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Management Consultants Folsom (Sacramento)

2250 Eas t Bidwe ll Stree t , Suite 100 Fols om , C A 95630(916) 458-5100 Fax : (916) 983-2090

Organizational

Management Audit

for the

February 2, 2012

San GabrielValley Council of

Governments



Table of Contents page i

T ABLE OF C ONTENTS

SE C T I O N PA G E

Sec tion I Exec utive Summary .................................................................................................1

1.1 A Brief Background ....................................................................................... 1

1.2 Our View on the Major Issues ....................................................................... 2

1.3 Concluding Thoughts ..................................................................................... 5

Sec tion II Introdu c tion and Study D e s ign ..............................................................................6

2.1 Report Organization ....................................................................................... 6

2.2 Contracted Scope of Work ............................................................................. 7

2.3 Preliminary Document Review ...................................................................... 8

2.4 Study Design .................................................................................................. 8Sec tion II I Ove r ...........10

3.1 Introduction .................................................................................................. 10

3.2 History and Background .............................................................................. 10

3.3 A ................................... 11

3.3.1 Board and Executive Committee Structure ...................................... 11

3.3.2 Standing Policy Committees ............................................................ 12

3.3.3 Ad Hoc Committees ......................................................................... 12

3.3.4 Ci (TACs) ............................................................................................. 13

Sec tion I V Eval uation of Manage me nt of O pe ration s ........................................................16

4.1 Introduction .................................................................................................. 16

4.2 Analysis of Operational Requirements, Staffing, and OperationalManagement Structure ................................................................................. 16

4.3 Analysis of Administrative Control over Consultants and the Managementof Grants....................................................................................................... 17

4.4 Options for Alternative Organizational Structures for Grant Management....................................................................................... 19

4.5 Analysis of Financial Management Including Controls .............................. 20



Table of Contents page ii

Sec tion V Comparis on of th e S G V C O G O pe rations with the Gate way Citie s C O G.......21

5.1 Introduction .................................................................................................. 21

5.2 Administrative Budget and Labor Costs ...................................................... 23

5.3 Dues Structure .............................................................................................. 25Sec tion VI Re vie w of the Manage me nt S e rvice s Agree me nt Be tw ee n Arroyo Ass oc ia te s

and th e S G V C O G.................................................................................................30

6.1 Introduction .................................................................................................. 30

6.2 Analysis of Management Services Agreement ............................................ 30

6.3 Additional Services for Grant Administration other than............................................................................................ 31

6.4 Timekeeping Procedures .............................................................................. 31

6.5 SGVCOG Staffing Options and Related Costs ............................................ 33Sec tion VII Eval uation of the Stru c tu r e and R e lations hip Be tw ee n th e SGVC OG and

AC E JPA...............................................................................................................35

7.1 Introduction .................................................................................................. 35

7.2 Analysis of Operational Requirements, Staffing, and OperationalManagement Structure ................................................................................. 35

Sec tion VI II Findings and R ec omm e ndation s .....................................................................39

8.1 Summary of Findings and Recommendations ............................................. 39

8.1.1 Evaluation of Management Operations ........................................... 398.1.2 Comparison of Organizational Operations with the Gateway Cities

Council of Governments .................................................................. 40

8.1.3 Review of the Management Services Agreement Between ArroyoAssociates and the SGVCOG .......................................................... 40

8.1.4 Evaluation of the Structure and Relationship Between the SGVCOGand ACE JPA ................................................................................... 41

Appe ndice s

Appe ndix A List of Those Interviewed as a Part of This Study

Appe ndix B List of Documents that were Reviewed



Table of Contents page iii

Tabl e of Tabl e s :

Table 1 SGVCOG Board Executive Committee ....................................................................... 12

Table 2 Gateway Cities Annual Administrative Costs .............................................................. 24

Table 3 Gateway Cities Annual Dues and Assessments Revenues ........................................... 24

Table 4 ................................... 24

Table 5 Arroyo Associates Income from MSA Contract........................................................... 25

Table 6 Dues and Assessments for the Gateway Cities COG for the 2011-12 Fiscal Year ...... 26

Table 7 Dues and Populations for the SGVCOG for the 2011-12 Fiscal Year ......................... 28



Section I Executive Summary page 1

S ECTION I EXECUTIVE S UMMARY

Manag e m e n t i s doing t h e t hing s righ t . Le ad e r s hip i s doing t h e righ t t hing s . --- P e t e r Dru cke r

The San Gabriel Valley Council of Governments (SGVCOG) commissioned CitygateAssociates, LLC, to perform a high-level and focused review of the organization. This study istaking place at the mid-point in time concerning the construction of SGVCOGthe Alameda Corridor Extension through the San Gabriel Valley.

The construction of this project will ultimately cost in the magnitude of $1.4 billion dollars, andwill extend the Alameda Transportation Corridor from its current terminus in Los Angeles to theeastern Los Angeles County line through Pomona. With the completion of this latter segment,rail transportation of goods to and from the Los Angeles and Long Beach harbors will besignificantly improved through the Los Angeles metropolitan area and on to the interior of the

county.At this juncture, it is not surprising that the Governing Board is interested in looking back concerning how far and how well the SGVCOG has progressed to this point, and also lookingforward to assess how best to proceed with the completion of the Alameda Corridor-East (ACE)Construction Authority Project, as well as where and in what directions the organization should

proceed in the future.

The other major project going on within the boundaries of the SGVCOG is the Gold Lineextension of light rail from Pasadena to Azusa, and then beyond in subsequent phases. This

project is being constructed by a separate joint powers agency, but it reinforces the dynamismgoing on within the San Gabriel Valley.

1.1 A B RIEF B ACKGROUND

The SGVCOG was formed in 1994 as a Joint Powers Agency (JPA) with a membership of 31cities, three Los Angeles County supervisorial districts and a representative of the San Gabriel

We were impressed by those we interviewed both inside and outside the SGVCOG about howwell regarded the SGVCOG is in terms of leadership and its effectiveness in aggregating the

political influence of its large and diverse group of cities.

Beginning with Section IV through Section VII, each of these sections begins with a summarylist of the scope of work issues covered in each respective section. This will orient the reader tohow we have addressed all of the scope of work issues listed in Section 2.2.




1.2 O UR V IEW ON THE M AJOR I SSUES

After performing our review consistent with the scope of work that is discussed in detail in our report, we have concluded that there are five major issues that our client, the Governing Board,

the staff, and others reading this report should be concerned about. These summary issues, insome cases, are broader than the specific scope of work issues, but in all cases, incorporate them.They are as follows:

I ss u e #1: Compl e t ion of t h e Ou tst anding Cal t ran s Audi t . Analyz e and Evalua t e t h e Curr e n t S t ru c t ur e and Op e ra t ional Manag e m e n t S t ru c t ur e of SGVC OG

Gran t Admini st ra t ion , Manag e m e n t Pra c t i ce s , and Finan c ial Con t rol s

.

In its most recent lette

resolution of the conflict of interest between SGVCOG and Arroyo Associates, Inc., reviewingthe written administrative procedures and operational plan, receipt of $42,687 1. . ., and workingwith SGVCOG to ensure compliance with reimbursements from SGVCOG

This letter from Caltrans is the latest in a series of exchanged correspondence between Caltrans,the SGVCOG, and Arroyo Associates, Inc.

rmined that the Master Services Agreement betweenSGVCOG and its consultant, Arroyo Associates, Inc. (AAI), creates a c on f li c t o f in t e r e st

(Emphasis added.) While Citygate finds this conclusion of Caltrans to be a bit mystifying, wenonetheless propose our recommended remedy in this report. 2

As background for the reader, Caltrans issued its most recent audit dated September 7, 2011,

Agreement (MSA) between the [SGV] COG and Arroyo Associates, Inc. provided both for

1 An amount of $36,937 was for work performed by Arroyo Associates, but never billed or ever paid by SGVCOGto Arroyo. This amount will be reimbursed from unexpended grant funds that are specified in the grant fromCaltrans for administrative expenses. The balance of $5,750 will be reimbursed by the City of Irwindale for

-

2 The alleged conflict of interest iscaused by the fact that under the Management Services Agreement (MSA) between the SGVCOG and ArroyoAssociates, Inc., Arroyo was performing services as both the Executive Director and as a recipient of a grantcontract.




Arroyo to provide staff services to the COG and for the President of Arroyo to serve as the3

SGVCOGServices Agreement, their Corrective Action Plan dated December 9, 2011 indicates that afollow- SGVCOGincluding internal controls, policies and procedures, and project costing system. Further, it willalso include SGVCOG

As Citygate states in this report, we found no weaknesses or discrepancies in the projectmanagement systems and internal finance controls that we reviewed. It is possible that Caltranshas some criteria pertaining to State and Federal regulations that we are not familiar with. Noneof the correspondence from Caltrans that we reviewed referred to specific deficiencies in theSGVCOG t remedies would be appropriate.

