· Over time, the management structure of the Controller's Office has evolved, as new functions and responsibilities have been added and business lines have been redefined. During this evolution, sections have been created to perform non-traditional services and units have been established which provide questionable benefit to the organization. This has had the effect of expanding the number of management positions within the Controller's Office organization.

· The Board of Supervisors should reconsider whether it wishes to continue non-mandated functions performed by the City Projects and Performance Management divisions, which are more similar to services performed by city managers and county administrators in other jurisdictions. Further, the Controller should restructure the Department organization by disbanding the Performance Management Division and merging functions under the City Projects Division. Lastly, the Grants Unit in Accounting Operations should be eliminated and current functions merged with those performed by other staff within the organization.

· At a minimum, these organizational changes would result in $24,576 in annual savings by replacing one 0931 Performance Management Director with an 1805 Associate Performance Auditor. Potentially, an additional $98,032 in annual savings could be achieved by eliminating one 1824 Principal Administrative Analyst position, which is acting as a manager over the Grants Unit. Total savings related to these two changes would amount to $122,607 per year. Additional savings potentially could be achieved by discontinuing non-mandated functions currently performed by the City Projects and Performance Management Divisions.

The San Francisco Controller's Office has four basic levels of management that have evolved over the years:

1. Executive Management includes the executive positions of the Controller and the Deputy Controller.

2. Division Director includes seven director level managers who are responsible for major business lines, including (a) Accounting Operations and Systems,¹ (b) Payroll and Personnel Services, (c) Finance and Administration, (d) Budget and Analysis, (e) Internal Audit, (f) City Projects, and (g) Performance Management.

3. Section or Project Manager includes 13 section level managers or project managers who are responsible for major sections or project activities.

• Accounting Operations and Systems: (1) Accounting Operations Manager, (1) Financial Systems and Reporting Manager and (1) ADPICS System and Special Projects Manager.

• Payroll: (1) Information Systems Project Director, and (2) Assistant Payroll Directors.

• Budget and Analysis: (1) Budget and Fiscal Operations Manager, and (1) Property Tax Manager.

• Internal Audits: (2) Performance Audit Managers, and (3) Financial Audit Managers.

4. Unit Manager includes 5 unit managers who are responsible for units that perform specific processing or technical functions, including:

• Accounting Operations: (1) Compliance Manager and (1) Grants Manager;

• Financial Systems and Reporting: (1) EIS Project Technical Director, (1) Financial Reporting Manager,² (1) Business Systems and Intelligence Manager, (1) FAMIS Systems and Training Support Manager, and (1) ADPICS System and Special Projects Manager.

In total, the Controller's Office has 27 staff acting in a management capacity in an organization that has 161 authorized positions. This equates to an average of 5.8 employees per manager. Exhibit 1 in the Introduction to this report illustrates the Controller's organization during the period of this management audit. Table 1.1 provides the average number of subordinate and reporting employees per management tier and manager in the organization, as of July 2003.

Several characteristics of the organization become apparent when reviewing Exhibit 1, Table 1.1 and the functional role of individuals in each management tier.

· Approximately 17.3% of the Controller's Office personnel perform management or director functions, equating to one manager for every 5.8 employees. These computations exclude four project manager positions in the City Projects Division, since these individuals do not directly manage the activities of other staff but instead may only act as leads on more complex analyses. The computations also exclude five supervisory personnel within the Payroll and Personnel Services Division, and the Finance and Administration Division.

· The number of subordinate personnel and number of direct reports to managers vary significantly. For example, the Compliance Manager (a fourth tier manager) directly manages the activities of 21 Fund Accountants who are responsible for ensuring that financial transactions are appropriately processed by the departments. At the other extreme, the Performance Management Director (a second tier manager) directly manages the activities of only one staff person. While the roles and responsibilities of these individuals differ significantly, the contrast is stark and will be discussed further in this report.

Table 1.1

Average Subordinates and Reporting

Employees Per Management Tier

San Francisco Controller's Office 2003

Note: The Controller's Office is funded for 142 positions.

Many managers have low manager to staff ratios, in part because of the functions that they perform. Using the third tier as an example, the Performance Audit Managers and Financial Audit Managers direct the activities of an average of 2.5 FTE and 3.7 FTE staff, respectively, since these managers are generally responsible for small analytical teams. In comparison, the managers in Accounting and Payroll direct the activities of large teams, which are responsible for more routine financial processing functions.

