City of Irwindale
It Must Exercise More Fiscal Responsibility Over Its Spending So That It Can Continue to Provide Core Services to Residents

Audit Results

Despite Facing Chronic Budget Deficits, the City of Irwindale Has Failed to Control Its Spending

The city of Irwindale has significantly depleted its general fund reserves by continuing to spend on generous programs, even though it has frequently faced budget deficits in the past several fiscal years. In particular, the city’s spending of more funds than it has collected has reduced the city’s reserves by roughly 40 percent. This practice is not sustainable. In spite of these financial challenges, the city has not developed a long‑term financial plan. The city has continued to provide competitive salaries and generous benefits to city employees and to the city council, and these expenses for fiscal year 2015–16 consume 51 percent of Irwindale’s general fund budget. In addition, the city offers prescription drug and vision benefit programs to its residents that cost the city nearly $1 million in that year. Irwindale has also continued to spend significant amounts for police overtime without determining whether doing so is cost‑effective.

The City Council Has Failed to Develop a Long‑Term Financial Plan for Dealing With Irwindale’s Budget Deficits and for Restoring Its Reserves

For at least the last six fiscal years, Irwindale’s city council approved annual budgets in which estimated expenditures exceeded projected revenues. For example, for fiscal year 2011–12, the city budgeted $15.8 million in general fund revenue and more than $18.1 million in general fund expenditures, resulting in a projected general fund deficit of $2.3 million. This persistent fundamental imbalance between budgeted general fund revenue and expenditures is known as a structural deficit. As Table 3 shows, the city’s general fund has operated with a structural deficit each year since fiscal year 2011–12, and the city currently expects to face a $735,000 deficit in fiscal year 2016–17. The city’s actual general fund expenditures also exceeded its actual revenues in fiscal year 2011–12, and fiscal years 2013–14 through 2014–15.

As a result of these deficits, the city has had to rely on its general fund reserves, which have decreased significantly since fiscal year 2011–12. The city’s fund balance policy established an Economic Contingency Reserve with a minimum assigned fund balance of $5 million, which the city is to use for emergencies or for maintaining services in a severe fiscal crisis only. Assigned fund balances are amounts that the city has set aside for specific purposes such as covering economic contingencies, postretirement health benefits, and future capital asset replacements and infrastructure needs. However, the city may modify these fund balance assignments as it deems appropriate. As shown in Figure 5, the city’s general fund reserves, which consist of several reserve categories, fell by approximately $9.4 million, or 39 percent, from June 30, 2011, through June 30, 2015. If the city continues to experience annual deficits similar to those from previous fiscal years, the city’s general fund reserves may eventually run out, and this lack of reserves may limit the city’s future ability to provide to its residents such core services as maintaining the city’s public infrastructure and providing for the safety and welfare of residents and the business community. In addition, if the city continues to use its general fund reserves to finance its deficits, it will no longer be able to use those funds for their intended purposes. For example, as of June 30, 2015 the city had assigned $8.8 million of its general fund balance to partially fund its $11.8 million outstanding liability for retiree health benefits (according to the most recent actuarial valuation). If the city continues to deplete its reserves, it will further constrain its ability to set aside money to fund these future benefits.

Figure 5
City of Irwindale’s General Fund Reserves
(In Millions)

Despite its financial challenges, according to the city’s finance director, Irwindale has not developed a formal long‑term financial plan. Long‑term financial planning is the process of aligning financial resources with long‑term objectives, which should include projecting revenues and expenditures over a long‑term period, using assumptions about economic conditions, future spending scenarios, and other salient variables. An organization can use a financial plan as a tool to prevent future financial challenges and to enable long‑term and strategic thinking. Without such a plan in place, the city kjmay be inclined to depend on one‑time gains—such as money derived from selling pit mines—to fund its ongoing operations.

Recently, the city has relied on one‑time gains that helped it overcome its structural deficits. The $5.8 million gain shown in Table 3 for fiscal year 2014–15 is due to the successor agency transferring former redevelopment agency land held for resale to the city. However, that gain did not include cash and thus has not been available for the city to spend on its normal operations. In fiscal year 2015–16, however, the city realized a $2.6 million gain when it sold a pit mine that was no longer used for mining operations. In addition, the city recently began receiving annual revenue from a pit mine that it owns. Specifically, in fiscal year 2015–16, the city received $1.8 million from this mine, and it projects that it will receive annual revenue from this mine ranging from $1.2 million to $3.7 million over the following six fiscal years. This helped the city cover the nearly $1 million gap between its budgeted revenue and expenditures. In fact, the finance director asserts that the city’s general fund reserves will increase by $4 million by the end of fiscal year 2015–16. In addition, in its budget workshop for fiscal year 2016–17, the city projected that its general fund reserves would increase when it sells another pit mine and additional property. Later in 2016, the city sold that pit mine and one other property for $9.8 million, and according to the finance director, this will result in a $7 million gain in fiscal year 2016–17. She also stated that the city expects to receive additional property, sales, and utility users tax revenue from the developments that will take place on those properties and other future projects that will take a few years to complete.  Nevertheless, the city has not developed a long‑term financial plan that describes how it will use these one‑time gains and revenue to fund its ongoing expenses and eliminate future structural deficits.

The city has made some efforts to reduce its costs. For example, in fiscal year 2009–10, the city increased fees and reduced operating expenditures for its recreation and library departments. In fiscal year 2011–12, the city merged its public works yard and engineering departments, and it instituted hiring freezes when employees retired. In fiscal year 2012–13, the city cut budgeted expenditures for all of its departments by up to 10 percent. Finally, in fiscal year 2014–15, the city council cut nonmandatory training budgets with the exception of emergency management training for the police department. These efforts were nonetheless insufficient to allow the city to balance its budget.

Furthermore, raising taxes does not seem to be a feasible means for the city to bolster its reserves because some rates are already higher than those of comparable cities. In particular, in 2013 the city hired a consultant who estimated that Irwindale’s businesses, when compared to those in comparable cities, pay on average two times more in utility users taxes and nearly four times more in business license fees; additionally, like most comparable cities, Irwindale does not have a city‑imposed sales tax. Furthermore, the city in its municipal code has tied its mining tax rates to the California Consumer Price Index; lastly, the California Constitution and state statutes restrict the city’s ability to levy taxes on property. The city manager agreed with the consultant that raising the city’s tax rates is not currently a potential solution for the city to increase its revenue and replenish its general fund reserves.

According to the city manager, the city council worked with management to cut costs while maintaining core services, and appropriately relied on its “rainy day fund” to weather the recession.Additionally, the mayor stated that the city council worked to reduce costs during the recession through practices such as replacing equipment only when absolutely necessary. The mayor added that the city council elected to build its “rainy day fund” in the years prior to prepare for economic downturns and as such appropriately used those funds to cover the annual deficits in recent years.  Nevertheless, as we describe in the following sections, the city council has continued to spend considerable sums for generous programs and failed to cut costs sufficiently to balance the city budget.

