City Council

City of Petersburg Emergency Financial & Opera9onal Restructuring Presenta9on to Petersburg City Council The Robert Bobb Group, LLC November 1, 2016  Agenda • RBG Team Organiza9on • Program Management Office (PMO) – PMO Governance • 5 Month Plan • Execu9ve Summary • Focus on Fiscal Emergency – Short Term Focus – Long Term Focus • Issues iden9fied in Week 1 requiring immediate resolu9on • RBG Plan of Entry • Transparency – Data Collec9on – FTA Review of PAT – Documents Requested – Mee9ngs held in Week 1 2  RBG Team Organiza9on Robert C. Bobb, MS Project Execu,ve Patrick A. Bobb, MTM Quality Control Execu,ve Tom Tyrrell, MS Col USMC (Ret) Interim City Manager Sam Arthur, CPA Dileep S. Rajan, PMP Nelsie L. Birch, MPA Accoun,ng & Revenue Strategy & Analy,cs Deputy City Manager Enhancement George Arthur, CASC Charles Oparah, CPA Accoun,ng & Revenue Senior Support Staff Enhancement Anne Seward Harish Sharma, CPA Accoun,ng & Revenue Senior Support Staff Enhancement 3  Program Management Office (PMO) Approach 1 Stabilize Financial 2 Execute financial 3 Establish long term Opera9ons recommenda9ons fiscal opera9ng pla]orm Key Ac'vi'es § Financial officer mee9ngs § Document Collec9on and Review § Data Analysis and set up long term analy9cs capability § Weekly progress repor9ng and sharing of findings § Meet with key vendors and iden9fy any funds that can be collected Key Tools Project Management Turnaround Ac:vity Project Plan Weekly Status Repor:ng Tools Sequencing Con:nuously updated and Weekly Status Repor:ng Turnaround and Ac:on Log, Mee:ngs Tracker, Risk & monitored list of tasks and shared with Leadership restructuring ac:vi:es Issues Log dependencies 4  PMO Governance The PMO manages data and informa'on through an intake process designed to organize and store informa'on for future use. Strategic Level § Short Term Fiscal Plan § Long Term Fiscal Plan § Sustainable Opera,ng PlaGorm Opera:onal Level § Manage the Project Plan § Data Governance § Deliverable Management Tac:cal Level § Document Mee,ng Minutes § Report Weekly Status § Manage Documents securely Our governance model is designed to build and sustain a knowledge repository. 5  TO BE CONTINUOUSLY UPDATED 5 Month Plan #1 Priority for Month One is a laser focus on financial opera'ons. Financial Emergency Turnaround – Key Ac:vi:es Phase 1: 10/25/16 – 12/2/16 Phase 2: 12/5/16 – 1/27/16 Phase 3: 1/30/16 – 3/31/16 Strategic Theme 1: Short Term Financing Strategic Theme 2: Long Term Financing and Fiscal Plan Strategic Theme 3: Technology, Data and Process PlaWorm 1. Finalize list of Outstanding Invoices 1. Determine the revenue cycle and what 1. Provide recommenda:ons for upgraded from FY16 and Prior. billing cycles should change to help cash systems/procedures to track cash. 2. Secure Revenue An:cipa:on Note flows, including state-shared revenues. 2. Implement long-term financing strategy (RAN). 2. Determine cri:cal posi:ons to hire. to deal with the deficit. 3. Pay current FY17 obliga:ons with the 3. Issue RFP for the City’s CAFR/Audi:ng 3. Make recommenda:ons for process RAN. responsibili:es. improvement, roles & responsibili:es. 4. Develop a long-term financing strategy 4. Review the city’s economic development 4. Establish a long term financial opera:ng to deal with the deficit. plan and individual agency plans. plaWorm based on Phase 2’s technology 5. Validate the FY17 budget, audit cell 5. Conduct organiza:onal assessment, and assessment. phone bills and u:lity bills. iden:fy resource gaps. 5. Fill key posi:ons and make 6. Conduct benefits eligibility audit. 6. Conduct detailed business process recommenda:ons for key posi:ons 7. Conduct document reviews to build on reviews for financial opera:ons and (e.g., City Manager). previous work: Report by Secretary of create standard opera:ng procedures 6. Iden:fy addi:onal cost savings and lines Finance, Commonwealth of Virginia, and policies. of revenue. Aug 3, 2016, PFM Report. 7. Start recrui:ng cri:cal hires. 