Accordingly, the functions performed by these managers vary by organizational level and function. Some managers, such as those assigned to the Accounting and Operations Division and Payroll, are responsible for larger groups of staff who are involved with administering, processing and monitoring financial activities for the City. Others, such as those assigned to Budget and Analysis, Internal Audit, City Projects and Performance Management, are responsible for smaller analytical teams or essentially perform staff analyst functions.

Mandated and Non-Mandated Functions

The Controller's mandates are outlined in the Charter of the City and County of San Francisco, and in the codes that have been adopted by the Board of Supervisors over the years. These various mandates present a formal hierarchy of services that must be performed by the department. Various non-mandated functions are also performed by the Controller, including those requested by the Mayor and the Board of Supervisors, and others that have been assumed by the Controller using his management prerogative.

Functions performed by the Accounting Operations and Systems Division, the Payroll and Personnel Services Division and the Budget and Analysis Division are significantly required to meet the various mandates of the Charter.³ Other Divisions also perform key functions mandated by the Charter. For example, the City Projects Division is responsible for preparing impartial financial analyses of each City and County ballot measure, as mandated in Charter § 3.105. However, the Controller's authority and role in some activities are less well defined in the mandates of the City and County.

During initial interviews with the Controller, he stated that the direction of the Controller's Office has changed in recent years after the Chief Administrative Officer functions were placed under the Mayor. It is his assertion that many more requests to improve management performance have been directed to the Controller by the Mayor and the Board of Supervisors, and that many functions more traditionally performed by city managers and county administrators have been assumed by the Controller in an attempt to provide management continuity in the City and County. The following discussion examines the organizational divisions which have been most impacted by this change in role.

City Projects Division

The City Projects Division includes (1) 0931 City Projects Director, (4) 0922 Project Manager, and (2) 1805 Associate Performance Auditor positions. According to the City Projects Director, the primary mission of the division is to implement the "efficiency and effectiveness provisions of the Charter." There are no Charter provisions or code sections that specifically designate the Controller as being the City official who is responsible for implementing City-wide efficiency objectives.

In addition, the division implements portions of Charter Section 3.105, which states in part, "The Controller shall prepare an impartial financial analysis of each City and County ballot measure which shall include the amount of any increase or decrease in the cost of government of the City and County and its effect upon the cost of government. Such analysis shall be issued in sufficient time to permit inclusion in the voters' pamphlet." Other mandates fulfilled by the Controller are more general. For example, Article V of the Administrative Code, establishing the General Obligation Bond Oversight Committee, states in Section 5.32 (a) that, "The Board shall, without expending bond funds, provide the committee with any necessary technical assistance and shall provide administrative assistance in furtherance of its purpose and sufficient resources to publicize the conclusions of the committee." The Controller provides staff support to the Bond Committee, through the City Projects Division.

In describing the activities of the Division, the City Projects Director stated:

· The "primary function" of the division is to assist departments with the implementation of audit recommendations, and to provide other "short-term assistance to departments that need it." The division is the "consulting arm of the Controller's Office."

· The majority of the consulting assignments received by the Division are made directly by the Controller. Others originate as a result of requests from the Mayor, the Board of Supervisors and departments. Major examples of consulting work performed by the Division in FY 2002-03 included, (a) analyses of financial impacts from proposed changes to memoranda of understanding with employee bargaining groups and (b) assistance to General Fund departments on a request basis. The Director indicates that approximately 25 to 30 projects are performed each year, of which approximately four can be considered "major."

· The mandate to provide impartial analyses of ballot measures can be a significant responsibility, depending on the number of measures being presented to the voters. For the November 4, 2003 election, there was an approximate three month period between the last date Charter amendments could be introduced and the date when the Controller's analysis needed to be submitted to the Director of Elections.

· As mentioned previously, the Division provides staff support to the General Obligation Bond Committee. According to the Director, this is generally routine analytical support which does not draw significantly from other Division responsibilities.

Table 1.2 summarizes an estimate of the annual hours spent by the division by major activity category, based on data compiled for the period May 2002 through July 2003.

Table 1.2

Summary of Work Hours by Activity

Controller's Office City Projects Division

While clearly beneficial to the City organization, the major activities of the Division are not mandated. With the exception of the activities performed to accomplish the mandates included in Charter § 3.105, the activities of the Division are primarily discretionary. Of the 8,744 productive annual hours of service estimated from Division records, only 1,969, or 22.5% were spent providing services that are generally mandated. Approximately 77.5% of the Division's services are generally non-mandated. Approximately 30% of the Division's paid time is for leave, administration or training.