In any event, we have recommended that the SGVCOG engage Caltrans to make any changes

necessary to comply with their standards.R ec omm e ndation VI-3: It is recommended that the SGVCOG proceed to comply with the

Corrective Action Plan within the timeframe specified.

I ss u e #2: R e pla ce t h e SGVCOG Curr e n t Manag e m e n t S e rvi ce s Agr ee m e n t (MSA) wi t h In-hou s e Employ ee s t hrough Employm e n t Agr ee m e n ts .

for staff from the private sector throughan MSA, Citygate believes the most straightforward solution is to directly employ that same staff as SGVCOG employees. This will terminate the current contract with Arroyo Associates, Inc.,and the SGVCOG will no longer have a private for-profit firm serve the functions of ExecutiveDirector, support of core management services, or staffing for grant programs.

We do not foresee the SGVCOG disbanding in the future. It is more likely that COGs will playan even greater role in constructing regional projects, especially in transportation andenvironmental programs as State government shifts more responsibilities to the local level.

We point out in this report how the Gateway Cities COG has used flexible and creative ways toemploy their staff. We recommend that the SGVCOG investigate the cost and means of converting the - Furthermore, transitioning

3 SGVCOG General Counsel, to the SGVCOG Board, dated October 20, 2011.




the SGVCOG staff to in-house employees will provide the most viable approach in the future for hiring successive staff members.

R ec omm e ndation VI-2: -

I ss u e #3: Examin e t h e S t ru c t ur e and R e la t ion s hip b e t w ee n t h e SGVC OG and i ts Sub s idiary , t h e Alam e da Corridor-Ea st (ACE) Con st ru c t ion Au t hori t y .

ACE was created in 1998 to serve as the construction arm of SGVCOG to build a series of gradeseparations along this corridor, as we mentioned, earlier. The current estimated cost to completethe project is $1.4 billion dollars, perhaps more.

Our report discusses the ambiguities that are created when the construction activities of ACE

have been delegated to a separate board, and a separate Executive Director reporting to this board which is a subset of the SGVCOG Board. This defeats the organizational principle of

SGVCOG Board continues to clarify its oversight role with respect to the role of the ACE Board.

Alternatively, we discuss spinning off the ACE Project to a separate joint powers authority,similar in role to the Gold Line Project.

R ec omm e ndation VII-1: The SGVCOG Governing Board should continue to clarify andreiterate its oversight role and use the Public Works and City

recommendation are provided to move Phase II of the project forwardto completion.

I ss u e #4: Fo c u s on Compl e t ing t h e AC E Proj ec t .

While recognizing the potential risks associated with a large public works project, the greatestrisk may be creating any unnecessary delays in moving forward and completing the project ontime and within budget.

This objective does not conflict with our recommendation that the SGVCOG Governing Board

needs to be satisfied that it has been provided the most complete and accurate information andrecommendations from ACE concerning the project mix and budget, including setting asideadequate reserves for project closeout.

No specific recommendation is made, here.




I ss u e #5: Con s id e r t h e Long-T e rm Dir ec t ion for t h e SGVCOG .

Citygate believes that the SGVCOG has a well-designed strategic planning process in place. This provides an excellent opportunity to discuss the opportunities that should be achieved in thefuture within a time-frame of five to ten years.

For example, we were asked to compare the similarities and differences of the SGVCOG withthe Gateway Cities COG. The latter COG has chosen a role of facilitating projects rather thanimplementing them. Which is more appropriate for the SGVCOG going forward? What is the

proper mix? Are there potential partners outside of the SGVCOG membership that could provide both expertise and resources to assist in fulfilling the mission? What are the needs of theSGVCOG member agencies that could be benefit from regional assistance?

If we look for lessons elsewhere, it is very likely that the work program mix of five years agowill not be appropriate five years from now.

R ec omm e ndation V-1: As the SGVCOG goes forward with its long-range strategic planning process, it should consider whether the Gateway Cities model would be appropriate for the San Gabriel Valley. The model diminishes the

Gateway Cities COG which is discussedelsewhere in this report.

1.3 C ONCLUDING T HOUGHTS

Citygate feels that it is important to conclude this summary with several comments aboutSGVCOG contracted staff.

As we mentioned in our report, every one of the Board members we interviewed had nothing but praise for the young professional staff analysts and the Office Manager that serve the GoverningBoard and its various committees. It reflects the standard of care that the SGVCOGDirector has exercised in employing the very best qualified people on the SGVCOG

Finally, as part of our document review, we reviewed the last three annual performance reviewsof the Executive Director by the Governing Board. All three reviews gave him high marks. For



Section II Introduction and Study Design page 6

S ECTION II INTRODUCTION AND S TUDY DESIGN

2.1 R EPORT O RGANIZATION

This report provides the results of Citygate Associates, LLC s high-level review of the SanGabriel Valley Council of Governments (SGVCOG). The report identifies in broad terms thehistory, governance, organizational structure, separation of authority, management of grants, andissues associated with the continued success of the SGVCOG in achieving its mission.

Due to the short time period allotted by the SGVCOG for conducting this project, Citygate has primarily focused mostly on the several issues the SGVCOG Sub-Committee has identified askey issues. We recognize that many of these issues will require further study, and have designedour reportissues that we have identified.

In addition to providing findings and recommendations, we have provided optional solutions inseveral cases where political policy decisions are required of the Governing Board.

This report is structured into the following sections:

Section I Executive Summary: Background and facts about the SGVCOG and asummary of report findings and recommendations.

Section II Introduction and Study Design: Description of the contracted scope of work and study design.

Section III Overview and Analysis of the SGVCOG Organizational Structure: Reviewand of the relationships between the Governing Board, the SGVCOG staff,

the Technical Advisory Committees, and the ACE organization.Section IV Evaluation of Management of Operations: Analysis of operational and

staffing structure, management of consultants, and management of grants.Also, review of the Caltrans audit and internal financial controls.

Section V Comparison of the SGVCOG Operations with the Gateway Cities COG:Comparison in terms of CEO salaries, comparable administrative costs, andemployment arrangements.

Section VI Review of the Management Services Agreement (MSA) between ArroyoAssociates and the SGVCOG: Analysis of SGVCOG staffing options andestimated costs.

Section VII Evaluation of the Structure and Relationship between the SGVCOG and theACE Joint Powers Agreement: Analysis of the responsibilities of eachorganization.

Section VIII Findings and Recommendations: A concluding section listing all findingsand recommendations throughout the report.




In each of the appropriate sections mentioned above, this report will cite specific findings andrecommendations. In order to provide a comprehensive summary, a complete listing of allfindings and recommendation is presented in Section VIII. The findings and recommendationshave been numbered to correspond with the section of the report they are found. Also, all

recommendations have been numbered to directly correspond with related findings.

2.2 C ONTRACTED S COPE OF W ORK

is defined in the contract dated November 8, 2011 between the SanGabriel Valley Council of Governments (SGVCOG) and Citygate Associates, LLC. Thiscontract summarizes the services to be provided as follows:

-to- sand staffing.

Evaluate operational management structure and provide recommended options for

Evaluate the administration and control of all contracts between the SGVCOGand consultants.

Review and evaluate the management of all SGVCOG grants.

Analyze the SGVCOG

Provide a comparison of organizational operations and assessment with the

Arroyo Associatesand the SGVCOG.

Evaluate the structure and relationship between the SGVCOG and the ACE JointPowers Agreement and provide recommendations for improvement if needed.

Provide recommendations on SGVCOG staffing options and related costs.

Review and analyze current policies and procedures.

Throughout the report, we make reference to the scope of work item (or items) that are relevant

to each section.

findings and recommendations are confined to those that pertain to theoperations of the SGVCOG as a whole, or to one or more of its subcomponents, rather than the

present or past performance or conduct of individuals within the SGVCOG or ACE, itssubsidiary agency.




2.3 P RELIMINARY D OCUMENT R EVIEW

-site work, we requested and were provided with a number of documentsfor review as shown in Appendix B on page 44.

2.4 S TUDY D ESIGN

Since this is a focused and limited management review, it required a well-thought-out effort tounderstand the fundamental issues, collect relevant data, evaluate and analyze the data and tomake appropriate findings and recommendations.

Because of the limited time available to conduct our field work, our report focuses on the keyissues that have been identified that contribute to achieving the mission of the SGVCOG. Thesecenter around: the organization of the SGVCOG in terms of governance, management structure,the efficiency and effectiveness of carrying out projects, and the ability to meet the expectationsof grant providers.

The study design for this assignment included the following steps:

4 and theSGVCOG -Committee prior to the on-site work to understand the specificsubject areas, leadership and management concerns about the SGVCOG.Furthermore, we clarified our client contact point for progress reports, andclarification, where needed.

