HomeMy WebLinkAboutFinance Committee_October 20, 2022CITY OF NEWPORT BEACH
FINANCE COMMITTEE AGENDA - Final
100 Civic Center Drive - Community Room
Thursday, October 20, 2022 - 3:00 PM
Finance Committee Members:
Will O'Neill, Chair
Noah Blom, Mayor Pro Tem
Brad Avery, Council Member
William Collopy, Committee Member
John Reed, Committee Member
Nancy Scarbrough, Committee Member
Joe Stapleton, Committee Member
Staff Members:
Grace K. Leung, City Manager
Michael Gomez, Acting Finance Director/Treasurer
Amy Byrne, Administrative Assistant
NOTICE REGARDING PRESENTATIONS REQUIRING USE OF CITY EQUIPMENT
Any presentation requiring the use of the City of Newport Beach’s equipment must be submitted to the Finance
Director/Treasurer 24 hours prior to the scheduled Finance Committee meeting.
NOTICE REGARDING PUBLIC PARTICIPATION
Questions and comments may also be submitted in writing for the Finance Committee’s consideration by sending them
to Michael Gomez Acting Finance Director/Treasurer, at mgomez@newportbeachca.gov. To give the Finance Committee
adequate time to review your questions and comments, please submit your written comments by no later than 5 p.m.
the day prior to the Finance Committee meeting. All correspondence will be made part of the record.
NOTICE TO THE PUBLIC
The Finance Committee meeting is subject to the Ralph M. Brown Act. Among other things, the Brown Act requires that
the Finance Committee agenda be posted at least seventy two (72) hours in advance of each regular meeting and that
the public be allowed to comment on agenda items before the Committee and items not on the agenda but are within
the subject matter jurisdiction of the Finance Committee. The Chair may limit public comments to a reasonable amount
of time, generally three (3) minutes per person.
It is the intention of the City of Newport Beach to comply with the Americans with Disabilities Act (“ADA”) in all respects.
If, as an attendee or a participant at this meeting, you will need special assistance beyond what is normally provided, the
City of Newport Beach will attempt to accommodate you in every reasonable manner. If requested, this agenda will be
made available in appropriate alternative formats to persons with a disability, as required by Section 202 of the
Americans with Disabilities Act of 1990 (42 U.S.C. Sec. 12132), and the federal rules and regulations adopted in
implementation thereof. Please contact the City Clerk’s Office at least forty-eight (48) hours prior to the meeting to
inform us of your particular needs and to determine if accommodation is feasible at (949) 644-3127 or
mgomez@newportbeachca.gov.
October 20, 2022
Page 2
Finance Committee Meeting
I.CALL MEETING TO ORDER
II.ROLL CALL
III.PUBLIC COMMENTS
Public comments are invited on agenda and non-agenda items generally considered to be
within the subject matter jurisdiction of the Finance Committee. Speakers must limit comments
to three (3) minutes. Before speaking, we invite, but do not require, you to state your name for
the record. The Finance Committee has the discretion to extend or shorten the speakers’ time
limit on agenda or non-agenda items, provided the time limit adjustment is applied equally to all
speakers. As a courtesy, please turn cell phones off or set them in the silent mode.
IV.CONSENT CALENDAR
MINUTES OF SEPTEMBER 15, 2022A.
Recommended Action:
Approve and file.
DRAFT MINUTES 09152022
V.CURRENT BUSINESS
OVERVIEW OF POLICE DEPARTMENT BUDGETA.
Summary:
Staff will provide the Committee with a presentation covering the budget for the
Police Department.
Recommended Action:
Receive and file
REVENUE AUDIT PROGRAM UPDATEB.
Summary:
Staff will provide an update on audits conducted by the Revenue Division to verify
transient occupancy tax (hotels, agents and residential owners), charter boat
company, waste hauler, etc. revenue collections.
Recommended Action:
Receive and file
STAFF REPORT
October 20, 2022
Page 3
Finance Committee Meeting
BUDGET AMENDMENTS FOR QUARTER ENDING SEPTEMBER 30, 2022C.
Summary:
Staff will report on the budget amendments from the prior quarter.
Recommended Action:
Receive and file.
STAFF REPORT
ATTACHMENT A
WORK PLAN REVIEWD.
Summary:
Staff and Finance Committee to review the proposed work plan and identify matters
that members would like placed on a future Agenda for discussion, action, or report.
Recommended Action:
Receive and file.
ATTACHMENT A
VI.ADJOURNMENT
Finance Committee Meeting Minutes
September 15, 2022
Page 1 of 7
CITY OF NEWPORT BEACH
FINANCE COMMITTEE
SEPTEMBER 15, 2022 MEETING MINUTES
I. CALL MEETING TO ORDER
The meeting was called to order at 3:01 p.m.
II. ROLL CALL
PRESENT: Chair Will O’Neill, Mayor Pro Tem Noah Blom, Committee Member William
Collopy, Committee Member John Reed, Committee Member Nancy
Scarbrough, and Committee Member Joe Stapleton.
ABSENT: Council Member Brad Avery
STAFF PRESENT: City Manager Grace K. Leung, Finance Director/Treasurer Scott Catlett,
Deputy Finance Director Michael Gomez, Administrative Specialist to the
Finance Director Marlene Burns, Finance Manager Trevor Power, Senior
Budget Analyst Amber Haston, Purchasing And Contracts Administrator
Sander Huang, Public Works Finance/Administrative Manager Theresa
Schweitzer, and Senior Budget Analyst Shelby Burguan,
MEMBERS OF THE
PUBLIC: Jim Mosher and Charles Klobe
OTHER ENTITIES: Marc Davis (Davis-Farr) and Jayson Schmitt (Chandler Asset
Management)
III. PUBLIC COMMENTS
Jim Mosher reported there was an item on the July 26, 2022, City Council meeting about adding
Sewer and Recycling fees to the Property Tax bills of the residents of Newport Beach. He explained
that in the staff report the City Council was told that the Finance Committee had unanimously
recommended the change in May while reviewing their work plan. He clarified the Finance
Committee had the item listed as a discussion item in the Work Plan in April and some of the
committee did not feel it needed to be discussed. He noted it could not have been a unanimous
recommendation if it was not discussed by the Finance Committee and recommended the record
be clarified that the committee did not make a recommendation on the item.
