BOARD OF SUPERVISORS
BUDGET ANALYST
1390 Market Street, Suite 1025, San Francisco, CA 94102 (415) 554-7642
FAX (415) 252-0461

March 10, 2008

Honorable Michela Alioto-Pier,
and Members of the Board of Supervisors
City and County of San Francisco
Room 244, City Hall
1 Dr. Carlton B. Goodlett Place
San Francisco, CA 94102-4689

Dear Supervisor Alioto-Pier and Members of the Board of Supervisors:

The Budget Analyst is pleased to submit this Management Audit of the Marina Yacht Harbor Fund. In response to a motion adopted by the Board of Supervisors in July 2007 (Motion No. 07-100), the Budget Analyst conducted this management audit, pursuant to the Board of Supervisors powers of inquiry as defined in Charter Section 16.114. The purpose of the evaluation has been to evaluate the efficiency, economy, and effectiveness of the Marina Yacht Harbor Fund; and identify improvements to the Fund's budgetary and financial controls. This transmittal letter to the Management Audit of the Marina Yacht Harbor Fund summarizes the Budget Analyst's findings and recommendations.

The Marina Yacht Harbor (Harbor) is a recreational facility granted to the City by the State of California in trust in 1935 and 1963 and operated by the Recreation and Park Department. Under the trust provisions and San Francisco Charter restrictions, revenues generated by the Marina Yacht Harbor can only be used by the Harbor. Therefore, the City established the Marina Yacht Harbor Fund (Fund), a special revenue fund that allows the City to monitor the monies received and special purposes for which they are held. The Recreation and Park Department administers the Fund.

Our report contains four findings and 21 recommendations. These 21 recommendations are intended to improve the Recreation and Park Department's systems for tracking and monitoring the Marina Yacht Harbor's revenues and expenditures, and increase budgetary and financial controls.

The Marina Yacht Harbor Fund could receive increased revenues or expenditure savings of an estimated $100,725 per year through improved tracking and collection of permit and permanent berth fees, reduced Department overhead charges, and closing out of unexpended project balances each year.

At the same time, the Marina Yacht Harbor Fund could incur estimated costs of at least $132,162 per year by charging certain costs more accurately to the Fund. This includes estimated labor costs for gardeners working on but not charged to Marina Yacht Harbor projects and electricity costs that are under-charged to the Marina Yacht Harbor Fund.

The Budget Analyst's cost and saving estimates are based on our review of Recreation and Park Department documents, random sampling of permits and work orders, and entries in the City's financial system, FAMIS. Actual costs and savings from the implementation of the Budget Analyst's recommendation would vary each year.

Section 1. Operating Revenues

In FY 2006-2007, the Marina Yacht Harbor Fund received $2,361,856 in revenues, including temporary and permanent berth fees, which totaled $1,864,114 or 78.9 percent; concessions, which totaled $325,080 or 13.8 percent; permit fees, which totaled $62,301 or 2.6 percent; and interest earnings, which totaled $110,361 or 4.7 percent.

Inefficient and Decentralized Revenue Tracking

The Recreation and Park Department's management of Marina Yacht Harbor Fund revenues is inefficient and decentralized. Several different divisions or units are responsible for tracking and collecting revenues allocated to the Marina Yacht Harbor Fund, including the Marina Yacht Harbor, Permits and Reservations Unit, Property Management Division, and Revenue Unit.

Further, the Recreation and Park Department currently uses ten different systems to track Marina Yacht Harbor revenues alone. The Revenue Unit tracks cash transactions in the Revenue Tracking System, which is not integrated with FAMIS, the City's financial and accounting management information system, because subsidiary systems cannot be tracked in FAMIS.

Most of the Recreation and Park Department's ten revenue systems require manual entry on spreadsheets or paper ledgers, and most of the systems are not integrated. Hence, system information is maintained separately and re-entered into various systems up to four times before it can be entered and reported in FAMIS. These multiple entries can result in missed or incorrect entry of information.

