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HomeMy WebLinkAbout27-City Attorney r- CITY OF SAN BERNADINO - REQUEST F. COUNCIL ACTION From: James F. Penman, City Attorney Subject: Discuss and take possible actions on City Attorney audit recommendations. Dept: City Attorney Date: January 4, 1994 Synopsis of Previous Council action: Direct Management Audit of City Attorney's office. Recommended motion: Discuss and take possible actions on City Attorney audit recommendations. ~d / Signature - Contact person: Dennis A. Barlow Phone: 5255 Supporting data attached: Ward: FUNDING REOUIREMENTS: Amount: Source: (Acct. No.) (Acct. DescriPtion) Finance: Council Notes: 75.0262 Agenda Item No. ;;(7 CITY OF SAN BERNARDINO - REQUEST FOR COUNCIL ACTION STAFF REPORT As directed, the Harvey M. Rose Accountancy Corporation conducted a Management Audit of the City Attorney' s office and has now submitted its final report. The Mayor and Council may wish to discuss and take action on the various recommendations contained in that report. 75-0264 , '", . . CITY OF San Bernardino FINANCE DEPARTMENT BARBARA PACHON DIRECTOR Of FINANCE December 23, 1993 Mayor Tom Minor city Hall 300 North D street San Bernardino CA 92418 Dear Mayor, This letter is in response to the findings of the management audit of the City Attorney's Office by the Harvey M. Rose Accountancy Corporation. Let me begin by saying that for the most part, I do agree with the audit report in respect to their findings relating to the Finance Department. However, there are areas that I disagree with and I feel I must bring these items to your attention. First, the Finance Department does need a comprehensive procedures manual as stated by the Harvey Rose audit. This has been mentioned for several years by the regular City auditors. since this is a very time consuming job, it is work that is in addition to the daily operations of Finance, and since the Finance Department has had to make several staff reductions recently, I would recommend that we investigate the possibilities of hiring an outside consultant to do this work. Although I agree this manual is important and needed, it is not going to be the cure all solution that the Harvey Rose audit implies. A Finance Department can have all the policies, procedures, and controls it deems necessary but if a Department is allowed to operate independent from the rest of the City and is exempt from following policies, procedures, and controls then, even though there may be a manual, the problems will still exist. If Finance is to function in the capacity the Harvey Rose audit indicates, the Municipal Code must be changed as the audit indicates in section 1 of the report. Since the current Municipal Code exempts the Office of the City Attorney from adhering to the financial and administrative controls we currently have in place, and it is the opinion of the city Attorney that financial information from his 77 PRIDE .f ~;7ESS ::I<'~27 300 NORTH CALIFORNIA D S T R E E T 9 2 ~ I 8 0 0 0 1 SAN BERNARDI~JO 714 I 3 8 4 - 5242 ~ . . Office is confidential, the Finance Department has not been able to properly audit invoices from the Attorney's Office to make sure there is proper and adequate supporting documentation. The City Attorney's Office and Finance have recently made some procedural changes which address some of the Attorney's concerns while still providing Finance with information it needs to do its job. We must keep working in this direction as there are still several problems that need to be addressed. Second, I need to clarify a statement that the audit makes in section Two, in regards to improving the timeliness of data in existing financial reports. The audit report implies that besides the delays of invoice processing by the city Attorney, there are other problems that contribute to the lack of timeliness of data. As far as I am aware, there were no findings that showed that Finance was in any way responsible for the lack of timeliness of data in its reports. Since Finance currently pays invoices on a weekly basis, the financial accounts are also updated weekly when an item is paid to them. I believe part of the timeliness problem arises out of the fact that some of the outside legal contractors invoice on a quarterly basis rather than a monthly basis so this alone is a delay in keeping financial records current. Lastly, I need to correct a statement that the audit makes in section Two, in regards to the lack of a comprehensive accounting manual has in part resulted in unclear responsibilities for ensuring that the services which are the subject of an invoice have actually been received. The lack of a comprehensive accounting manual should not be needed for a Department to know that they are responsible for making sure they get what they are paying for. In fact, the Request for payment form that must be submitted by Departments to get an invoice paid, has a line that Departments sign which states they certify delivery of service. There is no way that a Finance Department can and should be responsible for making sure Departments get the service they are paying for. Finance should only be responsible for auditing payments for proper approvals, documentation, signatures, and funding. I appreciate the opportunity that was given to me to respond to the audit findings as they relate to the Finance Department. I hope the changes that are recommended will be implemented so to improve our operations. I will be available, at your convenience, to further discuss the audit as it relates to the Finance Department. sincerely, J3~~ Barbara S. Pachon Finance Director vm 78 . . '" /., REpORT TO THE MAYOR AND THE CITY COUNCIL OF THE CITY OF SAN BERNARDINO MANAGEMENT AUDIT OF THE CITY OF SAN BERNARDINO OFFICE OF THE CITY ATTORNEY Prepared by the Harvey M. Rose Acconntancy Corporation December, 1993 /.'~.- . j ./ I ,,,',. (X/~) . . arvey ose &<C<C(t1)llll1Th~<CW <C(t1)ll"JP<O>~n(t1)1Th 1390 Market Street. Suite 1025. San FrancIsco. CA 94102 (415)552-9292' FAX (415)252-0461 Los Angeles. CA (213) 965-7175 December 29, 1993 Honorable Tom Minor Mayor City of San Bernardino 300 North "D" Street San Bernardino, CA 92418 Dear Mayor Minor: The Harvey M. Rose Accountancy Corporation is pleased to submit this final report on our management audit of the City of San Bernardino Office of the City Attorney. This report is the culmination of the research and analysis we conducted between August and November, 1993. The report contains findings and recommendations in all areas that were included within the scope of work defined in our agreement for management audit services. This management audit report consists of six sections and contains 22 recommendations to improve the economy, efficiency and effectiveness of the Office of the City Attorney. Implementation of the recommendations contained herein will generate net savings and increased cost recovery of an estimated $481,000 annually. This report recommends that a one-time investment of $50,000 be made to improve the information systems of the Office of the City Attorney to automate cert.ain litigation case management functions and to promote accountability within the Office of the City Attorney. We also recommend that one Legal Secretary position be funded for a period of 12 months, at an estimated cost of $45,000, to assist in the information systems development efforts. Further, we recommend the addition of one Deputy City Attorney position and the deletion of one vacant paralegal position to enable the City to reduce the use of outside counsel. . . Honorable Tom Minor Mayor City of San Bernardino December 29, 1993 Page 2 Both the Office of the City Attorney and the Finance Department have reviewed this report and have been provided with the opportunity to respond in writing to the report findings and recommendations. Their written responses have been attached to our report beginning on page 59. We greatly appreciate the assistance that the Office of the City Attorney, the Finance Department and other City departments have provided during the course of this review. It has been our pleasure to serve the City of San Bernardino. We hope that we may be of assistance in the future. Respectfully submitted, ) h Mj, 'j(~c- Harvey M. Rose, CPA President ~ arvey 05e~~ . . City of San Bernardino Office of the City Attorney Management Audit Report Executive Snmmarv This management audit was conducted to determine whether the Office of the City Attorney is performing its designated functions efficiently, effectively and economically; in accordance with applicable City Charter and Municipal Code requirements; and, in accordance with applicable State and federal laws. The scope of review included a comprehensive assessment of the current workload, resources, staffing and priorities of work within the Office of the City Attorney. This management audit report contains six sections and a total of 22 recommendations. Implementation of the recommendations contained herein will provide the following benefits: . Increased revenues to the General Fund, estimated at $356,000 annually, by recovering the costs of services provided by the City to various departments which receive funding from sources other than the City's general revenues. . Net savings estimated at $125,000 per year resulting from reductions in the City's need for outside counsel. · Increased ability for the Department to effectively manage its workload and to exercise accountability over the performance and productivity of its staff. · Improved financial controls pertaining to the procurement of professional services and the payment of vendor invoices. . Increased assurance that the utilization of outside counsel and contract litigation support activities will be in accordance with sound business practices. Our report findings and recommendations are summarized as follows: Section 1: Use of Outside Counsel, Vendor Selection During FY 1992-93, the City of San Bernardino contracted with 20 private law firms to obtain legal services at a cost of $1.4 Million. However, less than $20,000 Of this amount was obtained through a competitive selection process. Further, no formal contracts with any of the law firms which provide services have been submitted to and approved by the City Council. As a result, 84 percent of this work amounting to $1.2 million was awarded to three firms which were all selected based' on an informal, undocumented assessment of cost, expertise and other factors. Given the substantial cost of these services, such a procurement procedure is conducive to impropriety. Based upon these findings, the City Attorney should: . . 1.1 Adopt a formal competitive vendor selection process to retain the services of outside counsel and establish procedures to document that competing firms are objectively evaluated according to established criteria. Nothing in this recommendation should be construed to prevent the City of San Bernardino from at all times selecting the most qualified law firm, even if the firm is more costly than other firms. However, such selection should be based on a competitive vendor selection process. 1.2 Meet with the Finance Director to clarify roles and responsibilities related to payment processing and financial record keeping for outside counsel legal services. Work with the Finance Director to develop proposed amendments to the Municipal Code which would clearly define the financial relationships and responsibilities of each of these City officials. , 1.3 Adopt policies and procedures which will ensure that formal, written agreements are established with all current and future contract law firms, and that such agreements are approved by the Council in public session. . By implementing a fully documented formal selection process, the City can ensure that the most cost-effective services are obtained without the appearance of favoritism or other improprieties. Section 2: Financial Controls for Outside Counsel Services and Litigation Expenses The Office of the City Attorney and the Department of Finance have not established financial controls that ensure that City funds are expended in accordance with generally accepted financial standards. In addition, the Office of the City Attorney has not established appropriate budgetary controls. As a result, in FY 1992-93 over $120,000 was paid for litigation costs without any supporting documentation, and $6,000 was paid for services never received. Further, the City Attorney's FY 1992-93 budget for outside litigation costs was over expended by $235,000, necessitating three supplemental appropriations by the City Council. Additionally, the City Attorney recommended for approval and the Department of Finance approved nearly $985,000 in payments for contract legal services in FY 1992-93 (a) without adequate supporting documentation, (b) without auditing the accuracy or validity of the charges, and (c) without the means to verify the authenticity of requests for payment submitted to his office. Based upon these findings, the City Attorney should: 2.1 Retain working papers which support budget estimates for outside counsel requirements. . . 2.2 Monitor the status of appropriations during the fiscal year and provide advance notice and justification to the Mayor and City Council in the event appropriations may be exceeded. 2.3 Implement accounting procedures to be consistent with invoice payment procedures to be established by the Department of Finance, as recommended below. In addition, the Director of Finance should: 2.4 Immediately develop a comprehensive accounting policy manual. 2.5 Establish improved financial controls over the payment of vendor invoices, as discussed in the body of this section. 2.6 More clearly define the duties and responsibilities of the Finance Department and of other City Departments in the invoice approval and payment process. By establishing and adhering to sound financial controls, the Office of the City Attorney and the Department of Finance will be able to ensure that budget estimates are fully documented and accurately projected, and that payments for contract services are appropriately audited and verified prior to payment. Section 3: Staffing and Personnel Management The Office of the City Attorney does not exercise a sufficient degree of accountability over the performance and productivity of its professional and support staff. Performance evaluations are not conducted, time sheets are not prepared and reports are not generated which detail staff hours and costs. As a result, the Office of the City Attorney is unable to (a) accurately determine workload accomplishments and staffing requirements (b) provide a complete accounting of the time expended by professional and support staff and (c) establish the basis for fees and charges to special districts and non-general fund City departments. Based upon these findings, the City Attorney should: 3.1 Develop improved systems of accountability over its professional and support staff, including the utilization of time sheets which ensure that attorneys, paralegals and investigators document how their time is spent by activity type and service recipient. 3.2 Develop management reports which tabulate and summarize the time spent and workload accomplishments of professional and support staff. 3.3 Conduct periodic and formal performance evaluations for all staff. . . By implementing a performance and productivity management system based on detailed time sheets, periodic management reports and annual performance evaluations, the City Attorney should realize greater productivity and cost effectiveness. Furthermore, the City Attorney would be better able to measure workload and accomplishments. Section 4: Information Systems and Office Automation The Office of the City Attorney needs to improve its utilization of information systems to provide for greater efficiency and accountability. Although the Office acquired a computerized litigation case management system three years ago at a cost of approximately $2,600, this system has not been implemented. As a result, the Office of the City Attorney has not been able to automate various document processing and case management activities and lacks certain reporting capabilities. Based upon these findings, the City Attorney should: 4.1 Develop an information system master plan which contains the elements described in this section. 4.2 Assign an experienced legal secretary to implement the recommended information systems master plan once it has been approved. In addition, the Mayor and City Council should: 4.3 Appropriate the funds that are necessaryi to implement this information systems master plan. 4.4 Authorize the City Attorney to fill one vacant legal secretary position on a temporary basis for a period of twelve months. By developing an information systems master plan, and by acqulnng the necessary information systems resources, at an estimated cost of $50,000 for information systems and an estimated cost of $45,000 to provide temporary funding for one legal secretary, the Office of the City Attorney will be better able to manage its workload and staff resources. Section 5: Office of the City Attorney Cost Recovery During FY 1993-94, the Office of the City Attorney will expend approximately 6,000 professional hours at a cost of approximately $500,000 serving 22 City departments which receive funding from sources other than the City's General Fund. However, the City of San Bernardino does not have a policy of charging these departments directly for legal services. Only one City agency, the Economic Development Agency, is directly billed for City Attorney services. . . Further, the City Attorney has not been able to substantiate the level of effort provided to the EDA. as a result, invoices submitted to the EDA for services during FY 1992-93 and FY 1993-94 are the subject of dispute. Based upon these findings, the Mayor and City Council should: 5.1 Adopt a cost recovery policy which allows the Office of the City Attorney to recover the cost of its operations from non-General Fund sources where possible. 5.2 Instruct the Finance Department to assist the City Attorney in executing this cost recovery policy and to report upon'the actions that will be required to realize the potential additional revenues identified in this Section. By implementing a City Attorney cost recovery policy, the City's general fund would benefit by an estimated $356,000 annually. Section 6: Cost Effectiveness of Outside Counsel The Office of the City Attorney and the Economic Development Agency could realize significant savings by reducing reliance upon outside counsel to provide legal services. While the hourly salary and benefit cost of a Deputy City Attorney IV amounts to $54 per hour, the cost of outside counsel ranges from $95 TO $125 per hour. Furthermore, the City Attorney estimates that as much as 60 percent of the litigation files referred to outside Counsel could be performed by in-house staff. In addition the Economic Development Agency expends more than $300,000 per year to retain legal services from outside counsel at an average cost of $140 per hour. however, based upon documentation provided by the EDA, these costs could be significantly reduced if the City Attorney provided these services. Based upon these findings, the Mayor and City Council should: 6.1 Approve the following changes in the authorized staffing level of the Office of the City Attorney: Delete funding for one paralegal; and, Add funding for one Deputy City Attorney. 6.2 Authorize the City Attorney to recruit for the new position immediately. 6.3 Reduce appropriations for outside counsel and increase budgeted revenues from the EDA to fund the new Deputy City Attorney position, based upon the expected utilization of the new Deputy City Attorney position. 