Supporting Documentation

Cover Pages of JPA Amendments

Third Amended and Restated JPA - 2007
SGVCOG Bylaws
Management Services Agreement with Attachments 1, 2, & 3
Caltrans Audit 2006
Caltrans Audit 2011
Conflict of Interest Policy
Documents Regarding 2008 Settlement Payment
Invoices and Documentation Related to Housing & Homeless Services Council
Documents Related to the Intern Program
Documents Related to Office Hours
Documents Related to Chip Conway
Jeffers Staff Report Regarding Grant Funds
Contract with Citygate
City Gate Report
Documents & Link to Video Regarding Relationship Between Citygate and Conway






















COVER PAGES INDICATING DATES OF
AMENDMENTS AND RESTATEMENTS TO JPA













THIRD AMENDED AND RESTATED JPA (2007)
BYLAWS
MSA & ATTACHMENTS
CALTRANS AUDIT (2006)
CALTRANS AUDIT (2011)
Stall: ofCalifomia Business, Transportation and Housing Agency
DEPARTMENT OF TRANSPORTATION
Memorandum Flex JOIU' power!
Be energy flfjideatl
To: MARTIN TUTILE
Deputy Director
Planning and Modal Programs
ORIGINAL SIGNED BY$.
Date:
File:
7, 2011
P1580-0.009
From:
\
SUSAN BRANSEN
Assistant Director
Audits and Investigations
Subjeet: Incurred Cost Audit- San Gabriel Valley Council of Governments
We have audited the costs claimed by and reimbursed to the San Gabriel Valley Council of
Governments (SGVCOG) totaling $245,130 for work performed under Fund Transfer
Agreement 74A0238'(Agreement) during the period March 1, 2006 to March 31,2008. The
audit was performed to determine whether the costs were supported and in compliance With the
Agreement provisions and State and federal regulations. This audit was performed as a
management service to assist the Department ofTransportation (Department) in fulfilling its
fiduciary responsibilities to State and federal regulatory agencies. The audit report, including
SGVCOG's response and our analysis ofSOVCOG's response, is attached.
Please provide a Department action plan related to the audit recomm.endations within 90 days of
this memorandum. We thank you and your staff for their assistance provided during this audit.
If you have questions or need additional information, please contact me at (916) 323-7122 or
Teresa Greisen, Audit Manager, at (916) 323-7910.
Attachments
c: Nicolas Conway, Executive Director, San Gabriel Valley Council of Governments
Traci Stevens, Acting Secretary, Business, Transportation and Housing Agency
Michael Tritz, Deputy Secretary for Audits and Performance Improvement, Business,
Transportation and Housing Agency
Leslie T. Rogers, Regional Administrator for Region 9, Federal Transportation Administration
Janice Richard, Director of Financial Services, Federal Highway Administration
Bimla Rhinehart, Executive Director, California Transportation Commission
Malcolm Dougherty, Acting Director, Department ofTransportation
Richard Land, Acting Chief Deputy Director, Department ofTransportation
Michael Miles, District Director, District 7, Department ofTransportation
Denix Anbiah, Chief, Division ofLocal Assistance, Department ofTransportation
Sharon Scherzinger, Chief, Division of Transportation Planning, Deparbnent of
Transportation
Clark Paulsen, Chief, Division of Accounting. Department ofTransportation
"Caltrrms Improves mobility Calif01'11itJ"
P1580-0009
Incurred Cost Audit
San Gabriel Valley
Council of Governments
September 7, lOll
MaryAnn Campbell-Smith, Chief
External Audits
Audits and Investigations
California Department of Transportation
REPORT CONTENTS
AUDIT REPORT
Swnmary, Objectives, Methodology and Scope 1
Background 2
Conclusion 3
FIN))INGS AND RECOMMENDATIONS
1. hnproper Procurement Practices 5
2. Appearance of Conflict of Interest 8
3. Improper Billing Practices 10
4. Inadequate Administration of Local Match 11
5. Inadequate Grant Management 13
6. Inadequate Contract Management 15
7. Inadequate Financial Management System 17
ATTACHMENTS
Attachment I- San Gabriel Valley Council ofGovernments Response to Draft Report
Attachment II California Department ofTra:nsportation Audit and Investigations' Analysis of
San Gabriel Valley Council ofGovernments' Response
Summary
Objectives
Methodology
Scope
The California Department of Transportation (Department) Audits and
Investigations (A&I) audited the costs claimed by the San Gabriel Valley
Council of Governments (SGVCOG), to1aling $245,130 for work performed
under Agreement 74A0238 (Agreement) with the Department. The
Agreement period was March 1, 2006 through March 31, 2008. Based on
our audit, we determined that $89,262 of reimbursed costs were not
adequately supported and were not in compliance with Agreement
provisions, and State and federal regulations. In addition, we, in
consultation with the Departmenes Legal Offict; detennined that the Master
Services Agreement (MSA) between SGVCOG and its consultant Arroyo
Associates, Inc. (AAI) creates a conflict of interest. Further, we found that
SGVCOG did not have an adequate procurement process) grant management
system, contract management system, financial management system or
documented policies and procedures.
The audit was performed as a management service to the Department to
assist in its fiduciary responsibility to State and federal regulatory agencies.
The audit was performed to detemrine whether costs claimed by SGVCOG
are allowable, supported and in compliance with the Agreement provisions,
and State and federal regulations. In addition, the audit was performed to
follow-up on prior audit findings reported by A&l in Jillle 2006.
SGVCOG is responsible for the claimed costs, compliance with applicable
Agreement provisions, State and fede.ral regulations, and the adequacy of its
financial management system to accumulate and segregate reasonable,
allocable, and allowable costs.
Our audit was conducted in accordance with the Standards for Performance
Audits set forth in the Government Auditing Standards issued by the
Comptroller General of the United States of America. The audit was less in
scope than an audit performed for the purpose of expressing an opinion on
the financial statements of SGVCOG. Therefore, we did not audit and are
not expressing an opinion on SGVCOG's financial statements.
The standards require that we plan and perform the audit to obtain
reasonable assurance about whether the claimed and reported amounts
reviewed are free of material misstatement and material noncompliance with
fiscal provisions relative to the Agreement. An audit includes exanrining, on
a test basis, evidence supporting the claimed and reported amounts. An
audit also includes assessing the accounting principles used and significant
estimates made, as well as evaluating the overall presentation.
