Leases Audit - City of Berkeley

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40 Office of the City Manager

INFORMATION CALENDAR March 14, 2017 To:

Honorable Mayor and Members of the City Council

From:

Dee Williams-Ridley, City Manager

Submitted by: Phillip L. Harrington, Director, Department of Public Works Subject:

Status Report – Leases Audit: Conflicting Directives Hinder Contract Oversight

INTRODUCTION In June 2009, the City Auditor’s Office issued its report Leases Audit: Conflicting Directives Hinder Contract Oversight1. The objective of the audit was to “determine the effectiveness of the City’s facility lease oversight,” and resulted in recommendations aimed at improving lease oversight and management. The City Auditor requested the City Manager continue to report to Council on the status of those recommendations until all were fully implemented or otherwise addressed. This is the fifth status report on progress to implement the audit recommendations. Another status report will be provided to City Council on September 12, 2017. CURRENT SITUATION AND ITS EFFECTS The Audit Report included twenty-four recommendations, seventeen of which have been closed; fifteen were implemented as recommended; one was implemented with an alternative solution; and one was closed after management reconsidered it and reported it would not be implemented because it would neither be appropriate nor realistic to do so. The status of those recommendations was reported to Council in previous information reports in November 20102, July 20123, January 20134, and November 20135. The November 2013 report stated that implementation of the seven remaining recommendations be suspended until more is known about the outcome of property management responsibilities among City personnel, and any related management and consultant contracts. Currently, property management responsibilities have been placed under the purview of a Public Works Community Development Project Coordinator (CDPC) who is coordinating an interdepartmental team of staff from Public Works, the City Attorney’s Office (CAO), the City Manager’s Office, the Department of Health, Housing and Community Services (HHCS), and the Department of Parks, Recreation and the Waterfront (PRW). This CDPC’s primary function is to ensure all Public Works real estate transactions, including expenditure and revenue lease agreements and amendments, and any real property acquisition or disposal, are conducted according to

2180 Milvia Street, Berkeley, CA 94704 ● Tel: (510) 981-7000 ● TDD: (510) 981-6903 ● Fax: (510) 981-7099 E-Mail: [email protected] Website: http://www.CityofBerkeley.info/Manager

Page 2 of 13 Status Report – Leases Audit: Conflicting Directives Hinder Contract Oversight

INFORMATION CALENDAR March 14, 2017

authorized regulations. This includes but is not limited to leasing and property management responsibilities for Telegraph-Channing Mall, 1947 Center Street Office Building, and commercial/retail space at the new Center Street Garage. Additionally, the CDPC is responsible for completing the revision of AR 6.6 for Real Property

Transactions: Procedures for City Revenue and Expenditure Leases and License Agreements, and the proposed new AR 6.8 for Real Property Transactions: Procedures for Acquisition and Disposal of Property.

Additionally, Public Works entered into an agreement with the County of Contra Costa County Real Estate Public Works Department Real Estate Division (CCCRE) to provide the City of Berkeley with a range of services previously provided by its Real Property Administrator. The CDPC serves as the contract manager and interdepartmental intermediary between all City departments that need real property services and CCCRE. The following services, as directed by the City, are provided by CCCRE: appraisal and appraisal review; negotiations; land rights document preparation and right of way acquisition; relocation; management of all leasing and disposal of real property; arrange for and maintain necessary property insurance; contract administration; manage all property and asset management functions; supervision of independent contractors providing such services; and related work as required. Audit Recommendations Public Works is reporting on the status of the seven recommendations that remain outstanding and were previously suspended. Finding 1: The City’s 2002 plan to centralize property and facility lease management has not been implemented. Recommendations for the City Manager and Public Works: Recommendation 1.1: The City Manager should formalize and approve the division of responsibilities between the Public Works department and other departments regarding lease management. Status: Partially Implemented/Further Implementation Needed. The Community Development Project Coordinator was hired in March 2016 to continue decentralization of property management in the City, revise AR 6.6, write AR 6.8, provide real property/property management services for Public Works property and projects, and manage the City’s contract with Contra Costa County Real Estate Division which provides real property services to all City departments. The CDPC is in the process of working with an interdepartmental team to define the roles and responsibilities of every City department in managing real property and lease management needs. The interdepartmental team includes staff from the City Manager’s Office, the City Attorney’s Office, Finance, the Departments of Public Works, the Department of Health, Housing