6.4 Require that the City Attorney periodically report to the Mayor and City Council on how the newly created Deputy City Attorney position is being utilized. . . By deleting funding for one vacant paralegal position and adding funding for a vacant Deputy City Attomey position to the City attomey's budget, and filling this position immediately, the City Attomey could generate net annual savings of $125,000 for the City and the for the EDA. . TABLE OF CONTENTS . ~ Introduction ..............................................................................................1 Findings: 1. Use of Outside Counsel: Vendor Selection........ ....... ............................. ......8 2. Financial Controls for Outside Counsel Services and Litigation Expenses.... 14 3. Staffing and Personnel Management....................................................... :Il 4. Information Systems and Office Automation...................................... ...... m 5. Office of the City Attomey CostRecovexy ..................................................32 6. Cost Effectiveness of Outside Counsel...................................................... 40 Written Response of the City Attomey ......................................................... 59 Written Response of the Finance Department.. ................... ... ................ ...... 77 LIST OF APPENDICES Appendix 1.la.......................................................................................... 46 Suggested vendor selection procedures Appendix 1.2a Sample contract for legal services...................................................... 48 Appendix 3.la.... ... ........... ... .... ...... ........ ...................... ............................. 5'5 Results of Survey of Comparable California City Attomey Offices Appendix 4.la.......................................................................................... 56 Analysis of Office of the City Attomey Management Information System and Office Automation Needs Appendix 5.la Instructions for Determining Hourly Rates to Charge for Professional Services....................................................................... 57 LIST OF TARLES Table 1.1... ... ....... .... ...... ...... ............ ...... ...... ................. .... ... ... .............. .... 11 Use of Outside Counsel by Contracting Department, Percent of FY 1992-93 Expenditures Awarded to a Single Firm . TABLE OF CONTENIS . ~ LIST OF TABLES (Continued) Table 3.1.................................................................................................. 21 Office of the City Attomey Analysis of Growth in Authorized Staffing Levels FY 1988-89 through FY 1992.93 Table 5.1...... ................ ..................... ....................................................... 34 FY 1993.94 Hourly Rates Calculated According to Professional Staff Classification Table 5.2.................................................................................................. 35 Estimated Cost of City Attomey Services Provided to Departments and Activities Funded by Revenue Sources other than the General Fund Table 5.3..... .... ..... ...................... ..............................................................38 Summary of Additional Revenues which Could be Collected by the City Attorney with the Implementation of an Effective Cost Recovery Policy Table 6.1... ........... ............ ............... ............. ............................................ 41 Office of the City Attomey Expenditures for Outside Counsel FY 1989-90 through FY 1992-93 . . City of San Bernardino OfIice of the City Attorney Introduction Management Audit Purpose and Scope The Harvey M. Rose Accountancy Corporation is pleased to present this Management Audit of the City of San Bernardino Office of the City Attorney. This management audit was conducted at the request of the Mayor and City Council by the authority granted in the City Charter. Field work for this engagement was conducted between August and November of 1993. A draft report was presented to the City Attorney for comment. The City Attorney's written response is included at the end of this report. This management audit was conducted to determine whether the Office of the City Attorney is performing its designated functions efficiently, effectively and economically; in accordance with applicable City Charter and Municipal Code requirements; and, in accordance with applicable State and federal laws. The scope of review included a comprehensive assessment of the current workload, resources, staffing and priorities of work within the Office of the City Attorney. Audit Objectives and Procedures Employed The objectives of this management audit were: · To assess the staffmg level and organizational structure of the Office of the City Attorney and to determine whether improvements could be made in the current organizational structure and staffing level to promote greater accountability, and to enhance the operating efficiency and effectiveness of the Office of the City Attorney. · To determine whether the City Attorney's written policies and procedures are comprehensive, current and consistent. · To evaluate whether the current utilization of outside counsel is cost effective; to establish criteria on when and how outside counsel should be utilized in the future and to provide an assessment of whether existing financial controls over the utilization of outside counsel are sufficient. . To identify opportunities for increasing the level of General Fund cost recovery for the Office of the City Attorney. · To determine how information systems can be applied to the Office of the City Attorney to provide improved case management, to increase the productivity of both professional and support staff and to improve the level of accountability within the Office of the City Attorney. To accomplish these audit objectives, we performed the following activities: 1 . . · Conducted interviews with each staff member of the Office of the City Attomey. . Interviewed the Mayor, members of the City Council and managers from each major City department, including: The City Administrator; The Director of Finance; The Assistant Chief of Police; The Fire Chief; The Director of Planning and Building Services; The Chief Examiner; and, The Economic Development Agency Administrator. · Disseminated a written survey to the city attomey offices of cities which are similar in size to the City of San Bemardino. · Disseminated a written survey to 30 current City elected officials, department heads and division managers. · Obtained and analyzed various workload and staffing indicators. · Observed the Office of the City Attomey participate at meetings of the Mayor and City Council. · Reviewed the Office of the City Attomey's duties and responsibilities under the Charter. Report Findings and Recommendations This management audit report contains six sections and a total of 22 reco=endations. Implementation of the recommendations contained herein will provide the following benefits: . Increased revenues to the General Fund, estimated at $356,000 annually, by recovering the costs of services provided by the City to various departments which receive funding from sources other than the City's general revenues. . Increased ability for the Department to effectively manage its workload and to exercise accountability over the performance and productivity of its staff. · Improved financial controls pertaining to the procurement of professional services and the payment of vendor invoices. . Increased assurance that the utilization of outside counsel and contract litigation support activities will be in accordance with sound business practices. 2 . . We estimate that implementation of these reco=endations will require the following investments: · Approximately $50,000 in one-time funding to acquire various management information systems to improve the caseload management and reporting capabilities of the Office of the City Attorney and approximately $45,000 in salaries and benefits to fill one vacant legal secretary position to assist in the development and maintenance of this information system for a period of 12 months. · Approximately $90,000 in additional ongoing salary and benefit costs to add one Deputy City Attorney position and delete one paralegal. However, this additional cost would be offset by reduced expenditures for outside counsel services of approximately $215,000 per year, thereby generating net savings of an estimated $125,000 annually. We would like to stress that many of the findings and reco=endations in this report are inter-related. For instance, it will be difficult for the Office of the City Attorney to realize the benefits of improved accountability as discussed in Section 2 and increased cost recovery as discussed in Section 5 without the necessary information systems that are reco=ended in Section 6. Therefore, we strongly reco=end that the Mayor and City Council adopt this report in its entirety, rather than selectively implement the reco=endations contained herein. Comments and Observations During the course of this review, several issues came to our attention, which, in addition to those findings presented in this report, warrant the attention of management. These issues include the need for improvements in various management and operating systems in City departments outside of the Office of the City Attorney and the need for an improved working relationship between the Office of the City Attorney and other City Departments. The need for improvements in various management and operating systems outside the Office of the City Attorney. Finance Denartment In Section 2 of this report, we discuss the adequacy of financial controls over the use of contract services. Several of the internal control weaknesses cited in this section result from inadequate procedures within the Finance Department, and the absence of formalized direction from the Finance Department regarding which department is responsible for performing certain fundamental internal control functions, including: . Verifying that invoices submitted by vendors represent valid claims against the City and that such invoices are consistent with existing contractual agreements; and, ./ .-. 3 . . . Ensuring that adequate supporting documentation accompanies invoices prior to the payment of such invoices. The lack of a comprehensive accounting policies manual has been brought to the attention of management. During the past four years, the absence of a comprehensive accounting policies manual has been the subject of discussion within the management letter prepared by the City's independent auditors as part of the comprehensive annual financial audit. Therefore, the Finance Department should immediately seek to rectify this condition. Risk Mana!!ement During the course of this review, we also reviewed the database of general liability claims that are currently pending against the City. This database is maintained by the Risk Management Department. Based upon our review, we determined that the Risk Management Department does not systematically update its database of outstanding general liability claims against the City to reflect significant events that transpire. For instance, on two occasions judgments of significant dollar amounts had been awarded against the City. However, Risk Management had not updated its database to reflect these events. Based upon our review, the Risk Management Department, the Office of the City Attorney and the Finance Department should work more closely together to ensure that the data base maintained by Risk Management is timely updated and that the City's general liability reserve is adequately established. The need for an improved working relationship between the Office of the City Attorney and other departments within the City As part of this management audit, we conducted a survey of high level elected and appointed City officials. A total of 32 surveys were distributed and 31 responses were received. We conducted this survey to assist us with our evaluation of the working relationship between the Office of the City Attorney and other City Departments and to assist us in identifying opportunities for improvement within the Office ofthe City Attorney. Many of the survey respondents spoke highly of the collective competence and capabilities of the professional and support staff within the Office of the City Attorney. The following are representative samples of positive comments made by survey respondents pertaining to the Office of the City Attorney: "Excellent legal advice when requested... "conducts excellent research on subject matter" "Honest, hard working, committed to interests of the City" "Good staff - professional & competent" "Higher level of professionalism than predecessor(s)" "Pleasant and efficient clerical staff' Despite these positive comments, many expressed reservations about the ability of the City Attorney to work effectively with other elected and appointed officials and 4 y '. . . to adequately represent themselves and their departments in the event that legal disputes arise. For instance: . In response to the statement "The Office of the City Attorney works effectively with other elected and appointed officials", 66 percent of the survey respondents expressed disagreement with this statement and only 7 percent expressed agreement. The remaining 27 percent of the survey indicated neither agreement nor disagreement with this statement. · In response to the question "In the event that legal disputes arise resulting from actions that I have taken while performing my duties as an elected/appointed official of the City of San Bernardino, I am confident that I, personally will be adequately represented by the Office of the City Attorney", 54 percent of the survey respondents indicated disagreement with this statement and only 23 percent of the survey respondents expressed agreement. The remaining 23 percent of survey respondents indicated neither agreement nor disagreement with this statement. . In response to the question "In the event that legal disputes arise resulting from actions taken by my department I am confident that my department will be adequately represented by the Office of the City Attorney", 53 percent of the survey respondents indicated disagreement with this statement, 27 percent indicated agreement and 20 percent indicated neither agreement nor disagreement with this statement. We believe that these responses reflect some concern among various officials about the appropriate role of the City Attorney, and the operational priorities of the Office of the City Attorney. For example, several survey respondents suggested that the City Attorney should refrain from becoming involved with establishing City policy. In addition, many elected and appointed officials object to the active role the City Attorney has taken to ensure that elected and appointed officials perform their duties with integrity and in accordance with applicable laws and regulations. In fact, based upon the results of our survey, it is the prevailing opinion within the City that the City Attorney is not capable of acting in the legal watchdog capacity while simultaneously acting as the City's sole legal advisor. This has led to a desire of some elected and appointed officials to be able to obtain outside counsel under certain circumstances, even though this is not currently permitted under the Municipal Code. One co=ent received in the survey illustrates this point: "There is inherent conflict in these roles (watchdog and legal representative). In our society, the prosecutor does not serve as the advocate. Even the most hardened criminals receive separate legal I " counse . Based upon our review, we believe that the role of the City Attorney's Office as the legal watchdog is not in conflict with its designated function as the City's sole legal advisor. It is also appropriate for the City Attorney's Office to contribute to 5 . . the establishment of City policy when issues of City policy have legal aspects which must be recognized and considered. The following facts support this assessment: . Each of the functions that have been and currently are being performed by the Office of the City Attomey (including providing legal advice to the Mayor, Council and City departments, assisting in code enforcement activities, performing investigations of alleged misconduct by elected and appointed officials and representing the City in matters of litigation) are permitted under the Charter. Furthermore, as an elected official, the City Attomey should be given broad latitude with determining the operational priorities of the Office and how its resources are allocated. . All of the investigations on various elected and appointed officials that the Office of the City Attomey has conducted during the past two years, have been initiated pursuant to requests made by the Mayor, members of the City Council and various department heads. . It is generally accepted in the public policy literature that providing input on issues of public policy is a common acceptable role for city attomey offices in small to medium size cities. Despite the disagreement expressed by numerous elected and appointed City officials with the current role of the Office of the City Attomey and with the allocation of Department resources, the lack of confidence that many City Officials have in the Office of the City Attomey has a detrimental effect on the Department's ability to effectively perform its role. Therefore, the City Attomey should actively seek to improve its working relationship with other City Departments. This can be accomplished by one or more of the following activities: . Maintaining the current organizational separation between the City Attorney's investigative and legal representation functions, which is appropriate. . Providing assurances to elected and appointed officials that the Office of the City Attomey has established an appropriate balance between the various functions that the Office performs. Such a balance can only be achieved by periodically issuing reports to the Mayor and Common Council on the use of staff resources by functional category. Such reports couId be generated from the automated time reporting system discussed in Section 4. . Periodically surveying City departments to which the Office of the City Attorney provides legal advice and representation services, to identify opportunities for improvement and to assess whether departments are satisfied with the services that are being provided. 6 . . Acknowledgments It should be noted that the City Attorney and the Finance Director have actively supported this management audit and have been fully cooperative in the audit process. Despite heavy workload demands, both professional and support staff were very generous with their time and provided us with a great deal of assistance in obtaining the information necessary to conduct this audit. In addition, both the professional staff and the administrative support staff were willing to engage in frank and open discussions about both the strengths and weaknesses of the Office of the City Attorney. This management audit could not have been successfully conducted without their invaluable assistance. 7 . . SECTION 1: USE OF OUTSIDE COUNSEL VENDOR SELECTION . DURING FY 1992-93, THE CITY OF SAN BERNARDINO CONTRACTED WITH 20 PRIVATE LAW FIRMS TO OBTAIN LEGAL SERVICES AT A COST OF $1.4 MILLION. HOWEVER, LESS THAN $20,000 OF THIS AMOUNT WAS OBTAINED THROUGH A COMPETITIVE SELECTION PROCESS. FURTHER, NO FORMAL CONTRACTS WITH ANY OF THE LAW FIRMS WHICH PROVIDE SERVICES HAVE BEEN SUBMITTED TO AND APPROVED BY THE CITY COUNCIL. I , . I . 