The scope of the audit was limited to financial and compliance activities
related to the above referenced Agreement. Our audit of SGVCOG' s
claimed costs included interviews of SGVCOG staff necessary to obtain an
understanding of SGVCOG's financial management system and a review of
1
BaekgrolllDd
SGVCOG's financial statements for fiscal years 2005 through 2008. The
audit also included transaction testing of claimed costs to evaluate
compliance with Title 2 ofthe Code of Federal Regulations (CFR) Part 225;
Title 48 CFR, Chapter 1, Part 31; Title 49 CFR Part 18; the Department's
Local Program Procedures (LPP) 04-1 0; and requirements stipulated in
SGVCOG's Agreement with the Department for the reimbursement of costs
totaling $245,130. Our field work was completed on November 3, 2009.
Transactions occurring subsequent to this date were not tested and,
accordingly, our conclusion does not pertain to costs or l-Tedits arising after
this date. We believe that our audit provides a reasonable basis fur our
conclusion.
Because of inherent limitations in any financial management system,
misstatements due to error or fraud may occur and not be detected. Also,
projections of any evaluation of the financial management system to future
periods are subject to the risk that the financial management system may
become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.
Our findings and recommendations take into consideration SGVCOG's
response dated June 20, 2011, to our April2011 draft report. As a result of
SGVCOG's response, the final report was modified from the April 2011
draft fleport to clarify the audit Findings and Recommendations. Our
Findings and Recommendations, a summary of SGVCOG's response, and
A&I's analysis of SGVCOG's response are set forth in the Findings and
Recommendations of this report. A copy of SGVCOG's written response is
included as Attachment I. References with the response may be
viewed at the A&I office upon request. A copy of A&I's analysis of
SGVCOG's response is included as Attachment ll.
SGVCOG was founded in 1994 as a Joint Powers Authority with a
membership of 31 incorporated cities, three unincorporated areas, three
water agencies of the San Gabriel Valley, and the County of Los Angeles.
Its purpose revolves around transportation, housing, economic growth and
the etnrironment in the San Gabriel Valley.
SGVCOG has no staff of its own and instead, through a Master Services
Agreement (MSA), contracted with AAI to provide the staffing needed to
administer the day-to-day operations of SGVCOG. AAI has provided staff
to SGVCOG since 1998 and bills a flat monthly fee for these services.
In October 2004, SGVCOG applied for a Community Based Transportation
Planning (CBTP) grant with the Department for a project entitled the Gold
Line Foothill Extension Do'I.Vlltown Sketch Plan Project. SGVCOG was
awarded a CBTP grant of$245,130 and entered into the Agreement with the
Department on March 1, 2006. Funding for the program required a
2
Conclusion
maximum of 80 percent State grant funds and a local contribution equal to at
least 20 percent ($49,026) ofthe grant requested.
SGVCOG was previously audited by A&I and a report was issued on June
22., 2006. The audit detemrined that a conflict of interest existed in the role
of the Executive Director of SGVCOG and his role as the owner and
President of AAI with respect to a SGVCOG Planning and Oversight
Agreement. Additionally, the report raised concerns with SGVCOG's
procurementl billing practices, and contract administration. Due to the
nature of the findings, SGVCOG was designated "high-risk" by the
Department. The Department requested A&I to perform a follow-up audit
ofSGVCOG.
In September 2009, SGVCOG hired a part-time accountant to draft policies
and procedures, and update the project costing However, the draft
policies and procedures were not audited by A&I as they were not in effect
or finalized during the audit period nor were they included with SGVCOG's
response to the draft report.
Based on our audit, we determined that of reimbmsed costs were
not supported and were not in compliance with Agreement provisions, and
State and federal regulations. Jn addition, in consultation with the
Department's Legal Office, we determined that the MSA between the
SGVOJG and its consultant, AAI, creates a conflict of interest.
Furthennore, SGVCOG did not have an adequate procurement process,
grant management system, contract management system or financial
management system. Due to the significance of the audit findings, A&l
recommends that SGVCOG reimburse $89,262 and remain a "high risk''
as defined in 49 CFR Part 18.12(a) (1 ), (3} and ( 4).
49 CFR Part 18.12(a) states in part, "A grantee or subgrantee may be
considered "high ri.sk" ifan awarding agency determines that a grantee or
subgrantee: (1) Has a history ofunsatisfactory performance, or ... (3) Has a
management system which does not meet the management standards set
forth in this part, or (4) Has not conformed to terms and conditions of
previous awards ... "
Please refer to the Findings and Recommendations below fur further details.
This report is intended for the infonnation ofthe Department, SGVCOG, the
California Transportation Commission, the Federal Highway Administration
(FHWA) and the Federal Transit Administration (FTA). However, this
report is a matter of public record and will be included on the HR.eporting
Transparency in Government" website.
3
---
Ifyou have any questions, please contact Barbara Nolan, Auditor, at
(916) 323-7880, or Teresa Greisen, Audit Manager, at (916) 323-7910.
ORIGINAL SIGNED BY!
I
I
\.....
"
-MARYANNtrAMPBELL-SMlTH
Chief, External Audits
Audits and Investigations
California Department ofTransportation
4
FINDINGS AND RECOMMENDATIONS
Fmding 1 ..
Improper
Procurement
Practices
The San Gabriel Valley Council of Governments (SGVCOG) did not follow
proper procurement practices, as required by the Agreement. The
Agreement, Section IIL9.a states in part, SGVCOG " ... agrees to comply
with ... 49 CFR, Part 18... " The previous audit report dated June 22, 2006,
also raised concerns with SGVCOG's procurement practices. Without proper
procurement practices, SGVCOG cannot demonstrate full and open
competition was achieved, and risks entering into contracts that may not be
reasonable in cost and/or quality.
Our audit found that SGVCOG improperly procured consultant contracts
billed to the Community Based Transportation Planning (CBTP) grant
Specifically, we found the following:
Procurement deficiencies of three of the four consultant contracts
(one contract with the Arroyo Group and two contracts with the mi
Group)
SGVCOG released three requests for proposals (RFP) for
transportation planning services in the Cities of La Verne, Duarte and
IrWindale. The RFPs did not identifY how the proposals would be
evaluated and scored.
