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HomeMy WebLinkAboutAgenda - 04-19-2005-9aORANGE COUNTY BOARD OF COMMISSIONERS ACTION AGENDA ITEM ABSTRACT Meeting Date: April 19, 2005 Action Agenda Item No. C-~-p SUBJECT: School/County Efficiency Study and Supplemental Contract with Robert Segal, CPA. PA DEPARTMENT: County Manager/Finance PUBLIC HEARING: (Y/N) No ATTACHMENT(S): Draft Agreement 4/14/05 Segal Letter INFORMATION CONTACT: John Link or Rod Visser, ext 2300 Ken Chavious, ext 2453 TELEPHONE NUMBERS: Hillsborough 732-8181 Chapel Hill 968-4501 Durham 688-7331 Mebane 336-227-2031 PURPOSE: To receive an update from the firm of Robert S. Segal, CPA, PA regarding findings to date from an examination of opportunities for achieving budgetary efficiencies in the operations of the two school systems and the County; and to consider approving a supplemental agreement with the Segal firm that will produce various comparisons of educational resources available to the two school systems that were not addressed in the March 2005 Educational Excellence Report. BACKGROUND: Orange County, the Orange County Schools, and the Chapel Hill-Carrboro City Schools entered into separate agreements during Fall 2004 with the Robert Segal CPA firm to examine County and school finance records to determine if additional operating efficiencies and resulting savings could be achieved. As was reported at the BOCC's regular meeting on September 21, 2004, the County and both school systems have taken a number of significant steps in recent years to enhance revenue collection and to reduce expenditures through mare advantageous contracting and spending approaches. The Segal firm was engaged several years ago by all three governing boards for revenue enhancement/expense reduction analysis, and succeeded in producing hundreds of thousands of dollars in savings and additional revenue for all three entities. Robert Segal attended the December 14, 2004 and January 22, 2005 Orange County Commissioners' meetings to provide updates on preliminary findings from the Fall 2004 engagements. Mr. Segal will attend tonight's meeting and provide further update of activities and potential savings identified for the County and both school systems. The October 19, 2004 agreement between the County and Segal focused specifically on examining opportunities for revenue enhancement and expense reduction. There was also discussion during that October 19 meeting that during the course of their examination of County and school financial records, the Segal firm might identify possible opportunities for efficiencies that do not lend themselves to measurable savings from which the Segal firm might be remunerated. The Board also noted that the Segal firm might engage in analysis, not specifically focused on efficiency, that might have implications regarding comparative resources available to the two school systems. For example, the Segal review might lead to the observation that one school system has one computer available for every x students, while the other school system has one computer available for every y students. That type of observation would be relevant information for Commissioners to consider as they decide how to proceed on policy matters related to school funding equity, and would represent information that the Commissioners would not expect to receive through the Educational Excellence review work performed by Dr. Madeleine Grumet and her research team,. The accompanying proposed agreement between the County and the Segal firm would address this supplemental body of work of analysis to obtain operational efficiencies and comparisons., FINANCIAL IMPACT: Because the work contemplated in the supplemental contract does not readily lend itself to remuneration for the Segal firm through a portion of savings achieved, the proposed supplemental agreement anticipates paying the Segal firm an hourly rate of $100, with a not to exceed amount of $10,000. Funding for this undertaking would come from an appropriation from Commissioners' Contingency, which has a currently unallocated balance of $42,000. RECOMMENDATION(S): The Manager recommends that the Board receive the update as information from the Robert Segal CPA firm; approve the supplemental agreement with Segal, subject to final review by staff and the County Attorney; and authorize the Chair to sign it. DRAFT LETTER OF AGREEMENT Robert S. Segal, CPA, PA (SEGAL) and Orange County (CLIENT) hereby enter into this Letter of Agreement whereby SEGAL shall serve as a consultant to CLIENT to examine and analyze certain practices, policies and procedures related to the fiscal operations of the County, the Chapel HiII Carrboro City Schools and Orange County Schools in order to determine if opportunities exist to improve efficiencies in operations and to provide information in the form of questions or observations for the County's consideration, The types of questions and observations contemplated are those that might relate to a comparison of educational resources available to the two school systems that were NOT the subject of the earlier "Educational Excellence Study" conducted by the UNC School of Education on behalf of the