Audit & Finance Committee Independent Management Audit During the course of its investigations, the 2001/2002 El Dorado*

1 The County does not have a long range strategic plan with goals and objectives set by the Board of Supervisors to guide the allocation of County funds and resources. Without this, budget and program priorities are set primarily by County staff without the benefit of structured input from elected officials and the public. This has been particularly true in past years when the budget was adopted with very little discussion at the Board of Supervisors public hearings.

1 Using County budget documents it is not possible to determine the status of capital projects or whether the projects are over or under budget. Capital project status reporting in the budget would be improved by including comparisons of originally proposed and actual costs and project timing.

П YTD Comments Qrt Result 4 Calculation: Number of installed and redeployed desktops divided by the annual budget of the PC/LAN Solutions and Support Team. MS Systems Management Server (SMS), Altiris, SupportMagic Call Tracking software and Data Source: the budget system. Jack Coffin Activity Leader: рј і 2. Capital Projects F2.1 Using County budget documents it is not possible to determine the status of capital projects or whether the projects are over or under budget. Capital project status reporting in the budget would be improved by including comparisons of originally proposed and actual costs and project timing. F2.2 Funding and priority setting for El Dorado County's facility and transportation capital projects takes place without benefit of a multi-year capital improvement or facility master plan. As a result, department managers can set project priorities without formalized direction from the Board of Supervisors and the public. These priorities may or may not reflect the highest and best use of limited resources in the opinion of Board members and the public but a method doesn't exist to reach consensus, formalize and update those priorities. F2.3 Both the General Services and Transportation departments have relatively new directors who have developed project tracking systems that allow for better project status reporting. The Department of Transportation has a five year capital project plan prepared in 1995 but it has never been updated. Staff is currently preparing a new document for review by the Board of Supervisors. With adoption of this plan and a similar one that County management reports is in the planning stages for County facility projects, project priorities will be clearer, the budget process simplified and department accountability for completing projects on time and on schedule improved. There are two primary types of multi-year capital projects in El Dorado County. First are construction and rehabilitation of County facilities such as parks and public buildings that are the responsibility of the General Services Department. Second are road, bridge and transportation system projects that are the responsibility of the Department of Transportation. These projects often span multiple years so their presentation in the budget document is different than presentation of annual operating revenues and expenditures for most departments. County Facility Projects The budget for the General Services Department includes a list of County facility projects categorized as either carryover or new. This list is first presented in the proposed budget submitted to the Board of Supervisors in June and then updated for the budget addenda report in September. Differences between the two lists for FY 2001-02 are shown in Exhibit 2.1. Harvey M. Rose Accountancy Corporation Section 2: Capital Projects Exhibit 2.1 Difference in General Services Department Capital Projects between the Proposed and Addenda Budget Documents FY 2001-02 Proposed Budget Addenda Change Budget 45 72 27 # Carryover Projects $2,827,090 $2,077,786 $749,304 Carryover Funding # New Projects 22 43 21 New Funding $1,181,900 $2,358,761 $1,176,861 # Projects Total 67 115 48 $3,259,686 $5,185,851 Funding Total $1,926,165 Source: FY 2001-02 Proposed Budget & Workplan and Budget Addenda Report As can be seen, there is a significant change in the number of projects and funding levels between the two documents. This reflects the timing of the two budget documents. The proposed budget presented to the Board in June has to be submitted to the Chief Administrative Officer by the departments by the end of March/early April. The September budget addenda information is prepared five to six months later. By then, more construction activity has taken place during the prime construction season and the department has more information regarding which projects will be carried over to the next year. In addition, the original budget submission does not include carryover parks projects at all which added 19 more carryover projects and $371,456 in costs to the carryover projects in the budget addenda. With a 59 percent change in funding between the June and September lists, the Board's approval of projects in June is somewhat meaningless. Besides changes between the two lists, it is not possible to tell from either the status of the carryover projects in terms of time or costs. The lists simply present all projects with no indication of whether they are 10 percent or 90 percent done, when project completion is expected, or whether they are under or over budget. The lists are not prioritized so it is not possible to tell the order in which projects will be worked on and completed. While there are many projects in progress and compilation of information on these projects can be complex, a simple report showing the original budget and schedule compared to actual costs and schedule could be readily compiled from Department records with a column for briefly explaining significant variances in time or cost. The Department already maintains a project tracking list for use internally by management. This document could be modified for reporting to the Board and for inclusion in the budget documents. In addition to better reporting of the status of projects, the General Services Department needs a multi-year master plan, approved by the Board of Supervisors, that establishes project priorities and includes estimated funding and timing for each project over a multi-year period such as five years. With agreed upon project priorities, Department management would have clear direction about how to allocate their resources. Project priorities and available funding would also be Harvey M. Rose Accountancy Corporation Section 2: Capital Projects better aligned with such a plan as it would allow for determination of what should be done given limited resources and what cannot be done. New projects could still be added and planned projects deleted after the plan is adopted if priorities change or funding becomes unavailable. The difference would be that the process would be formalized so the Board would have to make a conscious choice to delete a project rather than a project remaining on the list but never getting done. The interim Chief Administrative Officer reports that plans are underway at the time of preparation of this report to commence preparation of such a plan, including financing plans, for County facilities. Department of Transportation Capital Projects and Maintenance Work Transportation capital projects are presented in a different format in the budget than General Services projects. In the FY 2001-02 budget addenda document, the Department presents a list of approximately $24 million worth of capital improvement projects. For each project, a breakdown of project costs (labor, overhead, fixed assets, etc.) and the project's revenue source(s) are presented. The budget addenda document submitted to the Board of Supervisors in September lists 25 capital projects but does not show the timing or funding status of any of the projects or sequencing or priorities for the coming year (see Attachment 2). As with the General Services Department budget, information is not presented comparing planned and actual costs and timing of the Department's capital improvement projects. Nor are projects prioritized in accordance with a multi-year plan approved and updated by the Board of Supervisors. A five year roads capital improvement project plan was prepared in 1996 but it has not been updated since according to Department of Transportation management. The Department's planned road maintenance projects are also shown with the same cost breakdown as presented for capital projects and with revenue source(s) identified (see Though these projects tend to be single year in scope compared to capital Attachment 3). improvement projects, the work to be done such as patching and overlay, chip seal and traffic signal maintenance, is not prioritized by long term County goals such as achieving an average road condition on the County network by a certain date in the future. If specific priorities such as these were established in a multi-year plan, the Department would have a stronger basis to justify the allocation of its maintenance dollars. Like most counties in California, El Dorado County faces extensive deferred maintenance costs in excess of available resources for road and bridge work. Officially adopted agreed upon priorities are all the more important when need exceeds resources available. The Department of Transportation has prioritized its capital improvement projects by three tiers of priority and is in the process of preparing a new multi-year capital improvement plan. The Department is intending to use this document as a budgetary document as well as a work program so that project priorities and resources available will be linked. Department management's goal is to update the plan annually in advance of the April submittal to the Chief Administrative Officer and Board of Supervisors. Harvey M. Rose Accountancy Corporation Section 2: Capital Projects To develop the annual plans and budgets for the two departments' capital improvement plans, a process is needed in advance and in lieu of the budget hearing process in September. By September, or budget adoption time, it is too late to add capital projects which often require a fair amount of advance work to obtain funding or to plan in relation to resources available. Midyear planning workshops with the Board of Supervisors With five year plans in place for both departments, workshops should be held with the Board of Supervisors in January or at a more convenient time but well in advance of budget submission and adoption. The purpose of the workshops should be to revise and update the plans in accordance with any changes in circumstances, funding or Board priorities. From that point on, the plan for the next year should be established and budget submission and adoption should reflect the agreements reached at those workshops. This would make for a more clear and streamlined budget process for capital improvement projects as most of the projects and funding levels would have been previously agreed to or modified well in advance of the Board of Supervisors review and approval of the proposed budget. The Department of Transportation does prepare a monthly report on its capital projects but this report does not include a comparison of planned and actual project timing and costs. While this does not need to be provided to the Board and public on a monthly basis, it would be useful to present it at budget time and once more during the year such as at the annual planning workshop discussed above. Similarly, the General Services Department should prepare such a report for Board review twice a year, once at its planning workshop and again at budget addenda submission time. The list of projects included in the proposed budget in June should match that resulting from the January planning workshop and then be updated for the addenda process in September based on actual projects completed during the prime construction period and identification of carryover projects. Recommendations It is recommended that the Board of Supervisors: Direct the Director of Transportation to complete its draft five year capital improvement R2.1 plan now in progress and direct the General Services Director continue with reported efforts to develop such a plan for County facilities. The plans should include proposed priorities for projects, identification of revenue sources for projects, and proposed time schedules and milestones; Follow a process of collecting input from the public and other County departments on the R2.2 proposed five year plans, and adopt both documents to guide the two department's work plans and budgets; Implement a process where the five year plans for both departments are reviewed and R2.3 updated annually in a workshop with the Board of Supervisors that takes place well in advance of the budget review and hearing process so that department management can Harvey M. Rose Accountancy Corporation Section 2: Capital Projects secure funding and other resources in a timely manner to ensure that the highest priority projects are able to be accomplished in the targeted time frame; and, Direct the Directors of Transportation and General Services to develop and provide R2.4 reports twice a year; once when the proposed budget is submitted to the Board and once at the recommended annual planning workshops, showing all projects in process, comparing original and actual costs and timing, and explaining any variances in either. Costs and Benefits The General Services Department is planning to use the services of an outside consultant in preparation of their multi-year facilities plan. The cost for this is unknown as of the writing of There would not be any other new direct costs associated with the above this report. recommendations. Benefits would include a better use of resources by focusing the General Services and Transportation departments on specific agreed upon capital project priorities and road maintenance work, a more streamlined budget process for capital projects, and greater accountability by department managers for delivery of projects on time and budget. Responses Required for Findines El Dorado County Board of Supervisors F2.1 through F2.4 Responses Required for Recommendations El Dorado County Board of Supervisors R2.1 through R2.4 Harvey M. Rose Accountancy Corporation COSICENIER 305 DOf - CAPITAL PROJECTS EL DORADO COUNTY 08/24/2001 WORK PROGRAM 2001-2002 BUDGET YEAR DINER FIXED VEHICLE OVERHEAD SERVICES INTRAFUND REVENUE 1A1RK REVENUE L SUPPLIES CHARGES USAGE CHARGES TRANSFER$ LABOR ASSETS TOTAL DESCRIPIION SOURCE AMOUNT ORDER SUPPORT TO O THER GOVERNMENT AGENCIES 0 0 CONTRIBUTION TO OTHER AGENCY 0 0 50,000 0 0 50,000 STATE-RSIP 182.9 52101 50,000 0 US 50 WEST BOUND-PONDEROSA 6 N SHINGLE SIGNALIZATION 0 1,556,300 22,000 0 114,580 1,692,880 STATE-RSIP 182.6d1 0 53108 300,000 CALTRANS 300,000 RA2 1 STATE SYSTEM T,IM 1,092,880 NWY 50 IIOV LANE EDN 10 SHINGLE SPRINGS 0 0 0 0 0 0 5,000 5,000 53110 RA2 1 STATE SYSTEM: TIM 5,000 0 0 150,000 0 0 0 0 150,000 FORHI ROAD IMPROVEMENTS - CITY 53112 150,000 222,000 0 О 0 1,556,300 0 119,580 1,897,880 CATEGORY TOTAL 1,897,880 CAPITAL IMPROVEMENT PROJECTS MISSOURI FLAT INTERCHANGE PSR 71317 457,880 28,500 0 0 0 99,620 586,000 0 FUND BALANCE EDCTC CARRYOVER 96,706 RA2 1 STATE SYSTEM TIM 489,294 581,000 1,524,000 0 71318 EDIT BLVD INTERCHANGE PSR 0 0 0 145,000 2,250,000 EL DORADO HILLS RIF/SALMON FAL 750,000 OTHER FINANCING SOURCES 1,500,000 CAMINO INTERCHANGE 0 0 О 71319 0 0 0 41,669 41,669 FUND BALANCE EDCTC CARRYOVER 31,669 RA2 2.5 STATE TIM FEE 10,000 UNITE ROCK RD REALIGII14EIIT 27,500 2,500 0 0 