Inadequate Cash Handling Procedures

Cash handling at the Marina Yacht Harbor is characterized by weak controls, insufficient cash handling procedures specific to the Harbor, and manually intensive processes. The Harbor Office handles checks and cash for the payment of permanent berth fees, temporary berth fees, and other miscellaneous fees, such as key deposit and wait list fees.

The Marina Yacht Harbor has different procedures for processing permanent berth fees and processing temporary berth and other miscellaneous fees. The Harbor's procedures for receiving and reporting permanent berth fee payments, which are paid quarterly, reconcile permanent berth fee payments, against the Marina Program, the Harbor's system to track berth fee payments. Once reconciled and verified by the Harbormaster, permanent berth payments are recorded in triplicate on the Recreation and Park Department's Daily Report of Cash Receipts, and placed into sealed bank bags with original copies of triplicate bank deposit and transit slips. The Harbormaster transports the sealed bank bags to the Department's Revenue Unit. The Revenue Unit staff check the original Daily Report of Cash Receipts against the copy of the bank deposit slip.

However, the Harbor does not record temporary berth and miscellaneous fee payments in the Marina Program, nor does it have a cash register or formal cash receipting system in place. Temporary berth and miscellaneous fees are an estimated $279,000 annually, or approximately 15 percent of the Marina Yacht Harbor's total berth fee revenues of $1,864,114.

The Marina Yacht Harbor does not adequately segregate responsibility for receiving payments from recording payments for deposit. Currently, the staff person receiving checks and cash for temporary berth and miscellaneous fee payments also records the check and cash payments in the Daily Report of Cash Receipts. The Harbor's policy requires the Harbormaster's signature on the Daily Report of Cash Receipts, although this policy has not been consistently implemented. These practices are fundamental to proper cash handling and safeguarding of assets.

According to Harbor staff, a staff member generally writes out a receipt for cash payments received in person but not for payments received by mail. The Budget Analyst's review of March 2007 Daily Report of Cash Receipts found that all entries either had a check number or cash receipt number. However, in the absence of an automatic cash register system, the Harbor cannot be assured that all temporary berth and miscellaneous fee payments are accurately recorded and protected from theft. The Marina Yacht Harbor should immediately implement the Marina Program's cash register functionality, ensuring automatic receipts and cash register records for all payments.

Permanent Berth Fee Collections

The Park Code establishes Marina Yacht Harbor berth fees, which vary depending on the boat length. The Marina Yacht Harbor Rules and Regulations consider permanent berth fees to be past due after 15 days, after which the Harbor assesses a one-time 10 percent late fee that is automatically applied by the automated Marina Program. However, the Marina Program, which tracks balances monthly rather than quarterly, is not able to automatically generate delinquent balances due reports for permanent berth fees, which are due quarterly. Therefore, Harbor management generates a single delinquent balances due report on the 15th day of each month. These reports show all permanent berths with outstanding balances without indication of how long each balance has been past due.

Because the Marina Yacht Harbor does not generate automatic delinquent balances due reports, the Harbor has no systematic means to identify which of the tenants have unpaid balances over an extended period of time. According to the Harbormaster, the Harbor staff telephone the berth tenants with unpaid balances, and then manually cross off paid balances on the report and enter the payment in the Marina Program. A review of the delinquent balances due report shows that 46 permanent berth tenants who had rent payments due on October 1, 2007 had not paid the delinquent balance, including late fees, as of January 9, 2008, totaling $23,900.

Inadequate Procedures for Permit Fee Receipts

The Recreation and Park Department's Permit and Reservations Unit lacks written policies and procedures or adequate controls ensuring that permit fee payments are credited correctly to the Marina Yacht Harbor Fund. In the absence of written procedures, Permit and Reservations Unit staff allocate payments to the Fund based on their individual understanding of what should be allocated. As a result, at least six payments for Marina Green use fees, totaling $2,255, were recorded in the Recreation and Park Department's General Fund revenues and were not credited to the Fund.

Also, permit files are incomplete. The Budget Analyst could not find permit files for $7,444 credited to the Marina Yacht Harbor Fund in the Department's Revenue Tracking System.

