City of Cape Coral City Auditor's Office

Transcription

1 City of Cape Coral City Auditor's Office TO: Mayor and Council Members wj THRU: Dona J. Newman, City Auditor \J / FROM: Margaret Krym, Assistant City AUdit'fl"'"" DATE: September 30,2009 SUBJECT: Audit Report Attached is the report of the Audit conducted by the City Auditor's Office. Management's responses are included in the report. We would like to thank Stephen Pohlman, Parks and Recreation Director and Michael Kalvort, Operations Manager/Deputy Director for their assistance during this engagement. Most importantly we would also like to thank their staff who provided us with information and worked with us throughout the engagement including: Annette Figueroa, Waterpark Manager; Barbara Dickinson, Yacht Club Manager; Allen Manguson, Golf Pro Manager; Mark Cagle, Youth CenterlYouth Services Manager; Art Avellino, Athletic Coordinator and Donnie Ward, Computer Technician I. Their assistance contributed significantly to the successful completion of this audit. We will be happy to respond to any questions or concerns you may have about the information contained in this report. xc: Terry Stewart, City Manager Carl Schwing, Assistant City Manager Dolores Menendez, City Attorney Bonnie Potter, City Clerk Mark Mason, Financial Services Director Stephen Pohlman, Parks and Recreation Director Michael Kalvort, Operations Manager/Deputy Director Keith Locklin, Recreation Superintendent Annette Figueroa, Waterpark Manager Barbara Dickinson, Yacht Club Manager Allen Manguson, Golf Pro Manager Mark Cagle, Youth CenterlYouth Services Manager Art Avellino, Athletic Coordinator Donnie Ward, Computer Technician I Audit Committee POBox Nicholas Pkwy. Cape Coral, FL Phone Fax

2 City of Cape Coral Office of the City Auditor Audit Report Date: September 30,2009

3 Background This audit of the process of managing user fees was a part of the FY2009 Audit Plan. It was considered an area of interest because the City has been experiencing budget constraints and cash flow pressures that gave heightened importance to the revenue generated from these fees (also known as Charges for Service). Within the Parks and Recreation Department, user fees are associated with a broad array of public services that generally add to the quality of life in our community but are not required by all citizens. The services are therefore available to the citizens based on their desire to use them. The purpose of this engagement was to provide assurance to City Council and Management that user fees were determined and managed according to established policies and best practices. Scope The scope of this audit included the examination and evaluation of user fees within the Department of Parks and Recreation including the Enterprise Funds: Waterpark, Yacht Basin, and Coral Oaks Golf Course. Summary of Objectives Objective one: To provide assurance that the methodology used to determine user fees had a rational basis. Based on our observations, interviews and evidence examined we believe that the methodologies employed by the various divisions within the Parks and Recreation Department were consistent with best practices and had a rational basis. Objective two: To provide assurance that the process of managing changes to user fees was adequately controlled. During our review of this process we found evidence of commendable continued process improvements during the past few years. We also found areas where controls could be strengthened. Objective three: To provide assurance that the program user fee revenue levels were being managed effectively to achieve the program goals determined by Management. Management had defined and was measuring goals related to financial performance and customer service. Management focus was placed on achieving these goals. We have provided recommendations that we believe would improve their efforts and assist them in achieving their financial goals. Page 1 of 6

4 Detail of Report Findings Objective one: To provide assurance that the methodology used to determine user fees had a rational basis. We examined the process of fee determination within four divisions of the Parks and Recreation Department including the Coral Oaks Golf Course and the Sun Splash Waterpark and we observed the following: Each area employed standardized forms used throughout the Department to analyze fees and document expected program fee revenue and expected program costs. Program fees were reviewed annually. Program fees were benchmarked against similar programs in neighboring areas. Costs and the cost recovery percentage goal were considered when fees were determined. Business judgment was employed to modify fees as necessary during the year to respond to market conditions. Managers stated that their objective was to maximize both revenue and public participation. The methodologies employed by the various divisions within the Parks and Recreation Department were consistent with best practices and had a rational basis. Objective two: To provide assurance that the process of managing changes to user fees was adequately controlled. We interviewed managers and staff in various divisions within the Parks and Recreation Department to understand the process used to review, evaluate, determine and obtain approval for fees. In each case we found that the managers and staff members consistently understood the process, the forms to be used and the requirements of Senior Management. This was evidence of effective communication within the department and existence of a working process and procedure. We noted that the department had been developing and had significantly improved their process of fee determination during the past several budget cycles and because of this continuous improvement, they have not, as yet, documented the process in a written policy and procedure. They also have not required the approval of fee changes to be documented and retained. These forms of documentation would be a natural next step. A written policy and procedure serves as a preventive and a directive internal control that functions in several important ways. It is designed to deter unintended events from occurring and to provide direction regarding required Page 2 of6

