HomeMy WebLinkAbout05.a. Receive update on planned transition to quarterly financial report to Finance Committe and Board of Directors Page 1 of 2
Item 5.a.
CENTRAL SAN
October 26, 2021
TO: FINANCE COMMITTEE
FROM: KEVIN MIZUNO, FINANCE MANAGER
REVIEWED BY: PHILIP LEIBER, DIRECTOR OF FINANCE AND ADMINISTRATION
ROGER S. BAILEY, GENERAL MANAGER
SUBJECT: RECEIVE UPDATE ON PLANNED TRANSITION TO QUARTERLY
FINANCIAL REPORTING TO FINANCE COMMITTEE AND BOARD OF
DIRECTORS
While not stipulated by a Board policy or state law, it has been the past practice of Central San's Finance
Division to issue un-audited financial report packets to the Finance Committee and Board on a monthly
basis. Prior to FY 2019-20, these monthly reports were relatively simple system-generated reports that
did not regularly include a narrative summarizing significant results in an executive summary format, either
within in the report attachments themselves or in the Board agenda memo. These reports have gradually
been improved, commencing with the roll-out of a consistent executive summary within the Board memo in
FY 2019-20, and then the implementation of robust quarterly review packets in FY 2020-21 thereafter.
The new formal quarterly financial review documents go above and beyond the old format, as
demonstrated by the addition of a cover page, table of contents, executive summary, and the blending of
financial and operational data into key performance indicator charts.
After careful consideration of the pros and cons of the current monthly reporting practice, management
wishes to discontinue the presentation of monthly"non-quarter end" financial reports to the Finance
Committee and Board for the foreseeable future. Staff would continue to produce and present the robust
quarterly financial review packets, which management is confident contain sufficient information for the
governing body to monitor Central San's fiscal results. Specifically, non-quarter end months include the
months of July, August, October, November, January, February, April and May. Key issues considered by
management in this decision include the following:
1. Relatively Limited Value of Non-Quarter End Month Results - Especially true in the early months of
the fiscal year(i.e. July and August) divisional expenditures are slow and the risk of over-expending
appropriations is quite low. Regardless of the risk, the Finance Division has and will continue to prepare
and disseminate interim budget-to-actual reports for division management on a monthly basis internally.
On the revenues side of the budget, given the long-standing structure of Central San's finances, the bulk
of revenues are not recognized until December each year, when the bulk (generally 54%-56%) of sewer
service charges are allocated bythe Contra Costa County Auditor-Controller's Office. Accordingly, given
the structure of Central San's finances and the prevalence of internal budget monitoring by management,
staff is confident that a transition to quarterly formal financial reporting is reasonable for budget monitoring
from a Board governance perspective. The generally stable and predictable nature of most of Central
San's revenues and expenditures also supports the case for less frequent reporting.
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2. Conflicting Priorities - I n conjunction with the gradual enhancement of the quality of interim fiscal
reports to the Finance Committee and Board over the past two years, additional time has been necessary
for staff and management to compile and review the underlying reports, as well as prepare for
Board/Committee/public discussion. Currently, Finance Division staff are juggling the first fiscal year-end
close of the books in the new Oracle system, along with three concurrent audits (i.e. independent audit,
CCCERA audit, internal audits), the implementation of a new accounting standard issued by the
Governmental Accounting Standards Board (GASB Statement No. 87 -Leases), staffing challenges, as
well as continuing to optimize and revamp the new Oracle system on a weekly basis. I n regards to staffing
challenges, while not an ongoing issue, the Finance Division has been on-boarding a new Accounting
Supervisor hired August 1, 2021 following the retirement of a long tenured employee in April 2021.
Furthermore, one of the Finance Division's other staff crucial to the fiscal year-end closing process, has
been on leave since early July and is not anticipated to return until January 2022. The limited perceived
value of non-quarter ending reports coupled with the existence of conflicting staff priorities further supports
a transition to quarterly financial reporting.
3. Peer Agency Practice - Prior to proposing any changes to the status quo, another important
consideration beyond internal drivers was how other similar public agencies deliver their regular formal
interim financial reports to their governing bodies. Accordingly, the Finance Manager conducted a survey
with an informal networking group of finance officers from twenty-five independently governed Bay Area
public sewer utilities asking the question "How often do you publish formal interim budget-to-actual
financial reports foryourgoveming body?". Of fifteen survey respondents, seven (46.7%) responded
quarterly, five (33.3%) responded monthly, two (13.3%) responded mid-year only, and one (6.7%)
responded that they issue internal-only reports. Given Central San's relatively large size compared
agencies within this networking group that were part of the survey(i.e. Napa San, Delta Diablo, Monterey
One Water, etc.), management also inquired with East Bay Municipal Utility District and Orange County
Sanitation District, which are independently governed public sewer utilities that are larger than Central San.
Both of those larger utilities responded that they present quarterly financial reports to their governing
bodies. Based on this assessment, transitioning to quarterly financial reports would not be deviating from
the norm of other peer agencies.
As noted previously, the frequency of financial/budgetary reporting to the governing body is not specified
in the law or any formal policies. However, management has been working on developing a Board Policy
over the budget process, which is expected to be delivered to the Board for consideration sometime in the
near future. This policy document will cover the development, adoption, amendment, and monitoring of
Central San's budget, as well as formalize certain important budgetary issues such as the legal level of
budgetary control as well as what type of specific Board authorization is necessary to amend the budget
(i.e. resolution, minute motion, etc.). The frequency and content of interim budget-to-actual reporting
delivered to the Board will also be addressed in this document, which following Board approval, will guide
formal interim financial reporting protocols prospectively.
Strategic Plan Tie-In
GOAL THREE:Fiscal Responsibility
Strategy 2—Ensure integrity and transparency in financial management
October 26, 2021 Regular FINANCE Committee Meeting Agenda Packet- Page 125 of 129