The Harbor has informal agreements with the Oceanic Society and the Farallon group for use of the pump-out dock (Gate 31) for loading and unloading. It receives revenue from both for use of the dock based on the commercial rate, which is $3.00 per foot of the vessel. The Department's Property Management Division has not executed formal written agreements with these two organizations.

Section 2. Operating Expenditures

In FY 2006-2007, the Marina Yacht Harbor's expenditures were $1,727,017. The Marina Yacht Harbor's FY 2006-2007 expenditures included $746,308 for Harbor employees' salaries and fringe benefit; $514,125 for materials and other non-salary costs; and $466,584 for facilities maintenance projects.

From FY 2002-2003 through FY 2006-2007, the Marina Yacht Harbor Fund balance has ranged from approximately $1.35 million to $1.75 million at fiscal year's end.

Gardener Positions in the Marina Yacht Harbor Budget

The Marina Yacht Harbor budget includes two gardener positions assigned and charged to the Recreation and Park Department's Neighborhood Services Division. Although these two positions work part time on Marina Yacht Harbor projects, the Neighborhood Services Division is unable to track gardening assignments to the Marina Yacht Harbor because work schedules and timesheets do not reflect actual hours worked on the Marina Yacht Harbor and employees are not required to report time by project, or area (such as the Harbor) and simply report the cumulative number of hours worked. Because the Neighborhood Services Division does not track gardener hours assigned to the Marina Yacht Harbor projects, these gardener hours are charged to the Neighborhood Services Division, which is financed from the General Fund, rather than the Marina Yacht Harbor Fund.

By transferring the two gardener positions from the Marina Yacht Harbor budget to the Neighborhood Services Division budget, the Marina Yacht Harbor's allocation of budgeted positions would be reduced for purposes of distributing the Department's administrative overhead, transferring an estimated $49,151 in administrative overhead from the Marina Yacht Harbor Fund to the Neighborhood Services Division.

Also, by developing procedures to identify actual allocation of gardener time to the Marina Yacht Harbor and to Neighborhood Services, and to charge gardener time appropriately to the Marina Yacht Harbor Fund, direct costs for gardener time working on Marina Yacht Harbor projects would by paid by the Marina Yacht Harbor Fund. For example, if gardener time allocated to Marina Yacht Harbor projects equaled approximately 1.0 full time position in FY 2007-2008, estimated gardener salary and benefit costs of approximately $75,374, plus additional administrative costs, would be transferred from the General Fund to the Marina Yacht Harbor Fund, appropriately reducing the costs to the City's General Fund.

Inadequate Inventory Management Procedures

The Marina Yacht Harbor lacks procedures to manage inventory and consequently cannot ensure that materials and supplies are not lost or stolen or that excess inventory does not build up. Although the Marina Yacht Harbor's policies require that all purchases are to be approved by the Harbormaster, according to the Harbormaster, in at least one instance in FY 2005-2006 the Recreation and Park Department's Structural Maintenance Division staff purchased surplus lumber without approval of the Harbormaster and charged the purchase to the Marina Yacht Harbor budget. The surplus lumber continues to sit in the Harbor's warehouse.

The Marina Yacht Harbor and Structural Maintenance Division do not have procedures to track the Structural Maintenance Division's use of materials on Harbor projects. Materials for the Marina Yacht Harbor's facilities maintenance projects performed by the Structural Maintenance Division are purchased from the Harbor's materials and supplies budget as well as the Harbor's facilities maintenance budget and are recorded in FAMIS. The materials and supplies are not recorded in the Department's maintenance management system, known as Total Managed Assets, which tracks work orders between the Structural Maintenance Division and the Marina Yacht Harbor. Consequently, the Marina Yacht Harbor cannot track materials and supplies costs allocated to each project.

Inconsistent Tracking of Facilities Maintenance Work Orders

The Recreation and Park Department's Structural Maintenance Division performs Harbor facilities maintenance projects through work orders with the Harbor. Structural Maintenance Division managers rely on manual tracking of labor hours charged to work orders rather than the Department's computerized maintenance management system, known as Total Managed Assets, resulting in inconsistent tracking of labor hours worked on Marina Yacht Harbor projects. Also, because the Division must manually enter labor hours into the City's payroll system, labor hours are not always charged correctly to the Marina Yacht Harbor Fund. In a sample of 60 completed work orders in FY 2005-2006 and FY 2006-2007, the Budget Analyst found 72 hours of work entered into the Total Managed Assets system that were not charged to the Marina Yacht Harbor Fund, indicating that such hours were charged incorrectly to another Department division or fund.