7. Implement technologies that enhance 8. Iden:fy Capital Funds that can be 8. Conduct technology assessment and financial transparency. deferred. define a robust and scalable plaWorm. 8. Recommend a drah FY18 capital and 9. Develop Internal/External 9. Map process flows for Accounts Payable. opera:ng budget. Communica:ons Plan. 10. Publish a 2018 Budget Calendar that 9. Conduct a mid year FY17 budget review. 10. Priori:ze workforce compensa:on includes CIP. 10. Hand off knowledge repository to city & issues and conduct salary survey. submit our Exit Plan. 6  Execu9ve Summary (1 of 4) • RBG was contracted using an emergency procurement process on October 25, 2016 • The city faces a financial emergency of +/-$18M in accumulated arrears up to the period ending June 30, 2016 – This does not include +/-$6.0M in unpaid bills for the current year • As Davenport’s report warned on Aug 3rd, the S&P downgraded the city’s ra9ng from BBB to BB with nega9ve outlook risking the ability to pay for essen'al services such as police, fire and EMS By not addressing growing structural deficits since 2009, the city faces great risk in funding essen:al and cri:cal public services. The fiscal crisis deepens. 7  Execu9ve Summary (2 of 4) The City began its deficit in 2009 and con'nued it to the current fiscal year Source: Background/Summary of Davenport’s 2012 Financial Review & Preliminary Plan(s) of Finance, 8 Presenta,on to the City of Petersburg, VA City Council, August 3, 2016 Execu9ve Summary (3 of 4) This shows the use of the Revenue An'cipa'on Note (RAN) to address the immediate cash flow issues *Data provided by Davenport & Co to RBG on November 2, 2016 9  Execu9ve Summary (4 of 4) This is a picture of real “checks in the drawer” for unpaid bills going back 10 to January 2016.  Focus on Fiscal Emergency • Immediate Focus in the Short Term – Iden9fy areas to ensure the FY 2017 budget is realis9c and balanced – Obtain short term debt financing • Within the next two weeks, City Council will be updated on our efforts – This will help address emergency funding for bills that need to be paid now 11  Focus on Fiscal Emergency • Our Long Term focus will address – Iden9fy and address City Administra9on resource gaps, especially cri9cal hire posi9ons – Provide recommenda9ons for upgraded technologies, policies and procedures to manage cash more efficiently – Develop the blueprint for a sustainable financial opera9ng pla]orm that mi9gates Petersburg’s risk for future financial risk 12  PRELIMINARY Issues iden9fied in Week 1 (1 of 4) Issue #1: +/- $18.0M Deficit from FY 2016 and Prior § Figure Based on Analysis done by the State NOT the City; Issue #3: FY 17 Budget is Unrealis:c, Lacks Transparency, City has not maintained Records. and Has Not been appropriated or made available to the § We observed City has paid invoices from prior years using public current year revenues (at least one example of an invoice § Even with the $12.5M reduc9on from the original budget paid twice from FY 16). to the amended budget, there is a lack of accountability and informa9on related to the FY 17 budget to ensure that Key Ac:vi:es the City can meet what is planned. § Update the Analysis to Get a Final List of Outstanding § It appears that cumng employees salaries by 10% and Invoices from FY 16 and Prior reduc9on in force was taken over drama9cally elimina9ng § Develop long-term financing strategy to deal with the services. deficit § Communicate to vendors our plan and when they can Key Ac:vi:es expect to be paid § Map the process with the Finance team and Treasurer. § Op9mize how work can be done between the two departments Issue #2: +/- $6.0M Invoices Unpaid for FY 2017 § Determine whose responsibility it is to determine cash § City has not had a strategic approach to handling the flows (cash versus obliga9ons) growing list of unpaid vendor invoices. § Determine who is responsible for ensuring enough cash is § Current FY that began July 1 has not been kept current and in the bank to meet obliga9ons. there