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Finance Committee Meeting Minutes
February 11, 2016
Page 1 of 8
CITY OF NEWPORT BEACH
FINANCE COMMITTEE
FEBRUARY 11, 2016 MEETING MINUTES
I. CALL MEETING TO ORDER
The meeting was called to order at 4:00 p.m. in the Crystal Cove Conference Room, Bay 2D, 100
Civic Center Drive, Newport Beach, California 92660.
II. ROLL CALL
PRESENT: Council Member Keith Curry (Chair), Mayor Diane Dixon, Council
Member Tony Petros, Committee Member Patti Gorczyca, Committee
Member William C. O’Neill, Committee Member Larry Tucker, and
Committee Member John Warner
STAFF PRESENT: City Manager Dave Kiff, Finance Director/Treasurer Dan Matusiewicz,
Deputy Finance Director Steve Montano, Assistant City Manager Carol
Jacobs, Municipal Operations Director George Murdoch, IT Manager
Rob Houston, Municipal Operations Director Mike Pisani, Budget
Manager Susan Giangrande, Administrative Manager Cindy Owens,
Senior Human Resources Analyst Maggie Williams-Dalgart, Human
Resources Director Barbara Salvini, and Administrative Specialist to the
Finance Director Marlene Burns
MEMBER OF THE
PUBLIC: Jim Mosher
III. PUBLIC COMMENTS
Chair Curry opened public comments.
Jim Mosher commented on the budget being posted on the City’s website but noted that it is
missing the revenue pages and asked whether the revenue projections will be posted and
whether it will be different than the proposed budget. Additionally, he hoped that the Finance
Committee will review the City’s legal costs.
Chair Curry closed public comments.
IV. CONSENT CALENDAR
A. MINUTES OF JANUARY 14, 2016
Recommended Action:
Approve and file.
Corrections were offered to the minutes of January 14, 2016.
Chair Curry opened public comments.
Seeing no one wishing to address the Finance Committee, Chair Curry closed public comments.
Finance Committee Meeting Minutes
February 11, 2016
Page 2 of 8
Committee Member Gorczyca commented on some needed changes to correct the January 14,
2016, Finance Committee Minutes. The motion carried, with Council Member Petros and
Committee Member Warner, abstaining.
V. CURRENT BUSINESS
A. IMPLEMENTATION OF BUDGET PREPARATION FRAMEWORK – REVIEW OF
OPERATING BUDGET, SESSION 5 – MUNICIPAL OPERATIONS
Summary:
During recent Finance Committee meetings, members discussed pursuing actions for
bringing greater transparency and accountability during the annual budget development
process. Staff believes that following a proposed budget preparation framework consisting of
budget principles, and associated strategies and tactics can be a reliable vehicle for
improving the City’s budget process. In furtherance of Budget Framework Tactic T.10.1, the
goal of this presentation will be to familiarize members of the Finance Committee with the
elements of the Fiscal Year 2015-2016 Municipal Operations Department budget, provide
opportunity for questions, and to gain clarity in the funding allocations for departmental
programs.
Recommended Action:
In furtherance of Budget Framework Tactic T.10.1, review, ask questions, and provide
comment relating to the Municipal Operations Department Fiscal Year 2015-2016 operating
budget.
Municipal Operations Director Mike Pisani provided a brief overview of the Municipal Operations
Department and displayed a PowerPoint presentation. He addressed the various tasks, the
Department’s mission, educating the public in terms of the differences between Municipal
Operations and Public Works, responsibilities, response times and staffing.
Municipal Operations Director George Murdoch highlighted the utilities side of the Municipal
Operations Department including the organizational chart, reductions in staffing, administrative
staff, and funding for the various positions.
Discussion followed regarding the budget and task interactions between Municipal Operations
and Parks and Recreation.
Mayor Dixon asked for clarification of the various Enterprise funds and Municipal Operations
Director Pisani noted that is included in the presentation.
In reply to Council Member Petros’s question regarding increases in staffing relative to
street/sidewalk/beach maintenance, Municipal Operations Director Pisani explained that had to
do with the restructuring and explained that beach maintenance was transferred to the Field
Maintenance Division and that the Operations Support Division was reduced and there was no
net gain of employees.
Municipal Operations Director Murdoch continued with the presentation noted that Municipal
Operations is the largest Department (in terms of dollars) in the City.
City Manager Dave Kiff added that, in large part, is due to contracted services.
Municipal Operations Director Pisani addressed the Municipal Operations budget, by fund, and in
response to Mayor Dixon’s inquiry, he reported on the various enterprise funds in relation to
staffing.
Finance Committee Meeting Minutes
February 11, 2016
Page 3 of 8
Discussion followed whether the liability for specific staff is funded by enterprise funds as well.
City Manager Kiff stated that the department’s salary and benefit costs come out of the enterprise
funds and are carried through to the overall liability of the City. He addressed how the sewer
enterprise fund pays for the unfunded liability that goes to CalPERS.
Discussion followed regarding separating employee-related costs into the various enterprise
funds.
In response to Committee Member Gorczyca’s inquiry, Municipal Operations Director Murdoch
addressed overtime funding under the separate enterprise funds.
Municipal Operations Director Pisani added that his division works similarly, but with the General
Fund. He addressed the five-year operating budget overview and noted salaries and benefits
have been relatively flat over the past five years. Salaries and benefits are 25 percent of the
budget.
Municipal Operations Director Pisani addressed revenues collected from recycling and from
CR&R for rental of the City’s transfer station and others.
Discussion followed regarding oil and gas, the Tidelands fund, price of oil per barrel, the
equipment fund, the possibility of insourcing with the City of Fountain Valley relative to their fire
equipment and the trash transfer station.
In response to Committee Member Warner’s question, City Manager Kiff stated that a good
question to consider is whether there are other vendors out there that need a transfer station.
The trash collection industry is a small group and all of them have their own transfer capability.
He questioned whether there is a market for that service.
Mayor Dixon noted that, as a result of outsourcing to CR&R, 25 full-time employees have
decreased. Municipal Operations Director Pisani stated that ten are still employed by the City.
He addressed reductions in staffing from 2008 to today.
In reply to Committee Member Tucker’s question, Municipal Operations Director Pisani reported
that salaries are flat.
City Manager Kiff added that the City cannot quickly rid itself of the PERS liability that is assigned
to both current and former employees. He stated that the City’s ongoing pension liability can be
represented by a gentle downward curve over time, instead of a steep downward curve.
Chair Curry added that it would be substantially higher, if those positions had not been
eliminated.
Municipal Operations Director Pisani addressed outsourcing.
In response to Mayor Dixon’s question, City Manager Kiff reported that right after the recession,
the City offered two retirement incentives and many Municipal Operations employees took them
and left the City’s employment. He added that the City contracted out many of those positions,
including street-sweeping.