The City Allocates a Significant Portion of Its Budget to Salaries and Generous Health Benefits

Although Irwindale faces financial challenges, the city directs 51 percent of its general fund budget to personnel expenses—including salaries, fringe benefits, and overtime pay. These benefits are defined in the city’s employment agreements through negotiations with three represented employee groups: nonmanagement, management, and police officers. These groups represent 71 of the city’s 76 full‑time employees. Five individuals—the city manager, director of finance, director of public works, director of community development, and police chief—are not represented by any of the three employee groups; rather, employment contracts define the terms of these individuals’ employment with the city and establish their compensation. Further, the employment contracts for these individuals contain clauses that allow them to partake in the same benefits as represented management employees to the extent that those benefits are not included in their employment contracts.

The city’s salaries for key management positions are comparable to those for similar positions in other cities, ranging from $104,221 to $185,000. We identified 14 cities comparable to Irwindale based on their location, annual expenditures, services provided (such as whether the city operates its own police department), and population size. Table 4 shows that Irwindale’s maximum salary ranges for 2015 consistently ranked in the middle or lower end of the salary spectrum for the other 14 cities, with the exception of the salary range for the recreation manager, which was the second highest in that group. Six of the key management employees included in Table 4 currently earn annual salaries in excess of $100,000. According to the human resources manager, the city needs to offer competitive salaries to recruit and retain qualified candidates.

Key management employees also receive incentives and allowances—such as those described in the text box—that supplement their base pay. The education incentive in particular appears to be unnecessary for upper management employees who are required to have high levels of education to even qualify for their positions. For example, the city manager’s contract entitles him to the education incentive pay described in the text box, even though the job specifications for his position require at least a bachelor’s degree in addition to eight years of experience. According to the city, in fiscal year 2015–16, the city spent $11,000 on education incentive pay for 10 management employees whose job specifications required a higher level of education than that necessary to receive the incentive. Furthermore, according to finance department staff, the city reports this additional compensation to the California Public Employees’ Retirement System (CalPERS), and it is included in the calculation of the employees’ final compensation when computing retirement benefits.

Although the city’s salaries for key management staff are comparable to those for staff of other cities, Irwindale spends the highest amount on health benefits per employee among 12 comparable cities. Data provided by the city to the State Controller’s Office indicate that the city spent $1.4 million on health, dental, and vision benefits in 2015, or $18,400 per full‑time employee. This amount is about $6,000 more than the city with the next most generous benefits provides in health benefits to its employees. The city spends so much partly because it covers 100 percent of employee and dependent health, dental, and vision insurance premiums. If employees demonstrate sufficient insurance coverage through sources other than the plans offered by the city, the city pays the employees a cash benefit of one‑half of the average monthly cost of single‑employee medical insurance, or $309. By contrast, the State offers only $155 to employees in similar circumstances. According to the finance director, the city proposed a possible employee contribution to medical benefits during the labor negotiations preceding the adoption of the 2013­–2016 employment agreements. The city subsequently determined that these changes were not ideal after concluding through discussions with CalPERS that the changes would also negatively affect all retirees.

In addition to offering competitive salaries, the city provides key management, as well as all other full‑time staff, with more generous employee pensions than those offered by comparable cities. As Table 5 shows, the city offers management staff hired before January 1, 2013, a CalPERS pension of 2 percent at age 55 and a Retirement Enhancement Plan supplement from Public Agency Retirement Services (PARS) of 1 percent, also at age 55, for a 3 percent total pension at age 55. CalPERS retirement benefits are funded through contributions paid by participating employers, employee contributions, and earnings on CalPERS investments. Employer contribution rates are determined by periodic actuarial valuations under state law. All three represented employee groups are eligible to receive the CalPERS and PARS pension benefits through their employment agreements for employees hired before January 1, 2013. Only one of the 14 comparable cities we reviewed (Azusa) offers a similar supplementary retirement benefit through PARS.

The retirement formula is used to calculate an employee’s retirement benefit by taking the employee’s years of service, age at retirement, benefit factor, and final compensation. For example, an Irwindale employee who retires at age 55 after 30 years of service and earns $100,000 per year would receive an annual retirement benefit of $90,000 based on a benefit factor of 3 percent at 55.

According to the city, it hired 10 of its 76 full‑time employees after the Public Employees’ Pension Reform Act (PEPRA) went into effect in January 2013; thus, these 10 employees are subject to PEPRA’s provisions that increased to 62 the age at which an employee could receive a pension of 2 percent. In addition, as of July 1, 2015, all city employees are required to pay the entire employee portion of the CalPERS required contribution. The city now pays only the employer portion for CalPERS, but it covers nearly all of the PARS costs for the additional 1 percent at age 55. The contribution rate for employees hired before January 1, 2011, is 0.4 percent of their salaries, while those hired on or after January 1, 2011, pay the total employee contribution, or 7.485 percent of their salaries. In addition, employees hired after January 1, 2013, are not eligible to participate in PARS. For fiscal year 2015–16, the city budgeted approximately $476,000 for PARS expenses.

Not only do key management employees receive competitive salaries and benefits, but these individuals also may cash out accumulated sick leave and some of their vacation hours. In contrast, federal and state laws do not require employers to pay employees for unused sick leave balances upon separation. Additionally, the California Department of Human Resources and the Department of Finance do not allow state employees to cash out sick leave, even upon separation. The city spent a total of almost $336,000—representing more than 10,000 employee hours—from fiscal years 2011–12 through 2015–16 for cashed‑out sick leave. In one instance, the former assistant city manager received upon separation almost $45,000 for a sick leave balance of 983 hours. Despite its financial challenges, the city also allows employees to cash out vacation leave voluntarily, up to a limit of 100 hours per year. Moreover, in order to reduce its future liability, the city’s employment agreements and personnel policy allow management to cash out employee vacation hours in excess of a 300‑hour cap and compensatory hours in excess of 40 hours for nonmanagement employees. From fiscal years 2011–12 through 2015–16, the city paid more than $1.5 million in leave cash‑outs, or just over $300,000 per year. As a sound financial practice, we would expect voluntary leave cash‑outs to be contingent upon the city having available cash, rather than being preauthorized regardless of budgetary constraints. We further believe allowing employees to cash out sick leave is not a prudent practice given the city’s financial challenges.