con9nues to be a cash flow challenge as there is not § Determine the revenue cycle and what billing cycles should enough money in the bank in cash to fulfill the current change to help cash flows, including state-shared obliga9ons. revenues. § Provide recommenda9ons for upgraded systems/ Key Ac:vi:es procedures to track cash. § Secure Revenue An9cipa9on Note (RAN) § Communicate to Vendor Community § Pay all current obliga9ons for FY 17 with the RAN 13  PRELIMINARY Issues iden9fied in Week 1 (2 of 4) Issue #4: Cash Flow Projec:ons are Unrealis:c and Process to Determine Cash in Bank/Cash Flow is informal Issue #6: Capital Projects and Capital Budge:ng are § Revenue An9cipa9on Note was Assumed to be Available in Unrealis:c November. However, the proceeds may not be available un9l December (at the earliest). This leaves November § The prime issue is that the City is obligated to paying the vulnerable to ensuring payroll obliga9ons are able to be debt service on these bonds but has not yet drawn down met. the funds. § Property Taxes may not be paid un9l December; however, § In 2015, the City issued bonds through the Virginia bills are to be mailed the first week of November. Resource Authority’s bond pool. § Much of the informa9on related to cash in the bank is § To date, $4.7M of projects have not begun and $6.8M of done through email and is not formalized in a central bond proceeds have not been accessed. system. Issue #5: South Central Wastewater Authority Lawsuit Key Ac:vi:es § Aoend the hearing and share our good faith commitment. § Work with VRA, Bond Counsel and Davenport to develop a solu9on. 14  PRELIMINARY Issues iden9fied in Week 1 (3 of 4) Issue #7: 10% Pay Reduc:on for City Employees and Mass Exodus of Employees Issue 9: FY 15 CAFR found NO material issues; FY 16 has not started As part of the budget reduc9on this summer, the City cut 10% pay across the board. This has resulted in 146 resigna9ons The FY 15 CAFR did not find any material issues with the fiscal and to date this fiscal year almost $200K in leave payouts. controls and accoun9ng prac9ces of the City. Addi9onally, a part-9me/seasonal employee was hired by the City to Key Ac:vi:es conduct several journal entries to “get the books ready for § Develop a path to restore the 10%. the auditors.” It was later discovered that she was a former § Communicate our commitment to staff employee of the audited firm responsible for the City’s CAFR. § Evaluate pay scales—especially department heads. § Determine cri9cal posi9ons to hire. Key Ac:vi:es § Make an analysis of consolida9on of services and § Develop a plan to get the FY 16 CAFR done. One idea is to posi9ons. reach out to the auditor of public accounts for assistance. § Review the management leoer from the past audits to ensure that all iden9fied is followed up on. § Cancel the contract with the current auditors. Issue 8: Use of restricted funds for General Fund purposes. § Issue RFP for the City’s CAFR/Audi9ng responsibili9es. The City has historically used special revenue funds and enterprise funds to pay General Fund obliga9ons. Key Ac:vi:es § Develop a plan to separate the funds, including separate bank accounts, separate codes, etc. § Determine how to handle federal and state grant funds management. § Ensure cross training for grant fund draw-down out of Finance. 15  PRELIMINARY Issues iden9fied in Week 1 (4 of 4) Issue 10: No full-:me finance staff/Lack of Financial Policies Issue 12: Decentraliza:on of tradi:onal finance § The Finance Director was fired last spring along with the responsibili:es with the elected Treasurer and elected City Manager. The Assistant Finance Director became Commissioner of Revenue and unclear division of Ac9ng Finance Director and resigned effec9ve Oct. 22. In responsibili:es/accountability addi9on, there was no succession planning nor was there an appropriate and professional handoff of passwords, The Commissioner of Revenue is responsible for the billing responsibili9es, etc. func9on