'c. · AS A RESULT, 84 PERCENT OF THIS WORK AMOUNTING TO $1.2 MILLION WAS AWARDED TO THREE FIRMS WHICH WERE ALL SELECTED BASED ON AN INFORMAL, UNDOCUMENTED ASSESSMENT OF COST, EXPERTISE AND OTHER FACTORS. GIVEN THE SUBSTANTIAL COST OF THESE SERVICES, SUCH A PROCUREMENT PROCEDURE IS CONDUCIVE TO IMPROPRIETY. · BY IMPLEMENTING A FULLY DOCUMENTED FORMAL SELECTION PROCESS, THE CITY CAN ENSURE THAT THE MOST COST-EFFECTIVE SERVICES ARE OBTAINED WITHOUT THE APPEARANCE OF FAVORITISM OR OTHER IMPROPRIETIES. !iltv of San Bernardino Municinal Code sections nertaininl!' to the nrocurement ofnrofessional services Municipal Code Section 3.04.010 establishes the Purchasing Agent as the authority to procure goods and services. This Municipal Code Section also establishes certain financial and administrative controls to ensure that the procurement of goods and services is in accordance with sound business practices and to ensure the financial integrity of the City as funds are expended. These controls include: . Requiring the Purchasing Agent to establish a competitive vendor selection process to award purchase orders and contracts. . Requiring that City departments submit approved requisitions and ensure that all purchases are supported by approved purchase orders. · Requiring that the availability of funds be verified prior to the release of a purchase order or the execution of a contract. 8 . . In December 1992, Section 3.04.010 was amended to allow the City Attorney to procure the services of outside counsel directly, rather than through the Purchasing Agent. Municipal Code Section 3.04.010 was also amended to exempt the Office of the City Attorney from adhering to the financial and administrative controls described above, provided that the Office of the City Attorney receive approval from the Mayor and City Council as agreements for professional services are executed. Although the City Attorney recommends that the City Council and the Mayor contract with specific law firms for each law suit, the final authority for selection rests with the City Council and the Mayor. The City Attorney has provided evidence that the City Council and Mayor have not always approved the City Attorney's recommendations. Legal services are highly technical in nature and it is difficult for a department such as the Purchasing Agent to evaluate the relative skills and competencies of firms who are competing to provide such services. Therefore, it is reasonable for the Office of the City Attorney to be allowed to procure such services directly. Nonetheless, the City Attorney should adhere to the administrative and financial control procedures described previously for the following reasons: · By adopting a formal competitive vendor selection process, which is based upon objective criteria, the Office of the City Attorney provides greater assurance that the appearance of conflict of interest is avoided when selecting legal services firms recommended to the Mayor and the City Council. · A formal competitive vendor selection process also provides greater assurance that the firms selected offer reasonable rates, and that City policies pertaining to the recruitment of minority, women or local firms is adhered to. . Adherence to financial controls such as establishing encumbrances also provides greater assurance that appropriations are not exceeded. (This is discussed more fully in Section 2.) Clarifvinl!' the Municinal Code to reauire that the City Attornev adhere to financial controls Based on discussions with the City Administrator and the Finance Director, there is presently some concern regarding the clarity of Municipal Code sections related to contracting for outside legal services. According to these individuals, there has been confusion regarding Municipal Code Section 3.04.010 and whether the City Attorney procurement exemption extends to contract payment processing and fmancial record keeping. It is the City Attorney's opinion that financial information, if maintained as part of the public record, could be used to the disadvantage of the City by opposing counsel. We could not identify any situations where this would occur. We therefore believe that it would be appropriate for the Mayor and the City Council to adopt revisions to the Municipal Code which would clearly define the roles and responsibilities of the City Attorney and Finance Director related to outside counsel vendor payment processing and financial record keeping. 9 . . Establishinl!" formal written ar!reements with contract law firms The City Attorney should also use formal written contracts for services to retain outside counsel, rather than relying upon letter agreements. The current practice of obtaining outside legal services based on letters from law firms does not fully satisfy the pertinent business and legal issues which should be formally addressed by a contract and approved by the Council in public session. Formal contracts should include provisions pertaining to a description of the services, compensation, reimbursement and billing requirements, City responsibilities, ownership of files, conflicts, terms of the agreement, indemnification and insurance, and other provisions. For these reasons and others, all other City departments must comply with these same contract standards. Appendix 1.2 includes a sample of a legal services contract. Current City Attornev Utilization and Selection of Outside Counsel In FY 1992-93, the City of San Bernardino retained a total of 20 firms to provide legal representation services at a cost of approximately $1.4 million. According to the City Attorney, the following criteria are used to select outside counsel: · Experience in representing a municipal entity and the level of expertise in the needed area and the skills and competencies of the individuals within the firm. · The hourly rates that the firm proposes to charge the City for legal services. Evaluation of the Office of the City Attornev Vendor Selection Practices Based upon our review of the City Attorney's practices to select outside counsel, we identified the following exceptions: · The City Attorney was not able to document the basis for selecting existing firms. Therefore, the City Attorney is unable to provide adequate assurance that the actual basis for selecting firms to provide legal services has been consistent with the above criteria. . A high concentration of expenditures exists among a relatively few firms. Although nothing came to our attention which would indicate that favoritism or conflict of interest has occurred in the retention of legal firms, the City Attorney, as an elected official should diligently avoid the appearance of such favoritism or conflict of interest. . The Office of the City Attorney has recently established a formal competitive vendor selection process to retain legal representation services but has not satisfactorily followed through on this process. The Attornev needs to imorove its vendor selection orocess. In March 1993, the Office of the City Attorney issued a request for proposals (RFP) to interested firms to identify additional law firms qualified to represent the City of 10 . . San Bernardino and to promote competition for City business within the legal community. This was the first occasion in more than three years that the Office of the City Attorney had issued an RFP to interested law firms. Based upon our review of this process, we determined that: . The RFP was of a high quality. It clearly articulated the needs of the City and the basis for selecting the firms. . The Office of the City Attorney exercised diligence in providing the widest possible dissemination of this RFP, and the level of response was adequate. Nearly 100 copies of this RFP were submitted to prospective firms and a total of 26 firms responded. . Despite the significant effort put forth in developing and disseminating this RFP and the positive response, the Office of the City Attorney was unable to demonstrate that it had sufficiently followed-through on this RFP process. No documentation was maintained which would demonstrate that the Office used stated criteria to evaluate these firms. In addition, although a large number of respondents appeared to be qualified to provide legal services to the City and offered competitive rates, only one new business relationship was established between the Office of the City Attorney and interested law firms pursuant to this RFP. Citv exnenditure~ for out!i;ide counsel services are heavilv concentrated amonlt a few firms The following table illustrates that a high concentration of expenditures exists among a few firms. This condition exists not only within the Office of the City Attorney but within the Economic Development Agency and the Water Department as well. Table 1.1 Use of Outside COWlSel by Contracting Department Percent ofFY 1992-93 Exnenditures Awarded to a Sinl!'le Firm1 FY 1992-93 FY 1992-93 Expenditures Contracting Firm Expenditures Expenditures for Firm as Denartment ~ For Firm For Denartment a Pet. of Total City Attorney MacLachlan, Burford & Arias $799,809 $984,929 81.20% EDA Sabo & Green 359,771 385,258 93.38% ~ Kilnatrick & Codv $54 312 $67416 80 56% Total $1,213,892 $1,437,603 84.44% 1 Does not include Risk Management legal services for workers compensation claims, which amounted to $156,290 in FY 1992-93. 11 . . As indicated in the preceding table, approximately 84 percent of the City's total $1.4 million in expenditures for legal services are currently concentrated among three firms, despite the number of firms that are capable of providing such services. It should be noted that we have not evaluated the skills and qualifications of the above three firms. Therefore, we do not have an opinion of whether equally capable firms could have been obtained at a lesser cost. It should also be noted that over $640,000 of the amount expended by MacLachlan, Burford & Arias were for one consolidated lawsuit. After deducting this amount from the total expenditures this firm still received 46 percent of the remaining expenditures for outside counsel services expended by the Office of the City Attorney. Althomth no conflict of interest was found in the selection of outside coun~el ~erviceR the Citv Attornev can avoid the annearance of anv conflict with a formal selection nrocess During the course of this management audit we brought the high concentration of legal expenditures to the attention of the City Attorney and discussed the appearance of favoritism or conflict of interest that might result from such a condition. The City Attorney requested that we review his campaign financial records and verify for ourselves that he is free from any conflict of interest. Pursuant to this request we have obtained from the City Clerk the City Attorney's campaign financial statements. Based upon our review, nothing came to our attention which would indicate that favoritism or conflict of interest existed in the selection of the law firms that are currently retained. However, avoiding the appearance of conflict of interest can best be accomplished by providing sufficient competent evidence that the firms employed by the Office of the City Attorney have been subject to a competitive vendor selection process and that the basis for selection is adequately documented. We believe the City Attorney should retain the most cost-effective firm through a competitive process in order to ensure that the City of San Bernardino is receiving the services in the most economical manner possible. Recommended Formal Selection Process for Outside Counsel Services As part of this report, we have developed a suggested set of procedures that the City Attorney should adopt in selecting among competing vendors. These procedures are included as appendix 1.1a to this report. These suggested procedures are not intended to be a strict set of instructions which the City Attorney should follow precisely. Rather these procedures are intended to provide some guidance as the Department develops formal procedures. 12 . . Conclusion The City of San Bernardino needs to improve its vendor selection process to ensure that sufficient competition exists among law firms which provide representation services to the City of San Bernardino. In addition, the Office of the City Attorney needs to improve the level of documentation over how such vendors are selected. Given the high concentration of expenditures among a relatively few firms, it is especially important to demonstrate that law firms have been subject to a competitive vendor selection process to avoid the appearance of favoritism or a conflict of interest. Recommendation~ The City Attorney should: 1.1 Adopt a formal competitive vendor selection process to retain the services of outside counsel and establish procedures to document that competing firms are objectively evaluated according to established criteria. Nothing in this recommendation should be construed to prevent the City of San Bernardino from at all times selecting the most qualified law firm, even if the firm is more costly than other firms. However, such selection should be based on a competitive vendor selection process. 1.2 Meet with the Finance Director to clarify roles and responsibilities related to payment processing and financial record keeping for outside counsel legal services. Work with the Finance Director to develop proposed amendments to the Municipal Code which would clearly define the financial relationships and responsibilities of each of these City officials. 1.3 Adopt policies and procedures which will ensure that formal, written agreements are established with all current and future contract law firms, and that such agreements are approved by the Council in public session. CostslBenefits Implementation of these recommendations will provide greater assurance that the selection of outside counsel is in accordance with sound business practices, that competing firms are objectively evaluated according to established criteria, and that the City of San Bernardino is obtaining the most cost-effective legal services. 13 . . SECTION 2 FINANCIAL CONTROLS FOR OUTSIDE COUNSEL SERVICES AND LITIGATION EXPENSES . THE OFFICE OF THE CITY ATTORNEY AND THE DEPARTMENT OF FINANCE HAVE NOT ESTABLISHED FINANCIAL CONTROLS THAT ENSURE THAT CITY FUNDS ARE EXPENDED IN ACCORDANCE WITH GENERALLY ACCEPTED FINANCIAL STANDARDS. IN ADDITION THE OFFICE OF THE CITY ATTORNEY HAS NOT ESTABLISHED APPROPRIATE BUDGETARY CONTROLS. · AS A RESULT, IN FY 1992-93 OVER $120,000 WAS PAID FOR LITIGATION COSTS WITHOUT ANY SUPPORTING DOCUMENTATION, AND $6,000 WAS PAID FOR SERVICES NEVER RECEIVED. FURTHER, THE CITY ATTORNEY'S FY 1992- 93 BUDGET FOR OUTSIDE LITIGATION COSTS WAS OVER EXPENDED BY $235,000, NECESSITATING THREE SUPPLEMENTAL APPROPRIATIONS BY THE CITY COUNCIL. . ADDITIONALLY, THE CITY ATTORNEY RECOMMENDED FOR APPROVAL AND THE DEPARTMENT OF FINANCE APPROVED NEARLY $985,000 IN PAYMENTS FOR CONTRACT LEGAL SERVICES IN FY 1992.93 (A) WITHOUT ADEQUATE SUPPORTING DOCUMENTATION, (B) WITHOUT AUDITING THE ACCURACY OR VALIDITY OF THE CHARGES, AND (C) WITHOUT THE MEANS TO VERIFY THE AUTHENTICITY OF REQUESTS FOR PAYMENT SUBMITTED TO ITS OFFICE. . BY ESTABLISHING AND ADHERING TO SOUND FINANCIAL CONTROLS, THE OFFICE OF THE CITY ATTORNEY AND THE DEPARTMENT OF FINANCE WILL BE ABLE TO ENSURE THAT BUDGET ESTIMATES ARE FULLY DOCUMENTED AND ACCURATELY PROJECTED, AND THAT PAYMENTS FOR CONTRACT SERVICES ARE APPROPRIATELY AUDITED AND VERIFIED PRIOR TO PAYMENT. 14 . . Evaluation of Financial Controls The scope of our review included an evaluation of the financial controls over appropriations and the expenditure of funds for outside counsel and for litigation support services. This review was conducted to determine whether: · The methods used to establish estimates of expenditures for outside counsel and litigation services are reasonable and whether such estimates are reliable. · Appropriations established for outside counsel and for litigation services are based upon reliable projections. . Reporting systems exist which indicate the status of appropriations and provide adequate assurance that appropriations will not be exceeded. . Invoices for outside counsel and litigation support services are accompanied by adequate supporting documentation and that the payment of such invoices is properly authorized. Based upon our review we identified several internal control weaknesses, not only within the Office of the City Attorney but within the Finance Department as well. We also determined that the method used to establish appropriations for outside counsel and litigation support needs to be improved. The Citv Attornev's hudl!"etinl!" nrocess needs to he imnroved The Office of the City Attorney has indicated to us in a memorandum that it performs the following procedures to estimate its annual funding requirements for outside counsel and litigation services1: . Each attorney evaluates his/her current caseload and estimates the number of hours that will be required to manage such cases in the upcoming fiscal year. . Based upon past experience, the Office develops a projection on the number of new lawsuits that will be filed and the number of professional hours that will be required to manage the new lawsuits. . The number of professional hours that will be required of outside counsel is then determined by comparing the Office's available attorney hours with the total number of hours that will be required to manage existing and expected future lawsuits. IBecause the City Attorney does not retain documentation of this process, and because the period of this study did not correspond with the City's annual budget development schedule, we could not independently verify these procedures. 15 . . . The actual funding requirement for outside counsel is determined by multiplying the average hourly rate for outside counsel services with the number of professional hours required of outside counsel. Although these procedures provide a reasonable basis for projecting expenditures for outside counsel, we determined that the City Attomey needs to improve its budgeting practices in the following respects: . The City Attomey does not retain its budgetary working papers from prior fiscal years. Therefore, it is unable to demonstrate that it actually adhered to the previously described procedures. . Without retention of such budgetary working papers, the City Attomey is also unable to improve its estimating process. The City Attomey cannot determine the accuracy of the original estimates or identify the causes of any deviations that may occur. . Budgetary working papers are also an essential tool in demonstrating to the Mayor and City Council that the amounts requested for outside counsel are actually necessary. Under the current practice, the Mayor and City Council have only the testimony of the City Attomey and prior year appropriation and expenditure history to support budget requests. As a result of the exceptions noted above, we believe that the City Attomey has not provided the Mayor and City Council with reliable estimates of the actual needs of his Office for outside counsel funds. For instance, in FY 1992-93, the Mayor and Common Council approved $314,379 in appropriations for outside counsel and for litigation services. This represented only one third of the City Attomey's request at the beginning of the year and only one fifth of the $1.4 million2 that was actually expended by year end. The Office of the City Attornev has not comnlied with established . t' l' 't anoronna Ion Iml ~ In addition to improving the budgeting process, the Office of the City Attomey needs to better monitor expenditures for outside counsel and to promptly notify the Mayor and City Council if the Department requires adjustments to appropriation levels. During the course of our review, we determined that the City Attomey had not adhered to appropriation limits established during prior fiscal years. For example: . In FY 1991-92, appropriations for outside counsel had been fully expended. As a result, the City Attomey approved payments for more than $60,000 in invoices for legal services rendered during FY 1991-92 with FY 1992-93 appropriations. 