SR 05-09-2017 3J
Ci ty Council
Report
City Council Meeting : May 9, 2017
Agenda Item: 3.J
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To: Mayor and City Council
From: Gigi Decavalles -Hughes, Director , Finance Department
Subject: Adoption of Audit Subcommittee Rules of Conduct and Recommendation to
Create an Ad Hoc Committee
Recommended Action
Staff recommends that the City Council :
1. Ap prove the establishment of a limited term ad hoc committee to take part in
Audit Subcommittee discussions on a staff compensation study conducted by
Moss Adams , LLP; and
2. Approve the attached Audit Subcommittee Rules of Conduct.
Executive Summary
Consisten t with the mandate of our ongoing internal efficiency audits, staff and the City
Council Audit Subcommittee have scheduled a review of staff compensation and public
safety overtime. Both topics have sparked significant community scrutiny in recent
months. At its April 20, 2017 meeting, the Audit Subcommittee reviewed a preliminary
scope of work for the compensation review and recommended that an ad hoc
committee , made up of interested community members selected by the City Manager ,
be assembled to take par t in the Audit Subcommittee discussions on the compensation
study. The review would be completed by Moss Adams, LLP, the City’s Internal
Auditor. As the Audit Subcommittee is a subcommittee of the City Council, it is
necessary for the Council to approve changes to its structure and protocol. Staff
recommends that the Council approve the creation of an ad hoc committee and direct
the City Manager to selec t members of the committee, and adopt the Rules of Conduct
for the Audit Subcommittee in order to prov ide clear expectations for staff, Audit
Subcommittee members, ad hoc committee members, and members of the public .
Background
By law, the City commissions an annual financial audit of its financial balance sheet and
accounting practices by an independent accounting firm (characterized as the “outside”
auditor.) In addition, the City also employs an independent auditing firm to conduct
studies and make recommendations regarding the City’s internal financial and
operational practices to improve efficiency a nd ensure compliance with best financial
and managerial practices (characterized as our “internal” auditor.)
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On January 17, 2017, in response to concerns raised by a number of community groups
related to news stories about City of Santa Monica staff compe nsation, and calls by
these groups that an “independent ” audit be conducted, the Audit Subcommittee
discussed a proposed scope of work for a compensation audit to be completed by the
independent firm that acts as the City’s Internal Auditor, Moss Adams, LL P.
The initial scope of work included a review of the City’s wage and benefit setting
process as well as an overtime utilization review. Among community members’ areas of
concern were the cost of compensation, overtime, and other pay and total
compensa tion for City staff, the methodology used to set compensation levels, how the
City compares to peer cities, the size of the City government, and whether sufficient
internal controls exist to manage these areas.
The Audit Subcommittee expressed an interest in an expanded scope of work that
would also cover a comprehensive comparison of wages and benefits across peer cities
and an understanding of the factors that determine the number of staff providing
services. In the weeks that followed the meeting, seve ral community members met with
the City Manager to discuss their concerns about compensation and the objectivity of
any study overseen by the City . V arious neighborhood and civic groups also expressed
concern s about staff compensation.
Discussion
At its April 20, 2017 meeting the Audit Subcommittee received and reviewed a revised
preliminary scope of work for the compensation study, agreed to the establishment of
an ad hoc committee that would take part in discussions regarding the compensation
study, and approved Rules of Cond uct for the Audit Subcommittee.
The preliminary scope of work presented by Moss Adams, LLP includes a review of the
methodology used for setting compensation levels, a comparison of wages and benefits
across peer cities, the factors that determine the number of staff providing services, and
the use of over time by public safety employees (Attachment A).
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Staff is seeking to provide an additional layer of transparency and understanding to the
review to be conducted by Moss Adams, and t o merge the conversations that
community members have been having with the City Manager into this review. In the
past, the Council has appointed special -purpose committees (Civic Center Working
Group, Promenade Uses Task Force, Civic Auditorium Working Gr oup) or directed the
City Manager to appoint special working groups (Minimum Wage Working Group) to
facilitate public participation in the development of special plans and strategies.