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and Community Services, and the Department of Parks, Recreation and the Water. Together this team is coordinating efforts to identify short- and long-term solutions that address departmental and City needs. Recommendation 1.2: The Public Works department should determine and formally define the role of the Real Property Administration staff given available resources. Status: Partially Implemented/Further Implementation Needed. The CDPC in coordination with staff from PRW, HHCS, and CAO have formed the Interdepartmental Real Property Working Group. Currently the working group is in the process of documenting the state of property management and lease management in each department and identifying specific items needed (tools, documents, policies, guidelines, etc.) to improve property management and define real property administration roles at both the Department and City levels. The goal of the Group is to assess and identify needs internally then use the findings to create a work plan that addresses needs at both the Department and City level. While roles of the Real Property Administrator, Property Management Services staff, and Project Managers were reflected in earlier draft revisions of AR 6.6, subsequent staff changes have not been incorporated but will be resolved in calendar year 2017. Recommendations for Public Works: Recommendation 1.3: Develop and finalize a property management plan that documents the specific responsibilities of Public Works and of other departments for lease management. Status: Partially Implemented/Further Implementation Needed. Property management challenges for Public Works has been resolved by hiring a Community Development Project Coordinator and Office Specialist II to be its real property team. More advanced property management needs for Public Works and other City Departments have been partially addressed by the City’s contract with Contra Costa County Real Estate Division. Sustainable solutions for HHCS, PRW and other City departments is still being developed. Each Department has real estate/real property needs that vary enough to justify continued implementation of the decentralized lease and property management model. However, the demands of the day-to-day management of leases (insurance documentation, processing amendments and extensions, paying the bills, etc.,) and managing properties is time consuming and cumbersome especially in the absence of adequate software solutions. Coordination with IT, Finance/General Services and the City Attorney’s Office are needed and in process in the development of a citywide property management work plan. This goal of this work plan is to have a Property Management Manual that is updated and supported by revised AR 6.6 and new AR 6.8. Together these documents will define responsibilities and procedures for staff and project managers in all City departments.

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Recommendation 1.4: The property management plan should be coordinated with affected City departments, including the Contract Administrator in Finance/Purchasing, before finalizing. Status: Partially Implemented/Further Implementation Needed. A new Contract Administrator/General Services Manager (GSM) was hired in summer 2016. While the GSM will be an integral part of the Interdepartmental Real Property Working Group, the CDPC and GSM are in the early stages of coordinating efforts to improve lease boilerplates and contract templates associated with property management. The GSM will have adequate opportunity to review and comment on the property management work plan prior to commencing it implementation. Recommendations for the City Manager: Recommendation 1.5: Formally communicate the plan with all affected City departments. Status: Partially Implemented/Further Implementation Needed. The Interdepartmental Real Property Working Group meetings and a team folder on the share drive are the primary tools used to communicate and work together in developing a comprehensive property management work plan for the City of Berkeley. Department specific meetings are held each month and citywide meetings are held on a quarterly and/or as needed basis. Finding 2: City staff did not comply with City rules and regulations because the City lacks clear guidelines and simple tools for effective lease negotiations, review, approval, and oversight. Recommendations for Public Works and Finance: Recommendation 2.1: Administrative Regulation 6.6 and Contracts Online should be updated to give clear direction to City staff regarding administration and execution of lease agreements. Status: Partially Implemented/Further Implementation Needed. Contracts Online has been updated to provide staff with boilerplate/templates for revenue and expenditure leases along with limited information to guide the preparation of the contract package. Updates to these documents and instruction are needed and currently in progress. One significant change underway is to create a specific process for all leases, licenses and agreements related to property. The current system treats leases, license agreements, and other property documents in the same manner as a personal services contract. When approved, the new system will use purple folders to physically differentiate leases from other contracts and documents will be filed digitally as leases/licenses instead of a

