Report 2011-131 All Recommendation Responses

Report 2011-131: City of Vernon: Although Reform Is Ongoing, Past Poor Decision Making Threatens Its Financial Stability (Release Date: June 2012)

Recommendation #1 To: Vernon, City of

To increase accountability and transparency in its governance, the city should ensure that specific reforms are appropriately implemented. Specifically, it should develop an implementation plan containing sufficient detail to establish the activities and coordination required to successfully implement an alternative new employment system so that its nonunion employees are no longer at-will employees of the city council.

1-Year Agency Response

On March 5, 2013 (effective April 4, 2013), the City Council adopted Ordinance No. 1202, which established a Personnel Merit System to replace the previous at-will system. The Personnel Merit System centralizes hiring and other personnel administration authority with the City Administrator and requires the development of a Personnel Policies and Procedures Manual. Under the Personnel Merit System, appointments and promotions are made on the basis of merit demonstrated through appropriate examination or other evidence of competence, with due regard for equal opportunity in employment. Resolution No. 2012-231 (11/20/12) adopted a Personnel Policies and Procedures Manual that included the following policies: Requesting and Recruiting for Personnel (I-2); Testing, Certification, and Eligibility Lists (I-3); and Acting/Interim Appointments (I-4). Resolution No. 2013-42 (3/19/13) added the following policies to the Manual: Terms of Employment (I-1); Probation and Training Periods (I-6); Secondary Employment or Business Activity (I-7); and Employee Separation (I-8). All policies are posted on the Human Resources Department page of the City's website (http://cityofvernon.org/departments/human-resources/226-personnel-policies-procedures-manual). The Director of Human Resources and City staff are currently meeting with all six recognized bargaining units in the City on additional policies that are proposed to be included in the Manual.

Completion Date: March 2013
Response Date: July 2013

California State Auditor's Assessment of 1-Year Status: Fully Implemented

6-Month Agency Response

The city council approved a resolution in November 2012 adopting the use of a citywide Personnel Policies and Procedures Manual—which was only partially complete—for use with the planned personnel system ordinance. The city indicated that it planned to seek approval of its proposed personnel system ordinance in February 2013. The city also indicated that its human resources director would continue to develop personnel policies and procedures for incorporation into the manual after city council approval.

Response Date: January 2013

California State Auditor's Assessment of 6-Month Status: Partially Implemented

The city did not provide a timeframe for completing this recommendation.

60-Day Agency Response

The city indicated that its human resources director and city attorney, who were both recently appointed, will review and recommend civil service procedures, but it has not provided detail on the steps it intends to take to develop these procedures. (See 2013-406, p. 190)

Response Date: August 2012

California State Auditor's Assessment of 60-Day Status: Pending

Recommendation #2 To: Vernon, City of

To increase accountability and transparency in its governance, the city should determine whether it will continue to own housing and communicate its decision to the public as soon as appropriate. Should the city decide to retain ownership of the housing, it should continue the effort to develop policies and procedures that are necessary to ensure fairness and impartiality in its management of city-owned housing.

1-Year Agency Response

The Housing Commission has recommended on several occasions that the City Council sell the City-owned housing units in Huntington Park. Each time, the Council has deliberated on the recommendation at a public meeting and communicated its determination and reasons thereto back to the Commission via staff report at a public meeting of the Commission. The Commission has never recommended the sale of any City-owned units in Vernon. In order to ensure fairness and impartiality in the management of City-owned housing, the Housing Commission worked extensively over the last two years to develop and implement a number of policies, procedures, and related forms. Paramount among these are the Vernon Rental Housing Policy, which requires compliance with all applicable federal and state fair housing laws, all rents to be set at a market valuation based on multiple independent appraisal sources, and a new, standard one-year form lease; and Lease-Up Procedures for New Tenants, which includes a standard Expression of Interest Form and Application, advertising requirements, and the public lottery process for randomly rank ordering prospective tenants onto a wait list. Other procedures developed relate to transitional issues for pre-existing tenants and enforcement of key lease provisions. As of July 1, 2013, over 25% of the City's housing stock is leased at the full market rents established by the Housing Commission. As of August 1, 2013, all pre-existing tenants will reach the second level increase of a four-tiered annual market rent implementation schedule designed to effectuate full market rents for all City-owned units by 2015.

Completion Date: September 2012
Response Date: July 2013

California State Auditor's Assessment of 1-Year Status: Fully Implemented

The city continues to maintain its housing and as it describes has taken steps to increase its rents to market value. It has developed policies and procedures and related forms. Finally, in follow-up inquiries, the city explained that it has awarded a contract to a third-party for property management services for June 1, 2013 through May 31, 2014.

6-Month Agency Response

In August 2012 the city council voted to continue its ownership of the housing and reported this decision to the Housing Commission in September 2012. By December 2012, the city established policies and procedures for housing that it believes will ensure fairness and impartiality in its management of city-owned housing. The city is in the process of identifying and pursuing a third party property management firm and in late January 2013, city staff issued a revised Request for Proposals for a property management firm.

Response Date: January 2013

California State Auditor's Assessment of 6-Month Status: Partially Implemented

60-Day Agency Response

The city did not address this recommendation in its August 2012 response. (See 2013-406, p. 190)

Response Date: August 2012

California State Auditor's Assessment of 60-Day Status: No Action Taken

Recommendation #3 To: Vernon, City of

To increase accountability and transparency in its governance, the city should continue the effort to develop a comprehensive plan to construct additional housing in the city.

1-Year Agency Response

On February 19, 2013, the City Council adopted Resolution No. 2013-33, approving a Disposition and Development Agreement (DDA) with Meta Housing Corporation (Meta). The DDA serves as the City's comprehensive plan for the construction of Vernon Family Apartments, a 45-unit affordable housing development located at the southeast tip of the City of Vernon (4675 52nd Drive), which borders a heavily residential community. The DDA sets forth the necessary milestones and respective timetable to complete construction and lease-up of the project by February 2015. Said milestones include a 65-year ground lease for the project site, the application and award of tax credits from the California Tax Credit Allocation Committee, and all necessary studies, plans, and permits. Meta was selected as the developer for the City's housing project through an extensive and well-advertised RFP process conducted in 2012 that included the issuance of the RFP to 32 developers, posting of the RFP on the City's website, a pre-submission informational meeting, and a selection panel consisting of City staff, outside counsel, and representatives of Senator De Leon's Office.

Completion Date: February 2013
Response Date: July 2013

California State Auditor's Assessment of 1-Year Status: Fully Implemented

6-Month Agency Response

The city, with input from the Housing Commission counsel and a legislative member's office, has selected a housing developer, Meta Housing Corporation and is in the process of developing the necessary agreements for city council approval that will result in a comprehensive housing plan for the construction of additional city housing.

Response Date: January 2013

California State Auditor's Assessment of 6-Month Status: Partially Implemented

60-Day Agency Response

The city, with input from the Housing Commission counsel and a legislative member's office, has selected a housing developer and is in the process of developing the necessary agreements for city council approval that will result in a comprehensive housing plan for the construction of additional city housing. (See 2013-406, p. 190)

Response Date: August 2012

California State Auditor's Assessment of 60-Day Status: Partially Implemented

Recommendation #4 To: Vernon, City of

To increase accountability and transparency in its governance, the city should develop a formal policy that describes the circumstances under which revenues can be transferred from its power department, and the limits and permissible uses of transferred revenue.

Annual Follow-Up Agency Response From October 2016

On September, 2015, the City Council adopted a revised Budget Policies and Procedures Manual. The Manual was developed utilizing the methodology used by the Government Finance Officer Association (GFOA), as was its preceding version. Within the manual, there is language that specifically addresses the City of Vernon's policy regarding Interfund transfers, describes the circumstances under which transfers occur, and indicates the City's position on limits and permissible uses of transferred revenue.

As referenced in page 8 of the Budget Policies and Procedures Manual, the determination of Interfund transfers and the purpose for the use of such transfers will be detailed for the public and City Council to evaluate appropriately. The limits and permissible uses of transfers shall be deliberated by City Council upon review of the planned allocation of resources during budget planning each fiscal year. Adoption of the proposed budget, inclusive of the Interfund transfer allocation, is at the City Council's discretion. The City Charter or Code does not place a limitation on transfer of resources among itself since its net impact upon the overall City is zero. However, in the effort to maintain a sustainable operation and mitigate volatility, the City has established a policy where fifteen (15%) is the maximum allowable transfer amount of fund revenues for any given fiscal year. Additionally, the City recognizes that its transfer amounts may be further restricted by its existing bond covenants and will exercise conformance as necessary.

In order to elaborate on the specifics related to Interfund transfers, the Director of Finance has elected to add "Exhibit 1" to the Budget Policies and Procedures Manual which details applicability of Interfund transfers at the City and provides an example calculation of such a transfer.

Completion Date: October 2016

California State Auditor's Assessment of Annual Follow-Up Status: Fully Implemented

Annual Follow-Up Agency Response From October 2015

The City has examined the CSA's comments and will incorporate additional specificity regarding transfers from the power department including circumstances, limits, and permissible uses of the transferred revenue. This will be incorporated as part of the annual update of the Budget Policies and Procedures manual and will be presented to the City Council for approval. The clerical error in the Budget Policies and Procedures manual has been corrected. The appropriate maximum transfer rate is 15%.

Estimated Completion Date: July 2016

California State Auditor's Assessment of Annual Follow-Up Status: Not Fully Implemented

Annual Follow-Up Agency Response From July 2014

On February 4, 2014, the City Council adopted a formal Budget Policies and Procedures Manual prepared by the Finance Director. The Manual was developed utilizing the methodology used by the Government Finance Officer Association (GFOA), approaches by other local cities, and the Citys existing practices. The Manual includes a section specifically addressing interfund transfers. (See page 8 of Budget Policies and Procedures Manual.)

Completion Date: February 2014

California State Auditor's Assessment of Annual Follow-Up Status: Not Fully Implemented

Although the city's budget includes an interfund transfers policy, the policy lacks specific detail related to transfers from the power department: the circumstances under which transfers can occur and the limits and permissible uses of transferred revenue. The policy is also unclear whether the limitation on total transfers is 15 or 20 percent of fund revenues.

Auditee did not substantiate its claim of full implementation

1-Year Agency Response

On November 15, 2011, the City Council adopted Resolution No. 2011-185, authorizing the issuance of the City of Vernon Electric System Revenue Bonds, 2011 Series A and B. The January 1, 2012 Bond Indenture limits transfers from the City's Light & Power Department to the City's General Fund to 11.5% of retail sales each fiscal year, and specifies how transfers are to be determined. The City's bond counsel and financial advisors review the City's compliance with said provisions annually as required by the Indenture, and more frequently as requested by City staff. As part of the budget management process, the Finance Director, Light & Power Director, and City staff meet monthly to review the City's compliance with the Indenture requirements and limitations respecting transfers. Further, by December 2013, separate from, but consistent with the 2012 Bond Indenture, the Finance Director, in coordination with the City's new financial advisors, the City Administrator, the Director of Light & Power, and outside bond counsel, will develop and present for City Council adoption, a formal policy respecting the transfer of revenues from the Light & Power Department in accordance with City policy and applicable law.

Completion Date: January 2012
Response Date: July 2013

California State Auditor's Assessment of 1-Year Status: No Action Taken

The city asserts it will develop a policy by December 2013. As noted in our audit report on pages 77 and 78, relying on bond convenants as a debt policy is insufficient because the bond convenants are intented to protect bondholders.

6-Month Agency Response

The city indicates it plans to develop and present to the city council a formal policy respecting the transfer of revenues from the Light & Power department in accordance with city policy and applicable law by July 2013.

Response Date: January 2013

California State Auditor's Assessment of 6-Month Status: No Action Taken

60-Day Agency Response

The city did not address this recommendation in its August 2012 response. (See 2013-406, p. 190)

Response Date: August 2012

California State Auditor's Assessment of 60-Day Status: No Action Taken

Recommendation #5 To: Vernon, City of

To ensure that it develops complete and appropriate personnel policies and procedures, the city should continue its efforts to hire an experienced human resources director.

60-Day Agency Response

The city appointed a human resources director to start in September 2012. (See 2013-406, p. 190)

Response Date: August 2012

California State Auditor's Assessment of 60-Day Status: Fully Implemented

Recommendation #6 To: Vernon, City of

To ensure that it develops complete and appropriate personnel policies and procedures, the new human resources director should ensure that the city's policies and procedures include, at a minimum, requirements for performing and documenting the analyses and justifications for appointments, including promotions, to management positions.

Annual Follow-Up Agency Response From July 2014

The Citys personnel policies relating to appointments and promotions (I-1: Terms of Employment, I-2: Requesting and Recruiting for Personnel, and I-3: Testing, Certification, and Eligibility Lists), apply to employees at all levels, including department heads and key management. When recruitments for department heads and key management are conducted in-house, the Human Resources Department adheres to the testing and certification procedures outlined in Personnel Policy I-3, within which the department is required to maintain all recruitment related documents, including but not limited to, applications/resumes, exam scores (when applicable), interview rating forms, and reference checks, for the purpose of documenting the analyses and justifications utilized for appointments and promotions to department head and key management positions. In the event an outside search firm is used to conduct a particular recruitment, the search firm is required to provide the City with the methodology to be used for the recruitment process (i.e. outreach methods, placement of advertisements, resume review and ranking process), as well as a written summary of highest ranking candidates, guidance on the interview process, including panel composition, questions, and rating forms, and verification of reference checks. All related documentation of the aforementioned is received and maintained by the Human Resources Department. On July 15, 2014, the City Council shall consider amending Personnel Policy I-3 to memorialize the aforementioned requirements.

