Transcript FY2001 – Budget Intro

Our Path to Financial Resiliency
August 11, 2011
GFOAz Summer Conference
Our Future is Bright…
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Now 10th Largest City in Arizona
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Population: 117,517
Growth since 2000: 281%
Housing Units: 52,586
Economic Development Coming
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0.5M SF New Construction
1,000+ New Jobs
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Rio Glass Solar – US HQ
Gestamp Steel
2
MAG 2007 Population Concentration
2005: 93,400
2030: 401,500
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MAG 2007 Employment Concentration
2005: 16,300
2030: 147,700
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Financial Resiliency
Financial Resiliency
Reform
Bridging
Institutionalize longterm financial
planning; adaptable
to a changing
environment
1.
2.
3.
4.
5.
6.
7.
8.
Diversity
Redundancy
Decentralization
Transparency
Collaboration
Fail Gracefully
Flexibility
Foresight
5
Warnings Signs
Date
Issue
FY 2003
Reissued FY 2003 CAFR
2004
Investment Policy Violation
2007 CAFR
4 Prior Period Adjustments
July 2007
Consultant Report issued regarding Finance
Department form and function
2008 CAFR
9 Prior Period Adjustments
September 2009
Did not reverse $4.5M Sales Tax Accrual prior to
closing FY 2008-09 books
$28,000 Severance Check Overpayments to 21
former employees
2009 CAFR
1 Prior Period Adjustment
6
Financial Resiliency
Financial Resiliency
Reform
Bridging
7
Bridging Stage
Get through the immediate crisis
and create breathing room for
more sustainable reforms
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Diagnose Causes of Distress
Stabilize the Situation
Get the Recovery Process Started
8
Bridging Stage
Diagnose Causes of Distress
Stabilize the Situation
Get the Recovery Process Started
1.
2.
3.
4.
5.
6.
Larson Allen Audit of Selected CIP Projects
Larson Allen Audit of Major Systems
New CFO Observations
Impact Fee Audit
FY 2010 CAFR Prior Period Adjustments
ASRS Audit
9
1. Larson Allen Special Audit #1
Completed Capital Project Review of City
Hall, Central Plant, Public Safety HQ,
Streetscape
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Interfund Transfers
Recording of Expenses and Funding
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General CIP Subsidy of Growth Projects
2007 MPC Bonds under spent
Change Order Review, including Approvals
Internal Controls and Operating Efficiency
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2. Larson Allen Special Audit #2
Completed Review of Transaction Cycles
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Payroll, AR, AP, Street Light Improvement
Districts, Investments
Findings related to:
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CAFR
Segregation of Duties
Internal Controls Missing
Internal Control Improvements
Process Improvements
11
3. New CFO Observations
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FY 2009 CAFR
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MPC Presentation
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$64M Debt not reported in Wastewater Fund
Restricted Fund Balances not presented for
Development Agreements
$24M FY 2009 CAFR General Fund Fund
Balance included Vehicle Replacement
($11.1M) and General CIP ($2.9M) Funds
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General Fund Fund Balance only = $10M
12
3. New CFO Observations (continued)
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Impact Fee Fund Deficits at 6/30/09
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Other Fund Cash Deficits at 6/30/09
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$4.3M Fire Fund Deficit
CAFR due to / from entries not approved by
City Council
Accounting and Budget Practices
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Transfers Used Instead of Interfund Loans
Financial Statement only entries
Revenue “Holding Account”
Depreciation duplicated Transfers Out in
Enterprise Funds
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3. New CFO Observations (continued)
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Water and Wastewater Rate Study
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Incorrect Application of Indirect Cost
Allocations
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Difficulty determining Restricted Cash
associated with Development Agreements
Overcharging General Fund, Undercharging
Water and Wastewater
Development Agreements
Finance Department Culture
14
4. Impact Fee Audit
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Evaluated use of impact fees and how
growth related assets were
constructed
Detailed Later in Presentation
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5. FY 2010 CAFR
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PPAs (Summarized)
10 Pages in CAFR (A-GG)
 209
Individual Line Items
 23 Individual Funds
 Errors Dating Back To FY 2000
 Changes to Every Financial Statement
Category (Assets, Liabilities,
Revenues, Expenses & Fund
Balances)
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FY 2010 Prior Period Adjustments
Impact Fee Corrections (only 1 PPA)
 Assets
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Missing $8M Capitalized Interest in Wastewater
Fund
Missing $4.3M Development Agreement in
Wastewater
Liabilities
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Missing Sewer Fund Debt $64M (2 MPC bonds)