120,000 150,000 0 EL DORADO HILLS RIF/SALMOII FAL 71329 0 150,000 0 2,134,901 682,500 0 0 0 38,849 2,856,250 EDIT BLVD E/B DIAGONAL EL DORADO HILLS RIF/SALMOII FAL 71350 2,856,250 0 128,953 08/24/2001 EL DORADO COUNTY COSICENTER 305 DOI - CAPITAL PROJECTS WORK PROGRAM 1001-2002 BUDGET YEAR REVENUE REVENUE INTRAFUND FIXED VEHICLE OVERHEAD SERVICES 0111ER WORK CHARGES TRANSFERS 10fAL SOURCE AMOUNT CHARGES ASSETS USAGE L SUPPLIES LABOR DESCRIPTION ORDER TRANSPORTATION ENHANCEMENT ACT 103,719 0111ER GOVT AGENCIES 15,620 SHVAQ (DMV AIR QUALITY) 13,225 0 0 0 64,000 115,000 3,700 47,300 0 BIKEPATII-EL DORADO HILLS BLVD/fRAHCISCO TO GOVERNORS 71352 TRANSPORTATION ENHANCEMENT ACT 101,775 RAZ 1 STATE SYSTEN : TIN 0 50,000 100,000 100,000 500 О 0 0 49,500 PONDEROSA RD 0 IHIY 50 ROUTE ADOPTION 71353 0 0 0 0 3,608,527 FUND BALANCE - UNRESTRICTED 309,649 Ω 0 3,608,527 ROAD REHABILITATION 72100 FUND BALANCE GOVERNORS CONGEST 1,755,690 TRANSPORTATION TAX IDA 43,188 OPERATING TRANSFERS IN 1,500,000 EL DORADO HILLS RIF/SALMON FAL 0 0 40,000 40,000 40,000 0 0 0 0 EL 00 HILLS NORTHERLY ALLIGNMENT 72332 1,265,613 TIN 1,265,613 0 0 0 101,438 0 98,750 1,065,425 MISSOURI FLAT/PLEASANT VALLEY CONNECTOR 72334 EL DORADO HILLS RIF/SALMON FAL 1,132,000 0 0 0 663,156 1,132,000 464,344 4,500 0 LATROBE ROAD - WHITE ROCK 0 WETZEL OVIATT 72335 0 0 0 95,000 95,000 TIM 95,000 О 0 0 CAMERON PARK DRIVE PHASE 11 72343 EL DORADO HILLS RIF/SALMON FAL 0 0 166,184 5,673,907 1,352,382 0 4,041,999 1,465,724 0 GRII VLY RD WIDENING/SIIADOWFAX 10 BROWNS RAVINE 72353 TIM 1,588,326 RISC REIMBURSABLE 430,000 LONGTERM ADVANCE 2,303,199 294,717 0 174,693 755,685 TIN 0 0 411,301 0 169,691 GREEN VALLEY RD WIDENING COMMERCIAL AREA B 72354 LONGTERM ADVANCE 460,968 EL DORADO HILLS RIF/SALMON FAL 0 0 106,000 147,500 89,975 0 2,000 39,500 0 GREEN VALLEY RD WIDENING MORMON ISLAND TO FRANCISCO 72355 TIN 57,525 CALTRANS 1,323,473 77,000 COSTCERTER 305 DOT - CAPITAL PROJECTS EL DORADO COUNTY 08/24/2001 WORK PROGRAM 2001-2002 BUDGET YEAR SERVICES OTHER FIXED VEHICLE OVEANEAD INTRAFUND 1RIRK REVENUE REVENUE DESCRIPTION LABOR L SUPPLIES CHARGES ORDER ASSETS USAGE CIIAROES TRANSFERS TOTAL SOURCE AMOUNT I E S (HAZARD ELIH SEC) 500,000 RAZ 1 STATE SYSTEM TIM 746,473 GREEN VALLEY NO 41 MORMON ISLAND 0 1,720,499 667,369 0 0 0 70,001 2,457,869 73349 EL DORADO HILLS RIF/SALMON FAL 1,046,708 TIM 669,206 CIP INIRA DEPARTMENT 65,000 MISC REIMBURSABLE 11,086 LONGTERM ADVANCE 665,869 73351 METAL BEAM GUARDRAILS - 7 LOCATIONS 0 0 0 0 0 0 15,000 15,000 11 E S (HAZARD ELIH SEC) 15,000 BRIDGES/GRIT VLY RD-RECONST GROG 0 DRY CRK 77103 0 18,278 256,000 0 0 0 54,110 328,388 FUND BALANCE RSTP CARRYOVER 135,091 IIBRR (IDLY BRIDGE RE/REII) 193,297 77108 BRIDGES/BRIDGEPORT SCHOOL RD-REPLACE BRGE 398,804 27,000 0 0 0 0 49,780 475,584 FUND BALANCE RSTP CARRYOVER 163,706 RSTP STATE EXCHANGE 205,286 HBRR (IIWY BRIDGE RE/REN) 106,592 77109 GR11 VLY RD BRIDGE 0 TENNESSEE 0 140,000 10,500 0 0 0 24,500 175,000 FUND BALANCE RSTP CARRYOVER 35,088 RSTP STATE EXCHANGE 83,912 IIBRR (NWY BRIDGE RE/REII) 56,000 SALMON FALLS BRIDGE 2 AMERICAN RIVER 77110 139,800 4,684 0 0 0 0 20,200 164,684 FUND BALANCE RSTP CARRYOVER 11,566 RSTP STATE EXCHANGE 11,470 HORN (IIWY BRIDGE HIRER) 141,648 0 77112 BRIDGES - HT MURPHY 0 AMERICAN RIVER 135,000 0 0 0 0 23,606 158,606 FUND BALANCE RSTP CARRYOVER 28,606 RSTP STATE EXCHANGE 10,000 IIBRR (IIWY BRIDGE RE/REII) 120,000 BRIDGE BARRIER RAILING 77113 0 98,000 0 0 0 0 23,022 121,022 FUND BALANCE RSTP CARRYOVER 3,545 RSTP STATE EXCHANGE 11,241 IIBRR (IIWY BRIDGE RE/REII) 106,236 baD3 rrt Co rt (D W n а COSTCLYTER 305 DOT - CAPITAL PROJECTS EL DORADO COUNTY 08/24/2001 WORK PROGRAM 2001-2002 BUDGET YEAR SERVICES OTHER FIXED VEHICLE OVERHEAD INTRAFUND REVENUE REVENUE MRK UROLN UESCRI1-Tfoil LABOR A SUPPLIES CHARGES ASSETS USAGE CHARGES TRANSFERS TOTAL SOURCE AMOUNT COHIIHGEHCY - PROJECTS 1101 COMPLETED 79999 0 0 0 0 0 -626,186 0 -626,186 TIM -626,186 CATEGORY TOTAL 0 15,800,126 6,168,719 0 0 1,600,865 23,569,710 0 23,569,710 SUBTOTAL 0 17,356,426 6,390,719 0 0 0 1,720,445 25,467,590 25,467,590 TOTAL AVOW ED COME Ω Ω Ω Ω 0 0 - • COSICENTER 306 001 - ROADS EL DORADO COUNTY 08/24/2001 WORK PROGRAM 2001-2002 BUDGET YEAR tA)RK SERVICES OTHER FIXED VEHICLE OVERHEAD INTRAFUND REVENUE REVENUE DESCRIPTION LABOR L SUPPLIES CHARGES ASSETS USAGE ORDER CHARGES TRANSFERS TOTAL SOURCE AMOUNT ROAD MAINTENACE PROJECTS 11,628 161,650 0 0 41100 IRAF SIG L LGT MATH\WS RD 1,663 5,145 180,086 0 DEPARTMENT DISCRETIONARY 180,086 13,000 0 0 41101 SIGNAL MAINT - TO 0 0 0 0 13,000 DEPARTMENT DISCRETIONARY 13,000 76,654 18,050 I NSTALL NEW SGH, SIRP L Sf1Y DEV/WS RD 0 0 43100 11,689 36,155 0 142,578 DEPARTMENT DISCRETIONARY 142,578 43101 INSTALL SGH, SIRP A SFTY OEV/CATTLE GUARD INSTALL TO 3,037 3,150 319 986 0 0 0 7,492 DEPARTMENT DISCRETIONARY 7,492 44100 PATCHING/OVERLAY PAIC11111G (BASE RECONST.) 265,812 344,356 0 0 123,300 116,585 0 850,061 DEPARTMENT DISCRETIONARY 550,061 PATCIIIIG/VS O/L PATCH - 10 (BASE RECONST.) 44101 99,209 192,385 0 0 74,493 53,504 0 419,591 DEPARTMENT DISCRETIONARY 419,591 45136 CONTRACT OVERLAY-EL DORADO HILLS BUS PARK О 36,000 0 0 0 0 0 36,000 MISC REIMBURSABLE 18,000 OPERA71NG TRANSFERS IN 18,000 CHIP SEAL/WS RD 46100 297,113 481,153 0 0 139,783 131,667 0 1,049,716 DEPARTMENT DISCRETIONARY 1,049,716 46101 CHIPSEAL TO 0 230,000 0 0 0 0 230,000 0 DEPARTMENT DISCRETIONARY 230,000 PAVEMENT MANAGEMENT SYSTEM 48100 43,714 1,900 0 1,476 0 14,588 0 61,678 DEPARTMENT DISCRETIONARY 61,678 MAINTAINED MILEAGE 150 13,214 Ω 0 36 48101 4,346 0 17,746 DEPARTMENT DISCRETIONARY 17.746 ROUT MAIN/RD SUR POT IILS 48102 536,044 302,926 О 0 313,323 251,899 0 1,404,192 DEPARTMENT DISCRETIONARY 1,404,192 ROUT MAIN/AC GERMS 48103 3,834 9,297 0 0 2,226 1,827 0 17,184 DEPARTMENT DISCRETIONARY 17,184 ROUT MATH/CRACK SEALS 48104 27,778 30,300 0 0 18,111 14,016 0 90,205 DEPARTMENT DISCRETIONARY 90,205 7,895 0 0 ROUT MAIN/RD SUR GRAD 48105 0 3,696 3,331 0 14,922 DEPARTMENT.DISCRETIOHARY 14,922 87,839 162,995 Ω Ω 75,470 COSTCENTER 306 DOT - ROADS EL DORADO COUNTY 08/24/2001 WORK PROGRAM 2001-2002 BUDGET YEAR Won K OTHER SERVICES FIXED VEHICLE OVERHEAD INTRATUND REVENUE REVENGE OROLIT DESCRI1111011 LABOR R SUPPLIES CHARGES ASSETS USAGE CHARGES TRANSFERS TOTAL SOORCE AMOUNT 156,884 1,208 ROUT MAIN/RD SIDE DITCH 0 86,882 48108 0 72,512 0 317,486 DEPARTMENT DISCRETIONARY 317,486 ROUT MAINT/ DRAINAGE EASHEIII 48109 759 0 0 0 369 333 0 1,461 DEPARTMENT DISCRETIONARY 1,461 ROIL MAIN/SWEEPING 41,701 1,200 0 48110 0 24,884 20,122 87,901 0 DEPARTMENT DISCRETIONARY 87,907 ROUT MAIN/CLN-RPR CULVERT 280,924 46111 22,647 0 140,067 125,593 0 0 569,231 DEPARTMENT DISCRETIONARY 569,231 68111 ROUT HAITI/TNCE, GORL, OAR REP 8,354 10,000 0 0 4,066 3,664 0 26,084 MISCELLANEOUS SERVICES/INSPECT 5,000 DEPARTMENT DISCRETIONARY 21,084 RaOT RAIN/SIGH HAIRY - 115 48114 278,130 24,467 0 78,784 0 128,779 0 $10,160 MISCELLANEOUS SERVICES/INSPECT 5,000 DEPARTMENT DISCRETIONARY 505,160 48115 ROUT MAIN/CNTLR L MRK HAITI - WS 334,573 129,117 0 0 66,208 155,792 0 705,690 DEPARTMENT DISCRETIONARY 705,690 ROUT MAIN/DEAD ANIMAL REMOVAL 48116 0 15,000 39,000 0 0 0 0 54,000 DEPARTMENT DISCRETIONARY 54,000 48118 ROOT MAIN/8RDG MAIN ; 79,741 0 56,417 0 38.849 34,975 0 209,984 DEPARTMENT DISCRETIONARY 209,984 46119 YARD MAINTENANCE 10,777 4,097 0 5,434 0 4,799 0 25,107 DEPARTMENT DISCRETIONARY 25,107 ROOT MAINT/EROSION 48122 1,639 1,400 0 О 1,256 902 О 5,197 DEPARTMENT DISCRETIONARY 5,197 EMERGENCY RESPONSE 48123 4,810 0 0 0 2,347 2,110 0 9,267 DEPARTMENT DISCRETIONARY 9,267 ROUT HAIRY/ SPRAYING 48124 22,784 48,067 0 0 11,098 9,993 0 91,942 DEPARTMENT DISCRETIONARY 91,942 48127 DURAPATCHING 126,642 53,193 0 О 68,777 58,383 0 306,995 DEPARTMENT DISCRETIONARY 306,995 SIGN REMOVAL IN ROW 48129 4,149 0 0 0 148 5,828 0 10,125 DEPARTMENT DISCRETIONARY 10,125 48131 SIGN MAINTENANCE - TO 1,063 6,789 2.900 COSFCENTER 306 DOT - ROADS EL DORADO COUNTY 08/24/2001 WORK PROGRAM 2001-20OZ BUDGET YEAR WORK SERVICES OTHER FIXED VEHICLE OVERHEAD INTRAFUND REVENUE REVENUE ORDER DESCRIPTION i SUPPLIES LABOR CHARGES ASSETS USAGE CHARGES TRANSFERS TOTAL SOURCE AMOUR I 48132 CENTERLINE HAIRY - TO 16,870 22,950 0 0 3,724 8,017 0 51,561 DEPARTMENT DISCRETIONARY 51,561 ROUT MAIHT/FNCE,GURL,PAR REP TO 48134 380 0 0 0 190 167 0 737 DEPARTMENT DISCRETIONARY 737 R0111 MAIIII/BRIDGE HAIRY T 0 3110 48135 Ω 0 0 190 167 0 737 DEPARTMENT DISCRETIONARY 737 48901 SAFETY PROJ - 2 WAY LEFT TURN LN/PLEASANT VLY RD E/O O.S. 0 10,000 0 0 0 0 0 10,000 DEPARTMENT DISCRETIONARY 10,000 45902 SAFETY PROJ - 2 WAY LEFT TURN LM/SUNSET TO FRENCH CRK 0 15,000 0 0 0 0 . 0 15,000 DEPARTMENT DISCRETIONARY 15,000 48903 SAFETY PROJ - LEFT RUN L11/GREEN VLY 0 W DEER VLY 0 10,000 0 0 0 0 0 10,000 DEPARTMENT DISCRETIONARY 10,000 48904 SAFETY PROD - ALL WAY SLOP/COLD SPROS 0 GOLD HILL 0 15,000 0 0 0 0 О 15,000 DEPARTMENT DISCRETIONARY 15,000 48908 SAFETY PROJ - LRDSCPE ISLANDS/CCC TO DUMP/SPREAD ROCK 0 30,000 0 0 0 0 О 30,000 DEPARTMENT DISCRETIONARY 30,000 49100 SNOW REMOVAL/WS 90,408 45,213 0 0 30,828 35,275 0 201,724 DEPARTMENT DISCRETIONARY 201,724 49101 SNOW REMOVAL/TO 697,396 76,437 4,768 Ω 271,154 217,112 0 1,266,867 DEPARTMENT DISCRETIONARY 1,266,867 49275 DOT/FOREST SERVICE CUL-DE-SACS 31,031 69,615 0 0 7,839 26,067 0 134,552 DEPARTMENT DISCRETIONARY 134,552 CATEGORY TOTAL 3,744,080 2,488,245 43,768 0 1,642,119 1,623,396 0 9,541,600 9,541,608 SUPPORT TO O THER GOVERNMENT AGENCIES 50000 CAPITAL IMPROVEMENTS 59,230 0 0 0 0 52,850 -112,080 0 . 52101 CONIRIOUTION TO 0111ER AGENCY 0 0 86,000 0 0 0 0 86,000 TRANSPORTATION TAX IDA 86,000 CATEGORY TOTAL 59,230 86,000 0 0 52,850 0 -112,080 86,000 86,000 ь rt QQ rt FD W W 3. Budget Timing, Information and Analysis The Board of Supervisors receives very comprehensive, well organized reports on F3.1 the status of the budget at mid-year but no further formal reports until they receive the proposed budget for the next fiscal year in June. As stewards of the County's financial resources, more regularly produced status reports and updates should be provided with less detail than the mid-year reports but with enough information to allow the Board to monitor performance and receive early warnings of potential fiscal problems. The County's financial information system allows for production of a wide variety F3.2 of ad-hoc reports and analysis of expenditures and revenues accessible to all department managers. A monthly report to the Board showing actual expenditures and revenues by department, with a projection of the County's financial position at year end, could easily be produced and would facilitate more Board and public involvement in monitoring the County's fiscal status. It would eliminate surprise developments such as the increase from $12.5 to $21.5 million in fund balance available reported between the proposed and budget addenda for FY 2001-02. Information of this sort would also provide a basis for other questions and analyses of situations when revenues or expenditures are not at the level originally projected. The analysis of the proposed budget each year consumes many months of staff time F3.3 but largely focuses on incremental appropriations requested by the departments or recommended by the Chief Administrative Officer but not the baseline budget. Oftentimes, savings can be realized in the baseline budget by improving the efficiency of operations, reorganizing or consolidating programs or increasing revenues. One of the most effective means of identifying opportunities for savings in the baseline budget is through departme ntal performance audits. The major points of public presentation and discussion about the County's budget are: 1) the mid-year budget report to the Board of Supervisors; 2) presentation of the proposed annual budget in June; 3) presentation of the addenda budget in August; and, 4) budget hearings in September. At all four points, a great deal of useful information is provided to the Board covering all departments, revenue sources and operational issues. The information is prepared by the Chief Administrative Officer and, in the past, discussion about the contents were largely between the Board and the Chief Administrative Officer and the Auditor-Controller. For the FY 2001-02 budget, the process was expanded when the Board of Supervisors requested that each department make a presentation about their budget and operations. The mid-year budget report provided in February 2002 contained discussion of projected fund balance, expenditures and revenues by department, a discussion of expected increases in health benefits costs, detailed revenue projections (summarizing projections prepared by the Auditor- Controller), capital project highlights, a discussion of the State budget, a regional economic forecast, salary projections for FY 2002-03, and departmental savings. It provides a good deal of information of interest to the Board of Supervisors, department managers and the public. Harvey M. Rose Accountancy Corporation Section 3: Budget Timing, Information and Analysis The proposed budget document for the subsequent fiscal year is provided in June of each year and includes detailed revenue projections and proposed expenditures for each department. Information for each department is also presented including staffing detail, descriptions of all major programs operated by the department, workload indicators, actual revenues and expenditures for the previous two fiscal years and proposed revenues and expenditures by major programs or costs centers for all departments. An overview of the County's financial situation is presented including detailed revenue estimates for the budget year, changes in State and other funding sources, and roll ups of expenditure data by fund and functional areas. The third and final budget report prepared by the Chief Administrative Officer is provided in August. This report provides final revenue and expenditure estimates for the year after the State budget has been adopted and actual fund balances are known based on better and more complete prior year actual data. While all three reports provided to the Board of Supervisors include a substantial amount of useful information, there are no routinely produced reports between these three to keep the Board abreast of the overall fiscal situation of the County and to have early warnings of potential problems. Budget related items do come up at Board meetings if an individual department is requesting mid-year supplemental funding or if the supervisors request information on a particular department or a budget related topic. However, fiscal information is not otherwise routinely reported in a standardized report to the Board to allow for comparisons and trend analyses throughout the year. Timing of County Budget Review and Approval Department budget staff spend many months of the year going through their internal budget review and preparation processes and then explaining and defending their proposals to the Chief Administrative Office before they are submitted to the Board of Supervisors. Then, for many departments, there are additional analyses and expenditure plans to be prepared between June and September as actual fund balance amounts become known, the State budget is adopted and other adjustments are made. The net result is a lengthy process consuming more than half the year and a budget mostly prepared six months earlier being reviewed by the Board of Supervisors in September. While the County is subject to State timing requirements governing the preparation and adoption of the budget, attempts should be made to complete more of the budget process in June so that fewer staff hours are consumed in duplicative efforts between June and