accounts Payable
GFOA does not recommend having a resource
• POs
focus on both PO and Accounts Payable for
• Encumbrances
internal control reasons. These responsibilities
• BOE Sales Tax Report — Quarterly
should be split.
Supervising Accounting
• Supervises Revenue section
Assistant
• Receivables (invoicing, payment
tracking)
• Misc revenue questions
• Business License
• UB Billing
• GL Revenue
_
Accounting Assistant
• Backup to AP, PR, UB
This resource has very broad responsibilities.
III
+ Additional Duties TBD
GFOA does not recommend having resources
over both AP and payroll.
Accounting Assistant
• Cashier
(TEMP)
• Transient Occupancy Tax
• Business License
P/T Accounting
• Transient Occupancy Tax
Assistant (TEMP)
• Business License
Budget Manager
• Budget
Admin Assistant III
• Budget Preparation
The tasks associated with this position are
• Process all BARS
spread across a variety of areas (purchasing,
• Check POs for Budget
budget, etc.). It is understandable that this
• Admin Support to DH, Budget
resource would have been used to shift
Manager, IT
workload, but by separating these tasks from
• Special Projects
other staff performing those functions, GFOA
feels it is not the most efficient use of resources.
Utility Billing (2
• Utility Billing
Positions)
• Customer Service
Page 2 of 6
EN
Recommendations — FIT Reorganization
Revised Position Structure
GFOA recommends that the City transition roles within the finance division to the following
general structure as shown in the org chart below. With this structure, GFOA has targeted the
following key considerations:
1) The finance director role will be filled by someone with necessary skills/expertise to both
provide leadership to the department and also perform financial management functions
for high level finance issues.
2) Staff will focus on a specific area within the finance office. This split (accounting,
revenue, purchasing, budget, and payroll) will allow staff to specialize, meet
expectations, and become more efficient.
3) GFOA recommends that utility billing staff be transferred permanently to the utility
billing department. Utility billing customer service representatives are responsible for
tasks outside of revenue collection and would be best served reporting through the
operating department. Moving staff to the utility billing department would not eliminate
the need to work closely with finance. The City's revenue manager would still be
responsible for establishing and monitoring revenue collections and cash receipting
policies and procedures. Also, this would put the utility billing department with a similar
arrangement to other departments (collection of fees done at the department level).
Lastly, with the many changes that are going on throughout the finance department over
the next 2+ years, this shift will allow greater focus and cohesion for both utility billing
customer service representatives and finance staff. If the City is concerned about counter
coverage, the City could establish a service level agreement and have the utility staff
continue to "support" some of the finance functions under the direction of the utility
billing department.
4) Each focus area within finance would have a manager level position to manage
operations and be held accountable for results. Managers would be responsible for higher
level tasks as well as assisting other staff with day-to-day transactional processing.
5) In the event that workloads exceed staff capacity, positions could be added under each of
the functional area managers to provide support. The proposed general structure listed
below defines a future organization assuming an ERP system is in place. With the
system, the City will be able to implement additional features/processes that will provide
significant operational efficiencies throughout the City. However, with these added
processes and functions, there will be the need to coordinate and manage the process and
some additional staff in the finance department may be needed (for example in
purchasing and contract management).
6) The City can identify back up that will be able to provide support for key functions in the
event of staff absence or unexpected turnover. In addition, because of the structure where
each division has a "manager" and "staff positions", back up can come from within each
vertical in the department. For example, if the payroll clerk is out, the payroll manager
can fill in. In the event the payroll manager is out, the payroll clerk in combination with
the finance director can provide back up.
Page 3 of 6
6 Recommendations — FIT Reorganization
Proposed General Structure
Rnance Dmictor
Central Cashiering /
� Ac� countant Buyer/P-Cards
Billing
_I
P
Accounts Payable Biz License /Tax Contract Admin
Payroll Clerk
The table below identifies the proposed positions and includes additional information on each
position.
Note: Positions listed in the proposed general structure represent GFOA's estimate of likely
positions for the long-term. Not all positions would be required as part of an initial
transitionfimprovement effort. GFOA has noted this where applicable. The City will need to
determine the final appropriate structure for both the long and short term based on resources
available and other considerations.
Position - -
Rale
Comments l Note
Finance Director
a Provide leadership for department
The finance director will provide
• Financial policies
leadership support for the department
• Manage debt
and be responsible for higher-level
• Manage investments
financial management activities
• Manage internal controls
Mana a organizational risk
Accounting Manager /
• Manage accounting division
The accounting manager will be the
Controller
• Manage Chart of Accounts
chief accountant for the City and
• Produce quarterly Measure Y (G)
manage all accounting and financial
report Track revenue trends
reporting functions.