of the City while the City Treasurer is responsible for § The Accounts Payable process is loose and lacks control the collec9on of funds, prin9ng of checks, and management and diligence. Several changes to the process have of cash. The Finance Department is responsible to keep the occurred that removes the use of the system to control the City’s books and develop and appropriate City budget. invoices to be paid and checks to be cashed. It is unclear how many invoices are not accounted for in the system. Key Ac:vi:es § Flow the process of all three. § Make recommenda9ons for process improvement and clear division and/or consolida9on of responsibili9es. Issue 11: Poten:al fraudulent ac:vity In the brief 9me spent being brought up to speed on City ac9vi9es, it is apparent there has been significant negligence that may go beyond just the right to terminate an employee. Key Ac:vi:es § Review emails/documents to trace any suspicious or fraudulent acts. 16  RBG Plan of Entry • Priority One is restructuring financial opera9ons: – Balancing and keeping current budget balance – Budget Policies and Monitoring/Repor,ng transparency – Financial Repor,ng/ Accoun,ng Prac,ces/Internal Audi,ng – Revenue Collec,ons and billings • Define a Strategy for short term borrowing and securing funding to restructure the long term deficit • Create a Staffing Plan and develop a Leadership Recruitment Plan • Establish leading policies, prac9ces and procedures for each department 17  Transparency • Data Collec9on • FTA Review of Petersburg Area Transit • Documents Requested • Mee9ngs held Week 1 (10/25/16-10/28/16) 18  Data Collec9on Documents we have received and are reviewing: 1. Commonwealth Aug 2016 Presenta9on to the City Council 2. Davenport presenta9on to Council in August 2016 and in 2012 3. PFM Presenta9on to Council in August 2016 and their budget recommenda9ons for FY 17 4. Revenue An9cipa9on Note RFP 5. FY 17 Amended Budget 6. FY 13-FY15 CAFRs and management leoers 7. Report from Standard & Poor 8. Debt Analysis and Restructuring Op9ons 9. Cash Flow Summaries 10. Federal Transit Administra9on FY 2016 Triennial Review (deficiencies below) 11. Banking Services and Audi9ng Services Contract (obtained via disk on 10/28) 12. Johnson Controls Contract, final comple9on cer9ficate and bid documents (obtained via disk on 10/28) 13. Procurement Manual, Organiza9on Chart, RFP for Forensic Audit (obtained via disk on 10/28) 14. Virginia State Documents 19  FTA Review of Petersburg Area Transit Background: Triennial review on compliance in 17 areas; deficiencies found in 8 areas. Correc've Ac'on is due by December 5, 2016 for all areas. Deficiency areas: 1. Lack of financial policies and procedures and excess cash problems 2. Vehicle maintenance plan incomplete or out of date; facility/equipment maintenance program lacking or inadequate 3. ADA complementary paratransit service deficiencies; limits or capacity constraints on ADA complementary paratransit service; and insufficient no-show policy 4. Procurement—repeated deficiency (lacking required cost/price analysis) 5. DBE public par9cipa9on process deficiencies; unreported transit vehicle purchase; and grantee does not monitor DBE compliance 6. Sa9sfactory con9nuing control—repeated deficiency (inventory results not reconciled to equipment records) 7. Planning/program projects (POP Public no9ce deficiencies) 8. Drug free workplace/drug and alcohol program (drug and/or alcohol program vendors not properly monitored) On October 20, 2016, FTA assigned Tuba Group to review the city’s PAT opera'ons in order to provide Agreed-Upon Procedures (AUP) services to the FTA. The objec'ves of the AUP are: § To provide informa'on to FTA to determine whether PAT has adequately addressed issues related to disbursing of FTA funds in accordance with FTA requirements; § Determine if PAT owes interest on Federal funds that had been drawn down and held longer than allowed by FTA guidelines; and § To verify compliance with FTA matching requirements. 