September and so the budget reviewed and discussed by the Board of Supervisors is more current. A review of changes between the proposed and addenda budget for FY 2001-02 shows that budget appropriations increased by $23 million between June and September. Most of the change, or 77.3 percent, was in the General Fund and Roads Fund. Exhibit 3.1 presents the changes for all funds. Harvey M. Rose Accountancy Corporation Section 3: Budget Timing, Information and Analysis Exhibit 3.1 Changes between Proposed and Addenda Budget By Fund, FY 2001-02 Total Proposed Addenda Difference Budget Difference Budget Fund 41.2% $31,856,908 $41,367,148 $9,510,240 Roads Fund 36.1% 156,236,963 147,900,815 8,336,148 General Fund 2,590,499 11.2% 19,719,350 17,128,851 Health Department 1,729,801 7.5% 3,673,718 5,403,519 Accumulated Capital Outlay 713,411 3.1% 9,749,849 10,463,260 Mental Health Services 487,860 2.1% 487,860 Tobacco Settlement 0.7% 2,617,875 157,004 2,460,871 Road District 0.2% 8,026,027 39,974 Community Services 7,986,053 0.0% 20,000 20,000 Special Aviation 0.0% 5,000 5,000 Fish & Game 0.0% 300,000 300,000 EIR Development Fees -2.2% (504,615) 4,918,455 4,413,840 Erosion Control $23,060,322 100.0% $226,000,520 $249,060,842 TOTAL Source: Proposed and Addenda Budgets, FY 2002-03 The $9.5 million in Roads Fund monies was mostly from capital project carryovers and increases in estimated fund balance. For the General Fund, the increase was primarily generated from carryover fund balance, mostly due to a combination of capital project carryover, actual expenditures being less than budgeted, and actual revenues being more than budgeted the previous year. The fourth largest contributor to the increase, Accumulated Capital Outlay, was also the result of an increase in fund balance available compared to what was estimated in the proposed budget due to more projects being carried over from the previous year than anticipated in June. By producing more detailed projections of revenues and expenditures throughout the year, particularly in the second half, and projecting year-end fund balance monthly, the County's estimates of carryover fund balance in June should become more accurate and closer to the amounts now not identified until September. With better tracking and reporting of capital project expenditures and timing, as recommended in Section 2 of this report, and monthly projections of year-end fund balance for the Roads and Accumulated Capital Outlay funds, the discrepancy between the June and September budget for capital project carryover funds should also be decreased. The net result of more accurate forecasting would be fewer changes between June and September and less work for all County staff in creating and analyzing a second budget document with numerous revisions for the September hearings. Though the State budget could be and probably will be changed to some extent between June and September, most of it should be known and in place by June based on the Governor's budget. County estimates of the budget in June should be reasonably accurate for most of the State funding received. The County should endeavor to reduce discrepancies between the two budgets Harvey M. Rose Accountancy Corporation Section 3: Budget Timing, Information and Analysis and complete most of the budget process in June, with only some minor changes to be approved in September. While production of the three budget reports that the Board now receives involves a substantial amount of work for the Chief Administrative Officer and department fiscal staffs, other regularly provided information between these three reports is needed. Current budget information is readily available on the County's Financial Management Information System (FAMIS) and could be produced without extensive staff work. Of key importance for a monthly report is: 1. Budgeted vs. actual expenditures and revenues by department and major revenue source 2. Explanations of major variances between budgeted and actual expenditures and revenues 3. Projected expenditures, revenues and fund balances, by fund, for year end 4. Key performance indicators This information would provide ongoing assessments of the County's fiscal situation and individual department performance and would serve as a supplement to the annual budget review and approval process by making the Board aware of issues affecting certain revenues or individual departments during the year. The Interim Chief Administrative Officer directed all department heads in April 2002 to undertake detailed re-computations of their estimated year- end Net County Costs to improve the forecast for FY 2002-03. Even though monthly reports at the early part of the year would generally not be too revealing with so little time passed since budget adoption, the Board should still receive these reports as they will serve as the foundation for subsequent reports during the year. As the year progresses, the Board may want to request other special reports with more detail on a certain department or revenue or an issue such as turnover or workers compensation claims if a particular department is experiencing a high rate of claims. The County needs to analyze its baseline programs and budgets Another type of information that would be useful to inform the annual budget process is evaluations or performance audits of individual departments and programs conducted throughout the year. This would provide the Board with more detail that could be used at budget time regarding all aspects of individual department operations and provide a stronger basis for decisions about baseline department funding levels. The budget review process assumes that a baseline level of funding will be provided for all departments. The discussion in the proposed budget regarding funding changes almost entirely deals with incremental funding levels, or additions to the base level of funding. As in most counties, the Chief Administrative Office's analysis of budget requests submitted by the departments is focused primarily on any increases to the baseline budget but generally does not question the existing level of funding. Comments in the proposed budget document focus on increases or changes in the budget and recommendations on what new positions or programs should be funded, if any. For the most part there is no discussion or recommendations to decrease funding of the baseline budget through improved efficiency and/or increased revenue. Harvey M. Rose Accountancy Corporation Section 3: Budget Timing, Information and Analysis There is an implicit assumption in the budget review that existing allocation levels should not be changed. In fact in many instances changes could be made to department operations or business processes and costs reduced through efficiency improvements or revenues increased through improved collections or establishing fee levels that capture more of the costs actually being incurred. One way of identifying such changes is through detailed review of department operations through performance auditing. Performance auditing can briefly be described as a review of all aspects of a department's operations to determine if the department is operating in compliance with all applicable laws and as efficiently, effectively and economically as possible. Performance audits can be conducted by outside consultants or in-house staff. While regular conduct of performance audits might represent a new cost to the County, if new staff is hired or consultants are used,' over time audits should more than pay for themselves with cost savings and/or revenue increases for the departments reviewed. Another benefit would be improved service levels for the public by identifying improvements in business processes and methods of streamlining operations. El Dorado County engaged a consultant to conduct a performance audit of the Department of Transportation and is planning one soon for the Department of Social Services. Efforts such as these should be continued and expanded to include all other departments on a multi-year cycle. Performance audits should take place throughout the year but their recommendations could be used in the budget process by identifying areas where departments could operate more efficiently particularly in the base budget. For example, a recently conducted analysis of Sheriffs Department staffing conducted independent of their budget preparation process recommended adding more permanent positions to reduce overtime. An analysis of a department's management structure might reveal an opportunity to consolidate and reduce management positions based on an analysis of duties performed. An audit of user fees charged by the County might show that they are not fully recovering costs and should be adjusted accordingly. In some jurisdictions performance audits are conducted on an ongoing basis so that all departments are audited over a certain number of years. Other counties select audit topics annually based on an assessment of the risk or exposure of each department and the potential impact of realizing improvements in that department. Other jurisdictions conduct performance audits as the need arises. An ongoing performance audit program in El Dorado County would have multiple benefits including improved service levels, reduced costs of operations and making resources available for other purposes. The County should explore the possibility of conducting performance audits with existing audit staff through re- prioritization of their current duties. If this is possible, new costs would not be incurred. Harvey M. Rose Accountancy Corporation Section 3: Budget Timing, Information and Analysis Recommendations It is recommended that the Board of Supervisors: Direct the Chief Administrative Officer and/or the Auditor-Controller to begin producing R3.1 monthly fiscal status reports showing a comparison of budgeted and actual expenditures and revenues by department, projected expenditures and revenues through year end, projected year-end fund balance for each of the County's funds based on the latest actual revenues and expenditures, and selected key performance indicators for individual departments; Direct the Chief Administrative Officer to develop and implement a plan to reduce R3.2 differences between the proposed budgets in June and September and reduce County staff time spent preparing for the second budget hearing by using the recommended monthly projections of revenues, expenditures and fund balance and by more closely monitoring capital project progress and funding in the second half of the fiscal year; Direct the Chief Administrative Officer to implement a performance audit program to be R3.3 conducted either in-house by staff in the Auditor-Controller's office, staff reporting directly to the Board of Supervisors, by consultants, or a combination of in-house staff and external consultants; and, Establish a performance audit schedule using a risk assessment approach where all R3.4 departments are evaluated against a set of criteria to indicate where the largest benefits are likely to occur from conducting performance audits. Costs and Benefits The costs of implementing the above financial forecasting recommendations would primarily be existing staff time. The benefits would include staff time now spent preparing for the September budget addenda process becoming available for other purposes and more of the budget process being complete in June. The costs of an ongoing performance audit program would depend on whether new staff is hired and, if so, the number and level of audits to be conducted in a year. Assuming two to three audits would be typical and two to three staff positions, estimated costs would be between $100,000 and $200,000 per year. To the extent existing audit staff could be used for this purpose by re- prioritizing their activities rather than adding new staff, additional costs would not be incurred. The benefits of a performance audit program should greatly exceed the costs in terms of cost savings and revenue increases identified through the performance audit process. Harvey M. Rose Accountancy Corporation Section\ 3:\ Budget\ Timing,\ Information\ and\ A\ nallysis Responses Required for Findings F3.1 through F3.3 El Dorado County Board of Supervisors Responses Required for Recommendations R3.1 through R3.4 El Dorado County Board of Supervisors Harvey M. Rose Accountancy Corporation Internal Service Funds 4. F4.1 The County budget includes two internal service funds; the risk management fund covers centralized County insurance costs and the fleet management fund covers the County's vehicle maintenance and replacement services. Internal service fund costs are not as predictable as operating departments because they rely on forecasts of future needs and variables such as the number of employees who will need health services or be injured on the job, the extent to which claims will be filed against the County and the number of vehicles that will need to be replaced. The budget for these two funds in FY 2001-02 is approximately $20.9 million and together the County maintains reserves for these two funds of another approximately $16 million. This level of expenditure and reserves represents a larger budget than most County departments. F4.2 Key information on assumptions used for these funds is not fully disclosed in the proposed and addenda budget documents to assist the Board of Supervisors in determining the appropriate level of appropriations and reserves for these funds. The budget does not present actual expenditures for previous years or projections of expenditures for subsequent years. Without this information it is not easy to determine if appropriate funding and reserves are in place. If too much is budgeted and reserved, budget resources are tied up that could otherwise be used for other purposes. If too little is budgeted, the County may need to reduce expenditures elsewhere or use contingency funds to meet its insurance or fleet obligations. The Risk Management budget for FY 2001-02 includes reserves based on five year F4.3 projections for the County's risk management fund. The basis for these projections should be provided to the Board of Supervisors, who should then adopt a County policy regarding appropriate reserve levels for each type of insurance. Historical and projected vehicle purchase expenditures are not presented in the F4.4 budget. Such information would help the Board determine an appropriate level of funding and reserves for the County's vehicle replacement fund. Internal service funds are defined as funds used to account for the financing of goods or services provided by one department or agency to other departments or agencies, on a cost reimbursement basis. El Dorado County has two such funds: 1) Risk Management and 2) Vehicle Replacement. The Risk Management fund is used to account for payments from all County departments to cover their share of the County's costs for general liability, employee health and workers' compensation insurance. The costs covered by the monies in this fund include claims payments, legal costs, insurance premiums for excess insurance', a third party administrator and staff and indirect costs of the County Risk Management Office. The County is self-insured but buys third party commercial insurance only for incidents above a certain dollar threshold. This helps prevent any dramatic swings in pay outs from year to year. Harvey M. Rose Accountancy Corporation Section 4: Internal Service Funds The fleet management fund charges each department for the costs of maintaining and acquiring and maintaining the department's vehicles and heavy equipment. The charges also cover