A thorough and continuing review of the above-referenced documents so that theProject Team has a working knowledge of the policies, organization and operation

of the SGVCOG. Development of an interview questionnaire in several versions designed to serve

as a guideline to obtain critical information from the elected leadership of the

4 cate Citygate Associates, LLC.one-half

days on site in the SGVCOG offices interviewing the members of the SGVCOG Sub-Committee, as a group, andthen further interviewing them, and other members of the Governing Board, individually. Additionally, they

interviewed selected members of the SGVCOG staff, and, subsequently, one of the team members interviewed aselected group of other outside individuals. These two senior, practitioner-consultants included the President of Citygate Associates, who has a background in providing contract management services to a Joint Powers Agency,

the Project Team members and Citygate Associates, LLC.




SGVCOG and ACE Boards, 5 management and selected staff, and selected outsideindividuals who could contribute to understanding the history and issues relativeto conducting this study.

Development of an interview schedule that provided sufficient time to conducttwenty-four interviews with the above-referenced elected officials, managementstaff members, and outside contributors.

A Project Kick-Off meeting with the Sub-Committee to clarify expectations anddesired project outcomes.

Follow-up interviews were needed in some cases to cross-check facts, and tofurther develop an understanding of the issues under study.

5 In this case, the President of the ACE Council and the President of the SGV Governing Board, who both serve onthe Sub-Committee.



Section III page 10

S ECTION III O VERVIEW AND A NALYSIS OF THE SGVCOG S

O RGANIZATIONAL S TRUCTURE

3.1 I NTRODUCTION

In this section of the report, Citygate briefly discusses the background and history of theSGVCOG to provide context for the remaining sections of the report. We then discuss therelationships between the SGVCOG Governing Board, the Board of Directors of ACE (asubsidiary), the management of both entities, and the role of the Technical Advisory

AC.

3.2 H ISTORY AND B ACKGROUND

Founded in 1994, the San Gabriel Valley Council of Governments (SGVCOG) is a Joint PowersAuthority (JPA) of 31 incorporated cities in the San Gabriel Valley, the three SupervisorialDistricts representing the unincorporated areas in the San Gabriel Valley, and a representative of

cies. Collectively, these agencies represent the Valley s two millionresidents living in 31 incorporated cities and numerous unincorporated communities.

The SGVCOG is the largest and most diverse sub-regional council of governments in LosAngeles County, with the exception of the even-larger six-county area formed by the SouthernCalifornia Associations of Governments (SCAG).

Councils of governments like the SGVCOG have been formed throughout the nation to provide planning, projects, and aggregated political power that cannot be achieved by individual cities,counties, or other units of local government.

Historically, the San Gabriel Valley cities and unincorporated areas were politically divided andunder-represented as a region during the period of rapid post-war growth. That changed,however, with the formation of the SGVCOG.

With its 31 incorporated cities, the San Gabriel Valley is called the Valley of Local Control andLocal Independence.

, but only 20 percent of the population. The San Gabriel Valley, as a sub-region,also has the largest number of Los Angeles County residents living in unincorporatedcommunities, including such significant communities as Altadena, Hacienda Heights, andRowland Heights. The cities formed the San Gabriel Valley Council of Governments in 1994 as

an umbrella agency to work on regional issues, to secure government funding, and to help forgea consensus in addressing issues that impact all the cities and communities. The SGVCOG wasthe first of its kind in Southern California and remains the largest council of governments in LosAngeles County. The San Gabriel Valley is represented by two U.S. Senators, five Members of



Section III page 11

Congress, six State Senators, seven Assembly members, and three of the five Los AngelesCounty Supervisors.

The SGVCOG has a diverse membership of the 31 cities in the San Gabriel Valley, as well as the portions of Los Angeles County that represent unincorporated communities in the San GabrielValley. The 31 cities range in population from 800 (City of Industry) to 160,000 (City of Pomona). While each of these communities has a unique history and character, they also havemany shared issues and projects that intersect multiple jurisdictions, such as traffic congestion,transit projects, park and open space, air quality regulations, watersheds planning, and solidwaste regulations.

3.3 A R EVIEW OF THE SGVCOG S G OVERNANCE S TRUCTURE

Councils of governments (COGs) fill a niche in local government that neither cities and counties,nor special districts can perform effectively. They exist to deal with regional and sub-regional

policy and planning issues that transcend the political boundaries of their constituent members.COGs have been especially effective in serving as clearinghouses for government grants,aggregating and coordinating political advocacy for their regions with state and federal agencies,and in conducting regional planning.

By their nature, COGs usually serve a diverse membership in terms of constituents, regionalcharacteristics, demographics, and even political priorities. Consequently, there is ever-present

diluting political solidarity and even creating conflicts between members.

generalized, region-wide topics such as air quality, to more specific, local issues such as freewaylocations. Said another way, planning is easier than implementation.

In spite of these natural political dynamics, the SGVCOG has been remarkably successful inachieving its mission. Part of the reason is, undoubtedly, because of the rich, unified history of the San Gabriel Valley. There is a shared view that the San Gabriel Valley has traditionallycompeted for resources with other regions such as central Los Angeles, the West Side, SouthBay, etc.

Additionally, the SGVCOG leaders must be given credit for providing consistency and focus onthe mission and the various projects and programs over an extended period of time.

3.3.1 Board and Executive Committee Structure

The Governing Board consists of one delegate (with an alternate) from each of the current 31cities, three supervisorial districts, and the San Gabriel Valley Water Districts JPA. TheGoverning Board meets monthly, and is responsible as the governing body, including appointingthe Executive Director of the COG.



Section III page 12

The Governing Board also has the power to appoint standing and ad hoc policy committees (see below).

The officers of the Board consist of the President, First, Second, and Third Vice Presidents.

The Executive Committee consists of the elected officers of the Council, all past Presidents of the Council currently serving as [a] Governing Board Delegate, the Chairpersons of all CouncilStanding Policy Committees, and the Chairperson of the Alameda Corridor East ConstructionAuthority.

Table 1 SGV CO G Board Exec utive Committee

President

1st Vice President

2nd Vice President

3rd Vice President

Pa s t P r e s ide nt(s ) (remaining on Board)

Sec re tary and T re as ur e r (non-voting Executive Director)

C O G Polic y Committee Chairs (Transportation; Energy,Environment and Natural Resources; Housing,Community, and Economic Development)

C O G Tec hn ic al Advis ory Committee Chairs (non-voting City Managers, Public Works, Planners)

3.3.2 Standing Policy Committees

The Governing Board has established three standing committees to develop policyrecommendations in specific functional areas consistent with the overall mission of the Council.Currently, these are: the Transportation Committee; the Energy, Environment and NaturalResources Committee; and the Housing, Community, and Economic Development Committee.

The terms of Board Members appointed to these committees expire at the end of each fiscal year,and regional representation is considered in making new appointments.

3.3.3 Ad Hoc CommitteesIn addition to the High Speed Rail Working Group, on July 11 th, 2011, the Board ExecutiveCommittee appointed another ad hoc committee to review the SGVCOGand management practices. That committee is composed of the President, the 1 st and 2 nd VicePresidents, and the Ace Board Chair (who is also a SGVCOG Board Member). The City



Section III page 13

Chair, who is currently the City Manager from Covina, and the (now retired)City Manager of Azusa, are also members.

This Sub-Committee, as it is called, engaged Citygate Associates to perform this study. Asmentioned earlier, the Project Team initially met with this committee to clarify that it wouldserve as our client contact point. Citygate used the Sub-Committee as the contact point for reporting purposes.

3.3.4 TACs)

The SCVCOG Board has established three Technical Advisory Committees (TACs) CityManagers, Planning/Community Development Directors, and Public Works/TransportationDirectors for the purpose of providing input, as may be requested by the Governing Board.

6

One of the activities of Sub-Committee to develop a cost/benefit assessment of the projects in the ACE Phase II Studyand create a priority ranking for these projects. The Sub-Committee is composed of representatives from West Covina, Pomona, Montebello, Industry and LA County, as well asACE and SGVCOG staff. 7

recommendations from the Public Works TAC, with the intention of making project and fundingrecommendations to the SGVCOG Board.

Two charts are presented on the following pages. The first chart describes the responsibilities of

each staff member. The second chart describes the various committees, sub-committees, andtechnical advisory committees supporting the Governing Board.

6 San Gabriel Valley Council of Governments: A Joint Powers Authority, 6 th Amended and Restated Bylaws,effective January, 2009.7 Chair, Public Works TAC, ACE Phase II Study Recommendations, July 6, 2011.