Like the city’s employees, Irwindale’s city council members receive generous health benefits in addition to their monthly salaries, and the members also receive expense reimbursements. Although council members are eligible to receive pension benefits, these expenses are projected to cost the city less than $10,000 a year. According to its municipal code, the city is required to hold two regular council meetings per month. Documentation provided by the city’s human resources technician shows that in January 2016 alone, the city spent a total of $14,000 on health benefits for three city council members, six commissioners, and their dependents. Although the nature of their work is part‑time, the city covers 100 percent of the health, dental, and vision insurance premiums for these officials. The city’s municipal code establishes council member salaries at $543 per month and authorizes a flat‑rate reimbursement of $190 per month for expenses incurred within city boundaries. We believe it would be prudent for the city to collect receipts for all costs incurred by council members in carrying out city business. City council members also attend special meetings for which they are compensated separately. Further, city resolutions allow council members to receive $50 for attending each Irwindale Housing Authority (Housing Authority) meeting and $300 to attend each Irwindale Reclamation Authority meeting.²

The City Has Spent Almost $1 Million Annually to Provide Prescription Medications and Vision Benefits to Residents

In spite of its long‑standing budget deficits, the city has funded prescription and vision benefit programs continuously for city residents, and the combined costs for these programs have increased each year. Prescription costs make up 94 percent of this expense to the city, while the vision program costs, which decreased by 29 percent over the last five fiscal years, make up the remaining 6 percent. In contrast, the prescription costs increased by 41 percent over the five‑year period. The significant costs of these programs limit the resources available for other core city services, including street repairs and other public works. The city asserted that it provides these benefits to minimize the health impacts on residents of its mining activities. In fiscal year 2015–16, Irwindale spent nearly $1 million on prescriptions and eye care for its residents.

To participate in Irwindale’s generous prescription and eye care programs, an individual must provide sufficient proof that he or she is a resident of the city and pay a $5 fee to obtain a resident identification card. The prescription program generally allows residents to fill from a designated pharmacy provider an unlimited number of prescriptions, with some exclusions and caps, depending on the type of medication. Examples of excluded drugs include dietary supplements and drugs designed solely to deter smoking. Each participating resident under 50 years of age is required to pay a copayment of $10 per generic prescription or $45 for brand‑name medications; the required copayment is $3 for both generic and brand‑name prescriptions for residents 50 years of age or older. The city pays the balance regardless of the medication’s cost. For example, if a 51‑year‑old resident fills a prescription with a total price of $300, the resident pays $3, while the city pays the difference of $297. Similarly, the vision program annually provides each resident up to $245 for new eyeglass frames and lenses, $120 for contact lenses, and $49 for an eye exam. Residents may visit one of two designated optometrists who bill the city directly for these expenses.

As depicted in Figure 6, from fiscal years 2011–12 through 2015–16, the city’s share of prescription costs increased consistently each year, while residents’ copayments remained relatively stable. Over those five years, the cost of the prescription program rose 41 percent, and the city spent a total of $4 million, while participants paid $155,000, or only 4 percent of the program’s cost. The city paid an average of $3,800 per participant in fiscal year 2015–16.

Figure 6
City of Irwindale Pays Nearly All of the Costs of Its Increasingly Expensive Prescription Program
Fiscal Years 2011–12 Through 2015–16
(In Thousands)

Not only has Irwindale’s prescription plan created a highly imbalanced distribution of prescription costs between the city and its residents, but it has also allowed a disproportionate amount of the city’s total prescription spending to go to a relatively small number of participants. In fiscal year 2015–16 alone, 25 of the 251 total participants in the program each received more than $10,000 worth of prescription assistance from the city. The costs for these 25 participants totaled $459,000, or 48 percent, of the $943,516 that the city spent on the program that year. Because of the city’s lack of limits on the dollar amount or the number of prescriptions an individual may fill at the city’s expense, each resident has virtually endless potential to increase the city’s costs in administering this benefit. When evaluating Irwindale’s financial situation, we expected that the city would have implemented controls to effectively contain the costs of the program by placing a cap on the dollar amount of prescription assistance each resident may receive each fiscal year.

Although the city has explored cost‑cutting measures, including increasing the copayment for prescriptions, it has been reluctant to implement them. In April 2009, the city manager presented a series of cost‑cutting recommendations to the city council, including increasing the copayment for all participants from $3 to $10 for generic medications and $35 for brand‑name medications, as well as changing pharmacy providers. The city council approved these changes; however, the mayor stated that when some residents expressed concern over the change, the city council decided to revert to the $3 copayment for residents 50 years of age and older, who constitute most of the participants. Had the copayment remained at the increased rate for all residents, the city would have saved nearly $120,000 in fiscal year 2015–16 alone. Moreover, the city did not change its pharmacy provider, though the city council meeting agenda report from April 2009 indicated potential savings of up to 32 percent on brand‑name medications. According to the mayor, an outside consultant later reviewed the prospect of switching providers for the pharmacy benefit and found that doing so would not be cost‑beneficial to the city. He also stated that the consultant communicated this information to the city verbally, and we were therefore unable to assess this determination.

In light of the rising costs for the prescription program, the city hired a consultant in August 2014 to review the program and propose cost‑reducing measures in order to extend the life of the program. In September 2016, the city council reviewed the consultant’s recommended changes, including a proposal to require all residents to pay a $10 copayment, but it approved only one of the recommendations. The city council approved the consultant’s recommendation that the city contract directly with its pharmacy benefit manager and terminate its contract with its current third‑party administrator. This change is projected to save $100,000 in the first year in the form of reduced annual fees and commissions and increased rebates to the city from pharmaceutical companies; the administrator currently retains these rebates.

The city council, however, rejected the consultant’s more substantial proposals. For example, it rejected the consultant’s recommendation to increase the prescription copayment to $10 for residents over age 50. In addition, the council rejected the consultant’s proposal that the city implement a coordination of benefits under which the city’s prescription program would become secondary to any other insurance a resident may have. Under such an arrangement, the city would pay only the difference, if any, between the prescription cost and the amount the other insurance plan would cover. Implementing this change would be contingent upon participants informing the city of their existing coverage. The consultant reported that such a provision could extend the funds dedicated to the program incrementally, but the extent of the cost savings could not be calculated because of data limitations. Despite the increasing costs of the program, the council did not approve this cost‑saving opportunity.

Although the consultant proposed several other cost‑reducing measures, the recommendations focus on the costs of administering the program and do not address the possibility of limiting the benefits available to residents. In contrast, if the city were to implement a cap of $2,500 per resident, two‑thirds the average amount spent per participant in fiscal year 2015–16, it could save more than $300,000 per year on prescription drug benefits. Similarly, few limitations exist regarding the types of medications the city will cover.

Although the city has offered the program to residents for almost three decades, it was not until 2012 that the city council passed a resolution formalizing the program’s public purpose of promoting the health and welfare of city residents negatively affected by the mining activities in the city. Given this program objective, we expected that the city would limit prescription benefits to medications for conditions related to or caused by mining activities, but the city has not done so. We further expected the city to use studies and research to demonstrate causal relationships between Irwindale’s mining and its residents’ health concerns, but the city has not used studies or research for this purpose.

