RPVCCA_CC_SR_2013_10_01_02_Employee_Compensation_Scope_Of_Services_ReviewCITY OF
MEMORANDUM
TO:
FROM:
DATE: ·
SUBJECT:
REVIEWED:
HONORABLE MAYOR AND MEMBERS OF THE CITY COUNCI~
DENNIS McLEAN, DIRECTOR OF FINANCE & INFORMATION~
TECHNOLOGY
OCTOBER 1, 2013
SCOPE OF SERVICES FOR REVIEW OF EMPLOYEE
COMPENSATION
CAROLYN LEHR, CITY MANAGERQQ__
Staff Coordinator: Kathryn Downs, Deputy Director of Finance & Information
Technology tG{)
RECOMMENDATION
Recommendation of the City Council Ad-Hoc Subcommittee for 2013 Employee
Compensation
1. Agreed upon review procedures of City Manager salary and benefits have been
completed by the City's independent auditor for calendar year 2012 for an out-of-
pocket cost of $2,500. Direct Staff and the auditor to complete procedures for one
additional calendar year (2009) for an additional out-of-pocket cost of $2,250.
2. Direct Staff and the auditor to complete Phase 2 procedures, as defined in the
attached Engagement Letter from the independent auditor (see attachment A), at a
cost of $5,000, plus an estimated $2,500 one-time custom payroll system report
cost (out-of-pocket costs totaling about $7,500).
3. Direct Staff to return with a proposed budget adjustment for FY13-14 in the amount
of about $9,750.
4. Direct Staff to include the proposed auditor fee for Phase 2 procedures in annual
draft budgets going forward (a discretionary expenditure of about $5,000 each
year).
5. Determine whether other review procedures should be defined and a proposal
presented to City Council for approval.
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SCOPE OF SERVICES FOR REVIEW OF EMPLOYEE COMPENSATION
October 1, 2013
Page 2 of 6
EXECUTIVE SUMMARY
The City Council Ad-Hoc Subcommittee for 2013 Employee Compensation ("City Council
Subcommittee"), comprised of Mayor Brooks and Mayor Pro Tern Duhovic, expressed
interest in requesting the City's independent auditor to conduct additional agreed upon
review procedures related to employee compensation. Agreed upon review procedures of
City Manager salary and benefits has been completed by the City's independent auditor for
calendar year 2012. The results of the tests that have been completed are "clean" as
described later in this Report.
Staff is requesting the City Council to determine whether additional test procedures should
be completed. The City Council's alternatives include:
1. Do nothing further (actual out-of-pocket cost of $2,500 to date).
2. Adopt the City Council Subcommittee recommendation to test the City Manager's
compensation for calendar year 2009 at an out-of-pocket cost of $2,250.
3. Direct Staff and the auditor to conduct Phase 2 procedures for calendar year 2013
at a cost of $5,000, plus an estimated $2,500 one-time custom payroll system report
cost (out-of-pocket costs totaling about $7,500).
4. Direct Staff to return with a proposed budget adjustment for FY13-14 in the amount
of about $9,750.
5. Include the proposed fee for Phase 2 procedures in the draft budget annually going
forward (a discretionary expenditure of about $5,000 each year).
6. Direct the City Council Subcommittee to define other procedures and present a
proposal to the City Council.
BACKGROUND
In January 2013, the City received two separate requests for employee compensation
records pursuant to the Public Records Act (PRA). Prior to receiving those requests, City
Staff had posted extensive employee compensation information on the City's website
including:
• Employee actual salary rates;
• Employee compensation information as requested by the California State
Controller's Office (Medicare taxable income and certain City-paid benefit costs);
• The City Manager's employment contract and amendments approved by the City
Council;
• Employee salary ranges approved by the City Council;
• Maximum employee health insurance payments approved by the City Council;
• A summary of benefits provided to full-time employees;
• Information regarding the City's employee pension plan, including the most recent
actuarial valuation report from the California Public Employees Retirement System;
• The City's Personnel Rules; and
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SCOPE OF SERVICES FOR REVIEW OF EMPLOYEE COMPENSATION
October 1, 2013
Page 3 of 6
• The Employee Handbook.
After completion of the employee compensation PRA requests, the City Council
Subcommittee expressed an interest in requesting the City's independent auditor to
conduct additional review procedures related to employee compensation. The purpose of
the additional procedures established between the City Council Subcommittee and the
auditor would be to demonstrate the City's compliance with its policies and procedures for
employee compensation.