Section III Organizational Structure page 14

Governing Board

ExecutiveDirector

GeneralCounsel

Accountant/Treasurer

OfficeManager

Staff #1 (MC) Staff #2 (JL) Staff #3 (CS) Staff #4 (GB)

Core Services (.4 FTE)Governing Board

TransportationCommittee

EENR CommitteeCityManagersTAC

PublicWorks TAC

Planning TAC

EnergyWorking Group

Grants (.6 FTE)Energy Wise

CalRecycle

Watershed

SCECEESP

EnergyUpgrade

Grants (.75 FTE)SCE CEESP

Core Services (.5 FTE)Governing Board

Executive Committee

EENR Committee

Housing Committee

Planning TAC

EnergyWorking Group

Water Working Group

Grants (.5 FTE)Energy Wise

Watershed

SCE CEESP (EE CAP)

EnergyUpgrade

Core Services (.1 FTE)Public Works TAC

Solid Waste W orkingGroup

Grants (.9 FTE)Energy Upgrade

EnergyWise

SCE CEESP (EEMIS)

All record keeping

SGV CO G Staff Re s pon s ibilitie s



Section III Organizational Structure page 15

COG StandingCommittees

TransportationCommittee

J. Fasana, Chair

Steve Ly

City CouncilRepresentatives,

City TransportationEngineers

Lower LA & SGV Rivers andMtnsConservancy

D. Bertone, San Dimas

M. Clark, Rosemead

Planners Technical AdvisoryCommittee

D. Chantarangsu

L. Stevens

City Community DevelopmentStaff and Planners

Public Works TechnicalAdvisory Committee

S. Yauchzee

K. Hassel

City Public Works Engineers

City Transportation Engineers

City Managers TechnicalAdvisory Committee

D. Parrish

R. Bobadilla

Gold Line FoothillExtension

S. Pedroza, Claremont

League of California CitiesLiaison


MTA TAC

L. Stephens

B. Janka

C. Bradshaw

Transportation andCommunications

T. Spohn, Industry

S. Ly, Rosemead

Community, Economic andHuman Development

G. Sund, Supv. District 5

G. Murabito, Glendora

J. Gonzales, So. El Monte

Energy and Environment


D. Bertone, San Dimas

Treasurer/Auditor

C. Conway

ExecutiveCommittee

Angel Carrillo

Barbara Messina

Mary Ann Lutz

Joe Gonzales

John Fasana

Gino Sund

Sam Pedroza

David Spence

Carol Herrera

Tom King

Tim SpohnEnergy, Environment andNatural ResourcesCommittee

S. Pedroza, Chair

D. Bertone, Vice Chair

City CouncilRepresentatives

COG Appointments SCAG

Regional Council

M. Clark, #32

K. Hanks, #33

B. Messina, #34

M. Finlay, #35

D. Voss, #36

C. Herrera, #37

P. Lantz, #38

ACE ConstructionAuthority

T. Spohn, Chair,City of Industry

Dave GutierrezSan Gabriel

ACE Board

COG Technical A dvisoryCommittees

COG Ad Hoc Committees

SGVCOG Governing Board

35 Member Agencies

Executive Director

N. Conway

High Speed RailWorking Group

City Council Representatives

County SupervisorRepresentatives

City Staff

Other COG Ad Hoc

Committees may be formedto address issues as directedby the Board

Legal Counsel

R. Jones, Jones & Mayer

Housing, Community, andEconomic DevelopmentCommittee

G. Sund, Chair

G. Murabito

City Council Representatives

City Housing &Redevelopment Staff

Committee s, Sub-Committee s

, and Tec hn ic al Advis ory Committee s Supporting th e Gove rning Board



Section IV Evaluation of Management of Operations page 16

S ECTION IV EVALUATION OF MANAGEMENT OF OPERATIONS

4.1 I NTRODUCTION

The scope of work items covered in this section are:

r e quir e me nt s and s taffing.

Evaluate op e rational manag e me nt s tru c tu r e and provid e r ec omm e nd e dd c os ts ass oc ia te d.

Evaluate th e adminis tration and c ontrol of all c ontra c ts be tw ee n th e SGV CO G andc on s ultant s .

Re vie w and e valuate th e manag e me nt of all SG V C O G grants .

Re vie w and analyze c ur r e nt polic ie s and pro ce du r e s .

4.2 A NALYSIS OF O PERATIONAL R EQUIREMENTS , S TAFFING , AND O PERATIONAL

M ANAGEMENT S TRUCTURE

We reviewed both the organizational and staff relationships of the COG management andoperational staff. (See organization charts shown previously on pages 14 and 15). These chartsreveal both the functions performed by the various COG committees and the distribution of staff -funded program activities of each member of the staff.

One of the benefits associated with this staffing arrangement is that eligible grant-

rent and other inflexible costs can be distributed over a greater array of funding sources than if both variable and fixed costs were only distributed to membership-based dues and similar revenues.

A total of a Lead Staff Analyst, three Staff Analysts and an Office Manager report to theExecutive Director. One of the Staff Analysts is employed on at three-quarters time basis, so thefull-time equivalent of Staff Analysts is 3.75 FTE.

An Accountant/Treasurer (Bookkeeper) is also employed, but reports directly to the GoverningBoard. This creates a reporting between the staff members who generate time-sheetsand review invoices from vendors and consultants, and the accountant who reviews and approvesthose source documents.

While a financial audit is outside the scope of our work, we reviewed sample time sheets andcompared them with task lists associated with each of the Staff Analyst positions. Tasks assigned




to these Staff Analyst positions generally fall into two categories: (1) staff support to theGoverning Board, the Standing Committees, and the Technical Advisory Committees (TACs);and (2) grant administration and program operations.that these Staff Analysts actually perform some of the work associated with specific grants.

As a cross-check, our interview sample of Board members corroborated the fact that the Staff quality of work is highly regarded and appreciated.

Finding IV -1: The SGVCOG has a very small administrative operation. Havingall five staff members report directly to the Executive Director does not create a span-of-control issue and creates an efficientreporting relationship. Because of the small number of staff, theStaff Analystscan substitute for each other, if need be.

Rec omm e ndation IV-1: Before the Governing Board decides and acts onadding a new project or program, require theExecutive Director to provide a cost estimate andstaffing strategy for implementation.

Finding IV -2: Based upon our analysis of the current workload, we believe thatthe staff is working at capacity. Care should be taken, however,

in adding programs without discontinuing other lower priorityactivities or supplementing resources.

Rec omm e ndation IV-2: Maintain the current staffing arrangement andstructure.

4.3 A NALYSIS OF A DMINISTRATIVE C ONTROL OVER C ONSULTANTS AND THE M ANAGEMENT

OF G RANTS

A total of two outside consulting contracts are currently administered by the SGVCOG staff. TheStaff Analysts are responsible for monitoring and reviewing the work products from theseconsultants. Additionally, the Lead Staff Analyst reviews their invoices to cross-check betweenwork performed and work billed. All source records are kept in the respective project logsassociated with each respective project for a historical record and audit purposes.




Citygate reviewed the process for managing all grants from inception to completion and post-audit close out. One member of the staff is assigned the responsibility of creating and managingthe project log for each grant under contract.

Grant logs or records are divided into five sets of records:

Grant contract deliverables: such as research reports, program design records, anddiaries or correspondence related to program implementation.

Grant contract documents: grant contract amendments, documents relating to the procurement of outside services such as contracting with consultants including:RFPs, contractor/vendor selection, and any other legal documents or processrelating to describing the purpose and process for delivering the work under thegrant.

Grant invoices and payment requests: complete records of all payment recordsdocumenting the reason for payment, amount, and source of payment funds.

Post-grant records: including audit by grantor agency, all correspondence relatingto audit findings, and closeout.

We also note that the Lead Staff Analyst routinely checks with each respective grant-providinginvoices have been reviewed, and that

expenditures conform to grant rules and requirements.

We were asked to consider dividing the functions of seeking out and managing grants from thefunction of performing grant implementation. We understand the concern about creating aconflict of interest where a private sector grant manager is also receiving income for performing

services under the grant; i.e., awarding a grant to oneself.Recommended solutions are discussed in Section 6.5 of this report.

The only two outside agencies currently performing periodic audits on SGVCOG grants are theCalifornia Department of Finance for the Watershed Coordinator Grant and Cal Recycle Grants,and the AQMD for AB 2766. Grant work associated with the Southern California EdisonCompany is irate payer programs, of which SGVCOG

Finding IV -3: The administration of grants requires maintaining detailedrecords indexed chronologically and by subject matter. We findthat the SGVCOG records and grant management systems are




R ec omm e ndation IV-3: Maintain and continue using the current grantmanagement system.

4.4 O PTIONS FOR A LTERNATIVE O RGANIZATIONAL S TRUCTURES FOR G RANT

M ANAGEMENT

Citygate was asked to consider an organizational arrangement wherebyservices would be handled by Arroyo Associates, and grant management activities would behandled by a separate management services company under a separate contract, thus eliminatingany appearance of conflict of interest.