Discussion followed regarding reductions in staffing, the number of positions that were eliminated,
jobs that were absorbed and services that were contracted out.
City Manager Kiff gave examples resulting from the consolidation, such as, litigation due to tree
liabilities and public/resident complaints.
Finance Committee Meeting Minutes
February 11, 2016
Page 4 of 8
Regarding cutting services, Municipal Operations Director Pisani noted that residents still want to
see nice-looking medians and parks.
In reply to an inquiry by Committee Member Warner, City Manager Kiff reported that contract
prices that were coming in were cheaper than the City’s ability to do the same task.
Chair Curry commented on the savings to pension costs.
Discussion followed regarding accrued pension liabilities paid by the City, for people who no
longer work for the City.
Chair Curry noted that 60 percent of the City’s pension costs are related to people who no longer
work for the City.
Discussion followed regarding positions eliminated including trash workers.
Committee Member Tucker commented on unfunded liabilities and off-setting contracts.
In response to Committee Member Gorczyca’s question regarding comparisons with other
municipalities and benchmarking, Municipal Operations Director Murdoch stated that it is difficult
to do so, as services offered may differ. Staff went through that exercise, early on, in terms of
making comparisons with benchmarks, and will continue to do so, as part of the City’s
performance plan.
Municipal Operations Director Pisani addressed services for outsourcing.
Discussion followed regarding cost savings achieved through contracting out services versus
providing them in-house, looking at all of the costs in determining whether or not to outsource
including pension costs and prevailing wages and fluctuations in the economy.
Finance Director/Treasurer Dan Matusiewicz added that theoretically, when an employee leaves
the City, there should be no unfunded liability, but, there have been extraordinary circumstances
that have created the current situation.
Committee Member Warner noted that those will never go away.
City Manager Kiff agreed and reported what he has seen in terms of contractors cutting back on
the level of service. He added that it is always a struggle.
Committee Member Warner suggested determining whether by paying a contractor a really fair
price, the level of service would remain high.
City Manager Kiff reported that the City has outsourced all of the services that are commonly
outsourced by other cities.
In reply to Council Member Petros’s question regarding the bid out to the fire equipment service if
the City’s bid is at least equivalent to the cost of the service and the pension liability, Assistant
City Manager Carol Jacobs stated that in the City’s bid for fire equipment service, there is a
portion of the cost of service rate that incorporates pension costs.
It was noted that the City does not contract out for police car service; the Police Department
maintains their own vehicles.
Council Member Petros referenced the City’s bid to the City of Fountain Valley and suggested
that if there is residual capacity, it would be better for the City to use it than to contract out.
Finance Committee Meeting Minutes
February 11, 2016
Page 5 of 8
City Manager Kiff reported there are studies that show that remedial work is cheaper in the
private sector than having City staff doing it.
In response to Mayor Dixon’s question regarding the recent waste-water outsourcing review and
whether long-term pension liability was factored in, Municipal Operations Director Murdoch
reported that the unfunded liability remains whether the City retains the function, or not.
Chair Curry opened public comments.
Jim Mosher commented on the evolution of the Municipal Operations Department, outsourcing
contracts and ensuring that the service can be provided by requiring a surety or guarantee,
referenced Attachment C relative to the City’s electrical bill and wondered regarding savings from
LED conversion, the lack of a sewer use fee, and questioned the item related to Outside Counsel
Special Litigation.
Chair Curry closed public comments.
Brief discussion followed regarding costs related to ERP implementation and total waste-water
utility expenses, the City’s five-year strategic plan, justification for IT expenses in the future,
finding efficiencies in automated systems and administration and benefits of the new software
including improving access and increasing transparency.
B. CALPERS PENSION PLAN UPDATE AND ANALYSIS OF PAYMENT ALTERNATIVES
Summary:
Staff will summarize the results from our latest actuarial valuation and financial options to
manage the current obligation. Discussion will include fresh start options as well as the
option for contributing surplus funds to an irrevocable pension “reserve/stabilization” trust.
Recommended Action:
Provide policy direction related to the proposed funding options, suggest further changes as
needed and if applicable, recommend a funding option for submission to the City Council for
approval.
Finance Director/Treasurer Matusiewicz presented details of the staff report addressing
objectives and the need for the Committee’s direction. He presented policy decisions that need
to be made regarding PERS and reviewed a handout distributed under separate cover. He
addressed the current amortization policy and a recommendation to deploy a partial fresh start.
He reported that the CalPERS the default payment schedule uses a 5 year phase-in period and
represents the minimum required contribution. The longer phase-in schedule makes payments
initially more affordable, but more expensive over the long-run. Newport Beach has the
resources to accelerate funding, which can save money by bypassing the phase-in period. He
illustrated several options and noted difference that it makes in terms the term of the payment
schedule and monetary difference
In response to Committee Member Warner’s inquiry, Finance Director/Treasurer Matusiewicz
reported that the City paid roughly $20 million toward its unfunded liabilities each year.
Discussion followed regarding the ability to change in the future, by combining with another base,
the possibility of a short-fall, recommendations to take a partial fresh start, dealing with a mortality
loss, payment options and long-term savings.
In reply to Council Member Petros’s question, Finance Director/Treasurer Matusiewicz detailed
the benefits of the various payment options.
Finance Committee Meeting Minutes
February 11, 2016
Page 6 of 8
Discussion followed regarding source of the funds, setting aside money from the surplus,
considering projected revenues, monitoring monthly revenue versus projected revenue,
anticipated revenue surpluses and mid-year opportunity to make budget adjustments/corrections.
In response to Committee Member Tucker’s question, Finance Director/Treasurer Matusiewicz
addressed anticipated contingencies to deal with increased future pension demands including
hastening the use of credit bases with PERS the City’s own $40 million contingency reserve.
Discussion followed regarding dealing with State mandates in the future and problems in relation
to the State not giving the City the proper tools. It was noted that even if a city goes bankrupt,
pension obligations are not necessarily discharged.
Committee Member Gorczyca commented on the importance of maintaining flexibility and
adapting. She suggested setting aside money and investing it or looking at other alternatives
rather than depending on CalPERS.
Chair Curry stated that assumes that the City could invest its money with an entity with greater
expertise and efficiency than CalPERS and noted there is no evidence to suggest that is true.
Discussion followed regarding the benefits of diversification and Chair Curry stated he is unsure
whether the City could realistically achieve that and commented on the possibility of the City
compounding a loss.
Mayor Dixon added that the whole idea is to pay the least amount possible.
Chair Curry stressed there is no evidence that the City can invest at a better return than
CalPERS.