In a period of declining resources, the Board of Supervisors may wish to consider the elimination of positions that are used to support non-mandated activities, before reducing services in other areas of Controller's Office operations. In FY 2003-04, the Controller recommended, and the Board approved the elimination of 14 positions in the Payroll and Personnel Administration, Finance and Administration and Budget and Analysis divisions of the Controller's Office, which resulted in the layoff of 13 staff. As the Board continues to evaluate service reductions that may be necessary due to the lagging economy, State budget actions and other factors, it may wish to consider reductions in the City Projects Division.

As an example, the Board may wish to curtail consulting services the Controller provides to City departments, which are non-mandated. Instead, the Board may wish to rely on the considerable expertise that already exists in departments throughout the City organization, to ensure that audit recommendations and special projects are appropriately implemented. Based on the data included in Table 1.2, the savings to the City could be as much as 4.5 FTEs, amounting to over $400,000 per year in savings. The Board could once again fund these functions in the future, if determined to be an appropriate priority for the City.

Performance Management Division

The Performance Management Division is a two person unit that is staffed by (1) 0931 Performance Management Director and (1) 1805 Associate Performance Auditor. With the exception of a responsibility to perform a "citywide survey of parents and youth" every three years, none of the services provided by this unit are mandated.⁴

The Division provides a greater level of service than that which is defined in its single mandate. In documentation prepared for this management audit, entitled "Performance Management Group Core Functions," the Controller's Office described its activities in relation to the general City Survey that it conducts. Item 3 on this document stated, "Conduct City (citizen) Survey: Survey approximately 2,000 residents each year about the use of and satisfaction with City services, and other topics as needed . . ."

As part of this management audit, we reviewed the most recent City Survey prepared in 2003 and found it to provide general information regarding opinions of selected City services, as recorded by the citizen respondents. Information related to parents and youth was not a focused portion of the work. The Division supplements the results of the City Survey with a report on "indicators of community well-being," which is available on the Controller's website but, again, is not mandated.

According to the Controller's Office, the other primary activities of the Performance Management Division include:

· Establishing, maintaining, tracking and documenting performance information;

· Providing performance information to the Mayor, Board of Supervisors, public and other stakeholders; and,

· Assisting City departments in using surveys to measure performance.

These functions are non-mandated, and are provided by the Division to assist departments with accomplishing mandates that are specified in Charter § 9.114. Charter Section 9.114 states, "Each departmental budget shall describe each proposed activity of that department and the cost of that activity. In addition, each department shall provide the Mayor and the Board of Supervisors with the following details regarding its budget . . .

While consistent with the City-wide objectives defined in Charter § 9.114, the Controller has not been mandated to be the City official responsible for ensuring that an effective performance measurement system is implemented. This function has been assumed by the Controller, by management prerogative. Further, the Internal Audit Division presently audits against performance measures to ensure compliance with the Charter mandate.

As with the City Projects Division, the Board of Supervisors should determine whether the non-mandated functions of the Performance Management Division should be continued during this period of economic downturn. Annual cost of the unit is approximately $201,732. Assuming that additional consultant resources would be required to perform the triennial survey of parents and youth, net savings to the City would amount to approximately $150,000 per year.⁵

The second question raised from our review of the Performance Management Division is whether the activities that are performed need to be placed at a division level in the organization. During interviews, the Controller stated that his decision to place the activity at the division level stemmed from his perceived need to have a manager available to directly interact with departments, in order to gain departmental cooperation. Accordingly, the Controller's Office established an 0931 Performance Management Director position, with only one subordinate position, to perform this function.

We do not agree with the Controller's opinion in this regard. Every employee in the Controller's Office carries the authority of the Controller, whether the employee is a fund accountant in the Accounting Operations Division or an analyst. That authority can be communicated in many ways, without establishing a two-person division. For example, the Controller could (a) directly communicate with department managers in writing, requesting cooperation; (b) place the two-person function under one of his other division managers, who has the same organizational stature as the incumbent manager of the Performance Management Division; or, (c) request the Board of Supervisors to grant authority to the Controller's Office in the Administrative Code.

Even if the Board of Supervisors decides to fund all of the current activities of the Performance Management Division, the Budget Analyst believes the functions could be moved into the City Projects Division at a lower cost. Both the City Survey and the Performance Measurement responsibilities performed by the existing two-person division are appropriate for analytical personnel at the 1805 Associate Performance Auditor level.⁶ If the functions were moved into the City Projects Division, and the two person staffing level was continued using employees at the 1805 Associate Performance Auditor level, the functions would be more appropriately staffed and the City and County would realize a savings of $24,746 per year. In addition, the number of division directors reporting to the Controller would be reduced from seven to six.

