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06/20/1980 - City Council Finance Committee 4 MEMO TO: FINANCE COMMITTEE FROM: CITY ADMINISTRATOR HEDGES DATE: JUNE 20, 1980 SUBJECT: DATA PROCESSING, ADMINISTRATIVE TRANSFER AND 1979 AUDIT REPORT At a Finance Committee meeting of several weeks ago and at different times within the last several weeks, I have informally discussed the need to maintain our accounting system on electronic data processing equipment as opposed to con- tinuing the system with our Phillips accounting machine. Many reasons for making a change have been discussed informally with the Finance Committee as well as with the City Council as a whole. The Director of Finance and myself both are strongly recommending that the City contract with LOGIS on a short term basis. This will provide a method in which the City can convert from cash basis ac- counting to an accrual accounting as well as provide additional management infor- mation necessary for administration as well as City Council decision making. The LOGIS system will allow management, specifically the Director of Finance, to spend more time working on special issues such as investments, an improved accounting system, the general offices and fund accounting such as the street improvement fund and bond indebtedness funds. The Director of Finance and myself both agree that an in house system would be most desirable in the long run. Fortunately, there are many systems available to municipalities on the market; unfortunately, there are no systems that we are aware of that could be purchased by the City and become operational to even compare with the system provided by LOGIS within the next two to- three months. The Director of Finance and myself would both like to proceed with LOGIS as a short term solution to the accounting system with an effective date sometime in late summer or early fall. This would allow us to prepare the 1981 budget with the new chart of accounts which would be compatible to the LOGIS system and further provide approximately five months of accounting operations on an electronic data processing system for 1980. Enclosed are memos written by the Director of Finance on "LOGIS" and "Data Pro- cessing" that the Finance Committee and City Council have requested to provide background information relative to the reasons for seeking an electronic data processing system at this time. At the March 31, 1980, Finance Committee meeting, members of the Finance Commit- tee asked for additional information pertaining to the recommendation to increase the Administrative Transfer. Please refer to the attached information as pre- pared and presented by the Finance Director. Enclosed is the 1979 Financial Report, as prepared by the firm of Wilkerson, Guthman and Johnson. The Finance Director has reviewed the document in detail and after our discussions, with more discussions to come before the July 1 , 1980, meeting, we are recommending that the Financial Report be placed on the agenda for adoption by the City Council. A copy of the Financial Report was r • Finance Committee Memo June 20, 1980 Page Two also distributed to the entire City Council today for their review. Past proce- dure has been that the City Council as a whole reviews the report on their own, and if there are no questions or objections to various language or numbers within the report, the document is approved. Within the last two years, there has not been a specific review made by the Finance Committee. • In speaking with City Councilmember Smith, because of meetings, work and other related conflicts in scheduling., it may be very difficult to have a Finance Committee meeting before the July 1, 1980, City Council meeting. It was City Councilmember Smith's suggestion that this information be prepared and distri- buted to the Finance Committee so that the data can be reviewed independently by Committee members and then, in the absence of a Finance Committee member, possibly the staff (the Director of Finance and myself) could meet with each member of the Finance Committee independently at a time and place of their con- venience. After you have had time to review these memorandums, we will discuss the review procedure before submitting the information to the City Council at the July 1 , 1980, meeting. C:LoN)14 City Administrator r° MEMO TO: CITY ADMINISTRATOR HEDGES FROM: FINANCE DIRECTOR VAN OVERBEKE DATE: MAY 21, 1980 SUBJECT: LOGIS INTRODUCTION Since our meeting with the Finance Committee on March 31 , I have done additional research on the subject of data processing alternatives. I have discussed our situation with a number of municipalities as well as with various vendors. I have attempted to keep from over stimulating the vendors until our plans have been defined in greater detail. I have also had extensive discussions with representatives of the LOGIS organization. QUESTIONS AND ANSWERS As a result of our meeting of yesterday, the following is an attempt to provide answers to your specific questions regarding the LOGIS operation. Perhaps these questions and answers can be used as a basis for further discussion with your- self or with the Finance Committee. 1. What services can be provided by LOGIS and who are the present users? LOGIS is designed to jointly and cooperatively provide for the establishment, operation and maintenance of data processing facilities and management informa- tion systems for the use and benefit of governmental agencies. LOGIS presently operates a financial control system, payroll system, utility billing system, equipment control system, a fixed asset system and is developing a geographical data base system. Unlike typical service bureaus, LOGIS is directed toward governmental information systems and is not a modification of a system designed to operate in a business environment. The current users are Apple Valley, Brook- lyn Center, Brooklyn Park, Coon Rapids, Crystal, Eden Prairie, Edina, Fridley, Golden Valley, St. Louis Park, Shakopee, Hutchinson, Lakeville, Metropolitan Transit, Minnetonka, Metropolitan Sports Commission, Mound, Mendota Heights, Robbinsdale, Cottage Grove, Morris, Richfield and Orono. Eleven of these users were charter members and the other twelve have subsequently joined the organiza- tion. The populations of these cities range from under 10,000 to 46,700 in Edina. These cities also cover the entire range of maturity. The uses range from all applications in some cities to only one or two applications in others. 