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generic contract. This process change is currently in progress and will be documented in the updated and revised AR 6.6 and new AR 6.8. Finding 3: There are no performance measures to document expectations of, and performance by the Real Property Administrator or departmental lease managers. Recommendation 3.3: Public Works should update the City’s real property administration policies and procedures to align with management’s expectations. Status: Partially Implemented/Further Implementation Needed. The majority of City departments have new leaders in management roles who were not working for Berkeley in 2009 when this audit was released. This is the primary reason for completing property management needs assessment and work plan currently being developed by the CDPC in coordination with the Interdepartmental Real Property Working Group. The needs assessment and work plan will be complete and ready for review and approval by Department leadership in spring 2017. The document will develop into a work plan that coordinates department level property management with citywide property management. Revised ARs and other needed policies and guidelines will be the work plans first deliverables. BACKGROUND During the years Public Works had a Property Management Services unit, it was responsible for ensuring that all City real estate transactions, including lease agreements and amendments, and real property acquisition or disposal, were conducted according to authorized regulations. Staff also managed City-owned property, including facilities at Aquatic Park and the Marina, and 14 retail shops in the Telegraph Channing Mall. The City’s lease management system has undergone restructuring since FY 2002, when a Real Property Administrator (RPA) was hired. During this time attempts were made to change it from a decentralized to a centralized system. However, the plan for centralization was not fully staffed or implemented; existing guidelines and regulations were not reliably followed and needed to be improved; and some project managers continued to process leases without coordinating with Public Works, resulting in some problematic transactions and critical property data left out of the City’s inventory. In early spring 2013, the Real Property Administrator resigned and another key staff member took an extended leave of absence then resigned shortly after returning. Implementation of the audit recommendations was suspended after the two key members of the three person Real Property team resigned and no replacements were hired for several years. The Real Property Administrator job had been funded by contributions by multiple departments that no longer wanted to provide funding for the position. After more than two years with no dedicated real property staff, Public Works hired a Community Development Project Coordinator in March 2016 to address the

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department property and lease management needs. Additionally, Public Works fully executed an agreement with Contra Costa County Real Estate Division in April 2016 to provide more advanced real property expertise and services previously provided by the Real Property Administrator. The Community Development Project Coordinator is currently leading an interdepartmental effort to assess and find sustainable solutions for lease and property management for the City of Berkeley. ENVIRONMENTAL SUSTAINABILITY This particular report has no identifiable environmental effects or opportunities associated with it. POSSIBLE FUTURE ACTION There is no future action other than implementation of what is already in this report. FISCAL IMPACTS OF POSSIBLE FUTURE ACTION None, other than amending the Contra Costa County Real Estate Division on-call agreement to have an increased not to exceed amount that will allow all City departments’ real property needs to be addressed. CONTACT PERSON Dionne Early, Community Development Project Coordinator, Public Works, (510) 9816453

Attachments: 1: Public Works Status of Outstanding Audit Recommendations Summary Table

1

June 2, 2009 Audit Report: http://bit.ly/2lhovsf

2

November 9, 2010 Status Report http://bit.ly/2lh76jH

3

July 10, 2012 Status Report: http://bit.ly/2kjDCTM

4

January 22, 2013 Status Report: http://bit.ly/2kjMaKr

5

November 12, 2013 Status Report: http://bit.ly/2jUHCeD

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Page 7 of 13 Public Works Status of Outstanding Audit Recommendations Summary Table - Leases Audit: Conflicting Directives Hinder Contract Oversight

Audit Title - Leases Audit: Conflicting Directives Hinder Contract Oversight Findings and Recommendations

Responsible

Status of Outstanding Audit Recommendations and Implementation Progress Summary

Departments

Projected Implementation Date

Finding 1: The City’s 2002 plan to centralize property and facility lease management has not been implemented. 1.1

The City Manager should formalize and approve the division of responsibilities between the Public Works department and other departments regarding lease management.