IV. CONSENT CALENDAR
A. MINUTES OF MAY 12, 2022
Recommended Action:
Approve and file.
B. MINUTES OF MAY 26, 2022
Recommended Action:
Approve and file.
MOTION: Committee Member Nancy Scarbrough moved to approve the minutes of May
12, 2022 and May 26, 2022 as presented, seconded by Committee Member William
Collopy. The motion carried 6 ayes – 0 noes, 1 absence (Committee Member Avery)
V. CURRENT BUSINESS
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Finance Committee Meeting Minutes
September 15, 2022
Page 2 of 7
Chair O’Neill advised the agenda would be heard out of order and Item C would be heard first.
C. FINANCIAL STATEMENT AUDITOR’S COMMUNICATION WITH THE FINANCE COMMITTEE
ACTING AS THE CITY’S AUDIT COMMITTEE
Summary:
The City's external auditors, Davis Farr LLP, will provide an overview presentation regarding the
audit process and request feedback from the Committee regarding any information that may assist
them in their audit of the City's financial statements.
Recommended Action:
Receive and file.
Finance Director/Treasurer Scott Catlett and Finance Manager Trevor Power provided
introductions to the item.
Marc Davis, Davis-Farr, explained this is the first touchpoint for the City’s financial audit and
provided a brief overview of the audit process. He advised the final portion of the audit will begin
on October 17, 2022, and will run through the end of November with a final draft of financial
statements being available in December 2022. He noted at that time, a meeting will be scheduled
with the Finance Committee to review the results of the audit. He explained that once the financial
audit is done, a single audit will be conducted of federal awards will be conducted at the beginning
of January.
Mr. Davis explained there will be two changes to the financial audit which includes Governmental
Accounting Standards Board (GASB) 87 which has to do with how leases are accounted for and
noted they will be working with the Finance staff on how to properly apply it to the financial
statements.
Committee Member Collopy inquired if there will be any adjustments. Mr. Davis advised there may
be adjustments based on the result of the staff’s analysis.
Mr. Davis reported the second change is the new audit standard coming into play this year which
will impact the way the auditor’s report will look.
Committee Member Collopy inquired if there was anything substantive in either the fraud analysis
or internal audit procedures review and inquired if there was anything in the internal audit process
that could be compared with other cities' audit processes.
Mr. Davis explained with internal fraud questionnaires are sent out to staff at all levels throughout
the City to determine if they are knowledgeable of any fraud or suspected fraud. He explained if
any individuals identify perceived fraud, they are escalated to the appropriate level of management.
He noted if they identify anyone at a high level of management it would be brought before the
Finance Committee. He explained the internal control work is different from the Internal Audit
Program in that the internal control work looks at financial systems used in financial statement
reporting.
Committee Member Collopy inquired if Davis-Farr would be reviewing the Internal Audit Program.
Mr. Davis advised reviewing the program is not within their purview but any reports as a result of
the program would be reviewed from a risk perspective.
Chair O’Neill opened public comments.
Mr. Mosher reported he and Committee Member Stapleton recently spoke to the Friends of OASIS
and reviewed their revenue and expenses in the City’s Budget Book. He noted he also reviewed
the agreement between the Friends of OASIS and the City and advised the agreement states that
all the revenue generated will be spent at OASIS. He inquired how the City keeps track of its side
agreements.
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September 15, 2022
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Finance Director/Treasurer Catlett suspects the revenue from Friends of OASIS is substantially
lower than the revenue generated and there is no need from an accounting standpoint to have a
second fund. Finance Manager Power agreed.
Chair O’Neill closed public comments.
The item was received and filed.
A. ANNUAL REVIEW OF INVESTMENT PERFORMANCE
Summary:
The City's investment advisor, Chandler Asset Management, will report on the performance of the
City's investment portfolio for the fiscal year ending June 30, 2022.
Recommended Action:
Receive and file.
Finance Director/Treasurer Scott Catlett introduced the item.
Jayson Schmitt, Chandler Asset Management, provided a brief overview of the performance of the
City’s investment portfolio. He advised the current hot topic is inflation and noted the Federal
Reserve is doing everything it can to bring down the inflation rate by raising interest rates. He
reported he expects the interest rate to increase by 75 basis points at the next meeting of the
Federal Reserve on September 21, 2022. He noted the economy is still doing well albeit slowly but
tight labor markets still exist. He reported that the Consumer Price Index (CPI) is at an elevated
level not seen in 40 years. He noted real estate is not at the hottest point as seen in the past.
Mr. Schmitt presented the Federal Reserve’s Balance Sheet and reported as of June 1, 2022, the
Federal Reserve will no longer be purchasing assets and will be allowing assets to roll off of its
Balance Sheet. He advised the effective federal funds rate (EFFR) will be above 3% by September
30, 2022.
Committee Member Collopy noted the Federal Reserve’s Balance Sheet stands at $9 trillion and
inquired where Mr. Schmitt thought it would end up. Mr. Schmitt advised he believes it will take
approximately 8 years to get into the $2 to $3 trillion range.
Committee Member Collopy inquired if there was some mechanical process to speed up the
quantitative tightening. Mr. Schmitt advised the Federal Reserve could accelerate the process by
selling assets but would have an impact on interest rates. He noted they are also taking mortgage-
backed securities off of their portfolio.
Committee Member Collopy inquired if the $9 trillion includes the mortgage-backed securities. Mr.
Schmitt confirmed they were included in that number. He noted the Federal Reserve could choose
to increase the pace.