Completion Date: November 2012

California State Auditor's Assessment of Annual Follow-Up Status: Fully Implemented

1-Year Agency Response

On November 20, 2012, the City Council adopted Resolution No. 2012-231, creating a Personnel Policies and Procedures Manual to be completed and maintained by the HR Director. The policies and procedures relating to appointments include Terms of Employment (I-1); Requesting and Recruiting for Personnel (I-2); Testing, Certification, and Eligibility Lists (I-3); and Acting/Interim Appointments (I-4), all of which contain a step-by-step approval and document routing sequences, and all of which are posted on the City's website. Additionally, the proposed Performance Evaluation Policy (IV-1) and related Performance Evaluation Form are currently under review by all City Department Heads and all six recognized bargaining units in the City for subsequent inclusion in the Manual upon adoption by the City Council. All policies are designed to establish and define employment terms and practices for uniform, citywide interpretation and application, and provide a fair, objective, and measureable process by which all existing and prospective employees are granted equal opportunity in employment matters.

Completion Date: November 2012
Response Date: July 2013

California State Auditor's Assessment of 1-Year Status: Partially Implemented

The city has established policies and procedures for requesting and recruiting personnel and for testing, certification and eligibility for employees. However, these policies and procedures do not apply to department head and key management positions. The city indicates that it may use a search firm to conduct a broad search for the most qualified candidates. However, it has not established policies and procedures to ensure that it will document the analyses and justifications for its management positions.

6-Month Agency Response

The city council adopted a partially implemented Personnel Policies and Procedures Manual in November 2012. The city has identified detailed procedures for some portions of the personnel manual and expects to propose additional policies in March 2013.

Response Date: January 2013

California State Auditor's Assessment of 6-Month Status: Partially Implemented

60-Day Agency Response

Although the city indicated that its recently appointed human resources director will review and recommend improvements to personnel policies and procedures, the city did not specifically respond to our recommendations, elaborate on any plans to improve its policies and procedures, or give a time frame for completion. (See 2013-406, p. 191)

Response Date: August 2012

California State Auditor's Assessment of 60-Day Status: Pending

Recommendation #7 To: Vernon, City of

To ensure that it develops complete and appropriate personnel policies and procedures, the new human resources director should ensure that the city's policies and procedures include, at a minimum, requirements for minimum qualifications, desirable qualifications, and job duties for all city executive positions.

Annual Follow-Up Agency Response From July 2014

On September 17, 2013, the City Council adopted Personnel Policy II-1: Classification Plan Administration. The purpose of the policy is to describe the Classification Plan and provide basic guidelines for plan administration and maintenance. The policy requires each class specification, including executive positions, to include the class title, a brief statement defining the essential duties and responsibilities of the class, the distinguishing characteristics of the class that differentiate it from other classes (if applicable), the supervision received and exercised, examples of duties performed, the typical working conditions (as applicable), the medical category designation, and the minimum qualifications required in terms of knowledge, skills, ability, experience, and education.

Completion Date: September 2013

California State Auditor's Assessment of Annual Follow-Up Status: Fully Implemented

1-Year Agency Response

On November 20, 2012, the City Council adopted Resolution No. 2012-231, creating a Personnel Policies and Procedures Manual to be completed and maintained by the HR Director. Under the Requesting and Recruiting for Personnel Policy (I-2), the HR Director is responsible for ensuring that all job bulletins, including those for executive positions, contain the essential job functions and duties of the position, the minimum qualifications required, and desirable qualifications. On May 13, 2013, through an open and competitive RFP process, the City engaged Public Sector Personnel Consultants (PSPC) to conduct a Citywide Classification and Compensation Study of all City positions and staff, including executives. The study will include a review of all current job duty statements for existing classifications and recommendations for new and revised job duty statements as needed.

Completion Date: November 2012
Response Date: July 2013

California State Auditor's Assessment of 1-Year Status: Partially Implemented

6-Month Agency Response

The city includes this recommendation in its reform matrix (dated the end of January 2013) but did not address it.

Response Date: January 2013

California State Auditor's Assessment of 6-Month Status: No Action Taken

60-Day Agency Response

Response Date: August 2012

California State Auditor's Assessment of 60-Day Status: Pending

Recommendation #8 To: Vernon, City of

Annual Follow-Up Agency Response From July 2014

On May 7, 2013, the City Council approved form At-Will Employment Agreements (Safety and Non-Safety) to be used for all executive positions, except the City Administrator and City Attorney, at terms not to exceed three years. Section 5 of said agreements requires a written performance evaluation, defining goals and performance objectives, to be conducted six months after the hire date specified in the agreement, and annually thereafter. The City Administrator may conduct more frequent evaluations at his/her discretion. As of June 3, 2013, all applicable executives are under this provision.

On September 17, 2013, the City Council approved Personnel Policy IV-1: Performance Evaluation. The purpose of the policy is to provide a systematic method for the evaluation, recording and improvement of the work effectiveness of employees. As part of the policy, new performance appraisal forms for executive and miscellaneous employees were adopted. A copy of the policy, including the new appraisal forms, is included. The City Administrator will utilize the new Executive Performance Appraisal Form for all executive performance reviews occurring in 2014 and later.

Completion Date: September 2013

California State Auditor's Assessment of Annual Follow-Up Status: Fully Implemented

1-Year Agency Response

On November 20, 2012, the City Council adopted Resolution No. 2012-231, creating a Personnel Policies and Procedures Manual to be completed and maintained by the HR Director. On May 7, 2013, the City Council approved form At-Will Employment Agreements (Safety and Non-Safety) to be used for all executive positions, except the City Administrator and City Attorney, at terms not to exceed three years. Section 5 of said agreements requires a written performance evaluation, defining goals and performance objectives, to be conducted six months after the hire date specified in the agreement, and annually thereafter. The City Administrator may conduct more frequent evaluations at his/her discretion. As of June 3, 2013, all applicable executives are under this provision. Additionally, the proposed Performance Evaluation Policy (IV-1) and related Performance Evaluation Form are currently under review by all City Department Heads and all six recognized bargaining units in the City for subsequent inclusion in the Manual upon adoption by the City Council.

Completion Date: November 2012
Response Date: July 2013

California State Auditor's Assessment of 1-Year Status: Partially Implemented

In May 2013 the city council approved at-will employment agreements for its executive positions which includes provisions for periodic appraisals. However, as the city notes in its response it is still in the process of implementing the appraisal process.

6-Month Agency Response

The city includes this recommendation in its reform matrix (dated the end of January 2013) but did not address it.

Response Date: January 2013

California State Auditor's Assessment of 6-Month Status: No Action Taken

60-Day Agency Response

Response Date: August 2012

California State Auditor's Assessment of 60-Day Status: Pending

Recommendation #9 To: Vernon, City of

To ensure that it develops complete and appropriate personnel policies and procedures, the new human resources director should ensure that the city's policies and procedures include, at a minimum, an improved methodology for and analysis of future salary surveys, ensuring that they are performed by staff or a consultant with experience and expertise in the area of salary surveys.

Annual Follow-Up Agency Response From October 2016

Vernon has prioritized its efforts to establish a consistent, equitable evaluation of employee classification and compensation. The Human Resources (HR) Department has developed procedures that are to be utilized in each instance when a salary survey is conducted. This process is to be overseen by the HR Director who is required to be knowledgeable in the area of classification and compensation analyses. Vernon's salary survey methodology has been designed to: 1) Allow for an objective, comprehensive, analysis of respective markets; 2) Ensure that salary placements are in alignment with the City's Salary Plan Administration policy which prescribes that salaries be placed at the 75th percentile of the applicable labor market; and 3) Consider other factors such as internal equity to maintain the integrity of the internal classification and compensation structure.

Salary Plan maintenance is the responsibility of the HR Director. However, at its sole discretion, the City may hire a consultant with expertise in the area of salary surveys if deemed important to evaluate a third party analysis. Language within Section 3 of the Salary Plan Administration Policy II-3 was updated to reflect this option. In the event that a third party consultant is contracted to conduct a salary survey, it is expected that a similar methodology will be employed by the firm. The HR Director will confer with the consultant to determine the most viable course of action and inform City Council if the salary survey practice will deviate from the normal procedures established by the City's HR Department.

On July 19, 2016, the City Council approved the HR Department's most recent amended and restated Citywide Fringe Benefits and Salary Resolution to reflect updates to classification and compensation (amongst other fringe benefit changes) after conducting its biennial salary survey of all employee groups using the same methodology.

Completion Date: November 2015

California State Auditor's Assessment of Annual Follow-Up Status: Fully Implemented

Annual Follow-Up Agency Response From October 2015

The following language will be added to Compensation Policy II-3, Section 3 - Plan Maintenance and presented to the City Council at its November 3, 2015 meeting for adoption:

"However, the City at its sole discretion may hire a consultant with experience and expertise in the area of salary surveys to conduct a classification and/or compensation study. To ensure internal pay equity and citywide pay comparisons, the salary survey methodology approved by the City Council for employee groups shall be the same methodology used when conducting salary surveys for the executive and management groups.

3b. Prevailing rates of pay based upon the approved comparable labor market survey."

Estimated Completion Date: November 2015

California State Auditor's Assessment of Annual Follow-Up Status: Not Fully Implemented

Annual Follow-Up Agency Response From July 2014

On September 17, 2013, the City Council adopted Personnel Policy II-1: Classification Plan Administration and Personnel Policy II-3: Salary Plan Administration. The Director of Human Resources has primary responsibility for the maintenance and application of both plans, including the preparation of recommended revisions/updates for consideration by the City Administrator and/or City Council. The Classification Plan Administration Policy identifies the various class series within the City and requires, at minimum, a triennial review of each series. The application of the Plan must be reviewed each fiscal year to verify and ensure the adequacy of job descriptions, the proper allocation of jobs to appropriate salary ranges, the proper classification and compensation of employees, and the reflection of any significant changes in comparison to the labor market. More frequent reviews may be conducted as recommended or directed by the City Administrator. The City Council will review any recommended revisions or updates to the Classification and/or Salary Plans as part of the budget process each year, or more frequently as necessary. Such recommendations, and Council consideration thereof, shall be based on competitive market conditions, the Citys ability to pay, and applicable collective bargaining agreements. Copies of the referenced policies are included.

Completion Date: September 2013

California State Auditor's Assessment of Annual Follow-Up Status: Not Fully Implemented

The policies that the city references do not address our recommendation, specifically, they do not include "an improved methodology for and analysis of future salary surveys, ensuring that they are performed by staff or a consultant with experience and expertise in the area of salary surveys."

Auditee did not address all aspects of the recommendation

1-Year Agency Response

On May 13, 2013, through an open and competitive RFP process, the City engaged Public Sector Personnel Consultants (PSPC) to conduct a Citywide Classification and Compensation Study of all active City classifications (approximately 158), including executives. PSPC has more than thirty (30) years of experience in conducting classification and compensation studies, specializing in human resources for public employers. The President of PSPC, Matthew Weatherly, possesses over fifteen (15) years of human resources management experience and has personally conducted over 150 classification and compensation projects with more than 75 cities nationwide. On June 11, 2013, PSPC held informational meetings with all City employees, including executives, to begin the study. PSPC has also recommended the comparator cities to be used for the compensation portion of the study based on criteria approved by the City Council. The proposed comparator cities have been provided to all City Department Heads and recognized bargaining units for review, comment, and discussion. Additionally, proposed classification and compensation policies have been distributed to all six recognized bargaining units in accordance with the meet and confer process, and will subsequently be presented to City Council for adoption. Said policies define the procedures that will be established to maintain the City's Classification and Compensation Plan. Consistent with said policies, the HR Director will be responsible for conducting future salary surveys on a triennial basis using the comparator cities established through the 2013 Classification and Compensation Study.

Completion Date: May 2013
Response Date: July 2013

California State Auditor's Assessment of 1-Year Status: Partially Implemented

The city provided its proposed classification plan administration guidelines, which it intends to present to the city council for approval in September 2013. The proposed guidelines indicate that the human resources director is responsible for maintenance of the classification plan and the plan will be reviewed continually each fiscal year. The plan identifies classifications by series such as department heads and assistants, accounting, police, fire, and indicates that each series will be reviewed at least once every three years. This status of this recommendation will be partially implemented until the city council approves the classification plan administration guidelines.

6-Month Agency Response

In January 2013, the city council approved a resolution instructing the city administrator to issue a Request for Proposals (RFP) for classification and compensation study.

Response Date: January 2013

California State Auditor's Assessment of 6-Month Status: Partially Implemented

The city's RFP does not address the method the consultant should use for the compensation study.

60-Day Agency Response

Response Date: August 2012

California State Auditor's Assessment of 60-Day Status: Pending

Recommendation #10 To: Vernon, City of

The city should determine whether employees have a vested right to longevity payments and whether it can legally reduce or discontinue the original longevity program as a means to reduce its costs.

