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06/04/1980 - City Council Finance Committee r MEMO TO: CITY ADMINISTRATOR HEDGES FROM: FINANCE DIRECTOR VAN OVERBEKE DATE: JUNE 4, 1980 SUBJECT: DATA PROCESSING At your request, I have prepared this memo outlining how our present accounting machine compares to available electronic data processing equipment. As background information, a 1978 state law requires cities with populations of 2,500 and over to report financial position and results of operations in accordance with generally accepted accounting principles. Previously, cities were required to report only cash receipts and disbursements for their fiscal period and any outstanding debt obligations at the end of the period. Our audi- tors are now adjusting cash receipts and disbursements to meet these reporting requirements. This is already relatively expensive and inefficient and will get worse. The records the City maintains will be materially different from the reports that are issued after audit due to all of the required adjustments and the City will have little chance to complete its own reports. With our present system, we are unable to determine financial position or results of operations for any of the City' s funds. As an example, we can usually determine how much cash we have on hand but not what a special assessment receivable balance is or how much money we have in escrow deposits or how much money we owe. The system we have could be upgraded to accomplish some of what needs to be done but would be a very temporary measure at best. It is presently being uti- lized near capacity during an 8 hour day. Even if it could be technically accom- plished, any additional posting or use would probably require overtime or shifts or some such thing for our personnel. The machine is adequate for utility bil- ling since the requirements have not changed significantly. Utility billing has changed in volume which impacts the time constraint but not necessarily the capability of the machine. Other machines would probably be more efficient for utility billing but I feel this should be a later consideration. Following are some specific areas where the present accounting machine is in- adequate. My information in the electroni _ data processing is derived from my experience with LOGIS, however, these capabilities would be a requirement of any new system. ACCOUNTING MACHINE ELECTRONIC DATA PROCESSING 1. Cash receipts and disbursements Complete trial balances and balance only. sheets for all funds allowing one to determine financial position at a parti- cular point in time. Data Processing Memo June 4, 1980 Page Two ACCOUNTING MACHINE ELECTONIC DATA PROCESSING 2. Reports of operations for the Operating statements allowing for review general fund and utility fund of current operations for all funds only as well as receipts for along with revenue reports for all funds. these two funds only. 3. No reports summarizing activity. Reports both by transaction grouping and by account listing for any period's activity. 4. Cannot get individual department All operations can be summarized and totals from operations, e.g. , reported by individual departments. Mayor and Council, Elections, Financial Administration, Auditing, Engineering, Planning and Zoning, and General Governmental Buildings are all combined. 5. All balance sheet accounts Asset and liability entries can be made (except for some payroll with- directly to the balance sheets, conse- holding) such as escrow deposits quently operating statements reflect have to be run through cash re- only actual department activity. ceipts and disbursements, e.g. , Meadowlands park contributions of $400 per lot. 6. No ability to do any program Costs can be split to appropriate de- accounting, e.g. , split salaries. partments and/or activities. It is now cumbersome even to allocate payroll to departments. 7. No ability to reflect encumbrances, Can encumber material purchase commit- i.e. , to show budget obligations ments as the obligations are incurred. before the bills are actually This accommodates greater budget re- paid. porting and control. 8. Check lists and at least one- Only the checks betwen claim lists would half of the checks are manually need to be manually typed. Check lists typed - this batch of checks and checks would be generated automati- needs to be redone on the ac- cally after inputting the information. counting machine to update the accounting records. All activity is in the correct accounting month. All payments to any vendor are automati- cally summarized and one check is written. All accounts are displayed on the check register. f 1 Data Processing Memo June 4, 1980 Page Three ACCOUNTING MACHINE ELECTRONIC DATA PROCESSING 9. Payroll expenditures have to be Financial records are automatically manually posted to the accounting updated from payroll transactions. records which results in a great deal of duplication. 10. Payroll leave time records have Leave time records are calculated auto- to be recorded and passed out matically and the informtion is included to employees manually. on payroll checks, i.e. , accrual, use and balance. 11. No practical method to maintain Will be done as part of the balance cash or investment balances or sheets. records. 12. All payroll/personnel analysis Can be programmed and completed by users. must be done manually, e.g. , assembling information for in- surance, etc. 13. We are not able to provide Reports can be summarized and focus summarized information to top on exceptions and out-of-line conditions, management and to elected Users at different levels can receive officials. relevant reports. 14. No practical way to maintain Property record controls can be set property records for control up. or budgeting purposes. 15. No practical method to maintain Items can be maintained in inventory inventories and to charge user and charged to individual departments departments as costs are incurred when appropriate. e.g. , gasoline, postage. I am sure that these fifteen items only scratch the surface of potential improve- ments; however, they do illustrate the necessity of taking some positive action. I have discussed the upgrading of our present system with the firm of Creative Data Services which presently handles the programming for our Phillips. They do not really appear to understand municipal accounting to the point where they can differentiate between what we are presently doing and what needs to be done; consequently, there is no cost estimate. I was referred to Mr. Bob Voto who is the independent auditor for the City of Little Canada where Creative Data Service is in the process of installing modified programs for accrual and modi- fied accrual accounting onto a machine such as ours. Mr. Voto feels that the Data Processing Memo June 4, 1980 Page Four system will be adequate for the needs of Little Canada. However, Little Canada is a city of 7,100 people with approximately twelve employees and no police or fire department so I don't think the situation is germane to Eagan. I have also discussed our situation with Mr. Dave MacGillivary, the former Finance Director for the City of Inver Grove Heights, which also has a Phillips machine programmed by Creative Data Services. They were using slightly more system capabilities than Eagan has been; however, without a great deal more study, it is not possible to determine any kind of cost/benefit relationship. An additional consideration would be the upgrading of the machine itself versus the modifying of the programs. This would involve a change from a 600 word to a 1000 word capacity memory. This is estimated to cost approximately $3000. We are also dealing with a machine that is no longer being manufactured but is available only on the used market. It is my feeling that with these modifications and the addition of a staff ac- countant, we could address most of the fifteen aeas through manual processing. A staff accountant would involve an annual personnel cost of approximately $20,000. My opinion is that processing on other equipment and using our present personnel level in a more efficient manner would make better use of the City's resources. Respectfully submitted, E. J. VanOverbeke