the costs of County fleet management staff and related indirect costs. Key budgetary decisions to be made for these internal service funds are: a) the level of appropriation to include in the budget to meet annual expenses; and, b) the level of reserves to include in the fund to cover known future liabilities. Charges to customer departments are based on appropriated annual expenditures and a proportionate share of reserves. Annual appropriations are needed to cover the operating costs for a single budget year. Reserves are established for internal service funds to cover known or expected costs beyond what is expected in the budget year. Particularly with insurance, costs can be paid over multiple years. Although costs can be estimated for a claim filed in the current year, the case may not actually be settled for several years out. The risk management fund reserve provides funds for these type of situations and for unexpected pay outs in the event that a large claim against the County is settled sooner than expected or an unpredicted unusually high employee disability payment has to be made in a single year. Commercial excess insurance is also purchased by the County to cover high cost unusual cases. Fleet management fund reserves might be used if a number of vehicles or heavy equipment unexpectedly need replacement in addition to what is expected in the County vehicle replacement schedule. Insurance expenditures are determined with input from actuaries who produce multi-year projections of likely future pay outs based on historical loss and expenditure data, known claims filed, demographics of the work force, changes in law and other contributing factors. For fleet management, maintenance and replacement costs can be projected based on existing fleet characteristics such as age and mileage plus any projected increases in fleet size or mix needed based on new or expanded programs or workload in the County. Risk Management Fund As mentioned above, El Dorado County's risk management fund is comprised of three components: 1) employee health insurance; 2) general liability; and 3) workers' compensation. Each represents a significant cost to the County but the budget document does not present details on the three components. Instead, the County risk management fund is presented in aggregate with no breakdown of how much of the total cost is attributable to each component. Total budgeted expenditures for FY 2001-02 were approximately $18.1 million for all components of the risk management program. This amount is separate from the reserves kept in the risk management fund to cover known and projected insurance liabilities in future years. The budget document does not report the approximately $12 million reserved for the risk management fund nor does it report how much of this is attributable to each of the three components of the fund. Harvey M. Rose Accountancy Corporation Section 4: Internal Service Funds Details on the risk management fund should be presented in the proposed budget for a number of reasons. First, it is important for the Board of Supervisors to know which costs are increasing, which are decreasing, and what, if anything, County management has done or can do to control these costs. For example, employee health insurance costs are expected to increase significantly in the next year, an issue that was widely discussed in the budget hearings for FY 2001-02, but it would be useful to present these costs in the context of overall health insurance costs, separate from general liability and worker's compensation costs. Increases in workers' compensation costs cannot always be controlled but a large increase may raise questions about the extent to which County management has implemented safety training programs for employees. Similarly, a rise in risk management costs should be reviewed to determine if certain exposures resulting in frequent claims have been effectively dealt with by management. The proposed budget document for FY 2001-02 presents information about the Risk Management office that is part of the Chief Administrative Office. The document presents revenues and costs for the Risk Management office, including County staff, claims payments and other administrative cost, as follows: Exhibit 4.1 Risk Management Revenues and Costs Presented in the Proposed FY 2001-02 Budget FY 1999-00 through FY 2001-02 CAO Recommended Actual Approved FY 2000-01 FY 2001-02 FY 1999-00 Revenues: $14,824,755 $17,194,416 $12,764,911 Charges to Departments 527,506 594,007 684,255 Use of Money & Property 1,199,008 366,515 Fund Balance 4,000 1,500 1,500 Other Sources 166.667 103.356 Miscellaneous $16,788,437 $ 18,089,937 $13,554,022 Total Expenditures: 415,759 427,897 378,356 Salaries & Benefits 16,165,149 17,427,744 13,914,111 Services & Supplies 231,094 207,531 159,663 Other Charges 3.200 2,390 Intrafund Transfers $18,089,935 $16,788,439 $14,454,520 Total As can be the Services and Supplies expenditure line items of $17.4 million for FY 2001-02 represents the bulk of risk management annual costs. Since this is such a large amount and is comprised of a number of different costs, more detail should be provided in the budget including Harvey M. Rose Accountancy Corporation Section 4: Internal Service Funds how much is for claims payments, legal services, the third party administrator, excess insurance premiums, and other costs, for each of the three risk management fund components. Staffing for the office and workload indicators are presented in the proposed budget document as is a description of the office's programs and the Chief Administrative Officer's recommended changes in the budget. Determining Appropriate Reserve Levels for Internal Service Funds The revenue discussion includes the statement that the fund will be relying less on fund balance than it has in the past for health and worker's compensation. The discussion reports that reserves for the General Liability program are greater than what is needed and that Worker's Compensation reserves are lower than needed according to an actuarial analysis performed for the County. The Chief Administrative Office reports that it has prepared a five year plan to achieve reserves at a 70 percent confidence level for both the General Liability and Worker's Compensation fund. The 70 percent confidence level is described as a reserve level that will statistically be sufficient or better in 70 percent of the cases and inadequate 30 percent of the time. While it is laudable that the budget discloses the imbalance in reserves found in the two funds and a plan to correct it, the discussion has some deficiencies from a public decision making perspective. First, the actual amount of reserves in the two fund components are not presented in the budget nor is the fiscal impact of adopting the 70 percent confidence level approach clearly laid out. Alternative reserve scenarios are not presented so that the Board could see the fiscal impact of choosing other approaches to funding reserves for these funds at the 70 percent confidence level. The choice of a lower reserve level, which would not prevent the County from meeting its current year claims payment obligations, could potentially mean millions of dollars available for other purposes in the budget. On the other hand, the Board of Supervisors may want to adopt a higher reserve level policy that would require increasing the charges paid by departments to increase reserve levels in the fund. To make an informed decision, the budget should include the following: Current amounts in reserve, shown separately for Workers' Compensation, General Liability and Health Benefits Three years of projected actual expenditures for the budget year and the next five to ten years, shown separately for Workers' Compensation, General Liability and Health Benefits The amount needed to fund reserves at alternative confidence levels, covering the spectrum u of possible approaches ranging from no reserves for future year expenses if a "pay as you go" policy is adopted, funding to cover the current year and some future costs, funding to cover the current year and some but not all projected future costs, and funding to cover the current year and all projected future costs. Harvey M. Rose Accountancy Corporation Section 4: Internal Service Funds Counties and public jurisdictions have varying policies on reserves. On one end of the spectrum, some counties and other public jurisdictions simply budget for their expected payments in the budget year. Others choose to maintain reserves to fully cover all known current and future liabilities and some counties choose a position between these two. The Board of Supervisors should be involved in deciding the level of reserves for each of these funds. To inform this decision, the budget document should include information in a table such as presented in the example in Exhibit 4.2: Exhibit 4.2 Example of Information to Provide to the Board of Supervisors for Consideration of Alternative Insurance Reserve Levels for Internal Service Funds Reserves required Confidence level 000s None Pa as you o 20% $3,000 35% $3,500 50% $4,000 $4,500 65% 70% $5,000 80% $5,500 $6,000 100% The County's financial statement for the fiscal year ending June 30, 2001 showed that the Risk Management fund had approximately $12.9 million in cash reserves for future costs. The liability for noncurrent insurance payments was reported in the financial statement as $11.9 million. In other words, there was enough cash in the fund to cover all known and projected pay outs for the current and future years that would have to be paid if the County suddenly went out of business and never received any more payments from its customer County departments. Since the likelihood of the County actually going out of business is quite small, the Board may want to consider a lesser reserve level. By presenting the projected pay outs for future years in the proposed budget, the Board would be better informed for deciding the optimal level of reserves. A summary of information that should be presented is shown in the following two exhibits. The numbers are for illustration purposes only and do not reflect the actual or projected expenses of El Dorado County. The information in Exhibit 4.3 would provide a snapshot of retained earnings, annual revenues, annual costs, and cash reserves on hand for the future and projected future liabilities, all in one table. Harvey M. Rose Accountancy Corporation Section 4: Internal Service Funds Exhibit 4.3 Example of cash reserve, revenue and expenditure information to be presented in the proposed General Liability and Workers' Compensation Fund budgets (in 000s) Workers' General Liability Compensation $2,900 $3,600 a Retained earnings: end of FY 00-01 3,700 4,200 b Revenues from charges to departments FY 01-02 6,600 7,800 c Total funds available (a+b) 2,000 2,600 FY 01-02 Claims pay outs/legal costs, • FY 01-02 Third party administrator costs 400 300 1,500 1,000 FY 01-02Excess insurance costs FY 01-02 Staff and administrative costs 150 200 4,050 4,100 h Total costs FY 01-02 (d through g) i Retained earnings: end of FY 01-02 c-h 2,550 3,700 J Cash reserves on hand 6,600 3,300 6,500 4,200 k Future Year Liabilities Amounts shown are for illustration purposes only and are not actual El Dorado County amounts. Note: Actual historical expenditures should be shown to provide information about typical annual expenditures, what is likely to be needed in future years and to help determine how much cash should be kept in reserve to meet those expenses. Exhibit 4.4 Example of payment data to be presented in budget for General Liability and Workers' Compensation Funds (in 000s) Workers' General Compensation Fiscal Year Liability 1,500 1,600 1995-96 1,700 1,500 1996-97 1,900 1997-98 1,800 1998-99 1,900 2,000 2,500 1999-00 2,700 2,700 2000-01 2,500 Information such as that shown in Exhibit 4.4 should be presented to the Board of Supervisors to identify average annual expenditures in the past and as a basis for future projections. The historical numbers would have to be tied to some sort of appropriate index such as number of employees to determine an average cost per employee and then project forward based on expected increases in the County work force. Other variables should also be considered in the projections such as changes in County services that might result in changes in risk exposures. Harvey M. Rose Accountancy Corporation Section 4: Internal Service Funds Fleet Management Fund Fleet management fund information in the budget document is less comprehensive than risk management fund information. The fleet management function is a function of the General Services Department and is included in that department's budget. Because the department covers so many functions, such as capital projects, communications, purchasing, airports and parks and grounds, and because the expenditure level is lower, the level of reporting is lower for fleet management than risk management. In spite of its smaller size, similar information should be presented in the budget as discussed for risk management. The budget document should include cash on reserve (approximately $3.7 million as of June 30, 2001), annual revenues and historical and five year projected fleet maintenance and replacement costs. Unlike insurance costs, the County would not have future vehicle maintenance and replacement obligations if it went out of business but some reserve level is appropriate to cover unanticipated expenses such as replacement of critically needed vehicles before their expected replacement dates due to accident or unplanned repair costs exceeding the vehicle's value. This information and reserve options would assist the Board of Supervisors in making decisions on funding levels and appropriate charges to customer departments for this fund. Recommendations It is recommended that the Board of Supervisors: Adopt a policy establishing reserve levels for the three components of the risk R4.1 management fund and the total fleet management fund based on information provided by the Chief Administrative Officer including: (a) a year by year schedule of all known and estimated liabilities for the health benefits, workers' compensation and general liability funds; and, (b) the amount needed to fund reserves at alternative confidence levels ranging from "pay as you go" to fully funded; Require the Chief Administrative Officer to provide details on historical and projected R4.2 claims payment expenditures each year in the proposed budget for all internal service funds, with the three components of the risk management fund presented separately; Require the Chief Administrative Officer to clearly present the amounts in reserve each R4.3 year by each internal service fund or component thereof; Require the Chief Administrative Officer to provide more detail on the approximately R4.4 $17 million in annual Services and Supplies expenditures for the risk management fund and each of its component funds. Harvey M. Rose Accountancy Corporation Section 4: Internal Service Funds Costs and Benefits There would be no new direct costs associated with the above recommendations. Benefits would include better information about internal service fund funding levels provided to the Board of Supervisors and the public and, potentially, one time funds available for other purposes if the Board should choose to reduce reserve levels allocated to the funds. Responses Required for Findings El Dorado County Board of Supervisors F4.1 through F4.4 Res ponses Required for Recommendations El Dorado County Board of Supervisors R4.1 through R4.4 Harvey M. Rose Accountancy Corporation

