Operating Bureaus Interdepartmental Work Order Funds

The interdepartmental work order fund budgets for the Department of Public Works' four operating bureaus are made up of work order services for other City departments, grants, projects, and other sources of funds. The operating bureaus interdepartmental work order fund budgets make up 35.7 percent of the Department of Public Works' annual operating budget, or $52.97 million of the $148.5 million operating budget in FY 2006-2007, as shown in Table 2 in the Introduction to this report.

The interdepartmental work order fund budgets do not reflect actual expenditures. The bureaus' interdepartmental work order fund budgets include salary and overhead expenditures but do not include non-salary expenditures.

These interdepartmental work order fund budgets do not show the actual revenues. Rather, these budgets show expenditure recoveries that offset budgeted salary and overhead expenditures so that the budget balances to zero. These expenditure recoveries are a placeholder rather than actual monies appropriated in other City budgets, grants, and projects.

The interdepartmental work order fund budgets overstate required funding for positions by budgeting all expenditures as salary expenditures and by budgeting positions for higher than actual expenditure recoveries.

Individual Work Order Expenditures and Recoveries

According to the Department of Public Works' Director of Finance and Administration, the purpose of the interdepartmental work order fund budgets is to provide position authority and is not intended to provide spending authority for salary and non-salary expenditures. According to this Director, client departments provide the Department of Public Works expenditure authority through individual work orders.

The Department of Public Works manages interdepartmental work order expenditures and recoveries at the individual project or work order level. According to the Director of Finance and Administration, the operating bureaus manage projects and individual work orders to ensure that salary and non-salary expenditures do not exceed actual recoveries.

While this practice may ensure that expenditures will not exceed available resources, budget accountability is lost because actual expenditures and expenditure recoveries bear no relationship to projections made and funded by the Board of Supervisors in the budget. The Department of Public Works disagrees with this assessment, and does not consider budgeting and tracking work order salary and non-salary expenditures within each bureau's interdepartmental work order fund to be efficient or informative, due to the large number of individual work orders.

Interdepartmental Work Order Fund Budgets at the Bureau Level

An operating budget is a financial control tool, a management tool, and a document that facilitates communication about anticipated revenues and expenditures to policy makers and the public. The Department of Public Works has developed the operating bureaus interdepartmental work order fund budgets to provide authority for positions allocated to interdepartmental work orders. Because the interdepartmental work order fund budgets do not correspond to the Department's expected salary and non-salary expenditures or to expected recoveries, these budgets fail to meet the necessary functions of an operating budget.

The Budget as a Financial Control

The Department does not ensure that all interdepartmental work orders are effectively managed and that the work order or project budget provides effective financial control. The Department's current procedures for budgeting and tracking interdepartmental work orders could serve as a financial control at the project level if properly implemented since the Department of Public Works' policies and procedures assign responsibility to the bureau and project managers for monitoring expenditures against work order budgets.

The Operating Bureau's Management of Work Order Budgets

The operating bureaus do not consistently manage work order budgets. As noted in Section 12 of this report, the Bureau of Building Repair does not sufficiently control work order budgets and expenditures. The Bureau does not define projects, commits to and incurs expenditures in excess of budgeted amounts, and carries forward annual project expenditures without proper authorization.

The Client Department's Access to Information

According to the Department, the client department is also responsible for monitoring work order expenditures by the bureau that performs the work. However, client department access to information varies by project and bureau.

Bureau of Building Repair customers reported in a customer satisfaction survey, conducted by the Budget Analyst and discussed in Section 11 of this report, that billing information is complicated and confusing. According to survey responses, it is difficult to reconcile billing transactions against work order encumbrances in the City's general ledger system, FAMIS, with the actual task order issued through the Department of Public Works' internal billing system. The Department of Public Works has not provided a way for the client department to view the actual task order that may be related to the FAMIS billings.

Managing Work Orders as a Financial Control

To be an effective financial control, the Department needs to ensure that the bureaus' procedures for managing work orders and recoveries are consistent and comply with the Department's policies and procedures. The Department also needs to facilitate client department access to project expenditure data, including developing routine reports that allow client departments to track project expenditures. The Department of Public Works should work with the client departments to develop quarterly reports that allow client departments and bureau superintendents to track work order expenditures.

The Budget as a Management Tool and Communication Device

The Department of Public Work's current interdepartmental work order fund budget procedures are ineffective as a management tool or mechanism for communication. Because the annual budget does not reflect anticipated expenditures or recoveries, the budget provides no information to decision makers or the public.

Using the Budget as a Management Tool

The bureaus' interdepartmental work order fund budgets are not a management tool. The difference between budgeted and actual expenditure recoveries and budgeted and actual positions is too large to allow managers to use the budget to plan annual work load and spending or to monitor spending against the budget.

Aligning Interdepartmental Work Order Fund Budgets with Expenditures

According to the Department of Public Works, the Department developed the current interdepartmental work order fund budget structure to allow flexibility in staffing by including more positions in the budget than are actually funded by work orders. The interdepartmental work order funds include not only position authority for permanent positions but also monies to pay for temporary salaries to meet peaks in workload.

According to the Department of Public Works, because bureau managers are required to manage their annual expenditures based on actual work order recoveries rather than the interdepartmental work order fund budget, the bureaus do not overspend in their interdepartmental work order fund budgets.

However, the Department does not track interdepartmental work order expenditures by bureau. Rather, bureau managers are intended to track expenditures by project or work order. For the Bureau of Building Repair, which has the largest interdepartmental work order fund budget, the current work order tracking system does not allow for accurate monitoring. Further, none of the four operating bureaus have the ability to generate summary reports that allow bureau managers to monitor interdepartmental work order fund spending as a whole.