Further, the Structural Maintenance Division does not provide work order estimates. By not issuing estimates, Structural Maintenance Division and Marina Yacht Harbor managers have no measure of whether specific maintenance projects are completed timely and efficiently. Consequently, managers have no effective tool to manage project expenditures.

Although the majority of Structural Maintenance Division work orders for the Harbor are issued by the Harbormaster, Structural Maintenance Division shop managers can also issue their own work orders for Marina Yacht Harbor projects. The Budget Analyst found that three work orders, or five percent of the sample, were work orders that were issued by shop managers completing the same work order. Unlike purchase orders, work orders are not required to have approval from the Harbormaster to be completed. While an emergency may require decisive action in the absence of the Harbormaster, everyday maintenance jobs do not, and this adds to the unaccountability of the system.

Section 3. The Marina Yacht Harbor Fund Overhead Allocation

The Recreation and Park Department allocates overhead costs to the Marina Yacht Harbor Fund through overhead rates charged by the Department's Structural Maintenance and Capital Divisions to Marina Yacht Harbor Fund projects. The Department also allocates a percentage of the Department's administrative costs to the Marina Yacht Harbor Fund in each year's budget.

The Budget Analyst's 2006 Recreation and Park Department management audit found that the Recreation and Park Department was not adjusting for the difference between administrative expenditure recoveries from the Department's divisions and funds, and actual administrative expenditures. The Recreation and Park Department began adjusting for differences in paid time off recoveries and expenses, included in the Structural Maintenance and Capital Divisions' overhead rates, in FY 2006-2007, but has not adjusted for the difference in expenditure recoveries and actual expenditures for department-wide administrative expenditures allocated to each of the Department's divisions or funds. As a result, the Department has over-recovered approximately $1.1 million in administrative expenditures. According to the Department, the proposed FY 2008-2009 budget will adjust for the prior years' over-recoveries for administrative expenditures. The Budget Analyst estimates that the Marina Yacht Harbor Fund would be reimbursed for an estimated $14,000 of the total $1.1 million expenditure over-recovery.

The Recreation and Park Department allocates electricity charges through the Department's cost allocation plan. However, the Department's cost allocation plan, which allocates costs based on the number of budgeted positions in each of the Department's divisions or funds, is not an accurate measure of electricity use. Further, from FY 2003-2004 through FY 2005-2006, the Recreation and Park Department allocated electricity and waste disposal costs to the Marina Yacht Harbor through the cost allocation plan as well as directly charging these costs to the Marina Yacht Harbor. Consequently, the Marina Yacht Harbor overpaid by $49,207 for these costs during those years. In FY 2006-2007 and FY 2007-2008, the Recreation and Park Department has continued to allocate electricity costs through the Department's cost allocation plan rather than charging for electricity based on actual use. The Department has undercharged the Marina Yacht Harbor for electricity use in FY 2006-2007 by $106,792, resulting in total net undercharges of $57,585 from FY 2003-2004 through FY 2006-2007. As a result, these costs of $57,585 have been transferred to other Department's funds and divisions, including the Open Space Fund and the General Fund.

Section 4. Facilities Maintenance and Capital Improvement Project Funding

The Board of Supervisors appropriates Marina Yacht Harbor funds for the Harbor's annual facilities maintenance projects each year, but the Recreation and Park Department does not fully allocate these funds to the Harbor's facilities maintenance projects. Rather, the Recreation and Park Department re-allocates funds appropriated for the annual facilities maintenance projects to the Harbor's capital improvement projects without Board of Supervisors approval. From FY 2002-2003 through FY 2006-2007, the Board of Supervisors appropriated a total of $2.1 million for Marina Yacht Harbor facilities maintenance projects, with annual appropriations ranging from $330,000 to $550,000. However, the Recreation and Park Department only allocated $1.3 million of the $2.1 million to annual facilities maintenance projects and transferred the remaining approximately $800,000 to the Harbor's ongoing capital projects without obtaining Board of Supervisors approval.