Committee Member Tucker questioned obligations over the long-haul. He noted that the biggest
costs involve Police and Fire services and a potential shift in mortality rate.
Chair Curry noted that the City’s options are limited in terms of CalPERS.
Discussion followed regarding potential risks by having the City invest in the stock market
independently rather than paying down the liability CalPERS.
Chair Curry stated he would not recommend investing the City’s cash reserves in the stock
market and gave his opinion regarding the payment options. Chair Curry opined that it would be
incrementally beneficial, but won’t do much. He warned that if we don’t do this now, in a year, the
hole will be bigger. We can afford to do this with the surplus from this year. There is no
tremendous significance to this.
Committee Member Warner departed at 5:41 p.m.
Chair Curry opened public comments.
Jim Mosher commented on the matter being speculative and suggested that the City may want to
get out of a debt, as quickly as possible.
Chair Curry closed public comments.
Council Member Petros moved, and Mayor Dixon seconded, to recommend a funding option, as
discussed above, for submission to the City Council for approval. The motion carried, with
Committee Member Warner, absent.
Finance Committee Meeting Minutes
February 11, 2016
Page 7 of 8
C. FINANCE COMMITTEE CHARTER REVIEW AND UPDATE
Summary:
The resolution authorizing the purpose and responsibilities of the Finance Committee was
last updated by Resolution No. 2015-40, as adopted May 26, 2015. Staff reviews this
resolution with the Finance Committee on an annual basis and welcomes any discussion or
consideration for updating. Any changes to the resolution will require formal City Council
approval.
Recommended Action:
Review and provide guidance for updating the Finance Committee Charter.
Chair Curry commented on using the time of the Finance Committee in an effective way to make
the most difference in the City. He requested input from the Committee, in that effort.
Committee Member Tucker stated he now understands how the unfunded pension liabilities work.
He commented on the Committee’s objectives relative to making recommendations to City
Council and Council’s goals in obtaining input from the Committee. He suggested forming a
subcommittee to start the process of determining how the Committee can address various issues
and recommendations to present to Council, such as what occurred with the waste-water rate.
He added that the subcommittee would go through a vetting process prior.
Chair Curry and Mayor Dixon agreed with Committee Member Tucker’s comments.
Council Member Petros expressed his support and departed the meeting at 5:48 p.m.
Discussion followed regarding looking at policies, developing ideas relative to developing financial
and budgetary policies and giving the Committee an opportunity to structure recommendations.
Mayor Dixon moved, and Committee Member Tucker seconded, to form a subcommittee made
up of Finance Committee Citizen Members to look for ways to maximize revenues, minimize
costs and present these to the full Finance Committee.
Chair Curry opened public comments.
Jim Mosher agreed that establishing a subcommittee is a good idea, but noted that the matter
was not on today’s agenda and stated that the subcommittee would be advising the Finance
Committee which will, in turn, advise City Council.
Chair Curry closed public comments.
The motion carried, with Council Member Petros and Committee Member Warner, absent.
D. WORK PLAN OVERVIEW
Summary:
Staff will present and seek approval of the revised Finance Committee agenda topics
scheduled for the calendar year. Proposed changes include additional committee meetings
to review the entirety of the proposed Fiscal Year 2016-2017 budget. The work plan
represents the planned topics of discussion; however, is subject to change based on the
availability of information and the need to schedule other topics as they arise.
Recommended Action:
Review and approve the tentative Finance Committee agenda topics.
Finance Committee Meeting Minutes
February 11, 2016
Page 8 of 8
Deputy Finance Director Steve Montano provided details of the staff report and noted the addition
of three sessions for the Finance Committee to review the budget. Meetings would be on March
10, April 28 and May 5.
It was noted that the budget should go to Council for adoption on June 14, 2016.
Discussion followed regarding changes in the Finance Committee meeting dates in September
and December. The Finance Committee will meet on May 5 instead of May 12 and the April
regular meeting will be on April 28.
Chair Curry noted there will be no meetings in July or August.
Chair Curry opened public comments.
Jim Mosher commented on the selection of a new Auditor in June.
Chair Curry closed public comments.
Finance Director/Treasurer Matusiewicz reported that staff is in the process of preparing a
request for proposal and a recommendation would be brought back to Finance Committee
E. BUDGET AMENDMENTS
Summary:
Staff will report on the budget amendments for the prior quarter. All budget amendments are
in compliance with City Council Policy F-3, Budget Adoption and Administration.
Recommended Action:
Receive and file.
Committee Member O’Neill stated he asked for the information and has no questions.
VI. FINANCE COMMITTEE ANNOUNCEMENTS ON MATTERS WHICH MEMBERS WOULD LIKE
PLACED ON A FUTURE AGENDA FOR DISCUSSION, ACTION OR REPORT (NON-
DISCUSSION ITEM) - None
VII. ADJOURNMENT
The Finance Committee adjourned at 6:00 p.m. to the next regular meeting of the Finance
Committee on March 10, 2016, at 4:00 p.m.
Filed with these minutes are copies of all materials distributed at the meeting.
The agenda for the Regular Meeting was posted on February 6, 2016, at 4:03 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:
___________________________________ _____________________
Keith Curry, Chair Date
Finance Committee Chair
CITY OF NEWPORT BEACH
FINANCE COMMITTEE STAFF REPORT
Agenda Item No. 5A March 10, 2016
TO: HONORABLE CHAIRMAN AND MEMBERS OF THE COMMITTEE
FROM: Finance Department Dan Matusiewicz, Finance Director
(949) 644-3123, danm@newportbeachca.gov
SUBJECT: FISCAL YEAR 2014-2015 AUDIT RESULTS
SUMMARY:
In connection with the City’s financial statement audit, the auditors have expressed an
“unmodified” opinion of the City’s 2014-2015 financial statements, meaning they are
presented fairly, in all material respects. In connection with the Single Audit, a
compliance audit of federally assisted grant programs, the auditors did not note any findings or questioned costs. The auditors also have certain obligations to communicate
the audit results with both City Council and management. The attached letters from the
City’s auditors, White Nelson Diehl Evans, fulfill those obligations for the required
communication.
RECOMMENDED ACTION:
Receive and file.
DISCUSSION:
The first audit letter (see Attachment A) is intended to communicate matters of particular
significance that City Council should be aware of including:
• Qualitative Aspects of Accounting Practices
• Difficulties Encountered in Performing the Audit
• Corrected and Uncorrected Adjustments
• Disagreements with Management
• Management Representations
• Management Consultations with Other Independent Accountants
• Other Audit Findings or Issues
Fiscal Year 2014-2015 Audit Results March 10, 2016
Page 2 The auditors reported no significant difficulties encountered in connection with the performance of the audit, disagreements with management or other audit findings or
issues. They did report audit adjustments that were subsequently incorporated into the
City’s financial statements or waived because they were immaterial to the report.