Mr. Schmitt provided a brief overview of bond yields and the longer-term portfolio. He noted the
last time he reported to the Finance Committee, a transition from a limited maturity strategy to a
short-term bond strategy was discussed and has started. He advised the transition would take
place over six months.
Committee Member Collopy inquired if Finance Director/Treasurer Catlett would still recommend
the transition approach given the May. Finance Director/Treasurer Catlett confirmed he would still
recommend the approach and noted it makes sense in the long term. Mr. Schmitt reported the
average maturity of the portfolio is 2.08 years and advised the City has a maximum maturity of 5
years. He advised it is an AA-rated portfolio worth $271 million up from $266 million. He provided
a brief overview of the asset allocation and noted they are seeing wider credit spreads.
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September 15, 2022
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Committee Member Collopy inquired if the collateralized mortgage obligations (CMO) would
increase with the mortgage rates increasing. Mr. Schmitt explained they can only purchase
securities on behalf of the City that has a maximum maturity of 5 years.
Mr. Schmitt provided a brief overview of the consolidated portfolio. He advised that 50% of the
portfolio will be maturing over the next 12 months and will be reinvested into the new interest rate
environment.
Committee Member Collopy inquired where the $271 million referenced earlier is located in the
consolidated portfolio. Mr. Schmitt advised it is part of the $299 million.
Mr. Schmitt reported the consolidated portfolio is an AA-rated portfolio at $299 million. He provided
a brief overview of the asset allocation.
Committee Member Collopy noted the Finance Committee made the right decision years ago that
only one financial advisor was needed. He advised he was impressed with Chandler Asset
Management.
Chair O’Neill opened public comments. Seeing none, Chair O’Neill closed public comments.
The item was received and filed.
B. ANNUAL REVIEW OF INVESTMENT POLICY
Summary:
Staff will provide a presentation regarding any changes proposed to the City's Investment Policy
by staff or the City's investment advisor prior to the Investment Policy being approved by the City
Council.
Recommended Action:
Receive and file.
Chair O’Neill opened public comments. Seeing none, Chair O’Neill closed public comments.
The item was received and filed.
D. INTERNAL AUDIT PROGRAM
Summary:
Bi-monthly progress update on the internal audit program.
Recommended Action:
Receive and file.
Deputy Finance Director Michael Gomez provided a brief history of the Internal Audit Program
which was initiated in 2020 and advised the first five topics identified for review in the Moss Adams
report have been completed with findings presented to the Finance Committee.
Deputy Finance Director Gomez reported the revised City Council F-14 Policy has been drafted,
has been reviewed by the City’s Department Directors, and is being reviewed by the City Attorney’s
Office. He advised it will come before the Finance Committee in October. He noted the proposed
administrative purchasing policy will also be made available to provide additional context.
Deputy Finance Director Gomez reported a draft policy for cash handling has been written and is
currently being reviewed by Finance management with the expectation that it will be finished in
October. He noted that once approved, Revenue Division staff will work with end users to develop
internal processes and procedures for compliance.
Deputy Finance Director Gomez reported a draft policy for information technology has been drafted
and is in final review with Information Technology. He advised it will next be shared with Finance
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Finance Committee Meeting Minutes
September 15, 2022
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and Human Resources for review and comments before becoming effective in October or
November.
Deputy Finance Director Gomez reported the remaining findings related to inventory management
have been addressed.
Deputy Finance Director Gomez reported the Moss Adams report identified 14 policies that will be
reviewed and revised as part of the Internal Audit Program. He advised some are nearing
completion and noted the Finance Department has created a work plan to complete all policy
revisions within the next 12 months.
Committee Member Collopy inquired who created the list of priorities for future items. Finance
Director/Treasurer Catlett advised Finance staff reviewed and created the list of priorities.
Committee Member Scarbrough inquired if the revised policies will go to the Finance Committee or
the City Council. Finance Director/Treasurer Catlett reported the purchasing policy will come back
to the Finance Committee. He noted those that impact City Council policy will come back to the
Finance Committee for review and those that are administrative policy will be implemented by staff.
Committee Member Collopy inquired about what differentiates a City Council policy from a finance
policy.
Chair O’Neill explained the constraints of what is being changed, such as the City Charter,
Municipal Code, or Administrative Code determine if it is a City Council policy or a fiscal policy. He
advised the City Council policies direct staff on how to handle specific situations.
Committee Member Collopy inquired if all F-Policy is City Council policy. Chair O’Neill confirmed
they were.
Finance Director/Treasurer Catlett advised the procurement policy will become a City Council
policy.
Deputy Finance Director Gomez reported the Finance Committee identified Accounts Payable and
Disbursement, Fixed Assets, Payroll, and Police Property and Evidence Internal Control Testing
and Council Policy F-10 Compliance would be reviewed this fiscal year. He advised staff has begun
working with four firms the City Council awarded contracts to complete the deep dive audits. He
explained the cost of the audits is exceeding the budget allocation and staff recommends the
Finance Committee complete the first three topics and study the final topic in Fiscal Year 2023-24.
He advised staff recommended increasing the budget for the Internal Audit Program in Fiscal Year
2023-24 by $30,000 to $150,000 to complete the final audit.
Finance Director/Treasurer Catlett reminded the Finance Committee staff hoped to get some
budgetary savings with firms competing for the City’s business but the opposite occurred.
Committee Member Collopy inquired why City Manager Leung did not just increase the budget for
the work since she has the authority. City Manager Leung explained the reasoning why the increase
would need to go before the City Council.
Committee Member Scarbrough inquired about what items would be included in the Fixed Asset
review. Deputy Finance Director Gomez explained it would be the entire City’s fixed assets. He
advised the Moss Adams report identified topics that are included in the scope and agreed to
provide those items to the Finance Committee.
Committee Member Scarbrough explained her inquiry is about the post-pandemic workforce and
reviewing unutilized office space.
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Finance Committee Meeting Minutes
September 15, 2022
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Finance Director/Treasurer Catlett explained this review would be more about the controls over the
inventory of fixed assets.