Furthermore, the city has not considered alternative available programs to provide its residents with prescription assistance. For example, the League of California Cities cosponsors, with the National League of Cities, a prescription discount card program that provides prescription drugs at reduced prices to residents of participating cities who are without insurance coverage or who have insurance coverage that does not cover their prescriptions. Through this program, according to the League of California Cities’ website, residents can save an average of 23 percent on prescription medications at no cost to participating cities. As of June 2016, eight of the cities we compared to Irwindale participated in this prescription discount card program, including the neighboring cities of Baldwin Park, Duarte, and Azusa.

Irwindale Cannot Demonstrate That Its Spending for Police Overtime Is Cost‑Beneficial

The city’s police department staff work significant amounts of overtime, which raises questions about public safety, adequate staffing, and the cost‑effectiveness of this expense in light of the city’s financial difficulties. The city spends, on average, $525,000 per year on police department overtime, the bulk of which is attributable to overtime costs of its police officers. From fiscal years 2011–12 through 2015–16, the city spent $1.9 million on overtime for just its police officers—excluding other police department positions such as corporals, sergeants, and administrative staff. This level of spending represents the highest amount of overtime per officer among 11 comparable cities for 2015.  Specifically, Irwindale spent $27,000 per officer on overtime in 2015, and the next highest city (San Fernando) spent $20,000. To explain the overtime spending, the police chief cited injuries and other health‑related concerns. He stated that at the beginning of 2015, eight of the city’s 17 officers were out at the same time for health reasons, increasing the police department’s need for overtime. In fact, for the five years we reviewed, spending for officer overtime was highest during fiscal year 2014–15, costing more than $500,000 for 9,000 hours of overtime. However, overtime spending was also high in all the other years we reviewed, and so it cannot be attributed fully to injuries and illness. For example, our review found that some of the overtime pay was attributable to vacancies, as we discuss later.

Further, the current method that the police department uses to distribute overtime may pose a public safety risk because officers who work arduous amounts of overtime may become fatigued and may be less attentive while on duty. In September 2013, the interim police chief described these adverse effects in an email to the city manager. The interim police chief specifically explained how fatigue from working too much overtime could impair officer judgment and decision making. He stated that officer fatigue poses a liability to the city, especially in “shoot‑or‑don’t‑shoot” situations and in officer interactions with members of the public who are argumentative or under the influence. Figure 7 shows that from fiscal years 2011–12 through 2015–16, five officers received the most overtime pay, earning 66 percent of total officer overtime in the most recent year and 58 percent for the entire period. In fact, with overtime pay, two officers nearly doubled their salaries in one year. Since fiscal year 2011–12, the officer with the most overtime pay worked an average of 946 hours of overtime per year, or the equivalent of 76 extra 12.5‑hour days of work each year.

Figure 7
Five Officers Received More Overtime Pay Than All Other Officers Received
Fiscal Years 2011–12 Through 2015–16
(In Thousands)

The concentration of overtime among these five individuals also creates the appearance of favoritism. These five individuals are among the eight most senior officers in the police department. The police department policy manual allows senior department members to “bump” employees with less seniority from overtime assignments. Although the manual assigns the responsibility of ensuring that overtime is assigned judiciously and distributed equitably to the patrol division commander, the effectiveness of this control is unclear, given the concentration of overtime among the top five earners. Additionally, police department policy sets limits on the number of hours officers should work within the span of 24‑hour, 48‑hour, and 168‑hour periods, at 16, 30, and 84 hours, respectively, and these limits apply to hours worked on overtime. However, the policy does not restrict the amount of overtime a single officer may work within these time frames. We expected to see that the city had set limits on the number of consecutive weeks an officer may work the maximum hours, regardless of “bumping” privileges. Alternatively, the city could implement a rotational approach that requires all officers to participate or that allows officers who are not interested in working overtime to pass shifts to the next officer in the rotation. Such an approach would help to spread the overtime among more officers so that they are not overly fatigued and their judgment and decision making are not impaired.

Despite the significant costs of police officer overtime, the city has not performed an adequate cost‑benefit analysis that examines the city’s use of overtime to cover shifts versus hiring more officers. The finance director, in preparing the midyear budget review for fiscal year 2015–16, calculated the cost savings from not hiring additional officers. However, this analysis was limited in scope and detail, as the purpose was simply to determine how much the city would save during that year on police officer salaries and retirement costs compared to how much the city would spend on officer overtime. The finance director determined that the city would exceed its police officer overtime budget for fiscal year 2015–16 by $310,000, but that it would save $425,000 on salaries and retirement contributions because of ongoing vacancies and extended leaves, resulting in a net cost savings of $115,000. However, this calculation is flawed because it does not account for the total cost of overtime compared to the cost of hiring new officers, nor does it differentiate between savings from vacant positions and those attributable to temporary absences, such as those of employees out on disability. The finance director’s analysis also lacks any assessment of whether the level of overtime, which was nearly twice the budgeted amount, was sustainable and safe. Further, the analysis lacks consideration of the appropriate level of staffing to address the city’s policing needs.

Irwindale’s comparatively high overtime expenses also raise questions about the appropriateness of police department staffing levels. In comparing the city’s police officer overtime with that of 11 similar cities, and using the city’s workday population of nearly 25,000, we determined that the city employs one officer for every 1,470 citizens. This amount falls within the middle of the range of officer‑to‑citizen ratios for the 11 other cities, and it suggests a similar workload per officer in each of these cities. However, as stated earlier, the city spends significantly more on overtime—at $27,000 per officer—than any of the similar cities. Thus, the city needs to analyze the police department’s workload and staffing levels using these factors, among others, to determine how many officers the city actually needs and how much overtime is warranted to meet the city’s goals for providing police services to its residents and workday population.

In addition to performing a cost‑benefit analysis of officer overtime, the city should reevaluate the possibility of contracting with the Los Angeles County Sheriff’s Department (sheriff’s department) or other law enforcement agencies as an alternative to operating its own police department. In 2009 the sheriff’s department performed an initial study of the city’s police department at the request of the city, resulting in a proposal to provide policing services to the city that would reduce its annual costs by 25 percent, or $1.8 million at the time. According to the proposal, the arrangement would also increase the number of sworn law enforcement personnel by 11 percent. While two council members favored further pursuing the possibility of contracting, others expressed concerns over quality‑of‑life and liability issues. The council did not vote to explore this opportunity further. According to the mayor, the council rejected the proposal because the new arrangement would not provide adequate police coverage to the city. However, we disagree; our review of the proposal revealed that contracting with the sheriff’s department would actually increase the number of police personnel. The mayor also stated that the council had concerns related to relinquishing local control over police services, and these concerns mirrored those expressed to the council by residents. However, we noted that the proposal from the sheriff’s department recognized the importance of local control and how Irwindale would maintain this control if it contracted with the sheriff’s department for police services.