Annual Follow-Up Agency Response From July 2014

Pursuant to the Citys July 2013 response, Public Sector Personnel Consultants (PSPC) completed its Citywide Classification and Compensation Study and found tiered longevity programs similar to Vernons elsewhere in the market. Additionally, PSPC found that longevity benefits were being discontinued on a go-forward basis.

The Citys labor law counsel has determined that current employees have a vested right to the longevity pay they currently receive. It cannot be unilaterally reduced or discontinued by the City. In accordance with the MMBA, the City must negotiate with all affected bargaining units to reduce or discontinue any longevity programs.

The City has recently been in negotiations with all six of its employee bargaining units and has, in good faith, proposed to each bargaining unit to discontinue the current longevity program for all employees hired after December 31, 2013. The City could not in good faith propose to reduce the original longevity program. As of July 9, 2014, negotiations with 3 units have concluded and all of those units have agreed to discontinue the current longevity program for future hires. Negotiations with the remaining units are expected to conclude by July 31, 2014.

Completion Date: January 2014

California State Auditor's Assessment of Annual Follow-Up Status: Fully Implemented

1-Year Agency Response

Because the City's original longevity program applies to employees hired prior to July 1, 1994, as of July 1, 2014, all qualified employees will have achieved their full benefit under the program, and the program will continue to phase itself out over subsequent years without incurring any new costs. Further, of the thirty-five (35) employees who retired in January and June 2013 as part of the City's 2012-2013 Early Retirement Incentive Program, thirty (30) were under the City's original longevity program. On May 13, 2013, through an open and competitive RFP process, the City engaged Public Sector Personnel Consultants (PSPC) to conduct a Citywide Classification and Compensation Study of all active City classifications (approximately 158), including executives. Longevity benefits will also be reviewed as part of this study. If any changes to the City's original longevity program are recommended by PSPC as a result of the study, the City Attorney and outside labor law counsel will determine whether employees have a vested right to longevity and whether the City can legally discontinue the original longevity program. If determined to be legally permissible and in the City's best interests, the City will negotiate with affected bargaining units in accordance with MMBA, POBOR, and FOBOR, regarding any recommendations or proposals to discontinue the original longevity program.

Estimated Completion Date: March 2014
Response Date: July 2013

California State Auditor's Assessment of 1-Year Status: Partially Implemented

The city indicates that the original longevity program will be reviewed as part of its upcoming citywide classification and compensation study. The city states that if changes to the original longevity program are recommended as a result of the study, the city attorney and outside labor law counsel will determine whether employees have a vested right in the original program and whether the city can legally discontinue the original program and if so, will negotiate with affected bargaining units to discontinue the program. The city does not indicate when this will be completed.

6-Month Agency Response

The city indicates that as part of its classification and compensation study, the contractor will be asked to include the impacts of the city's longevity programs. As noted in recommendation 9, the city council instructed the city administrator to issue an RFP for the study. The city stated that if any changes to the original longevity program are recommended, the city attorney and outside labor law counsel shall determine whether employees have a vested right to longevity and whether the city could legally discontinue the program. If otherwise legally possible, the city would be required to negotiate with affected bargaining units to discontinue the original longevity program, after it receives the results from the study.

In November 2012 the city council approved the Public Agency Retirement System (PARS) Supplementary Retirement Plan as part of its 2012-13 Early Retirement Incentive Program to obtain budget savings over the next few fiscal years. In January 2013, the city council approved funding for the plan. The city indicates that 22 employees retired as of the end of January 2013 and 12 will retire by the end of June 2013. The city estimates these retirements will provide a savings of $1.9 million in fiscal year 2013-14 and a cumulative savings of $8.1 million over 5 years.

Response Date: January 2013

California State Auditor's Assessment of 6-Month Status: Partially Implemented

60-Day Agency Response

The city did not address this recommendation in its August 2012 response. (See 2013-406, p. 192)

Response Date: August 2012

California State Auditor's Assessment of 60-Day Status: No Action Taken

Recommendation #11 To: Vernon, City of

To ensure accurate reporting and payment of retirement benefits, the city should work with California Public Employees' Retirement System (CalPERS) to resolve the reported findings and observation noted in CalPERS April 2012 audit report within a reasonable period of time.

Annual Follow-Up Agency Response From October 2015

As of September 28, 2015, five (5) previous employees are awaiting CalPERS appeal hearings. All other matters have been resolved and the City of Vernon has taken corrective action as instructed by CalPERS.

Completion Date: September 2015

California State Auditor's Assessment of Annual Follow-Up Status: Fully Implemented

The city provided a letter from CalPERS stating that the city completed all required actions to resolve the findings.

Annual Follow-Up Agency Response From July 2014

Of the 10 findings and 1 observation noted in the CalPERS April 2012 audit report, 3 of the findings and the observation have been fully resolved as of May 20, 2014, and 7 of the findings are pending an administrative appeal process and may be subject to further review as a result of the final appeal determinations. Where required, corrective documents and payments have been provided by the City and credits have been issued by CalPERS.

On April 16, 2014, City representatives met with CalPERS representatives in Sacramento to receive further clarification and direction with regard to any audit items considered open as of that point. The meeting included five Vernon representatives: City Administrator and staff, HR Director, Deputy City Attorney, and outside labor law counsel; and seven CalPERS representatives from the following divisions: membership, payroll, compensation review, and legal/appeals.

As instructed by CalPERS at said meeting, the Citys HR Director has provided additional documentation relating to Findings 2, 3, 4, 5, 6, 7, 10 and is awaiting further instruction from CalPERS regarding these remaining open items.

Estimated Completion Date: December 2014

California State Auditor's Assessment of Annual Follow-Up Status: Not Fully Implemented

1-Year Agency Response

On October 16, 2012, the City Council adopted Resolution No. 2012-192, correcting the City's contract with CalPERS to revoke the erroneous 2005 inclusion of Local Prosecutors as local safety members. No members of the City Attorney's Office retired during the time the erroneous provision was in place. The City is working with CalPERS to receive a refund of contributions that were overpaid during the 7.5 years that the erroneous provision was in place. In April 2011, the City implemented the EDEN Payroll Module to ensure that reportable compensation is limited to the maximum rates established by the IRS and that premium and specialty pays are reported under their proper pay codes. Effective December 29, 2012, the individual who previously held the Fire Chief and City Administrator positions simultaneously, resigned as Fire Chief and, effective December 30, 2012, entered into an at-will employment agreement to serve exclusively as the City Administrator. As of June 26, 2013, the HR Director has provided all corresponding documentation requested by CalPERS Compensation Review Division to resolve this matter. As of May 29, 2013, the HR Director has confirmed with CalPERS Membership Division that there are no outstanding issues with current employees' membership status. The HR Director continues to work with CalPERS and the City's Payroll Division to correct any previous reporting errors and to resolve the remaining findings in the CalPERS report related to uniform allowance for miscellaneous employees and reportable compensation for certain City Council members.

Completion Date: October 2012
Response Date: July 2013

California State Auditor's Assessment of 1-Year Status: Partially Implemented

The city states that the human resources director continues to work with CalPERS and the city's payroll division to correct previous reporting errors and resolve the remaining findings in the CalPERS report. The city did not indicate when it anticipates full resolution of all issues.

6-Month Agency Response

The city council adopted a resolution in October 2012 to eliminate local prosecutors as local safety members from its CalPERS contract. The city indicated that it continues to work with CalPERS to correct previous reporting errors and resolve the findings that CalPERS reported in May 2012. Finally, as of December 31, 2012, the city reports that the city administrator no longer also serves as fire chief. He now serves and is exclusively paid as the city administrator and has been removed from the safety coverage group.

Response Date: January 2013

California State Auditor's Assessment of 6-Month Status: Partially Implemented

60-Day Agency Response

The city has begun reporting its attorney contributions under the miscellaneous classification and is working with CalPERS to remove the safety classification for attorneys from its contract. (See 2013-406, p. 192)

Response Date: August 2012

California State Auditor's Assessment of 60-Day Status: Partially Implemented

Recommendation #12 To: Vernon, City of

To better control contract expenditures and ensure that it receives the best value for the services it purchases, the city should require that all city contracts be entered into its enterprise resource planning (ERP) system so that the contract managers and the city can more efficiently and effectively track the city's contract expenditures.

1-Year Agency Response

All City contracts are now required to be entered into the City's ERP system, EDEN, which assigns each contract a unique contract number for effective tracking of expenditures under a particular contract. The ERP system limits aggregate payments under a particular contract to the total contract amount. As of October 2012, contract managers for each department have been trained to run queries to track contract expenditures. On June 25, 2013, the Finance Department issued the City of Vernon Purchasing Manual to all City departments, as adopted by the City Administrator pursuant to the City's Competitive Bidding and Purchasing Ordinance (Ordinance No. 1200). The Purchasing Manual was prepared by the Finance Department, with significant input from the City Attorney's Office and all City departments. The Purchasing Manual sets forth all of the requirements of the Purchasing Ordinance as they apply in a practical manner to the day to day operation of the purchasing system. It includes a method of contract routing (Contract/Amendment Signature Routing Form) that ensures every affected department receives information about each contract before it is signed or approved pursuant to the City's good governance contract requirements.

Completion Date: June 2013
Response Date: July 2013

California State Auditor's Assessment of 1-Year Status: Fully Implemented

6-Month Agency Response

The city indicates that all city contracts are now required to be entered into the ERP system and that each contract is assigned a unique contract number. Further, it reports training contract managers about how to use the ERP system to track expenditures. The city states that by the end of June 2013 the city administrator will adopt a purchasing manual, which will set forth requirements for the day-to-day operation of a purchasing system and will include a method of contract and invoice routing that will ensure every affected department receives information about each contract and invoice before payment.

Response Date: January 2013

California State Auditor's Assessment of 6-Month Status: Partially Implemented

60-Day Agency Response

The city states that a top priority for its recently appointed city attorney will be to develop a comprehensive contracting policy resolution for city council approval, but it did not give a time frame for completion. (See 2013-406, p. 192)

Response Date: August 2012

California State Auditor's Assessment of 60-Day Status: Pending

Recommendation #13 To: Vernon, City of

To better control contract expenditures and ensure that it receives the best value for the services it purchases, the city should also begin using the ERP system's uniquely assigned contract numbers for tracking and generating a list of contracts.

1-Year Agency Response

Completion Date: January 2013
Response Date: July 2013

California State Auditor's Assessment of 1-Year Status: Fully Implemented

6-Month Agency Response

The city indicates that all city contracts are now required to be entered into the ERP system and that each contract is assigned a unique contract number.

Response Date: January 2013

California State Auditor's Assessment of 6-Month Status: Partially Implemented

The city does not address our recommendation regarding creating a master contract list.

60-Day Agency Response

The city did not address this recommendation in its August 2012 response. (See 2013-406, p. 192)

Response Date: August 2012

California State Auditor's Assessment of 60-Day Status: No Action Taken

Recommendation #14 To: Vernon, City of

To better control contract expenditures and ensure that it receives the best value for the services it purchases, the city should require all contracts to have expenditure limits and starting and ending dates for services performed.

1-Year Agency Response

On December 18, 2012 (effective January 17, 2013), the City Council adopted Ordinance No. 1200, the Competitive Bidding and Purchasing Ordinance. Section 2.17.30(A) of the Ordinance requires all contracts, including professional service contracts, to include ending dates and/or expenditure limits. On February 25, 2013, the City Council adopted Resolution No. 2013-23, approving the general forms of personal service contract, types of insurance and indemnity, purchase order contracts, requests for proposals, and attorney services contracts. All of these forms of document contain the recommended good governance provisions, including expenditure limits and time limits not to exceed three years. On June 25, 2013, the Finance Department issued the City of Vernon Purchasing Manual to all City departments, as adopted by the City Administrator pursuant to the City's Competitive Bidding and Purchasing Ordinance (Ordinance No. 1200). The Purchasing Manual was prepared by the Finance Department, with significant input from the City Attorney's Office and all City departments. The Purchasing Manual sets forth all of the requirements of the Purchasing Ordinance as they apply in a practical manner to the day to day operation of the purchasing system. It includes a method of contract routing (Contract/Amendment Signature Routing Form) that ensures every affected department receives information about each contract before it is signed or approved pursuant to the City's good governance contract requirements.

Completion Date: December 2012
Response Date: July 2013

California State Auditor's Assessment of 1-Year Status: Fully Implemented

In February 2013 the city council approved the general forms for various types of contracts and purchases. These templates for contracts and purchasing include requirements to specify starting and ending dates for services and expenditure limits.

6-Month Agency Response

In December 2012 the city council adopted a competitive bidding and purchasing ordinance to require all contracts, including professional services contracts, to include ending dates and or expenditure caps. However, this ordinance is not effective until July 1, 2013 to allow for a transition period for existing agreements. By the end of June 2013, the city expects to adopt a purchasing manual which will set forth requirements of the ordinance for the day-to-day operations of the purchasing system. The city expects to establish standardized forms that will include start dates, maximum terms, and limits on dollar amounts.

Response Date: January 2013

California State Auditor's Assessment of 6-Month Status: Partially Implemented

60-Day Agency Response

Response Date: August 2012

California State Auditor's Assessment of 60-Day Status: Pending

Recommendation #15 To: Vernon, City of

To better control contract expenditures and ensure that it receives the best value for the services it purchases, the city should require contract managers to use logs to monitor payments and the contractor's progress toward completion of required deliverables.