1 The County budget includes two internal service funds; the risk management fund covers centralized County insurance costs and the fleet management fund covers the County's vehicle maintenance and replacement services. Internal service fund costs are not as predictable as operating departments because they rely on forecasts of future needs and variables such as the number of employees who will need health services or be injured on the job, the extent to which claims will be filed against the County and the number of vehicles that will need to be replaced. The budget for these two funds in FY 2001-02 is approximately $20.9 million and together the County maintains reserves for these two funds of another approximately $16 million. This level of expenditure and reserves represents a larger budget than most County departments.

The County does not have a long range strategic plan with goals and objectives set by the Board of Supervisors to guide the allocation of County funds and resources. Without this, budget and program priorities are set primarily by County staff without the benefit of structured input from elected officials and the public. This has been particularly true in past years when the budget was adopted with very little discussion at the Board of Supervisors public hearings.

For the current fiscal year, FY 2001-02, the Board of Supervisors chose to hold more extensive public hearings as part of the budget addenda process and received detailed presentations from all departments. While these hearings allowed for more interaction between the Board and the departments than has taken place in the recent past, this process would be even more valuable if the budgets submitted by the departments were prepared under policy direction already provided in a long range strategic plan. Another benefit of a strategic plan is providing a common set of goals and objectives for all County employees.