20  Documents Requested (1 of 9) Control # Descrip:on 16001 Ar9cles of incorpora9on 16002 Tax exemp9on documenta9on 16003 Copy of the minutes of the Council minutes for all mee9ngs held for the year to date. 16004 Copies of any reports issued during the year on opera9onal or financial audit conducted to date. For the last 3 years. 16005 Provide informa9on of any current li9ga9on at year-end plus any li9ga9on arising to date. 16006 Copies of notes and loan agreements 16007 List of significant commitments and con9ngencies as of year-end and to date (if any) 16008 Copy of all lease agreements 16009 Prepare legal inquiry leoers in the format to be provided by us. 16010 Prepare confirma9on requests in the format to be provided by us. 21  Documents Requested (2 of 9) Control # Descrip:on 16011 Copy of grant/contract agreements for the year. 16012 List of all related par9es, including City Council, Directors and Officers, include contact informa9on - name, telphone number, email etc 16013 Copy of trial balance to date.(Electronic) 16014 Copy of detailed general ledger for the year.(Electronic) 16015 Copy of the budget and a budget versus actual reports for the year end and to date (by line item detail) 16016 Copies of insurance policies. 16017 Copies of Pension Plan/Benefit Plan 16018 Copies of Contracts with Consultants. 16019 List of employees hired and terminated during for the year. 16020 Copy of city charter with the state 22  Documents Requested (3 of 9) Control # Descrip:on 16021 Current Organiza9on Chart 16022 Financial technology documenta9on 16023 Copy of prior year audited Financial Statements and Tax Returns – Form 990 16024 Provide a lis9ng of all bank accounts, including any closed accounts during the year. 16025 Copy of detailed reconcilia9on’s for all bank accounts (including lists of outstanding checks) at year-end and to date 16026 List of authorized check signors for all cash accounts 16027 Schedule of investments purchased, sold, and held at year-end. 16028 Schedule of investment earnings for the year and to date Summary schedule of assets by major classifica9ons including beginning 16029 balances, addi9ons, disposals, ending balances, and related accumulated deprecia9on. Also, asset inventroy. Please note, the last 9me an investory was taken. 23  Documents Requested (4 of 9) Control # Descrip:on Detailed list of all property and equipment acquired and disposed of 16030 during the year by major asset classifica9ons. This list should include the descrip9on of item, date acquired/disposed, and value. 16031 Copies of deed/9tle of land, building and/or other assets acquired and disposed of during the year, including detail of any construc9on costs. 16032 Documenta9on suppor9ng the fair value assigned to any donated property, if applicable. 16033 Deprecia9on Schedule for all plant, equipment and furniture Accounts receivable Reports and aging 16034 Prepaids 16034 Schedule of prepaid expenses at year-end. 16035 Detailed schedule of accounts payable at year-end 16036 Schedule of accruals at year-end, including payroll, payroll withholding, and taxes payable to date 16037 Schedules for any other liabili9es at year-end and to date 16038 Schedule of payment for leases, notes and loans under agreement for each of the next five years to date 24  Documents Requested (5 of 9) Control # Descrip:on 16039 Schedule of disbursements made aver year end to date 16040 Details of deferred revenue at year end 16041 Schedule of payments received from the State or Federal Government, and any other sources along with transmioal documenta9on. 16042 List of Names for Restricted and Unrestricted Grantors 16043 Numbers of the first and last checks wrioen for all bank accounts used during the year and to date 16044 Reconcilia9on of payroll expenses to the payroll register totals and copies of W2, W3, form 1099’s 1098 and 941. 