49 CFR Part 18.36(d)(3)(i) states in part, "Requests for proposals
will be publicized and identifY all evaluation factors and their
relative importance . ... " 49 CPR Part 18.36(c)(3) states in part,
"Grantees will have written selection procedures for procurement
tramactions. These procedures will ensure that all
solicitations: ... (ii)Identtfl all requirements which the offerors 1JUl3t
fulfill and all other factors to be used in evaluating bids or
proposals. "
The contract SGVCOG awarded as a result of its RFP for the City of
La Verne services was substantially different from the scope of
services advertised and to which the Arroyo Group proposed. Further,
the budget advertised in the RFP was $188,575, but the contract
amount was $46,575. The City of La Verne separately contracted
with the Arroyo Group for all services and at the same budget
advertised in SGVCOG's RFP. The original RFP should have been
rescinded and a new procurement process for the actual scope of
services should have been undertaken. Specifically. if an RFP is
released, proposals are received, and a contract is entered into that is
different than the scope of work described in the RFP and included in
the proposals received, a procurement violation has occurred.
5
Finding 1 Therefore, the reimbursed costs of $46,575 for the Arroyo Group
(continued) services are disallowed due to the SGVCOG's inability to
demonstrate a fair and competitive procurement process in the
awarding of the consultant contract
49 CPR Part 18.3.6(b) (9) states, ({Grantees and subgrantees will
maintain records sufficient to detail the significant hi8tory of a
procurement. These records will include but are not necessarily
limited to the following: rationale for the method of procurement,
selection of contract type, contractor selection or rejection, and the
basis for the contract price." 49 CPR Part I8.36{c)(l) states in part,
"AU procurement transactions will be conducted in a manner
providing full and open competition consi8tent with the standards of
Sec. 18. 36. Some of the situations considered to be restr;ictive of
competitU:Jn include but are not limited to: ... (vii) Any arbitrary
action in the. procurement process." SGVCOG's actions also do not
comply with the Public Contracts Code Section 100, which states in
part, '' (c) ... provide all qualified bidders with a fair opportunity to
enter the bidding process, thereby stimulating competition in a
manner conducive to sound fiscal practices. "
The three consultant RFPs resulted in sole source procurements. Sole
source procurements require that a cost analysis be perfOrmed.
SGVCOG did not perform a cost analysis on the three sole source
contracts. A cost analysis is the process of verifYing proposed cost
data and elements of the estimated cost, including homly rates, fringe
benefits, o v e : r h ~ and profit. No evidence of a cost analysis was
found in the procmement files, or additional documents provided by
SGVCOG. None of the documents identified a cost breakdown in
enough detail to analyze the cost data or to negotiate profit.
49 CFR Part 18.36(f)(l) states in part, " ... Grantees and subgrantees
must perform a cost or price analysis in connection with every
procurement action... A cost analysis will be necessary ... for sole
source procurements ... " 49 CFR 18.36(t)(2) states in part, "'Grantees
ant! subgrantees will negotiate profit a.s a separate element of the
price for each contract in which there is no price competition and in
all cases where cost analysis is performed ... "
Procurement deficiencies of the Master Services Agreement (MSA)
between SGVCOG and Arroyo Associates, Incorporated (AAI)
SGVCOG did not maintain adequate documentation of the
procurement process fOllowed in relation to the MSA. SGVCOG
6
Finding 1
(continued)
Recommendation
provided the RFP, AAI's proposal, and a memorandum from the City
Managers Committee Chair to the Governing Board (Memorandum)
which included a summary of its actions and a recommendation that
AAI be awarded the contract. Although the Memorandum stated the
RFP was sent to four consulting fums, none were named and there
was no other documentation to support that the RFP was publicized.
The RFP listed six selection criteria, but did not include how the
criteria would be evaluated or weighted. Per the Memorandum, there
was on1y one proposal received (from AAI) in connection with this
RFP, meaning it was a sole source procurement transaction and
required a cost analysis. There was no documentation provided to
support that a cost analysis was conducted. Based on SGVCOG's
noncompliance with procurement requirements, the reimbursed costs
of$36,93 7 billed under the MSA contract are disallowed.
49 CFR Part 18.36{b)(9) states in part, "Grantees and subgrantees
will maintain records sufficient to detail the significant history of a
procurement. These records will include, but are not necessarily
limited to the following: rationale for the method of procurement,
.selection of contract type, contractor selection or rejection, and the
basis for contract price. "
49 CFR Part 18.36(d)(3)(i) states in part, "Requests for propo3als will
be publicized and identifY all evaluation factors and their relative
importance ... .,
49 CFR Part 18.36(f) states in part, " ... A cost analysis will be
necessary... for sole source procurements. ... Grantees and
subgrantees will negotiate profit as a separate element ofthe price ...
in all cases where cost analysis is performed. "
SGVCOG s h ~ u l d take the following oorrective actions:
Reimburse the Department $83,512 due to the improperly
procured Arroyo Group and AAI oonsultant contracts;
Develop and implement procedures to ensure compliance with
procurement rules and regulations; and
Maintain adequate documentation to support proper procurement
procedures are followed.
The Department should take the following actions:
Perform a technical analysis of the two IBI Group contracts to
determine whether a fair and reasonable cost was obtained; and
7
SGVCOG
Response
Auditor's Analysis
ofSGVCOG
Response
Findingl
Contlict of Interest
If the Department determines that a fair and reasonable cost was not
obtained then the amount determined to be in excess of a fair and
reasonable cost should be disallowed and reimbursed by SGVCOG.
SGVCOG disagrees with the audit finding. See Attachment I for SGVCOG's
written response.
The language in the finding was modified for clarity and adjusted on
SGVCOG's response. A portion ofthe finding was moved to Finding 6 and
certain examples were removed. In our analysis of the response and follow
up with the Department's District 7 staff, we became aware that the District
provided guidance to SGVCOG during the procurement of three of four
consultant contracts. However, despite the Department's involvement in
these procurements, the procurement process was noncompliant. Because
the procurement process for the two IBI contracts was noncompliant, the
costs associated with these contracts,. totaling $161,618, would normally be
disallowed. However, because ofthe level ofinvolvement by the Department
in the procurement process, the funds will not be disallowed on this basis.
Our recommendation has therefore been modified and we instead recommend
that the Department perform a technical analysis of the two ffil Group
contracts.