Committee Member Scarbrough inquired if an office space utilization review was being planned
and if not, how it could be accomplished.
City Manager Leung advised staff could review facility usage. She noted Newport Beach was one
of the cities that returned in person early on in the pandemic.
Committee Member Scarbrough inquired if such a review would come under the purview of the
Finance Committee. City Manager Leung noted it is something that could be studied as part of the
maintenance and rehabilitation replacement schedule. She referenced the Lifeguard Headquarters
is very large as it used to house a Fire Station and its utilization is being reviewed.
Committee Member Collopy inquired if the Junior Lifeguard Building needs to be located at the
Balboa Pier or if it can be located at the Newport Pier.
Chair O’Neill explained it needs to be located at the Balboa Pier due to the parking and the park
next to Balboa Pier.
Chair O’Neill opened public comments. Seeing none, Chair O’Neill closed public comments.
Committee Member Collopy inquired if the fourth topic fell off the list. Finance Director/Treasurer
Catlett confirmed it did but can be greenlit on July 1, 2022.
Committee Member Collopy recommended asking the Police Department to discuss the item when
they come before the Finance Committee for their deep dive. Chair O’Neill confirmed the Police
Department would be at the next Finance Committee meeting.
The item was received and filed.
E. BUDGET AMENDMENTS FOR QUARTER ENDING JUNE 30, 2022
Summary:
Staff will report on the budget amendments from the prior quarter.
Recommended Action:
Receive and file.
Chair O’Neill opened public comments. Seeing none, Chair O’Neill closed public comments.
The item was received and filed.
F. WORK PLAN REVIEW
Summary:
Staff and Finance Committee to review the proposed work plan and identify matters that members
would like placed on a future Agenda for discussion, action, or report.
Recommended Action:
Receive and file.
Chair O’Neill provided a brief overview of the work plan for the Finance Committee for this fiscal
year.
Chair O’Neill opened public comments.
Mr. Mosher noted the January 2023 meeting should be light and would be an opportunity for the
Finance Committee to review all of the work it is expected to do when it was created.
Chair O’Neill agreed and requested a Finance Committee Resolution be added to the work plan.
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Finance Committee Meeting Minutes
September 15, 2022
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The item was received and filed.
Chair O’Neill presented a gift to Finance Director/Treasurer Catlett in honor of his work with the
Finance Committee.
VI. ADJOURNMENT
The Finance Committee adjourned at 3:52 p.m. to the next regular meeting of the Finance
Committee.
The agenda for the Regular Meeting was posted on September 9, 2022, at 1:51 p.m., in the binder
and on the City Hall Electronic Board located in the entrance of the Council Chambers at 100 Civic
Center Drive.
Attest:
___________________________________ _____________________
Will O’Neill, Chair Date
Finance Committee
10
Overview of Police Department
Operations and Finances
Chief Jon T. Lewis & Deputy Director Jonathan Stafford
Fiscal Year 2022-23 Budget
2
Personnel
81.81%
M&O
18.18%
Capital
0.01%
$71.89 Million
Personnel $58.81 M
M&O $13.07 M
Capital $7.7 K
Expenditures by Category
3
Expenditure Category 2018 Actual 2019 Actual 2020 Actual 2021 Actual 2022 Budget 2022 Actual 2023 Budget
Salaries 24,338,303$ 25,730,007$ 26,078,383$ 25,691,246$ 28,613,051$ 26,274,277$ 29,072,282$
Benefits 21,873,482 22,526,719 23,543,418 25,674,048 24,704,509 25,840,638 26,088,264
Lump Sum Pays - 14,759 - - - 388,000 -
Other Pays 3,995,467 4,392,578 4,211,241 3,494,791 2,595,522 4,090,698 3,652,003
Contract Services 1,540,216 1,703,020 1,704,253 1,662,529 2,089,251 1,728,170 2,210,102
Grant Operating 14,907 3,537 3,222 102 - 15,524 -
Utilities 369,447 376,363 387,771 401,732 388,399 375,501 400,837
Supplies and Materials 536,798 521,324 684,120 662,914 575,022 646,440 575,022
Maintenance and Repiars 733,985 826,536 729,608 681,962 819,848 819,330 885,540
Travel and Training 256,342 333,677 228,900 237,410 318,231 299,736 336,111
General Expenses (2,418,192) (2,485,536) (2,628,977) (2,666,482) 941,279 857,913 945,410
Internal Services Charge 5,195,021 6,217,114 6,933,260 7,499,448 6,549,120 6,554,233 7,717,038
Capital Expenditures 429,455 339,226 318,381 371,863 7,695 4,902 7,695
Total 56,865,231 60,499,324 62,193,579 63,711,564 67,601,926 67,895,362 71,890,304
Expenditures within budget year to year, with exception of Other Pays due to Overtime overages
Police Department Personnel
4
229 231 232 232 232
233
13.33 14.87 14.87 14.87 14.87
14.87
200
210
220
230
240
250
260
FY17-18 FY18-19 FY19-20 FY20-21 FY21-22 FY22-23
Full-Time Part-Time (FTE)
Managing the Budget - Personnel
5
•Budgeted by Position
•Pay and benefits
•Manage the Number of FTEs
•Stay within T.O. for full-time positions
•Ensure offset for part-time positions
•Overtime Overages
•Offset by salary savings
•Approximately 85% of overtime costs are due to:
•Minimum staffing levels
•Required Court overtime
•Service Demands
•Special Events
•Grants (offset by revenue)
•Due to Vacancies