2The Office of the City Attorney expended approximately $985,000 for outside counsel services in FY 1992-93. In addition, $536,000 was expended for litigation support services. 16 . . . During FY 1992-93, the City Attorney exceeded appropriation limits by more than $235,000 before additional funding was appropriated by the Mayor and City Council. Based upon our review, the Office of the City Attorney should improve its monitoring of expenditures in the following respects: . The Office of the City Attorney does not develop interim estimates of total expenditures that will be incurred for legal services in a given year. By implementing forecasting methods, such as extrapolating current-year to date expenditures at monthly or quarterly intervals to the entire fiscal year, the City Attorney will be better able to provide the Mayor and City Council with advance notice of the need to adjust appropriations, if necessary, and would provide the specific justification for such adjustments. The Finance Department and the Office of the City Attorney need to work together to improve the timeliness of data in existing financial reports. In part, the lack of timely financial information is the result of delays in invoice payment processing by the Office of the City Attorney. The resulting effect of such delays is that, the amount of available appropriations as indicated by the City's financial records is overstated. . Procedures for verification of vendor invoices for navment We have reviewed the procedures employed by the Office of the City Attorney and the Finance Department to verify and approve payment requests for outside counsel services and litigation expenses. Based upon this review, we identified the following internal control weaknesses: · The Finance Department does not have an accounting manual. This internal control weakness has been cited by the City's independent financial auditors during each of the past three years. Such a manual is an important element in a City's financial control structure because it clearly establishes the process necessary to generate reliable financial information, and establishes a basis for determining whether essential financial controls exist and are being followed. . This lack of a comprehensive accounting manual has, at least in part, resulted in a high level of uncertainty between the Finance Department and the Office of the City Attorney regarding who is responsible for performing essential invoice verification procedures including: Ensuring that the services which are the subject of the invoice have actually been received; Ensuring that receipt of such services and payment of the invoice is properly authorized; and, Verifying that the hourly rates and other fees stated in the invoice are consistent with contractual agreements, and that such invoices contain adequate supporting documentation. 17 . . . No authorized signature file exists. Therefore, the Finance Department is unable to provide adequate assurance that signatures which serve as authorization to pay an invoice are valid. As a result of these internal control weaknesses, we have determined that: · In FY 1992-93, the City Attorney certified and the Finance Department paid more than $120,000 in invoices to a single law firm for reimbursements for litigation expenses incurred while representing the City. Yet the Finance Department's vendor payment files did not contain supporting documentation (such as receipts, etc.) to serve as evidence that these costs had actually been incurred. We identified one instance when this same law firm invoiced the City for prepaid document preparation services in the amount of $6,000. However, because the litigation support services subcontractor who was to provide the document preparation services for the law firm went bankrupt, the City never received the services for which it paid. The City Attorney has subsequently recovered this $6,000 payment. . The Finance Department does not have a list of firms who are currently retained by the City, nor does it have any documentation on the hourly rates which these firms are authorized to charge the City. Consequently, it is not able to verify that the invoices submitted are consistent with agreed upon hourly rates. The Finance Director states that this information is difficult to obtain since the City Attorney considers this as confidential information since it was discussed and approved by the City Council and the Mayor in executive session. . One request for payment that accompanied a paid invoice for legal services was signed by a staff person of another city department who was not a staff member of the City Attorney's Office. These examples illustrate the need for the Office of the City Attorney and the Finance Department to strengthen its internal controls pertaining to invoice payment processing and to formalize its accounting policies. In addition, the Finance Department must take the initiative to clearly delineate the respective duties and responsibilities of the Finance Department and other City Departments in the invoice approval and verification process. Interviews with the current Finance Director and the City Attorney indicated that, they agree that internal controls pertaining to the payment of invoices are essential. Conclu~ion The Finance Department should develop a comprehensive accounting manual and should clearly delineate its duties and responsibilities and those of other City Departments with respect to the invoice approval and payment process. In addition, the Finance Department should implement fmancial controls such as establishing a list of authorized signature cards and requiring adequate supporting documentation prior to the payment of invoices. The Office of the City Attorney needs to improve its 18 . . budgeting for the use of outside counsel and its monitoring of the status of such appropriations. The City Attomey also needs to better document the need for the services of outside counsel so that budget requests are more consistent with the actual needs of the Office of the City Attomey. Recommendations The City Attomey should: 2.1 Retain working papers which support budget estimates for outside counsel requirements. 2.2 Monitor the status of appropriations during the fiscal year and provide advance notice and justification to the Mayor and City Council in the event appropriations may be exceeded. 2.3 Implement accounting procedures to be consistent with invoice payment procedures to be established by the Department of Finance, as recommended below. The Director of Finance should: 2.4 Immediately develop a comprehensive accounting policy manual. 2.5 Establish improved financial controls over the payment of vendor invoices, as discussed in the body of this section. 2.6 More clearly define the duties and responsibilities of the Finance Department and of other City Departments in the invoice approval and payment process. CostslBenefi ts Implementing these recommendations will strengthen the overall financial controls, will provide greater assurance that the Office of the City Attomey sufficiently documents its need for the services of outside counsel and that the Department adheres to appropriation limits established by the Mayor and City Council. Implementing these recommendations will also provide the Mayor and City Council with the information necessary to adopt budgets for outside counsel services which more closely reflect the actual needs of the Office of the City Attomey. 19 . . SECTION 3: STAFFING AND PERSONNEL MANAGEMENT . THE OFFICE OF THE CITY ATTORNEY DOES NOT EXERCISE A SUFFICIENT DEGREE OF ACCOUNTABILITY OVER THE PERFORMANCE AND PRODUCTIVITY OF ITS PROFESSIONAL AND SUPPORT STAFF. PERFORMANCE EVALUATIONS ARE NOT CONDUCTED, TIME SHEETS ARE NOT PREPARED AND REPORTS ARE NOT GENERATED wmCH DETAIL STAFF HOURS AND COSTS. · AS A RESULT, THE OFFICE OF THE CITY ATTORNEY IS UNABLE TO (A) ACCURATELY DETERMINE WORKLOAD ACCOMPLISHMENTS AND STAFFING REQUIREMENTS (B) PROVIDE A COMPLETE ACCOUNTING OF THE TIME EXPENDED BY PROFESSIONAL AND SUPPORT STAFF AND (C) ESTABLISH THE BASIS FOR FEES AND CHARGES TO SPECIAL DISTRICTS AND NON- GENERAL FUND CITYDEPARTMENfS. . BY IMPLEMENTING A PERFORMANCE AND PRODUCTIVITY MANAGEMENT SYSTEM BASED ON DETAILED TIME SHEETS, PERIODIC MANAGEMENT REPORTS AND ANNUAL PERFORMANCE EVALUATIONS, THE CITY ATTORNEY SHOULD REALIZE GREATER PRODUCTIVITY AND COST EFFECTIVENESS. FURJ.1lliHMORE, THE CITY ATIORNEYWOULD BE BETTER ABLE TO MEASURE WORKLOAD AND ACCOMPLISHMENTS. As part of this management audit, we analyzed the growth in staffing of the Office of the City Attorney during the past five years and we attempted to evaluate whether such growth could be justified because of workload or other factors. We also compared the current staffing level of the City of San Bernardino Office of the City Attorney with city attorney offices of other California cities that are comparable in size to the City of San Bernardino. Additionally, we evaluated whether the Office of the City Attorney could improve its overall management of its staffing resources to ensure greater accountability over staff performance and productivity. m . . Analvsis of Citv Attomev Growth in St"ffinl! and Evaluation of Current St"ffinl! Levelc; During the past five years, the staffing level of the office of the City Attorney has increased by three full-time positions or 20 percent. The following table presents this analysis. Table 3.1 Office of the City Attomey Analysis of Growth in Authorized Staffing Levels FY 1988-89 throul!h FY 1992-93 FY 1988-89 FY 1992-93 FY 1992-93 Position Positions Positions Change From CI,,~sification Authorized Authorized FY 1988-89 Attorney 7 7 0 Paralegal 0 2 2 Investigator 2 2 0 Administrative Support fi 1 1 Total 15 18 ,g This growth in staffing does not appear unreasonable, given the additional demands that have been placed upon the Office of the City Attorney. These include: . The City of San Bernardino has been a defendant in several highly complex court cases which have represented significant liability exposure to the City. For instance, during 1992 a single case required the commitment of a full-time attorney for a period of more than six months. · In 1988, the Office of the City Attorney was granted the authority to investigate and prosecute violations of certain State statues. The City Attorney was granted this authority due to anticipated staffing reductions within the San Bernardino County Office of the District Attorney and a reported concern over crime in the City. Further, the Mayor and the City Council urged the Office of the City Attorney to become more active in obtaining compliance with the City's building codes. · The Office of the City Attorney has attempted to provide greater representation services to the City's Economic Development Agency (EDA) so that the EDA could reduce its reliance upon outside counsel. Comnarative analysic; of workload and st"ffinl! In addition to analyzing the Office of the City Attorney's recent growth in staffing, we compared the Office of the City Attorney's current authorized staffing level 21 . . with that of comparable city attorney offices within the State of California. This comparison was based upon our analysis of a 1992 survey conducted by the Office of the City Attorney and by our own survey which was conducted specifically for this engagement. The data from these surveys indicates that the current staffing level of the Office of the City Attorney appears to be reasonable. While the level of professional staff within the Office of the City Attorney is relatively low, the level of support staff is relatively high. For instance: . The number of full-time attorneys employed by the City of San Bernardino Office of the City Attorney is approximately 15 percent lower than the average of the California city attorney offices surveyed. Survey respondents reported an average of eight full-time attorney staff. However, the Office of the City Attorney currently has an authorized staffing level of seven. In addition, the San Bernardino Office of the City Attorney expenditures for outside counsel services are consistent with those of other City Attorney Offices surveyed. · The ratio of support staff for the Office of the City Attorney was approximately 36 percent greater than the California city attorney offices surveyed. While the survey respondents reported an average of 1.1 full-time support staff to attorney staff, the City of San Bernardino Office of the City Attorney's support to professional staff ratio is approximately 1.5 to 1. . Although variances in workload classifications and workload units of measure exist among the California city attorney offices surveyed, the workload of the San Bernardino Office of the City Attorney is generally comparable to the other offices surveyed. These survey results appear to indicate that the staffing level of the Office of the City Attorney is reasonable. However, the following points should be noted: · These survey results provide an indication only and should not be relied upon to provide a definitive and precise measure of the actual needs of the Office of the City Attorney. . Any assessment of the staffing requirements of the Office of the City Attorney should be based upon the workload of the Office, rather than upon vague comparisons of staffing levels with other jurisdictions. . We have attempted to evaluate the staffing levels of the Office of the City Attorney with respect to its workload. However, the City Attorney does not require its staff to submit time sheets and does not generate any management reports which tabulate and summarize the workload and accomplishments of his staff. Therefore, we were unable to measure (with any level of precision) the actual staffing requirements of the Office of the City Attorney. 22 . . Evaluation of the City Attomev's ability to nrovide sufficient accountability over the time snent hv its nrofps'"ional staff. The City Attomey has indicated to us that the following internal reporting and monitoring activities exist to ensure that professional and support staff are held accountable for performance and productivity: . Staff meetings which range from 20 minutes to one hour or more in duration are held three times per week. · An Office litigation directory is maintained which lists every active litigation file, the name of the attomey responsible for the case, and whether that case is being litigated in-house or by outside counsel. . An ongoing process of consultation exists between supervisory and line staff. Each of the previously listed activities are important elements of a performance management system. However, we believe that significant gaps exist in the City Attorney's current productivity and performance management system, including: · No summary reports are generated which indicate the amount of time spent by professional or support staff for major workload elements reported by the Office of the City Attomey, (i.e. providing legal opinions or litigating cases). As a result, the Office of the City Attorney is not able to provide adequate assurance that the time spent on such activities is reasonable given the nature of the assigned tasks. In addition, the Office of the City Attomey is unable to provide adequate assurance that its professional and support staff are performing duties that are commensurate with their skill, education and level of experience. For instance, based upon an inquiry of the Office of the City Attomey's investigator staff, we determined that the City Attomey's two investigators are each spending approximately 10 percent of their hours per year delivering documents to federal and Superior Court. We do not believe that this is a cost-effective use of the investigator staff. . The Office of the City Attorney has been unable to render a complete accounting of the time spent by its professional and support staff. As a result significant variances may exist in both the level of productivity of Office employees and in the distribution of work among Office employees. For instance, based upon a six week tabulation of employee time sheets, that we developed specifically for this study and that were filled out by Office of the City Attomey staff, we identified several instances where employees consistently reported having to work more than eight hours per day to complete their assigned tasks while others reported to having to work fewer than eight hours per day to complete their assigned duties. It should be noted that these sample records may not fully account for staff hours due to reporting inconsistencies. . The Office of the City Attomey does not periodically monitor the amount of time spent by its professional staff providing direct services to City departments 23 . . versus the amount of time spent on administrative activities. As a result, the City Attorney and the two supervising attorneys are unable to determine whether staff members are spending an inordinate amount of time on tasks which are administrative in nature. . Employees are not subject to periodic formal performance evaluations. Therefore, the Office of the City Attorney cannot document the basis for promotions, terminations or other personnel actions. 1 . The current lack of documentation regarding the amount of staff time by major activity category impedes the Office's ability to project future staffing requirements or to provide reliable estimates of funding requirements for outside counsel. (The need to improve the ability of the City Attorney to budget for the use of outside counsel is further discussed in Section 2.) · The Office of the City Attorney does not maintain accountability over the volume of work performed during a given reporting period. Therefore, the Office has not been able to demonstrate the need for additional staff as the volume of work increases. For instance, although the Office of the City Attorney has reported to the Mayor and the City Council that its workload has increased by 30 percent during the past five years, we could not verify this claim because the Office of the City Attorney does not prepare and compile the necessary supporting documentation to support this claim including detailed time records of professional staff. . In December of 1992, the Office of the City Attorney requested that the Mayor and City Council determine whether a policy for non-general fund cost recovery is appropriate. The Office did not determine the extent to which staff was providing such services to non-general fund entities and was, therefore unable to advise the Mayor or the City Council of the fiscal impact of such a policy change. Conclusion The preceding points illustrate the need for improved accountability within the Office of the City Attorney and provide examples of how the Office of the City Attorney could benefit from improved systems of accountability. Although the City Attorney's current staffing level appears to be reas'onable, the City Attorney could minimize the need for additional staffing in the future by implementing improved workload management and reporting systems. 