The second letter (see Attachment B) entitled “Independent Auditors’ Report on Internal Control Over Financial Reporting and on Compliance and Other Matters” is intended to
communicate deficiencies, significant deficiencies or material weaknesses in internal
control and instances of non-compliance or other matters. We are pleased to report that
the auditors did not identify any deficiencies in internal control considered to be a material weakness that would result in more than a remote likelihood of a material misstatement of the financial statements or would not otherwise be prevented by the
City’s internal controls.
As noted above, they communicated certain recommended adjustments to financial statements, as initially prepared. They did not identify any instances of noncompliance or other matters that require specific communication to the governing body as
promulgated by Government Auditing Standards.
A detailed explanation of the deficiencies and the corrective actions are as follows: I. During their review of accounts receivable, the auditors noted the City had
identified receivables as uncollectible, but left the uncollectible amounts in
the year end balances resulting in an overstatement of the receivable and
unavailable revenue amounts. Explanation
The Contributions Fund is used to account for revenues received from other
governmental agencies or private developers and are expended for specific
projects. The receivable represented the cumulative total of different capital project grants that did not materialize over a period of years. Working together with Public Works, staff had identified that certain receivables that were no longer
collectible. Staff recommended budget adjustments to cover the uncollectable
amounts which were subsequently approved by Council in the Fiscal Year 2015-
2016 budget. Due to simple oversight, staff failed to remove the uncollectible portion from the 2014-2015 balance sheet. This oversight had no effect on fund balance because the receivable was offset by a liability. The offsetting liability is
an acknowledgment that the receipt of this receivable would not likely be
available for appropriation in the near term.
Corrective Action Failure to remove the receivable and offsetting liability from the balance sheet
was an oversight. Staff should have removed the receivable and liability at the
Fiscal Year 2014-2015 Audit Results March 10, 2016
Page 3 time of discovery. In the future, Finance staff will remove these balances when identified.
II. During their review of liabilities, the auditors noted a liability account with a
significant debit balance. An audit adjustment was needed to remove the
debit balance resulting in an increase in expenses to the payroll clearing account.
Explanation
Payroll clearing funds are used by organizations to temporarily gather and isolate
specific funds associated with payroll obligations including net salaries, benefits, taxes, voluntary deductions, garnishments and more. Monies are transferred from contributing departments or withheld from employee salaries for their
intended purpose. In a perfect world, all clearing accounts would zero-out after
each payroll or at the end of a given month. Various timing and employment
status issues generally prevent the payroll clearing fund to ever maintain a zero balance. At the time of the audit, a debit balance relating to CalPERS pension payments was identified in the clearing fund. A previous software update in our
former ERP system introduced an error where departments were being
undercharged for their pension expense. However, the pension remittance
report, generated by the same system, contained the correct amount. So while CalPERS received the correct pension payment, departments were undercharged causing a debit balance in the payroll clearing account.
Corrective Action
The year-end debit balance occurred in the legacy finance system after a change in CalPERS reporting requirements was made. With the implementation of a new integrated finance and payroll system, staff will have better tools to reconcile
transitory balances on a more timely basis.
III. During their review of liabilities, the auditors identified a long-standing liability for non-refundable record management fees. Due its materiality, the amount should have been recorded as revenue and assigned to a
reserve account instead.
Explanation Fees collected for record management fees in the Community Development Department are intended to offset the cost of imaging building permit records. A
portion of these fees were being set aside to enhance the permit system’s digital
plan submission capabilities which would reduce the cost of imaging records on
the back end. Establishing a “trust” liability account is an administratively efficient means of setting aside revenue for its intended purpose (e.g., a donation for a memorial park bench) but the accounting treatments is not technically correct
since the beneficiary of the deposit is the City and not some other entity. Over
the span of several years and by the end of Fiscal Year 2015, the balance of the
Fiscal Year 2014-2015 Audit Results March 10, 2016
Page 4 records management deposits increased to $397,000 reflecting the savings plan for the planned digital permit enhancements. As the balance became material, the City should have recorded a revenue instead of a deposit to a trust liability
account.
Corrective Action Going forward, staff will review such liability accounts more frequently and shall recognize deposits as revenue when material.
Items of lesser significance are documented in the third letter designated as
Management Letter (see Attachment C). There was one management comment on billing for moorings at a lower rate and no instances of non-compliance concerning federal award programs as indicated below.
IV. During their review of the City’s customer billings, the auditors noted that
City Council had approved a mooring rate of $27.71; however, billings were processed using a lesser rate of $27.21.
Explanation
The use of the incorrect rate was introduced through email communication
between departments who need to be notified about the new rate. Corrective Action
The City will implement procedures to ensure new rates are reviewed and
compared to the source documents upon implementation. Billing staff will
validate new rates to source documentation or Council action when available. You will have the opportunity to speak to the auditors, without staff present, to answer
any questions that you might have concerning the Fiscal Year 2014-2015 Audit.
Prepared by: Submitted by:
/s/ Rukshana Virany
/s/ Dan Matusiewicz
Rukshana Virany Dan Matusiewicz
Accounting Manager Finance Director
Attachments:
A. Auditor’s “Audit Committee Letter”
B. Auditor’s Letter “Independent Auditors’ Report on Internal Control
Over Financial Reporting and on Compliance and Other Matters” C. Auditor’s “Management Letter”
ATTACHMENT A
Auditor’s “Audit Committee Letter”
2875 Michelle Drive, Suite 300, Irvine, CA 92606 • Tel: 714.978.1300 • Fax: 714.978.7893
Offices located in Orange and San Diego Counties
- 1 -
To the Honorable Mayor and
Members of the City Council
of the City of Newport Beach
Newport Beach, California
We have audited the financial statements of the governmental activities, the business-type activities,
each major fund, and the aggregate remaining fund information of the City of Newport Beach,
California (the City),for the year ended June 30, 2015. Professional standards require that we provide
you with information about our responsibilities under generally accepted auditing standards and
Government Auditing Standards, as well as certain information related to the planned scope and timing
of our audit. We have communicated such information in our planning communication letter to you
dated June 24, 2015. Professional standards also require that we communicate to you the following
information related to our audit.