Police Department Overtime
6
$0.00 M
$0.50 M
$1.00 M
$1.50 M
$2.00 M
$2.50 M
$3.00 M
$3.50 M
$4.00 M
$4.50 M
2018 2019 2020 2021 2022 2023
Budgeted Actual
11/23/2021 Application received
1/28/2022 Written Examination
2/16/2022 Oral interview
2/24/2022 Physical Agility Test
3/18/2022 Pre-Background
4/3/2022 Polygraph Examination
5/6/2022 Background Investigation Complete
5/19/2022 Chief’s Interview
6/9/2022 Psychological Examination completed
6/23/2022 Medical Examination results received
6/28/2022 Day 1 at the Police Department
7/5/2022 Pre-academy Training
7/25/2022 Orange County Sheriff’s Academy
1/19/2023 Anticipated Academy Graduation
7
Recruit Police Officer Hiring Process Timeline
Managing the Budget – M&O
•Budgeted by Account
•Carried forward year-to-year
•Adjusted with:
•Contract increases
•Approved program enhancements
•Fleet replacements
•Reductions
•Inflation impacts (fuel, vehicles, facility maintenance)
•Manage Outflow
•Scrutinize purchases for appropriateness
•Ensure purchases are budgeted or offset by reduced spending elsewhere
•Accountability
•Ensure purchases meet rules and guidelines
•Division Commander approval before purchase
•Two-Level approval for invoice/credit card purchases
8
Police Department Contract Services
9
CONTRACT SERVICES 2018 Actual 2019 Actual 2020 Actual 2021 Actual 2022 Actual 2023 Budget
EQUIPMENT RENTAL 36,265 38,290 34,447 34,061 35,260 38,245
SERVICES PROFESSIONAL 741,072 882,309 935,775 778,177 1,065,030 1,162,190
CONTRACTUAL SERVICES 73,156 112,717 131,438 156,188 144,377 190,416
CONTRACT SERVICES HELICOPTER 480,764 459,375 379,775 496,772 275,098 569,750
COMPUTER CONSULTANTS 200 22,515 5,665 1,020 6,036 6,108
ANIMAL SHELTER CONTRACTS 122,868 122,596 139,130 118,669 133,070 161,386
OTHER AGENCY FEES 85,891 65,218 78,024 77,645 69,300 82,007
TOTAL 1,540,216 1,703,020 1,704,253 1,662,529 1,728,170 2,210,102
Revenue by Account Type
10
42 - LICENSES PERMITS (49,905) (83,855) (103,218) (151,997) (138,095) (131,600)
43 - INTERGOVTAL REVENUES (1,525,187) (1,817,656) (1,665,217) (1,580,936) (1,665,443) (1,677,088)
51 - MISC REVENUES 293,890 243,775 325,134 281,870 263,528 (3,500)
52 - SERVICE FEES & CHARG (1,629,965) (1,698,983) (1,460,643) (780,847) (807,572) (914,900)
53 - FINES & PENALTIES (1,808,544) (1,792,474) (1,674,463) (1,815,441) (1,607,977) (1,705,000)
56 - DONATIONS & CONTRIBU (775) - (250) (33,620) (24,880) -
61 - NON-OPERATING SOURCE (10,801) (15,688) (16,982) (16,324) (10,119) (14,000)
Grand Total (4,731,286) (5,164,880) (4,595,639) (4,097,295) (3,990,558) (4,446,088)
•Service Fees
•$325,000 from School Resource
Officer agreement
•$225,000 from police emergency
response
•Internal Governmental Revenues: $1.3 M
from OC Public Safety augmentation
•Regular parking fees account for $1.65M in
fines and penalties revenue
Fiscal Year 2022-23 Approved Budget Enhancements
11
•Body-worn cameras, in-car video replacement,
and taser replacement: $288,000 ongoing
expense, funded in the Police Equipment ISF
•One full-time Community Services Officer to
manage the body-worn camera video
processions: $105,000 ongoing
•Tsunami Siren Maintenance: $10,000 ongoing
•Peer Support funding: $15,000 ongoing
12
Revenue Audit Program
Update Finance
Committee
Meeting
October 20, 2022
City of Newport Beach –Finance Department 2
Finance Department Revenue Division Audit Function
The City’s Revenue Auditor ensures compliance with City vendor agreements
and the Newport Beach Municipal Code (NBMC)by auditing vendor payments,
transient occupancy tax,charter tax,waste hauler franchise,and other types of
payments.
Auditor’s Main Tasks:
•Identify and prioritize taxpayers and contracts for auditing
•Recommend an audit schedule of taxpayers and vendors and execute such
audits in the priority assigned by the Finance Director
•Ensure payments or refunds are made in a timely manner
•Develop internal controls to support revenue management activities and loss
prevention
City of Newport Beach –Finance Department 3
Summary of Audit Activities to Date Since October 2021
Audit Type Audited
To Date
Findings Appeals Outreach
Marine Charter
Passenger Tax
5 Late Filings 0 Contact New
Charters
TOT-STL Agents &
Owners
4 Taxable Fees &
Late Filers
1 Community
Workshop
TOT-Hotels 0 Exemptions & Late
Filings
0 Contact New
Owners/Managers
Franchise Solid
Waste Haulers
30 Under Reported
Gross Receipts
0 Contact New
Haulers
Total 39 1
City of Newport Beach –Finance Department 4
Main Findings
•Transient Occupancy Tax
•Hotels
•None
•Short Term Lodging Agents
•More New Agents –No Findings
•Short Term Lodging Owners
•Late Filers –1 appeal with no additional Findings
•Auditing owners –No Findings
City of Newport Beach –Finance Department 5
Main Findings
•Marine Charter Passenger Tax
•New discoveries
•Late Filers –No Findings
•Solid Waste Hauler Franchise Fee
•Incorrect Gross Receipts
City of Newport Beach –Finance Department 6
Audit Plan
•Transient Occupancy Tax
•Hotels
•Audit hotels with recent change of ownership
•Short Term Lodging Agents/Owners
•Audit owners based on 2022 TOT filings
•Marine Charter Passenger Tax
•Audit late filers and new operators
•Solid Waste Hauler Franchise Fee
•Second round audits
City of Newport Beach –Finance Department 7
Questions?
CITY OF NEWPORT BEACH
FINANCE COMMITTEE
STAFF REPORT
Agenda Item No.