1-Year Agency Response

As of October 2012, contract managers in all City departments have been trained by the IT Department on the use of the City's ERP system to run periodic queries in order to log and monitor payments under a particular contract.

Completion Date: October 2012
Response Date: July 2013

California State Auditor's Assessment of 1-Year Status: Fully Implemented

6-Month Agency Response

The city indicated that by the end of March 2013 it will complete training of contract managers on the use of the city's ERP system to run periodic queries in order to log and monitor payments under a particular contract.

Response Date: January 2013

California State Auditor's Assessment of 6-Month Status: Partially Implemented

60-Day Agency Response

Response Date: August 2012

California State Auditor's Assessment of 60-Day Status: Pending

Recommendation #16 To: Vernon, City of

To better control contract expenditures and ensure that it receives the best value for the services it purchases, the city should require that all contracts contain a well-defined scope of work and deliverables that a sufficiently detailed invoice can be measured against.

Annual Follow-Up Agency Response From October 2016

The City Attorney's Office worked jointly with City Departments to refine contract templates in order to ensure that the City receives the best value for the service that the City intends to purchase. The City's standard form professional services agreement requires at Section 2.0 ("Scope of Services"), that contractors provide deliverables as articulated in both the City's RFP and the contractor's proposal —both of which are attached to the contract and incorporated by reference. Additionally, within Section 5.0 ("Compensation and Fees"), the contract requires that the contractor specify each component of their service costs in a separate schedule (attached to the contract and incorporated by reference). All contract templates are consistent with the City's Purchasing Ordinance, Purchasing Manual, Budget Policies and Procedures Manual, and Accounts Payable Invoice and Check Processing Procedures.

In addition, contract management guidelines have been developed for the purpose of providing a tool to aid in the preparation of contracts, requests for proposals, bid notices, etc. In this effort, the City further focuses on the presentation of a well-defined scope of work for a given project in order to increase transparency and eliminate ambiguity.

In conjunction, guidelines and templates will be utilized by staff to better manage contract expenditures citywide.

Completion Date: October 2016

California State Auditor's Assessment of Annual Follow-Up Status: Fully Implemented

Annual Follow-Up Agency Response From October 2015

The City Council approved Resolution 2015-10 on March 3, 2015 to address that all contracts contain a well-defined scope of work and deliverables to ensure that a sufficiently detailed invoice can be measured against.

Completion Date: March 2015

California State Auditor's Assessment of Annual Follow-Up Status: Not Fully Implemented

The city states that the City Council approved Resolution 2015-10 on March 3, 2015 to address that all contracts contain a well-defined scope of work and deliverables to ensure that a sufficiently detailed invoice can be measured against. Resolution 2015-10 includes templates which show the form the city will use for the Notice Inviting Bids, Bid Form and Project Specifications, Instructions to Bidders and Specifications and Contract. However, these templates do not describe to contract managers (or others preparing the contracts) specifically what information must be included to ensure that a contract has a well-defined scope of work. It is unclear how the city will ensure that all of its contracts contain a well-defined scope of work and deliverables that a sufficiently detailed invoice can be measured against.

Auditee did not address all aspects of the recommendation

Annual Follow-Up Agency Response From July 2014

The Finance Department and City Attorneys Office are currently developing scope of work guidelines for each type of contract that a sufficiently detailed invoice can be measured against. The guidelines will be used when preparing contracts, requests for proposals, bid notices, etc. and will be consistent with the Citys Purchasing Ordinance, Purchasing Manual, Budget Policies and Procedures Manual, and Accounts Payable Invoice and Check Processing Procedures. The City is currently in the process of hiring a new City Attorney and expects said person to be onboard by late July or early August 2014. The guidelines will be finalized with the new City Attorney shortly thereafter and hopefully no later than October 1, 2014.

Estimated Completion Date: October 2014

California State Auditor's Assessment of Annual Follow-Up Status: Not Fully Implemented

1-Year Agency Response

On February 25, 2013, the City Council adopted Resolution No. 2013-23, approving the general forms of personal service contract, types of insurance and indemnity, purchase order contracts, requests for proposals, and attorney services contracts. All of these forms of document contain the recommended good governance provisions, including well-defined scopes of work and deliverables. Requests for Proposals are required to contain well-defined scopes of work and deliverables prior to City Attorney approval as to form and City Administrator approval to issue. The appropriate form of contract is attached as an exhibit to the RFP and, ultimately, the RFP and selected proposal are attached in their entirety as exhibits to the final contract. Since the adoption of the Competitive Bidding and Purchasing Ordinance (Ordinance No. 1200) in December 2013, ten RFPs have been issued. On June 25, 2013, the Finance Department issued the City of Vernon Purchasing Manual to all City departments, as adopted by the City Administrator pursuant to the City's Competitive Bidding and Purchasing Ordinance (Ordinance No. 1200). The Purchasing Manual was prepared by the Finance Department, with significant input from the City Attorney's Office and all City departments. The Purchasing Manual sets forth all of the requirements of the Purchasing Ordinance as they apply in a practical manner to the day to day operation of the purchasing system. It requires invoices to be measured against the scope of work and deliverables in the respective contract.

Completion Date: February 2013
Response Date: July 2013

California State Auditor's Assessment of 1-Year Status: Partially Implemented

The city's response indicates that it adopted a resolution which approved the general forms for its different types of contracts and indicated that the resolution included recommended good governance provisions, including well-defined scopes of work and deliverables. However, the contract templates do not describe to contract managers (or other preparing the contracts) specifically what information must be included to ensure that a contract has a well-defined scope of work and deliverables that a sufficiently detailed invoice can be measured against. Based on the response, it is unclear how the city will ensure that all of its contracts contain a well-defined scope of work.

6-Month Agency Response

In December 2012 the city council adopted a competitive bidding and purchasing ordinance. By the end of June 2013, the city expects to adopt a purchasing manual, which will set forth requirements of the ordinance for the day-to-day operations of the purchasing system. The city expects its purchasing manual to require all RFPs to be reviewed by the purchasing authority and city attorney's office prior to approval by the city administrator or city council, depending on dollar amount, for the purpose of ensuring adequate monitoring and auditing tools, such as a well-defined scope of work and defined deliverables.

Response Date: January 2013

California State Auditor's Assessment of 6-Month Status: Partially Implemented

60-Day Agency Response

Response Date: August 2012

California State Auditor's Assessment of 60-Day Status: Pending

Recommendation #17 To: Vernon, City of

To better control contract expenditures and ensure that it receives the best value for the services it purchases, the city should ensure that contracts include language requiring contractors to provide invoices with sufficient detail so that contract managers can determine whether the services provided are consistent with the scope of work.

1-Year Agency Response

On February 25, 2013, the City Council adopted Resolution No. 2013-23, approving the general forms of personal service contract, types of insurance and indemnity, purchase order contracts, requests for proposals, and attorney services contracts. All forms of contract contain the recommended good governance provisions, including specific requirements respecting invoice detail, supporting documentation, and methods of billing. The appropriate form of contract is attached as an exhibit to the RFP and, ultimately, the RFP and selected proposal are attached in their entirety as exhibits to the final contract. Since the adoption of the Competitive Bidding and Purchasing Ordinance (Ordinance No. 1200) in December 2013, ten RFPs have been issued. On June 25, 2013, the Finance Department issued the City of Vernon Purchasing Manual to all City departments, as adopted by the City Administrator pursuant to the City's Competitive Bidding and Purchasing Ordinance (Ordinance No. 1200). The Purchasing Manual was prepared by the Finance Department, with significant input from the City Attorney's Office and all City departments. The Purchasing Manual sets forth all of the requirements of the Purchasing Ordinance as they apply in a practical manner to the day to day operation of the purchasing system. It requires invoices to be measured against the scope of work and deliverables in the respective contract.

Completion Date: February 2013
Response Date: July 2013

California State Auditor's Assessment of 1-Year Status: Fully Implemented

The city council approved resolution 2013-23 which includes contract templates for personal services and legal services. The templates include language requiring sufficent detail for invoices that allow contract managers to evaluate services provided against the scope of work in the contracts.

6-Month Agency Response

In December 2012 the city council adopted a competitive bidding and purchasing ordinance. By the end of June 2013, the city expects to adopt a purchasing manual, which will set forth requirements of the ordinance and will include approval forms for contracts that include respective provisions as required by city policy and applicable law.

Response Date: January 2013

California State Auditor's Assessment of 6-Month Status: Partially Implemented

60-Day Agency Response

Response Date: August 2012

California State Auditor's Assessment of 60-Day Status: Pending

Recommendation #18 To: Vernon, City of

To better control contract expenditures and ensure that it receives the best value for the services it purchases, the city should also require the finance department to review invoices to identify those that lack sufficient detail and return such invoices to the appropriate contract manager to obtain a revised invoice that is sufficiently detailed.

Annual Follow-Up Agency Response From July 2014

Estimated Completion Date: October 2014

California State Auditor's Assessment of Annual Follow-Up Status: Not Fully Implemented

Annual Follow-Up Agency Response From July 2014

On February 4, 2014, the City Council adopted a formal Accounts Payable Invoice and Check Processing Procedures. As invoices arrive, they are stamped by the Accounts Payable Clerk as received then they are forwarded to the appropriate department for review, coding, and payment approval. After departmental approval is obtained, invoices are then forwarded back to Finance for processing. Step 9 of the Invoice Processing Procedures specifically requires the Deputy City Treasurer to review each invoice to ensure that it contains sufficient detail that can be measured against the scope of work, proper departmental approval, and proper account coding. If any of these elements are missing or deficient, the invoice is returned to the contracting/approving department and the invoice is not paid until the missing or deficient information is obtained or corrected.

Completion Date: February 2014

California State Auditor's Assessment of Annual Follow-Up Status: Fully Implemented

1-Year Agency Response

On February 25, 2013, the City Council adopted Resolution No. 2013-23, approving the general forms of personal service contract, types of insurance and indemnity, purchase order contracts, requests for proposals, and attorney services contracts. All forms of contract contain the recommended good governance provisions, including specific requirements respecting invoice detail, supporting documentation, and methods of billing. The appropriate form of contract is attached as an exhibit to the RFP and, ultimately, the RFP and selected proposal are attached in their entirety as exhibits to the final contract. Since the adoption of the Competitive Bidding and Purchasing Ordinance (Ordinance No. 1200) in December 2013, ten RFPs have been issued. On June 25, 2013, the Finance Department issued the City of Vernon Purchasing Manual to all City departments, as adopted by the City Administrator pursuant to the City's Competitive Bidding and Purchasing Ordinance (Ordinance No. 1200). The Purchasing Manual was prepared by the Finance Department, with significant input from the City Attorney's Office and all City departments. The Purchasing Manual sets forth all of the requirements of the Purchasing Ordinance as they apply in a practical manner to the day to day operation of the purchasing system. It requires invoices to be measured against the scope of work and deliverables in the respective contract.

Completion Date: February 2013
Response Date: July 2013

California State Auditor's Assessment of 1-Year Status: Partially Implemented

In a follow-up response the city indicated that its finance director is drafting a separate updated cash disbursement policy to present to the city council for adoption by January 2014. The proposed policy will detail the invoice review and approval process.

6-Month Agency Response

In December 2012 the city council adopted a competitive bidding and purchasing ordinance. By the end of June 2013, the city expects to adopt a purchasing manual, which will set forth requirements of the ordinance and will include a method of contract and invoice routing that will ensure every affected department receives information about each contract and invoice before payment.

Response Date: January 2013

California State Auditor's Assessment of 6-Month Status: Partially Implemented

60-Day Agency Response

Response Date: August 2012

California State Auditor's Assessment of 60-Day Status: Pending

Recommendation #19 To: Vernon, City of

To better control contract expenditures and ensure that it receives the best value for the services it purchases, the city should continue its efforts to develop and implement policies and procedures for a competitive bidding process, including clearly defining the circumstances under which forgoing competitive bidding is appropriate.

1-Year Agency Response

On December 18, 2012 (effective January 17, 2013), the City Council adopted Ordinance No. 1200, the Competitive Bidding and Purchasing Ordinance. Section 2.17.12 of the Ordinance provides eleven (11) exemptions from competitive bidding and competitive selection. Among them are, labor or services rendered by one City department to another City department, contracts for proprietary or sole-source labor, material, supplies, or services, contracts for or relating to the acquisition of real property, and contracts for emergency work. On June 25, 2013, the Finance Department issued the City of Vernon Purchasing Manual to all City departments, as adopted by the City Administrator pursuant to the City's Competitive Bidding and Purchasing Ordinance (Ordinance No. 1200). The Purchasing Manual was prepared by the Finance Department, with significant input from the City Attorney's Office and all City departments. The Purchasing Manual sets forth all of the requirements of the Purchasing Ordinance as they apply in a practical manner to the day to day operation of the purchasing system.

Completion Date: December 2012
Response Date: July 2013

California State Auditor's Assessment of 1-Year Status: Fully Implemented

The city council adopted Ordinance 1200, the competitive bidding and purchasing ordinance in December 2012. Additionally, in June 2013, the finance department issued the city's purchasing manual, adopted by the city administrator, which sets forth all the requirements, including circumstances under which the city may forgo competitive bidding.