Significant Audit Findings
Qualitative Aspects of Accounting Practices
Management is responsible for the selection and use of appropriate accounting policies. The significant
accounting policies used by the City are described in Note 1 to the financial statements. As discussed
in Notes 1d and 17 to the financial statements, the City has recorded the net pension liability, deferred
outflows of resources, and deferred inflows of resources related to the agent multiple employer defined
benefit pension plans due to the adoption of Governmental Accounting Standards Board’s (GASB)
Statement No.68, “Accounting and Financial Reporting for Pensions”and Statement No.71,
“Pension Transition for Contributions Made Subsequent to the Measurement Date, an Amendment of
GASB Statement No. 68”. The adoption of these standards required retrospective application resulting
in a reduction of previously reported net position of the governmental activities, business-type
activities, water enterprise fund, wastewater enterprise fund, and internal service funds. No other
accounting policies were adopted and the application of other existing policies was not changed during
the year ended June 30, 2015. We noted no transactions entered into by the City during the year for
which there is a lack of authoritative guidance or consensus. All significant transactions have been
recognized in the financial statements in the proper period.
Accounting estimates are an integral part of the financial statements prepared by management and are
based on management’s knowledge and experience about past and current events and assumptions
about future events. Certain accounting estimates are particularly sensitive because of their
significance to the financial statements and because of the possibility that future events affecting them
may differ significantly from those expected.
-2 -
Significant Audit Findings (Continued)
Qualitative Aspects of Accounting Practices (Continued)
The most sensitive estimates affecting the City’s financial statements are as follows:
a.Management’s estimate of the fair market value of investments, which is based on
market values provided by outside sources.
b.Management’s estimate of the value of capital assets (infrastructure assets) is based
on industry standards.
c.The estimated useful lives of capital assets for depreciation purposes are based on
industry standards.
d.The annual required contributions, pension expense, net pension liability and
corresponding deferred outflows of resources and deferred inflows of resources for
the City’s public defined benefit plans with CalPERS are based on actuarial
valuations provided by CalPERS.
e.The annual required contribution and actuarial accrued liability for the City’s Other
Post-Employment Benefit Plan are based on certain actuarial assumptions and
methods prepared by an outside consultant.
f.Management’s estimate of the claims payable liabilities related to general liability
and worker’s compensation claims are based on actuarial valuations.
We evaluated the key factors and assumptions used to develop these estimates in determining that they
were reasonable in relation to the financial statements taken as a whole.
Certain financial statement disclosures are particularly sensitive because of their significance to
financial statement users. The most sensitive disclosures affecting the financial statements were
reported in Note 8 regarding claims payable, Note 10 regarding the CalPERS defined benefit plans,
Note 11 regarding the City’s Other Post-Employment Benefit Plan, and Note 17 regarding the
restatement of net position.
The financial statement disclosures are neutral, consistent, and clear.
Difficulties Encountered in Performing the Audit
We encountered no significant difficulties in dealing with management in performing and completing
our audit.
Corrected and Uncorrected Misstatements
Professional standards require us to accumulate all known and likely misstatements identified during
the audit, other than those that are trivial, and communicate them to the appropriate level of
management. The attached schedule summarizes uncorrected misstatements of the financial statements.
Management has determined that their effects are immaterial, both individually and in the aggregate, to
the financial statements taken as a whole.
-3 -
Significant Audit Findings (Continued)
Corrected and Uncorrected Misstatements (Continued)
Also, the following material misstatements detected as a result of audit procedures were corrected by
management:
Removal of uncollectible accounts receivable and the corresponding deferred inflows of
resources, unavailable revenues, totaling $839,053.
Increase in liability and expense in the amount of $1,793,807 to correct a liability account that
contained a significant debit balance.
Recording revenue and removing the liability for non-refundable records management fees
collected by the City totaling $396,711.
Disagreements with Management
For purposes of this letter, a disagreement with management is a financial accounting, reporting, or
auditing matter, whether or not resolved to our satisfaction, that could be significant to the financial
statements or the auditors’ report. We are pleased to report that no such disagreements arose during the
course of our audit.
Management Representations
We have requested certain representations from management that are included in the management
representation letter dated January 26, 2016.
Management Consultations with Other Independent Accountants
In some cases, management may decide to consult with other accountants about auditing and
accounting matters, similar to obtaining a “second opinion” on certain situations. If a consultation
involves application of an accounting principle to the City’s financial statements or a determination of
the type of auditor’s opinion that may be expressed on those statements, our professional standards
require the consulting accountant to check with us to determine that the consultant has all the relevant
facts. To our knowledge, there were no such consultations with other accountants.
Other Audit Findings or Issues
We generally discuss a variety of matters, including the application of accounting principles and
auditing standards, with management each year prior to retention as the City’s auditors. However,
these discussions occurred in the normal course of our professional relationship and our responses
were not a condition to our retention.
Other Matters
We applied certain limited procedures to management’s discussion and analysis, the CalPERS pension
plans schedules of changes in the net pension liability and related ratios -miscellaneous and safety,
and the CalPERS pension plans schedule of contributions -miscellaneous and safety, which is required
supplementary information (RSI) that supplements the basic financial statements.
-4 -
Other Matters (Continued)
Our procedures consisted of inquiries of management regarding the methods of preparing the
information and comparing the information for consistency with management’s responses to our
inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic
financial statements. We did not audit the RSI and do not express an opinion or provide any assurance
on the RSI.
We were engaged to report on the combining and individual non-major fund financial statements and
schedules (supplementary information), which accompany the financial statements but are not RSI.
With respect to this supplementary information, we made certain inquiries of management and
evaluated the form, content, and methods of preparing the information to determine that the
information complies with accounting principles generally accepted in the United States of America,
the method of preparing it has not changed from the prior period, and the information is appropriate
and complete in relation to our audit of the financial statements. We compared and reconciled the
supplementary information to the underlying accounting records used to prepare the financial
statements or to the financial statements themselves.
We were not engaged to report on the introductory and statistical sections, which accompany the
financial statements but are not RSI. We did not audit or perform other procedures on this other
information and we do not express an opinion or provide any assurance on them.
Restriction on Use
This information is intended solely for the use of the City Council and management of the City of
Newport Beach and is not intended to be, and should not be, used by anyone other than these specified
parties.
Irvine, California
January 26, 2016
DESCRIPTION ASSET LIABILITY EQUITY REVENUE EXPENSE
Other Aggregate Funds
Prior Year Fund Balance (41,175)
Reimbursements 41,175
Current Year Reimbursements (131,592) 131,592
Current Year Receivable 342,065
Deposit payable (342,065)
Total Passed Adjusting Journal Entries 342,065 (342,065) (41,175) (90,417) 131,592
Overall Fund Balance Effect -
Water Fund
Current Year Revenue 125,258
Accounts Payable (125,258)
Total Passed Adjusting Journal Entries - (125,258) - 125,258 -
Overall Net Position Effect 125,258
Fiscal Year 2014-2015 Passed Adjusting Journal Entries
City of Newport Beach
To record reconciling cash items as of 6/30/15 in the
Carl Warren Imprest Acct for reimbursements pending
from the City for May and June.