Despite the involvement of the Department in the procurement of the Anoyo
Group contract, we continue to disallow the Arroyo Group costs due to the
fact that SGVCOG entered into a contract that was substantially
from the RFP and the Arroyo Group's proposal. Because the Department
was not involved in the procurement of the AAI contract, we continue to
disallow the AAI costs based on the fact that the procurement was not in
compliance with 49 CFR Part 18.36. See Attachment ll for the
analysis ofSGVCOG's response.
A conflict of interest existed, pursuant to 49 CFR Part 18.36 and California
Government Code 1126, where the owner.and President ofAAI also provided
services through the MSA as the Executive Director of SGVCOG. As a
result of the conflict of all MSA costs reimbursed under the CBTP
grant, totaling $36,93 7 for AAI labor and postage, are unallowable.
SGVCOG has no staff and instead relied on AAI to:
Provide an Executive Director to manage the day-to-day operations of
SGVCOG including determining the level of effort necessary for
project-related services and accounting functions such as collection of
dues, payment of bills, preparation of Department billings, and
monthly financial statements;
8
Finding2
(continued)
Provide staff for project-related services and the above-named
accounting functions; and
Provide office facilities, equipment and supplies.
By acting as the Executive Director and also providing services and the staff
for the day-to-day operations of SGVCOG, the owner and President of AAI
was making management decisions for SGVCOG that result in financial
compensation to AAI, and in tmnJ resulted in financial compensation to the
Executive Director as the owner and President ofAAI.
The Agreement, Section ill.9.a states in part SGVCOG, " ... agrees to comply
with ... 49 CFR. Part 18... " 49 CFR Part 18.36(b) (3) states in part, "... No
employee, officer or agent ofthe grantee or subgrantee shall participate in
the ... administration ofa contract ... . Such a coliflict would arise when: ...
the employee, .officer or agent ... has a financial or other interest in the firm
selectedfor award ... "
The MSA Section 11, Paragraphs E, F and G respectively state in part, E.
"F]R}.tl covenants that it presently has no interest and shall not acqui;re any
interest, direct or indirect which would conflict in any manner or degree with
the peiformance of services required to be peiformed under this Agreement.
"
F. "FIRM shall take no action,. nor undertake any activity or activities,
during the Term or any extension thereof. that conflicts with the mission and
interests of SGVCOG and/or members of the Governing Board. . .. FIRM
shall comply with all Federal and State conflict ofinterest laws. regulations
andpolicies and any applicable provisions in the Conflict ofInterest policy of
SCAG." G. "In order to reduce such conflicts ... the Governing Board, in its
sole a,nd absolute discretion. shall approve all future clients, projects or
contracts for service sought by FIRM ... "
California G o v ~ e n t Code Section 1126 states in part, (a) " ... a local
agency officer or employee shall not engage in any employment, activity, or
enterprise for compensation which is inconsistent, incompatible, in conflict
with. or inimical to his or her duties as a local agency officer or employee or
with the duties, fUnctions, or responsibilities ofhis or her appointing power
or the agency by which he or she is employed. The officer or employee shall
not perform any work, service, or counsel for compensation outside ofhis or
her local agency employment where any part of his or her efforts will be
subject to approval by any other officer, employee, board, or commission of
his or her employing body, unless otherwise approved in the manner
prescribed by subdivision (b). "
The previous audit report dated June 22) 2006, also determined that a conflict
9
Recommendation
SGVCOG
Response
Auditor's Analysis
ofSGVCOG
Response
Finding3
Improper Billing
Practices
of interest existed in the role of the Executive Director of SGVCOG and his.
role as the owner and President ofAAI with respect to a SGVCOG Planning
and Oversight Agreement.
The SGVCOG should reimburse the Department $36,937 in disallowed labor
and postage costs billed through the MSA. However, the $36,937 is already
included in Finding 1 above.
The SGVCOG Board should take appropriate action to remove the conflict of
interest by limiting AAI services to either the Executive Director services or
the day-to--day but not both.
SGVCOG disagrees with the audit finding.. See Attachment I for SGVCOG's
written response.
An inherent conflict of interest exists within the organization due to the dual
roles of the Executive Director acting as the Executive Director of SGVCOG
as well as the owner and president ofAAI. The owner and President of AAI
has a financial interest in AAI's contract Vith SGVCOG. The finding
remains the same. See Attachment II for the auditor's analysis of
SGVCOG's response.
As noted in Finding 2, SGVCOG has no employees and contracted with AAI
to provide all administrative services and staff through the MSA. Our audit
found that SGVCOG was unable to establish an audit trail between the
Department billings for MSA services related to. the CBTP grant and the
monthly fees SGVCOG prepaid to AAI for MSA services. The previous audit
report dated June 22, 2006, also identified issues with SGVCOG's billing
practices.
The MSA required a flat monthly fee to be paid by SGVCOG to AAI in
advance of services rendered. AAI invoices to SGVCOG included a flat
monthly fee for all services. AAI invoices did not include a breakdown of
costs by direct (e.g. project/grant-related) and indirect (administrative)
activities. Despite that AAl's billings did not include CBTP grant-related
staff hours and hourly rates, SOVCOG's billings to the Department reflected
direct staff homs for CBTP grant-related activities, including hourly rates.
SGVCOG was unable to demonstrate how the monthly fee paid for MSA
services reconciled to the Department billings. Therefore, MSA-related costs
reimbursed under the CBTP grant totaling $36,937, are unallowable due to
noncompliance with the Agreement.
The Agreement, Section IIT.9.a states in part SGVCOG, u agrees to comply
with ... 49 CFR. Part 18... '' 49 CFR Part 18.20(a) states in part, " ... Fiscal
10
Finding 3
(continued)
Recommendation
SGVCOG
Response
Auditor's Analysis
ofSGVCOG
Response
Finding4
Inadequate
Administration of
Local Match
control and accountingprocedures ofthe State, as well as its subgrantees
and cost-type contractors, must be sufficient to-- ... (2) Permit the tracing of
funds to a level ofexpenditure adequate to establish that suchfunds have not
been wsed in violation ofthe restrictions orprohibitions ofapplicable
statutes. n
The Agreement, Section III.6.a states, in part, "The metlwd ofpayment ...
will be based on actual allowable costs. DEPARTMENT will reimburse
[SGVCOG] for expended actual allowable ... costs incurred by [SGVCOG]
in pe'(fornumce ofthe Project work... "
SGVCOG should take the following actions:
Reimburse the Department $36,937 in unallowable costs. However,
the $36,937 is already included in Findings 1 and 2 above.