6-Month Agency Response

In December 2012 the city council adopted a competitive bidding and purchasing ordinance. However, this ordinance is not effective until July 1, 2013 to allow for a transition period for existing agreements. By the end of June 2013, the city expects to adopt written administrative procedures through a purchasing manual which will set forth requirements of the ordinance as they apply in a practical manner to the day-to-day operation of a purchasing system.

Response Date: January 2013

California State Auditor's Assessment of 6-Month Status: Partially Implemented

60-Day Agency Response

The city states that a top priority for its recently appointed city attorney will be to finalize the proposed comprehensive contract and purchasing ordinance that establishes an open and competitive bidding process for service contracts as required by the city charter, but it did not give a timeframe for completion. (See 2013-406, p. 194)

Response Date: August 2012

California State Auditor's Assessment of 60-Day Status: Pending

Recommendation #20 To: Vernon, City of

To the extent that the city implements policies that affect contracts, the city should also ensure that it reviews all current contracts and amends them, if necessary, to comply with newly established policies.

Annual Follow-Up Agency Response From October 2016

In August 2016, the City conducted an internal assessment to ensure that all active contracts were in compliance with newly established policies. This entailed performing a system query of the City's Contract Management software and follow up with each department on open contracts implemented prior to policy changes. Contracts greater than three years old were targeted for additional attention and action. Such contracts did not contain the most current terms and conditions adopted by the City. Department Directors were instructed to update the contracts to incorporate the new terms and conditions in order to comply with City policy. Updates to the contracts were accomplished by way of amendment or termination of the existing contract and establishment of a new updated agreement.

A related report was prepared by the Director of Finance to illustrate the citywide efforts enacted to ensure adherence to current policy.

Completion Date: August 2016

California State Auditor's Assessment of Annual Follow-Up Status: Fully Implemented

Annual Follow-Up Agency Response From October 2015

New contracts and amended contracts are routed to various responsible departments to ensure compliance with the requirements of the City's Competitive Bidding and Purchasing Ordinance The routing process is done via the Contract/Amendment Signature Routing Form.

Completion Date: January 2014

California State Auditor's Assessment of Annual Follow-Up Status: Not Fully Implemented

The city indicates that in January 2013, the finance director and city attorney conducted a citywide review of all open contracts in the city's EDEN system to identify contracts that were not in compliance with new policies. In its October 2015 update, the city states that new contracts and amended contracts are routed to various responsible departments to ensure compliance with the requirements of the City's Competitive Bidding and Purchasing Ordinance. However, the city does not indicate whether it amended existing contracts to bring them in compliance with new policies.

Auditee did not address all aspects of the recommendation

Annual Follow-Up Agency Response From July 2014

Effective July 1, 2013, upon renewal of existing contracts and award of new contracts, the requirements of the Citys Competitive Bidding and Purchasing Ordinance were fully adhered to. The City did not retroactively renegotiate existing legally binding contracts.

Estimated Completion Date: July 2016

California State Auditor's Assessment of Annual Follow-Up Status: Not Fully Implemented

1-Year Agency Response

On December 18, 2012 (effective January 17, 2013), the City Council adopted Ordinance No. 1200, the Competitive Bidding and Purchasing Ordinance. Section 2.17.30 of the Ordinance provides the following terms and procedures for all contracts specific to Vernon's good governance reforms: (1) ending dates and/or expenditure caps; (2) rebidding every three years; (3) prohibition on rate increases during the contract term, except where necessary due to external factors and tied to most appropriate index, cost-of-living rate, or pass through; (4) competitive governmental rates; and (5) published on the City's website at least seven days prior to contract award. On February 25, 2013, the City Council adopted Resolution No. 2013-23, approving the general forms of personal service contract, types of insurance and indemnity, purchase order contracts, requests for proposals, and attorney services contracts. All forms of contract contain the required good governance provisions. In January 2013, the Finance Director and City Attorney conducted a citywide review of all open contracts in the City's EDEN system to identify contracts that were not in compliance with new policies. Since the adoption of the Competitive Bidding and Purchasing Ordinance, ten RFPs have been issued, all of which were posted on the City's website: (http://cityofvernon.org/rfps-for-city-services). Seven of the ten were for contracts that had previously been in effect for more than three years. Additionally, the EDEN Bid & Quote Module will be purchased and implemented in fiscal year 2013-2014, which will help City staff more effectively and efficiently track and maintain compliance with the City's good governance contract requirements.

Completion Date: January 2013
Response Date: July 2013

California State Auditor's Assessment of 1-Year Status: Partially Implemented

The city indicates that in January 2013, the finance director and city attorney conducted a citywide review of all open contracts in the city's EDEN system to identify contracts that were not in compliance with new policies. However, the city does not indicate the results and whether it amended existing contracts to bring them in compliance with newly established policies.

6-Month Agency Response

The city indicates that in January 2013 the finance director and the city administrator began a city-wide review of all open contracts in the ERP system with the intent of closing out all inactive contracts and requiring a competitive bidding/selection process for services which have not been bid in three years.

Response Date: January 2013

California State Auditor's Assessment of 6-Month Status: Partially Implemented

The city has not yet addressed whether it plans to amend existing contracts to ensure compliance with newly established policies.

60-Day Agency Response

Response Date: August 2012

California State Auditor's Assessment of 60-Day Status: Pending

Recommendation #21 To: Vernon, City of

To improve its internal controls, better control costs, and prevent abuse from occurring, the city should require the finance department to review credit card expenditures for appropriateness.

Annual Follow-Up Agency Response From July 2014

The Purchasing Manual, as updated February 4, 2014, contains a section on credit card procedures and responsibilities and outlines the responsibilities of the Finance Director to review and compare credit card statements against their corresponding receipts to ensure accuracy, accountability, and appropriateness of purchases. The City Administrator is required to perform such review for the Finance Directors credit card purchases. (See page 20 of Purchasing Manual.)

Completion Date: February 2014

California State Auditor's Assessment of Annual Follow-Up Status: Fully Implemented

1-Year Agency Response

On June 25, 2013, the Finance Department issued the City of Vernon Purchasing Manual to all City departments, as adopted by the City Administrator pursuant to the City's Competitive Bidding and Purchasing Ordinance (Ordinance No. 1200). The Purchasing Manual was prepared by the Finance Department, with significant input from the City Attorney's Office and all City departments. The Purchasing Manual sets forth all of the requirements of the Purchasing Ordinance as they apply in a practical manner to the day to day operation of the purchasing system, including ten pages detailing the City's credit card policies and procedures.

Completion Date: June 2013
Response Date: July 2013

California State Auditor's Assessment of 1-Year Status: No Action Taken

Although the city's purchasing manual includes specific procedures for credit card purchases, it does not include a requirement for the finance department to review credti card expenditures for appropriateness.

6-Month Agency Response

The city indicates that the finance director now reviews all credit card purchases for appropriateness and obtains explanations from the purchaser or responsible department heads for questionable purchases before payments. The city expects to adopt a purchasing manual by the end of June 2013, which will include the implementation of controls required for proper separation of duties and uses of credit cards and memorialize the finance department review of credit card expenditures.

Response Date: January 2013

California State Auditor's Assessment of 6-Month Status: Partially Implemented

60-Day Agency Response

The city did not address this recommendation in its August 2012 response. (See 2013-406, p. 194)

Response Date: August 2012

California State Auditor's Assessment of 60-Day Status: No Action Taken

Recommendation #22 To: Vernon, City of

To improve its internal controls, better control costs, and prevent abuse from occurring, the city should revise its travel and expense reimbursement policy to be clear about the expenditure limits for meals, and add a limit for lodging accommodations.

Annual Follow-Up Agency Response From July 2014

The City has updated its Expense Reimbursement Policy twice, once in October 2013 and again in December 2013. Section XII of the current policy, adopted December 17, 2013 via Resolution No. 2013-100, sets forth the expenditure limits for meals based on the lowest IRS standard rate. Section XIII sets forth the expenditure limits for lodging based on the maximum group rate (if for a conference), the government rate, or the IRS rate for the given area.

Completion Date: December 2013

California State Auditor's Assessment of Annual Follow-Up Status: Fully Implemented

1-Year Agency Response

By the August 20, 2013 City Council meeting, the Finance Director will prepare and present for City Council adoption, an amendment to the City of Vernon Travel and Expense Reimbursement Policy (Resolution No. 2011-187), to provide greater clarity and enhance provisions regarding meal and hotel costs, and ensure that the City's guidelines are consistent with those of the Federal Government.

Estimated Completion Date: August 20, 2013
Response Date: July 2013

California State Auditor's Assessment of 1-Year Status: No Action Taken

6-Month Agency Response

The city indicates that by July 2013, the finance director will prepare and present for city council adoption, an amendment to the city's travel and expense reimbursement policy to provide greater clarity and enhance provisions regarding meal and hotel costs, and ensure the city's guidelines are consistent with those of the federal government.

Response Date: January 2013

California State Auditor's Assessment of 6-Month Status: No Action Taken

60-Day Agency Response

The city did not address this recommendation in its August 2012 response. (See 2013-406, p. 194)

Response Date: August 2012

California State Auditor's Assessment of 60-Day Status: No Action Taken

Recommendation #23 To: Vernon, City of

To comply with the Political Reform Act (reform act), the city should ensure that the city administrator and city clerk are appropriately trained to administer its conflict-of-interest code (conflict code).

1-Year Agency Response

Vernon's current Interim City Clerk is a principal of Reed & Davidson, the firm retained by the City in May 2011 to review the City's conflict of interest codes and assist in the preparation of necessary amendments and new codes, as well as provide all compliance-related training. Among other governmental ethics and election compliance-related matters, Reed & Davidson specializes in conflicts of interest compliance, including the preparation and filing of statements of economic interests (Form 700s). On November 20, 2012, upon the recommendation of the Interim City Clerk, the City Council adopted an amended Conflict of Interest Code for the City of Vernon (Resolution No. 2012-225), establishing the "designated positions" required to file Form 700s along with the respective disclosure categories for each, requiring the City Administrator to determine which City consultants (beyond those filling a designated position), if any, are required to file Form 700s, and delegating the City Clerk as the Filing Officer responsible for receiving, retaining, and making available for public inspection all required Form 700s. As of April 2013, all City employees and consultants filling designated positions, and all ten other consultants determined by the City Administrator to perform a range of duties requiring disclosure under the City's Conflict of Interest Code have filed their required Form 700s for calendar year 2012. Additionally, of the 35 individuals who retired in January and June 2013 under the City's Early Retirement Incentive Program, eight (8) were required to file Form 700s, and all timely filed their respective Leaving Office Forms, or have been reminded of their filing obligations in the case of more recent retirees.

Completion Date: November 2012
Response Date: July 2013

California State Auditor's Assessment of 1-Year Status: Fully Implemented

6-Month Agency Response

The city council approved the appointment of a consultant as the acting city clerk. The consultant—previously hired to review the city's conflict of interest codes and assist in necessary amendments and new codes and training—is experienced in this area and will continue with the administration and enforcement of the city's conflict of interest codes.

Response Date: January 2013

California State Auditor's Assessment of 6-Month Status: Partially Implemented

60-Day Agency Response

The city did not address this recommendation in its August 2012 response. (See 2013-406, p. 194)

Response Date: August 2012

California State Auditor's Assessment of 60-Day Status: No Action Taken

Recommendation #24 To: Vernon, City of

To comply with the reform act, the city should continue to ensure that all city executives file statements of economic interests, as its conflict code requires.

1-Year Agency Response

As of April 2013, all City employees, including executives, consultants filling designated positions, and all ten other consultants determined by the City Administrator to perform a range of duties requiring disclosure under the City's Conflict of Interest Code, have filed their required Statements of Economic Interests (Form 700s) for calendar year 2012.

Completion Date: April 2013
Response Date: July 2013

California State Auditor's Assessment of 1-Year Status: Fully Implemented

According to the city's tracking document, it has ensured that all city employees and consultants required to file statements of economic interests have done so.

6-Month Agency Response

The acting city clerk will continue with the administration and enforcement of the city's conflict of interest codes in accordance with the Fair Political Practices Commission's biennial review schedule.

Response Date: January 2013

California State Auditor's Assessment of 6-Month Status: Partially Implemented

60-Day Agency Response

The city did not address this recommendation in its August 2012 response. (See 2013-406, p. 195)

Response Date: August 2012

California State Auditor's Assessment of 60-Day Status: No Action Taken

Recommendation #25 To: Vernon, City of

To comply with the reform act, with regard to consultants, the city should review its existing contracts and have the city administrator determine which consultants should file statements of economic interests. The city should retain documentation of the city administrator's determinations and also forward them to the city council for review.

1-Year Agency Response

In January and February 2013, the City Administrator and City Attorney met with all City Department Heads to review all active professional service contracts and the specific duties and scope of each principal or representative under the respective contracts. Based on those meetings, the City Administrator made a preliminary determination to establish a list of individuals that were believed to have the potential to be considered consultants required to file Statements of Economic Interests (Form 700s) under the City's Conflict of Interest Code. On February 28, 2013, the Interim City Clerk notified all such individuals via email of the preliminary determination, and each was invited to comment on and provide the basis for any perceived inaccuracies in the determination. On March 12, 2013, based upon the comments received and reviewed in consultation with the City Attorney, the City Administrator concluded his final determination of the consultants required to file Form 700s for calendar year 2012, including the respective disclosure categories for each. The final determination identified eleven consultants required to file Form 700s, including one filling a "designated position." The City Clerk notified all individuals via email of the City Administrator's final determination and instructed the consultants required to file Form 700s to do so with his office by April 2, 2013. On May 7, 2013, as part of a public City Council meeting agenda and as required by the City's Conflict of Interest Code, the City Administrator issued a written report of his final determination to the City Council, which indicated that all eleven consultants identified had filed their respective Form 700s.