As part of a multi-year strategic planning effort, a process for measuring individual department performance and plan outcomes is needed. This would also enhance the budget process by providing the Board of Supervisors with meaningful performance measures for each department and a method for measuring the effectiveness of allocated funds. Many organizations, public and private, engage in a strategic planning process to accomplish the following: 1) confirm and refine the mission statement of the organization with which all employees and stakeholders agree; 2) establish a vision for the future of the organization; 3) develop goals, objectives and action plans to ensure accomplishment of the mission and vision; and 4) establish a mechanism for measuring and reporting on actual organization performance relative to the goals, objectives and action plans. Generally, strategic plans are multi-year in nature with a five year horizon being fairly typical. A strategic planning process for El Dorado County should include the following steps: o Assessing the current state of County operations including resources available and strengths and weaknesses of the organization o Identifying likely future trends that will affect the County (e.g., population growth in El Dorado and neighboring counties, changes in State funding formulas, likely incorporation of cities, impacts of new technology, etc.) a Identifying likely future service needs and resources available to meet those demands (i.e., likely revenue streams) o Establishing service goals and objectives consistent with the mission and vision for the future o Establishing a system for measuring the County's success in meeting the stated goals and objectives Harvey M. Rose Accountancy Corporation Section 1: Long Range Strategic Planning and the Budget Currently El Dorado County does not have a long term strategic plan. Some departments such as the Information Services Department have developed plans specific to their departments and programs but there is no overarching plan for the County as a whole. A countywide plan would be valuable for budget purposes as it would help guide the allocation of resources consistent with established goals and objectives. Under the present system, department heads can set goals and objectives for their departments and Board members may provide direction on a case by case basis through budget hearings or other forums where department heads and Board members interact. But there is no formalized process by which the public and the Board as a group reach consensus and establish priorities that provide clear direction to all departments. A multi-year approach helps get around the limitations of the single year budget process that often doesn't address projects and initiatives that span more than one year. Typical multi-year projects in the county include capital projects, service delivery improvements, improvements in administrative activities, computer installations and upgrades, and other initiatives. While final appropriations still have to be made in the annual budget to fund multi-year projects and initiatives, providing directives in a strategic plan will help guide funding decisions in the budget process and will provide direction to department managers about their priorities. The County needs a system to measure department performance Measuring accomplishment of the goals, objectives and action plans in a strategic plan is probably one of the greatest benefits of embarking on such an effort and it is directly linked to the budget process. First, it makes the strategic plan a much more meaningful, results-oriented process. While establishing mission and vision statements, goals and objectives and action plans are all worthwhile activities, they can become meaningless if there isn't a method of measuring and reporting results. Setting an overall goal for the County such as making the County safe from crime is fine, but adding a method for measuring whether or not this occurs gives the process much greater impact. This could be measured in crime rate trends, arrest rates, successful prosecution and sentencings, community perception of safety, and other measures. These type of measures can be tied to the budget process through, for example, reviewing law enforcement officers per capita, arrests resulting in successful prosecutions, response times, and other measures. The budget can be adjusted accordingly to improve these measures to meet the service goals of the strategic plan. For each department, the proposed El Dorado County budget includes a mission statement, workload indicators, written summaries of all major programs, and staffing information. This is useful information but what is missing are goals and objectives for the department and outcome measures to provide meaning to the workload indicators. The workload indicators, shown for the proposed, current and previous two fiscal years, generally measure caseload but not program outcomes. For example, the Probation Department budget for FY 2001-02 shows 33 workload indicators for eleven program areas. The program areas include Juvenile Hall, Juvenile placement, Group Homes/Foster homes, Adult Court, Adult Supervision and others. Workload indicators include measures such as number of court disposition reports, number of intake hearings, average daily population at Juvenile Hall, number of Adult Court reports, number of Harvey M. Rose Accountancy Corporation Section 1: Long Range Strategic Planning and the Budget adult probationers supervised, number of number of felony sentencing reports prepared and others. The problem with the workload indicators in the Probation Department's budget is that none of them allow for an assessment of department outcomes. For example, a common objective for probation departments is to rehabilitate the probationer so they don't commit the same crime again and have subsequent encounters with the criminal justice system. To measure this objective, recidivism rates should be presented in the budget document rather than just the number of probationers supervised by the department. A high recidivism rate might indicate that Probation Department efforts are not succeeding and would lead to discussion about the level of funding for this effort and whether or not it is adequate and if the Department needs to operate its programs differently to achieve greater success. The Probation Department's number of court reports workload indicator also measures work but not outcomes. It is not possible to tell from the numbers alone if the department is doing a good job of producing its reports for court. Two of the most important factors for court reports generally are whether they are delivered to the court timely and whether they contain the information needed by the judiciary to facilitate decision-making. Useful performance measures for this work might include number of reports delivered to the court on time and the results of a survey of the court's satisfaction with the content of the reports. As with the previous example, this type of information would enable a more informed discussion of the appropriateness of funding levels and program management. Having broad countywide goals and objectives in a strategic plan would also help guide departments such as the Probation Department in that their goals, objectives and funding allocations and requests would need to be linked to the countywide goals and objectives. For example, countywide goals and objectives related to the Probation Department might be to improve coordination between all of the County criminal justice agencies and expansion of alternative programs to keep nonviolent offenders out of jail. The Probation Department would need to respond to these goals and objectives by presenting its coordination efforts with other departments, and development or expansion of alternatives to incarceration programs. Another link between the strategic plan and the budget is that the strategic plan should include financial goals and objectives for the County. These could include target reserve levels, target user fee recovery rates, a countywide approach to one-time revenues, approaches to funding levels for internal service funds, policies regarding deficit spending and others. Departmental strategic planning in El Dorado County As mentioned above, El Dorado County's Information Services Department produced a strategic plan in 2000. The plan was prepared in response to a request from the Board of Supervisors and it states that it will be regularly updated. The purposes of the plan are to: anticipate future information processing needs and provide a strategy for meeting those goals; define an optimum sequence of events to achieve the strategy; facilitate common understanding and support for the department's future direction and goals by all key stakeholders (customers, staff, County management); provide a framework to manage and control the working environment; and, Harvey M. Rose Accountancy Corporation Section 1: Long Range Strategic Planning and the Budget achieve optimum effectiveness and efficiency of resources. Its goals for the future include: expanding basic intranet/internet services; sharing and integrating data; providing business support data in multiple formats; providing multi-level integrated computing services; re- engineering business processes; guaranteeing the integrity and availability of County data; and, maintaining adequate and appropriate resources. The Information Services plan and any other department strategic plan in the County should be used as underpinnings to a countywide strategic plan. The countywide plan would provide higher level goals and objectives and individual department plans would be more specific and detailed regarding their particular services. The various individual department plans should be consistent with the countywide plan prepared by the Board of Supervisors. As suggested for the countywide strategic plan, individual department success in meeting the goals and objectives in their plans should be measured on an annual basis. Strategic planning in other jurisdictions As mentioned above, many private and public organizations have prepared and are implementing strategic plans. The public organizations include counties and cities throughout the country. In California, one of the more extensive county strategic plans was prepared in Riverside County. The plan, entitled Strategic Vision 2020, addresses the County's mission and business, vision for the next twenty years and guiding principles, service delivery priorities, service goals and inter-governmental relations, environmental issues, financial management strategies, fundamentals, land use planning principles, and related matters. Since many departments in the county have also prepared strategic plans, the Countywide plan incorporates all of those plans. The Riverside plan addresses limits to County service and highlights what the County cannot do as well as areas where it should excel. Maricopa County, Arizona initiated a strategic planning process in 2000 that integrated planning, budgeting and performance measures. For this effort, each department was required to prepare a strategic plan that included the following: a The County mission and vision statement 0 A department mission and vision statement' 0 Department goals 0 Identification of department issues 0 Identification of all key programs in each department including: D Program name Program purpose Key results for the program (usually a quantifiable measure) Activities and services within each program Outputs for each activity Actual results for each activity compared to key result expectations D Cost per output 1 The department vision statement was optional in the Maricopa County plan. Harvey M. Rose Accountancy Corporation Section 1: Long Range Strategic Planning and the Budget Quarterly reports are produced for each department in Maricopa County. A sample report for the Maricopa County Information Systems department is shown as Attachment 1. As can be seen, performance data is not available yet for each key activity in this program. But efforts are now underway to regularly collect this data and to tie it to a cost efficiency factor shown at the end of the attachment. There is a range of approaches for El Dorado County to consider in establishing a strategic planning process but the key elements should include: statement of purpose or mission; o vision for the future; o goals, objectives and action plans for accomplishing the mission and vision statements; and, o a system for measuring results linked to the budget process. The plan's goals and objectives will also drive the budget process as each department will be expected to show how they are contributing to the strategic plan's goals and objectives through their activities.

Using County budget documents it is not possible to determine the status of capital projects or whether the projects are over or under budget. Capital project status reporting in the budget would be improved by including comparisons of originally proposed and actual costs and project timing.

Funding and priority setting for El Dorado County's facility and transportation capital projects takes place without benefit of a multi-year capital improvement or facility master plan. As a result, department managers can set project priorities without formalized direction from the Board of Supervisors and the public. These priorities may or may not reflect the highest and best use of limited resources in the opinion of Board members and the public but a method doesn't exist to reach consensus, formalize and update those priorities.

Both the General Services and Transportation departments have relatively new directors who have developed project tracking systems that allow for better project status reporting. The Department of Transportation has a five year capital project plan prepared in 1995 but it has never been updated. Staff is currently preparing a new document for review by the Board of Supervisors. With adoption of this plan and a similar one that County management reports is in the planning stages for County facility projects, project priorities will be clearer, the budget process simplified and department accountability for completing projects on time and on schedule improved. There are two primary types of multi-year capital projects in El Dorado County. First are construction and rehabilitation of County facilities such as parks and public buildings that are the responsibility of the General Services Department. Second are road, bridge and transportation system projects that are the responsibility of the Department of Transportation. These projects often span multiple years so their presentation in the budget document is different than presentation of annual operating revenues and expenditures for most departments. County Facility Projects The budget for the General Services Department includes a list of County facility projects categorized as either carryover or new. This list is first presented in the proposed budget submitted to the Board of Supervisors in June and then updated for the budget addenda report in September. Differences between the two lists for FY 2001-02 are shown in Exhibit 2.1. Harvey M. Rose Accountancy Corporation Section 2: Capital Projects Exhibit 2.1 Difference in General Services Department Capital Projects between the Proposed and Addenda Budget Documents FY 2001-02 Proposed Budget Addenda Change Budget 45 72 27 # Carryover Projects $2,827,090 $2,077,786 $749,304 Carryover Funding # New Projects 22 43 21 New Funding $1,181,900 $2,358,761 $1,176,861 # Projects Total 67 115 48 $3,259,686 $5,185,851 Funding Total $1,926,165 Source: FY 2001-02 Proposed Budget & Workplan and Budget Addenda Report As can be seen, there is a significant change in the number of projects and funding levels between the two documents. This reflects the timing of the two budget documents. The proposed budget presented to the Board in June has to be submitted to the Chief Administrative Officer by the departments by the end of March/early April. The September budget addenda information is prepared five to six months later. By then, more construction activity has taken place during the prime construction season and the department has more information regarding which projects will be carried over to the next year. In addition, the original budget submission does not include carryover parks projects at all which added 19 more carryover projects and $371,456 in costs to the carryover projects in the budget addenda. With a 59 percent change in funding between the June and September lists, the Board's approval of projects in June is somewhat meaningless. Besides changes between the two lists, it is not possible to tell from either the status of the carryover projects in terms of time or costs. The lists simply present all projects with no indication of whether they are 10 percent or 90 percent done, when project completion is expected, or whether they are under or over budget. The lists are not prioritized so it is not possible to tell the order in which projects will be worked on and completed. While there are many projects in progress and compilation of information on these projects can be complex, a simple report showing the original budget and schedule compared to actual costs and schedule could be readily compiled from Department records with a column for briefly explaining significant variances in time or cost. The Department already maintains a project tracking list for use internally by management. This document could be modified for reporting to the Board and for inclusion in the budget documents. In addition to better reporting of the status of projects, the General Services Department needs a multi-year master plan, approved by the Board of Supervisors, that establishes project priorities and includes estimated funding and timing for each project over a multi-year period such as five years. With agreed upon project priorities, Department management would have clear direction about how to allocate their resources. Project priorities and available funding would also be Harvey M. Rose Accountancy Corporation Section 2: Capital Projects better aligned with such a plan as it would allow for determination of what should be done given limited resources and what cannot be done. New projects could still be added and planned projects deleted after the plan is adopted if priorities change or funding becomes unavailable. The difference would be that the process would be formalized so the Board would have to make a conscious choice to delete a project rather than a project remaining on the list but never getting done. The interim Chief Administrative Officer reports that plans are underway at the time of preparation of this report to commence preparation of such a plan, including financing plans, for County facilities. Department of Transportation Capital Projects and Maintenance Work Transportation capital projects are presented in a different format in the budget than General Services projects. In the FY 2001-02 budget addenda document, the Department presents a list of approximately $24 million worth of capital improvement projects. For each project, a breakdown of project costs (labor, overhead, fixed assets, etc.) and the project's revenue source(s) are presented. The budget addenda document submitted to the Board of Supervisors in September lists 25 capital projects but does not show the timing or funding status of any of the projects or sequencing or priorities for the coming year (see Attachment 2). As with the General Services Department budget, information is not presented comparing planned and actual costs and timing of the Department's capital improvement projects. Nor are projects prioritized in accordance with a multi-year plan approved and updated by the Board of Supervisors. A five year roads capital improvement project plan was prepared in 1996 but it has not been updated since according to Department of Transportation management. The Department's planned road maintenance projects are also shown with the same cost breakdown as presented for capital projects and with revenue source(s) identified (see Though these projects tend to be single year in scope compared to capital Attachment 3). improvement projects, the work to be done such as patching and overlay, chip seal and traffic signal maintenance, is not prioritized by long term County goals such as achieving an average road condition on the County network by a certain date in the future. If specific priorities such as these were established in a multi-year plan, the Department would have a stronger basis to justify the allocation of its maintenance dollars. Like most counties in California, El Dorado County faces extensive deferred maintenance costs in excess of available resources for road and bridge work. Officially adopted agreed upon priorities are all the more important when need exceeds resources available. The Department of Transportation has prioritized its capital improvement projects by three tiers of priority and is in the process of preparing a new multi-year capital improvement plan. The Department is intending to use this document as a budgetary document as well as a work program so that project priorities and resources available will be linked. Department management's goal is to update the plan annually in advance of the April submittal to the Chief Administrative Officer and Board of Supervisors. Harvey M. Rose Accountancy Corporation Section 2: Capital Projects To develop the annual plans and budgets for the two departments' capital improvement plans, a process is needed in advance and in lieu of the budget hearing process in September. By September, or budget adoption time, it is too late to add capital projects which often require a fair amount of advance work to obtain funding or to plan in relation to resources available. Midyear planning workshops with the Board of Supervisors With five year plans in place for both departments, workshops should be held with the Board of Supervisors in January or at a more convenient time but well in advance of budget submission and adoption. The purpose of the workshops should be to revise and update the plans in accordance with any changes in circumstances, funding or Board priorities. From that point on, the plan for the next year should be established and budget submission and adoption should reflect the agreements reached at those workshops. This would make for a more clear and streamlined budget process for capital improvement projects as most of the projects and funding levels would have been previously agreed to or modified well in advance of the Board of Supervisors review and approval of the proposed budget. The Department of Transportation does prepare a monthly report on its capital projects but this report does not include a comparison of planned and actual project timing and costs. While this does not need to be provided to the Board and public on a monthly basis, it would be useful to present it at budget time and once more during the year such as at the annual planning workshop discussed above. Similarly, the General Services Department should prepare such a report for Board review twice a year, once at its planning workshop and again at budget addenda submission time. The list of projects included in the proposed budget in June should match that resulting from the January planning workshop and then be updated for the addenda process in September based on actual projects completed during the prime construction period and identification of carryover projects.