On August 8, 2013, the City Council Subcommittee met with Kevin Pulliam, the
engagement partner of the City's independent audit firm, Vavrinek, Trine, Day & Co., LLP.
Mayor Brooks was traveling and unable to attend. The Mayor Pro Tern met with Mr.
Pulliam c;md worked through the scope and purpose for the auditor's "agreed upon
procedures". Mr. Pulliam prepared an Engagement Letter with a $7,500 fee proposal that
was reviewed by Staff and signed by the City Manager (see Attachment A). The $7,500
fee estimate for the agreed upon procedures for 12 months of payroll records is within the
City Manager's purchasing authority.
On August 30, 2013, the City Council Subcommittee met with Staff to discuss the scope of
the auditor's procedures and timelines for City Council consideration. The City Council
Subcommittee was provided with a copy of the auditor's Engagement Letter that was
authorized by the City Manager.
DISCUSSION
The agreed upon procedures have been defined and split into two phases described below
(Phases 1 and 2). The procedures are outlined in the attached Engagement Letter.
Phase 1 -Test the City Manager's Compensation
The City Manager has stated in a public meeting and communicated to the City Council
Subcommittee that she is very willing to have her compensation tested by an outside
independent auditor since inception of her employment with the City. As such, the City
Manager authorized the City's independent auditor to proceed with Phase 1 procedures for
12 months of payroll records (calendar year 2012) for a fee of $2,500.
In addition to the fee charged by the City's auditor, the City will incur a significant amount of
Staff time dedicated to this project as estimated below.
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SCOPE OF SERVICES FOR REVIEW OF EMPLOYEE COMPENSATION
October 1, 2013
Page 4 of 6
Meet with Mayor and M(3yor Pro Tern 5.00
Review and sign engagement letter, and arrange logistics for
·auditor fieldwork 1.50
'Furnish the auditor with employment c~nt~acts, personnel rules
'and other City policy documents and public records 1.00
Pull payr()ll records for calendaryear 2012 2.00
Pull relevant accountspayable records for c.alendar year 2012 1.00
Answer auditor questions 2.00
. Replace both payroll and accounts payable records after auditor
fieldwork 1.00
Review auditor draft report
. Prepare Staff Report to City Council, and mana ement review
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To facilitate the portion of the review that has been substantially completed, two tasks have
been delayed: 1) preparation for the City's financial statement audit for FY12-13; and 2) the
Staff Report for FY12-13 Continuing Appropriations (delayed from September 3rd agenda
to September 17th).
Estimated Staff Hours for Phase 1 -Not Yet Completed
.; ·>~
. Review and sign engagement letter, and arrange logistics for
auditor fieldwork
«• ····~TH"•"~"'"'"-"·--···_.-... ~-.~···-·-••<-•••"•" '<'V'""'
Furnish the auditor with public records related to 2009
; com_R_e~ns(3ti.on
Pull payroll records for calendar year 2009
Pull relevant accounts payable records for calendar year 2009
Answer auditor questions
Replace both payroll and accounts payable records after auditor
fieldwork
. Revi_ew auditor draft re_port
l Prepare Staff Report to City Council, and management review
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1.50
1.00
2.50
1.00
1.00
1.00
To facilitate the Phase 1 procedures that have not yet been completed, Staff expects that
other projects will be delayed.
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SCOPE OF SERVICES FOR REVIEW OF EMPLOYEE COMPENSATION
October 1, 2013
Page 5 of 6
Results of Phase 1 -Substantially Completed
The auditor conducted fieldwork on September 4th and 5th, and has issued a report (see
Attachment B). The auditor's procedures, outlined in the auditor's report, were very
thorough and detailed. For example, the procedures to review payments to the City
Manager (e.g. expense reimbursements) from the disbursement system (warrant register)
included a review of all disbursements for calendar 2012 to ensure no payments were
missed. The report indicates that no exceptions were noted from Staff's compliance with
the City's policies and procedures in administrating the compensation provisions of the City
Manager's employment agreement during 2012 (this is a "clean" report).