Establish billing procedures which ensure an audit trail is maintained.
SGVCOG acknowledges the AAI labor costs (payroll) are not in the
SGVCOG accounting system, but states the amounts invoiced by AAI fur the
MSA services are supported by AAI timesheets. See Attachment I for
SGVCOG's written response.
The finding was modified to provide additional clarification. The AA1
invoices to SOVCOG do not include billings for CBTP grant activities.
Therefore, SGVCOG did not incur CBTP grant-related expenditures and have
no co$ts to bill to the Department. See Attachment II for the auditor's
analysis of SGVCOG's response.
SGVCOG is required to support the eligibility of its local contribution of
matching funds (local match) on claimed costs. The Agreement Section
ill.8.b states, in part, SGVCOG "... agrees to contribute ... required local
contribution of matching funds, if any is specified ... " Local match can
consist of cash or third party i n ~ k i n d contributions. Attachment III in the
Agreement identified the project budget and listed the local match as
$45),026. As specified below, the audit found the foliowing:
SGVCOG did not report local match on the first two billings to the
Department, as required. The Agreement Section IILS.b fUrther
states, in part, SGVCOG !'... shall contribute not less than the
required match amount ... on a proportional monthly or quarterly
basis coinciding with its usual invoice frequency. "
AAilabor reported as match totaling $7,664 is unallowable due to the
conflict ofinterest, as noted in Finding 2.
11
Finding4
SGVCOG did not maintain documentation for the eligibility of local
(continued)
match on claimed costs as identified below:
) At the time of audit fieldwork, in-kind match from the Cities
of Duarte and Irwindale only consisted of a summary sheet
reflecting position titles, hours, and loaded hourly rates.
SGVCOG should have maintained docwnentation which
demonstrated how the Cities of Duarte and Irwindale
contributions met the match eligibility requirements of the
grant. After issuance of the draft report, SGVCOG provided
additional documentation and information to support the in
kind match, including signed statements from the City officials
regarding the nature of the match. However, the information
provided by SGVCOG and the Cities was not sufficiently
detailed and, required additional discussion with SGVCOG to
determine the allowable amount ofin-kind match. Based upon
A&Ps analysis, the reported labor costs from the Cities of
Duarte and Irwindale used as in-kind match were reduced by
$1,834 and $1,758, respectively, to remove unallowable fringe
benefits and overhead costs. 49 CFR Part 18.24(c)(2), states
in part, ''Employees of other organizations. When an
employer other than a grantee, subgrantee, or cost-type
contractor furnishes free ofcharge the services ofan employee
in the employee's normal line of work, the services will be
valued at the employee's regular rate ofpay exclusive of the
employee's fringe benefits and overhead costs ... "
) At the time of the audit fieldwork, in-kind match from the City
of La Verne only consisted of copies of invoices paid by the
City to the Arroyo Group under a separate contract. SGVCOO
should have maintained documentation whiCh demonstrated
how the City of La Verne's contnoution met the match
eligibility requirements ofthe grant. After the issuance of the
draft report, SGVCOG obtained additional docwnentation
from the City sufficient to demonstrate match requirements
had been met, including a signed statement from the City
regarding the nature of the match. 49 CPR Part 18.24(b)(l)
states in part, " ...a cost sharing or match requirement may not
be met by costs borne by another Federal grant ... " 49 CFR
Part 18.24(b)(7)(i) states, "Third party in-kind contributions
count towards satisfYing a cost sharing or matching
requirement only where, if the party receiving the
contributions were to pay for them, the payments would be
allowable costs. "
12
Recommendation
SGVCOG
Response
Auditor's Analysis
ofSGVCOG's
Response
FindingS
Inadequate Grant
Management
The SGVCOG should take the following actions:
Train staff and management on eligibility requirements for match.
Establish procedures to maintain adequate documentation to meet
matoh requirements.
SGVCOG disagrees with the finding. See Attachment I for SGVCOG's
written response.
The finding was modified for clarity and adjusted based on additional
doCtllllentation provided by SGVCOG. See Attachment IT for the auditor's
analysis ofSOVCOG's response.
SGVCOG lacked an adequate grant management system. As a result,
SGVCOG risks over or under billing the Department and other funding
sources. The previous audit report dated June 22, 2006 also raised concerns
with SGVCOG 's billing practices.
The Agreement, Section ill.9.a states, in part, SGVCOG " ... agrees to
comply with Office of Management .and Budget Circular A-87, Cost
Principles for State and Local Government, ... " Circular A-87 was codified
as 2 CFR Part 225 on August 31, 2005. 2 CFR Part 225,
Section A.2 states in "Governmental units are responsible for the
efficient and effective administration of Federal awards through the
application ofsound management practices. ...and a.saume responsibility for
administering Federal fonds in a manner consistent with underlying
agreements, program objectives, and the terms and conditions ofthe Federal
award."
We noted repeated o.ceurrences ofpoor oversight which resulted in billing for
costs outside ofconsultant contract periods, duplicate billings for overlapping
periods, unsupported costs, costs in excess of contract amounts, and bilJ:ing
for unpaid costs. 49 CFR Part 18.36(b)(2) states, "Grantees and subgrantees
will maintain a contract administration system which ensures that
contractors peiform in accordance with the terms, condition.s. and
specifications of their contracts or purchase orders. " Examples of these
instances are listed below.
IBI Group consultant invoices included service dates prior to the
execution dates of the consultant contracts. The service dates listed
13
FindingS
(continued)
on the detail supporting the consultant invoices did not agree and in
several . instances included overlapping dates from prior invoices.
Because the supporting documentation fur the consultant invoices was
insufficiently detailed, we were wable to calculate the amount of
potential overbilling due to costs incurred prior to the execution dates,
or due to overlapping service dates.
Of 11 consultant invoices, we noted three (27%) instances of
unsupported consultant contract costs. Specifically, the support for
services IBI Group provided to the City of Irwindale was less than the
amount billed by $1,056 and $4,695 for the periods ended February
29, 2008 and March 31, 2008, respectively. The support for an
Arroyo Group hilling was less than the amount billed by $1,356 for
the period February 26, 2008 to March 25, 2008. As a result,
SGVCOG billed the Department $7,106 in unsupported costs, and the
costs are unallowable.