Actually, the grant management process breaks down into three components:

Grant research and procurement

Grant contract management Performance of the work.

Conceivably, Arroyo could continue to research and procure grants. Another firm would beengaged to perform all contract management functions, including contract compliance andexpenditure control.

In order to separate those from managing the work and those doing the work, a third firm or consultant(s) would have to be retained to perform the grant work in order to assure that nobodywas inordinately profiting from the grant program.

It seems to Citygate that this would be not only overly complicated and less effective, but alsomost likely be far more expensive. Grantmaking organizations often want to be familiar with thecapabilities of personnel responsible for the implementation of the grant project. There is a highlevel of relational cultivation between the grantmaker and grantee throughout the grantmanagement process. This will be difficult to achieve if grant management responsibilities are

bifurcated, and would not likely be preferred by grantmakers, as most would want to have asingle point of contact. Furthermore, the SGVCOG staff would then be required to monitor thework of the third-party contractor implementing the grant program.

nt programming work could either be done by the Governing Boardcould outsource to outside contractors just as it is done within municipal organizations of themember agencies of the SGVCOG. This would be transparent in terms of the SGVCOG

budget, and would avoid any issues of conflicts of interest.




4.5 A NALYSIS OF F INANCIAL M ANAGEMENT I NCLUDING C ONTROLS

We have noted that internal controls are in place to assure that all labor hours are reviewed by asupervisor and signed off as accurate. These verified reports are then referred to the SGVCOG

Treasurer/Auditor for consolidation into billing statements which are either assigned to payment

for monthly review and reimbursement by that agency.

On an annual basis, the SGVCOG is audited by outside auditors. Additionally, the SGVCOG isalso audited by each respective grant-providing agency to verify that all expenses meet grantcontract requirements. Other than the Caltrans audit (referred to in another section of this report),we are aware of no other audit exceptions resulting from previous or existing grants. We alsonote that any ineligible grant costs associated for Arroyo employees become a liability for Arroyo Associates, rather than the SGVCOG.

In summary, we believe that the SGVCOG is using good accounting and timekeeping practicesthat provide clear and detailed audit trails.

In terms of services provided by the staff, we have reviewed detailed job and activitydescriptions, and work logs documenting what each employee has performed each month. Theselogs provide a check that the work actually performed

We find that the workload is well distributed, and the organizational structure is more thanadequate for a small staffing organization.

Our interview sample of Board members corroborated the fact that the staff and quality of work are highly regarded and appreciated.

Finding IV -4: We believe that adequate internal controls are in place tomaintain best practices concerning the core activities and grant

programs maintained by the SGVCOG.

Rec omm e ndation IV-4: As a good practice, the SGVCOGshould be routinely asked to review all time-keepingand program management activities for compliancewith generally accepted accounting practices and Stateand Federal grant requirements.



Section V Comparison of the SGVCOG Operations with the Gateway Cities COG page 21

S ECTION V COMPARISON OF THE SGVCOG OPERATIONS WITH THE

GATEWAY C ITIES COG

5.1 I NTRODUCTION

The scope of work item covered in this section is:

Provid e a c ompari s on of organizational op e ration s and a ss e ss me nt with th e

In this section of the report, Citygate examines the organizational similarities and differences between the SGVCOG and the Gateway Cities Council of Governments (Gateway Cities COG).

The Gateway Cities COG is made up of the twenty-seven cities of Southeast Los AngelesCounty, as well as the County of Los Angeles and the Port of Long Beach. Its organizationalmission is to improve this region of the county in four primary areas:

Transportation

Air quality

Housing

Economic development.

In organizational structure and in membership size, the Gateway Cities COG is similar to theSGVCOG. Its operational approach is slightly different in that it does not construct projects or operate programs. More specifically, the Gateway Cities COG does not manage directimplementation grant projects like the SGVCOG, which runs several energy-efficiency grant

projects that require staff to be directly involved in and performing educational outreach and program planning activities. The Gateway Cities COG is more of an organization that might becharacterized as a sub-set of the Southern California Associations of Governments (SCAG). Itsfunction in terms of the Gateway Cities COG programs and initiatives is:

First: A Forum

Second: A Planner

Third: A Consensus Builder

Fourth: An Advocate

The Gateway Cities COG approach is to assist in the formation of consortia of member citiesand other agencies that have a common goal and are willing to take responsibility for:

Aggregating the political will and organization to create and build a project or operate a program.




Maintaining the necessary public relations to render public support andunderstanding.

Obtaining the financial resources to build a project or operate a program.

Assuming the financial liability for project construction of program operation.

One added ingredient is to actively involve Federal or State agencies in addition to other regionalagencies that are not members of the Gateway Cities COG who have a stake in the project or

program.

The following chart provides the organizational structure of the Gateway Cities COG.

Finding V-1: The Gateway Cities COG is primarily focused on serving the roleof a facilitator in creating projects within its region.

Rec omm e ndation V-1: As the SGVCOG goes forward with its long-range

strategic planning process, it should consider whether the Gateway Cities model would be appropriate for the San Gabriel Valley. The model diminishes the

Gateway Cities COG which isdiscussed elsewhere in this report.




5.2 A DMINISTRATIVE B UDGET AND L ABOR C OSTS

The Gateway Cities Council of Governments is similar in membership size to the SGVCOG (31agencies vs. 35 agencies). Part of our scope of work was to examine and compare the

administrative services budget and employment arrangements of the two COGs.Administrative services at the SGVCOG are provided through a Management ServicesAgreement (MSA) with a private firm, Arroyo Associates.

The Gateway Cities COG originally employed administrative staff through a similar administrative services contract. But after several years, the Gateway Cities COG has used ahybrid employee arrangement. Three individuals, the Executive Director and two clerical staff,are directly employed as employees of the COG. The Executive Director has been employed for approximately fifteen years, and has had a salary of $159,000 per year for the last several years.

The COG pays these employees no fringe benefits, only their direct salaries. We were told that

the Executive Director is a retired PERS participant, and did not wish to re-enter the PERSsystem at the time of his employment. Consequently, this arrangement was negotiated betweenthe COG Board and the Executive Director.

Two additional staff members, including the Assistant Executive Director (for finance) chose toremain in the PERS system, so two member cities, Norwalk and Bellflower, each agreed torespectively employ one of these latter employees. The Gateway Cities COG has agreementswith these cities, and reimburses them for all employment costs, including fringe benefits andPERS retirement costs. As a consequence, the Gateway Cities COG has worked out a way to notcontract with PERS while providing flexible employment alternatives for its staff members.

In total, the Gateway Cities COG utilizes a staff workforce of 5.0 FTEs, compared to a total of 5.75 FTEs employed by the SGVCOG. We note that it is difficult to compare the staffing levelsof the Gateway Cities COG and SGVCOG, given the various differences in program priorities,activities, and grant projects.




Table 2 Gate way Citie s Annual Adminis trative Cos ts

Category Cost Notes

Labor Costs

Full-time directly employedemployees

$304,0083 employees, including theExecutive Director

Contract employees throughCities of Norwalk and Bellflower

$392,351 2 employees including the Asst.Exec. Director

Total direct employee costs $696,359

Operational Expenses:

Expenses less board stipends $158,710

Total administrative servicescosts (similar to SGVCOG MSA)

$855,069

Table 3 Gate way Citie s Annual Due s and Ass e ss me nt s Re ve nu e s

Category Cost

Revenues from member dues $ 619,000

Assessments from cities onfreeway corridor projects

$ 597,500

MTA contribution $ 200,000

Total Revenue* $1,416,500

*Difference between revenues and cost is for special projects. (Total Labor +Total Operational Cost Total Revenue)

Table 4 A rroyo Ass oc ia te s Expe ns e s

Employees Salaries Benefits * Total

Executive Director $150,000 35.9% $203,850

$204,000 35.9% $277,236

Rent $ 72,000

Telephone/internet $ 7,200Office Supplies $ 12,000

Totals $572,286

* These cost figures were provided by Arroyo, and Citygate was advised that this percentage of direct labor cost




Table 5 Arroyo Ass oc ia te s Inc om e from MSA Contrac t

Contracts Income

MSA $422,000

MSA Amendment #1 $105,000

Total Paid to Arroyo under MSA $527,000

SGVCOG in Table 4 exceed

revenues is made up from grant programs and/or income generated by Arroyo from other clients.

Based upon the information we have been provided from both the Gateway Cities COG andArroyo Associates, it appears that the administrative costs (which are summarized above) for theSGVCOG under the Management Services Agreement are less than those of the Gateway Cities

COG. (We discuss the cost breakdown of the Arroyo MSA in more detail in the next section.)