Phase 2 -Prepare New Employee Compensation Schedule and Auditor Tests
Staff would prepare a schedule of all categories of employee compensation for all
individuals issued a W-2 from the City for 2013. The auditor would trace amounts to
supporting documentation for a sample size of 20 employees to include all management
employees. Neither Staff nor the auditor have begun Phase 2 procedures. The out-of-
pocket cost is expected to be about $5,000 for the auditor's services plus $2,500 for a
custom report developed by the City's payroll processing company (ADP). If City Council
elects to move forward with Phase 2 procedures, the independent auditor expects the work
could be done and a report issued by February 2014.
Staff has attached a template for the schedule of employee compensation to be prepared
as part of Phase 2 procedures (see Attachment C). The template is similar to a schedule
that has been prepared by Ken Dyda as part of his January 2012 and January 2013 Public
Records Act requests. Mayor Pro Tern Duhovic also supports preparation of the proposed
schedule.
As required by the California State Controller, the City prepares a schedule of employee
compensation that reflects annual taxable income for every employee who received a W-2
for a calendar year, and posts the schedule to the City's website (see Attachment C). The
primary benefits of the State Controller's schedule include public disclosure and
comparability with other cities. The primary weakness of the State Controller's schedule is
the fact that it lists taxable compensation, net of employee's voluntary contributions to
benefit plans, and not gross compensation.
There is no state or other legal requirement to prepare the schedule that is part of Phase 2
procedures (Attachment B). As such, it is possible that a member of the public could
attempt to compare employee compensation data included within the new schedule to the
State Controller's schedule for other cities, creating an apples to oranges comparison.
Staff believes that the schedule proposed as a part of Phase 2 would not improve financial
management of the City, nor does it seem like a useful tool for the City Council to make
policy decisions. The usefulness of the new schedule would be measured as the degree to
which City Council sees value in additional transparency or as a response to residents who
have made inquiries. However, Staff believes this usefulness would be tempered by the
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SCOPE OF SERVICES FOR REVIEW OF EMPLOYEE COMPENSATION
October 1, 2013
Page 6 of 6
potential for confusion related to two different employee compensation schedules.
Define fields for custom ADP report, negotiate ADP service, review
draft ADP report for accuracy 8.00
Use ADP report to create Schedule as defined in Phase 2, review for
accuracy 6.00
Arrange logistics fo~ auditor fieldwork 1.00
Pullpayroll rec.o~dsfor_c.~1~.fl~_aryear.2013 4.00
. Pull relevant a_ccountspayable records for 2013 2.00
'Ans~er audi!()~glJ~stion? 4.00
; Replace both payroll and accounts payable records after auditor
:fieldwork 2.00 ...
Review auditor draft report 2.00 ·
Prepare Staff Report to City Council, and mana ement review 8.00 .
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To facilitate the Phase 2 procedures that have not yet been completed, Staff expects that
other projects will be delayed, including recognition of the City's loan to the former
redevelopment agency as an enforceable obligation.
Other Additional Procedures Not Yet Defined
Other procedures may include a review of employee leave time, overtime, cashing in
unused vacation time, employee expense reports, and legal services billings. If the City
Council elects to move forward with other procedures, the 2013 Employee Compensation
Subcommittee would define procedures and develop a proposal for City Council
consideration by February 2014, which would include a cost estimate.
FISCAL IMPACT
The Finance program budget in the General Fund for professional services can absorb the
audit fee of $2,500 for procedures that have already been completed. If the City Council
directs Staff to move forward with the City Council Subcommittee's recommendation, Staff
will return with a proposed budget adjustment of $9,750 in the City's General Fund.
Attachments:
A -Signed Engagement Letter
B -Auditor's Report on Agreed Upon Procedures
C -Template for Schedule of Employee Compensation
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Attachment A
Vavrinek, Trine, Day & Co., LLP VALUE THE DIFFERENCE
Certified Public Accountants
August 15, 2013
City Council
City of Rancho Palos Verdes, California
We are pleased to confirm our understanding of the nature and limitations of the services we are to provide for the
City of Rancho Palos Verdes (the City).