City Manager

Original Audit Response: City Manager and Public Works agreed with recommendation.

Public Works

10/28/13 Status: Partially Implemented

September 2017

1/31/17 Status Update: Partially Implemented/Further Implementation Needed. Public Works hired a Community Development Project Coordinator (CDPC) to serve as the Department’s real property manager/coordinator in March 2016. The CDPC has been directed to continue decentralization of property management in the City, revise AR 6.6, write AR 6.8, provide real property/property management services for the properties and projects for which Public Works is responsible, and manage the City’s contract with Contra Costa County Real Estate division which provides real property services to all City departments. The CDPC is in the process of working with an interdepartmental team to define the roles and responsibilities of every City department in managing real property and lease management needs.

1



Responsible



City Manager


September 2017

Public Works

10/28/13 Status: Partially Implemented/Further Implementation Suspended.

Departments 1.2

The Public Works department should determine and formally define the role of the real property administration staff given available resources.

1/31/17 Status Update: Partially Implemented/Further Implementation Needed. The CDPC in coordination with staff from PRW, HHCS, and CAO have formed the Interdepartmental Real Property Working Group. Currently the working group is in the process of documenting the state of property management and lease management in each department and identifying specific items needed (tools, documents, policies, guidelines, etc.) to improve property management and define real property administration roles at both the Department and City levels. The goal of the Group is to assess and identify needs internally then use the findings to create a work plan that addresses needs at both the Department and City level. While roles of the Real Property Administrator, Property Management Services staff, and Project Managers were reflected in earlier draft revisions of AR 6.6, subsequent staff changes have not been incorporated but will be resolved in calendar year 2017.

2



Responsible




September 2017

Departments 1.3

Develop and finalize a property management plan that documents the specific responsibilities of Public Works and of other departments for lease management.

Public Works

10/28/13 Status: Partially Implemented/Further Implementation Suspended. 1/31/17 Status Update: Partially Implemented/Further Implementation Needed. Property management challenges for Public Works has been resolved by hiring a Community Development Project Coordinator and Office Specialist II to be its real property team. More advanced property management needs for Public Works and other City Departments have been partially addressed by the City’s contract with Contra Costa County Real Estate Division. Sustainable solutions for HHCS, PRW and other City departments is still being developed. Each Department has real estate/real property needs that vary enough to justify continued implementation of the decentralized lease and property management model. However, the demands of the day-to-day management of leases (insurance documentation, processing amendments and extensions, paying the bills, etc.,) and managing properties is time consuming and cumbersome especially in the absence of adequate software solutions. Coordination with IT, Finance/General Services and the City Attorney’s Office are needed and in process in the development of a citywide property management work plan. This goal of this work plan is to have a Property Management Manual that is updated and supported by revised AR 6.6 and new AR 6.8. Together these documents will define responsibilities and procedures for staff and project managers in all City departments.

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Responsible



Original Audit Response: Public Works agreed with recommendation.

September 2017

Departments 1.4

1.5

The property management plan should be coordinated with affected City departments, including the Contract Administrator in Finance/Purchasing, before finalizing.

Public Works

Formally communicate the plan with all affected City departments.

Public Works

10/28/13 Status: Partially Implemented 1/31/17 Status Update: Partially Implemented/Further Implementation Needed. A new Contract Administrator/General Services Manager (GSM) was hired summer 2016. While the GSM will be an integral part of the Interdepartmental Real Property Working Group, the CDPC and GSM are in the early stages of coordinating efforts to improve lease boilerplates and contract templates associated with property management. The GSM will have adequate opportunity to review and comment on the property management work plan prior to commencing it implementation. Original Audit Response: Public Works agreed with recommendation.