5.3 D UES S TRUCTURE

We also compared the dues structure between the two COGs. The dues breakdown for theGateway Cities COG is as follows: (No t e : Tabl e s hown on f ollowing pag e . )




Table 6 Due s and Ass e ss me nt s for th e Gate way Citie s C O G for the 2011-12 Fi s c al Ye ar

Agency Base Dues Transportation

Assessment MTA Deputy Total

Artesia $6,500.00 $1,856.76 $1,914.46 $10,271.22

Avalon 6,500.00 1,163.56 1,869.94 9,533.50Bell 6,500.00 2,917.73 2,179.04 11,596.77Bell Gardens 8,000.00 5,811.92 2,581.68 16,393.60Bellflower 8,000.00 4,304.27 2,751.89 15,056.16

Cerritos 9,500.00 5,693.11 3,921.95 19,115.06Commerce 8,000.00 2,657.38 2,856.85 13,514.23Compton 9,500.00 7,890.21 3,795.47 21,185.68Cudahy 6,500.00 2,266.21 1,904.69 10,670.90

Downey 9,500.00 8,613.59 4,108.04 22,221.63Hawaiian Gardens 6,500.00 1,773.02 1,762.63 10,035.65

Huntington Park 8,000.00 5,208.84 2,675.15 15,883.99La Habra Heights 7,000.00 7,000.00La Mirada 8,000.00 4,447.00 2,837.06 15,284.06

Lakewood 8,000.00 6,150.19 3,041.33 17,191.52Long Beach 16,000.00 28,140.16 15,898.74 60,038.90Lynwood 8,000.00 5,653.28 2,593.43 16,246.71

Maywood 6,500.00 2,468.90 1,911.29 10,880.19Montebello 8,000.00 5,250.78 3,437.92 16,688.70Norwalk 9,500.00 8,403.06 3,614.12 21,517.18

Paramount 8,000.00 4,890.72 2,545.05 15,435.77Pico Rivera 8,000.00 5,317.63 2,783.34 16,100.97Santa Fe Springs 8,000.00 2,912.10 3,425.47 14,337.57

Signal Hill 8,000.00 2,488.17 2,457.75 12,945.92South Gate 8,000.00 7,040.95 2,887.51 17,928.46Vernon 6,500.00 1,004.76 2,268.28 9,773.04

Whittier 8,000.00 6,376.93 3,423.31 17,800.24Port of Long Beach 20,000.00 20,000.00County of LosAngeles

53,283.00 53,283.00

Total Base Duesand Assessments

$291,783 $140,701 $85,446 $517,930.62

I-710 AssessmentsLong Beach $37,500County of LosAngeles

35,000

Carson 25,000




Agency Base Dues Transportation

Assessment MTA Deputy Total

Compton 25,000

Downey 25,000

Huntington Park 25,000Lynwood 25,000Paramount 25,000South Gate 25,000Bell 10,000Bell Gardens 10,000

Commerce 10,000Cudahy 10,000Maywood 10,000

Signal Hill 10,000Vernon 10,000

Total I-710Assessments

$317,500

91/605Assessments

Artesia $20,000Bellflower 20,000Cerritos 20,000Compton 20,000

Downey 20,000Hawaiian Gardens 20,000

Lakewood 20,000Long Beach 20,000Norwalk 20,000Paramount 20,000

Pico Rivera 20,000Santa Fe Springs 20,000Whittier 20,000

County of LosAngeles

20,000

Total 91/605Assessments

$280,000

In total, the Gateway Cities COG dues and assessments for 29 agencies is $1,115,430 for thecurrent fiscal year.




The dues breakdown for the SGVCOG is as follows:

Table 7 Due s and Population s for th e SGV C OG for the 2011-12 Fi s c al Ye ar

Agency

2011 Population

Dept. of Finance

Actual 2010-11

Dues

Estimated 2011-12

DuesAlhambra 83,450 $30,000 $30,000Arcadia 56,548 $22,016 $21,964Azusa 46,399 $19,762 $18,920Baldwin Park 75,664 $29,481 $27,699Bradbury 1,059 $5,289 $5,318Claremont 35,053 $16,282 $15,516Covina 47,931 $19,887 $19,379Diamond Bar 55,766 $23,306 $21,730Duarte 21,380 $11,937 $11,414El Monte 113,785 $30,000 $30,000Glendora 50,260 $20,849 $20,078Industry 451 $20,558 $20,035Irwindale 1,426 $20,558 $20,035La Canada Flintridge 20,301 $11,378 $11,090La Puente 39,930 $18,007 $16,979La Verne 31,153 $15,215 $14,346Monrovia 36,686 $16,995 $16,006Montebello 62,792 $24,734 $23,838Monterey Park 60,435 $24,508 $23,131Pasadena 138,915 $30,000 $30,000Pomona 149,243 $30,000 $30,000Rosemead 54,034 $22,327 $21,210

San Dimas 33,465 $16,084 $15,040San Gabriel 39,839 $17,895 $16,952San Marino 13,185 $9,025 $8,956Sierra Madre 10,948 $8,330 $8,284South El Monte 20,174 $11,788 $11,052South Pasadena 25,692 $12,764 $12,708Temple City 35,673 $15,768 $15,702Walnut 29,439 $14,798 $13,832West Covina 106,400 $30,000 $30,000LA County District 1 N/A $30,000 $30,000LA County District 4 N/A $30,000 $30,000

LA County District 5 N/A $30,000 $30,000SGV Water Agencies N/A $30,000 $30,000

Totals 1,497,476 $719,540 $701,211




SGVCOG dues are $701,211 versus $1,115,430 for the Gateway Cities COG. It is hard to drawson between the two agencies because of how membership dues

and assessments are allocated differently. It is fair to say, however, that revenues available for

administrative expenses.The other significant difference between the two agencies is that the Gateway Cities COG

employees rather than contracting through a privatemanagement firm or firms for administrative services.

The Gateway Cities COG has also taken a flexible approach in how their staff members areemployed, thus allowing two employees to receive fringe benefits, including PERS retirementthrough employment through segregate member cities, and direct employment with thoseemployees not wishing to be members of PERS.



Section VI Review of the MSA between Arroyo Associates and the SGVCOG page 30

S ECTION VI REVIEW OF THE MANAGEMENT S ERVICES AGREEMENT

BETWEEN ARROYO ASSOCIATES AND THE SGVCOG

6.1 I NTRODUCTION

The scope of work items covered in this section are:

ArroyoAss oc ia te s and th e S G V C O G.

Provide r ec omm e ndation s on SGV CO Gs taffing options and r e la te d c os ts .

6.2 A NALYSIS OF M ANAGEMENT S ERVICES A GREEMENT

The Management Services Agreement between the SGVCOG and Arroyo Associates, Inc. wasfirst enacted in 1994 and last amended and renewed on July 1, 2008. It is in effect until June 30,2014.

The current Agreement provides for a scope of services to conduct the day-to-day administration,management, and operations that include:

Assisting the President and Board in developing policy;

Assisting with technical activities and projects;

Performing planning and analysis and other related activities;

Providing support financial record keeping support to the Treasurer/Secretary

who directly reports to the Board; Providing legislative advocacy;

Providing an annual work plan.

Under the Agreement, Arroyo is responsible for employing and paying for all of the staff (withthe exception of the Treasurer/Secretary), and paying all materials and supplies, including officerent and equipment costs.

Insupport to the SGVCOG.

The SGVCOG may terminate the Agreement at any time, but Arroyo is entitled to receivecompensation through the severance provisions of the contract.




Also, on July 1, 2008, the SGVCOG Board executed an Amendment (MSA Attachment 1) 8 to provide additional retainer services for added workload and staff services in connection to theformation and operation of new committees and the coordination of new programs that are beingoverseen by SGVCOG, which included:

Coordinate, review and oversee all work and activities in connection with theHomeless Services Needs Assessment, the CPUC Local Government PartnershipProgram, and the Watershed Coordinator Program;

Provide staff support to and organize Steering Committees for each of these programs;

Prepare liaison reports for the Steering Committees, as needed;

Assist in all activities associated with the SGVCOG Housing Committee;

Assist in the identification of additional programs suitable for SGVCOG, and

prepare proposals in connection for such additional programs.

It is worthy to note, here, that these services are primarily for providing staff support to theSGVCOG elected officials and/or member agency staff members, in addition to oversight over the activities in the first bullet, above.

MSAfor purposes of comparing reven

6.3 A DDITIONAL S ERVICES FOR G RANT A DMINISTRATION OTHER THAN ORE S ERVICES

Two additional amendments to the MSA exist relating to the administration of grants:

Amendment #2 is for the Southern Califo -Term Energy-EfficiencyStrategic Plan (CEESP).

Amendment #3 is for being a sub-recipient of the Energy Upgrade California initiative of theCounty of Los Angeles funded by the California Energy Commission and the U.S. Departmentof Energy.