We will apply the agreed-upon procedures which the City Council has specified, listed in the attached schedule, to
the City's payroll records and benefit documentation. This engagement is solely to assist the City in determining
that payroll, paid benefits and earned benefits agree, for the sample noted, to the underlying supporting
documentation. Our engagement to apply agreed-upon procedures will be conducted in accordance with
attestation standards established by the American Institute of Certified Public Accountants. The sufficiency of the
procedures is solely the responsibility of those parties specified in the report. Consequently, we make no
representation regarding the sufficiency of the procedures described in the attached schedule either for the
purpose for which this report has been requested or for any other purpose. If, for any reason, we are unable to
complete the procedures, we will describe any restrictions on the performance of the procedures in our report, or
will not issue a report as a result of this engagement. ·
Because the agreed-upon procedures listed in the attached schedule do not constitute an examination, we will not
express an opinion on the balance, amounts, or on compliance with applicable ·policies, regulations, requirements
or statues. In addition, we have no obligation to perform any procedures beyond those listed in the attached
schedule.
We will submit a report listing the procedures performed and our findings. This report is intended solely for the
use of the City Council, and should not be used by anyone other than these specified parties. Our report will
contain a paragraph indicating that had we performed additional procedures, other matters might have come to our
attention that would have been reported to you.
The City is responsible for compliance with all policies, regulations, requirements, and statues and is responsible
for selecting the criteri~ for testing and for determining that such criteria are appropriate for your purposes.
Kevin Pulliam is the engagement partner and is responsible for supervising the engagement and signing the report
or authorizing another individual to sign it.
We plan to begin our procedures during September 2013 and, unless unforeseeable problems are encountered, the
engagement should be completed by (as detailed below in the Scope of Work): Phase I-October 10, 2013; Phase
II -January 31, 2014. At the conclusion· of our engagement, we will require a representation letter from
management that, among other things, will confirm management's responsibility for the compliance with all
applicable policies and statues in accordance with those standards.
We estimate that our fees for these services will be $7,500 (estimated at $2,500 for Phase I and $5,000 for Phase
II). The fee estimate is based on anticipated cooperation from your personnel and the assumption that unexpected
circumstances will not be encountered during the engagement. These fees are also based upon the assumption
that the City will have all of the detail ready for each sample selected for the specified procedures noted in the
Scope of Work for the team upon arrival (a prepared by client listing (PBC) will be provided a minimum of 2
weeks before scheduled fieldwork). If significant additional time is necessary, we will discuss it with you and
arrive at a new fee estimate before we incur the additional costs.
8270 Aspen Street Rancho Cucamonga, CA 91730 Tel: 909.466.4410 Fax: 909.466.4431 www.vtdcpa.com
FRESNO • LAGUNA HILLS • PALO ALTO • PLEASANTON • RANCHO CUCAMONGA • RIVERSIDE • SACRAMENTO
2-7
City Council
City of Rancho Palos Verdes, California
2013 Investment AUP
August 15, 2013
Page2 of 4
Attachment A
We appreciate the opportunity to assist you and believe this letter accurately summarizes the significant terms of
our engagement. If you have any questions, please let us know. If you agree with the terms of our engagement as
described in this letter, please sign the enclosed copy and return it to us. If the need for additional procedures
arises, our agreement with you will need to be revised. It is customary for us to enumerate these revisions in an
addendum to this letter. If additional specified parties of the report are added, we will require that they
acknowledge in writing their responsibility for the sufficiency of procedures.
KTP:gbl
Attachment
RESPONSE:
Very truly yours,
Kr~
Kevin T. Pulliam, Partner
Vavrinek, Trine, Day & Co., LLP
This letter Actly sets forth the understanding of the City of Rancho Palos Verdes.
By: ~ OitiA.L
Title: (t LTY H A:UA&E.&.
Date: ~ -0. q -13
2-8
City Council
City of Rancho Palos Verdes, California
2013 Investment AUP
August 15, 2013
Page 3of4
Scope of Work
Attachment A
Perform an agreed upon procedures engagement (AUP) to assist the City in determining that the payroll, paid
benefits and earned benefits agree, for the sample noted, to the underlying supporting documentation. The work
will be performed in phases as noted below:
Procedures:
Phase I:
1. For the City Manager's contract perform the following:
Phase Il:
a.· Trace all payroll, city paid benefits, earned benefits as noted in procedure #2 from the City
Manager's contract to the actual payment/earned benefit supporting documentation.
b. Trace all payroll, city paid benefits, earned benefits from the City's detailed records into the City
Manager contract.
c. Trace all wages to the W-2 filing.
d. Trace all other payments through the City's disbursement system, if any, and review for proper
approval, etc. in accordance with City policy.