When the unsupported contract costs were brought to the attention of
SGVCOG, SGVCOG staff contacted the consultants to obtain support
for additional costs not previously billed. SGVCOG did not fullow
the requirements of its own contracts, which led to overpayment.
Specific clauses of the IDI Group and Arroyo Group contracts with
SGVCOG are quoted below.
)> Section 5(c) states in part, "SGVCOG shall independently
review each invoice submitted by the CONSULTANT to
determine ifsaid invoice is in compliance with all provisions
ofthis AGREEMENT. ... "
> Section 5(d) states in part, "In the event SGVCOG disputes
any costs or expenses. in any invoice, SGVCOG shall notifY
CONSULTANT within thirty (30) days ofreceipt ... "; and
> Section 5(f) states in part, " ... Any costs or services billings
not invoiced by [April 30, 2008] shall not be reimbursed or
paid."
We also found that the IBI Group consultant was paid in excess ofthe
amount of its contract. The IBI Group contract for the City of
Irwindale services was not to exceed $66,500, but SGVCOG paid
$68,467. (The difference of $1,967 is already included in the
disallowed $7,106 above.)
SGVCOG inappropriately requested reimbursement from the
Department for consultant costs not yet paid in three out of five
bi1lings. Specifically, SGVCOO issued nine consultant checks on
14
FindingS
(continued)
Recommendation
SGVCOG
Response
Analysis of
SGVCOG
Response
Finding6
Inadequate
Contract
Management
three billings. Eight of nine consultant checks remained outstanding
between 49 and 70 calendar days from the date SGVCOG billed the
Department All nine checks cleared the bank after SGVCOG
deposited the reimbursements .from the Department. The Agreement
Section III.6.b states, in part S G V C O G ~ "... must not only have
incurred the expenditures ... , but must have also paid for those costs
to claim any reimbursement. "
SGVCOG should take the following actions:
Reimburse $7,106 in unsupported contractor costs. However, $1,356
ofthe $7,106 is already included in Finding 1.
Establish and maintain an adequate grant management system to
ensure compliance with the various provisions stipulated in its
agreements with the Department or other funding sources. Such a
system should include:
:> Staff and management familiar with the requirements of
funding agreements;
)- Adequate supporting documentation for all grant billings; and
};> Adequate procedures to ensure that proper review and
approvals are performed on all grant billings.
SGVCOG disagrees in part with the finding. See Attaclunent I for
SGVCOG's written response.
The finding was modified for clarity. SGVCOG did not provide supporting
docwnentation to otherwise change the finding. See Attachment II for the
auditor's analysis ofSGVCOG's response.
SGVCOG lacked an adequate contract management system. As a result,
SGVCO(i risks over or under billing the Department or other funding
sources. The previous audit report dated Jl.Dle 22, 2006 also raised concerns
with SGVCOG's contract administratiOII. 49 CFR Part 18.36(b)(2) states,
"Grantees and subgrantees wiU maintain a contract administration system
which ensures that contractors perform in accordance with the terms,
conditions. and specifications of their contracts or purchase orders. "
Specific examples are noted below:
Within SGVCOG' s consultant contracts, we noted inconsistent
language is used when describing the services to be provided or
15
Finding 6
(continued)
compensated. Failure to ensure clear, consistent contract language
increases the risk for noncompliance and overpayment. Specifically,
:> Section S(a) of the Arroyo Group contract states mpart, that
" ... payment ... is based upon CONSULTANT'S delivery ofthe
Preliminary Design Framework Plan inclusive ofSubtasks 4.2
(a) through {i) as described in: the Scope ofServices, Exhibit
A ... ", but there are only five (versus nine) subtasks listed
under task 4.2.
l> Section S(a) ofboth the IBI Group contracts state in part, that
IBI "... shall be compensated in the manner and amounts
specified .in Page 13 ofthe CONSULTANT'S Proposal ... which
is included as Exhibii A. ... " The ffil Group proposal for the
City ofDuarte services listed only four tasks, and the proposal
for the City of Irwindale services listed five tasks. When
inv{)icing SGVCOG, IBI Group charged time to six separate
tasks under both contracts.
SGVCOG did not maintain relevant documentation to ensure proper
delivery of services.
)> Section 3 of the SGVCOG contract with. the Arroyo Group
states in part, " SGVCOG acknowledges that
CONSULTANT'S services under that La Verne Agreement are
integrated with the services set forth in the above Scope of
Services attached as Exhibit A. " However, when we
requested to review the La Verne agreement, SGVCOG had to
obtain the agreement from the City of La Verne.
)> In May 2004, the SGVCOG Governing Board authorized the
Ex.ecutive Director to procure financial audit services and
execute a contract with the selected Certified Public
Accounting (CPA) finn for the period 2004-2009.
Subsequently, the Executive Director engaged the services of
the selected CPA, but did not execute a contract with the CPA.
Instead, the Executive Director stated they relied upon the
CPA's annual engagement letter.
SGVCOG did not maintain adequate oversight of contracts.
Evidence was not provided to show whether the Executive
Director obtained direction and authorization from the Board
to enter into three of four consultant contracts. SGVCOO
Bylaws, Article N states in p ~ "The powers and duties of
16
Finding 6
(continued)
RecommendaUon
SGVCOG
Response
Analysis of
SGVCOG
Response
Finding 7
Inadequate
Financial
Management
System
the Executive Director ... are Subject to the authority of and
as directed by the Governing Board ... to retain
consultants ... "
}> Consultants were allowed to provide services prior to the
execution dates of the contracts. For example, the term of the
contracts between SGVCOG and the IBI Group was
November 7, 2007 through March 31, 2008. These contracts,
sent to IBI Group for signatme on November 16, 2007, were
not signed by IBI Group 1Ultil December 4, 2006 and by
SGVCOG until December 10, 2007 (contract execution date).
As noted in Finding 5 above, SGVCOG allowed ffil Group to
bill for services prior to the execution date ofthe contracts.
)- SGVCOG accepted and processed 11 consultant invoices from
ffil Group and Arroyo Group. Our audit noted all 11 invoices
lacked evidence ofreceipt date, review, and approval.