The City Does Not Always Ensure That It Receives the Best Value for Its Contracts

The city adopted a purchasing policy that provides guidance for awarding contracts through competitive bidding; however, the city exempts many types of contracts from this competitive process. According to the State Contracting Manual, competition promotes sound fiscal practices, emphasizing the elimination of favoritism, fraud, and corruption in awarding contracts, as well as helping ensure best value. The text box describes the competitive bidding thresholds and requirements the city included in its purchasing policy. However, in its municipal code the city exempts from competition many professional services. The text box on the following page includes instances in which the municipal code allows the city to dispense with bidding for a wide range of services. Additionally, the purchasing policy exempts from the competitive process certain professional service contracts for continuing services—or contracts for additional work or services made on a project‑by‑project or retainer basis.³ The policy does not include a limit on how long the city can use this exemption; instead, the policy indicates only that such arrangements may be reviewed from time to time to ensure that the city is receiving the best value under its contracts.

Because of the exceptions to competitive processes in the city’s municipal code and purchasing policy, the majority of the contracts that we reviewed were deemed to be exempt from competition. We reviewed 25 contracts overall: 10 contracts individually valued between $3,000 and $20,000, 13 contracts valued individually at more than $20,000, and two public works contracts totaling more than $600,000. Of the 25 contracts, 16 with a total value of $1.7 million were exempt from competitive bidding. Specifically, five were exempt based on the city’s purchasing policy regarding continuing services and 11 were exempt based on the municipal code. In contrast, for the two public works contracts, we found that the city appropriately followed the competitive bidding requirements found in the Public Contract Code when it awarded the contracts, such as publicly advertising a request for proposals and awarding the contracts to the lowest responsible bidders.

Although many contracts we reviewed were exempt from the competitive bidding process under provisions of the city’s municipal code and purchasing policy, we still expected the city to ensure that it obtained a fair and reasonable price. For example, the State Contracting Manual requires that purchases, although exempt by statute or policy, must still be reasonable in cost and recommends that procurement files include documentation to support fair and reasonable pricing by performing a price analysis and preparing a cost justification form. The city finance director agreed that conducting a price analysis would be a good practice to implement.Of the 16 contracts that were exempt, we did not find any evidence that the city had ensured that it obtained reasonable prices for 11. In one instance, the city renewed an ongoing agreement for $377,000 without using competitive bidding. In 2013 the city renewed its contract for geologic engineering services pertaining to pit mine reclamation that it last competitively bid in 2007. According to a management analyst for Irwindale, the city contracted with the winner of the 2007 bid annually from 2009 through 2013, when it renewed the contract for two years, but it did not perform a price analysis at that time to ensure that it had obtained a fair price.

As another example, the city has contracted with the same firm for auditing services for six years without going through a competitive reprocurement process. Although the city’s purchasing policy exempts from competitive bidding renewal contracts for audit services consultants, the Government Finance Officers Association (GFOA) recommends that governmental entities engage in a full‑scale competitive process for the selection of an independent auditor at the end of the term of each audit contract, which the GFOA recommends last at least five years. The final report issued by the 2012–13 Los Angeles County Civil Grand Jury in June 2013 contained a section that discussed the fiscal health, governance, financial management, and compensation of the 88 cities incorporated in the county. In its report, the grand jury recommended that Irwindale undertake a competitive bidding process every five years for the selection of its auditor. The city had not initiated a competitive process to select its auditors as of fiscal year 2015–16. Instead, it chose to periodically change the audit management staff. The city finance director asserted that although the city had not competitively bid the contract for its financial auditor since 2005, the prices of the renewals in fiscal year 2009–10 and in 2015 were fair and reasonable.

In addition, the city has not always evaluated whether it receives good‑quality services. Selecting vendors that provide good‑quality services, and monitoring their performance, can save money because the city can avoid rework of the contracted service. Our review found that the city received poor‑quality services from a consulting services vendor. In fiscal year 2014–15, the city spent over $37,000 for a benchmark compensation study that it deemed insufficient and incomplete. The goal of the study was to ensure that the city had a classification and compensation plan for the city’s positions and to develop a job analysis for each position. The study compared the city’s positions to those of comparable cities in the surrounding area. However, in one instance, the study included a clear mistake: instead of comparing Irwindale’s deputy clerk’s salary to the salaries of deputy clerks in surrounding cities, it compared the deputy clerk’s salary in Solana Beach to deputy clerks’ salaries in other cities. After a year of payments totaling $37,125, the city disagreed with several aspects of the study and abandoned it. In August 2016, the city contracted with a different vendor for a new study.

As a best practice for avoiding future poor‑quality services, the Public Contract Code stipulates that state agencies must conduct a post‑evaluation of each consulting services contract greater than $5,000. The agency is required to evaluate the contractor’s performance in doing the work or in delivering the service specified in the contract and whether the contractor fulfilled all the requirements of the contract. According to an Irwindale management analyst, the city does not conduct such an analysis, but we believe it would benefit from doing so, in particular for those contracts for continuing services that it exempts from competitive bidding.

Furthermore, the city did not effectively oversee the spending on some of its contracts. As a result, it spent a total of more than $63,000 above contracted amounts on three separate contracts. For example, in October 2012, the city contracted with a firm to perform internal investigations for its police department. The city structured the agreement not to exceed $10,000, but the contract contained an option to increase the total amount to $20,000 with the city manager’s written authorization. The contract stipulates that any spending beyond $20,000 requires city council approval. However, the city paid the consultant nearly $67,000, exceeding both approval limits, without obtaining the city manager’s or the city council’s approval. The city manager explained that the reason the city spent more than contracted without proper approvals was that the contractor was extremely slow in submitting invoices and that the chief of police had difficulty tracking expenses.In another instance of ineffective oversight, the city failed to ensure that a vendor documented the actual performance of services, as required in the contract. Specifically, in October 2012, the city contracted with its former interim police chief to update its police department policies, but according to the current chief of police, staff members could not recall any specific policy that was created or updated, despite the city paying nearly $4,000.

The City Council Made a Financial Decision That Could Have Given the Appearance of Favoritism

The city council awarded a contract to a vendor that had indicated it planned to sponsor community events, which could have given the appearance of favoritism. Specifically, in September 2011, city staff used a competitive process to solicit bids for a new contract for towing services, as the previous contract with its longtime provider was about to expire. The city contracts for services to remove illegally parked cars, to tow inoperative vehicles as a result of traffic accidents or mechanical breakdowns, and to impound or store vehicles for police investigations. The contract is a revenue‑sharing agreement in which the city and the contractor each receive a percentage of the towing contractor’s gross receipts that are attributable to the services the contractor provides under the contract. The request for proposals included a clause and a form for bidders to indicate how much they were willing to contribute financially to sponsor various activities in the city, such as music in the park, the annual Fourth of July fireworks show, and the senior center holiday dances. In this circumstance, we would have expected the city to separate its fundraising efforts from its contracting process to avoid the appearance of favoritism.