County Commissioners. The Client agrees that no such analysis are currently being performed or evaluated by CLIENT, however, that these analyses in some cases could provide for savings and/or generate additional revenues.. If such instances occur, these items will be identified by SEGAL and will be applied to the previous agreements dated October 19, 2004, which relate directly to expenditure savings and revenue generation in which SEGAL will be compensated based on provisions in said agreement(s). SEGAL will furnish CLIENT with a written report as to results of his analysis. The report may include, but not be limited to, observations, considerations, recommendations and other items related to the overall operations, practices, and procedures of the agencies involved.. CLIENT agrees to pay SEGAL $100 per hour not to exceed 100 hours or $10,000, This fee will be paid following the review and approval by the CLIENT of the work performed by SEGAL. SEGAL AGREES TO MAINTAIN IN STRICT CONFIDENCE, CONSISTENT WITH THE PROVISIONS OF THE NORTH CAROLINA OPEN RECORDS I.AW, ALL INFORMATION RECEIVED FROM CLIENT CONCERNING ITS EXPENSES AND METHODS OF DOING BUSINESS. FURTHERMORE, SEGAL ACTS AS A CONSULTANT ONLY AND DOES NOT RECEIVE ANY COMMISSIONS OR REMUNERATION OF ANY KIND FROM ANY VENDORS OR SERVICE PROVIDERS. The persons signing below are authorized to do so on behalf of their respective organizations, This Letter of Agreement shall be binding upon the parties hereto, their heirs, successors and assigns. This Letter of Agreement is entered into effective as of day of CLIENT: By: Title: Robert S Segal, CPA PA By: Robert S. Segal Title: President R®FiT S. SE AL, CPA PA EXPENSE REDUCTION & REVENUE ENHANCEMENT 1912 EASTCHESTER DRIVE SUITE 206 HIGH POINT; NC 27265 336.886-2100 FAX 336.886-2101 wwwsegalcpa.com April 14, 2005 Mr. Moses Carey, ,Jr., Chairman Orange County Board of County Commissioners P.O.Box 8181 Hillsborough, NC 27278 Dear Mr. Carey: Robert S. Segal, CPA PA is pleased to report its progress an the collaboration project involving Chapel Hill-Carrboro City Schools, Orange County Schools and Orange County. We have accumulated data from the three organizations and have noted some interesting possibilities for collaboration. We have started researching their feasibility, In the meantime, we have pertormed reviews of various items and can report the following progress. Chapel Hill-Carrboro City Schools CHCCS) Telecommunication expenses We have reviewed the telecommunications expenses and have prepared a preliminary recommendation an how CHCCS could save approximately $67,000 per year net of Universal Service Fund/e-rate discounts and related costs. CHCCS is currently in the middle of a major infrastructure upgrade, CHCCS is working with BellSouth and the University of North Carolina (UNC) to implement a plan to connect to UNC in July 2005 for internet access at a reduced annual cost. CHCCS did not initiate switching telecommunications services as we recommended because they were in the middle of this upgrade, Once the upgrade is complete, CHCCS is willing to review the recommendations and implement any suggested cost saving strategies. CHCCS IT shared that its long-range plan is to implement Voice Over Internet Protocol (VOIP), They currently have implemented the Cisco VOIP solution in two schools and several office locations, VOIP has a large upfront capital cost that may be offset by future reduced monthly phone costs. IT did not share with us a vendor's projection of costs or projected savings for VOIP. Therefore, we are unable to evaluate this computation of savings,. Further, we speculate that the IT/vendor projection of savings is not reduced by E-rate funding. IT has not needed to invest in VOIP equipment during the past year and has not needed to consider alternative providers of telephony or VOIP equipment, Based on our suggestion, IT will consider alternative vendor solutions for any future VOIP implementation,. While we were reviewing the paid invoices, we found $2,295.00 of monthly service that was incorrectly billed and we are working with CHCCS to obtain a refund. CHCCS personnel worked with the vendor to obtain a credit of $31,833.86 on the March 2005 invoice. In addition, certain invoices included taxes from which GHGCS could be exempt.. After we informed GHGCS personnel of the error, CHCCS contacted a previous consultant who said they had requested the telecommunications vendor to remove the taxes from the invoices, A later review revealed that the taxes had not been removed from the invoices. The previous consultant is reported to be working with the telecommunication vendor to have the taxation stopped North Carolina Sales and Use Tax Additional refund requests were mailed April 8, 2005 to the NC Department of Revenue for the following periods and amounts: 2001-2002 $ 72,279.88 2002-2003 $176,731.57 2003-2004 $ 40,750.12 Total $289.761.57 Cash Management We reviewed various cash management alternatives and recommended a new accounts approved by the State of North Carolina that has a higher interest rate. Additional Old New Ave Daily Interest Month Rate Rate Balance Income Jan 2005 2.05% 2.590% $ -0- $ -0- Feb 2005 