DEBIT (CREDIT)
To record reconciling cash items as of 6/30/14 in the
Hazelrigg Risk Mgmt Imprest Acct for reimbursements
pending from the City.
To accrue a refund due to a customer for fiscal year
2014-2015 consumption. The refund is needed due to an
overbilling that was caused by utilizing an incorrect rate
when billing for reclaimed water.
To accrue the June 2015 tourism bids in the agency
fund, which would represent a receivable and a payable.
June 30, 2015
ATTACHMENT B
Auditor’s Letter “Independent Auditors’ Report on Internal Control Over Financial Reporting and on Compliance and Other Matters”
2875 Michelle Drive, Suite 300, Irvine, CA 92606 • Tel: 714.978.1300 • Fax: 714.978.7893
Offices located in Orange and San Diego Counties
INDEPENDENT AUDITORS’ REPORT ON INTERNAL CONTROL OVER
FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS
BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED
IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS
The Honorable Mayor and
Members of City Council
City of Newport Beach
Newport Beach, California
We have audited, in accordance with the auditing standards generally accepted in the United States of
America and the standards applicable to financial audits contained in Government Auditing Standards
issued by the Comptroller General of the United States, the financial statements of the governmental
activities, the business-type activities, each major fund, and the aggregate remaining fund information
of the City of Newport Beach, California (the City), as of and for the year ended June 30, 2015, and the
related notes to the financial statements, which collectively comprise the City’s basic financial
statements and have issued our report thereon dated January 26, 2016.
Internal Control over Financial Reporting
In planning and performing our audit of the financial statements, we considered the City’s internal
control over financial reporting (internal control) to determine the audit procedures that are appropriate
in the circumstances for the purpose of expressing our opinions on the financial statements, but not for
the purpose of expressing an opinion on the effectiveness of the City’s internal control. Accordingly,
we do not express an opinion on the effectiveness of the City’s internal control.
A deficiency in internal control exists when the design or operation of a control does not allow
management or employees, in the normal course of performing their assigned functions, to prevent, or
detect and correct,misstatements on a timely basis. A material weakness is a deficiency, or a
combination of deficiencies, in internal control such that there is a reasonable possibility that a material
misstatement of the City’s financial statements will not be prevented, or detected and corrected on a
timely basis. A significant deficiency is a deficiency, or a combination of deficiencies, in internal
control that is less severe than a material weakness, yet important enough to merit attention by those
charged with governance.
Our consideration of internal control was for the limited purpose described in the first paragraph of this
section and was not designed to identify all deficiencies in internal control that might be material
weaknesses or significant deficiencies and therefore, material weaknesses or significant deficiencies
may exist that were not identified. Given these limitations, during our audit we did not identify any
deficiencies in internal control that we consider to be material weaknesses. We did identify certain
deficiencies in internal control, described below, that we consider to be significant deficiencies.
Uncollectible Accounts Receivable
Auditors’ Comment and Recommendation
During our review of accounts receivable and deferred inflows of resources, unavailable revenues, we
noted the City had identified receivables as uncollectible, but left the uncollectible amounts in the year-
end balances resulting in an overstatement of the receivable and unavailable revenue amounts.
Uncollectible receivables should be written off when identified. We recommend the City write-off
receivable balances when they have been deemed uncollectible.
Management’s Response
We concur with the recommendation. Failure to remove the receivable and deferred inflow from the
balance sheet was a simple oversight.
Payables
Auditors’ Comment and Recommendation
During our review of liabilities, we noted a liability account with a significant debit balance. Due to
our inquiry, an audit adjustment was needed to remove the debit balance resulting in an increase in
expenses in the fund. The City should have minimal debit balances in liability accounts. We
recommend the City investigate all significant debit balances within liability accounts for
reasonableness.
Management’s Response
The City concurs with this comment and recommendation. While the amount was significant, it was
not unusual as it relates to the magnitude of our bi-weekly payroll and timing of events at year-end.
Compliance and Other Matters
As part of obtaining reasonable assurance about whether the City’s financial statements are free from
material misstatement, we performed tests of its compliance with certain provisions of laws,
regulations, contracts, and grant agreements, noncompliance with which could have a direct and
material effect on the determination of financial statement amounts. However, providing an opinion on
compliance with those provisions was not an objective of our audit, and accordingly, we do not express
such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that
are required to be reported under Government Auditing Standards.
City’s Responses to Comments and Recommendations
The City’s responses to the comments and recommendations identified in our audit are described
above. The City’s responses were not subjected to the auditing procedures applied in the audit of the
financial statements and, accordingly, we express no opinion on them.
Purpose of this Report
The purpose of this report is solely to describe the scope of our testing of internal control and
compliance and the results of that testing, and not to provide an opinion on the effectiveness of the
City’s internal control or on compliance. This report is an integral part of an audit performed in
accordance with Government Auditing Standards in considering the City’s internal control and
compliance. Accordingly, this communication is not suitable for any other purpose.
Irvine, California
January 26, 2016
ATTACHMENT C
Auditor’s “Management Letter”
2875 Michelle Drive, Suite 300, Irvine, CA 92606 • Tel: 714.978.1300 • Fax: 714.978.7893
Offices located in Orange and San Diego Counties
- 1 -
Honorable Mayor and
Members of the City Council
City of Newport Beach
Newport Beach, California
In planning and performing our audit of the financial statements of the governmental activities, the
business-type activities, each major fund, and the aggregate remaining fund information of the City of
Newport Beach, California (the City) as of and for the year ended June 30, 2015, in accordance with
auditing standards generally accepted in the United States of America and Government Auditing
Standards, we considered the City’s internal control over financial reporting (internal control) as a
basis for designing our auditing procedures that are appropriate in the circumstances for the purpose of
expressing our opinions on the financial statements, but not for the purpose of expressing an opinion
on the effectiveness of the City’s internal control. Accordingly, we do not express an opinion on the
effectiveness of the City’s internal control.
A deficiency in internal control exists when the design or operation of a control does not allow
management or employees, in the normal course of performing their assigned functions, to prevent, or
detect and correct, misstatements on a timely basis. A material weakness is a deficiency, or a
combination of deficiencies, in internal control, such that there is a reasonable possibility that a
material misstatement of the City’s financial statements will not be prevented, or detected and
corrected, on a timely basis.
Our consideration of internal control was for the limited purpose described in the first paragraph and
was not designed to identify all deficiencies in internal control that might be material weaknesses.