2. What services would be used by Eagan? I would recommend utilizing the financial control system and the payroll system at the present time. Eagan' s most pressing problem is with the financial system. However, the incremental cost to add payroll would be minimal and there is a Great deal of interface between the two systems. • LOGIS Memo May 21 , 1980 Page Two From a practical standpoint, it is not possible to maintain accrual and modified accrual financial records with our present system. Consequently, it is not possible to determine the financial position of any City fund on a timely basis. We have been through this with the Fire Station Capital Improvement Fund and with the Future Street Construction Fund as two recent examples. 3. What would be the impact of LOGIS on current operations? Successful implementation of any automated data processing system should improve the efficiency of the accounting and financial record keeping functions of the City. It would not automatically make our present manual system into a good automated one, but it would give the staff a chance to make some progress. We could resonably expect more timely and much better management information. LOGIS would allow the staff the most time to work on improvements to the City operations since we would not be responsible for the hardware, software and other processing applications. 4. What would LOGIS cost per year and how do we pay for it? LOGIS uses three classes of charges. The first is to cover the organization' s general, administrative and operational expenses. This amount is presently $5,000 per year and is covered by a State grant for new members for their first year of operation. The second class is to cover the cost of design and develop- ment of computer programs and systems and other capital costs. This charge is for enhancements that have general applicability and is presently $2,000 per year. The final class covers the costs of operations and maintenance to individual members determined by their usage. If Eagan were to utilize the financial and payroll systems, I would project the first year costs to be appro- ximately $12,300 or $1 ,025 per month. The subsequent yearly costs would be $17,300 or $1,450 per month. This increase reflects the expiration of the grant after one year. LOGIS management is not anticipating increases in user charges although the organization is subject to the same inflationary pressures as is everyone else. Since we are considering only these two systems, the payment would be an obligation of the general fund. Since the State of Minnesota is a participant of the LOGIS system and since the capabilities provided are sub- stantially new to LOGIS members and substantially exceed the minimum require- ments of State law for municipal reporting, the assessments to LOGIS members qualify for exemption under the levy limit law. According to Rich Gardner in the Local Government Aids and Analysis Division at the State of Minnesota, we can special levy in the taxes payable in 1981 for the LOGIS costs incurred in 1980 as long as they were not levied with the taxes payable in 1980. I would recommend using the fund balance for these 1980 costs through a budget adjust- ment and special levying for these costs as well as the 1981 costs in the next budget year. The 1980 costs would depend on the start up date and actual cash flow would also depend on billing date. LOGIS Memo May 21 , 1980 Page Three 5. What are the alternatives if LOGIS is not selected? Assuming that LOGIS is not acceptable as the best of the service bureau/coopera- tive alternatives, the other option would be to explore stand alone systems. Since this becomes much more of a long range commitment to a specific system, it would require much more planning and study than would a decision to go with LOGIS. I would then recommend establishing a selection committee to complete a needs analysis and to control the entire selection process. It is felt that from the needs analysis to getting the hardware in the front door should take from six to nine months. This could be optimistic in Eagan, given the pressure of the present work load. The time period from getting the hardware in the door to getting all systems operating would probably be at least that long and would depend primarily on the support available from the vendor/vendors. Most cities to which I have talked have been disappointed in this area. 6. What would the projected timing be if LOGIS were selected? Assuming that LOGIS could be approved in June, we would probably be able to begin processing in September. It is estimated that it would take approximately two months after approval to get checks printed up and ready for use. Other timing would depend on what kind of commitment could be given to the conversion effort by the City. We would need at least the two months to prepare a chart of accounts reflecting the accounting structure that would be satisfactory to the departments and to the City Council. It would be appropriate that this chart of accounts would be in effect for the 1981 budgeting effort which will begin during this same time period. Hopefully, this timing would allow for the elimination of problems and mistakes in 1980 and allow for a relatively clean operation in 1981. We would have to meet with LOGIS representatives to prepare a detail schedule for implementation. SUMMARY In summary, I feel that LOGIS is the best alternative for the City of Eagan given the present environment. LOGIS can povide the services we need in a time frame that would allow for significant improvements in our operations while not burdening the Staff with data processing requirements. Although it does not alter the fact that it has to be paid for, the option of the special levy for LOGIS does provide some flexibility that might not be available if we pur- chase hardware and incur additional operating costs. With LOGIS we would not have any long term commitments and would retain all options to be explored at any time in the future. 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 electronic 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. A. • 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 oe 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 4 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