Completion Date: March 2013
Response Date: July 2013

California State Auditor's Assessment of 1-Year Status: Fully Implemented

The city indicates that the city administrator and city attorney met with department heads in early 2013 to identify individuals under contract that were believed to have the potential to be considered consultants required to file a statement of economic interests. The city staff provided a copy of the city's administrator's report to the city council on May 7, 2013 identifying the consultants that the city administrator determined were required to file statements of economic interests.

6-Month Agency Response

The city indicates that by March 2013, the city administrator and city attorney will develop a review and determination process with respect to consultants that should file statements of economic interests and provide documentation of the city administrator's determinations and notices to any affected consultants and the city clerk.

Response Date: January 2013

California State Auditor's Assessment of 6-Month Status: No Action Taken

60-Day Agency Response

The city did not address this recommendation in its August 2012 response. (See 2013-406, p. 195)

Response Date: August 2012

California State Auditor's Assessment of 60-Day Status: No Action Taken

Recommendation #26 To: Vernon, City of

To comply with the reform act, the city should ensure that any consultants identified by the city administrator as needing to file statements of economic interests submit the forms as soon as possible.

1-Year Agency Response

On May 7, 2013, as part of a public City Council meeting agenda and as required by the City's Conflict of Interest Code, the City Administrator issued a written report to the City Council detailing the process taken to determine which consultants are required to file Statements of Economic Interests (Form 700s) and to ensure that all timely file such statements. Said report indicated that all eleven consultants identified had filed their required Form 700s for calendar year 2012.

Completion Date: April 2013
Response Date: July 2013

California State Auditor's Assessment of 1-Year Status: Fully Implemented

6-Month Agency Response

Response Date: January 2013

California State Auditor's Assessment of 6-Month Status: No Action Taken

60-Day Agency Response

The city did not address this recommendation in its August 2012 response. (See 2013-406, p. 195)

Response Date: August 2012

California State Auditor's Assessment of 60-Day Status: No Action Taken

Recommendation #27 To: Vernon, City of

To address the structural deficit in its general fund, the city should seek long-term solutions to balance the general fund's expenditures and revenues and lessen its reliance on transfers from other city funds. These solutions could include revenue increases, such as the proposed increased and new parcel tax, as well as looking for ways to reduce expenditures.

Annual Follow-Up Agency Response From October 2016

In addition to the passage of new or increased taxes, the reduction of consultant related expenditures, and the 28% increase in its General Fee Schedule in July 2014, the City continues its conscientious long-term financial planning efforts.

As previously reported, the City was exploring debt restructuring options and, as of June 2015, it successfully refinanced its bonds to alleviate economic stress that previous financing had placed on the City's long-term financial outlook. The debt restructuring will serve to evenly balance the City's debt over the next several years, thereby positively affecting the stability and security of the City.

The City continues to pay down its interfund loan, thereby reducing its deficit. Additionally, the City is exploring the concept of an increase in its Utility User Tax (UUT) and is in the process of evaluating the advantages and disadvantages of such. Steps are being taken to address the structural deficit by implementing the following: Increased transparency with potential long-term effects of expenditures; careful evaluation of OPEB liabilities; controlled spending in the present and future; increased proactive methodology in budget policies and procedures which includes comprehensive financial planning to identify goals, initiatives, expenditures, revenues, debt service, fund structure, etc.; the creation of quantifiable tools to measure performance of operation; and improving communication with the conveyance of timely, accurate, concise information to the public and City Council.

Completion Date: July 2015

California State Auditor's Assessment of Annual Follow-Up Status: Fully Implemented

Annual Follow-Up Agency Response From October 2015

Estimated Completion Date: July 2016

California State Auditor's Assessment of Annual Follow-Up Status: Not Fully Implemented

Annual Follow-Up Agency Response From July 2014

In addition to the passage of new or increased taxes and the reduction of employee and consultant related expenditures, the City increased its General Fee Schedule by approximately 28%, effective July 1, 2014. The structural deficit in the General Fund is further being addressed by the City Administrator and Finance Director in conjunction with the long-term financial planning efforts currently underway. The Citys Financial Advisor, PFM, is currently assisting and advising the City with regard to potential debt restructuring options that would further address the structural deficit. The City continues to seek additional solutions consistent with the provisions and requirements of its Budget Policies and Procedures Manual.

Estimated Completion Date: July 2015

California State Auditor's Assessment of Annual Follow-Up Status: Not Fully Implemented

1-Year Agency Response

Since early 2011, the City has worked diligently and extensively with the Vernon Chamber of Commerce and other members of the business and residential communities to develop a long-term, stable solution consisting of equal parts expenditure reductions and increased revenues to address the structural deficit in the City's General Fund. Included in the most efforts to reduce expenditures were: (1) an Early Retirement Incentive Program expected to save the City approximately $1.8 million annually - resulted in 35 retirements as of June 30, 2013; (2) reduction of all City Council member salaries by 64% as recommended by the City's Reform Monitor; and (3) further reductions to outside legal, consultant, and lobbying costs. These reductions were in addition to those made to employee retirement and health benefits in 2010 (saving $3 million dollars annually), and previous workforce reductions and consultant contract terminations. The efforts to develop long-term revenue solutions began with the tax consulting services of NBS, who specializes in assisting local governments, to analyze, evaluate, and make recommendations regarding funding options and tax formulas for Vernon. Among the most viable of those explored were parcel and utility user taxes. Ultimately, in April 2013, Vernon voters overwhelmingly approved the following three-pronged tax proposal expected to generate approximately $8 million annually: (1) increase and recalculation of the existing business license tax (Measure K); (2) a new special parcel tax of $0.03 per square foot for Police, Fire, and Health services and projects (Measure L - sunsets in 10 years); and (3) a new utility user tax of 1% (Measure M - sunsets in 10 years).

Completion Date: April 2013
Response Date: July 2013

California State Auditor's Assessment of 1-Year Status: Partially Implemented

In April 2013, city voters approved three ballot measures that the city proposed to increase its revenue. The city estimates revenue increases of $8 million for ten years. Additionally, the city reported 35 employee retirements as of June 2013 and estimates a savings in 2013-14 of $1.8 million and a cumulative savings of $8.1 million over 5 years. Although the city has taken these actions to increase revenues and reduce expenditures, the city has not clearly shown the amount of the general fund structural deficit that it is attempting to address with these actions.

6-Month Agency Response

In June 2012, the city council approved a resolution increasing its warehouse special parcel tax for fiscal year 2012-13. The city reported that it has proposed three tax measures to the voters for its April 2013 election. The proposed tax measures—a business license tax increase, special parcel tax, and utility users' tax—would increase revenues to the city and represent what the city believes to be an appropriate distribution of the revenue burden among the city's various industries and taxpayers. The city estimates the business license tax increase to generate an additional $4.5 million in revenues. The city estimates the special parcel tax and utility users' tax to generate $3.5 million annually and these taxes will sunset after 10 years.

Also, as previously stated in recommendation 10, the city reported that 22 employees retired as of the end of January 2013 and 12 will retire by the end of June 2013. The city estimates a savings of $1.9 million in 2013-14 and a cumulative savings of $8.1 million over 5 years from these retirements.

Response Date: January 2013

California State Auditor's Assessment of 6-Month Status: Partially Implemented

60-Day Agency Response

The city states that in addition to the 20 percent reduction in its general fund expenditures reflected in the 2012–13 fiscal year budget, a subsequent budget amendment further reduced general fund spending by 6 percent. Additionally, the city indicates considering other actions, including working with key stakeholders in the business community to develop a comprehensive long-term revenue plan for the city's general fund and expects to present a proposal to city council by December 2012. (See 2013-406, p. 195)

Response Date: August 2012

California State Auditor's Assessment of 60-Day Status: Partially Implemented

Recommendation #28 To: Vernon, City of

The city should clearly present the general fund structural deficit to the city council and the public in a budget that includes narrative and summary information to help users understand the city's budget process and its priorities and challenges, and that incorporates the elements for improved budgeting practices recommended by the Government Finance Officers Association (GFOA).

Annual Follow-Up Agency Response From October 2017

In order to address the recommendation to present the general fund structural deficit to the City Council and the public along with narrative and summary information related to the City's budget process and its priorities and challenges, staff worked to compile its inaugural "Budget Book" for release at the turn of FY 2017-2018.

The Budget Book documentation has been designed to supplement the 2017-2018 fiscal year budget by detailing the City's financial position, challenges, structural deficit, and individual department functions and expenses, with the goal of clearly depicting the City's overall economic outlook. The 2017-2018 Budget Book and related staff report were presented to Council and the public at the July 18, 2017 City Council meeting. The Budget Book is comprehensive resource that contains vital budgetary information and it is the first of its kind for the City of Vernon. Moving forward, it will be released annually along with each fiscal year budget as a companion document to the budget itself. In addition to presenting the Budget Book at its City Council meeting in July, the City has posted the document on its website in order to ensure convenient access to its content for businesses and residents in Vernon.

Staff is excited about this achievement and is looking forward to enhancing the Budget Book year over year with new, relevant information pertaining to the City and its financial status, important facts/figures, meaningful charts and graphs, and a compelling design.

Completion Date: July 2017

California State Auditor's Assessment of Annual Follow-Up Status: Fully Implemented

Annual Follow-Up Agency Response From October 2016

On August 2, 2016, the Director of Finance presented a financial update to the public and City Council which addressed the topics of the City's investments portfolio, governmental and enterprise funds, general fund structural deficit, and provided a narrative on the City's budget process and its adherence to GFOA recommendations. The presentation that was delivered will serve as a template for future updates to review the City's financial status and ensure that the City Council and public is apprised of the most current priorities and challenges facing the City.

The City will plan to provide a detailed presentation and incorporate a discussion on the general fund structural deficit when proposing its budget to City Council in 2017.

Estimated Completion Date: May/June 2017

California State Auditor's Assessment of Annual Follow-Up Status: Not Fully Implemented

Annual Follow-Up Agency Response From October 2015

On February 4, 2014, the City Council adopted the Budget Policies and Procedures Manual, which incorporates best practices recommended by GFOA, including Fiscal First Aid, and provides for the method of communication of budget information (see pages 7 and 12-13). These practices were implemented as part of the fiscal year 2014-2015 budget preparation process. Additionally, the Finance Director's fiscal year 2013-2014 2nd Quarter Financial Update to the City Council identified the need to address the General Fund and governmental activities structural deficit through the budget process. As part of the briefing of the fiscal year end 2015 financial statements, an indepth discussion and information will be provided on the general fund and governmental activities' structural deficit. Council will be briefed on options that will reduce the deficit amount. This will be further addressed on quarterly financial reports to the Council and in the 2016 budget cycle.

Estimated Completion Date: July 2016

California State Auditor's Assessment of Annual Follow-Up Status: Not Fully Implemented

Annual Follow-Up Agency Response From July 2014

Estimated Completion Date: July 2015

California State Auditor's Assessment of Annual Follow-Up Status: Not Fully Implemented

1-Year Agency Response

On numerous occasions throughout the two-year, collaborative process the City engaged in to address the structural deficit in the City's General Fund, staff presented numerous PowerPoint presentations to the City Council and the public at public meetings of the City Council and Business Development Committee, and at public workshops held specifically for that purpose. The presentations included graphs, charts, and narrative summaries of the City's expenses and revenues (current and projected), as well as detailed information on the City's goals, challenges, and proposed solutions. As part of the budget preparation process for the 2013-2014 fiscal year budget, City staff conducted three separate study sessions at public meetings of the City Council on May 7, May 21, and June 4, 2013, prior to the public hearing on subsequent adoption on June 18, 2013. A form PowerPoint was used by each department to provide revenue, expenditure, and staffing level comparisons to the prior two fiscal years, along with summaries of accomplishments, goals, and challenges. All meetings were properly noticed in accordance with the Brown Act and were well publicized through the City's website and the Vernon Chamber of Commerce.

Completion Date: June 2013
Response Date: July 2013

California State Auditor's Assessment of 1-Year Status: Partially Implemented

The city provided its powerpoint presentations that individual departments presented to the city council which describe each departments challenges. The final powerpoint presentation is the only presentation that includes discussion of the city's general fund as a whole. There are two separate slides showing pie charts of the general fund revenues and general fund expenditures which if one compared can see there is a deficit. There is no specific discussion on the slides regarding the general fund deficit, challenges, priorities or how the city plans to address the deficit. In a follow-up with the city, the city indicates that various discussions were held and that further refinements are planned for implementation in the upcoming budget cycle. We would expect to see more narrative included in the budget documents specifically articulating the general fund deficit and the city's plan to address the deficit. Finally, the city does not address how it incorporated the budgeting practices that the GFOA recommends.

6-Month Agency Response

The city did not address its actions regarding this recommendation.