April 2017

10/28/13 Status: Partially Implemented 1/31/17 Status Update: Partially Implemented/Further Implementation Needed. The Interdepartmental Real Property Working Group meetings and a team folder on the share drive are the primary tools used to communicate and work together in developing a comprehensive property management work plan for the City of Berkeley. Department specific meetings are held each month and citywide meetings are held on a quarterly basis.

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Responsible


Departments


Finding 2: City staff did not comply with City rules and regulations because the City lacks clear guidelines and simple tools for effective lease negotiations, review, approval, and oversight. 2.1

Administrative Regulation 6.6 and Contracts Online should be updated to give clear direction to City staff regarding administration and execution of lease agreements.

Public Works

Original Audit Response: Public Works and Finance agreed with recommendation.

September 2017

11/9/10 Status: Contracts Online Updated 10/28/13 Status: Partially Implemented 1/31/17 Status Update: Partially Implemented/Further Implementation Needed. Contracts Online has been updated to provide staff with boilerplate/templates for revenue and expenditure leases along with limited information to guide the preparation of the contract package. Updates to these documents and instruction are needed and currently in progress. One significant change underway is to create a specific process for all leases, licenses and agreements related to property. The current system treats leases, license agreements, and other property documents in the same manner as a personal services contract. When approved, the new system will use purple folders to physically differentiate leases from other contracts and documents will be filed digitally as leases/licenses instead of a generic contract. This process change is currently in progress and will be documented in the updated and revised AR 6.6 and new AR 6.8.

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Responsible


Departments


Finding 3: There are no performance measures to document expectations of and performance by the Real Property Administrator or departmental lease managers. 3.3

Public Works should update the City’s real property administration policies and procedures to align with management’s expectations.

Public Works

Original Audit Response: Public Works agreed with recommendation.

June 2017

10/28/13 Status: Partially Implemented 1/31/17 Status Update: Partially Implemented/Further Implementation Needed. The majority of City departments have new leaders in management roles who were not working for Berkeley in 2009 when this audit was released. This is the primary reason for completing property management needs assessment and work plan currently being developed by the CDPC in coordination with the Interdepartmental Real Property Working Group. The needs assessment and work plan will be complete and ready for review and approval by Department leadership in spring 2017. The document will develop into a work plan that coordinates department level property management with citywide property management. Revised ARs and other needed policies and guidelines will be the work plan’s first deliverables.

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This schedule reports only on the audit recommendations open as of October 28, 2013. Information on the actions taken by management to implement all other recommendations is available in the following reports: 

June 2, 2009 Audit Report: http://www.cityofberkeley.info/uploadedFiles/Auditor/Level_3_-_General/2009-0602_Item_16_Leases_Audit_Conflicting_Directives_Hinder_Contract_Oversight.pdf



November 9, 2010 Status Report: http://www.ci.berkeley.ca.us/uploadedFiles/Clerk/Level_3_-_City_Council/2010/11Nov/2010-1109_Item_20_Status_Report_Leases_Audit_Conflicting_Directives_Hinder_Contract_Oversight.pdf



July 10, 2012 Status Report: http://www.ci.berkeley.ca.us/uploadedFiles/Clerk/Level_3_-_City_Council/2012/07Jul/2012-0710%20Item%2032%20Status%20Report%20Leases%20Audit.pdf



January 22, 2013 Status Report: http://www.ci.berkeley.ca.us/Clerk/City_Council/2013/01Jan/Documents/2013-01-22_Item_22_Status_Report_Leases_Audit.aspx



November 12, 2013 Status Report: http://www.ci.berkeley.ca.us/Clerk/City_Council/2013/11Nov/Documents/2013-11-12_Item_21_Status_Report_Leases_Audit.aspx

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