1 It should be noted that the consensus among both professional and support staff is that such evaluations are not necessary given the small size of the Office. In addition, the Office of the City Attorney is not required under the City's Charter to grant employees formal evaluations. Nonetheless, we believe that such evaluations are an important element for management control. Furthermore, it is the prevailing practice among the city attorney offices that we surveyed to conduct such evaluations. 24 . . Recommendations The City Attorney should: 3.1 Develop improved systems of accountability over its professional and support staff, including the utilization of time sheets which ensure that attorneys, paralegals and investigators document how their time is spent by activity type and service recipient. 3.2 Develop management reports which tabulate and summarize the time spent and workload accomplishments of professional and support staff. 3.3 Conduct periodic and formal performance evaluations for all staff. Costs/Benefitc; Implementing these reco=endations will result in the improved ability of the Office of the City Attorney to exercise accountability over the performance and productivity of its employees and should result in minimizing the need for additional staff in the future. 25 . . SECTION 4: INFORMATION SYSTEMS AND OFFICE AUTOMATION . THE OFFICE OF THE CITY ATTORNEY NEEDS TO IMPROVE ITS UTILIZATION OF INFORMATION SYSTEMS TO PROVIDE FOR GREATER EFFICIENCY AND ACCOUNTABILITY. . ALTHOUGH THE OFFICE ACQUIRED A COMPUTERIZED LITIGATION CASE MANAGEMENT SYSTEM THREE YEARS AGO AT A COST OF APPROXIMATELY $2,600, THIS SYSTEM HAS NOT BEEN IMPLEMENTED. AS A RESULT, THE OFFICE OF THE CITY ATTORNEY HAS NOT BEEN ABLE TO AUTOMATE VARIOUS DOCUMENT PROCESSING AND CASE MANAGEMENT ACTIVITIES AND LACKS CERTAIN REPORTING CAPABILITIES. · BY DEVELOPING AN INFORMATION SYSTEMS MASTER PLAN, AND BY ACQUIRING THE NECESSARY INFORMATION SYSTEMS RESOURCES, AT AN ESTIMATED COST OF $50,000, THE OFFICE OF THE CITY ATTORNEY WILL BE BETTER ABLE TO MANAGE ITS WORKLOAD AND STAFF RESOURCES. , Potential AnnIicatiom; of comnuters and comnuter svstem~ in l!"eneral It is widely acknowledged that the skillful application of information systems can significantly enhance the productivity of virtually any organization, regardless of the organization's mission or operating environment. This occurs because most computer applications are universal in nature and therefore can be adapted to a wide range of operating circumstances. For example: . Computers and various computer programs can be tailored to perform transaction processing activities that are highly repetitive in nature with minimal effort on the part of the operator, and with maximum speed. · Computers and various computer programs can store vast amounts of data that can be quickly retrieved, tabulated and summarized in a variety of formats. · The combination of these two capabilities, rapid execution of a prescribed set of instructions and nearly instantaneous storage and retrieval of large amounts ~ . . of information, enable computers to assist decision makers with obtaining highly complex analyses for the purpose of assessing the organization's current level of efficiency and effectiveness and in making decisions regarding future resource allocations. Potential Aoolications of Manal!'ement Information Systems to the Office of the City Attornev Current industry practice is to operate localized systems in a PC environment. Accordingly, we did not evaluate the potential of the City Attorney to operate on the City's main frame system. Based upon our review, we have identified several instances where the application of information systems to the Office of the City Attorney could significantly enhance the operating efficiency and effectiveness of the Office. These are discussed as follows. Existin!! liti!!ation case mana!!ement software In 1990, the Office of the City Attorney purchased a computerized litigation case management system at a cost of approximately $2,600. However, this case management system has not been implemented, because the City Attorney's computers do not have sufficient memory or processing speed to operate the software efficiently. (This problem is discussed more fully later in this section). Based upon our review of the features and capabilities of this case management system, it would significantly improve the workings of the Office of the City Attorney. The potential benefits include: . Improved calendar management. To ensure that deadlines, court appearances and other important litigation events are not overlooked, the City Attorney maintains a dual calendaring system. This system requires each secretary to maintain an individual daily calendar for each attorney within the Office and to independently maintain a master calendar for the entire Office. Both the individual diaries and the master calendar are maintained independently of each other. However, they must be consistent with one another. Therefore, a considerable amount of staff time is expended performing this reconciliation process. By adopting the computer-based calendaring system feature within the case management software, the Office of the City Attorney would be able to update individual attorney calendars while simultaneously updating the master calendar. Therefore, considerable savings in staff time would be realized by eliminating the need to perform a reconciliation of the independent calendaring systems. . Improved ability to report on the Status of Pending Litigation to the Mayor and City Council through ready retrieval of case histories and summary information. The Office of the City Attorney must periodically report upon the status of pending litigation to the Mayor and City Council. The information reported includes a summary of the relevant case facts, the events that have transpired to date on the case, the potential magnitude of liability exposure 'Zl . . that the case represents to the City and a discussion of the recommended course of action. By preparing a standard case history template which is automatically updated as attorneys update their own case records, the Office of the City Attorney could provide a comprehensive report to the Mayor and City Council with little effort. This feature would also assist the City Attorney by providing adequate assurance to the Mayor and City Council that a complete accounting of all litigation activity is occurring. . Creating standard forms and communications. The implementation of this case management system will enable the Office of the City Attorney to create a library of standard forms and communications. Although the administrative support staff indicate that this practice is currently accomplished on an informal basis, greater standardization of this practice is likely to result in improved efficiency. It is also likely that this case management system would enable the City Attorney to provide enhanced document control. , Develoninl!" an arrav ofmanal!"ement renorts which tabulate and .mmmarize the workload of nrofessional staff and the effort exnended in accomnlic;hinl!" assil!"ned ~ As discussed in Section 3, the Office of the City Attorney lacks certain key reporting elements to maintain a sufficient degree of accountability over the performance and productivity of its staff. These reports could be produced using a variety of database management, and spreadsheet applications, and should be designed to accomplish the following: · Periodically tabulate and summarize the amount of time spent by professional staff members conducting direct service activities, versus administrative activities. . Periodically tabulate and summarize the amount of time spent by each professional staff member according to major activity category, such as: Issuing formal legal opinions; Managing litigation files assigned to outside counsel; Managing litigation files assigned to in-house counsel; Attending office meetings and performing other administrative functions; Attending various board and commission hearings; Complying with continuing education requirements By compiling this information, the Office of the City Attorney will better have the information necessary to provide accountability over the performance of its staff and ensure an equitable distribution of workload. In addition, the Office of the City Attorney will be able to communicate to decision makers the costs and benefits of alternative means of doing business. Use of CD ROM to conduct lee-al research 28 . . CD ROM is gammg increased acceptance among the legal community as a means of performing legal research. This is due to the significant advantages that this technology offers, including: . The equivalent of several volumes of legal codes can be stored on a single 3 1/2" inch diameter computer disk. Consequently, a vast amount of information can be stored in relatively little space. . Research can be accomplished more efficiently. Through the use of various data retrieval techniques, such as accessing relevant code or case law citations through the use of key words or phrases, valuable information can be obtained and analyzed in much less time than would be required using conventional media. . In addition, once needed information is obtained, it can be easily incorporated into legal briefs or legal opinions. Therefore, the need for photocopying relevant citations and subsequently transcribing this information is eliminated. · Library maintenance is simplified. Rather than continually updating bound legal volumes with updated pocket supplements, old CD ROM disks are replaced as new volumes arrive. ODtical Character Rerolffiition to reduce the level of effort in transcribinl! nrinted .m Another information processing technology that is gaining greater acceptance in both the legal community and in other professions is the use of document scanning. Although previous document scanning methods were considered unreliable and too expensive, the cost for the hardware and software that is needed to transcribe printed text into usable documents has become much more cost effective in recent months. For instance, high quality document scanners can now be acquired for less than $2,000. These newer document scanners with the appropriate software can be relied upon to transcribe documents with high resolution, such as original copies of typed letters. Therefore significant effort can be avoided in manually transcribing printed documents. Evaluation of the City Attornev's micro-comnuter resources and canabilities As part of this management audit, we have taken an inventory of the existing micro-computer resources of the Office of the City Attorney. Based upon this review, we believe that the existing capabilities are not sufficient to meet the needs of the Office. This conclusion is supported by the following: · As indicated previously, the litigation case management software that the Office of the City Attorney acquired in 1990 requires a minimum of 640 kilobytes of random access memory (RAM) to operate. However, the company which created the program recommends that one megabyte of RAM be installed. Of the nine computers within the City Attorney's inventory two do 23 . . not meet the mIrnmum requirements for RAM and only one contains the recommended amount of RAM. . Seven of the nine computers were acquired prior to 1989 and their central processing units have an operating cycle of 10 megahertz. Since most computers marketed today operate at speeds of 33 megahertz, the City Attorney's computers require more than three times as long to execute operating instructions than the current standard. . The limited amount of RAM and relatively slow operating cycles also prevent the Office from taking advantage of recent innovations in word processing, spreadsheet and communications software applications. These computer programs are generally much more complex and require a significantly higher amount of random access memory and a much faster operating cycle to operate effectively. The Citv Attornev should develon and imnlement an information svstpmll ma...ter Wan Given the significant benefits that can be derived from implementing a computerized litigation case management system, by adopting more efficient computer-based research and document processing techniques and from developing various database and spreadsheet computer programs to track City Attorney Office workload and productivity, the Office should develop an information systems master plan which incorporates the following elements: . A statement of the potential applications of computers that will benefit the Office of the City Attorney. · A list of information system features and capabilities that would most benefit the Office of the City Attorney. . An estimate of the costs to implement each feature and capability desired by the Office of the City Attorney. . A plan of implementation and an analysis of the administrative staffing that will be required to assist in the master plan implementation. This information systems master plan should be developed immediately and should be provided to the Mayor and City Council for consideration at the City's budget deliberations during the Spring of 1994. Estimated svstem cost.. Based upon our preliminary review, it would cost approximately $50,000 to acquire the necessary computer resources described in this section. This preliminary cost estimate is presented in Appendix 4.1a to this report. The actual costs would vary however, depending upon the features and capabilities proposed ro . . in the master plan developed by the City Attorney and approved by the Mayor and City Council. It should also be recognized that the development and implementation of this information system master plan will require a significant commitment of Office of the City Attorney staff time and effort. Based upon our experience, it would be reasonable to expect that one full-time administrative support staff member will be required for a period of twelve months to obtain an understanding the features and capabilities of a newly acquired computer application (such as the previously discussed litigation case management software) and to incorporate its features and capabilities into the daily workings of the organization. Therefore, the Mayor and City Council should also allow the Office of the City Attorney to fill the vacant legal secretary position on a temporary basis once the information systems master plan has been developed and approved. This will allow the City Attorney to temporarily assign an experienced legal secretary to information systems development on a full-time basis. Once the City Attorney has successfully implemented this master plan, the administrative support needs of the Office should be re-evaluated. Recnmmendatiom; The City Attorney should: . 4.1 Develop an information system master plan which contains the elements described in this section. 4.2 Assign an experienced legal secretary to implement the recommended information systems master plan once it has been approved. The Mayor and City Council should: 4.3 Appropriate the funds that are necessary to implement this information systems master plan. 4.4 Authorize the City Attorney to fill one vacant legal secretary position on a temporary basis for a period of twelve months. Costc;/Benefitc; Implementation of these recommendations would greatly improve the ability of the Office of the City Attorney to perform its designated functions efficiently and to provide greater accountability over its operations. The implementation of these recommendations will require an investment of approximately $50,000 in one time-costs to develop the necessary information systems. In addition, filling the vacant legal secretary position on a temporary basis for a period of 12 months will cost approximately $45,000. 31 . . SECTION 5: OFFICE OF THE CITY ATTORNEY COST RECOVERY . DURING FY 1993-94, THE OFFICE OF THE CITY ATTORNEY WILL EXPEND APPROXIMATELY 6,000 PROFESSIONAL HOURS AT A COST OF APPROXIMATELY $500,000 SERVING 22 CITY DEPARTMENTS WHICH RECEIVE FUNDING FROM SOURCES OTHER THAN THE CITY'S GENERAL FUND. . HOWEVER, THE CITY OF SAN BERNARDINO DOES NOT HAVE A POLICY OF CHARGING THESE DEPARTMENTS DIRECTLY FOR LEGAL SERVICES. ONLY ONE CITY AGENCY, THE ECONOMIC DEVELOPMENT AGENCY, IS DIRECTLY BILLED FOR CITY ATTORNEY SERVICES. . FURTHER, THE CITY ATTORNEY HAS NOT BEEN ABLE TO SUBSTANTIATE THE LEVEL OF EFFORT PROVIDED TO THE EDA. AS A RESULT, INVOICES SUBMITTED TO THE EDA FOR SERVICES DURING FY 1992-93 AND FY 1993-94 ARE THE SUBJECT OF DISPUTE. · BY IMPLEMENTING A CITY ATrORNEY COST RECOVERY POLICY, THE CITY'S GENERAL FUND WOULD BENEFIT BY AN ESTIMATED $356,000 ANNUALLY. The City receives funding from a variety of sources to support its operations. These include: . General revenues, which are discretionary and include money from such sources as property and sale tax receipts. . Cost based user fees, which are established to reimburse a city for the direct and indirect cost of services. . Special revenues which are typically received from a designated source (i.e. State and Federal subventions) to finance the cost of a specified service. As part of this management audit, we evaluated the existing cost recovery practices of the Office of the City Attorney to determine whether the level of general revenues that are required to support its operations could be reduced by accessing additional sources of revenue, such as cost based user fees or special revenues including those described above. 