Response Date: January 2013

California State Auditor's Assessment of 6-Month Status: No Action Taken

60-Day Agency Response

The city did not address this recommendation in its August 2012 response. (See 2013-406, p. 196)

Response Date: August 2012

California State Auditor's Assessment of 60-Day Status: No Action Taken

Recommendation #29 To: Vernon, City of

To better guide its budget preparation and improve transparency, the city should develop budget policies, particularly for long-term planning, that incorporate the elements that the GFOA recommends and make these policies available to the public on its Web site.

Annual Follow-Up Agency Response From July 2014

On February 4, 2014, the City Council adopted the Budget Policies and Procedures Manual, which incorporates best practices recommended by GFOA and contains sections specifically governing budget preparation and long-term planning. These guidelines were implemented as part of the fiscal year 2014-2015 budget preparation process. The Budget Policies and Procedures Manual is posted on the Finance Department page of the Citys website. (See pages 9-13 of Budget Policies and Procedures Manual.)

Completion Date: February 2014

California State Auditor's Assessment of Annual Follow-Up Status: Fully Implemented

Although the city's procedures are high-level, they do provide structure for the city's budget process.

1-Year Agency Response

The Finance Director provides quarterly budget updates to the City Council at its regular, public meetings. The updates include current status, year-end forecasts, and recommended budget amendments where appropriate. City Department Heads receive budget reports in advance of the briefings to City Council and are asked to provide explanations for deviations of 10% or greater. Longer term financial modeling will be undertaken with existing staff or outsourced and will be incorporated as part of the budget planning process.

Completion Date: February 2013
Response Date: July 2013

California State Auditor's Assessment of 1-Year Status: No Action Taken

The city's response does not address our recommendation. Specifically, the city does not indicate that it has developed budget policies, particularly for long-term planning, that incorporate the elements that the GFOA recommends.

6-Month Agency Response

The city did not address its actions regarding this recommendation.

Response Date: January 2013

California State Auditor's Assessment of 6-Month Status: No Action Taken

60-Day Agency Response

The city did not address this recommendation in its August 2012 response. (See 2013-406, p. 196)

Response Date: August 2012

California State Auditor's Assessment of 60-Day Status: No Action Taken

Recommendation #30 To: Vernon, City of

The city should ensure that its budgets include the information required in the city code.

1-Year Agency Response

The City continues to comply with all budget-related requirements outlined in the City Charter and City Code. The Finance Director provides quarterly budget updates to the City Council at its regular, public meetings. The updates include current status, year-end forecasts, and recommended budget amendments where appropriate. City Department Heads receive budget reports in advance of the briefings to City Council and are asked to provide explanations for deviations of 10% or greater. Longer term financial modeling will be undertaken with existing staff or outsourced and will be incorporated as part of the budget planning process.

Completion Date: June 2013
Response Date: July 2013

California State Auditor's Assessment of 1-Year Status: Fully Implemented

The city included in its fiscal year 2013-14 budget both of the items we indicated were inconsistently included in the past. Specifically, departments presented their budgets and showed a comparison of the current fiscal year expenditures compared to the proposed expenditures and generally provided the reasons for an increase or decrease or provided highlights that infer the reasons for changes. Also, the department identified capital outlay in its budget.

6-Month Agency Response

The city did not address its actions regarding this recommendation.

Response Date: January 2013

California State Auditor's Assessment of 6-Month Status: No Action Taken

60-Day Agency Response

The city did not address this recommendation in its August 2012 response. (See 2013-406, p. 196)

Response Date: August 2012

California State Auditor's Assessment of 60-Day Status: No Action Taken

Recommendation #31 To: Vernon, City of

The city should improve the monitoring of expenditures against the approved budget by establishing a centralized process to regularly monitor and report to the city administrator and the city council on the status of the budget.

Annual Follow-Up Agency Response From July 2014

On February 4, 2014, the City Council adopted the Budget Policies and Procedures Manual, which includes a section that specifically requires the Finance Director to provide quarterly budget reports to the City Council that compare budgeted to actual revenues and expenditures. The policy requires significant deviations to be explained. (See page 4 of Budget Policies and Procedures Manual.)

Completion Date: February 2014

California State Auditor's Assessment of Annual Follow-Up Status: Fully Implemented

1-Year Agency Response

Completion Date: February 2013
Response Date: July 2013

California State Auditor's Assessment of 1-Year Status: Partially Implemented

We followed up with the city to determine whether it formalized requirements through a policy, ordinance or resolution. In response, the city indicated that its finance director is drafting a budget policy to supplement the city charter requirements. The proposed policy will be submitted to the city council for adoption before preparation of the 2014-15 budget.

6-Month Agency Response

The city indicates that the finance director will present the quarterly budget report to the city council for the 2nd quarter of fiscal year 2012-13 and that future reports will contain more detailed information on current status, year-end forecast, and recommend budget revisions, where appropriate. The city also indicates that departments will receive quarterly budget reports in advance of the presentations to the city council and provide explanations for deviations of 10 percent or more, and that information will be provided to the city administrator for follow up and corrective action.

Response Date: January 2013

California State Auditor's Assessment of 6-Month Status: Partially Implemented

The city's response indicates the actions are planned, but not yet implemented in its regular practices. No date for implementation is given.

60-Day Agency Response

The city instituted quarterly budget reports to the city council beginning in May 2012. The city states that the budget presentation to city council outlined the budget requirements, process, and contents and reported the status of revenues and expenditures for the first quarter. The next quarterly budget report was scheduled for a September 2012 city council meeting. However, the city did not address whether it has developed a process for city executives to regularly report the budget status of their departments to the city administrator. (See 2013-406, p. 196)

Response Date: August 2012

California State Auditor's Assessment of 60-Day Status: Partially Implemented

Recommendation #32 To: Vernon, City of

To ensure that it issues debt when doing so is in the best interests of the city and is consistent with its long-term financial goals, the city should establish a comprehensive debt policy that includes the elements that the GFOA recommends and make the debt policy it establishes available on its Web site.

Annual Follow-Up Agency Response From July 2014

On February 4, 2014, the City Council adopted the Budget Policies and Procedures Manual, which incorporates best practices recommended by GFOA and contains a debt management section that provides guidelines regarding use limitations, issuance, and repayment of debt. The Budget Policies and Procedures Manual is posted on the Finance Department page of the Citys website. (See page 6 of Budget Policies and Procedures Manual.)

Completion Date: February 2014

California State Auditor's Assessment of Annual Follow-Up Status: Fully Implemented

Although the debt management policy is high-level, it does provide the city's overall policy for debt management.

1-Year Agency Response

By September 2013, the Finance Director will present for City Council adoption, a comprehensive debt policy that includes elements recommended by GFOA. Upon City Council adoption, the policy will be posted on the City's website.

Estimated Completion Date: September 2013
Response Date: July 2013

California State Auditor's Assessment of 1-Year Status: No Action Taken

6-Month Agency Response

The city indicates that by May 2013, the finance director will develop and present for city council adoption, a comprehensive debt policy that includes elements recommended by GFOA. After the city council adoption, the city will post the policy on its Web site.

Response Date: January 2013

California State Auditor's Assessment of 6-Month Status: No Action Taken

60-Day Agency Response

The city did not address this recommendation in its August 2012 response. (See 2013-406, p. 196)

Response Date: August 2012

California State Auditor's Assessment of 60-Day Status: No Action Taken

Recommendation #33 To: Vernon, City of

To ensure that the city council and public are well informed regarding proposed debt decisions, the city should provide summary information that clearly explains the costs, risks, and benefits related to the proposed decisions in its agenda packets, and should provide these in advance on its Web site.

Annual Follow-Up Agency Response From July 2014

On February 4, 2014, the City Council adopted the Budget Policies and Procedures Manual, which provides for the method of communication of budget and financial information to the City Council and the public. Required communication includes website postings and written agenda materials. (See pages 12-13 of Budget Policies and Procedures Manual.)

Completion Date: February 2014

California State Auditor's Assessment of Annual Follow-Up Status: Fully Implemented

1-Year Agency Response

On May 7, 2013, as part of the first of three public City Council study session meetings for the proposed 2013-2014 fiscal year budget, the Finance Director provided an up-to-date analysis of the City's debt structure. The update included recent activities on his ongoing exploration of potential refunding opportunities. If any viable opportunities present themselves, detailed summary information that clearly explains the costs, risks, and benefits related to any proposed actions will be included in the respective agenda packet. The full agenda packets for all public City meetings, including City Council meetings, from January 2012 forward, are posted on the City's website.

Completion Date: May 2013
Response Date: July 2013

California State Auditor's Assessment of 1-Year Status: Pending

The city indicates in its update that if any viable opportunities present themselves, it will include in its agenda packet detailed summary information that clearly explains the costs, risks, and benefits related to any proposed actions. Because the city has not yet had any of these instances we cannot conclude on whether it has fully complied with this recommendation.

6-Month Agency Response

The city indicates that the finance department will continue to provide the city council and the public in advance of making all future debt decisions as part of any respective agenda packet and that information will be posted on the city's Web site and open for public comment.

Response Date: January 2013

California State Auditor's Assessment of 6-Month Status: No Action Taken

The city did not provide any documentation to demonstrate that its finance department has provided such information to the city council for debt decisions or how it will ensure this information is more useful than what was previously provided to the city council.

60-Day Agency Response

The city did not address this recommendation in its August 2012 response. (See 2013-406, p. 197)

Response Date: August 2012

California State Auditor's Assessment of 60-Day Status: No Action Taken

Recommendation #34 To: Vernon, City of

To ensure that it can demonstrate sufficient analysis and provide justification for its decisions on significant energy-related transactions, the city should develop an integrated energy strategy that examines all elements of its energy needs, sources, and objectives.

Annual Follow-Up Agency Response From October 2016

The Director of Vernon Gas & Electric (VG&E) adopted a thorough Integrated Resource Plan (IRP) effective November 2014 which was produced by staff in the Resource Planning Division. The purpose of the plan was to analyze and account for any and all variables as they pertain to energy-related transactions and document a strategy to identify the City's energy needs, sources, and objectives. VG&E staff are in the process of updating the IRP; however, the CEC is in the process of creating new requirements which will ultimately have an impact on the City's IRP. These CEC guidelines will be provided to the City when available, but there is no anticipated timeframe as to when the finalized parameters will be in place.

Attached is the related Integrated Resource Plan which articulates the City's methods for scheduling energy resources.

Completion Date: December 2014

California State Auditor's Assessment of Annual Follow-Up Status: Fully Implemented

Annual Follow-Up Agency Response From October 2015

The Gas & Electric Department is currently preparing an Integrated Resource Plan (IRP) that will outline the amount, type, and scheduling of resources needed to meet the City's future energy needs at the lowest, reasonable cost. Once finalized, the IRP will be presented to City Council for adoption. The Department has established the Light & Power Department Policy and Procedure, Integrated Resource Plan Procedure to guide the preparation of the IRP.

Estimated Completion Date: July 2016

California State Auditor's Assessment of Annual Follow-Up Status: Not Fully Implemented

Annual Follow-Up Agency Response From July 2014

The Gas & Electric Department is currently preparing an Integrated Resource Plan (IRP) that will outline the amount, type, and scheduling of resources needed to meet the Citys future energy needs at the lowest, reasonable cost. Once finalized, the IRP will be presented to City Council for adoption. The Department has established the Light & Power Department Policy and Procedure, Integrated Resource Plan Procedure to guide the preparation of the IRP. A copy of said document is included.

Estimated Completion Date: July 2015

California State Auditor's Assessment of Annual Follow-Up Status: Not Fully Implemented

1-Year Agency Response

In early 2014, the Finance Director and Director of Light & Power expect to present a proposed integrated energy strategy to City Council for adoption. This will be part of the long term financial modeling for the Light & Power Department. The Finance Director, Director of Light & Power, and Electric Rates Committee will continue to work together to develop the proposal based on an updated rate study to be completed by Michael Bell Management Consulting later in the year. Among other specialized services for local governments, Michael Bell Management Consulting specializes in municipal electric utility management and planning.

Estimated Completion Date: Early 2014
Response Date: July 2013

California State Auditor's Assessment of 1-Year Status: No Action Taken

6-Month Agency Response

The city indicates that by the end of June 2013 the finance director and the director of light & power will develop and present for city council adoption, a formal process and guidelines regarding significant energy-related transactions, but does not specify whether those guidelines will include all elements that we recommended.

Response Date: January 2013

California State Auditor's Assessment of 6-Month Status: No Action Taken

60-Day Agency Response

The city did not address this recommendation in its August 2012 response. (See 2013-406, p. 197)

Response Date: August 2012

California State Auditor's Assessment of 60-Day Status: No Action Taken

Recommendation #35 To: Vernon, City of

To ensure that it can demonstrate sufficient analysis and provide justification for its decisions on significant energy-related transactions, the city should create a formal process and guidelines that include the following: identifying the benefits and risks of proposed transactions, quantifying the benefits and risks of proposed transactions, evaluating and comparing proposed transactions against alternative proposals, quantifying the impact of proposed transactions on short-term and long-term rates paid by the city's energy customers, seeking an independent validation of the fair market value of proposed transactions, and documenting and communicating the findings of the evaluation process to the city council.

Annual Follow-Up Agency Response From October 2016

In order to ensure that energy-related transactions are properly vetted and analyzed, the City has established a formal process that details guidelines against which the overall value of transactions should be measured. Risks and benefits of proposed transactions shall be evaluated and the procedures that have been implemented dictate the steps required and the methods to be used to determine if a given transaction is a viable option for the City in the short-term and/or long-term.