Given these limitations during our audit, we did not identify any deficiencies in internal control that we
consider to be material weaknesses. However, material weaknesses may exist that have not been
identified. As discussed below, we identified a certain matter involving the internal control and other
operational matters that is presented for your consideration. This letter does not affect our report dated
January 26, 2016 on the financial statements of the City. Our comment and recommendation is
intended to improve the internal control or result in other operating efficiencies. Our comment with
our recommendation for improvement is summarized as follows:
Mooring Rates
Auditors’ Comment and Recommendation
During our review of the City’s customer billings, we noted that City Council had approved a mooring
rate of $27.71; however, billings were processed using a smaller rate of $27.21. The use of the
incorrect rate was introduced through email communication between departments who need to be
notified about the new rate. We recommend the City implement procedures to ensure new rates are
reviewed and compared to the source documents upon implementation.
- 2 -
Mooring Rates (Continued)
Management’s Response
The City concurs with the comment and recommendation. Billing staff will validate new rates to
source documentation or Council action when available.
City’s Response to Comment and Recommendation
The City’s response to the comment and recommendation identified in our audit is described above.
The City’s response was not subjected to the auditing procedures applied in the audit of the financial
statements and, accordingly, we express no opinion on it.
This communication is intended solely for the information and use of management, the City Council,
and others within the City, and is not intended to be, and should not be, used by anyone other than
these specified parties.
Irvine, California
January 26, 2016
Communication with Those Charged with Governance
2015 Audit Results
Item No. 5A1
Fiscal Year 2014-2015 Audit Results
Presentation
March 10, 2016
Outline
Scope of Services
Auditors’ Opinion and Reports
Communication with Those Charged with Governance
New GASB Standards
Scope of Services
Audit of the annual financial statements for the year
ended June 30, 2015 in accordance with Generally
Accepted (US) and Governmental Auditing Standards
Audit of federal grant expenditures under OMB
Circular A-133
Agreed-Upon-Procedures related to the City’s
calculation of the GANN limit
Auditors’ Opinion
Audit of financial statements for the year ended
June 30, 2015
Management is responsible for preparation and fair
presentation of the financial statements
Auditor’s responsibility is to express opinions on the
financial statements
Standards require that audit is planned and performed
to obtain reasonable assurance that financial
statements are free from material misstatement
Auditors’ Opinion
Audit evidence is sufficient and appropriate to provide
a basis of our audit opinions
Unmodified opinions for June 30, 2015
Emphasis of Matter paragraph – Note 1d and Note 17
for restatements
Implementation of GASB Nos. 68 and 71
Management Letter
Material Weaknesses
None noted
Significant Deficiency
Uncollectible accounts receivable
Payables
Noncompliance
None noted
Other Matters
Mooring rates
Auditor’s Reports (Single Audit)
Report on Internal Control Over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards
No material weaknesses noted
Significant deficiencies (2)
Report on Compliance for Each Major Program and on Internal Control Over Compliance Required by OMB Circular A-133 and on the Schedule of Expenditures of
Federal Awards
No significant deficiencies or material weaknesses noted
No compliance findings noted
Communication with Those
Charged with Governance
The planned scope and timing of the June 30, 2015
audit was communicated to the City’s Finance
Committee in a planning letter dated June 24, 2015
Management is responsible for the selection and use of
appropriate accounting policies, which are described
in note 1 to the financial statements
Adoption of GASB Nos. 68 and 71
Management has selected and applied other
significant accounting policies appropriately and
consistently
Communication with Those
Charged with Governance
Significant estimates reported in the financial statements include the following:
Fair market value of investments
Value of capital assets (infrastructure assets)
Estimated useful lives of capital assets for depreciation purposes
Annual required contributions, pension expense, net pension
liability and deferred outflows/inflows of resources of
CalPERS defined benefit pension plan
Annual required contribution and actuarial accrued liability for the City’s OPEB
Claims payable liabilities
Communication with Those
Charged with Governance
The most sensitive disclosures affecting the financial
statements include the following:
Note 8 regarding claims payable
Note 10 regarding the CalPERS defined benefit plans
Note 11 regarding the City’s OPEB
Note 17 regarding the restatement of net position
We encountered no significant difficulties during our
audit.
Communication with Those
Charged with Governance
Corrected and Uncorrected Misstatements.
No such disagreements arose during the course of our
audit.
Representations related to audit obtained from
management in a letter dated January 26, 2016.
To our knowledge, the City did not consult with other
accountants regarding auditing or accounting matters.
New GASB Standards
GASB 72
Fair value measurement and application
GASB 73
Pension guidance for plans not included in GASB 68
GASB 74
Financial reporting for OPEB plans
GASB 75
Financial reporting for employers of OPEB plans
New GASB Standards
GASB 76
Hierarchy of GAAP
GASB 77
Tax abatement disclosures
GASB 78
Amendment to plans included in GASB 68
GASB 79
Certain external investment pools and pool participants
– when to record at amortized cost
FY 17 PROPOSED BUDGET ASSUMPTIONS
FINANCE COMMITTEE MEETING
MARCH 10, 2016
Item No. 5B1
Proposed Fiscal Year 2016-2017 Budget Assumptions
Staff Presentation
March 10, 2016
OVERVIEW
•Economic Overview
•General Fund Revenue
•General Fund Expenditures
•Use of Surplus Funds
•Demonstration of Municast Fiscal Forecast
Model
ECONOMIC OVERVIEW
US and Local Economy Still Moving Along
•Labor markets strong
•Housing still in recovery mode
•Credit expanding on many levels
•California is leading, not lagging the nation
•Travel and tourism still strong
Issues
•Economy is growing at a slow pace
•Pensions costs are rising
•Global economy, particularly Asia is a concern
•TOT growth appears to be leveling off
FY 17 TOTAL PROJECTED GENERAL FUND
REVENUE - $199 M
GROWTH OF GENERAL FUND REVENUE
FY 05 TO FY 17
PROPERTY TAX
GROWTH OF ASSESSED VALUATION
7
NEWPORT BEACH PROPERTY TAX BREAKDOWN
$0.3940 Newport-Mesa Unified General Fund
$0.1715 Newport Beach General Fund
$0.1683 Educational Revenue Augmentation Fund
$0.1098 Coast Community College General Fund