5 actions. It is Management's opportunity to clearly, consistently and explicitly communicate their objectives and the internal controls necessary to mitigate any risks that may prevent the achievement of those objectives. The very activity of formulating and documenting a process helps a manager clarify those objectives in his own thought and then communicate the necessary directives. This information helps staff understand what is expected of them and the scope of their freedom to act. In this case such a policy and procedure might include: Time requirements for fee reviews (e.g. annual). Guiding principles (e.g. Management intentions regarding recovery of full cost and Management policy for differentiation between City residences and non-residences). Fee determining criteria to be considered (e.g. Benchmarking; Public input; Cost of service - direct and/or indirect; Rational for less than full cost recovery). A documented review and approval process. Documented approval protects staff by removing any appearance of inappropriate or arbitrary changes to fees. It provides evidence that fee changes were intended, thought out and reflective of Management's intentions. Finding #1: We noted that the department had been developing and had significantly improved their process of fee determination during the past several budget cycles and because of this continuous improvement, they had not, as yet, documented the process in a written policy and procedure. They also had not required the approval of fee changes to be documented and retained. Recommendation #1: We recommend that the process of reviewing, evaluating, determining and obtaining documented approval for user fees be defined in a written procedure and that Management set as written policy those items that Management determines to be essential for the achievement of their objectives. Management Response Management concurs and will develop determination process. a policy and procedures for the fee When interviewing the Managers in some divisions of Parks and Recreation we were advised that the staff in their divisions were able to modify the user fees charged within the computer application (RecTrac) that accounts for cash receipts. In some divisions we learned that a software locking feature was employed that appropriately limited access to the change function. Management stated that no staff members were authorized to deviate from the fee schedules and as a part of the continuing efforts of the Department to Page 3 of 6

6 improve this process they were considering a process modification that would control and centralize the set up and input of fee changes in RecTrac. Before completion of our field work we were advised that this process change had been completed. We commend Management's recognition of a needed control in this area and its implementation. We also observed that during the past few years Management had developed and implemented several standardized reporting tools which included the Fee Analysis Form, Program Summary Sheet, and the Cost Center Performance Report. These were being used consistently throughout the department to assist in determining program viability and to manage the various programs. These reports had clearly evolved and improved during the past three years and had become powerful tools. We commend management for this example of continual quality improvement. We also observed however, that these reports lacked the identity of the preparer and the date on which they were prepared. The information presented was time specific and it was being relied upon for management decisions. The report would be more reliable and credible if the preparer and source was identified and the relevant time frame declared. We recognize that the evolution of these forms had not yet included this refinement. Finding #2: We observed that reports lacked the identity of the preparer and the date on which they were prepared. Recommendation #2: We recommend that it become standard practice for these reports to be marked with source and time period of information presented, preparation date, and preparer's identity. Management Response Management concurs and will add preparers name and date submitted. Objective three: To provide assurance that the program user fee revenue levels were managed effectively to achieve the program goals determined by Management. In the FY Annual Operating Budget Book, Management is directed by Council approved policies and guidelines as follows: "Revenue centers should evaluate all proposed programs in consideration of past performance. Such evaluation should emphasize a reduction of General Fund subsidy as its first priority." "Revenue estimates for annual budget purposes should be conservative." Page 4 of 6

7 "All fee schedules and user charges should be annually reviewed for adjustment to ensure that rates are equitable and cover the total cost of the service or that portion of the total cost established by policy of the Cape Coral City Council. The following framework is recommended by the administration to be applied to user fees:" This is followed by the definition of a framework with assigned cost recovery percentages as follows: Full recovery - 100%; Moderate recovery - 40% to 100%; and Minimum recovery - 0% to 40%. Each division is assigned to one of these recovery percentage groups. This was a statement of intent regarding cost recovery for services covered by user fees. During our interviews of various division managers within the Parks and Recreation Department we observed that there was widespread understanding of these objectives and their responsibilities to manage their revenues and costs so as not to exceed the budget subsidy for their specific programs. In the years 2007 and 2008 however, we observed that the department required supplemental budget increases from the General Fund in order to cover their subsidy amounts. Management informed us that these subsidy increases were included in budget amendments that were approved by the City Council. We also found that in the Cost Center Performance Report used by division managers to track performance towards this goal it was difficult to determine (without a separate calculation) the actual status of the division towards meeting the budgeted subsidy expectation. The budgeted subsidy expectation was expressed in the form of a percentage and the dollar amount was not apparent. Each month through the year the report compared budget targets for the entire year with year to date actual numbers. In one division we found that the manager was unable to provide us with the actual budget expectation numbers without assistance from the Financial Services Department. To manage progress towards the successful accomplishment of goals and objectives, performance must be measured. This measurement and the goal expectation should be easily understood, clearly stated and unequivocal. Finding #3: The budgeted subsidy expectation was expressed in the form of a percentage and the dollar amount was not apparent. Recommendation #3: We recommend that Management further improve their efforts to control their general fund subsidies by communicating budgeted general fund subsidy expectations to the division manager's as dollar amounts. It is understood that they may still require "% of Cost Recovery" as well, but a dollar amount is absolute, clear and easily understood. Page 5 of6