the status of the budget at mid-year but no further formal reports until they receive the proposed budget for the next fiscal year in June. As stewards of the County's financial resources, more regularly produced status reports and updates should be provided with less detail than the mid-year reports but with enough information to allow the Board to monitor performance and receive early warnings of potential fiscal problems. The County's financial information system allows for production of a wide variety

of ad-hoc reports and analysis of expenditures and revenues accessible to all department managers. A monthly report to the Board showing actual expenditures and revenues by department, with a projection of the County's financial position at year end, could easily be produced and would facilitate more Board and public involvement in monitoring the County's fiscal status. It would eliminate surprise developments such as the increase from $12.5 to $21.5 million in fund balance available reported between the proposed and budget addenda for FY 2001-02. Information of this sort would also provide a basis for other questions and analyses of situations when revenues or expenditures are not at the level originally projected. The analysis of the proposed budget each year consumes many months of staff time

but largely focuses on incremental appropriations requested by the departments or recommended by the Chief Administrative Officer but not the baseline budget. Oftentimes, savings can be realized in the baseline budget by improving the efficiency of operations, reorganizing or consolidating programs or increasing revenues. One of the most effective means of identifying opportunities for savings in the baseline budget is through departme ntal performance audits. The major points of public presentation and discussion about the County's budget are: 1) the mid-year budget report to the Board of Supervisors; 2) presentation of the proposed annual budget in June; 3) presentation of the addenda budget in August; and, 4) budget hearings in September. At all four points, a great deal of useful information is provided to the Board covering all departments, revenue sources and operational issues. The information is prepared by the Chief Administrative Officer and, in the past, discussion about the contents were largely between the Board and the Chief Administrative Officer and the Auditor-Controller. For the FY 2001-02 budget, the process was expanded when the Board of Supervisors requested that each department make a presentation about their budget and operations. The mid-year budget report provided in February 2002 contained discussion of projected fund balance, expenditures and revenues by department, a discussion of expected increases in health benefits costs, detailed revenue projections (summarizing projections prepared by the Auditor- Controller), capital project highlights, a discussion of the State budget, a regional economic forecast, salary projections for FY 2002-03, and departmental savings. It provides a good deal of information of interest to the Board of Supervisors, department managers and the public. Harvey M. Rose Accountancy Corporation Section 3: Budget Timing, Information and Analysis The proposed budget document for the subsequent fiscal year is provided in June of each year and includes detailed revenue projections and proposed expenditures for each department. Information for each department is also presented including staffing detail, descriptions of all major programs operated by the department, workload indicators, actual revenues and expenditures for the previous two fiscal years and proposed revenues and expenditures by major programs or costs centers for all departments. An overview of the County's financial situation is presented including detailed revenue estimates for the budget year, changes in State and other funding sources, and roll ups of expenditure data by fund and functional areas. The third and final budget report prepared by the Chief Administrative Officer is provided in August. This report provides final revenue and expenditure estimates for the year after the State budget has been adopted and actual fund balances are known based on better and more complete prior year actual data. While all three reports provided to the Board of Supervisors include a substantial amount of useful information, there are no routinely produced reports between these three to keep the Board abreast of the overall fiscal situation of the County and to have early warnings of potential problems. Budget related items do come up at Board meetings if an individual department is requesting mid-year supplemental funding or if the supervisors request information on a particular department or a budget related topic. However, fiscal information is not otherwise routinely reported in a standardized report to the Board to allow for comparisons and trend analyses throughout the year. Timing of County Budget Review and Approval Department budget staff spend many months of the year going through their internal budget review and preparation processes and then explaining and defending their proposals to the Chief Administrative Office before they are submitted to the Board of Supervisors. Then, for many departments, there are additional analyses and expenditure plans to be prepared between June and September as actual fund balance amounts become known, the State budget is adopted and other adjustments are made. The net result is a lengthy process consuming more than half the year and a budget mostly prepared six months earlier being reviewed by the Board of Supervisors in September. While the County is subject to State timing requirements governing the preparation and adoption of the budget, attempts should be made to complete more of the budget process in June so that fewer staff hours are consumed in duplicative efforts between June and September and so the budget reviewed and discussed by the Board of Supervisors is more current. A review of changes between the proposed and addenda budget for FY 2001-02 shows that budget appropriations increased by $23 million between June and September. Most of the change, or 77.3 percent, was in the General Fund and Roads Fund. Exhibit 3.1 presents the changes for all funds. Harvey M. Rose Accountancy Corporation Section 3: Budget Timing, Information and Analysis Exhibit 3.1 Changes between Proposed and Addenda Budget By Fund, FY 2001-02 Total Proposed Addenda Difference Budget Difference Budget Fund 41.2% $31,856,908 $41,367,148 $9,510,240 Roads Fund 36.1% 156,236,963 147,900,815 8,336,148 General Fund 2,590,499 11.2% 19,719,350 17,128,851 Health Department 1,729,801 7.5% 3,673,718 5,403,519 Accumulated Capital Outlay 713,411 3.1% 9,749,849 10,463,260 Mental Health Services 487,860 2.1% 487,860 Tobacco Settlement 0.7% 2,617,875 157,004 2,460,871 Road District 0.2% 8,026,027 39,974 Community Services 7,986,053 0.0% 20,000 20,000 Special Aviation 0.0% 5,000 5,000 Fish & Game 0.0% 300,000 300,000 EIR Development Fees -2.2% (504,615) 4,918,455 4,413,840 Erosion Control $23,060,322 100.0% $226,000,520 $249,060,842 TOTAL Source: Proposed and Addenda Budgets, FY 2002-03 The $9.5 million in Roads Fund monies was mostly from capital project carryovers and increases in estimated fund balance. For the General Fund, the increase was primarily generated from carryover fund balance, mostly due to a combination of capital project carryover, actual expenditures being less than budgeted, and actual revenues being more than budgeted the previous year. The fourth largest contributor to the increase, Accumulated Capital Outlay, was also the result of an increase in fund balance available compared to what was estimated in the proposed budget due to more projects being carried over from the previous year than anticipated in June. By producing more detailed projections of revenues and expenditures throughout the year, particularly in the second half, and projecting year-end fund balance monthly, the County's estimates of carryover fund balance in June should become more accurate and closer to the amounts now not identified until September. With better tracking and reporting of capital project expenditures and timing, as recommended in Section 2 of this report, and monthly projections of year-end fund balance for the Roads and Accumulated Capital Outlay funds, the discrepancy between the June and September budget for capital project carryover funds should also be decreased. The net result of more accurate forecasting would be fewer changes between June and September and less work for all County staff in creating and analyzing a second budget document with numerous revisions for the September hearings. Though the State budget could be and probably will be changed to some extent between June and September, most of it should be known and in place by June based on the Governor's budget. County estimates of the budget in June should be reasonably accurate for most of the State funding received. The County should endeavor to reduce discrepancies between the two budgets Harvey M. Rose Accountancy Corporation Section 3: Budget Timing, Information and Analysis and complete most of the budget process in June, with only some minor changes to be approved in September. While production of the three budget reports that the Board now receives involves a substantial amount of work for the Chief Administrative Officer and department fiscal staffs, other regularly provided information between these three reports is needed. Current budget information is readily available on the County's Financial Management Information System (FAMIS) and could be produced without extensive staff work. Of key importance for a monthly report is: 1. Budgeted vs. actual expenditures and revenues by department and major revenue source 2. Explanations of major variances between budgeted and actual expenditures and revenues 3. Projected expenditures, revenues and fund balances, by fund, for year end 4. Key performance indicators This information would provide ongoing assessments of the County's fiscal situation and individual department performance and would serve as a supplement to the annual budget review and approval process by making the Board aware of issues affecting certain revenues or individual departments during the year. The Interim Chief Administrative Officer directed all department heads in April 2002 to undertake detailed re-computations of their estimated year- end Net County Costs to improve the forecast for FY 2002-03. Even though monthly reports at the early part of the year would generally not be too revealing with so little time passed since budget adoption, the Board should still receive these reports as they will serve as the foundation for subsequent reports during the year. As the year progresses, the Board may want to request other special reports with more detail on a certain department or revenue or an issue such as turnover or workers compensation claims if a particular department is experiencing a high rate of claims. The County needs to analyze its baseline programs and budgets Another type of information that would be useful to inform the annual budget process is evaluations or performance audits of individual departments and programs conducted throughout the year. This would provide the Board with more detail that could be used at budget time regarding all aspects of individual department operations and provide a stronger basis for decisions about baseline department funding levels. The budget review process assumes that a baseline level of funding will be provided for all departments. The discussion in the proposed budget regarding funding changes almost entirely deals with incremental funding levels, or additions to the base level of funding. As in most counties, the Chief Administrative Office's analysis of budget requests submitted by the departments is focused primarily on any increases to the baseline budget but generally does not question the existing level of funding. Comments in the proposed budget document focus on increases or changes in the budget and recommendations on what new positions or programs should be funded, if any. For the most part there is no discussion or recommendations to decrease funding of the baseline budget through improved efficiency and/or increased revenue. Harvey M. Rose Accountancy Corporation Section 3: Budget Timing, Information and Analysis There is an implicit assumption in the budget review that existing allocation levels should not be changed. In fact in many instances changes could be made to department operations or business processes and costs reduced through efficiency improvements or revenues increased through improved collections or establishing fee levels that capture more of the costs actually being incurred. One way of identifying such changes is through detailed review of department operations through performance auditing. Performance auditing can briefly be described as a review of all aspects of a department's operations to determine if the department is operating in compliance with all applicable laws and as efficiently, effectively and economically as possible. Performance audits can be conducted by outside consultants or in-house staff. While regular conduct of performance audits might represent a new cost to the County, if new staff is hired or consultants are used,' over time audits should more than pay for themselves with cost savings and/or revenue increases for the departments reviewed. Another benefit would be improved service levels for the public by identifying improvements in business processes and methods of streamlining operations. El Dorado County engaged a consultant to conduct a performance audit of the Department of Transportation and is planning one soon for the Department of Social Services. Efforts such as these should be continued and expanded to include all other departments on a multi-year cycle. Performance audits should take place throughout the year but their recommendations could be used in the budget process by identifying areas where departments could operate more efficiently particularly in the base budget. For example, a recently conducted analysis of Sheriffs Department staffing conducted independent of their budget preparation process recommended adding more permanent positions to reduce overtime. An analysis of a department's management structure might reveal an opportunity to consolidate and reduce management positions based on an analysis of duties performed. An audit of user fees charged by the County might show that they are not fully recovering costs and should be adjusted accordingly. In some jurisdictions performance audits are conducted on an ongoing basis so that all departments are audited over a certain number of years. Other counties select audit topics annually based on an assessment of the risk or exposure of each department and the potential impact of realizing improvements in that department. Other jurisdictions conduct performance audits as the need arises. An ongoing performance audit program in El Dorado County would have multiple benefits including improved service levels, reduced costs of operations and making resources available for other purposes. The County should explore the possibility of conducting performance audits with existing audit staff through re- prioritization of their current duties. If this is possible, new costs would not be incurred. Harvey M. Rose Accountancy Corporation Section 3: Budget Timing, Information and Analysis

The County budget includes two internal service funds; the risk management fund covers centralized County insurance costs and the fleet management fund covers the County's vehicle maintenance and replacement services. Internal service fund costs are not as predictable as operating departments because they rely on forecasts of future needs and variables such as the number of employees who will need health services or be injured on the job, the extent to which claims will be filed against the County and the number of vehicles that will need to be replaced. The budget for these two funds in FY 2001-02 is approximately $20.9 million and together the County maintains reserves for these two funds of another approximately $16 million. This level of expenditure and reserves represents a larger budget than most County departments.