Missing $3.7M Development Agreement in
Wastewater
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FY 2010 Prior Period Adjustments
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Expenses
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Revenues
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Missing $2.1 Developer Agreement payment
Missing June 2009 $1M State Shared
Revenue Accrual
Missing $587K Revenue Accrual for 9 Grants
Recorded in Wrong Fund
Fund Balance
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Missing Development Agreement Restrictions
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Most Impacted Funds (in millions)
Fund
Sewer
General Capital CIP
General Govt. Impact Fees
Public Works Impact Fees
General Fund
Fire/EMS Impact Fees
Police Impact Fees
Fund
Balance
Change
-$56.3M
+$37.5M
-$37.1M
+$5.0M
-$3.9M
-$3.9M
+$3.0M
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FY 2010 CAFR Implications
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Operating Fund Balance
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~$10M Less Than Previously Reported
Reserve was ~$6M Less Than the $13M
Policy Amount
Public Opinion and Perception
 Auditor Competency
 Bond Ratings
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6. ASRS Audit
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City’s First Audit
7 Findings
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Due From ASRS
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Back to 2003
20/20 Part-Time Employees Not Eligible
Medical Opt Out Not Subject to ASRS
Due To ASRS
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Eligible Part-Time Employees
Allowances: Uniform, Phone, Text, Car
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Financial Resiliency
Financial Resiliency
Reform
Bridging
22
Reform Stage
Execute a short-term recovery plan
and develop long-term therapies
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Create Predictability
Create Accountability
Establish Financial Stability
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Reform Stage
Create Predictability
Create Accountability
Establish Financial Stability
1.
2.
3.
4.
5.
6.
7.
Created Finance Department Strategic Plan
Created “Take 5 Report”
Restructured Finance Department
Hired Investment Firm
Built Relationships
Created Monthly Reports
Adopted Financial Policies
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1. Department Strategic Plan
Primary Functions
1.
2.
3.
Policy Development
Financial Analysis and Reporting
Transaction Processing
25
CFO Perspective
1.
2.
3.
4.
Architect the conditions for the “right”
decisions
It’s what you accomplish; not how you
spend your time
Begin with the end in mind; manage
backwards from the future
Change is constant
26
Department Strategic Plan
Mission Statement “Why do we exist?”
The City of Surprise Finance Department strives
to be proactive leaders, identifying issues and
offering innovative solutions while providing
excellent customer service.
27
Department Strategic Plan
Value Objectives “How we support the mission”
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Listen and Communicate
Customer Service
Trust, Accountability, and Respect
Continuous Improvement of Employees and
Services
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Value Objectives
Listen and Communicate
Create a culture which ensures that we listen
and understand what is being said so we
can provide a timely response in an
accurate, complete, and respectful
manner.
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Implement Online Business License
Application
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Value Objectives
Customer Service
Serve customers through providing accurate,
timely information and guidance in a
courteous, compassionate and
approachable manner.
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Complete Payroll Self-Service Application
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Value Objectives
Trust, Accountability, and Respect
We will strive to enhance the trust and respect of
all stakeholders through responsible
stewardship of public resources.
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Improve Financial Reporting
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Value Objectives
Continuous Improvement of
Employees and Services
Establish an environment where we improve
employees and services through staff
involvement, education, and development.
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Conduct Financial Software Needs
Assessment
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2. Weekly Take 5 Report
Continuous Improvement of Employees
and Services
Matthew: Attended GASBS #54 seminar
Craig: Initiated work on new Vacancy
Savings Report
Art: Reviewed preliminary ASRS audit
findings
33
3. Restructured Finance Department
OUTCOMES
1. Allocate Resources to Support 3 Primary
Functions
2. Support Strategic Plan
3. Flatten Department
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Eliminated One Level of Management
Eliminated Several Job Titles
Reallocated Staff to Other Departments
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Major Changes
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Created Accounting and Budget Division
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Created Deputy CFO position
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Numerous positions combined into new position (Sr.