6.4 T IMEKEEPING P ROCEDURES

As part of our scope of work, Citygate has been asked to review the timekeeping procedures

used by Arroyo to bill time to grant-Amendments #2 and #3 and the basic MSA and Amendment #1, respectively.

8 ,




Citygate s observation is that Arroyo currently employs six people, including the ExecutiveDirector, who are devoted to supporting the SGVCOG. (Actually, one person is employed on athree-quarter basis; the full-time equivalent staff available is 5.75 FTE.) These are salariedemployees, so Arroyo is responsible for their cost, regardless of income.

A total of 4 FTE employees, including the Executive Director, are budgeted to the MSA andAmendment #1.

As shown earlier in Tables 4 and 5 in Section 5.2, the revenue generated from member dues falls

amount of $45,286. The shortfall is made up of revenues generated from eligible grantallocations or administrative services.

As presented in Section IV, Citygate has reviewed the grant management and timekeepingsystems employed by Arroyo, and found them to be adequate. Key timekeeping proceduresincluding the following:

1. The staff analysts complete activity logs, detailing activities at the .25 hour increment, and input time, by funding source, into the master timesheet on a daily

basis.

2. The Lead Staff Analyst reviews activity logs for accuracy every two weeks, and provides and incorporates any corrections or clarifications to staff.

3. On the 1 st of the following month, master timesheets and activity logs arefinalized.

4. Master timesheets are printed and signed by staff.

5. Activity logs are input into any additional formats and separate files as required by grants (i.e. Quickbooks, Excel, etc.).

6. Staff prepares invoices for each grant, and includes activity-level data as required.

7. The master timesheet, along with the total charges by fund by month, are provided to the accountant/treasurer to attach to the invoice.

We have only reviewed a small sample of timesheets, and we have not conducted an extensivefinancial audit to verify that all reported and billed time equals the equivalent of 5.75 employeescalculated at their respective salary rates. However, it is important to note that a total 1.75 FTEsare funded by grant sources and paid for in arrears; in other words, the SGVCOG is reimbursedfor only grant-related work already performed. The auditors of the grant providers have notfound any excessive billing or ineligible costs to date. Furthermore, while Arroyo bills theSGVCOG under the MSA on a flat monthly amount, given that its timekeeping procedures cover

both grant and MSA core activities, Arroyo provides the SGVCOG along with the monthly




invoice a detailed and necessary breakdown and distribution of staff time to the various fundingsources (both MSA and grant funds).

Finding VI-1: The current fixed price retainer Management Services Contract

does not provide for a -funded activities performed.

Rec omm e ndation VI-1: Monthly billing invoices should be prepared reflectingthe distribution of staff time to funding sources.

6.5 SGVCOG S TAFFING O PTIONS AND R ELATED C OSTS

Citygate is aware of the protracted negotiations between SGVCOG and Caltrans concerningineligible costs and the app e aran ce of a conflict of interest caused by a public agency being

managed by a private company.For reference, a good summary of this issue is found in a recent report 9 to the SGVCOG Boardfrom Richard D. Jones, the SGVCOG General Council and an even more recent letter fromCaltrans addressed to Nicholas Conway, SGVCOG Executive Director.

Citygate perceives that there is general agreement that the current Management ServicesAgreement is constructed in a way that can create the appearance of a conflict of interest

between providing management services to the SGVCOG and also administering those contracts.

In C , we see COGs usually employing their management by hiring publicemployees. As is now the case, the Executive Director would continue to report to the Governing

Board, and be responsible for the duties delegated by the Board to him/her in the current Bylaws.Since the SGVCOG is currently a contractor with PERS, these employees would be required to

participate in the PERS system.

Finding VI-2: There is the appearance of a conflict of interest betweenmanaging the SGVCOG and managing as well as administeringgrant programs.

9 Report to the Governing Board of the SGVCOG, Caltrans Audit and Conflict of Interest Issue, from Richard D.Jones, General Counsel, October 20, 2011.




Rec omm e ndation VI-2: SGVCOG investigate the cost and terms of bringing a-

management of the SGVCOG.

Finding VI-3: 2011

protracted negotiations with the SGVCOG.

Rec omm e ndation VI-3: It is recommended that the SGVCOG proceed tocomply with the Corrective Action Plan within thetimeframe specified.



Section VII Evaluation of Structure and Relationship Between SGVCOG and ACE JPA page 35

S ECTION VII EVALUATION OF THE S TRUCTURE AND RELATIONSHIP

BETWEEN THE SGVCOG AND ACE JPA

7.1 I NTRODUCTION

The scope of work item covered in this section is:

Evaluate th e s tru c tu r e and r e lations hip be tw ee n th e SGV CO G and the A C EJoint Pow e rs Agree me nt and provid e r ec omm e ndation s for improve me nt ifnee de d .

7.2 A NALYSIS OF O PERATIONAL R EQUIREMENTS , S TAFFING , AND O PERATIONAL

M ANAGEMENT S TRUCTURE

The Alameda Corridor-East (ACE) Construction Authority was created in 1998 after two years

of study by amending its bylaws to for a subsidiary agency to construct the projects associatedwith extending the Alameda Transportation Corridor from Los Angeles through the San GabrielValley.

Various organizational structures were considered, including the formation of an independentJoint Powers Authority such as the Gold Line Construction Authority which is separate from theSGVCOG.

For various reasons, not the least of which would be the complexity of what was originallyestimated to be a $0.9 billion project requiring a highly skilled construction managementorganization, a separate Board was established composed of SGVCOG Board representatives

from the Cities of El Monte, Industry, Pomona, San Gabriel, the County of Los Angeles, and(later) the City of Montebello.

Each agency is a SGVCOG member on the ACE Board. Additionally, the President of theSGVCOG Governing Board is a member.

Under the terms of the SGVCOG Bylaws, ACE has authority to hire an Executive Director thatreports directly to the ACE Board, and to hire other staff, approve project budgets, andadminister contracts to build the component projects associated with the overall ACE Project.

The SGVCOG ion to create ACE included a commitment to undertaking the following: 10

Identifying projects for ACE to implement;

10 to the SGVCOG Governing Board by the Executive Director, February 17, 2011.




Securing the necessary funding;

Maintaining the ultimate oversight role over the ACE program.

As construction has gone forward from the initial conceptual project planning stage, it is

understandable that project cost estimates have increased as actual projects have been designed,right-of-way acquired, and construction occurred.

It is our understanding that Phase I of construction is nearly completed, or completed. Now, theestimated overall cost of the project is $1.4 billion with completion around 2017. Based on thecurrent amount of funds available, we are told that no more than six grade separation projectscan be constructed; a number far less than projects potentially available.

This has raised discussion between the agencies as to which projects are going to be constructed,and which agency is ultimately responsible for selecting these projects. It has also raiseddiscussion asking if there is adequate oversight over ACE and if there is any liability toSGVCOG if there are budget shortfalls, litigation, and other potential adverse outcomes.

be built going forward. Our assignment is to assess the organizational r e la t ion s hip between theSGVCOG and ACE, and to make comments that we feel are important to the ultimate success of the organization.

Regardless of the unique reasons concerning the structuring of ACE with a separate GoverningBoard, Executive Director, and staff, whether intentionally or not, this organizational schemeviolates or at least weakens . That is to say, the principle whereone executive and one board are held responsible and accountable for the results of theorganization.

Duties, responsibilities, and accountability for the ACE Project have become divided andambiguous between the SGVCOG and the ACE agency that it created. It is not surprising thatthe ACE Board and management have evolved more and more to assume control of not only theimplementation of the project, but also the planning and prioritization of the component projects.The structural relationship between SGVCOG s opinion, an invitationfor this to happen.

Regardless of the strengths or weaknesses of this divided relationship of duties, it is clear thatneither executive director is subordinate to the other and that their respective responsibilities areseparate.

Citygate also believes that the accountability, success, and responsibility for carrying out theACE Project is a shared responsibility. This is a monumental project with major implicationsconcerning the improvement of the distribinland destinations.




We believe that the SGVCOG Governing Board has a crucial stake in ensuring a successfuloutcome for the ACE Project, and should remain engaged in providing oversight concerning the

best mix of component projects and the budgeting of funds to ensure that started projects arecompleted, and that adequate reserves are in place to cover close-out costs; the same objectives

of ACE.

Citygate recognizes that the SGVCOG Governing Board shares this view, and has taken steps to

two counsels of the SGVCOG and ACE Boards. These memos (and, we understand, a fifth paper that is being developed) contribute to creating a set of principles for dividingresponsibilities between the SGVCOG Governing Board and the ACE Board.

Our understanding is that the division of responsibilities between SGVCOG and ACE are alongthese lines:

ACE is responsible for implementing the construction of the ACE Project.