SGVCOG should maintain an adequate contract management system to
ensure that consultants perform in accordance with the terms, conditions, and
specifications of their contracts. Such a system should include:
Ensuring consultant contracts are properly approved, executed and
contain clearly defined scopes of work and consistent language;
Maintaining proper documentation to support delivery ofservices; and
Maintaining proper oversight to ensure costs comply with the scope of
the contracts, are incurred during the contract period, and are
allowable per the contract terms.
SGVCOG acknowledges errors were made, but disagrees in part with the
finding. See Attachment I for SGVCOG's written response.
The finding was modified to include a direct quote from the Arroyo Group
contract with SGVCOG. A portion from Finding 1 was inserted, and a
specific example was removed. SGVCOG did not provide supporting
documentation to otherwise change the finding. See Attachment Il for the
auditor's analysis of SGVCOG's response.
SGVCOG's financial management system had significant deficiencies, as
noted in Findings 1, 3, 4, 5 and 6. In addition, SGVCOG lacked a project
costing system, and documented policies and procedures over procurement,
financial managemen4 grant management and contract management. As a
result, SGVCOG was not in compliance with the grant Agreement language
17
Finding7
(continued)
Recommendation
SGVCOG
Response
Analysis of
SGVCOG
Response
and there is an increased risk for errors and irregularities to occur and not be
detected.
The Agreement Section llLI4.a states in part, "AGENCY, its contractors and
subcontractors shall establish and maintain an accounting system and
records that properly accumulate and segregate incurred Project costs and
matching funds by line items for the Project. The accounting system of
AGENCY, ita contractors and all subcontractors shall conform to Generally
Accepted Accounting Principles (GAAP). enable the determination of
incurre.d costs at interim points of completion, and provide support for
reimbursement payment vouchers or invoices . ..
Section 2.D of the MSA (dated July 1, 2004) states in part AAI, " ... shall
prepare administrative policies ... that will establish procedures and
protocolsfor the management ofSGVCOG'sjiscal affairs ... "
While we noted SGVCOG did not have documented policies and procedures
during the grant period, in conflict with the stated MSA requiremen"t,;
SGVCOG subsequently initiated, but had not completed, the drafting of
policies and procedures .during our audit.
SGVCOG should take the following actions:
Implement a project costing system in order to accumulate and
segregate reasonable, allocable and allowable project costs. Such a
system should include:
}> Ability to segregate costs by contract, and type of cost, e.g.
direct labor, overhead, other direct costs and consultant costs;
> Ability to trace from invoices submitted to the Department to
job cost records, and original, approved source documents; and
> Ability to reconcile job cost records to the accounting records.
Create written policies and procedures over organizational processes,
and implement controJs to ensure that the policies and procedures are
followed by staff and consultants.
SGVCOG believes its financial management system is adequate. See
Attachment I for SGVCOG's written response.
SOVCOG did not provide supporting documentation to change the finding.
The finding was modified to remove duplicative citations for clarity. See
Attachment II for the auditor's analysis of SGVCOG's response.
18
Audit Team MaryAnn Campbell-Smith, Chief
External Audits
Teresa Greisen, Audit Manager
Barbara Nolan, Auditor
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. J'V:
f.l\ECL'l;JV Dli<UTOR
Njj:bolas T. Conway
ATTACHMENT I
San Gabriel Valley Council of Governments
1000 S. Frernont Ave. Unit 42. Alhambra, CA 9'.803 Phcme. (52Bi 457-1800 FA)( (626) 457-1285 EMail SGV@sgvccg.org
June 20, 2011
MaryAnn Campbell-Smith, Chief
External Audit- LQcal Government
Audit and Investigations
California Department ofTransportation
P 0 Box 942874
Sacramento, CA 94274
Re: P 1530-0009, Incurt'ed Cost Audit
Dear Ms. Campbell-Smith,
Transmitted herewith is the San Gabriel Valley Council of Governments' (COG)
written management response to the above-mentioned draft audit report In preparing
this response, we utilized the services of Lopez and Company LLP, the COG's auditors
during the grant audit period to address the accounting and grant management findings
and their compliance with appropriate federal and state rules and regulations. Aside
from :M.r. Lopez's knowledge and experience with the COO's financial management
system and its policies and procedures used during the grant period, he has unique
insight and experience having recently perfonned Financial Management Oversight
(FMO) reviews for the U.S. Federal Transit Agency and the U.S. Department of
Energy, the Office of Inspector General.
In addition, our General Counsel, Richard Jones, has prepared our response to those
findings pertaining to potential conflict of interest matters and compliance with
appropriate State and Federal statutes.
We look forward to meeting with you and discussing our response in further detail. In
the event that this draft report is issued without change. we expect the SGVCOG's full
response will be included in the report and any public report distributed thereafter.
Sincerely,
ORIGINAL BY:
Nicholas T. Conway
Executive Director
c: S. Bransen, Caltrans
R. Jones, Jones and Mayer
R. Lopez, Lopez and Company LLP
Note: Audit File Number is
P1580-0009
ATTACHMENT I
Management's Response to fmding 1.1
Findblgs:
SGVCOG released three requests for proposals (RFP) for transportation planning services in the
Cities of La Verne, Duarte and Irwindale. The RFPs did not identify how the proposals would
be evaluated and scored.
Citation on report:
49 CFR Part 18.36(d)(3)(i)
Management Response:
The three contracts by Cities of La Verne, Duarte and Irwindale each had their own RFP and
were evaluated independently. The COG, with the approval of Caltrans District 7 Executive
Office and Planning s t a ~ made the determination to undertake three separate procurements
because of the unique contexts associated with each project location. The three cities vary
significantly in terms of demographics and land use. More importantly, these were three
separate station locations located in three separate jurisdictions that each had undergone similar
but not identical work. For these reasons, three separate RFPs were issued. There were three
distinct procurements and Caltrans District 7 staff were assigned to assist in the procurement
process including the participation in each interview and evaluation process. As reference Lla
through 1.1f show, all three procurements were under $100,000. According to Federal guideline,
they are considered to be small procurements. 49 CFR Part 18.36(d)(l) nProcurement by small
purchase procedures. Small purchase procedures are those relatively simple an4 informal
procurement methods for securing services, supplies, or other property that do not cost more than
the simplified acquisition threshold fixed at 41 U.S.C. 403(11) (currently set at $100,000). If
small purchase procedures are used, price or rate quotations shall be obtained from an adequate
number of qualified sources." (49 CFR Part 18.36) Therefore, the SGVCOG was required to
obtain price or rate quotations from qualified sources, but not necessarily required to be in a form
ofaRFP.