Policies, procedures, and energy management plans for the Resource Management division within the City's Gas & Electric Department are in place to ensure that necessary investments are made in a responsible, timely manner to maintain a reliable, efficient power system.

Completion Date: October 2016

California State Auditor's Assessment of Annual Follow-Up Status: Fully Implemented

Annual Follow-Up Agency Response From October 2015

The City will provide additional framework of the various actions that are taken into consideration when analyzing energy financial transactions in the Budget Policies and Procedures manual. This will include recognition of the use of financial analysis, scenarios, and cost impact of decisions being made. This will be incorporated in the annual update of the Budget Policies and Procedures manual and will be presented to the City Council for approval.

Estimated Completion Date: July 2016

California State Auditor's Assessment of Annual Follow-Up Status: Not Fully Implemented

Annual Follow-Up Agency Response From July 2014

On February 4, 2014, the City Council adopted the Budget Policies and Procedures Manual, which establishes guidelines regarding planning, revenue development, investments, capital improvements, debt management, fixed assets, use of reserves, and inter-fund transfers. In some cases, consultants are used to assist with the various elements of the guidelines because they have specific, task-related expertise and resources. For example, in the case of a recent electric rate adjustment on July 1, 2014, the consulting services of Crossborder Energy and Michael Bell Management Consulting were utilized to provide specific expertise in addressing business risks and to ensure that appropriate electric rates were developed. As part of this analysis, scenarios were examined against alternative proposals which quantified proposed transactions on rates for a three year period. This provided an independent assessment and validation that was documented and communicated to City Council as part of the related public hearing held on June 17, 2014. A copy of the presentation made to City Council is included.

Completion Date: February 2014

California State Auditor's Assessment of Annual Follow-Up Status: Not Fully Implemented

Although the city's Budget Polices and Procedures Manual establishes a framework, it lacks guidance for how the city will analyze financial transactions. To address our recommendation, the city will need to ensure that its policies and procedures specifically include the aspects of appropriate financial decision making that we listed.

Auditee did not address all aspects of the recommendation

1-Year Agency Response

Estimated Completion Date: Early 2014
Response Date: July 2013

California State Auditor's Assessment of 1-Year Status: No Action Taken

6-Month Agency Response

Response Date: January 2013

California State Auditor's Assessment of 6-Month Status: No Action Taken

60-Day Agency Response

The city did not address this recommendation in its August 2012 response. (See 2013-406, p. 197)

Response Date: August 2012

California State Auditor's Assessment of 60-Day Status: No Action Taken

Recommendation #36 To: Vernon, City of

If the city plans to continue to rely on the advice of its consultants when entering significant energy-related transactions, it should develop a process for the consultants to provide written documentation that would enable the city to satisfy the process and guidelines outlined in the previous two recommendations.

Annual Follow-Up Agency Response From July 2014

The City has incorporated as standard language in its form contracts an Ownership of Work clause that requires all contract-related written and electronic documentation prepared by the contractor to be provided to the City whenever requested. In pertinent part, the Ownership of Work clause states that all reports, drawings, plans, specifications, computer tapes, floppy disks and printouts, studies, memoranda, computation sheets and other documents prepared by Contractor in furtherance of the work shall be the sole property of City and shall be delivered to City whenever requested. Contractor shall keep such documents and materials on file and available for audit by the City for at least three (3) years after completion or earlier termination of this Contract A copy of related sample documentation from Crossborder Energy is included.

Completion Date: August 2013

California State Auditor's Assessment of Annual Follow-Up Status: Fully Implemented

1-Year Agency Response

Completion Date: February 2013
Response Date: July 2013

California State Auditor's Assessment of 1-Year Status: Partially Implemented

Although the city states it has restructured most of its contracts with energy related consultants and the finance director now requires consultants to provide, as appropriate, written documentation and spreadsheet models to enable updates performed by staff in order to reduce reliance on consultants, it has not provided us with supporting documentation of this newly established process. The city provided an example of a contract with a financial advisor but this is not an energy consultant.

6-Month Agency Response

The city indicates that in a February 2013 city council meeting, the city attorney was to present to the city council for approval contract forms required under the new competitive bidding and purchasing ordinance for all city procurements, which will include respective provisions as required by city policy and applicable law. The city also states that it will require consultants to provide written documentation and spreadsheet models, as appropriate, to allow city staff to update the information and reduce reliance on consultants.

Response Date: January 2013

California State Auditor's Assessment of 6-Month Status: Partially Implemented

60-Day Agency Response

The city did not address this recommendation in its August 2012 response. (See 2013-406, p. 197)

Response Date: August 2012

California State Auditor's Assessment of 60-Day Status: No Action Taken

Recommendation #37 To: Vernon, City of

To minimize the continuing financial losses on the two currently outstanding interest rate swaps, the city should develop a clear process for deciding how it will terminate these swaps based on the cost and future risk to the city.

Annual Follow-Up Agency Response From July 2014

On February 4, 2014, the City Council adopted the Budget Policies and Procedures Manual, which contains a section specifically addressing investment derivative monitoring, reporting requirements, and financial conditions or thresholds for termination. (See page 5 of Budget Policies and Procedures Manual.) The Finance Director is continuing to monitor the swap transactions to determine the appropriateness of partial or full terminations of the agreements.

Completion Date: February 2014

California State Auditor's Assessment of Annual Follow-Up Status: Fully Implemented

1-Year Agency Response

On September 4, 2012, the City Council adopted Resolution No. 2012-178, approving the termination of the portion of cash flow exchanges under the 2004 Series A Swap scheduled to occur through December 1, 2015, and entering into an Amended and Restated Confirmation with a new effective date of December 1, 2015. On May 7, 2013, as part of the first of three public City Council study session meetings for the proposed 2013-2014 fiscal year budget, the Finance Director provided an up-to-date analysis of the City's debt structure. The Finance Director is continuing to monitor the swap transactions to determine the appropriateness of partial or full terminations of the agreements.

Completion Date: May 2013
Response Date: July 2013

California State Auditor's Assessment of 1-Year Status: Partially Implemented

As the city indicates, the finance director provided an analysis of the city's debt structure at the May 2013 city council study session meeting for the proposed 2013-14 fiscal year budget. However, the city did not indicate or provide documentation that it has developed a process for deciding how it will terminate these swaps.

6-Month Agency Response

The city indicates that the city administrator and finance director have enlisted BLX Group LLC to perform an assessment of the viability of terminating the city's swaps and a detailed process for doing so. The city administrator and finance director expect to present the results of the assessments and any appropriate recommendations to the city council by May 7, 2013.

Response Date: January 2013

California State Auditor's Assessment of 6-Month Status: Partially Implemented

60-Day Agency Response

The city did not address this recommendation in its August 2012 response. (See 2013-406, p. 197)

Response Date: August 2012

California State Auditor's Assessment of 60-Day Status: No Action Taken

Recommendation #38 To: Vernon, City of

To ensure that any future decisions to enter into interest rate swaps are carefully considered, the city should develop and follow a process that thoroughly analyzes the risks and benefits of the potential swap transaction.

Annual Follow-Up Agency Response From October 2016

The City has revised its Investment Policy, effective October 2016, to address the parameters of allowable hedgable transactions and the assessment process that must be followed when examining the potential benefits and risks that may exist. The policy dictates that, prior to entering into any new third party agreement, City Council shall be briefed with the proposed investment options along with staff recommendations. Overall, the City has taken a conservative approach with swap transactions. The updated policy details the wide range of considerations associated to swap contracts and is designed to provide distinct guidelines that allow staff to assess all aspects properly and make the most informed decision possible.

It should also be noted that the City's holdover swap agreements related to energy supply were successfully retired in July 2015 as part of bond refunding.

Completion Date: October 2016

California State Auditor's Assessment of Annual Follow-Up Status: Fully Implemented

Annual Follow-Up Agency Response From October 2015

The City will update the Budget Policies and Procedures manual to document the steps taken prior entering into future interest rate swaps. These steps will include financial analysis, risk and benefits, legal review, and approval from City council prior to entering into a transaction.

Estimated Completion Date: July 2016

California State Auditor's Assessment of Annual Follow-Up Status: Not Fully Implemented

Annual Follow-Up Agency Response From July 2014

On February 4, 2014, the City Council adopted the Budget Policies and Procedures Manual, which contains a section specifically addressing investments and examination/analysis of swap transactions. (See page 5 of Budget Policies and Procedures Manual.)

Completion Date: February 2014

California State Auditor's Assessment of Annual Follow-Up Status: Not Fully Implemented

The city's policy addresses existing interest rate swaps, but our recommendation is that the city develop a process to ensure that it thoroughly analyzes the risks and benefits of any future interest rate swaps.

Auditee did not address all aspects of the recommendation

1-Year Agency Response

On May 7, 2013, as part of the first of three public City Council study session meetings for the proposed 2013-2014 fiscal year budget, the Finance Director provided an up-to-date analysis of the City's debt structure. The Finance Director is currently evaluating a comprehensive debt policy to be proposed to City Council that includes: (1) prohibition of swap transactions for speculative purposes; (2) full presentation to City Council prior to entering into any future swap transactions; and (3) retention of all supporting documentation and reference material during the life of the swap agreement.

Estimated Completion Date: September 2013
Response Date: July 2013

California State Auditor's Assessment of 1-Year Status: Partially Implemented

6-Month Agency Response

The city indicates that by the May 7, 2013 city council meeting, a risk/reward analysis process regarding potential swap transactions will be part of the comprehensive debt policy and include prohibition of swap transactions for speculative purposes, full presentation to the city council prior to entering into any future swap arrangements, and retention of all supporting documentation and reference material during the life of the swap agreement.

Response Date: January 2013

California State Auditor's Assessment of 6-Month Status: No Action Taken

60-Day Agency Response

The city did not address this recommendation in its August 2012 response. (See 2013-406, p. 198)

Response Date: August 2012

California State Auditor's Assessment of 60-Day Status: No Action Taken

Recommendation #39 To: Vernon, City of

To ensure that any future decisions to enter into interest rate swaps are carefully considered, the city should specifically disallow the use of derivatives for speculative purposes and should require the retention of the documents and analyses that support the decision to enter into the swap.

Annual Follow-Up Agency Response From October 2016

In October 2016, the City revised its Investment Policy to address the considerations required when evaluating whether or not to enter into interest rate swaps. The City specifically disallows the use of derivatives for speculative purposes (as stated in Section 8.3), and requires the retention of the documents and analyses that support the decision to enter into a given swap contract (as stated in Section 8.4).

Completion Date: October 2016

California State Auditor's Assessment of Annual Follow-Up Status: Fully Implemented

Annual Follow-Up Agency Response From October 2015

The City will add clarifying language in the Budget Policies and Procedures manual that that there will be no derivatives entered into for speculative purposes. The Budget Policies and Procedures manual will be updated to document the various steps taken prior entering into any future interest rate swaps. These steps will include financial analysis, risk and benefits, independent examination, and approval from City council prior to entering into a transaction. This will be presented to City Council as part of the annual update of the Budget Policies and Procedures manual.

Estimated Completion Date: July 2016

California State Auditor's Assessment of Annual Follow-Up Status: Not Fully Implemented

Annual Follow-Up Agency Response From July 2014

On February 4, 2014, the City Council adopted the Budget Policies and Procedures Manual, which contains a debt management section that limits borrowing to use for capital improvements or projects that cannot be financed from current revenues. This section also provides guidelines for the issuance and repayment of debt. (See page 6 of Budget Policies and Procedures Manual.) Documents related to interest rate swaps are retained in accordance with the Citys Records Retention Policy (see pages 13-15), a copy of which is included.

Completion Date: February 2014

California State Auditor's Assessment of Annual Follow-Up Status: Not Fully Implemented

Our review of the city's Budget Policies and Procedures Manual determined that the city has not implemented a policy that specifically disallows the use of derivatives for speculative purposes.

Auditee did not substantiate its claim of full implementation

1-Year Agency Response

On May 7, 2013, as part of the first of three public City Council study session meetings for the proposed 2013-2014 fiscal year budget, the Finance Director provided an up-to-date analysis of the City's debt structure. The Finance Director is currently evaluating a comprehensive debt policy to be proposed to City Council that includes: (1) prohibition of swap transactions for speculative purposes; (2) full presentation to City Council prior to entering into any future swap transactions; and (3) retention of all supporting documentation and reference material during the life of the swap agreement. Further, the City Clerk's Office, in conjunction with the City Attorney's Office, is currently conducting a comprehensive review and proposed update of the City's Records Retention Schedule.

Completion Date: May 2013
Response Date: July 2013

California State Auditor's Assessment of 1-Year Status: Pending

The city's response states that the finance director is currently evaluating a comprehensive debt policy to be proposed to the city council. According to the city, it plans to present the comprehensive debt policy in February 2014.

6-Month Agency Response

Response Date: January 2013

California State Auditor's Assessment of 6-Month Status: No Action Taken

60-Day Agency Response

The city did not address this recommendation in its August 2012 response. (See 2013-406, p. 198)

Response Date: August 2012

California State Auditor's Assessment of 60-Day Status: No Action Taken

All Recommendations in 2011-131

Agency responses received after June 2013 are posted verbatim.