At the February 2012 city council meeting, staff recommended that the city council award the contract to the longtime provider, versus awarding a contract shared between two operators, which staff deemed impractical. Instead of following that recommendation, the council inquired about sharing a contract with two operators on a month‑to‑month rotation. Rotational tow services allow the city to maintain a list of approved tow companies that take turns providing towing and storage services on a rotating basis. The city staff recommended against a rotational contract, citing diminishing tow requests, additional workload for the 911 operators, and that such a contract would not enhance the quality of service to the community. After some discussion among the city council about the vendors’ past and proposed contributions to the city, the city attorney suggested to the city council that it consider the tow companies based only on the merits of their proposals.

At the March 2012 city council meeting, the city council rejected all proposals, after a representative for one of the prospective vendors indicated it planned substantial sponsorship of city programs and the city attorney advised that there were no criteria or requirement for any bidder to participate in such sponsorship activities to be considered for a contract. The city attorney also advised that because the request for proposals did not focus on rotational tow opportunities, the city council could direct staff to issue a new request for proposals that would allow the option to choose rotational tows. The city council directed staff to issue a new request for proposals for rotational towing services with the option to choose a sole provider, and city staff issued this new request for proposals in July 2012.  In May 2012, the then‑mayor’s son received a $1,000 college tuition contribution from the towing contractor that had planned substantial sponsorship of city programs. The Fair Political Practices Commission later deemed the tuition contribution an illegal gift to the mayor.

At the September 12, 2012, city council meeting, the then‑mayor recused himself from the discussion about vendors for towing services, and from the vote to award a contract for these services, because the tuition gift had created a potential conflict of interest for him. Staff recommended that the city award either an exclusive contract to the city’s longtime provider or a rotational contract to all three qualified bidders. At the meeting, the city attorney cautioned the council that any donations to city causes or related functions should not be a factor in the decision about the contract and also indicated that it would be permissible for the city council to choose only two of the three qualified bidders. The council awarded a rotational contract to the first‑ and third‑ranked bidders—the city’s longtime provider as well as the bidder that had planned substantial sponsorship funding and given the illegal gift to the mayor. The current mayor told us that the city wanted to open the contract to more providers so that it could obtain better service, but that three providers seemed excessive. The city attorney stated that the city council is not obligated to follow staff recommendations, and two other current city officials each provided a reason why the second‑ranked bidder was not selected.  The city manager stated that each bidder was able to present its case to the city council, but he did not recall the presence of the second‑ranked bidder at the council meetings. In addition, we found no unlawful conflict of interest of the former mayor related to this contract because he recused himself from discussions and activities concerning the contract.

The Housing Authority’s Forgiveness of Loans and Preference for Longtime Residents Undermine Its Housing Programs

The Housing Authority has shortened the life of its low‑income housing programs and limited the number of potential beneficiaries by forgiving loans and prioritizing longtime residents over others. Specifically, the Housing Authority has already forgiven $9.1 million and may forgive another $10.2 million it loaned to low‑income residents for rehabilitating or purchasing their homes. These funds are particularly important given that the Housing Authority lost its major revenue source when the State dissolved redevelopment agencies. The city’s plans to forgive the loans may further diminish the remaining funds available under the current Mayans housing purchase program (Mayans program), leaving limited funding to sustain future housing projects. Also, the Housing Authority gives an unfair advantage in its housing programs to residents who have lived in the city for 15 years or more.

The Housing Authority Could Do More to Provide Benefits to Additional Low‑Income Residents

The Housing Authority forgives generous loans that it has issued to the few participants of its low‑income loan programs, and as a result it is running out of funds for its future programs. Specifically, as part of its Olson housing purchase program, the Housing Authority from 2005 to 2007 provided home purchase loans of up to $363,000 to each of 42 low‑income recipients for a total of $11.9 million in home loans. Additionally, between 1995 and 2009 the Housing Authority provided rehabilitation program loans of up to $135,000 to each of 72 low‑income recipients, for a total of $6.4 million in loans. Moreover, the Housing Authority has begun issuing home purchase loans for its Mayans program; as of June 30, 2016, it had provided a total of $1 million to three low‑income recipients. Payment on these loans is deferred, and the Housing Authority’s policy is to incrementally forgive the loans over 20 years, as long as the homeowner meets certain conditions. As of June 30, 2016, the Housing Authority had forgiven $9.1 million of the $19.3 million in home purchase and rehabilitation loans and had approximately $10.2 million in loans still outstanding. The city’s housing coordinator stated that the Housing Authority forgives loans because it wants to provide safe housing opportunities to first‑time owners who otherwise would not have the ability to purchase and own a home, and that such programs are consistent with state law and offered by housing authorities throughout the State.

Although Irwindale’s practice of forgiving loans might have been financially sustainable before the dissolution of the redevelopment agency, the Housing Authority no longer has a major source of revenue to sustain its programs. Nevertheless, the Housing Authority defers all repayments of both types of loans and forgives the principal and interest incrementally over 20 years, provided the borrower uses the home as a principal place of residence and does not transfer ownership in a prohibited way. For example, in 2007 a low‑income recipient purchased a home through the Olson program for approximately $383,500. This homeowner received a $44,550 private mortgage loan and a $337,000 purchase program loan, which was secured by a second lien deed of trust, at a simple interest rate of 3 percent with a 20‑year term. As long as the homeowner meets the conditions of the loan, he or she will not need to make any monthly payments to the Housing Authority to pay down the principal or interest, and after 20 years the entire purchase program loan obligation will be forgiven. In other words, the Housing Authority will have forgiven not only the $337,000 in principal, but also $202,200 in interest, for a total amount of $539,200. However, if the borrower stops residing in the home or transfers ownership in a prohibited way within the 20 years, such as selling the home to an unrelated person that is not low‑income, the borrower will immediately owe a percentage of the loan amount plus interest, and he or she will forfeit 95 percent or more of the increase in equity from the date of the loan. Furthermore, if the borrower transfers ownership in a prohibited way within an additional 22 years, he or she will forfeit between 31 percent and 95 percent of the increase in equity. Of the $19.3 million in funds that the city has loaned since 1995, more than 99 percent qualified for forgiveness of both principal and interest.

As of October 2016, the Housing Authority had begun issuing additional purchase program loans for its Mayans program. According to the housing coordinator, the Housing Authority plans to issue up to $5.75 million in forgivable loans for this program. However, this lending will diminish its remaining funds. The Housing Authority believes that it has a sufficient housing fund balance to carry out future projects, but it currently does not have a new major source of revenue. Furthermore, the Housing Authority stated that it and other housing authorities in the State hope that the State will provide a new source of funding that it removed when it dissolved redevelopment agencies. We estimate that the Housing Authority’s forgiveness of these loans will cause its remaining fund balance to plummet 39 percent over the next 20 years, from $14.7 million to $8.9 million, thereby limiting its funds to carry out future housing projects.