$0.0702 Orange County General Fund
$0.0253 O.C. Sanitation #5 Operating
$0.0225 O.C. Flood Control District
$0.01742 O.C. Harbors, Beaches & Parks
$0.01587 O.C. Department of Education – General Fund
$0.00320 O.C. Transit Authority $0.00127 O.C. Vector Control District
$0.00057 O.C. Cemetery Fund - General
Per $1
Source: HdL, Coren & Cone
SALES TAX
SALES TAX RECEIPTS BY CATEGORY
SALES TAX REVENUE ALLOCATION
TRANSIENT OCCUPANCY TAX
PROJECTED GENERAL FUND REVENUE CHANGES
A B C
GENERAL FUND REVENUE 2015 ACTUAL 2016 EST 2017 EST $ CHANGE % CHANGE $ CHANGE % CHANGE
PROPERTY TAXES 84,125,188$ 88,889,356$ 93,985,344$ 4,764,168$ 5.7%5,095,988$ 5.7%
SALES TAX 32,920,591 36,827,288 36,173,778 3,906,697 11.9%(653,510) -1.8%
TRANSIENT OCCUPANCY 20,369,158 20,934,950 22,001,307 565,792 2.8%1,066,357 5.1%
SERVICE FEES & CHARG 18,386,700 18,722,360 19,266,352 335,659 1.8%543,992 2.9%
OTHER TAXES 8,685,332 8,116,486 8,302,120 (568,846) -6.5%185,634 2.3%
PROPERTY INCOME 8,169,195 7,930,548 8,534,209 (238,647) -2.9%603,661 7.6%
OTHER REVENUES 11,140,014 11,598,290 10,757,722 458,275 4.1%(840,568) -7.2%
TOTAL 183,796,178$ 193,019,278$ 199,020,831$ 9,223,099$ 5.0%6,001,554$ 3.1%
B-A C-B
CHANGE FY16-FY15 CHANGE FY17-FY16
EXPENDITURE ASSUMPTIONS
Salaries
•MOU and Merit Increases
Pension Obligations
•Growth of UAL – Payment Grows 3% per year
•Partial Fresh Start Option - Increase of $2.7M in FY17
•6/30/15 Investment Earnings 2.4%, Shortfall 5.1%
•FY18 Incremental Payment would be $2.1M
-OR-
•Use $6M from the FY 14-15 surplus to reduce
the FY18 increase to from $1.7M
EXPENDITURE ASSUMPTIONS
Operations
•Departmental Increases and Other Changes (TBD)
•Status of Worker’s Comp, Insurance Reserve Fund,
Compensated Absences Fund, Information Technology
Fund
CIP
•Additional Appropriations (TBD)
Other
•Transfers Out in support of FFP, FMP, Harbor Cap Plan
•Funding of Contingency Reserve (25% of operating
expenditures, less CIP and Transfers)
OPTIONS FOR THE USE OF FY 15 $14 M SURPLUS
Description FY 16 FY 17 Total
Newport Blvd Widening 880,000 880,000
Dover/Westcliff Pavement Quantities 78,000 78,000
Corona del Mar Entry 175,000 175,000
Irvine Avenue Pavement/Landscaping 500,000 500,000
FIIN - Lido House Hotel Mitigation 975,000 975,000
West Coast Landscaping 2,600,000 2,600,000
City Parcels in AD 679,500 679,500
Median Landscaping 500,000 500,000
Mariners Mile Study 60,000 60,000
General Plan - 800,000 800,000
Police Department Building Renovations 550,000 550,000
Additional PERS Contribution to Mitigate Investment Loss (6/30/15 Val)6,000,000 6,000,000
TOTAL $2,168,000 $11,629,500 $13,797,500
BUDGET ADOPTION SCHEDULE
Date Event
Thursday, April 18 (Special Meeting) Finance Committee Budget Overview #2
Tuesday, May 5 (Special Meeting –
Optional)
Finance Committee Budget Overview #3
Tuesday, May 24 City Council Study Session – First
Budget Review
Tuesday, June 14 City Council Budget Adoption
CITY OF NEWPORT BEACH
FINANCE COMMITTEE STAFF REPORT
Agenda Item No. 5D March 10, 2016
TO: HONORABLE CHAIRMAN AND MEMBERS OF THE COMMITTEE
FROM: Finance Department Steve Montano, Deputy Finance Director
(949) 644-3240 or smontano@newportbeachca.gov
SUBJECT: QUARTERLY ERP UPDATE
SUMMARY:
ERP (Enterprise Resource Planning) software is a business management software
system that integrates all of the City’s core functional requirements for financials, human
capital management, citizen services, and revenues. Implementation of the Enterprise
Resource Planning (ERP) software implementation project continues. The software provider of the City’s ERP or business management software system that integrates all
of the City’s core functional requirements for financials, human capital management,
citizen services, and revenues is Tyler Technologies Inc. The Tyler system known as
“Munis” will replace the current FinancePlus system.
The ERP implementation consists of 4 major overlapping phases. The graphic below
depicts the current project phase start and planned go live dates (MMM-YY). We have
completed Phases 1 and 2 and are currently working on Phases 3 and 4.
Quarterly ERP Update March 10, 2016
Page 2 Here is an update of recent and planned activities pertaining to each project phase: Financials – Phase 1
The financials portion of the project (including such modules as General Ledger,
Purchasing, Budget, Projects and Grants and Accounts Payable) became operational on July 8, 2015. Since this time, staff has grown accustomed to the new functionality and is still fine-tuning the system.
HR/Payroll – Phase 2
The Human Resources and Payroll module became operational on December 26, 2015. An important functionality of the module known as the Employee Self Service (ESS)
allows employees to access and update their own personal information through a
secure online web portal. ESS allows employees to: view payroll information such as
paycheck history and W-4 election details, view current benefits, request time off, enter timecards to record time worked and/or absences and see flex, vacation and sick leave balances up to date online. The module also allows for a paperless payroll process,
streamlines timesheet entry and ensures all local, state and federal requirements are
met with Munis Payroll. Standard payroll functions include, but are not limited to, payroll
and expense reimbursement processing; reconciliation of employee insurance reports to monthly premium statements; manual or automatic check reconciliation and support of electronic timesheet entry.
Utility Billing – Phase 3
Phase 3 consists of implementing new General Billing, Accounts Receivable, and Utility Billing software. These modules will improve how we create invoices and bills for
miscellaneous charges, and maintain accounts for our water and wastewater
customers. Staff has been participating in Tyler led business processing consulting
sessions to configure the software in conformance with the City’s business needs and industry best business practices. Work on the conversion of data from the old system to the new is underway. Staff is currently undertaking training to use the new system. The
accounts receivable and general billing modules are expected to go live next month.
The phase is scheduled to be completed in October 2016 with the completion of the
utility billing module. Work Orders and Fleet Management – Phase 4
The modules in Phase 4 will provide work order solutions for preventive maintenance
schedules, maintenance department inspections, departmental service requests, and citizen service requests. As a result of their integration with the Financial, Human Resources and Revenue suites, the modules will eliminate duplicate entry of labor time,
journal entries and billings. Information will be up-to-date and data input errors or
Quarterly ERP Update March 10, 2016
Page 3 missing information will be reduced. Phase 4 work began last month and will be completed in October 2016.
RECOMMENDED ACTION:
Receive and file.
/s/ Steve Montano _______________________
Steve Montano
Deputy Director, Finance