32 . . Based upon our review, we have determined that: . The Office of the City Attorney provides legal representation and advisory services to 22 City departments which are supported either fully or partially by revenue sources other than the City's general revenues. However, the City Attorney directly charges only one City Agency, the Economic Development Agency for services. . The Office of the City Attorney will expend an estimated 6,000 professional hours in FY 1993-94 to provide services to these 22 City Departments that are supported either entirely or partially by revenue sources other than the City's General Fund. The value of these services is estimated to be approximately $500,000. . By adopting a City Attorney cost recovery policy it would be reasonable to expect that $356,000 in additional revenues would be made available to the City's General Fund. Calculatinl!' the number of nrofessional hours nrovided to Citv denartments and activities. As discussed in Section 3 of this management audit report, the Office of the City Attorney has not been able to provide a complete accounting of the number of professional hours expended by City Department or by activity type. Therefore, to determine the number of professional staff hours that are currently being provided to City Departments which receive funding from sources other than the City's General Fund, we performed the following activities: . Requested each Attorney, Investigator and Paralegal within the Office of the City Attorney to account for their time for a six week period during the months of September and October, 1993. City Attorney staff used time sheets which we developed specifically for this management audit. . Requested that the Finance Office provide us with a list of each City Department that receives funding from sources other than the City's General Fund. . For the six week study period, tabulated and summarized the number of professional staff hours expended in providing legal representation services to each City department. Extrapolated the results of this six-week period to all ofFY 1993-94. . Calculatinl!' the cost of nrovidinl!' lel!'al renresentation and advisorY ~ervice~ to Citv Denartments 33 . . To determine the cost of providing legal representation services to non-General Fund City departments and to estimate the additional revenues that would accrue to the City's General Fund by adopting an Office of the City Attomey cost recovery policy, we performed the following procedures. . Determined the total number of professional staff hours (i.e. Attomey, Investigator and Paralegal) that are available to provide direct services to all City departments. Determined the direct hourly salary and benefit cost of each professional staff classification; . . Determined the appropriate indirect cost rate that should be applied to the direct hourly salary and benefit costs for each professional staff classification. The results of this analysis are summarized in Table 5.1 below. In addition, we have developed a set of instructions that the Office of the City Attomey should follow when re-computing these rates in future years. These instructions are included as Appendix 5.1a to this report. Table 5.1 FY 1993-94 Hourly Rates Calculated Accordimt to Professional Staff Classification Classification Hourlv Rate City Attomey and Senior Assistant Deputy City Attomey Investigator Paralegal $109 87 60 46 It should be noted that salaries, staffing, and appropriation levels will change from year to year. These changes will affect the hourly rates that should be charged for services. Therefore, the City Attomey should re-calculate, on an annual basis, the appropriate hourly rates using the computational procedures established in Appendix 5.1a to this report. Estimated cost of Citv Attornev services nrovided to non-general fund activities To estimate the annual total cost of providing legal advisory and consultation services to City departments which receive funding from sources other than the General Fund, we have multiplied the cost per professional staff hour according to classification (i.e. Attomey, Investigator and Paralegal) by the number of hours that each professional staff member provided to such City departments and activities during our six week study period. This result was then extrapolated to a 52 week period. The results of this analysis are su=arized in the following table: I __ 34 . . Table 5.2 Estimated Cost of City Attorney Services Provided to Departments and Activities Funded bv Revenue Sources other than the General Fund FY 1993-94 Estimated FY 1993-94 Professional Estimated Denartment/Activity Hours .QQstl City Clerk Business Licenses 403 $21,253 Cable TV 105 7,575 1/2 Cent Sales & Road Tax 2 181 Building & Safety - Development 30 2,666 Code Enforcement 3,089 263,776 Fire Paramedics 3 261 Fire Prevention 26 2,275 Animal Control 52 4,094 Real Property 19 1,703 Traffic Signals/Signage 161 13,966 Central Garage Internal Service 15 1,628 Carousel Mall 70 5,932 Parking Control 4 416 Vehicle Abatement 29 2,303 Fiscalini Field 58 5,055 Street Maintenance 241 13,373 Refuse 146 12,295 Risk Management General 33 3,537 Risk Management Liability Insurance 111 6,545 Library 14 1,139 Economic Development 1,174 106,133 Water 1ill! 36.133 Total 6,254 _$512.239 If Therefore, we estimate that the value of services provided to City departments which are either partially or wholly funded by non-General Fund revenue sources, total approximately $512,000 annually. Estimated additional revenues which would result from adontinl! a City Attornev cost recoverY nolicv As indicated previously, the City Attorney charges only one City Agency, the Economic Development Agency, for services rendered. The rates lAlthough we believe this distribution of costs is appropriate for estimating purposes, it may not be fully representative of actual costs due to sampling error. 35 . . charged and the basis for such charges are set forth in a memorandum of understanding and are summarized as follows: . The EDA pays a retainer fee to the Office of the City Attorney to be available throughout the year for ongoing advice and consultation. The retainer is set at 90 percent of the combined salary and benefit cost of one Senior Deputy City Attorney and one legal secretary. · Additionally, the EDA pays a rate of $95 per attorney hour for all litigation services provided to the EDA. Although the above rates appear reasonable, we have identified the following problems: · The Office of the City Attorney has not been able to document that it provides the equivalent of 90 percent of one full time attorney to provide advice and consultation services to the EDA. In addition, the EDA contends that, because the Office of the City Attorney has not provided evidence of the level of service that is implied under the memorandum of understanding, the EDA is incurring unnecessary costs in obtaining these services from outside counsel. . As a result of the current dispute, the EDA has withheld payment of approximately $60,000 in payments due during FY 1992-93, in accordance with the previously described memorandum of understanding. In addition, the EDA has made no payments to the City for advice and consultation services rendered during FY 1993-94. Based upon the information compiled during our six week study period, there appears to be support for the contention of EDA managers that they should be receiving a higher level of service for the money paid to the Office of the City Attorney2. Therefore, as part of an overall cost recovery policy, the Office of the City Attorney should consider modifying the agreement with the Economic Development Agency to provide for direct billing for illl services instead of using the existing retainer policy. Although this revision could result in lower revenues from the Economic Development Agency, there would be greater assurance that such charges are proper. It should also be noted that other issues and uncertainties would affect the ability of the City to collect additional revenues. These would include: · Clarification of the City's Charter may be required prior to directly billing the Water Department for services rendered. Under a 1935 amendment to the City's Charter, the City may only transfer a prescribed percentage of Water Department operating revenues to the City's General Fund. However, the 2We do not express an opinion, however, on whether the EDA should be relieved of its obligation to pay the City Attorney for services rendered in FY 1992-93. 36 . . Charter is unclear as to whether the City may also charge the Water Department for administrative and other services. The City Attorney has issued an informal opinion that additional charges would not be permitted. However, based upon our knowledge of Generally Accepted Govemmental Accounting Practices which establish separate definitions for operating transfers and for charges for current services, it appears that such charges are permissible under the Charter. While operating transfers are typically established to reimburse a jurisdiction for contributed capital or to compensate a jurisdiction for certain basic services, such as police and fire protection, an administrative fee is established to compensate jurisdictions for specific and readily identifiable administrative and other support services. Furthermore, during the course of our review, we have identified several other City departments that do bill the Water Department for administrative services. . Additional revenues would be contingent upon the actions of the Mayor and the City Council. There are two primary categories of these revenues: (1) enforcement fees and liens; and (2) franchise fees. As indicated in Table 5.2, the City Attorney's cost of supporting code enforcement activities amounts to approximately $263,000 per year. This cost reflects the work effort of attorney staff who advise code enforcement employees and represent the City when legal action is taken against property owners and builders who violate the Municipal Code. Typically, jurisdictions establish enforcement fees and liens which are charged to persons who violate the Municipal Code to offset the City's cost of enforcement. It is generally recognized that such costs should not be supported with general tax dollars, but should be borne by the individuals who are in violation of the City code. The City Attorney also spends approximately $19,000 annually for legal services related to cable television and waste collection franchise services provided within the City. The companies which are franchised are provided with exclusive rights to provide services within the boundaries of the City. To secure this right, the franchise companies are required to pay fees which offset the City's cost of coordinating, monitoring, and regulating services. So that the City is insured of receiving full cost recovery, City Attorney costs should be determined and incorporated into analysis used to establish payments to the City under the franchise agreements. . Certain licenses and fees which are charged by the City to businesses and individuals could be increased by the Mayor and the City Council to offset City Attorney costs. However, we did not evaluate these revenue sources to determine whether the City's current rate structure is appropriate or in compliance with policies of the City Council. For example, based on the time sheets developed for this study, the City Attorney will incur approximately $21,000 this fiscal year to support business license activities. Increasing business licenses, or fees for service, are policy decisions of the Mayor and the City Council. 37 . . · These revenue estimates are based upon six weeks of activity. Although this is a reasonable basis for projecting additional revenues, these estimates are subject to sampling error. Therefore, the actual amount of revenues that could be collected may be higher or lower than the amounts projected. Despite these uncertainties, we believe that it would be reasonable to expect that $356,000 per year in additional revenue to the City's General Fund would result from adopting the suggested City Attorney cost recovery policy. This estimate is based on the data presented in Table 5.3, as described in the following table. Table 5.3 Summary of Additional Revenues Which Could Be Collected by the City Attorney With the Imnlementation of an Effective Cost Recoverv Policv Increased Charges to Non-General Fund Agencies $175,718 Less: Offsetting Revenue for Services Provided to the Economic Development Agency (106,133) Net Increased Charges to Non-General Fund Agencies Increase in Code Enforcement Fees and Liens $69,585 266,495 19.870 $355,950 Increases in Charges to Franchise Service Providers Total Estimated Increases in General Fund Revenue Conclusion The City of San Bernardino currently does not have a policy for charging departments and agencies for professional services. The Office of the City Attorney charges only one of the 22 City departments and agencies which receive funding from sources other than the City's General Fund. By adopting a cost recovery policy with Mayor and City Council approval, we estimate General Fund revenues would increase by approximately $356,000 per year. Actual cost recovery would be contingent upon actions taken by the Mayor and City Council. 38 . . Recommendations The Mayor and City Council should: 5.1 Adopt a cost recovery policy which allows the Office of the City Attorney to recover the cost of its operations from non-General Fund sources where possible. 5.2 Instruct the Finance Department to assist the City Attorney in executing this cost recovery policy and to report upon the actions that will be required to realize the potential additional revenues identified in this Section. Savinl!slBenefite Implementing these reco=endations will increase discretionary general revenues by an estimated $356,000 annually. 39 . . SECTION 6 COST EFFECTIVENESS OF OUTSIDE COUNSEL . THE OFFICE OF THE CITY ATTORNEY AND THE ECONOMIC DEVELOPMENT AGENCY COULD REALIZE SIGNIFICANT SAVINGS BY REDUCING RELIANCE UPON OUTSIDE COUNSEL TO PROVIDE LEGAL SERVICES. · WHILE THE HOURLY SALARY AND BENEFIT COST OF A DEPUTY CITY ATTORNEY IV AMOUNTS TO $54 PER HOUR, THE COST OF OUTSIDE COUNSEL RANGE FROM $95 TO $125 PER HOUR. FURTHERMORE, THE CITY ATTORNEY ESTIMATES THAT AS MUCH AS 60 PERCENT OF THE LITIGATION FILES REFERRED TO OUTSIDE COUNSEL COULD BE PERFORMED BY IN.HOUSE STAFF. . IN ADDITION THE ECONOMIC DEVELOPMENT AGENCY EXPENDS MORE THAN $300,000 PER YEAR TO RETAIN LEGAL SERVICES FROM OUTSIDE COUNSEL AT AN AVERAGE COST OF $140 PER HOUR. HOWEVER, BASED UPON DOCUMENTATION PROVIDED BY THE EDA, THESE COSTS COULD BE SIGNIFICANTLY REDUCED IF THE CITY ATTORNEY PROVIDED THESE SERVICES. · BY DELETING FUNDING FOR ONE VACANT PARALEGAL POSITION AND ADDING FUNDING FOR A VACANT DEPUTY CITY ATTORNEY POSITION TO THE CITY ATTORNEY'S BUDGET, AND FILLING THIS POSITION IMMEDIATELY, THE CITY ATTORNEY COULD GENERATE NET ANNUAL SAVINGS OF $125,000 FOR THE CITY AND THE FOR THE EDA. Employing outside counsel is an essential part of managing the workload of the Office of the City Attorney. Based upon interviews with professional staff within the Office and based upon our survey of comparable city attorney offices within the State of California, outside counsel is retained for the following reasons: · The need for specialized expertise. · The need to supplement existing staff. · Potential conflicts which preclude the involvement of the City Attorney to represent a City entity. 40 . . Despite these factors, the Office of the City Attorney should limit expenditures for such services where practical for the following reasons: . The cost of obtaining the services of outside counsel is on average more than double that of hiring attorneys directly. Based upon the current City Attorney salary and benefit cost for a Deputy City Attorney IV of $92,000 per year, based upon our assumption that 1,720 productive hours would be provided, the cost for in-house counsel amounts to approximately $54 per hour. By comparison, the Office of the City Attorney spends between $95 and $125 per hourI to acquire the services of outside counsel. . Because outside counsel is customarily paid by the hour, outside counsel generally has a lesser incentive to control costs than do in-house counsel. In addition, the cost of outside counsel has risen significantly during the past several years. The following table illustrates the Office of the City Attorney expenditures for outside counsel during the past several years. Table 6.1 Office of the City Attomey Expenditures for Outside Counsel FY 1989-90 throul!'h FY 1992-93 Fiscal ~ Total Expenditures for Outside Counsel Average Number of Cases Assigned to Outside Counsel 1989-90 1990-91 1991-92 1992-932 $290,418 $144,658 $239,975 $984,929 39 36 48 48 In addition to these expenditures, the Economic Development Agency relies heavily upon the services of outside counsel to provide both litigation services and advice and consultation. During FY 1992-93, the EDA expended approximately $300,000 for such services at an average hourly rate of $140. To evaluate whether the potential exists for cost savings through reduced reliance upon outside counsel, we performed the following activities: · Reviewed the current Office of the City Attorney litigation directory and consulted with the professional staff within the Department to determine the 10ffice of the City Attorney Litigation Directory as of July, 1993. 20utside counsel expenditures in FY 1992-93 are significantly greater than in prior years due to a single case that required an extraordinary amount of effort by outside counsel on behalf of the City. 41 . . reasons that litigation files were being referred to outside counsel rather than being retained in-house. . Reviewed the extent to which the EDA retained outside counsel due to the lack of sufficient staff availability within the Office of the City Attorney. Based upon these activities, we determined that: . Approximately 60 percent of the Office of the City Attorney's current outside counsel caseload could be performed by in-house attorney staff if sufficient staff existed. In the remaining 40 percent of cases handled by outside counsel, the need for specialized expertise and/or the potential conflict within the Office precluded the use ofin-house counsel. · Based upon correspondence submitted by the Economic Development Agency to the Office of the City Attorney, a significant amount of the Agency's expenditures for outside counsel services were made due to the unavailability of City Attorney staff to provide general legal consultation services. The City Attorney indicates that in many instance, legal services were independently obtained by the EDA without consulting with the Office of the City Attorney. These data points demonstrate that significant cost savings could be realized by augmenting the authorized staffing level of the Office of the City Attorney by one full-time equivalent Deputy City Attorney position. These savings could be realized by one or a combination of the following: . Reducing reliance upon outside counsel to provide litigation services. · Increasing the level of support to the Economic Development Agency. The following table illustrates the potential for not only the City Attorney but the Economic Development Agency to realize significant cost savings through the above listed activities. 42 . . Table 6.2 Potential Cost Savings Through Reduced Reliance upon Outside Counsel Office of the Citv Attornev and Economic Develooment Al!'encv Total Reduced number of direct labor hours required of outside counsel 1,720 Multiplied by average hourly rate paid to outside counsel $125 Equals estimated Cost Savings from reduced reliance upon outside counsel $215,000 Less Additional Cost of Deputy City Attorney 1$90.000) Equals net savings from reduced reliance upon outside counsel _$125.000 As indicated in the above table, the Office of the City Attorney and the Economic Development Agency would realize an estimated $125,000 in net cost savings annually by reducing reliance upon outside counsel to provide litigation and legal advisory services. This analysis assumes that a combination of the two previously listed approaches would be employed. We believe that employing a combination of the two approaches discussed previously is appropriate because litigation activity and the need for outside counsel can vary significantly from year to year. For example, in Section 3 of this report, we have determined that expenditures for outside counsel in FY 1993-94 will be significantly less than amounts expended in previous years. If this trend continues, it may be more appropriate for the Office of the City Attorney to dedicate the newly hired Deputy City Attorney entirely to assist the Economic Development Agency. Therefore, the City Attorney should be given the discretion to use the newly created Deputy City Attorney position to reduce outside counsel expenditures or to provide additional support to the EDA. However, to provide the necessary funding for the newly created Deputy City Attorney position, the Mayor and City Council should either reduce the City Attorney's budgeted expenditures for outside counselor increase the estimated revenues from the EDA. In order to adjust such appropriations and budgeted revenues appropriately, it will become necessary for the City Attorney to report to 43 . . the Mayor and City Council on how the newly created Deputy City Attorney position is being utilized. It should also be noted that the EDA will share in the estimated $125,000 in cost savings available to the City through reduced reliance upon outside counsel. Assuming that the rates which the Office of the City Attorney charges the EDA is consistent with that recommended in Section 5 of this report ($87 per attorney hour), the EDA would acquire an additional 688 attorney hours at a cost of approximately $60,000 or 37.5 percent less than the $96,000 that the EDA must expend to acquire a similar level of service from outside counsel. In Section 3 of this report, we evaluate the potential for increased productivity through improved systems of accountability. In addition, Section 3 presents a comparative analysis of the professional and support staffing levels of the City of San Bernardino Office of the City Attorney with those of other cities. Based upon our review, we have concluded that, although the existing Office of the City Attorney staffing levels appear to be reasonable, its productivity could be increased through improved systems of accountability. Therefore, we do not recommend that the staffing level of the Office of the City Attorney be increased to accommodate the additional work that the Office would have to assume to realize this savings. Instead, we recommend that funding for one vacant paralegal position be eliminated and that one deputy city attorney position be added. The additional cost to accomplish this addition/deletion would be approximately $90,000 annually. Although the City has imposed a general hiring freeze, the newly created position should be exempted from the hiring freeze due to the significant potential for net cost savings. Conclusion The Office of the City Attorney relies upon outside counsel to support its operations for a variety of reasons, including: to supplement existing staff; the need for specialized expertise and the potential for conflict. Due to the significant cost differential between employing outside counsel and hiring attorneys directly, the Office of the City Attorney and other City agencies should limit their reliance upon outside counsel wherever possible. Based upon a review of the City Attorney's and the EDA's use of outside counsel, we have estimated that the City Attorney and the EDA could realize $125,000 per year in cost savings through reduced reliance upon outside counsel. Therefore, the Mayor and City Council should approve the deletion of a vacant paralegal position and the addition of one Deputy City Attorney position at an estimated additional cost of $90,000 per year. Due to the potential for significant cost savings, the Deputy City Attorney position should be filled as soon as possible. 