Grant Management Unit

Section 10.170-2 of the Administrative Code mandates that "the Controller shall keep accounts of all such grants adequate to record the status of any such grant during the life thereof. All officers and employees shall keep such records and render to the Controller such grant reports as the Controller may require to comply with the provisions of this Section." In fulfilling this mandate, the Controller has decentralized much of the responsibility of grant management to the departments. The Grant Management Unit's policies and procedures manual (Financial Administration of Grants and Gifts), which is currently being revised, lists the goals of departmental grant financial managers as:

· Smooth and fair delivery of grant-funded services,

· Full compliance with grant guidelines,

· Accurate accounting,

· Reconciliation of expenditures and revenues every fiscal year,

· Frequent billing of maximum eligible revenues,

· Pass audits successfully, and

· Continuous improvement.

With the exception of accurate accounting and grant reconciliation, the Grant Management Unit (Grant Unit) does not provide significant assistance or oversight with respect to the other departmental goals. The responsibility for accurate accounting, while monitored by the Grant Unit, is placed at the department level. Even the establishment of grant accounting codes in the financial system has been decentralized to certain departments. The Grant Unit has only recently started to systematically monitor department reconciliation efforts. The main functions of the Grant Unit, according to interviews with the Accounting Operations and Grants Managers, include:

· Coordinating the annual Single Audit of Federal Financial Assistance, which includes preparing the Single Audit financial reports and following up on audit findings and the related departmental corrective action plans;

· Providing guidance to departments on the establishment of grants and approving certain departmental grant accounting transactions;

· Conducting the periodic audit of grant accounting transactions; and

· Preparing the Countywide Cost Allocation Plan.

Additionally, the Unit performs the Controller's review and authorization for the acceptance and expenditure of grant funds, as mandated by Section 10.170-1 of the Administrative Code. This activity is discussed in further detail in Section 10 of this report.

The Controller's reasons for maintaining a separate Grant Unit stems from a previous single audit finding regarding a material weakness in the grants reporting function. In an effort to improve the Department's performance in this area, the Controller consolidated grant accounting and reporting functions in a single unit. According to the Controller, the material weaknesses previously identified have been significantly corrected as a result of this organizational consolidation. However, the current benefits that derive from this consolidation are unclear.

When asked about the Grant Unit's vision, the Grants Manager stated that they do not see themselves as a separate unit, and that it makes more sense for their goals to be the same as every other unit in the Accounting and Operations and Systems Division. In theory, grants require a certain degree of specialization to ensure that grants are accurately accounted for and reported. However, as already noted, much of this responsibility has been divested to the departments with the Controller's Office providing routine approval, audit, and reporting functions.

Additionally, a grants unit should ensure that grant revenues are maximized by verifying all allowable costs are claimed and reimbursed, and by compelling departments to file claims in a timely manner. However, the Grant Unit does not fulfill this role. While the Grant Unit has attempted to establish procedures for departments to complete a quarterly reconciliation of grant revenues and expenditures, which ensures that all grant costs have been appropriately accounted for, the first attempt in April 2003 has met with limited success, according to the Grants Manager and per internal tracking reports. This effort was instigated by a 2001 independent financial audit finding by KPMG that found significant errors in grant data and information reported by departments. In fact, KPMG actually conducted a training for departments in January 2003 on the reconciliation process. With respect to ensuring all allowable costs are claimed and pursuant to Section 10.170-1 (d) of the Administrative Code, the Grant Unit should be reviewing and certifying whether the appropriate indirect cost reimbursement has been included in the grant budget. As noted in Section 10 of this audit report, the Grant Unit is not providing this level of review. Finally, according to the Grants Manager, the Grant Unit does not monitor department claims to verify they are being completed in a timely manner and therefore obtaining reimbursement as quickly as possible.

The degree of specialization required by grants does not necessitate a separate Grants Management Unit as it is currently managed. Most of the activities conducted by the Grants Unit do not differ in great respect to the duties of the Compliance Unit with regard to ensuring accurate accounting or the Financial Reporting Unit with regard to financial reporting and reconciliation. Specialization based on activity rather than by grant will consolidate Controller functions, assist in ensuring Controller policies and procedures are consistent, and simplify the relationship between departments and Controller staff.