8 Management Response Management concurs and agrees. Staff will discuss with Finance Department and include the appropriate goal in a numerical statement on the monthly report. Finding #4: We observed that the department required supplemental budget increases from the General Fund in order to cover their subsidy amounts. Recommendation #4: As a natural next step in Management's progress toward improvement, we also recommend that Management require reports that compare year-to-date (YTD) actual financial performance to YTD budget expectations to achieve a more precise estimate of progress made and that expected activity for remaining months be forecast to provide a YTD actual + forecast annual number to compare with the annual budgeted subsidy. Also, that these reports require the division manager to explain the cause of negative variances and provide a corrective action plan for achieving the annual budgeted subsidy target. Ideally, this data could be presented as a visual chart as well, giving senior management a quick assessment of progress and allowing for corrective intervention at an earlier time. Management Response Management concurs and will be revamping the present form to include room for the supervisor to explain variances and a corrective action plan. Management will work with Finance to identify visual tools to assist with feedback and assessments. During our interviews with various managers, we asked what goals and objectives they were expected to achieve by their department Management. The response was consistent. We were told that they were expected to achieve budget subsidy targets and meet customer service goals. We observed efforts to measure performance towards each of these. When pressed for any other goals only the Waterpark Manager was able to articulate specific objectives. Effective governance includes the process of defining objectives, setting goals and subsequent measurement of performance. Although the managers were well aware of their financial and customer service goal expectations, there may be other management objectives that would benefit from defined and communicated goals and measured performance. We suggest that Department Management consider defining other specific, measurable, attainable, relevant and time specific (SMART) goals to assist in the achievement of other Management objectives. Page 6 of6

9 City of Cape Coral City Auditor's Office User Fee Audit - Parks and Recreation September 30, 2009 Finding Recommendation Management Response Attachment A -t: o 0.s!I) t: lo.;. o Q) OCl Target Completion Date 1 We noted that the department had been developing and had significantly improved their process of fee determination during the past several budget cycles and because of this continuous improvement, they had not, as yet. documented the process in a written policy and procedure. They also had not required the approval of fee changes to be documented and retained. 2 We observed that many reports lacked the identity of the preparer and the date on which they were prepared. 3 We also found that in the Cost Center Performance Report used by division managers to track performance towards this goal it was difficult to determine (without a separate calculation) the actual status of the division towards meeting the budgeted subsidy expectation. The budgeted subsidy expectation was expressed in the form of a percentage and the dollar amount was not apparent. We recommend that the process of reviewing, evaluating, determining and obtaining documented approval for user fees be defined in a written procedure and that Management set as written policy those items that Management determines to be essential for the achievement of their objectives. We recommend that it become standard practice for these reports to be marked with source and time period of information presented, preparation date, and preparer's identity. We recommend that Management further improve their efforts to control their general fund subsidies by communicating budgeted general fund subsidy expectations to the division manager's as dollar amounts. It is understood that they may still require U% of Cost Recovery" as well, but a dollar amount is absolute, clear and easily understood. Management concurs and will develop a policy and procedures for the fee determination process 52,... t 0 > ctl Management concurs and will add preparers name and date submitted Management concurs and agrees. Staff will discuss with Finance Department and include the appropriate goal in a numerical statement on the monthly report. Q) ctl..l:: u, m -l.....l:: - u Q),:J ((l Q) 'C :J ctl -l 11/12/ /9/ /9/2009 Page 1 of2

10 City of Cape Coral City Auditor's Office User Fee Audit - Parks and Recreation September 30, 2009 Finding Recommendation Management Response Attachment A... c:: (,) 0.s l/) c:: o Q) C,,)Q.. Target Completion Date 4 We observed that Management had a widespread understanding of their financial goals and objectives and their responsibilities to manage their revenues and costs so as not to exceed the budget subsidy for their specific programs. In the years 2007 and 2008 however, we observed that the department required supplemental budget increases from the General Fund in order to cover their subsidy amounts. Management informed us that these subsidy increases were included in budget amendments that were approved by the City Council. As a natural next step in Management's progress toward improvement, we also recommend that Management require reports that compare year-to-date (YTD) actual financial performance to YTD budget expectations to achieve a more precise estimate of progress made and that expected activity for remaining months be forecast to provide a YTD actual + forecast annual number to compare with the annual budgeted subsidy. Also, that these reports require the division manager to explain the cause of negative variances and provide a corrective action plan for achieving the annual budgeted subsidy target. Ideally, this data could be presented as a visual chart as well, giving senior management a quick assessment of progress and allowing for corrective intervention at an earlier time. Management concurs and will be revamping the present form to include room for the supervisor to explain variances and a corrective action plan. Management will work with Finance to identify visual tools to assist with feedback and assessments. co 10/9/2009 Page 2 of2