October 20, 2022
TO:
FROM:
HONORABLE CHAIRMAN AND MEMBERS OF THE COMMITTEE
Finance Department
Michael Gomez, Acting Finance Director/Treasurer
949-644-3124, mgomez@newportbeachca.gov
SUBJECT: REVENUE AUDIT PROGRAM UPDATE
SUMMARY:
The City’s Revenue Auditor ensures compliance with City vendor agreements and the
Newport Beach Municipal Code (NBMC) by auditing vendor payments, transient
occupancy tax, charter tax, waste hauler franchise, and other types of payments. The
auditor’s main tasks (among others) are to identify and prioritize taxpayers and contracts
for auditing; recommend an audit schedule of taxpayers and vendors and execute such
audits in the priority assigned by the Finance Director; ensure payments or refunds are
made in a timely manner; and to develop internal controls to support revenue
management activities and loss prevention.
Transient Occupancy Tax, Marine Charter Passenger Tax, and Solid Waste Hauler
Franchise Fee audits conducted to date since October 6, 2021, have resulted in
preliminary findings of taxes and other payments owed in the amount of approximately
$50,000.
RECOMMENDED ACTION:
Receive and file.
DISCUSSION:
Marine Charter Passenger Tax Audits
Boat charter operators are required to obtain an annual Marine Activities Permit (MAP)
under NBMC Section 17.10. In addition, under NBMC Sections 3.34 and 5.04, charter
operators are required to remit monthly marine charter passenger and obtain a business
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Revenue Audit Program Update
October 20, 2022
Page 2
license, respectively. Under NBMC Section 3.34.110, the City of Newport Beach (City)
has the right to review charter operator records. The number of charters in the City has
grown from nine operators in 2019 to 27 in 2022. The Harbor Department’s Code
Enforcement Division continues to discover charter companies that are operating without
a MAP and/or a business license. These discoveries are audited for charter tax owed to
the City for previous periods and are brought into compliance. Five charters were
discovered in 2022 owing over $1,000 in charter tax.
Three charters failed to file their monthly charter tax returns in 2022. The City assessed
penalties and interest and brought these operators into compliance.
Transient Occupancy Tax (“TOT”) Audits
Under NBMC Section 3.16, transients who rent a room or space for 30 days or less shall
pay a tax of nine percent of the rent charged by the operator. In addition, under NBMC
Section 3.28, transients who rent a room or space for 30 days or less shall pay a fee of
one percent of the rent charged by the operator. NBMC Section 3.16.110 provides the
City the right to audit the operator’s records.
Hotels
In 2022, four hotels changed management or ownership. The City reaches out to new
hotel management to ensure they understand how to properly complete and file their TOT
returns. A common issue asked by hotels is which exemptions are allowed within the City
under the NBMC. The City provides open communication with hotel management to
confirm TOT exemptions prior to submitting their monthly returns.
Two hotels filed late resulting in late penalties, no appeals were filed.
Short-Term Lodging Agents
NBMC Section 5.95 was revised in 2020. This change required agents to confirm they
will collect and remit TOT on behalf of their clients and register with the City’s Finance
Director. Forty-eight short term lodging agents are registered with the Finance Director.
Of those, five new agents were added this year. New agents contact the City to obtain
TOT returns and business licenses and when doing so, are provided information on the
City’s tax requirements.
Short Term Lodging Owners
A total of 1,039 short term lodging owners filed their annual return in 2021. Sixty-four
owners filed late returns in 2021, resulting in late penalties and interest, which is a
decrease from the previous year, with Seventy-six late filers. This year, one owner filed
an appeal, challenging late penalties, which the hearing officer upheld. which resulted in
an upheld decision by the hearing officer. Last year, there were three appeals. Four
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Revenue Audit Program Update
October 20, 2022
Page 3
owners were audited in 2022 with no issues and informal reviews were conducted on late
filers.
Solid Waste Hauler Franchise Fee
NBMC Section 12.63 requires any person providing commercial solid waste handling
services to obtain a franchise and pay a fixed percent franchise fee based on the quarterly
receipts. The franchise fee is 18% and defined under Ordinance 2017-16. Consulting and
audit firm Michael Balliet Consulting (Balliet) was engaged to conduct 30 audits on solid
waste haulers for franchise fees for an audit period of one year. Balliet has completed all
of the fiscal year 2019-2020 audits and discovered that a third of the haulers have tonnage
and gross receipt reporting errors. In addition, haulers may also be subject to penalties
and interest. Audit findings have resulted in taxes owed of approximately $50,000. No
appeals were filed.
Balliet will begin a second round of audits this month. The audits will cover two years
(2020-2021 and 2021-2022). There are 20 active haulers and two inactive haulers that
will be audited. Audits are expected to be completed in early 2023.
Findings
Other than Solid Waste Haulers, TOT and Charters have been mostly in compliance over
this past year. Audits for TOT, Charter and Solid Waste will continue with a focus on new
operators and franchises.
Prepared and Submitted by:
/a/ Antonio Velasco
Antonio Velasco
Revenue Auditor
13
CITY OF NEWPORT BEACH
FINANCE COMMITTEE
STAFF REPORT
Agenda Item No. --
October 20, 2022
TO: HONORABLE CHAIRMAN AND MEMBERS OF THE COMMITTEE
FROM: Finance Department
Michael Gomez, Acting Finance Director/Treasurer
949-644-3124, mgomez@newportbeachca.gov
SUBJECT: BUDGET AMENDMENTS FOR QUARTER ENDING SEPTEMBER 30,
2022
EXECUTIVE SUMMARY
The purpose of this memorandum is to report on the budget amendments for the first
quarter of Fiscal Year 2022-23. All budget amendments are in compliance with City
Council Policy F-3, Budget Adoption and Administration.
DISCUSSION
City Council Policy F-3, Budget Adoption and Administration, identifies how
appropriations can be transferred, increased or reduced. The Finance Committee reviews
a quarterly report of City Council and City Manager budget amendments including their
effect on fund balance. Please find the list of budget amendments included as
Attachment A.