Financial Analyst)
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Merged Budget and CAFR
Each responsible for specific areas (e.g. healthcare)
Added dedicated resources to PD and HR
35
Major Changes (continued)
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Created Internal Audit Division
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Dedicate compliance resource
Evaluates efficiency and effectiveness of programs
and process
Created Special Project Manager
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Involved with major initiatives
36
4. Hired Investment Firm
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Contracted with Public Financial
Management Group, Inc. (PFM)
“Better Than the Pool”
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$35M with PFM; $30M with CDARs
PFM Portfolio
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Yield: 0.80%
Annual Interest: $0.5M
Increased Earnings over Pool: $0.4M
Annual Fee: Up to $60,000 (9 bp of portfolio)
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$20,000 higher than Pool
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5. Built Relationships
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City Council
Department Directors
City Staff
Newspaper
Financial Advisors
Bond Attorney
Developers
Rating Agencies
38
6. Created Monthly Reports
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Monthly Investment Report
Monthly Sales Tax Report
Monthly Operating Report
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Economy Overview
Budget to Actual
Actual to Actual
Sales Tax
Accepted Monthly by City Council
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7. Adopted Financial Policies
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Operating Management
Capital Management
Debt Management
Minimum Fund Balance
Financial Reporting
40
Financial Resiliency
Financial Resiliency
Reform
Bridging
41
Financial Resiliency Phase
Institutionalize long-term financial planning
and become adaptable to a changing
environment with these 8 characteristics
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Diversity
Redundancy
Decentralization
Transparency
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Collaboration
Fail Gracefully
Flexibility
Foresight
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8 Characteristics of Financial Resiliency
1. Diversity: Keep a multi-faced perspective
on financial health
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Operating Revenues $2M>Operating Expenses
“Banked” Property Tax Capacity Exists
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$1.5M Below Legal Maximum
Employee Costs
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Compensation
Pension Costs
Healthcare Costs
43
8 Characteristics of Financial Resiliency
2. Redundancy: Avoid having only one
path of rescue
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“Banked” Property Tax Exist
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$1.5M Below Legal Maximum
2 Month Operating Reserve ~$6M (50%)
Underfunded as a result of PPAs
Limited Non-Enterprise Fund Asset
Replacement Funding
Create Debt Management Policy
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Failed GO Bond in Fall 2009
44
8 Characteristics of Financial Resiliency
3. Decentralization: Engage departments
in identifying issues and developing
strategies
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Other Sources of CIP Funding (e.g.
Stormwater Utility)
Impact Fee Study Update
Payroll Process Improvements
Accounts Payable Process Improvements
Enhanced Comprehensive Monthly Financial
Analysis
45
8 Characteristics of Financial Resiliency
4. Transparency: Make it easier to see
where the problems are
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Interfund Loans
Additional Reports
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Monthly Water/Wastewater/Solid Waste
Bi-Weekly Vacancy Savings
Annual PAFR
Annual Budget-in-Brief
5 Year Operating Plan
46
8 Characteristics of Financial Resiliency
5. Collaboration: Orient information
towards Elected Officials
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CIP Funding Strategies
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Impact Fee Study Update
Create Debt Management Policy
Create Economic Development Strategic
Policy
47
8 Characteristics of Financial Resiliency
6. Fail Gracefully: Recognize changing
conditions and learn from failure
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Impact Fee Audit
ASRS Audit
48
8 Characteristics of Financial Resiliency
7. Flexibility: Don’t expect Stability
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Implications of New Impact Fee Law
CIP Funding Options
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CFDs vs. DAs vs. Impact Fees
Employee Compensation Increases
49
8 Characteristics of Financial Resiliency
8. Foresight: Plan Strategically
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5 Year Operating Plan
Develop CIP Funding Strategies
Asset Replacement Funding
Debt Management Policy
ED Strategic Policy
Cost Recovery Strategies
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