HomeMy WebLinkAbout04.a. Follow-up to questions asked at the May 25, 2021 meeting regarding certain expenditures Page 1 of 3
Item 4.a.
CENTRAL SAN
June 22, 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 MAY25, 2021 MEETING
REGARDING CERTAIN EXPENDITURES
At the May 25, 2021 Finance Committee meeting, several questions were asked pertaining to specific
checks which required additional research to confirm facts and circumstances. This memo provides for
responses to those questions.
1.Various suppliers with relatively low dollar but high volume invoices
Upon inspection of the monthly expenditure report presented to the Finance Committee last month, it was
pointed out that a few of Central San's core suppliers submit a high volume of relatively low dollar
invoices. Some examples of suppliers meeting this criteria discussed during the Finance Committee meeting
included: VWR International (laboratory supplies), Staples (office supplies), and McCampbell Analytical (lab
analysis services). Under the general business rule that "the cost to process an invoice should not exceed the
dollar amount" staff was asked to look into whether or not it is possible to consolidate these invoices somewhat
into a monthly or weekly invoice containing charges for services provided or goods delivered within that
specified timeframe. Finance convened with Purchasing and other divisional stakeholders to explore the topic
and consider potential constraints to transitioning to a "period-based" rather than "transaction-based" invoice,
and has identified three main constraints to overcome pertaining to the following: (1) invoice approvals, (2)
goods receipt matching, and (3) supplier preferences.
In regards to the invoice approval constraint, following long-standing past precedent, individual "per order"
invoices are submitted directly to the divisions that ordered the underlying goods. The primary benefit to
this method is that each invoice is approved by the division that is receiving the direct benefit of goods or
supplies ordered, who is also responsible for verifying receipt prior to payment. The new Oracle system is
configured to follow an electronic hierarchical based approval workflow and cannot accommodate
customized approval workflows. Accordingly, if a supplier provides goods or services to several divisions,
an invoice approver may not be comfortable approving invoices pertaining to other divisions necessitating
that Finance staff split up invoices into "sub-invoices" and overwrite existing invoice numbers and assign
new ones.
In regards to the goods receipt constraint, invoices pertaining to supplies and materials are verified as
being "received" by someone outside of Finance prior to payment. This constraint may make it difficult to
transition certain supplier invoices to P-Cards or consolidate them into period-based invoices, where
independent (not Finance) receipt verification becomes more challenging. Furthermore, any contracts
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related to a purchase order cannot be transition to P-Cards for payment processing as the Oracle P-Card
module is not integrated (a product design limitation)with the purchase order system for tracking and 3-way
match (receipt, invoice, PO) purposes.
Lastly, in regards to the supplier preference constraint, not all suppliers currently billing Central San per
order may be willing or able to accommodate a transition to period-based invoicing. While Central San,
through the contract negotiation process, generally specifies Net 30 payment terms from the date of
invoice receipt, the frequency of invoicing is generally based on supplier operational practice.
In consideration of these challenges, Finance is collaborating with divisional stakeholder groups for
feedback and is reaching out to suppliers to explore alternatives. Staff has already been in
correspondence with Staples, who has indicated that alternative billing approaches are available. Primarily,
staff is exploring the possibility of transitioning Staples invoices to P-Cards, or to a monthly invoice cycle
and has sought feedback from the administrative support team on these two proposed alternatives. Staff
has also obtained feedback from Central San's Laboratory group in regards to the VW R I nternational and
McCampbell Analytical invoices. While the Laboratory group is supportive of a transition to period-based
invoices for McCampbell Analytical (so long as specific information can be included in a consolidated
invoice), it was emphasized that the careful inspection and approval of VW R International invoices
accompanied by"offline" goods receipts is critical for their record keeping and current business
processes. Finance intends to correspond further with the Laboratory group and McCampbell Analytical
on the prospect of transitioning away from "order-based" invoicing.
While staff continues to look into alternatives changes have not yet been implemented. As of the time of
this response, due to advance agenda posting timing constraints, slightly over two weeks had passed
since the last meeting of the Finance Committee where this topic was discussed. Staff will will continue to
explore this topic and implement alternatives after carefully considering potential impacts to the internal
control environment and the operational needs of divisions.
2. Provide an update on the amount incurred to-date in Fiscal Year(Fl) 2020-21 for labor law
legal advice paid to Hanson Bridgett
Central San's Human Resources divisional budget for FY 2020-21 included a budgeted line item of
$120,000 for"Legal Fees - Staff Advice". Of this amount, $100,000 (83.3%)was budgeted for general
labor counsel, including grievances. As of the May 27, 2021 check run, Central San has incurred a total of
$162,271 in legal advisory expenditures in FY 2020-21 to Hanson Bridget. While exceeding the estimate
included in this division's adopted budget, this is consistent with FY 2020-21 spending projections
included in the FY 2021-22 budget, estimating total expenditures by year-end of$175,000. Per
discussion with Central San's Human Resources and Organizational Development Manager, these higher
than budgeted costs are attributable to legal advice necessary to properly respond to new labor law
complexities related to the COVI D-19 pandemic and other issues (i.e. arbitration, constructive
receipt/benefits compliance, etc.).
3. Possibility to consolidate Oracle P-Card Reports to enhance user friendliness
It was brought up to staff that the current method by which US Bank procurement card (P-Card)
expenditures are presented makes it challenging to review for Board Members as the individual charges
on the "CCCSD Account Payables Payment Register" (Payment Register) report are not always easily
reconciled to the "CCCSD P-Card Expense Report- Board" (P-Card Detail) report. Unfortunately, in
order to maximize the capabilities of the Oracle Expenditures module, allowing for paperless processing
and automated approval workflows, there is no way to consolidate the two reports. The Payment Register
report is only capable of displaying the amount paid to US Bank attributable to each cardholder, but cannot
also show the nature of each expenditure included in the underlying P-Card expense report. Anticipating
this alone would not be acceptable to the Board, Finance staff spearheaded an effort to design, test, and
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implement a customized P-Card Detail Report in order to show additional expense details.
Despite this inherent Oracle limitation, staff was able to confirm that each US Bank invoice presented in
the Payment Register can be reconciled to Expense Report Numbers presented in the P-Card Detail
Report by dollar amount. Staff can inquire with Central San's enterprise resource planning (ERP)
implementation consultant, Emtec, on whether or not it is possible to add the P-Card "Expense Report
Number" to the Payment Register, or some other solution. However, as a separate manual P-Card
reconciliation report is already being prepared and uploaded to the Finance Committee expenditures
packet on a monthly basis in order to reconcile two reports, the additional value added from further ERP
customizations weighed against the additional cost (consultant and staff time) may not be worth while.
Staff will await further feedback from the Finance Committee before proceeding further.
Strategic Plan re-In
GOAL THREE: Fiscal Responsibility
Strategy 2—Ensure integrity and transparency in financial management
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