Prepared by: Submitted by:
/s/ Jessica Nguyen
/s/ Michael Gomez
Jessica Nguyen Michael Gomez
Budget Analyst Acting Finance Director/Treasurer
Attachment:
A. Budget Amendments for Quarter Ending September 30, 2022
14
ATTACHMENT A
BUDGET AMENDMENTS FOR QUARTER ENDING SEPTEMBER 30, 2022
15
BA #Date Amendment Type Fund Revenues Expenditures
Net Effect on Fund Balance
Increase/(Decrease)Department Explanation
GENERAL FUND 7,500,000.00 7,450,000.00 -
GENERAL FUND - 41,532.75 (41,532.75)
003 06/14/2022 City Council GENERAL FUND 122,038.00 122,038.00 - Public Works To increase budget appropriations to cover contractual obligations such as sewer root control services for FY 22-23
004 07/28/2022 City Council GENERAL FUND - 35,000.00 (35,000.00) Public Works To increase budget appropriations to cover contractual obligations such as sewer root control services for FY 22-23
005 06/28/2022 City Council GENERAL FUND - 177,877.00 (177,877.00) Police To increase salary and benefit appropriations to fund the new MOU
with Newport Beach Police Management Association (NBPMA).
006 07/12/2022 City Council TIDELANDS HARBOR CAP FUND - 46,801.00 (46,801.00) Public Works To increase expenditures for project 19D03 to install tidegates at three locations around the City
007 07/26/2022 City Manager WASTEWATER ENTERPRISE FUND - 10,000.00 (10,000.00) Utilities From the Wastewater Fund unappropriated Fund Balance to increase
the FY22-23 appropriation to cover contractual obligations - Sewer Manhole Lining Services (Sancon)
008 07/26/2022 City Council WATER ENTERPRISE FUND 420,000.00 840,000.00 (420,000.00) Public Works To appropriate funds for the Water Transmission Main Valve Replacement (Phase 2) Project.
009 07/26/2022 City Council GENERAL FUND 467,629.56 - 467,629.56 CDD To increase revenue due to the City selling a small portion of City-owned property to the OC Sanitation District.
010 08/23/2022 City Council GENERAL FUND - 891,835.80 (891,835.80) Human Resources Appropriating funds to various salary and benefit accounts in order to fund an additional cost of living adjustment to labor groups' contracts.
011 08/23/2022 City Council GENERAL FUND - 61,212.00 61,212.00 Police To increase expenditure appropriations from the General Fund unappropriated fund balance for ongoing cost increases for the Crossing Guard Services Agreement and added to the PD base
budget.
012 08/23/2022 City Council CONTRIBUTIONS FUND 301,000.00 301,000.00 - Public Works To increase expenditure appropriations for the Junior Lifeguards
Building Project
City of Newport BeachFiscal Year 2022-23 Budget AmendmentsQuarter Ending September 30, 2022
To transfer structural surplus revenue to increase expenditure appropriations. Funds will be allocated to CalPERS UAL Additional
payment for FY 22-23, Facilities Financing Plan and FY 2023-24 Capital Improvement Projects.
VariousCity Council06/14/2022001
06/14/2022002 To increase salary & benefit appropriations to fund the new MOU with Newport Beach Fire Management Association (NBFMA).Human ResourcesCity Council
16
BA #Date Amendment Type Fund Revenues Expenditures
Net Effect on Fund Balance
Increase/(Decrease)Department Explanation
City of Newport BeachFiscal Year 2022-23 Budget AmendmentsQuarter Ending September 30, 2022
GENERAL FUND 200,000.00 200,000.00 -
014 09/27/2022 City Manager NB ARTS FOUNDATION-
PROGRAMMING
- 9,881.00 - Library 2022 City Arts Comission Marina Park Concert
015 09/27/2022 City Council OTS GRANT FUND 350,000.00 350,000.00 - Police To increase revenue estimates and expenditure appropriations to accept the 2023 State of California, Office of Traffic Safety (OTS) Selective Traffic Enforcement Program (STEP) Grant (#PT23055) for increasing DUI Enforcement and Awareness and funding additional traffic safety enforcement, as well as DUI Sobriety Checkpoints.
Funds will be used to pay for overtime costs specifically used for this program, related costs for travel and training, and supplies.
GENERAL FUND - 80,616.78 (80,616.78)
GENERAL FUND - 33,223.00 (33,223.00)
GENERAL FUND - 10,000.00 (10,000.00)
GENERAL FUND 5,000.00 5,000.00 -
GENERAL FUND 5,000.00 5,000.00 -
GENERAL FUND - - -
GENERAL FUND - --
GENERAL FUND 19,281.50 19,281.50
-
Accept funds from Friends of the Newport Beach Library to the Newport Beach Public Library.LibraryCity Council08/23/2022013
Human Resources To increase salary & benefit appropriations to fund the new MOU with the Association of Newport Beach Ocean Lifeguards (ANBOL).
017 09/13/2022 City Council Finance To increase budget appropriations to fund the fee study and cost allocation plan services.
016 09/13/2022 City Council
Fire To carry over $10,000 of unspent FY22 Fitness Equipment budget into FY23, per Newport Beach Fire Association MOU, Section 4.I.1.
019 09/27/2022 City Manager Harbor Accepting and appropriating grant monies from the State of California
Department of Fish and Wildlife, Office of Spill Prevention and Response for the purchase of oil spill response equipment.
018 09/13/2022 City Manager
Library Literacy Services Special Deposit - Literacy Program Expenses
021 09/27/2022 City Manager Library Transfer appropriation from Central Library Budget to Library Admin Budget for Librarian III for remainder of FY23 - beginning Pay Period 2307 - 20 Pay Periods.
020 09/27/2022 City Manager
CDD To transfer existing budget appropriations from professional services to salary and benefit accounts to fund one full time Code Enforcement Officer I for the remainder of FY23.