2. Trace applicable information on the attached worksheet (prepared by the City) to applicable Internal
Revenue Service and Franchise Tax Board filings.
3. Select a sample of the following for a total sample of twenty (20);
a. all senior management,
b. and approximately ten (10) percent from each of the following categories:
i. full time personnel
ii. part time personnel
iii. · City Council
iv. City Commissioners.
For the selected sample trace the following to current published policies and procedures including but not
limited to: City personnel records, contracts if applicable, policies, and other supporting documentation:
1. Payroll:
a. Annual salary
b. Overtime
c. Auto allowance
d. Bonus
e. Vacation buyout
f. Health insurance in-lieu
2-9
City Council
City of Rancho Palos Verdes, California
2013 Investment AUP
August 15, 2013
Page 4 of4
Phase II, (Continued):
2. City Paid Benefit Costs:
a. Pension benefits
b. Insurance-including but not limited to: Medical, Vision, Dental
c. Medicare
d. Retirement Health Savings Account Contribution
e. Deferred Comp
3. Benefits -Earned Hours Only:
a. Wellness
b. Admin Leave
c. Sick Leave
d. Holidays
e. Vacation
f. CompTime
Attachment A
2-10
CITY OF RANCHO PALOS VERDES
Independent Accountants' Report on
Agreed-Upon Procedures Performed
with Respect to the City Manager's Employment Contract
For the Calendar year ended December 31, 2012
Attachment B
2-11
Attachment B
Vavrinek, Trine, Day & Co., LLP
VALUE THE DIFFERENCE
Certified Public Accountants
INDEPENDENT ACCOUNTANTS' REPORT
ON APPLYING AGREED-UPON PROCEDURES PERFORMED
WITH RESPECT TO THE CITY MANAGER'S EMPLOYMENT CONTRACT
City Council
City of Rancho Palos Verdes
We have performed the procedures enumerated below, which were agreed to by the City of Rancho Palos Verdes
(City) solely to assist you with respect to your evaluation of selected provisions of the City Manager's
employment contract for the calendar year ended December 31, 2012. The City's management is responsible for
the execution of the provisions contained in the City Manager's employment contract. This agreed-upon
procedures engagement was conducted in accordance with attestation standards established by the American
Institute of Certified Public Accountants. The sufficiency of these procedures is solely the responsibility of the
City. Consequently, we make no representation regarding the sufficiency of the procedures described below,
either for the purpose for which this report has been requested, or for any other purpose.
The procedures performed and the results of those procedures were as follows:
l. For the City Manager's contract perform the following:
a. Trace all payroll, city paid benefits, earned benefits from the City Manager's contract to the actual
payment/earned benefit supporting documentation
Result: We traced all payroll, city paid benefits, earned benefits from the City Manager's contract to the
actual payment/earned benefit supporting documentation. No exceptions were noted.
b. Trace all payroll, city paid benefits, earned benefits from the City's detailed records into the City
Manager contract
Result: We traced all payroll, city paid benefits, earned benefits from the City's detailed records to the
City Manager's contract. No exceptions were noted.
c. Trace all wages to the W-2 filing
Result: We traced all wages to the W-2 filing. No exceptions were noted.
d. Trace all other payments through the City's disbursement system, if any, and review for proper
approval, etc. in accordance with City policy
Result: We traced all other payments through the City's disbursement system and reviewed for proper
approval in accordance with City policy. No exceptions were noted.
8270 Aspen Street Rancho Cucamonga, CA 91730 Tel: 909.466.4410 Fax: 909.466.4431 www.vtdcpa.com
FRESNO • LAGUNA HILLS • PALO ALTO • PLEASANTON • RANCHO CUCAMONGA • RIVERSIDE • SACRAMENTO 2-12
Attachment B
We were not engaged to, and did not, conduct an audit, the objective of which would be the expression of an
opinion on the City, related internal control, compliance with government code, or elements, accounts or items
specified above. Accordingly, we do not express such an opinion. Had we performed additional procedures,
other matters might have come to our attention that would have been reported to you.
This report is intended solely for the information and use of the City Council and management of the City and is
not intended to be, and should not be, used by anyone other than those specified parties.
~t ~' ~ 1,
1 Co.,LL/
Rancho Cucamonga, California
September 9, 2013
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