2,29% 2.847% $2,964,286 $ 1,377.13 Mar 2005 2.38% 2.950% $5,006,473 $ 2,423.68 The Bank has removed the compensating balance requirement of $1,200,000 from the primary account and as a result CHCCS is now earning the federal funds rate less 20 basis points on the amount: Additional Month Balance Rate Interest Income Jan 2005 $1,200,000 2.05% $2,089.32 Feb 2005 $1,200,000 2.30% $2,117.26 Mar 2005 $1,200,000 2,38% $2,425.64 Note: This is less than we projected for two reasons: 1. The interest rate at the Bank has risen faster than the rate for the new account, 2 ~n CHCCS could possibly move additional money to the new account. Natural Gas Twc schools use enough natural gas to qualify to purchase natural gas from suppliers other than the local distributor. The local distributor has confirmed that CHCCS could save money by implementing this recommendation, Based on natural gas usage during the period November 2003 to October 2004, the projected annual saving would be $7,000.00, CHCCS has approved this recommendation which took effect January 1, 2005, State Gas 'Tax We found one small account with a fuel company for the purchase of gasoline and diesel. The account was not charged federal gas tax, but the account was charged state gas tax. CHCCS is not required to pay state gas tax. Refund claims in the amount of $2,200.00 have been filed through September 2004. Orange County Schools (OCS) Universal Service Fund/e-rate For the past seven years, OCS has been eligible to receive these funds from the federal government to offset the casts of telecommunications, Internet access and certain equipment, During the summer of 2004, the e-rate coordinator left OCS and we have been asked to prepare and manage the e-rate application process far the 2005-2006 school year, The application process runs from November 2004 to February 2005. Our review of the previous e-rate application notes that it was very well done and appears to include substantially all of the funding possibilities. Funding applications for 2005-2006 were filed for approximately the same amount of funding as in 2004-2005, Gash Management We reviewed various cash management alternatives and recommended a new accounts approved by the State of North Carolina that has a higher interest rate. Additional Old New Ave Daily Interest Month Rate Rate Balance Income Jan 2005 1.75% 2,590% $ 572,101 $ 408,15 Feb 2005 2,00% 2,847% $1,478,336 $ 960.55 Mar 2005 2.38% 2.950% $1,479,296 $ 716:14 Note: This is less than we projected for following reasons: 1, The interest rate at the Bank has risen faster than the rate for the new account, 7 The Bank is still paying the federal funds rate less 50 basis point (CHCCS is less 20 basis points), and OCS has not moved as much money as they could have to the new account. North Carolina Sales and Use Tax We have received the data file from OCS and it is in the process of being reviewed. Orange County government North Carolina Sales and Use Tax To date, the reallocation project has found $68,671.38 of additional sales and use tax.. The County has received approximately 62% of that amount with the municipalities receiving the balance. Amended returns with savings of $49,219 have been submitted to the NC Department of Revenue, but have not been processed. Data has been received from UNC Hospitals and is being reviewed. Other Expenses Some operating expenses have been reviewed, but no recommendations have been finalized at this time. Collaborative Efforts: Vendor Analysis We have combined the vendor payments from the three organizations and have ranked the vendors by volume. We have noted the primary purpose of the expenditure and have noted instances where the same type of product/service appears to be purchased from multiple vendors. On March 30, 2005, representatives from all three organizations met to discuss certain expenses which we thought had potential for collaborative purchasing. Since the vendor invoices lists involved several categories of expenditures and included a substantial amount of data, it was decided that a more thorough staff review may be required to insure proper classification of expenditures. However, the school districts identified two areas where they could collaborate on joint purchasing projects. CHCCS's and OCS copier contracts expire July 1, 2006 and December 4, 2007, respectively. Both school districts have been in the NC School Board Association (NCSBA) Workers Compensation Pool. Both have been notified that NCSBA will no longer offer workers compensation. Copiers and workers compensation would be excellent point bid projects for the school districts. To conclude, the project is progressing and tangible results are emerging already. The organizations do some things differently and we are exploring if one is better than the other and if the better one would work at the others,. On behalf of Robert S. Segal, CPA PA, thank you for this opportunity. If you have any questions or comments, do not hesitate to contact me. Sincere ~7rw Robert S, Segal, CP President Cc: Dr, Shirley Caraway, Superintendent Orange County Schools Dr, Neil Pedersen, Superintendent Chapel Hill-Carrboro City Schools Mr, .John Link, Manager Orange County