• Assist with Cost Allocation Plan
• Year End reports and journal entries
Note. this position could go under
• Liaison for External Audit
the title of accounting manager or
• Prepare State Controller's Office
controller.
reports
• Prepare County reports
• CAFR preparation
• Prepare Quarterly Ex ense Reports
Accountant
• Journal entries
The accountant will support the
Page 4 of 6
EN
Recommendations — FIT Reorganization
Page 5 of 6
Track fixed assets
accounting manager/controller.
• Bank reconciliations _
. Manage vendors i
_
Accounts Payable
The accounts payable position will
Process accounts payable
manage all vendors and payables
• 1099 processing
under the direction of the accounting
manager
Revenue Supervisor
+ Manage revenue division
The revenue manager will manage all
+ Manage grant reimbursements
billing, receivables, and cashiering
• Cash Receipt Post
functions for the City. The revenue
• BOE Sales Tax Report — Quarterly
manager will function similar to a
• Receivables (invoicing, payment
Treasurer in other organizations and
tracking)
along with the finance director be
• Misc revenue questions
responsible for all cash handling and
• Business License
cash management.
• UB Billing
GL Revenue
Cashier
a Staff counter
The cashier position would be
• Cashier
primarily responsible for taking
a ments and handling deposits
Billing / Business License
• Back up for counter
The billing/business license position
• Transient Occupancy Tax
would be primarily responsible for
• Business License
miscellaneous invoices and
managing billing for finance. This
position would only be necessary to
support the revenue manager.
Purchasing Supervisor
. Manage purchasing division
The purchasing manager will manage
• Set and enforce purchase policies
and coordinate all purchasing
• Coordinate RFPs
functions for the City. This will
• Contract management
include purchasing policies and
• Sign off on / approve purchase orders
processes, competitive bidding, p-
_ _
cards, and contract management.
. Manage purchase orders
This position would only be
Buyer
• Coordinate RFPs
necessary as workload requires.
_
■ Manage City's P -cards
This position would only be
Contract Administrator
• Contract management
• Coordinate RFPs (for select
necessary as workload requires.
departments)_
Payroll Supervisor
. Manage payroll division
This position would manage and
• Payroll approvals
coordinate all payroll needs for the
■ Payroll
City.
Payroll Clerk
. Payroll
This position would be responsible
• Payroll Deductions
for assisting the payroll manager and
• PERS Reporting
processing payroll.
Budget Manager
. Manage budget division and budget
The budget manager will work
process (operating and capital)
closely with the finance director and
■ Coordinate City long-term financial
the city manager's office to
planning
coordinate the budget process,
• Coordinate City's analysts
coordinate citizen participation
• Lead City strategic initiatives (TBD)
efforts, and lead other strategic
• Provide leadership in City process
initiatives for the City. GFOA also
efficiency
sees this role as providing direction,
Page 5 of 6
E10
Recommendations — FIT Reorganization
training, and limited coordination to
the City's analysts.
Utility Billing Positions (2) • Utility Billing Move positions to Utilities
• Utility cashiering department
•
Utility customer service reps
Implementation Considerations
The general structure that GFOA has proposed in this report represents the long-term structure
for the department. Implementing these changes will take time and in some cases, the ultimate
shift in responsibility would be completed following other milestones with the larger finance
improvement efforts. The following schedule below identifies implementation considerations
and provides a draft plan for consideration for the transition period.
Changes to occur now (Short Term)
• Evaluate and adjust responsibilities so that positions within the department are allowed to
focus on one of the four main areas listed above (accounting, revenue, budget, and
payroll)
o Document roles and responsibilities
• Recruit and hire a purchasing manager to begin creating a purchasing function
■ Identify tasks that can be transferred to analysts to free up finance staff to focus on
implementation transition (such as chart of account re -design and preparation of service
level agreements)
• Identify and define the roles/responsibilities between HR and payroll so that the two
departments work together efficiently
• Develop a plan to shift utility billing customer service representatives to Utilities
department
Changes to occur after recruitment of finance director (Medium Term)
• Shift responsibilities from finance staff back to the finance director
Review and revise financial policies (if necessary)
Changes to occur after implementation of finance system (Long Term)
• Complete implementation of the proposed purchasing function will require additional
staff positions to manage purchasing centrally
• Evaluate and adjust responsibilities to accommodate increased automation and a
corresponding decrease in manually processing
Page 6 of 6