A limited -term, ad hoc committee made up of residents could assist the Audit
Subcommittee and staff in critically reviewing and objectively considering the City’s
methodologies related to compensation. For this reason, the Audit Subcommittee
approved staff’s recommendation that the City Council direct the City Manager to
app oint an ad hoc committee of five to seven residents that would join Subcommittee
discussions specifically related to the scope, findings, and final report of the
compensation review. The Council could direct the City Manager to seek applications
from memb ers of the public who would be interested in serving on the committee, and
then make appointments from th ose applications. The Subcommittee also agreed that
at least one of the ad hoc committee members must have substantial work experience
working in the public sector . Additionally, Audit Subcommittee members expressed an
interest in inviting City bargaining unit representatives to provide their input on the initial
findings of the study.
The ad hoc committee would only convene during the time that the A udit Subcommittee
is discussing the compensation study agenda item. As noted in the attached Rules of
Conduct, the ad hoc committee would not have a vote, but would be able to ask
questions of staff and the Internal Auditor, and make suggestions regarding scope,
initial findings and the final report. The ad hoc committee would convene three times
alongside the Audit Subcommittee to discuss the scope of the project, to discuss the
initial findings of the review, and to receive the final report.
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Staff has prepared draft Rules of Conduct for the Audit Subcommittee (Attachment B).
Section 5 of the Rules specifies the parameters by which an ad hoc committee may
function alongside the Subcommittee.
If the Council were to approve the establishment of a limited term ad hoc committee, a
public application and selection process would be completed in May and the ad hoc
committee would convene for the first time at the June 15, 2017 Special Meeting of the
Audit Subcommittee. At that time, the Subcommittee would conf irm the final scope of
the audit with the input of the ad hoc committee and staff.
Staff anticipates that the Subcommittee will consider initial findings at its October 17,
2017 Regular Meeting, and receive the final report at its January 16, 2018 Regular
Meeting. Community members applying for a seat on the ad hoc committee would be
required to be available for the three meetings.
One alternative approach to having an ad hoc committee would be to proceed without
one under the purview of the Audit Subcom mittee which includes two citizen members
in addition to the three Councilmembers. The Council could also choose to select the
members itself, which would take a little more time. Finally, the Council could expand
the Audit Subcommittee on a permanent ba sis as some community members have
advocated.
Financial Impacts and Budget Actions
The cost of this review is not to exceed $210,000 and may be carried out within the
existing budget and scope authority of the Moss Adams internal audit services contract.
Staff will propose , as part of the FY 2017 -19 Biennial Budget, one -time budget
adjustments using Finance Department expenditure control savings funds to
accommodate the additional budget needed to carry out the project in FY 2017 -18.
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Prepared By: Gigi De cavalles -Hughes, Director
Approved
Forwarded to Council
Attachments:
A. City of Santa Monica Compensation Review - Moss Adams Work Plan
B. Resolution_Proposed Rules of Conduct for the Audit Subcommittee
City of Santa Monica Compensation and Staffing Review – Moss Adams Work Plan 0 3 -08 -1 7 -2 | 1
City of Santa Monica
Compensation and Staffing Review
Work Plan
I. Project Objective s
Perform a review of the City of Santa Monica’s overall a ) wage setting process, b ) wage and
benefits package s , c ) staffing methodology and levels, and d ) use of overtime for public safety
services.
II. Scope of Work
Phase 1 – Project Initiation and Ongoing Management
1.1 Conduct kickoff meeting with Audit Subcommittee and Ad Hoc Committee (citizens c ommittee
appointed by City Manager ) to confirm obj ectives, participants, schedule , and deliverables .
1.2 Submit document request list to City and 10 peers. Peers include Beverly Hills, Burbank, Culver
City, El Segundo, Gardena, Glendale, Inglewood, Pasadena, Redondo Beach, and Torrance.