Also, the Recreation and Park Department does not return unexpended funds appropriated for and allocated to annual facilities maintenance projects to the Marina Yacht Harbor Fund balance at the end of the fiscal year, but rather, carries forward these unexpended funds into the next fiscal year, which is inconsistent with the City's budgeting practices. For example, in FY 2004-2005 the Department allocated $187,000 and spent $127,000 on Marina Yacht Harbor annual facilities maintenance projects, resulting in a year-end unexpended balance of $60,000. Rather than return this $60,000 to the Marina Yacht Harbor Fund balance, the Department transferred these funds to the Department of Public Works for Marina Yacht Harbor environmental studies.

The Department's practices result in both understatement and overstatement of the Marina Yacht Harbor's annual facilities maintenance budget in a fiscal year.

The Recreation and Park Department also needs to review inactive projects and project balances to identify unexpended funds that can be re-allocated to active projects or returned to fund balance. For example, prior to FY 2001-2002 the Recreation and Park Department used Project Code CRP530 to track Marina Yacht Harbor dredging projects but discontinued the use of this specific project code in FY 2001-2002. However, according to the City's financial management system, FAMIS, as of February 2008, Project Code CRP530 continues to have an unexpended balance of $25,782.

The Recreation and Park Department's Written Response

The Recreation and Park Department General Manager's written response is attached to this management audit report beginning on page 38. According to the General Manager's written response, the Department agrees with 14 of the 21 recommendations, or approximately 67 percent; disagrees with four recommendations; partially disagrees with two recommendations; and will evaluate one recommendation.

The Department's Response to Recommendation 1.1

The Department partially disagrees with Recommendation 1.1 to report to the Board of Supervisors during the FY 2008-2009 budget review on the status of the implementation of the Class system, including (a) issuance of system-generated receipts for cash transactions, (b) routine tracking and reporting of revenues; (c) integration of Class with FAMIS, and (d) implementation of Automatic Clearing House functionality to facilitate receipt and deposition of berth payments at the Marina Yacht Harbor.

According to the General Manager's written response, "While the accounting structure of Class currently corresponds to the structure of FAMIS, the department does not have the ability to integrate the two systems electronically. The Controller's Office does not permit the integration of subsidiary ledgers with FAMIS by any city department."

In response, the Budget Analyst will revise Recommendation 1.1(c) to state, "any automatic interface of Class with FAMIS".

The Department's Disagreement with Recommendations 2.1 and 2.2

The Department disagrees with Recommendation 2.1 to transfer 2.0 FTE 3417 Gardeners, currently included in the Marina Yacht Harbor budget, to the Neighborhood Services Division budget; and with Recommendation 2.2 to develop procedures to identify actual allocation of gardener work time to the Marina Yacht Harbor and the Neighborhood Services Division, and charge gardener time appropriately to the Marina Yacht Harbor Fund.

According to the General Manager's written response, "The Department's 2006 gardener FTE assessment determined that the Marina requires 2.3 FTE to meet Proposition C park maintenance standards. Rather than moving the gardener positions from the Marina, the Department proposes to hire 2.0 gardeners to be devoted to working exclusively in the Marina."

On page 16 of the management audit, the Budget Analyst found that, although the Marina Yacht Harbor budget includes two full-time gardener positions, the gardeners are assigned to the Neighborhood Services Division and do not work full time on Marina Yacht Harbor projects. Further, these gardener positions are charged to the Neighborhood Services Division, which is financed by the General Fund, rather than the Marina Yacht Harbor Fund.

If the Department receives budgetary approval to hire two gardeners to work exclusively on the Marina Yacht Harbor and these two positions are charged appropriately to the Marina Yacht Harbor Fund, the Budget Analyst will withdraw these two recommendations. The General Manager should report to the Budget and Finance Committee during the FY 2008-2009 budget review on the status of hiring two gardeners to work exclusively on Marina Yacht Harbor projects.