Additionally, preparation of the Cost Allocation Plan in the Grants Unit appears to be illogical, as the Grants Manager provides no supervisory or management review of its preparation. The Cost Allocation Plan as well as the review and authorization for the acceptance and expenditure of grant funds, which is primarily a review of grant indirect costs and grant budgets, should be placed in the Budget and Analysis Division where other cost functions are performed and where the Division Manager can provide management review and oversight. The Controller should reassign the three Grant Unit staff to the Compliance Unit, the Financial Reporting Unit, and the Budget and Analysis Division and transfer duties and tasks accordingly.

During interviews for this management audit, we were advised that the Grants Manager has spent a portion of her time coordinating the process of the single audit, preparing the single audit schedule and following-up on audit findings and the corrective action plans of departments. In recent months, she has spent a considerable amount of her time conducting a post-audit of grant transactions that had been processed by the departments. Many of these individual activities could be assumed by the managers in other divisions of the department. As an example, the coordination, scheduling and follow-up activities related to the Single Audit could be assumed by management personnel within the Financial Reporting Unit. Oversight duties related to the post-audit could be consolidated under the Compliance Unit.

We recognize that the incumbent of the unit adds value to the organization in her current role. However, in the course of this expedited management audit, we were not provided with sufficient justification for retaining this management position when the functions currently performed by the specialized unit could be successfully dispersed within the organization. Accordingly, we believe the Grants Manager position should be eliminated at an annual savings of $98,032 per year.

Conclusions

Over time, the management structure of the Controller's Office has evolved, as new functions and responsibilities have been added and business lines have been redefined. During this evolution, sections have been created to perform non-traditional services and units have been established which provide questionable benefit to the organization. This has had the effect of expanding the number of management positions within the Controller's Office organization.

The Board of Supervisors should reconsider whether it wishes to continue non-mandated functions performed by the City Projects and Performance Management divisions, which are more similar to services performed by city managers and county administrators in other jurisdictions. Further, the Controller should restructure the Department organization, by disbanding the Performance Management Division and merging functions under the City Projects Division. Lastly, the Grants Unit in Accounting Operations should be eliminated and current functions merged with those performed by other staff within the organization.

At a minimum, these organizational changes would result in $24,576 in annual savings by replacing one 0931 Performance Management Director with an 1805 Associate Performance Auditor. Potentially, an additional $98,032 in annual savings could be achieved by eliminating one 1824 Principal Administrative Analyst position, which is acting as a manager over the Grants Unit. Total savings related to these two changes would amount to $122,607 per year. Additional savings potentially could be achieved by discontinuing non-mandated functions currently performed by the City Projects and Performance Management Divisions.

Recommendations

The Controller should:

1.1 Disband the Performance Management Division;

1.2 Reassign responsibilities for producing the Citizen's Survey to the City Projects Division;

1.3 Reassign responsibilities for assisting departments with the development of performance measures to the City Projects Division;

1.4 Disband the Grants Unit; and,

1.5 Reassign Grants Unit duties and responsibilities to the staff within the Compliance Unit, the Financial Reporting Unit, and the Budget and Analysis Division.

The Board of Supervisors should:

1.6 Eliminate one 0931 Performance Management Director position;

1.7 Add one 1805 Associate Performance Auditor position;

1.8 Eliminate one 1824 Principal Administrative Analyst position; and

1.9 Consider funding alternatives which would narrow the mission of the City Projects Division to include only mandated functions.

Costs and Benefits

There would be no cost to implement these recommendations. The management structure of the Controller's Office would be streamlined, functions would be more suitably aligned, and the City and County would achieve annual savings of approximately $122,607 per year. Additional savings of $400,000 could potentially be achieved by discontinuing non-mandated functions currently performed by the City Projects and Performance Management Divisions.

¹ Position currently vacant.

² Position currently vacant.

³ The Controller's general financial management and budget management functions, as defined in Charter § 3.105, § 9.101, § 9.102, § 9.105, § 9.113 and others.

⁴ Charter Section 16.108, which establishes mandates related to the Children's Services Fund, states in subsection (i.2), ". . . The Community Needs Assessment shall include the results of a citywide survey of parents and youth to be conducted by the Controller every three years."

⁵ Assumes that the City would need to purchase consultant services to perform the triennial survey, at a cost of approximately $150,000 every three years. We believe this estimate is conservative, and that the actual cost would be less.

⁶ The 1805 Associate Performance Auditor is the current classification of the non-manager staff person in the Performance Management Division, and the base analyst classification in the City Projects Division. The City Projects Division currently has four 0922 Project Manager employees, who act as project leads; and, two 1805 Associate Performance Auditor employees, who provide analytical support. A restructured City Projects Division, which would assume the current responsibilities of the Performance Management Division, would include four 0922 Project Manager positions and four 1805 Associate Performance Auditor positions.