023 09/27/2022 City Manager Library Transfer to accept check from Dorothy Arens Ressel Trust and increase expenditure in Library Account.
022 09/27/2022 City Council
17
10/20/22
Scheduled Date Agenda Title Report Type Agenda Description
Thursday, October 20, 2022
Rescheduled from September Overview of Police Department Budget Presentation Staff will provide the Committee with a presentation covering the budget for the
Police Department.
Revenue Audit Program Update Presentation
Staff will provide an update on audits conducted by the Revenue Division to
verify transient occupancy tax (hotels, agents and residential owners), charter
boat company, waste hauler, etc. revenue collections.
Budget Amendments for Quarter Ending September 30, 2022 Receive and File Staff will report on the budget amendments from the prior quarter.
Thursday, November 10, 2022 CalPERS Update Presentation
Staff will provide the Committee with an overview of the data from the latest
actuarial reports from CalPERS as well as their impact on prior projections of
the paydown of the City's unfunded pension liability.
Rescheduled from October Recommended Changes to Purchasing Policies Presentation
Staff will provide on overview of recommended changes to the City's purchasing
policies for the Committee's consideration, in follow-up to the Internal Audit
Program report presented to the Committee in January.
Year-End Budget Results and Surplus Allocation Presentation Staff will provide a presentation regarding the year-end budget results for FY
2021-22 and recommendations for allocation of any year-end budget surplus.
First Quarter Budget Update Presentation Staff will provide a presentation regarding the year-to-date and projected FY
2022-23 budget performance.
Internal Audit Program Update Presentation Bi-monthly progress update on the internal audit program.
November 2022
December 2022
Committee Recess
Newport Beach Finance Committee Work Plan
October 2022
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10/20/22
Scheduled Date Agenda Title Report Type Agenda Description
Newport Beach Finance Committee Work Plan
Thursday, January 12, 2023 Financial Statement Audit Results and Related Communication Presentation The City’s external auditors will meet with the Finance Committee to discuss the
results of their audit for the fiscal year ending June 30, 2022.
Rescheduled from November Long Range Financial Forecast (LRFF) Update Presentation Staff will brief the Committee regarding the results of the updated LRFF
analysis.
Internal Audit Program Reports Presentation Presentation of reports, findings, and recommendations from the FY 2021-22
audit program.
Internal Audit Program Work Plan Review Presentation Selection of audit topics for the FY 2022-23 audit program.
New Item Enabling Resolution Review Presentation
Staff will provide the Committee with an overview of the Committee's enabling
resolution and the responsibilities delineated therein. The Committee can then
provide staff will feedback regarding any additional topics that should be added
to the Committee's Work Plan.
Budget Amendments for Quarter Ending December 31, 2022 Receive and File Staff will report on the budget amendments from the prior quarter.
Thursday, February 16, 2023 Capital Improvement Program (CIP) Update Presentation Staff from Public Works will provide an update on what is planned for inclusion
in the FY 2023-24 CIP.
Facilities Financial Plan (FFP) and Harbor & Beaches Master Plan Presentation
Staff will provide an update on the current status of FFP and Harbor & Beaches
Master Plan funding. Staff will also highlight changes to the development fee
funding projection methodology for the FFP.
New Item Harbor Department Budget and Staffing Review Presentation
Staff will provide an updated overview of the status of the Harbor Department's
budget and staffing, as well as possible future budget enhancements for the
Department.
Second Quarter Budget Update Presentation Staff will provide a presentation regarding the year-to-date and projected FY
2022-23 budget performance.
Thursday, March 16, 2023 Fiscal Year 2022-23 Fee Study Update Presentation Staff will present the Master Fee Schedule to the Finance Committee prior to
presenting it to the City Council.
Overview of Revenue Projections Presentation
Staff will provide the Committee with an overview of the assumptions utilized to
prepare revenue projections for the City's major funds as part of the FY 2023-24
budget preparation process.
Internal Audit Program Update Presentation Bi-monthly progress update on the internal audit program.
January 2023
February 2023
March 2023
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10/20/22
Scheduled Date Agenda Title Report Type Agenda Description
Newport Beach Finance Committee Work Plan
Thursday, April 13, 2023 Proposed FY 2023-24 Budget Overview Presentation Staff will provide the Committee with an overview of the expenditure budget for
FY 2023-24 that will be presented to the City Council in May.
OPEB Actuarial Valuation Report Update Presentation Staff will provide the Committee with an overview of the latest actuarial
valuation report prepared by the City's actuary.
Budget Amendments for Quarter Ending March 31, 2023 Receive and File Staff will report on the budget amendments from the prior quarter.
Thursday, May 11, 2023 Third Quarter Budget Update Presentation Staff will provide a presentation regarding the year-to-date and projected Fiscal
Year 2022-23 budget performance.
Follow-Up Discussion of Proposed FY 2023-24 Budget Discussion
Staff will provide the Committee with a copy of the Fiscal Year 2023-24
proposed budget document. Should the Committee wish to continue April's
discussion of the Fiscal Year 2023-24 budget, this is also an opportunity to do
so.
Internal Audit Program Update Presentation Bi-monthly progress update on the internal audit program.
Tuesday, May 23, 2023 Joint City Council and Finance Committee Study Session Presentation Staff will present the FY 2023-24 proposed budget to the City Council and
Finance Committee.
Thursday, May 25, 2023 Financial Statement Auditor's Communication with the Finance Committee acting
as the City's Audit Committee Presentation
The City's external auditors, Davis Farr LLP, will provide an overview
presentation regarding the audit process and request feedback from the
Committee regarding any information that may assist them in their audit of the
City's financial statements.
Committee Recommendation to Council for the FY 2023-24 Budget Discussion
Discussion of the Study Session earlier in the week and formulation of any
recommendations to be presented to the City Council at the budget public
hearing in June.
August 2023
Committee Recess
April 2023
June 2023
Committee Recess
Committee Recess
July 2023
May 2023
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