The Housing Authority Gives an Unfair Advantage to Longtime Residents Who Apply to Irwindale’s Housing Programs

The Housing Authority’s priority rating system for its housing purchase program and senior rental program gives its longtime residents an unfair advantage over other residents who apply for the programs. Because of the large number of applications it received compared to the limited amount of low‑income housing available in its Mayans program, the Housing Authority created a numerical priority rating system to rank and prioritize applicants. Additionally, all eligible applicants participate in a random lottery and receive a number that is also considered in determining their priority in the event of a tie. For example, as explained in the text box, the Housing Authority first categorizes the applicant based on his or her household income level, and it then assigns points to each applicant based on various eligibility criteria. This first categorization is important, because the Housing Authority allocates the available houses among the income level categories, so there are a set number of houses available to applicants in each category. The Housing Authority then assigns the highest priority for participation in the program to the applicant with the lowest total number of points. Notably, in the final eligibility criteria, the Housing Authority gives a higher priority to residents who have lived in the city for 15 years or more (longtime residents) and a lower priority to those who have lived there between three and 15 years (newer residents). The Housing Authority applies similar final eligibility criteria when awarding apartments for its senior rental program.

The housing coordinator stated that the Housing Authority used the guidelines from previous housing projects that had set the 15‑year and three‑year thresholds. Furthermore, the housing coordinator stated that the intent of the durational residency priority was to prevent those who moved to the city for a very short period of time, for the purpose of obtaining a home, from having the same priority for housing opportunities as residents.  However, we believe that the Housing Authority should provide an equal opportunity for all of the city’s residents in its housing programs, similar to what the federal government requires. In contrast to the Housing Authority, the federal government forbids the consideration of applicants’ duration of residency when prioritizing applications under its housing programs. If the city were to copy this federal prohibition and best practice, residents’ applications could still have higher priority than nonresidents’ applications, but the Housing Authority could not prioritize some residents over others based on how long they have lived in Irwindale.

Because many applicants to the Mayans program had tied rankings based on their numerical priority rating, the Housing Authority used the random lottery results to determine winners. Specifically, 29 applicants scored low enough to potentially win one of the 21 housing units that were available. The lottery further assigned a priority rank order among those tied. The process consisted of each applicant drawing a numbered card from a bin. Within each income category, the applicants who drew lower‑numbered cards were given priority ranking over applicants with higher‑numbered cards. The Housing Authority’s consultant conducted the lottery in October 2015 immediately after a public Housing Authority meeting.

Unsurprisingly, as a result of its prioritization system, longtime residents have made up the majority of the successful participants for the Housing Authority’s Mayans program. Among the 21 successful participants of the Mayans program, 19 are longtime residents. In contrast, only two newer residents scored low enough to be selected; this occurred only because more housing units were available in the moderate‑income category than the number of longtime resident applicants. If the Housing Authority had given the same priority ranking to both longtime and newer residents, another 10 newer residents would have had tied rankings and thus would have had the possibility to be a successful participant. The housing coordinator stated that the Mayans program is still ongoing and not yet concluded, and that if the current Mayans program lottery winners are unable to successfully qualify for the loan, they will be removed from the program and the applicant next in line will be awarded the home, thereby affording newer residents an opportunity to purchase a home through the program.

The Housing Authority’s prioritization system also might prevent nonresidents from having any chance of successfully participating in the Mayans program. All 21 successful participants of the Mayans program were already residents of Irwindale. The housing coordinator and city attorney stated that the city wants to give city residents the first chance of homeownership before nonresidents, but that it will make homes available to nonresidents if an insufficient number of residents qualify in future projects when more units are available. The federal government requires housing authorities that prioritize residents to treat applicants who work in the geographic area as residents. The city should adopt this best practice and provide applicants who work in Irwindale the same residency priority as residents.

Like the Mayans program, the Las Casitas senior apartments (senior apartments) give Irwindale’s longtime senior residents an unfair advantage over other senior residents. When the senior apartments have vacancies, the Housing Authority ranks and prioritizes applicants using a priority rating system similar to that of its housing purchase program, and its final eligibility criteria provide longtime residents the same advantage over newer residents. As with its other housing programs, the Housing Authority should remove the durational residency thresholds for the senior apartments and establish one single threshold for residency.

The City Lacks a Fraud‑Reporting Policy That Would Help Safeguard Its Financial Resources

In addition to the fiscal challenges addressed earlier in the report, Irwindale lacks a key safeguard for its resources, making the city susceptible to fraudulent activity.  Although the city has certain controls in place to protect the city’s cash in its bank accounts, it lacks a formal fraud‑reporting policy that would establish a consistent process for reporting, documenting, and investigating fraud. The Association of Certified Fraud Examiners indicates that the purpose of such a policy is to provide a means of developing controls that will aid in the detection and prevention of fraud. In fiscal year 2012–13, a Los Angeles County Civil Grand Jury issued a report recommending that Irwindale review and update its policies and procedures for reporting fraud, including providing a means for employees to report potential fraud anonymously. The grand jury report indicates that the city agreed to implement this recommendation, but we found that the city still does not have a fraud policy. When asked about the absence of such a policy, the finance director stated that the city has not yet developed one because of the shortage of staff in the city’s finance department.

Given that the city was the victim of a fraudulent check scheme in 2013, we expected that it would have established adequate controls to detect and prevent future occurrences. Specifically, seven fraudulently fabricated checks were cashed in 2013, and 12 fraudulent electronic payments occurred through the city’s checking account, for a total of $30,774 in fraudulent activity. The city reported the fraud to the bank and the city’s police department and the investigation was subsequently transferred to a different law enforcement agency. Because this type of fraud requires only that someone have access to a city check, which any vendor who receives a payment by check would possess, the finance director stated that it is difficult to prevent. Therefore, the city did not implement any new controls. The finance director stated that she informed the city manager of these breaches verbally and not through documented communication. The bank credited the funds back to the city’s account, and the city did not suffer a loss as a result of the fraud. Although the city identified the fraud promptly and informed the bank in a timely manner, the city should have immediately developed a fraud policy that clearly outlines investigation and reporting responsibilities to ensure that future incidents are consistently reported, documented, and resolved.

Even after identifying the fraudulent checks, the city kept blank checks in a vault that was accessible to several staff members and was often left unlocked. We communicated this finding to the finance director, and she moved the checks into a locked safe. In our further discussions with the finance director, she agreed that enhancing the city’s existing fraud prevention tools, such as positive pay—a process in which the bank requires validation of check number, date, and amount before cashing checks—would strengthen the city’s controls. The city is aware of the possibility of adding each payee’s name to the validation process, but it has not yet initiated any such changes with its bank.