ACE is responsible for developing the content and budget for the project.

The SGVCOG Governing Board is responsible for providing oversight over theACE Project by being responsible for the ultimate approval ocontent and budget.

linkage between the twoBoards. Recommendations concerning project content and budget come throughthese committees, along with their independent recommendations.

Under the current organizational relationship of the SGVCOG and ACE, Citygate believes that

this is the best possible division of responsibilities.While any financial liabilities for the member agencies of the SGVCOG are presently considered

by some to be limited (or non-existent), 11

agencies.

In forging the way ahead, Citygate identifies two alternative organizational approaches for consideration:

Spin off ACE into a separate Joint Powers Agency: If the SGVCOG Governing Boardconcludes that it cannot effectively provide oversight or that such oversight is not needed, then

11 Operations of ACE Construction Authority, Evaluation of Liability to San Gabriel Valley Council of Governments, Richard D. Jones, General Counsel, San Gabriel Valley Council of Governments, and Joseph Sivley,General Counsel, ACE Construction Authority, May 11, 2011.




severing the relationship between the COG and its subsidiary agency would further clarify

We do not know how difficult this reorganization would be to accomplish, but we have been toldthat this was researched and considered in the past. At that time, it was considered feasible thatACE could be made into a joint powers authority with full control over all aspects of the ACEProject. Grant funds for the project could be reassigned to the new JPA. Citygate is unable to saywhether there would be any unknown consequences regarding such a reorganization.

Maintain the current organizational relationship between SGVCOG and ACE: Under whatCitygate believes is an ultimately more satisfactory alternative, the SGVCOG Governing Boardwould continue to assume responsibility for providing oversight and approval of the ACE work

program and budget through recommendations from the City Manager and Public WorksTACs.

We also sought to identify other potential organizational alternatives, but we found none that we

considered viable.

Finding VI I-1: The structural relationship between the SGVCOG and itssubsidiary organization, ACE, creates ambiguity concerningaccountability and responsibility for project planning and

budgeting of the component projects comprising the overall ACEProject. Responsibilities need to be clarified in order to assure the

best outcome and to mitigate risks for the project.

The outcome of the ACE Project has impacts on all of the member agencies.

Rec omm e ndation VII-1: The SGVCOG Governing Board should continue toclarify and reiterate its oversight role and use thePublic Works and s to ensurethat all relevant information and a recommendationare provided to move Phase II of the project forwardto completion.



Section VIII Findings and Recommendations page 39

S ECTION VIII FINDINGS AND RECOMMENDATIONS

This report section summarizes findings and recommendations that we believe will permit the SGVCOG to move ahead.

8.1 S UMMARY OF F INDINGS AND R ECOMMENDATIONS

8.1.1 Evaluation of Management Operations

Finding IV -1: The SGVCOG has a very small administrative operation. Havingall five staff members report directly to the Executive Director does not create a span-of-control issue and creates an efficientreporting relationship. Because of the small number of staff, theStaff A ments, andcan substitute for each other, if need be.

Rec omm e ndation IV-1: Before the Governing Board decides and acts onadding a new project or program, require theExecutive Director to provide a cost estimate andstaffing strategy for implementation.

Finding IV -2: Based upon our analysis of the current workload, we believe thatthe staff is working at capacity. Care should be taken, however,in adding programs without discontinuing other lower priorityactivities or supplementing resources.

Rec omm e ndation IV-2: Maintain the current staffing arrangement andstructure.

Finding IV -3: The administration of grants requires maintaining detailedrecords indexed chronologically and by subject matter. We findthat the SGVCOG systems are

Rec omm e ndation IV-3: Maintain and continue using the current grantmanagement system.




Finding IV -4: We believe that adequate internal controls are in place tomaintain best practices concerning the core activities and grant

programs maintained by the SGVCOG.

Rec omm e ndation IV-4: As a good practice, the SGVCOGshould be routinely asked to review all time-keepingand program management activities for compliancewith generally accepted accounting practices and Stateand Federal grant requirements.

8.1.2 Comparison of Organizational Operations with the Gateway Cities Councilof Governments

Finding V-1: The Gateway Cities COG is primarily focused on serving the roleof a facilitator in creating projects within its region.

Rec omm e ndation V-1: As the SGVCOG goes forward with its long-rangestrategic planning process, it should consider whether the Gateway Cities model would be appropriate for the San Gabriel Valley. The model diminishes the

Gateway Cities COG which isdiscussed elsewhere in this report.

8.1.3 Review of the Management Services Agreement Between ArroyoAssociates and the SGVCOG

Finding VI-1: The current fixed price retainer Management Services Contractdoes not provid

-funded activities performed.

Rec omm e ndation VI-1: Monthly billing invoices should be prepared reflectingthe distribution of staff time to funding sources.




Finding VI-2: There is the appearance of a conflict of interest betweenmanaging the SGVCOG and managing as well as administeringgrant programs.

Rec omm e ndation VI-2: SGVCOG investigate the cost and terms of bringing a-

management of the SGVCOG.

Finding VI-3:

protracted negotiations with the SGVCOG.

Rec omm e ndation VI-3: It is recommended that the SGVCOG proceed tocomply with the Corrective Action Plan within thetimeframe specified.

8.1.4 Evaluation of the Structure and Relationship Between the SGVCOG andACE JPA

Finding VI I-1: The structural relationship between the SGVCOG and itssubsidiary organization, ACE, creates ambiguity concerningaccountability and responsibility for project planning and

budgeting of the component projects comprising the overall ACEProject. Responsibilities need to be clarified in order to assure the

best outcome and to mitigate risks for the project.

Rec omm e ndation VII-1: The SGVCOG Governing Board should continue toclarify and reiterate its oversight role and use thePublic Works and s to ensurethat all relevant information and a recommendationare provided to move Phase II of the project forwardto completion.



Appendix A List of Those Interviewed for This Study page 42

A PPENDIX A

L IST OF T HOSE INTERVIEWED AS A P ART OF T HIS S TUDY

E LECTED O FFICIALS

Angel Carrillo, President SGVCOG

John Fasana, Chair, Transportation Committee, and Member SGVCOG

Joe Gonzales, 3 rd Vice President, SGVCOG

Carol Herrera, Past President and Member SGVCOG

Tom King Past President and Member SGVCOG

Mary Ann Lutz, 2 nd Vice President, SGVCOG

Barbara Messina, 1st

Vice President, SGVCOGSam Pedrosa, Chair, EENR Committee, and Member of SGVCOG Governing Board

Tim Spohn, ACE Board President and Member SGVCOG

Gino Sund, Chair, EENR Committee and Member SGVCOG

S TAFF M EMBERS

Kathy Boyd, Office Manager, SGVCOG

Chip Conway, Accountant, SGVCOG

Nicholas Conway, Executive Director, SGVCOG

Marisa Creter, Lead Staff Analyst, SGVCOG

Fran Delach, City Manager (retired), Azusa

Dick Jones, General Counsel, SGVCOG

James Lam, Staff Analyst, SGVCOG

Darryl Parish, Chair, City Manager TAC, and City Manager, Covina

Rick Richmond, Executive Director, ACE

Catlin Sims, Staff Analyst, SGVCOG

Genevieve Blanche, Staff Analyst, SGVCOG



Appendix A List of Those Interviewed for This Study page 43

O THERS I NTERVIEWED

Ron Bates, City Manager, City of Pico Rivera

Michael Cano, Deputy to L.A. County Supervisor Mike Antonovich

Sharon Neely, SCAG

Dick Powers, Executive Director, Gateway Cities COG



Appendix B List of Documents that were Reviewed page 44

A PPENDIX B

L IST OF D OCUMENTS THAT WERE R EVIEWED

-site work, we requested and were provided with the following

documents for review:

SGVCOG mission statement.

Annual work plans.

Goals and objectives.

Staffing guidelines.

Staff timekeeping and reporting examples.

Operating budget.

Legal reports and correspondence with SGVCOG and ACE general counsels.SGVCOG and ACE relationships)

Caltrans correspondence on financial audits.

Cost analysis of staffing strategies.

SGVCOG financial statements.

Bylaws, JPA, MOUs, mission statements and other formational documents.

Organization charts.

Special management reports to the Governing Board. Monthly management reports to the Governing Board.

Annual reports.

Analyses of governance policies.

Management Services Agreement.

ACE quarterly report.

City Manager Steering Committee reports and agendas.

Contracts with independent consultants.

SGVCOG operating budgets and annual work plans.

SGVCOG strategic plan.

Job descriptions, activities of responsibility, and performance reports.



Employee handbook and staffing guidelines.

Management performance reports.

Audits and management letters.

Operating manuals.

Contracts with independent consultants.

Special reports and management reports.

Gateway Cities COG organizational charts.

Gateway Cities COG financial analysis on administrative costs.