16045 Detailed schedule of Consul9ng and Professional Fees year end and to date 16046 Disbursement ledger for the year. 16047 List of Vendors and any outstanding balance year end and to date 16048 Documents demonstra9ng implementa9on of financial planning and budge9ng process aligned with the city’s mission and goals. 16049 Documents showing any analysis of debt and opera9ng expenses. 25  Documents Requested (6 of 9) Control # Descrip:on 16050 Documents demonstra9ng implementa9on of sa9sfactory plan for the payment of unpaid federal, state taxes, interest, penal9es, 16051 Documents showing comple9on of efforts to consolidate and refinance the city’s term loans – short and long terms Documents showing the implementa9on of addi9onal efforts to 16052 remediate the City’s deficit posi9on, including budget projec9ons and analysis of underlying assump9ons for FY 2015, FY 2016 and FY 2017 16053 Copies of any salary studies conducted 16054 History of raises and bonuses provided over the last 5 years, including any adopted policies related to the alloca9on of raises/bonuses Healthcare Plan Details (city vs employee contribu9on; contract with 16055 provider including the last 9me a compe99ve procurement was conducted; u9liza9on rates, etc.) 16056 Details on “contribu9ons to other community organiza9ons”. Are these under an agreement? 16057 Profit and Loss Statement for the Golf Course 16058 Any pro forma and/or long term analysis conducted on the enterprise funds: Golf Course, Public U9lity, and Transit Opera9ons? 16059 Copies of any adopted debt and financial reserve policies. 16060 Copy of the Service agreement with the Regional Jail. 26  Documents Requested (7 of 9) Control # Descrip:on 16061 Copies of Ra9ng Agency Credit Reports 16062 Copy of Analysis Conducted by Davenport & Company prior to going to the bond market 16063 Any adopted policies related to Economic Development Incen9ves. What is the basis for their approval and analysis conducted? 16064 McKinney Scholarships and how they are determined Timetable to meet all legal requirements necessary to approve budget 16065 and tax rate (ie. several public hearing and public no9fica9on requirements). 16066 List of all taxes and fees assessed, including the maximum allowed by State. 16067 Procurement authority policies and procedures. What amounts require City Manager approval versus Council approval? 16068 Any analysis conducted on OPEB re9rement benefits, both the financial analysis and benefit analysis. Timetables for all capital projects underway (i.e. list of all capital 16069 projects including their status of construc9on. How many are in pre-bid, post-bid, under construc9on, etc. Documenta9on on policies or procedures related to mid-year budget 16070 challenges. Have any hiring or expenditure freezes take place over the last 2-3 fiscal years? 16071 Risk Assessment/Audit of benefit process. Risk Assessment/Audit of payroll process (including personnel 27 16072 authorized count).  Documents Requested (8 of 9) Control # Descrip:on 16073 Review of Informa9on Technology Infrastructure 16074 Analysis and Evalua9on of Return on IT investment 16075 Audit of U9li9es Bills 16076 Audit of Telecommunica9on systems including land lines, cell phones and Bring Your Own Device systems 16077 Schedule, Project plan and Status of construc9on In Progress 16078 Policy and accoun9ng treatment of Bad Debt Provision and Write-off 16079 List of all personnel vacancies for all posi9ons and job descrip9ons 16080 Council background and minutes 28  Documents Requested (9 of 9) Control # Descrip:on 16081 City Council Documenta9on 16082 Documents on shared services with school system 16083 Policies and procedures for Procurement and Acquisi9on 16084 Policies and procedures for Finance and Accoun9ng 16085 Human Resources' Policies and Procedures including hiring and termina9on. 16086 City clerk documents 16087 Transit Audit Documents 29 Mee9ngs Held Week of 10/25 – 10/28 Mee:ng Subject Community Mee9ng Mee9ngs with Council Members, Mayor and Vice Mayor, Councilman Hill, City Aoorney. Introductory Mee9ngs with Department Directors and staff 30