The City Has Been Prudent When Issuing Bonds, but It Needs a Debt Policy

The city lowered its debt service costs by refunding prior long‑term debt issuances, with projected savings on interest costs of approximately $1.6 million over the life of the debt, which ranges from approximately eight to 11 years. The city did not issue any new debt over the past seven years, but it refinanced three issuances. Two of these issuances were originally issued to fund low‑income housing and other redevelopment activities of the former redevelopment agency, and one was issued to refinance debt related to such city facilities as the city hall, the police station, and the library, as well as to fund additional facilities such as a skate park and to make improvements to the public pool and park gazebo in Irwindale Park. We found that the city appropriately used the proceeds of the refunding bonds by funding escrow accounts to pay off the debt. We also found that the proceeds from the original issuances were generally used for the stated purposes.

Nonetheless, the city lacks a formal debt management policy. The GFOA recommends as a best practice that local governments adopt a comprehensive written debt management policy to guide decisions involving the debt issuance process, management of a debt portfolio, and adherence to laws and regulations. The GFOA also recommends that the policy at least address limits or acceptable ranges of debt and practices for structuring, issuing, and managing debt. Further, the policy should reflect local, state, and federal laws and regulations and should be periodically reviewed and updated, if necessary. The city manager stated that Irwindale’s lack of a policy was probably an oversight, and that a policy was discussed with the city’s bond financial advisor in the past, but that creating a policy was not a priority for the city, given its current staffing levels.

Recommendations

To address the structural deficit in its general fund, the city should seek long‑term solutions to balance its budget so that its expenditures do not exceed its revenues. These solutions should include eliminating the reliance on one‑time gains to fund ongoing expenses and identifying opportunities to further reduce spending. The city should document its approach in a long‑term financial plan that should account for the following:

• A forecast of at least five to 10 years into the future.
• Updates to long‑term planning activities as needed to provide direction to the budget process.
  
• An analysis of its financial status; revenue and expenditure forecasts; strategies for achieving and maintaining financial balance; and plan‑monitoring mechanisms, such as a scorecard of key indicators of financial health.

To ensure that employee compensation aligns with job statements, the city should review its salary incentives and modify the eligibility criteria so that they match the job requirements.

Considering that the city’s retirement benefits are more generous than those of most comparable cities, and in light of its financial situation, the city should reduce its employee benefits costs by negotiating with employee bargaining groups and key management employees for the elimination of further city contributions to the PARS supplemental benefit plan or at least an increase in participant contributions to cover the full employee share of the plan’s costs, recognizing that under California case law the city may not destroy vested pension rights legislatively.

To minimize the use of its reserves to reduce long‑term liabilities, the city should annually determine whether it has sufficient funding to cash out employee leave balances. Additionally, in future labor negotiations, the city should explore the possibility of eliminating or reducing voluntary leave balance cash‑outs by employees, and eliminate sick leave cash‑outs altogether.

As a prudent fiscal practice, the city should collect receipts for all reimbursable council expenses and update its expense reimbursement policy to eliminate exceptions to this rule.

To reduce costs, the city should consider eliminating its current resident prescription drug benefit program and replacing it with the prescription discount card program offered by the League of California Cities that would provide discounts on prescriptions to residents at no cost to the city.

If the city chooses not to participate in the prescription discount card program offered by the League of California Cities, it should at least take the following two steps related to its current prescription drug benefit program:

• Align its prescription drug benefit program with its established purpose—to treat conditions proven to be caused or worsened by the city’s mining activities—and limit the availability of benefits to only those medications approved for the treatment of such conditions.
  
• Reduce the cost of its prescription drug benefit program by enacting limits—similar to those in its resident vision benefits—on the number or dollar amount of prescriptions an individual can receive each year.

To reduce the cost of its resident prescription drug benefit program, the city council should follow the recommendations of its consultant by approving the following:

• Align copayments by increasing those paid by residents 50 years of age and older to the same level as those paid by residents who are 49 or younger.
  
• Implement coordination of benefits provisions, where applicable, to designate the city as a secondary payer to residents’ primary insurance coverage.
  

To eliminate the need for police officer overtime, the city should evaluate the possibility of contracting for police services with the Los Angeles County Sheriff’s Department or another law enforcement agency as an alternative to operating its own police department.

While the city is considering this, and if it should choose not to contract for police services, it should take the following two steps related to its police department:

• Ensure that its police department is adequately staffed by performing a staffing analysis that includes a determination of the costs and benefits of officer overtime versus hiring additional officers.
  
• Promote public safety and equity among police officers by implementing a rotational order for scheduled overtime to prevent some officers from working excessive shifts.

To help ensure that it receives the best value for contracts it exempts from competitive bidding, the city should revise its purchasing policy to require its staff to perform a price analysis and prepare a cost justification form and place the document in each contract file as evidence that the contract price is fair and reasonable.

To help ensure that it receives good‑quality services, the city should monitor all spending for contracted services. The city should also require its staff to perform post‑contract evaluations of professional services contracts, particularly for those continuing services contracts it exempts from competitive bidding.

The Housing Authority should consider options to provide low‑income housing opportunities to more people. Additionally, if the Housing Authority intends to continue providing low‑income housing opportunities in the future, the city should examine the available funding mechanisms to continue providing low‑income housing before it exhausts its Housing Authority Fund balance.

To ensure that all residents have an equal chance to participate in the Housing Authority’s housing programs, the city should remove the long‑term residency priorities from any future housing programs.

To help identify and prevent potential fraud, the city should develop and implement a fraud policy, following the guidelines provided by the Association of Certified Fraud Examiners.

To ensure that it continues to properly manage its debt, the city should prioritize developing and implementing a debt management policy.

We conducted this audit under the authority vested in the California State Auditor by Section 8543 et seq. of the California Government Code and according to generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives specified in the Scope and Methodology section of the report. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives.

Respectfully submitted,

ELAINE M. HOWLE, CPA
State Auditor

Date:
November 29, 2016

Staff:
Mike Tilden, CPA, Audit Principal
John Billington
Jordan Wright, CFE
Laurence Ardi, CFE
Mariyam Ali Azam
John Slusser, CPA, CGMA

Legal Counsel:
Joseph L. Porche, Staff Counsel

For questions regarding the contents of this report, please contact Margarita Fernández, Chief of Public Affairs, at 916.445.0255.

Footnotes

² To comply with California laws and regulations, the Irwindale Reclamation Authority is organized to receive and reassign operating rights from each of the mining companies located in the city of Irwindale.

³ Continuing services that are exempt from competitive bidding include firms providing engineering, land‑surveying, transit, planning, environmental auditing, landscape architecture, and other services.