Key information on assumptions used for these funds is not fully disclosed in the proposed and addenda budget documents to assist the Board of Supervisors in determining the appropriate level of appropriations and reserves for these funds. The budget does not present actual expenditures for previous years or projections of expenditures for subsequent years. Without this information it is not easy to determine if appropriate funding and reserves are in place. If too much is budgeted and reserved, budget resources are tied up that could otherwise be used for other purposes. If too little is budgeted, the County may need to reduce expenditures elsewhere or use contingency funds to meet its insurance or fleet obligations. The Risk Management budget for FY 2001-02 includes reserves based on five year

projections for the County's risk management fund. The basis for these projections should be provided to the Board of Supervisors, who should then adopt a County policy regarding appropriate reserve levels for each type of insurance. Historical and projected vehicle purchase expenditures are not presented in the

budget. Such information would help the Board determine an appropriate level of funding and reserves for the County's vehicle replacement fund. Internal service funds are defined as funds used to account for the financing of goods or services provided by one department or agency to other departments or agencies, on a cost reimbursement basis. El Dorado County has two such funds: 1) Risk Management and 2) Vehicle Replacement. The Risk Management fund is used to account for payments from all County departments to cover their share of the County's costs for general liability, employee health and workers' compensation insurance. The costs covered by the monies in this fund include claims payments, legal costs, insurance premiums for excess insurance', a third party administrator and staff and indirect costs of the County Risk Management Office. The County is self-insured but buys third party commercial insurance only for incidents above a certain dollar threshold. This helps prevent any dramatic swings in pay outs from year to year. Harvey M. Rose Accountancy Corporation Section 4: Internal Service Funds The fleet management fund charges each department for the costs of maintaining and acquiring and maintaining the department's vehicles and heavy equipment. The charges also cover the costs of County fleet management staff and related indirect costs. Key budgetary decisions to be made for these internal service funds are: a) the level of appropriation to include in the budget to meet annual expenses; and, b) the level of reserves to include in the fund to cover known future liabilities. Charges to customer departments are based on appropriated annual expenditures and a proportionate share of reserves. Annual appropriations are needed to cover the operating costs for a single budget year. Reserves are established for internal service funds to cover known or expected costs beyond what is expected in the budget year. Particularly with insurance, costs can be paid over multiple years. Although costs can be estimated for a claim filed in the current year, the case may not actually be settled for several years out. The risk management fund reserve provides funds for these type of situations and for unexpected pay outs in the event that a large claim against the County is settled sooner than expected or an unpredicted unusually high employee disability payment has to be made in a single year. Commercial excess insurance is also purchased by the County to cover high cost unusual cases. Fleet management fund reserves might be used if a number of vehicles or heavy equipment unexpectedly need replacement in addition to what is expected in the County vehicle replacement schedule. Insurance expenditures are determined with input from actuaries who produce multi-year projections of likely future pay outs based on historical loss and expenditure data, known claims filed, demographics of the work force, changes in law and other contributing factors. For fleet management, maintenance and replacement costs can be projected based on existing fleet characteristics such as age and mileage plus any projected increases in fleet size or mix needed based on new or expanded programs or workload in the County. Risk Management Fund As mentioned above, El Dorado County's risk management fund is comprised of three components: 1) employee health insurance; 2) general liability; and 3) workers' compensation. Each represents a significant cost to the County but the budget document does not present details on the three components. Instead, the County risk management fund is presented in aggregate with no breakdown of how much of the total cost is attributable to each component. Total budgeted expenditures for FY 2001-02 were approximately $18.1 million for all components of the risk management program. This amount is separate from the reserves kept in the risk management fund to cover known and projected insurance liabilities in future years. The budget document does not report the approximately $12 million reserved for the risk management fund nor does it report how much of this is attributable to each of the three components of the fund. Harvey M. Rose Accountancy Corporation Section 4: Internal Service Funds Details on the risk management fund should be presented in the proposed budget for a number of reasons. First, it is important for the Board of Supervisors to know which costs are increasing, which are decreasing, and what, if anything, County management has done or can do to control these costs. For example, employee health insurance costs are expected to increase significantly in the next year, an issue that was widely discussed in the budget hearings for FY 2001-02, but it would be useful to present these costs in the context of overall health insurance costs, separate from general liability and worker's compensation costs. Increases in workers' compensation costs cannot always be controlled but a large increase may raise questions about the extent to which County management has implemented safety training programs for employees. Similarly, a rise in risk management costs should be reviewed to determine if certain exposures resulting in frequent claims have been effectively dealt with by management. The proposed budget document for FY 2001-02 presents information about the Risk Management office that is part of the Chief Administrative Office. The document presents revenues and costs for the Risk Management office, including County staff, claims payments and other administrative cost, as follows: Exhibit 4.1 Risk Management Revenues and Costs Presented in the Proposed FY 2001-02 Budget FY 1999-00 through FY 2001-02 CAO Recommended Actual Approved FY 2000-01 FY 2001-02 FY 1999-00 Revenues: $14,824,755 $17,194,416 $12,764,911 Charges to Departments 527,506 594,007 684,255 Use of Money & Property 1,199,008 366,515 Fund Balance 4,000 1,500 1,500 Other Sources 166.667 103.356 Miscellaneous $16,788,437 $ 18,089,937 $13,554,022 Total Expenditures: 415,759 427,897 378,356 Salaries & Benefits 16,165,149 17,427,744 13,914,111 Services & Supplies 231,094 207,531 159,663 Other Charges 3.200 2,390 Intrafund Transfers $18,089,935 $16,788,439 $14,454,520 Total As can be the Services and Supplies expenditure line items of $17.4 million for FY 2001-02 represents the bulk of risk management annual costs. Since this is such a large amount and is comprised of a number of different costs, more detail should be provided in the budget including Harvey M. Rose Accountancy Corporation Section 4: Internal Service Funds how much is for claims payments, legal services, the third party administrator, excess insurance premiums, and other costs, for each of the three risk management fund components. Staffing for the office and workload indicators are presented in the proposed budget document as is a description of the office's programs and the Chief Administrative Officer's recommended changes in the budget. Determining Appropriate Reserve Levels for Internal Service Funds The revenue discussion includes the statement that the fund will be relying less on fund balance than it has in the past for health and worker's compensation. The discussion reports that reserves for the General Liability program are greater than what is needed and that Worker's Compensation reserves are lower than needed according to an actuarial analysis performed for the County. The Chief Administrative Office reports that it has prepared a five year plan to achieve reserves at a 70 percent confidence level for both the General Liability and Worker's Compensation fund. The 70 percent confidence level is described as a reserve level that will statistically be sufficient or better in 70 percent of the cases and inadequate 30 percent of the time. While it is laudable that the budget discloses the imbalance in reserves found in the two funds and a plan to correct it, the discussion has some deficiencies from a public decision making perspective. First, the actual amount of reserves in the two fund components are not presented in the budget nor is the fiscal impact of adopting the 70 percent confidence level approach clearly laid out. Alternative reserve scenarios are not presented so that the Board could see the fiscal impact of choosing other approaches to funding reserves for these funds at the 70 percent confidence level. The choice of a lower reserve level, which would not prevent the County from meeting its current year claims payment obligations, could potentially mean millions of dollars available for other purposes in the budget. On the other hand, the Board of Supervisors may want to adopt a higher reserve level policy that would require increasing the charges paid by departments to increase reserve levels in the fund. To make an informed decision, the budget should include the following: Current amounts in reserve, shown separately for Workers' Compensation, General Liability and Health Benefits Three years of projected actual expenditures for the budget year and the next five to ten years, shown separately for Workers' Compensation, General Liability and Health Benefits The amount needed to fund reserves at alternative confidence levels, covering the spectrum u of possible approaches ranging from no reserves for future year expenses if a "pay as you go" policy is adopted, funding to cover the current year and some future costs, funding to cover the current year and some but not all projected future costs, and funding to cover the current year and all projected future costs. Harvey M. Rose Accountancy Corporation Section 4: Internal Service Funds Counties and public jurisdictions have varying policies on reserves. On one end of the spectrum, some counties and other public jurisdictions simply budget for their expected payments in the budget year. Others choose to maintain reserves to fully cover all known current and future liabilities and some counties choose a position between these two. The Board of Supervisors should be involved in deciding the level of reserves for each of these funds. To inform this decision, the budget document should include information in a table such as presented in the example in Exhibit 4.2: Exhibit 4.2 Example of Information to Provide to the Board of Supervisors for Consideration of Alternative Insurance Reserve Levels for Internal Service Funds Reserves required Confidence level 000s None Pa as you o 20% $3,000 35% $3,500 50% $4,000 $4,500 65% 70% $5,000 80% $5,500 $6,000 100% The County's financial statement for the fiscal year ending June 30, 2001 showed that the Risk Management fund had approximately $12.9 million in cash reserves for future costs. The liability for noncurrent insurance payments was reported in the financial statement as $11.9 million. In other words, there was enough cash in the fund to cover all known and projected pay outs for the current and future years that would have to be paid if the County suddenly went out of business and never received any more payments from its customer County departments. Since the likelihood of the County actually going out of business is quite small, the Board may want to consider a lesser reserve level. By presenting the projected pay outs for future years in the proposed budget, the Board would be better informed for deciding the optimal level of reserves. A summary of information that should be presented is shown in the following two exhibits. The numbers are for illustration purposes only and do not reflect the actual or projected expenses of El Dorado County. The information in Exhibit 4.3 would provide a snapshot of retained earnings, annual revenues, annual costs, and cash reserves on hand for the future and projected future liabilities, all in one table. Harvey M. Rose Accountancy Corporation Section 4: Internal Service Funds Exhibit 4.3 Example of cash reserve, revenue and expenditure information to be presented in the proposed General Liability and Workers' Compensation Fund budgets (in 000s) Workers' General Liability Compensation $2,900 $3,600 a Retained earnings: end of FY 00-01 3,700 4,200 b Revenues from charges to departments FY 01-02 6,600 7,800 c Total funds available (a+b) 2,000 2,600 FY 01-02 Claims pay outs/legal costs, • FY 01-02 Third party administrator costs 400 300 1,500 1,000 FY 01-02Excess insurance costs FY 01-02 Staff and administrative costs 150 200 4,050 4,100 h Total costs FY 01-02 (d through g) i Retained earnings: end of FY 01-02 c-h 2,550 3,700 J Cash reserves on hand 6,600 3,300 6,500 4,200 k Future Year Liabilities Amounts shown are for illustration purposes only and are not actual El Dorado County amounts. Note: Actual historical expenditures should be shown to provide information about typical annual expenditures, what is likely to be needed in future years and to help determine how much cash should be kept in reserve to meet those expenses. Exhibit 4.4 Example of payment data to be presented in budget for General Liability and Workers' Compensation Funds (in 000s) Workers' General Compensation Fiscal Year Liability 1,500 1,600 1995-96 1,700 1,500 1996-97 1,900 1997-98 1,800 1998-99 1,900 2,000 2,500 1999-00 2,700 2,700 2000-01 2,500 Information such as that shown in Exhibit 4.4 should be presented to the Board of Supervisors to identify average annual expenditures in the past and as a basis for future projections. The historical numbers would have to be tied to some sort of appropriate index such as number of employees to determine an average cost per employee and then project forward based on expected increases in the County work force. Other variables should also be considered in the projections such as changes in County services that might result in changes in risk exposures. Harvey M. Rose Accountancy Corporation Section 4: Internal Service Funds Fleet Management Fund Fleet management fund information in the budget document is less comprehensive than risk management fund information. The fleet management function is a function of the General Services Department and is included in that department's budget. Because the department covers so many functions, such as capital projects, communications, purchasing, airports and parks and grounds, and because the expenditure level is lower, the level of reporting is lower for fleet management than risk management. In spite of its smaller size, similar information should be presented in the budget as discussed for risk management. The budget document should include cash on reserve (approximately $3.7 million as of June 30, 2001), annual revenues and historical and five year projected fleet maintenance and replacement costs. Unlike insurance costs, the County would not have future vehicle maintenance and replacement obligations if it went out of business but some reserve level is appropriate to cover unanticipated expenses such as replacement of critically needed vehicles before their expected replacement dates due to accident or unplanned repair costs exceeding the vehicle's value. This information and reserve options would assist the Board of Supervisors in making decisions on funding levels and appropriate charges to customer departments for this fund.