44 . . Recommendations The Mayor and City Council should: 6.1 Approve the following changes in the authorized staffing level of the Office of the City Attorney: Delete funding for one paralegal; and, Add funding for one Deputy City Attorney. 6.2 Authorize the City Attorney to recruit for the new position immediately. 6.3 Reduce appropriations for outside counsel and increase budgeted revenues from the EDA to fund the new Deputy City Attorney position, based upon the expected utilization of the new Deputy City Attorney position. 6.4 Require that the City Attorney periodically report to the Mayor and City Council on how the newly created Deputy City Attorney position is being utilized. Costs/Benefits Implementing these recommendations will result in net annual savings estimated at $125,000. 45 . . Appendix 1.1a PlU!'e lof2 Suggested vendor selection procedures . Determine the factors to be evaluated: - rates, - experience, - women/racial minority attorneys, - other as needed. · Determine weighting points for each of the factors, for example: - rate = 10 points, - experience = 30 points etc. . Determine the specific specialties for legal services, including but not limited to the following: -Civil rights actions; -Employment discrimination and wrongful discharge; -Wrongful death actions -Land use, planning and zoning matters; -General tort defense; -Bankruptcy: -Eminent domain; -Redevelopment; -Water. . Develop a standard contract for outside counsel services and include as part of the RFQ process. This contract should include at the minimum the following provisions. - Insurance provisions; - Billing procedures, including supporting documentation for all charges; - Authorization to expend funds for litigation expenses; - Term of the agreement; - Maximum amount to be expended; - Services to be provided. · Advertise the bidding process in appropriate newspapers and legal journals so as to ensure full participation in the bidding process by any interested legal firm. 46 . . Appendix 1.la PlU!'e 2 of2 . Establish a formal City Attomey review committee to evaluate each proposal. The City Attomey should determine who will comprise this committee. . Establish authorized vendor lists for various specialties, based upon specialties as identified above: . Upon completion of evaluation process the City Attomey should establish a plan for award of outside counsel services and submit this plan in open session to the Council and Mayor for approval. 47 . . r.?PENDIX 1 . 2 AGREEMENT ( IT IS AGREED between the COUNTY OF hereinafter referred to as the "County", and . an association hereinafter referred to as the "Anorney", to provide the services described below, as follows: The County hereby retains and employs the Attorney to represent the County in the non-exclusive defense of claims arising within the term of this Agreement and to assist the County in its efforts to develop and maintain a comprehensive risk management program. The attorney will provide 25 hours of free service per year. If the County requires additional risk management assistance it shall be paid at one half the hourly partner trial preparation rate. COMPENSATION TO A TIORNEY The Attorney will be compensated for the defense of such claims other than medical malpractice as follows: I) ONE HUNDRED TEN AND NOlloo ($110.00) DOLLARS per hour for litigation and trial preparations for partners; 2) ONE HUNDRED AND NO/loo ($100.00) DOLLARS per hour for litigation and trial preparation for associates; ( 3) SIXTY FIVE AND NO/lOO ($65.00) DOLLARS per hour for law clerk and paralegal; 4) ONE HUNDRED TEN AND NOIlOO ($110.00) DOLLARS minimum court appearance fee; The Attorney wiII be compensated for the defense of medical malpractice claims as follows: I) ONE HUNDRED FORTY AND NO/lOO ($140.00) DOLLARS per hour for litigation and trial preparations for partners; 2) ONE HUNDRED TEN AND NO/lOO ($110.00) DOLLARS per hour for litigation and trial preparations for associates; 3) SIXTY FIVE AND NO/lOO ($65.00) DOLLARS per hour for law clerk and paralegal; 4) ONE HUNDRED FORTY AI\'D NO/lOO ($140.00) DOLLARS minimum court appearance fee; e 48 . ._._~ __'0. "_... ........ .._~.. . .~_.. '.',~~.~. ;'~"-'- "': -.. " . . Page 2 Agreement January 27, 1993 REIMBURSEMENT POLlCY AND BILLING REOUIREMENTS The Attorney will bill for legal services rendered on the 5th day of each odd month and will include all these costs on the same billing as legal fees. An individual legal cost of over $1000.00 may be reimbursed as a special payment when approved by the Claims Supervisor. The itemized invoice shall include the name of the matter handled by the Attorney on behalf of the County, the name of the attorney who has provided the service and a.brief description of the legal services rendered. County shall reimburse Attorney for all actual and necessary costs for the following .items: (1) Deposition & transcript fees (2) Filing fees/process server (3) Postage (4) Photocopying (5) Travel, expert witness fees, and other expenses when approved in advance by Claims Supervisor. OTHER SERVICES .The Attorney, as a material condition of the Agreement, agrees to provide to the County the following services at no additional charge to the County: I) A quarterly claims review; 2) Twenty-four (24) hour access via private telephone to a minimum of one defense attorney; . 3) Staff briefings with County agencies and related duties required by the County in establishing and maintaining a comprehensive risk management program directed at minimizing such claims liability exposure of the County; and, 4) Other miscellaneous services generally rendered at no cost to a major client by a reputable defense law firm. COUNTY RESPONSfBILITIES The County agrees to comply with all reasonable requests of the Attorney in connection with the preparation and presentation of the defense of any such claims against the County. The County further assumes the expenses of investigation, photography, accident reconstruction and other non-legal services necessary in any such defense as agreed upon by County designated adjuster. 49 . . Page 3 Agreement January 27, 1993 ( OWNERSHIP OF FILES All files, pleading, reports, documents, and other items generated with respect to matters remitted to Attorney pursuant to this Agreement are and shall remain the property of County should this Agreement be terminated, the files shall be rerurned to County with all privileged materials appropriately sealed for transmittal to successor attorney of record for client. -. EQUAL OPPOR11JNITY EMPLOYER{NON-DISCRIMTNATION . Attorney shall not discriminate, in any way, against any person on the basis of age, sex, race, color, creed or national origin in connection with or related to the performance of this Agreement. INDEPENDENT CONTRACTOR TItroughout the course of this agreement and while performing services hereunder, Attorney shall perform such services as an independent contractor. Attorney is not an officer, agent or employee of County. ( CONFLICTS It is understood by the parties that as special counsel for County, Attorney is not precluded from continuing to represent its other clients in their dealings with County such as before the planning and building departments. Attorney will not represent clients in any manner directly or indirectly related to the subject matter in which Attorney has been retained as special counsel by County. Furthermore, in the event Attorney's representation of its clients results in litigation against the County, Attorney and County shall meet and confer to determine whether such litigation would interfere with Attorney's relationship with County on any matter where Attorney has been retained as special counsel, or otherwise constitute a conflict of interest which the County would be unwilling to waive. TIME OF AGREEMENT This agreement is for a term of twelve calendar months commencing February 28, 1993; however, this agreement may be terminated at will by the County or after sixty (60) days notice by the Attorney. e 50 ..j.:.....,.:<-:. .'"',._':'-:..-.......... - . . ~ Page 4 Agreement January 27, 1993 INDEMNIFICATION AND INSURANCE I) Attorney, in performance of professional and technical duties shall indemnify, defend and hold harmless the County and/or District and their officers, agents and employees and hold them harmless from losses, damages, expenses and liability resulting from injury to or death of any person and loss of or damage to property, or claims of such injury, death, loss or damage, for which Attorney is legally liable, and to the extent caused by the negligence of Attorney, provided such injury to persons or damage to property is due to negligence of Attorney, their employees or agents. 2) Other than covered under Paragraph above, Attorney agrees to indemnify, defend and hold harmless the County and/or District, its officers, agents and employees from any loss, injury or damage arising out of or in connection with Attorney, their agents, and contractors or employees performance under this agreement, excepting only loss, injury or damage caused solely by acts or omissions of personnel employed by the County and/or District. Attorney further agrees to reimburse the County for all cost, attorney's fees, out of any obligation on Attorney's part to be performed under this agreement or arising from any negligence of Attorney or Attorney's agents, and contractors or employees. Insurance Without limiting Attorney's indemnification of County/District, Attorney shall provide and maintain at its own expense, during the term of this agreement or as may be further required by the contract, the following insUrance coverage and provision. A. Evidence of Coverage Prior to commencement of this agreement, Attorney shall provide on the County'slDistrict's own form or a form approved by the County Insurance Manager two (2) copies of a Cenificate of Insurance cenifying that coverage as required has been obtained and remains in force for the period required by the contract. . - . "-'~.-',-"-'~-;- :~.. .....'::-~. 51. .. - -,. ..~ 'or"~".-.;..:':.~..." . '. ..' . ..- .~. - - ". .~. '.', . . Page 5 Agreement January 27. 1993 ( B. Notice of Cancellation. or Reduction in Coverage All policies must contain a special provision for thirty (30) days prior written notice of any cancellation or reduction in coverage to the County and/or District to be sent to the Clerk of the Board of Supervisors, or to the address shown on the certificate of insurance. ..~ C. Insurance Reauired 1) comprehensive General LiabilitY Insurance for bodily injury (including death), and property damage which provides limits of not less than One Million Dollars ($1,000,000.00) combined single limit per occurrence. OR If coverage is afforded by a Commercial Liability form. 2) Commercial LiabilitY Insurance for bodily injury (including death) and property damage which provides limits as follows: ( a) . General per occurrence limit - $1,000,000.00 b) General Aggregate limit - $2,000,000.00 c) Product Completed Operations Aggregate - $1,000,000.00 d) Personal Injury - $1,000,000.00 Special Notice - Claims Made Coverage If coverage is written on a claims made basis, the certificate of insurance must clearly stale so and evidence of coverage for a (3) year period from the dale Contract is completed must be included. The following additional information must be provided: I) Defense coverage included in the limit (Yes or No) 2) Aggregate limitations a) General aggregate b) Products!completed operations aggregate 3) Retroactive date, which shall be no later than the inception date of the first contract with the County 4) Length of time for extended reponing period e 52 .. ':." . . Page 6 Agreement January 27, 1993 ( 3. Comprehensive Automobile Liability for bodily injury (including death) and propeny damage which provides total limits of not less than One Million Dollars ($1,000,000.00) combined single limit per occurrence applicable to all owned, non-owned and hired vehicles. 4. Professional Errors & Omissions Liability Insurance in an amount of not less than $1,000,000.00. (refer to special Claims Made Section) a) If this policy contains a deductible or self retention it should not be greater that $1,000.000.00 per occurrence. 5. Worker's CompensationJEmplover's Liability Statutory California workers' compensation coverage including a broad form a1lstates endorsement; employer's liability insurance for not less than One Million Dollars ($1,000,000.00) per occurrence for all employees engaged in services or operations under this agreement on a form approved by the Owner.' ( a. Inclusion of the Owner, its governing board, directors, officers, representatives, agents and employees as additional insureds, or a waiver of subrogation liability endorsement favoring the Coun ty and/or District. e . ....., '" -........., ,-,.." 53 ....;.... : ..,.....J...>-..;..i.....:.. . r- Page 7 Agreement January 27, 1993 . IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of FEB 2 3 1993 A TrEST: Clerk, Board of Supervisors ~ APPROVED AS TO FORM AND LEGALITY: Chief ASSIStant County Counsel leg. agreement ~ -':',..-'.',.;'. ,~. . . ~ ,:",,~.,. ....... ~ .- COUNrY OF BY: Board of Supervisors Association By: : an Title: Date: 2-/-93 ~ :" 5 4 -. ',... ...1;-... '.' ,.(';.-..;.-. . Appendix 3.1 a . Results of Survey of Comparable California City Altorney Offices (a) Huntington City Responding Bakersfield Beach Modesto Riverside Stockton San Bernardi no Population (b) 195,000 186,900 178,500 242,200 226,300 175,000 FY 1992-93 Authorized Stafflna level Attorneys 7 8 6 8 9 8 Utlgation support (I.e. para-legals and investigators) 0 2 0 1 1 4 Administrative support ~ ~ ~ ~ ~ ~ Total 12 16 16 16 16 18 FY 1992-93 AODroDrlatlonl Salaries and Benefits 515,092 1,320,247 720,322 1,020,494 N/A 1,287,526 Olher Z.4.lll. ~ a.lli 838 124 1 067 690 Total 589,243 1,413,639 779,587 1,858,618 N/A 2,355,216 FY 1992-93. Includes all City Departments. 100,000 1,509,471 134,800 1,189,657 N/A Is a competitive vendor selection process used to select outside counsel? no yes no no N/A no Reasons for retaining outside counsel (percent referred) Client request N/A N/A City Attorney conflict 20% 10% N/A 5% N/A 5% Need for Specialized Expertise 80% 90% N/A 50% N/A Lack of Staft N/A 45% N/A 55% Other- Defense tendered to Insurance carrier or third party and Joint presentation with other agencies N/A N/A 40% City-Wide City-Wide Method of cost recovery for services Cost Cosl Retainer for EDA rendered (if any) Direct Charge none Allocation Plan Allocation Plan N/A services Are formal employee evaluations performed? yes yes yes yes N/A no II so, how frequently? annually annually annually annually N/A N/A Notes: (a) Eleven cities were requested to participate in this survey. however as of this report writing only five have responded. (b) Source: California Department of Finance 55 . . Appendix 4.1a Analysis of Office of the City Attorney Management Information System and Office Automation Needs Item Classification/Descrintion Hardware: Ten Intel 486 (or equivalent) based microcomputers One document scanner One CD ROM Disk Reader $21,000 2,000 800 Software: File Server software and hardware modifications 2,200 Research Material: West Publishing Company State and Federal Statutes and case law on CD ROM Disk 24.000 Total $50,000 56 . . Appendix 5.Ia Page Iof2 Instructions for Determining Hourly Rates to Charge for Professional Services 1. Estimate the number of productive hours that staff members will be available to provide direct services to City departments. 2. Determine the average hourly and fringe benefit cost for each attorney classification and for paralegal and investigator staff. This is accomplished by dividing the total number of hours available to provide direct services to City departments by the total annual salary and benefit cost of each classification. 3. Determine the appropriate indirect cost allocation rate to apply to the direct hourly cost to each City Attorney attorney, paralegal and investigator classification by dividing the entire budget of the Office, less contract litigation costs, by the total salary and benefit cost of attorney, investigator and paralegal staff. 4. For each City Attorney professional and support classification, multiply the direct salary and benefit cost computed in step 2 by the indirect cost factor determined in step 3. 57 . . II ~a~! .,. '0 I .! CO')..... ~..... E " z ill f,j ~ !:: gj n illS on ~ ;;; ~~~~ m .... ,.. I 0 <0 <0 ~ 0) .,; .. !ill~~ .... "!. 1:! ;;; il ~ '" ,,-:'" cn- 0 !il~;;~ l:j 88o:!:I !; 1?1 .. .~ C\I "0 .... .... _ <D :g co c" ii~i N ~s~ ri :; ll) " Cl ! 5 a a.'" ! N _ ..:*'" - .:to. .,. .,. I ",!...", .... m m 0> 00 0> r-: ~- tt:; 0 ~lo>&t;;; i 18~~8 ariaS"':"': a~a~ ) '!i ... ~ f :.~ ~e~- .li!.;-.gf ~ Q. ill ll! b~1i~ 00 :'l on 00 ;;; '" 'i;j ,.: 0> ~ ill ~ <i. E .. i ~ ..8 .~ -g ~ Q. 8 ~ o ~ ~ :< is i= U; ~!( 1::>- ",'" oj:!: . 0- W ",--,'" W('3frl ~Wcn ...Jffi~~ ~~a:~ ZWt-1- O:JZ:Z (1)0..<< a: a.. U U W:)c(oc( Q.