1.3 Schedule interviews with City stakeholder s , incl uding City Manager’s Office , department heads,
and bargaining unit heads.
1.4 Schedule interviews with peers.
1.5 Conduct project ma nagement and progress reporting.
1.6 Perform quality assurance.
Phase 2 – Fact Finding
2.1 Obtain and review relevant documen ts from the City for the selected years (see III. Areas of
Focus for the years that apply to each component of the project objective), including, but not
limited to, budgets and CAFRs, service level agreements and reports, organizational charts,
staffing l ists, HR wage setting policies and procedures, labor agreements, overtime usage
reports for Public Safety employees.
2.2 Conduct interviews with City stakeholders .
2.3 Gather information from peers through website searches, online survey, and interviews.
2.4 Deve lop preliminary findings (s ee III. Areas of Focus).
2.5 Present preliminary findings to Audit Subcommittee and Ad Hoc Committee .
2.6 Revise preliminary findings as necessary.
City of Santa Monica Compensation and Staffing Review – Moss Adams Work Plan 0 3 -08 -1 7 -2 | 2
II. Scope of Work
Phase 3 – Analysis
3.1 Compare City Santa Monica’s a) overall wage setting process, b) wage and benefits package,
c) staffing methodology and levels, and d) use of overtime for public safety services with that
of peers .
3.2 Determine gaps between current City and peer practices and, to the greatest extent possible,
reasons for gaps .
3.3 Conduct al ternatives analysis to define solutions.
3.4 Prepare draft findings and recommendations and review with City to verify facts and test the
practicality of recommendations .
3.5 Revise draft findings and recommendations as necessary.
Phase 4 – Reporting
4.1 Submit dr aft report.
4.2 Submit final report.
4.3 Present final report to Audit Subcommittee and Ad Hoc Committee.
III . Areas of Focus
A. Wage Setting Process: Document the current wage setting process for each bargaining unit ,
and assess processes for opportunities for improvement .
B. Wages and Benefits: Understand the terms of bargaining unit agreements, compare to peers
for the past three fiscal years (FY 14, FY 15 , and FY 16), and document results for a
representative sample set of positions (levels and types of positi ons) for each City
department.
C. Staffing Methodology and Levels : D ocument the City ’s staffing philosophy and related
policies ; document staffing levels for the selected number of years (see V I . Budget for
optional years ranges ); and document results. Compa re to peer service offerings and
insourcing versus outsourcing practices . Compare to peer key performance indicators (e.g.,
efficiency measure such as cost per FTE or capita and effectiveness measure such as service
delivery outputs or outcomes ).
D. Public S afety Overtime: Document overtime utilization for the past three fiscal years (FY 14,
FY 15, and FY 16) by department, unit, and person. Compare to staffing levels, turnover, and
key performance indicators (e.g., efficiency measure such as cost per FTE or capita and
effectiveness measure such as crime rate or response time).
City of Santa Monica Compensation and Staffing Review – Moss Adams Work Plan 0 3 -08 -1 7 -2 | 3
I V . Schedule
May 2017 project start and January 201 8 project completion
Committee Meetings (Audit Subcommittee with Ad Hoc Committee): project k ickoff o n June 15,
2017 , briefing on preli minary findings o n October 17, 2017 , and delivery of final report o n
January 16, 2018
V. Budget
Professional fees $1 9 0,000 to $2 1 0,000 , plus expenses
Budget r ange reflects y ears covered by staffing analysis :
o 3 years, FY 14 through FY 16
o 6 years, FY 07, FY 09, FY 11, FY 13, FY 1 5, and FY 16
o 10 years, FY 07 through FY 16
Work will be performed in accordance with AICPA consultancy standards
V I . Staffing
Colleen Rozillis , PMP , Manager (PM)
Mark Steranka, Partner (QA )
Tammy Lohr , Consultant (Analysis )
Emily Oxenford, Senior Research Analyst (Benchmarking )