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HomeMy WebLinkAbout04.a. Follow-up to questions asked about certain expenditures at the February 23, 2021 meeting Page 1 of 3 Item 4.a. ,orVIOIN SAN March 23, 2021 TO: FINANCE COMMITTEE FROM: KEVIN MIZUNO, FINANCE MANAGER REVIEWED BY: PHILIP LEIBER, DIRECTOR OF FINANCE AND ADMINISTRATION ROGER S. BAILEY, GENERAL MANAGER SUBJECT: FOLLOW-UP TO QUESTIONS ASKED AT THE FEBRUARY23, 2021 MEETING REGARDING CERTAIN EXPENDITURES At the February 21, 2021 Finance Committee meeting, several questions were asked pertaining to specific checks as well on information presented in the financial statements which required additional research to confirm facts and circumstances. This memo provides for responses to those questions. 1. Check No. 301744 Marine Science Institute $40,000 This check expenditure had the description of "FY 2021-13003 Student Education Program- Pledge for Delta Discovery Voyage 2020-21" on the Accounts Payable check register presented to the Finance Committee. A question was raised on whether this is the full commitment for the program or a partial payment. Upon inquiry with the Communications and Intergovernmental Relations Manager, it was confirmed that is the full commitment for the program annually. 2. Check No. 301657 NRC Environmental Services Inc. $340,244.56 Finance Committee Members inquired why the NRC Environmental Services Inc. invoices, referencing the months of September through December, were being paid so long after the months to which they pertain. Upon further inquiry with staff from the Household Hazardous Waste (HHW) unit, it was confirmed that the delay is mostly attributable to the vendor billing process and not with the approval of invoices or payment processing. Furthermore, standard Central San supplier agreements generally stipulate "Net 30" terms, with the 30-day payment timeline commencing on the date of invoice receipt. HHW staff pointed out that receiving invoices in bunches is normal with this supplier, which was experienced at the close of the fiscal year ended June 30, 2020, with invoices not being received until mid-fall. I n regards to the most current invoice, HHW staff outlined that they had received a draft of the January 2021 invoice; however, corrections would be needed prior to allowing them to issue the final invoice to Central San. 3. Negative Amounts Shown on Sewer Service Charges (SSC) Revenue Previously Committee Members inquired why certain SSC revenue line items reported negative amounts in the quarterly financial report for the quarter ended December 31, 2020. While staff communicated negative revenue can sometimes be reported in certain SSC revenue lines as a result of customer refunds, staff was not entirely certain of the cause of this negative SSC revenue of ($17,030) being March 23, 2021 Regular FINANCE Committee Meeting Agenda Packet- Page 4 of 176 Page 2 of 3 reported in the Sewer Construction Fund. While the dollar amount constituted less than 0.1% of total Sewer Construction Fund revenues, a negative revenue amount in the "SSC Over-the-Counter" line still appeared odd as refunds are typically paid out of the "SSC Prior Year Adjustment Line", which reported a negative amount of ($4,770)for that quarter. Upon further analysis of the account details, it was verified that the negative amount of ($17,030) being reported was incorrect. The correct amount that should have been reported as Sewer Construction Fund SSC Over-the-Counter revenue through December 31, 2020 was $105,391. An adjustment to correct this error has been made and will be reflected in the February 2021 financials. The context related to this is as follows: • Prior to Fiscal Year(FY) 2020-21, the entire balance of Sewer Construction Fund SSC revenue was consolidated and reported in a single "SSC Revenue" line, excluding the additional details that have historically been reported in the O&M fund (i.e. SSC-County, SSC-Direct, SSC-Over-the-Counter). Commencing in FY 20-21, staff created the more granular SSC revenue accounts in the Sewer Construction fund to mirror that of the O&M fund with the goal of improving staff's ability to analyze actual SSC amounts as well as forecast in future years. Each month, the full amount of SSC revenue collected initially gets deposited into the O&M fund maintained by the County Treasury. Staff then record an adjusting journal entry to transfer a portion of total SSC revenue collected to the Sewer Construction Fund using the fund split per the Board-adopted budget (44% to O&M fund and 56% to Sewer Construction fund in FY 2020-21). • While the roll-out of these more granular accounts is expected to be useful in the future, the implementation of this new process coupled with the implementation of a new ERP system resulted in the aforementioned error during the monthly manual adjustment process. As noted previously, SSC revenue of the Sewer Construction Fund has been corrected in the February 2021 financial statements. Furthermore, management has discussed this matter with staff, and has ensured that the monthly close checklist has been updated for this new allocation procedure. 4. Increasing the Staffing Vacancy Factor from 2%to 3% Members of the Finance Committee previously inquired about the budgeted staffing vacancy factor and brought up the merits of possibly increasing the factor from 2% to 3% given historical savings realized in budgeted salaries and benefits over the past few years. While staff is still working through the design and implementation of the new Oracle Planning Budgeting Cloud Service (PBCS) budgeting tool while concurrently trying to develop the FY 21-22 budget, some preliminary estimated figures have been calculated on the impact of increasing vacancy factor from 2% to 3%. While this estimate will soon be superseded by more precise calculations derived from the new Oracle PBCS, it is still useful for a high- level impact analysis. Assuming a 2% cost of living adjustment(February CPI announced on March 10, 2021 indicated a 1.6% CPI, with the Local 1 and MS/CG MOUs providing for a floor of 2%), maximum workforce size of 293 full-time employees, and status-quo labor provisions, an initial "rough" projection estimates additional savings of approximately$1.1 million by increasing the vacancy factor by 1%, with the total vacancy factor credit increasing from approximately$2.0 million to $3.1 million in the FY 2020-21 adopted budget. While a higher vacancy factor trend was expected in the months following the onset of the COVI D-19 pandemic, those rates have been gradually tightening with vacancy rates of 7.8% and 5.5% for the quarters ended 9/30/20 and 12/31/20, respectively. Furthermore, the most recent organizational chart published by the Central San's Human Resources Division reported a vacancy rate of 4.4%, further evidencing the gradual contracting of the vacancy factor back to "normal levels". As mentioned previously, staff is still working through the design and implementation of the new Oracle budget system and is currently wrapping up the first pass of the FY 2021-22 O&M operational budget. When presenting the FY 2021-22 budget to the Finance Committee, staff will discuss the vacancy factor in greater detail, specifically disclosing the vacancy factor employed and calculation rationale. March 23, 2021 Regular FINANCE Committee Meeting Agenda Packet- Page 5 of 176 Page 3 of 3 Strategic Plan Tie-In GOAL THREE:Fiscal Responsibility Strategy 2—Ensure integrity and transparency in financial management March 23, 2021 Regular FINANCE Committee Meeting Agenda Packet- Page 6 of 176