The Department's Response to Recommendation 2.3

The Department disagrees with Recommendation 2.3(a) to direct the Structural Maintenance Manager to disallow shop managers from keeping subsidiary work order ledgers, instead keeping all records within the Total Managed Assets (TMA) system to eliminate redundant systems. According to the General Manager's written response, "Structural Maintenance will necessarily have to continue to use subsidiary work order documentation in order to track progress in the field on assigned work orders. However, in the department's ongoing implementation of TMA, field progress on assigned work orders from subsidiary logs will be regularly entered into TMA to manage work order accomplishment."

As noted on page 18 of the management audit report, Structural Division managers enter work hours into the Total Managed Assets system on completion of Marina Yacht Harbor work orders. Because of this, the Harbormaster cannot access hours charged to Marina Yacht Harbor work orders in the Total Managed Assets system prior to completion of the work order. Also, as noted on page 18, Structural Division managers differ in the detail of description offered per work order. The Recreation and Park Department's Structural Maintenance Division needs to continue implementation of the Total Managed Assets system and work order tracking to ensure that the Harbormaster has sufficient and consistent information on Marina Yacht Harbor work orders prior to and upon completion of the work order.

The Department disagrees with Recommendation 2.3(d) to reconcile work order totals with timesheets and audit timesheet records every month to verify correct reconciliation of labor charges. According to the General Manager's written response, '"TMA does not interface with the department's payroll database - TESS. Consequently, reconciliation and auditing would have to be done manually and the department does not have the staff resources to devote to such a manual process."

As noted on page 19 of the management audit report, in the Budget Analyst's review of 60 randomly selected work orders, Total Managed Assets system work order information did not consistently match timesheet information. The Department needs to ensure that total work order hours match timesheet records.

The Department's Disagreement with Recommendations 3.1 and 3.2

The Department disagrees with Recommendation 3.1 to adjust for the difference between expenditure recoveries and actual administrative expenditures during the course of the year to ensure that the Department does not over- or under-recover for the Administrative Services Division's costs; and Recommendation 3.2 to adjust the overhead rates charged to Department projects by the Structural Maintenance and Capital Divisions during the course of the year to ensure that each division does not over- or under-recover for the division's costs from each of the Department's divisions and funds.

According to the General Manager's written response, "The department's cost allocation methodology makes adjustments to account for the difference between actual expenditures and actual recoveries two fiscal years after the expenditures and costs originally occurred. This calculation is further modified by carry forward adjustments calculated from four fiscal years prior. The department's methodology is accepted practice in administering a cost allocation plan. 2007 - 2008 represents the first year the department could have made such an adjustment - which has been done. As a practical matter, the city's accounting and finance management practices would not allow the department to make adjustments between over- and under-recoveries during the course of the fiscal year. The department does not receive final billings for work orders, the majority of the costs in the overhead fund, until three months into the new fiscal year. Finally, the department's overhead fund resides in a 1G annually appropriated fund, which further complicates adjustments of this nature."

The Budget Analyst agrees that the Department's cost allocation methodology makes adjustments to account for the difference between actual paid time off expenditures and recoveries each year, and that the Department has adjusted the Capital and Structural Maintenance Division's overhead rates accordingly, as noted on page 25 of the management audit report.

However, because the Department has not adjusted for the difference between the actual departmental administrative expenditures and recoveries, the Department has recovered $1,149,767 in excess of the Administrative Services Division's actual expenditures over a four-year period from FY 2003-2004 through FY 2006-2007, as noted on page 27 of the management audit report. The General Manager should report to the Budget and Finance Committee during the FY 2008-2009 budget review on the Department's adjustment for the $1.1 million prior years' over-recovery, and report to the Budget and Finance Committee during each subsequent year's budget review on such adjustments.

The Budget Analyst's recommendations are attached to this transmittal letter.

We would like to thank the Recreation and Park Department staff for their cooperation and assistance throughout this audit.

Respectfully submitted,

Harvey M. Rose
Budget Analyst