(J)>> en~ I-W ~~ ~g fEn: WW iJaJ ~~ ~a:en 1f~~ ~f2~ W e; ~ 1;: ~ ~~ gg o I!! ~ o '" 0- W '" ~ I- Z :> o ~ lfJ W U ~ W en rrl lfJ Z SO W8 o'!i Ciim a~ WW gffi ~~ -Z 2S ffl~ 8<5 I ~ . . Response by City Attorney's Office to the Management Audit of the Operations of the City Attorney's Office Introduction We are grateful that the Mayor and Common Council granted our request, first made over two years ago, and authorized a management audit of the operations of the City Attorney's office. To the best of our knowledge, this is the first time that the operations of this office have been thoroughly analyzed by a team of public accountants. Their analysis was carefully done and their recommendations are very specific as to how to improve the operations of the office. We agree with most of their recommendations and look forward to working with the Mayor and Common Council, the many department heads and members of the public to implement many of the recommendations. We truly believe that services to city government and to the public can be improved if most of the recommendations suggested by the auditors can be implemented. When the management audit was being debated by the Mayor and Council, former Mayor W. R. Holcomb and Councilmember Valerie Pope-Ludlam predicted that the audit would reveal mismanagement, incompetence and even malfeasance. Conspicuous by its absence is any finding of such mismanagement, incompetence or malfeasance. We also note that the audit fails to confirm the incorrect and misleading statements made by the former Mayor who alleged an DAB/js [Audit.Res] 59 . . increase in the City Attorney's budget and staff that he believed was inappropriate. In fact, the audit finds that the growth in staff does not appear unreasonable and even recommends an addi tional attorney. Also, the audit confirms that in-house counsel is more cost-effective than outside counsel. This audit has accomplished what we had anticipated it would do when the City Attorney requested it. Areas wherein improvements may be made have been identified. Recommendations for the implementation of those improvements are discussed in the audit. We have been asked by the auditors to respond to and comment on their findings and our response is found on this page and on the pages that follow. One of the most significant recommendations is that the information systems and automation process of the office be significantly upgraded. The audit report provides a much needed analysis of how recent innovations in the information and office automation fields can help the City Attorney more effectively serve the officers, employees and residents of the City, and which can result in long term cost savings to the City budget. The Auditors also recommend the filling of the vacant deputy City Attorney position and a vacant legal secretary position to save long term costs for outside counsel services. We strongly endorse these recommendations. DAB/js {Audit.Res] 60 . . We, like the auditors, view this report as an opportunity to improve our responsiveness to the needs of the various offices and departments, and to improve the quality of services we provide. We are grateful to Harvey Rose, Roger Mialocq, steve Foti, John Johns, and Ernie Prindle for their analysis and recommendations. Most of these recommendations provide a sound basis for substantially improving our operations. Response to Audit Introduction Regarding the working relationship between the Office of the City Attorney and other departments within the City, we note the poll taken of elected officials and department heads indicated disagreement with the roles of the City Attorney as legal advisor and simultaneous legal watchdog. We appreciate the fact that in this audit, Harvey Rose has specifically recognized the appropriateness of the watchdog role performed by the Office of the City Attorney. We also appreciate the audit's recognition of the fact that input into policy matters is an appropriate role for city attorneys in small and medium size cities. We regret that the poll did not also include responses from former Councilmembers Jack Reilly, Esther Estrada, or Mike Maudsley. These elected officials worked with the City Attorney's Office for DAB/js [Audit.Res] 61 . . six years. Four of the Councilmembers polled had only worked with us less than six months in their capacity as Councilmembers when this poll was taken. It is important to remember that this office has recently frustrated the attempts of four Councilmembers to: 1) illegally hire the campaign manager of one of the four as a City Council liaison officer, and 2) increase, in a procedure that was invalid, the stipend the individual Councilmembers receive as Community Development Commissioners from $75.00 per meeting [average of two (2) meetings per month] to $1,500.00 per month. Certain elected officials were displeased with the voters in 1988 when 70% of those voting approved a City Charter Amendment authorizing the elected City Attorney to prosecute violations of the state's Political Reform Act. These elected officials believe the City Attorney should work for the City Council, not for the people of the City of San Bernardino. It is also important to recall that a number of the heads of departments of this City have a history of opposing the City Attorney, past and present. It is the belief of many of these people that this City should be administered, not by an elected Mayor, but by an appointed City Manager. Those individuals further believe that the City Attorney should work for a City Manager and not for the people of the City. DAB/js (Audit.Res] 62 . . This office battles frequently with certain department heads who actively resist complying with specific municipal, state and federal legal requirements. Evasion of CEQA, the Fair Labor standards Act, the Brown Act, the Public Records Act and other laws is frequently attempted and it is the office of the City Attorney which has to insist upon strict compliance. Finally, on January 9, 1992, the City Attorney publicly recommended to the City Council that the pay of all department heads earning more than $60,000.00 per year be reduced by 25% and that those City management employees earning between $60) 000.00 per year and $25,000.00 per year, receive a smaller reduction as a means of dealing with the City's budget crisis. This recommendation and the positive public reaction to it greatly angered many of our management personnel and subsequently resulted in a movement led by some of these people and certain elected officials to eliminate, by amending the City Charter, the elected City Attorney position. To date, that idea has received little support from the general public. The above-cited history is an important factor to consider when reviewing the results of this poll. The City Attorney is not elected by the people of San Bernardino to win a popularity contest among those who manage City Hall. DAB/js [Audit.Res] 63 . . Section 1 Use of Outside Counsel: Vendor Selection Recommendation by the Auditors: The City Attorney should: 1. Adopt a formal competitive vendor selection process to retain the services of outside counsel and establish procedures to document that competing firms are objectively evaluated according to established criteria. Nothing in this recommendation should be construed to prevent the City of San Bernardino from at all times selecting the most qualified law firm, even if the firm is more costly than other firms. However, such selection should be based on a competitive vendor selection process. 2. Meet with the Finance Director to clarify rules and responsibilities related to payment processing and financial record keeping for outside counsel legal services. Work with the Finance Department to develop proposed amendments to the Municipal Code which would clearly define the financial relationships and responsibilities of each of these City officials. DAB/js [Audit.Res] 64 . . 3. Adopt a policy and procedures which will ensure that formal, written agreements are established with all current and future contract law firms, and that such agreements are approved by the Council in public session. Response: We agree that there should be delineated rules related to payment processing and financial responsibilities and we have already begun meeting with the Finance Director to implement this recommendation. Nei ther state law (See Government Code S31000 and S37103), nor local ordinance (San Bernardino Municipal Code Chapter 2.20 and S3.04.085.C) require competitive bidding for legal services. The reason is that contrary to the auditors' desire for an objective procedure for the selection of such firms, the process is by its very nature subjective. The relevant factors of confidence and success cannot be quantified and put into an objective matrix. As noted in the report we have already implemented a procedure for periodically requiring firms to provide their qualifications to perform the various legal services needed in the City. We will continue to carefully review these qualifications as we make recommendations to the Mayor and Council. However, when the Mayor and Council ask for our recommendation on the selection of outside counsel, they expect that this recommendation will be based on our experience and expertise, not merely on how the numbers added up. DAB/js [Audit.Res] 65 . . We should note that in late 1988 we did establish a competitive process for the selection of outside counsel for the Redevelopment Agency. After evaluation of the written proposals and an interview process with the Redevelopment Committee the firm of Stradling, Yocca, Carlson & Rauth was selected. However, after the previous Mayor returned to office in 1989, he took steps to terminate the firm and to have the Redevelopment Commission retain the firm of Sabo & Green in which the former Mayor had confidence, without any competitive process. We never recommended Sabo & Green, nor have we ever been asked our opinion. In addition it is important to mention that only one of the five similar sized cities surveyed by the Auditors reported using a competitive process for the selection of outside counsel. Notwithstanding the preceding, we have already implemented a competitive process for a trial period. On November 15, 1993, we used this competitive process and gave the names of six firms to the Council, recommending anyone of the top three. Interestingly enough, the Council selected MacLachlan, Burford & Arias which was the top rated firm. On two other occasions, we recommended a firm other than MacLachlan, Burford & Arias, and yet they were still selected by the Mayor and Council. Once, we recommended Ferguson, Praet, and Sherman and on another occasion Talcott, Lightfoot, Vandevelde, et al. and still, on both occasions, the Council chose MacLachlan, DAB/js [Audit.Res} 66 . . Burford & Arias. We also agree with the benefit to be gained from using formal written agreements for outside legal services and will implement this practice. Of course where the services are not ongoing and relate to, for instance, a brief, one-time review of a document, the standard letter agreement will suffice. Finally, the Auditors note that the City Administrator and the Finance Director had expressed some concern about the effect of Municipal Code ~3.04.0l0. The Auditors did not ask us for our analysis of this question in the first draft discussions of this report nor at the exit interview. We have no idea as to what the speoific oonoerns expressed are beyond what is reported in the audit. However, we will be pleased to work with the staff to resolve any problems they experienoe pursuant to that Code Seotion without compromising our ability to represent the public's interest or reveal any matters regarding litigation recognized as confidential by law. Section 2 Financial Controls for Outside Counsel Services and Litigation Expenses DAB/js [Audit.Res] 67 . . Recommendations by the Auditors: The City Attorney should: 1. Retain working papers which support budget estimates for outside counsel requirements. 2. Monitor the status of appropriations during the fiscal year and provide advance notice and justification to the Mayor and City Council in the event appropriations may be exceeded. 3. Implement accounting procedures to be consistent with invoice payment procedures to be established by the Department of Finance, as recommended below. The Director of Finance should: 1. Immediately develop a comprehensive accounting manual. 2. Establish improved of vendor invoices, section. financial controls over the payment as discussed in the body of this 3. More clearly define the duties and responsibilities of the Finance Department and of other City Departments in DAB/js [Audit.Res] 68 . . the invoice approval and payment process. Response: We agree. We have already established procedures for keeping the office I s budgetary working papers. We are uncomfortable, however, with opposing attorneys having access to our estimates of how much time we anticipate a case will take, or which experts we are consulting closely. This could provide opposing counsel with a real advantage in their evaluation of the case. We also note that since "educated guesses" are used to establish appropriations for legal services there can be no guarantee that such appropriations will not be exceeded. The Auditors note that in one instance $6,000 was prepaid for document preparation service, but because of a bankruptcy the services were not received. These funds were billed by an outside law firm as a retainer to a litigation support service. This is a common practice in the legal communi ty. When the company went out of business without providing the contracted services, the City's outside law firm sued the defunct company and has repaid the $6,000 to the City. At no time were these funds lost to the City because the law firm agreed to repay the funds if they were not recovered quickly in the lawsuit (we also note that the lawsuit was filed on June 22, 1993 before Harvey Rose was retained by the City to conduct this audit). DAB/js {Audit.Res} 69 . . By way of explanation, we feel it is important to note that during the past year the City Attorney was directed by the Mayor and Council not to seek additional funds for the outside counsel budget, even knowing they would be necessary, until the funds already allocated were expended. So we did what we were directed to do. In addition, in the budget process the City Attorney did request an additional attorney and repeatedly outlined the anticipated cost in outside counsel if that position was not filled. The position was not filled and the additional costs were incurred. When the Council finally did approve the requested funds, the previous Mayor vetoed the action leaving the office without sufficient funds to pay outside counsel. Then the previous Mayor, without notifying the City Attorney, had his Administrative Assistant authorize payment to the outside attorney assigned to the Mayor, which contributed to the over extension of the budget. Legal services, unlike street repairs or buying pencils, cannot be halted to wait for the City Council to approve additional funds. Had we directed outside counsel to halt representation of the City in pending lawsuits we would have run a substantial risk of financial loss and serious adverse judicial rulings. Addi tionally, the implication is left in the report that this office approved payment for bills without adequate back up. Although we cannot respond for the Finance Department, in reality this office had back up support for each bill authorized for payment. DAB/js [Audit.Resl 70 . . As to the recommendations for the Finance Department, those findings impact departments throughout the City and reflect problems that have been commented on in prior City audits. These problems have been pervasive throughout the six year tenure of the incumbent City Attorney. Section 3 Recommendations by the Auditors: The City Attorney should: 1. Develop improved systems of accountability over its professional and support staff, including the utilization of time sheets which ensure that attorneys, paralegals and investigators document how their time is spent by activity type and service recipient. 2. Develop management reports which tabulate and summarize the time spent and workload accomplishments of professional and support staff. 3. Conduct periodic and formal performance evaluations for all staff. Response: DAB/js [Audit.Res] 71 . . We agree that City Attorney staff should keep time sheets and have already implemented this recommendation. We note that we have not done so in the past because there was no demonstrated need or use for such records. We advised the Mayor and Council in December 1992 that a general cost recovery program should be instituted and that we would keep time sheets if this was done. However, we saw no reason to do so unless there was a cost recovery program. Without cost recovery no one would look at the time sheets. The Council referred our recommendation to committee where the matter died. In addition, we have found that the informal evaluation and feedback process that we use has proven much more effective than the more formalized and sometimes adversarial performance evaluations. For the unclassified employees in this office, such evaluations are not required and in a small office such as this, with close and regular contacts, we feel that it is not necessary. Section 4 Information Systems and Office Automation Recommendations by the Auditors: The City Attorney should: DAB/js [Audit.Res) 72 . . 1. Develop an information system master plan which contains the elements described in this section. 2. Assign an experienced legal secretary to implement the recommended information systems master plan once it has been approved. The Mayor and City Council should: 1. Appropriate the funds that are necessary to implement this information systems master plan. 2. Authorize the City Attorney to fill one vacant legal secretary position on a temporary basis for a period of twelve months. Response: We agree. We were advised by the Auditors that the development of a master plan would require the services of an outside consultant with expertise in this area. Section 5 Office of the City Attorney Cost Recovery DAB/js [Audit.Res] 73 . . Recommendations by the Auditor: The Mayor and City Council should: 1. Adopt a cost recovery policy which allows the Office of the City Attorney to recover the cost of its operations from non-General Fund sources where possible. 2. Instruct the Finance Department to assist the City Attorney in executing this cost recovery policy and to report upon the actions that will be required to realize the potential additional revenues identified in this Section. Response: We agree. In fact, as noted in the report, we requested that the Council make a policy decision in favor of cost recovery in December, 1992. The recommendation died in committee. Section 6 Cost Effectiveness of Outside Counsel Recommendations by the Auditors: DAB/js (Audit.Res] 74 . . The Mayor and City Council should: 1. Approve the following changes in the authorized staffing level of the Office of the City Attorney: Delete funding for one paralegal; and Add funding for one Deputy City Attorney 2. Authorize the City Attorney to recruit for the new position immediately. 3. Reduce appropriations for outside counsel and increased budgeted revenues from the EDA to fund the new Deputy City Attorney position, based upon the expected utilization of the new Deputy City Attorney position. 4. Require that the City Attorney present to the Mayor and City Council periodically a report on how the newly created Deputy City Attorney position is being utilized. Response: We agree. We should note, however, in reference to the suggestion that funds for outside counsel for EDA were required due to the unavailability of the City Attorney's office to perform services, that very few referrals were made to outside counsel for DAB/js [Audit.Res] 75 . . that reason. In reality some referrals were made due to the technical subject matter of the issue involved, but most were made by EDA staff without any contact with this office and on matters that we had both the time and expertise to handle. Had EDA staff contacted this office on most of those referrals, they would have been advised of our availability. DAB/js (Audit.Res] 76