The Department states that, because of the varying nature of projects funded by work orders, estimating the number of work orders and the salary and non-salary expenditures in the annual budget is not practical.

However, each of the work orders between the Department of Public Works and the client department includes a detailed budget, outlining all expected salary and non-salary expenditures during the fiscal year. Each of the operating bureaus should develop an annual interdepartmental work order fund budget that includes the salary and non-salary budget details in the individual work orders and the associated overhead expenditures.

Monitoring Interdepartmental Work Order Fund Budgets

The Department should also develop procedures that allow bureau managers to track interdepartmental work order fund budgets as a whole. Under the Department's current practice, the Department reports overhead, General Fund, and Road and Gas Tax fund expenditures but does not report expenditures in the interdepartmental work order funds. The bureau managers need to monitor interdepartmental work order fund expenditures to better track salary expenditures and identify staffing needs to ensure appropriate staffing levels.

Transferring Responsibility for the Cement Shop in the Budget

The Department needs to transfer the revenues and expenditures associated with cement work in the annual budget. Previously, responsibility for cement work was divided between two bureaus, the Bureau of Building Repair and the Bureau of Urban Forestry. In FY 2006-2007, the Bureau of Urban Forestry assumed responsibility for all cement work, including all positions, equipment, and other costs associated with cement work. However, the Department did not transfer the positions or associated expenditures from the Bureau of Building Repair to the Bureau of Urban Forestry in the budget. The Department cannot accurately allocate overhead costs to cement work if the associated positions are not correctly placed in each bureau's budget.

The Bureau of Street Use and Mapping's Fee Revenues and Expenditures

The Bureau of Street Use and Mapping uses the interdepartmental work order fund budget to provide position authority for permit processing staff, street inspectors, and other staff funded by associated permit and fee revenues.

These permit and fee revenues are included in three Department of Public Works special funds.

The Subdivision, Engineering, and Excavation Funds are self-appropriating, with monies to be used exclusively to defray the costs of the Department of Public Works' activities associated with the permits and fees. The fund balance is automatically carried forward each year.

Table 16.1
The Bureau of Street Use and Mapping's Interdepartmental Work Order Fund budget and Actual Expenditures by Fund
FY 2003-2004 through FY 2005-2006

Source: Department of Public Works

The Bureau of Street Use and Mapping does not manage the special funds by annual budget amounts. Rather, the Bureau manages these funds based on the amount of time required to process permit applications. The Bureau of Street Use and Mapping sets up an expenditure budget in the City's general ledger system, FAMIS, for projects charged to each of the special funds. According to the Bureau of Street Use and Mapping manager, the Bureau only fills positions based on estimated revenues and expected workload. As shown in Table 16.1, the annual interdepartmental work order budget exceeds annual interdepartmental work order expenditures each year.

Each of these three funds has accumulated a fund balance in which budgeted revenues have exceeded budgeted expenditures over the life of the fund.

Table 16.2
Bureau of Street Use and Mapping Special Funds Fund Balance

Source: Office of Financial Administration and Management

The self-appropriating funds allow the Bureau the flexibility to spend funds as needed to process permits and conduct inspections. However, the Bureau needs to bring the annual budget closer in-line with expected expenditures. The Bureau of Street Use and Mapping needs to provide annual reports as part of the Board of Supervisors' annual budget review, showing actual salary and non-salary expenditures by fund.

Also, the Department of Public Works needs to annually reconcile these special funds to ensure that actual revenues correspond to actual expenditures. The Department needs to ensure that special fund fees are sufficient to cover the Department's costs of services but at the same time do not build up surplus funds and large fund balances.

Conclusion

The Department of Public Works' interdepartmental work order fund budgets are ineffective as financial controls, management tools, or a means of communication about the budget. Thirty-four percent of the Department of Public Works' budgeted operating expenditures, or $52.97 million of the $148.5 million operating budget, are in the Department's bureaus' interdepartmental work order funds. These funds are not budgets, as such, but a means to provide the Department authority to fund and hire positions to provide services to client departments. The interdepartmental work order fund budgets include permanent and temporary salary expenditures that exceed the operating bureaus' required salary expenditures by a large amount, and no non-salary expenditures. These salary expenditures are offset in the budget by expected payments from client departments requesting services, although the amounts included in the interdepartmental work order fund budgets are a placeholder and do not represent the actual client departments' work orders.

The Department of Public Works considers that financial controls are at the individual work order or project level. However, the Department of Public Works' current processes provide insufficient information to the client departments to allow them to effectively monitor their work order budgets.

Expenditures for work order services make up a large percentage of the Department of Public Works' budget. These budgeted expenditures are not transparent or readily communicated to Department managers, the Board of Supervisors and other policy makers, and the public at large. Managers cannot show their annual interdepartmental work order fund staffing and work plan in the budget, measure their actual expenditures against their projected expenditures included in the budget, or track changes in expenditures from year to year. To be a meaningful document, the Department of Public Works should develop interdepartmental work order budgets for the operating bureaus that reflect estimated salary and non-salary requirements for the coming year and the client departments' payments for these services.

Recommendations

The Director of Finance and Administration should:

Costs and Benefits

The Department of Public Works should be able to implement these recommendations as part of their ongoing management and administrative functions. Although the implementation of these recommendations does not lead directly to cost savings, increased budget transparency and controls allow managers and policy makers to better understand and contain inefficient or unnecessary costs.