It should be noted the SGVCOG went above and beyond the requirements and did prepare RFPs
for the work to be performed. However, it does not mean it was bound by the large procurement
s t a n d a r ~ requiring an RFP. Just because an agency voluntarily does more than in required does
not mean it is then bound by the more stringent regulations.
WfP Re l.lk is a memo tQ the Governing Board asking for authority to process and administer
the grant. It clearly authorizes Executive Director to negotiate and execute any and all contracts
related to the grant. The memo also indicates the Caltrans Planning grant would be cut into three
separate contracts among the cities of LaVerne, Irwindale and Duarte and the SGVCOG. The
allocation ofdollars would be determined at a later date (see Ref. 1.6a). The Planning Director's
Technical Advisory Committee (TAC) later agreed on the dollar allocation that was incorporated
within the three RFPs, and, as discussed above, each of these contracts/RFP were tmder
$100,000. The COG General Counsel reviewed and approved the execution of each of the
contracts based on the Board's actions.
*Refer to W/P Ref. l.lh through l.lj for evaluation forms for the three RFP/Cities.
Page 1 ofl
ATTACHMENT I
Response to Finding 1.2
Finding:
In addition, SGVCOG failed to adequately publicize the RFPs to ensure all potentially qualified
consultants were made aware: of SGVCOG' s RFPS.
Citation on reports:
49 CFR Part 18.36(d)(3)(i)
Management Response:
As discussed previously in fi!nding 1.1, citation 49 CFR Part 18.36(d)(3)(i) is only applicable to
procurements required to use RFP procurement methodology. For small purchases, the
SGVCOG is required to conduct procurement in a manner allowing for full and open
competition. In October 2007, and after meeting with Caltrans District 7 staff (Melanie
Bradford, Welford Melton, James McCarthy), the SGVCOG developed and released three RFPs
for the three participating cities (Irwindale, La Verne and Duarte). The SGVCOG went beyond
those requirements and undertook the following public solicitation processes to fulfill this
requirement:
These RFPs were posted on the SGVCOG website.
The AlE Consultants Information Network (CIN) website. (Additional Information: W/P
Ref. 1.2c is an example that shows that the RFP was posted on the AlE Consultants
Information Network; and per phone confirmation with AlE Consultants Information
Network staff, the RFPs were sent to approximately 80 potential bidders at that time.)
Additionally, SGVCOG staff requested assistance from staff at the Southern California
Association of Governments (SCAG) to develop a distribution list of additional finns to
send the RFP to and 1that would potentially submit proposals (Refer to W !P Ref. 1.2a for
potential bidders list and WiP Ref 1.2b for email to SCAG asking for list of potential
bidders). The correspondence between SGVCOG and SCAG staff demonstrates a clear
intent to publicize the RFP in full and open manner. The SGVCOG sent the RFP to all
potential bidders in California on that list.
The solicitation processes by the SGVCOG clearly demonstrates its intent and good faith to
comply with the Federal open competition requirement.
ATTACHMENT I
Response to Finding 1.3
Finding:
SGVCOG indicated the advertisement of the RFPs was limited to a posting to SGVCOG'S
website, a fee-based website, and mailings to 16 potential bidders. We also notecJ that SGVCOG
failed to maintain records to support these advertising actions.
Citation on report:
49 CFR Part 18.36(b)(9)
Mana:gement Response:
As discussed previously on finding 1.2; the SGVCOG posted the three RFPs for Cities on the
SGVCOG website and the AlE Consultants Information Network (CIN) website. The SGVCOG
retained a copy of the SGVCOG wehpage as proof of posting (see W/P Ref. 1.3a). Also, on W/P
Ref. 1.2c is a proofthat the SGVCOG posted the RFP on the CIN website.
Additionally, with the assistance of SCAG) the SGVCOG developed a distribution list of more
than 100 potential bidders to whom the RFPs were mailed to (see W/P Ref 1.2a for potential
bidders list and 1.2h for email to SCAG asking for list of potential bidders).
Since the time of this grant four years ago, the SGVCOG has significantly improved their record
keeping system for advertising actions in the future; e.g. retain copies of all mailed RFPs, using
certified mail service, including retaining proof of mailing for RFPs, complete records of RFP
distribution lists, proof of advertisement in newspapers, and use of non-fee based websites and
list servers ...etc. However, it is clear that the SGVCOG undertook solicitation processes that
allowed the three procurements to be conducted in an open competition manner.
ATTACHMENT I
Response to Finding 1.4
Finding:
For two of the three consultant procurements, the contract files contained correspondence that
appeared to indicate the consultant selections were predetermined. On October 8, 2007,
SGVCOG requested the City of La Verne to identify their preferred consultant. On the same
day, the City staff responded and identified the Arroyo Group (no known relation to AAI). In a
July 31l, 2007, letter from the City of Duarte to SGVCOG, the City identified the IBI Group as its
preferred consultant and specifically requested that the RFP process be waived. The RFP were
released on October 11, 2007, and the only respondents to the SGVCOG's RFP for the Cities of
La Verne and Duarte were the Arroyo Group and IDI Group, respectively. 49 CFR Part
l8.36(c)(l) states in part, '''All procurement transactions will be conducted in a manner
providing full and open competition ... Some of the situations considered to be restrictive of
competition include but are not limited to (vii) any arbitrary action in the procurement
process."
Citation on report:
49 CPR Part 18.36(d)(3)(i)
Management Response:
For small purchases, the SGVCOG is required to conduct a process in a manner that provides
full and open competition. As discussed on management response 1.1, citation 49 CPR Part
18.36(d)(3)(i) is only applicable to procurements required to use RFP procurement methodology.
The SGVCOG undertook the following public solicitation processes to be in compliance:
In October 2007, and after meeting with Caltrans District 7 staff, the SGVCOG developed and
released three RFPs for the three participating cities (Irwindale, La Verne and Duarte) (Ref 1.4b,
SGVCOG/Caltrans letter). These RFPs were posted on the SGVCOG website and the AlE
Consultants Infonnation Ne:twork (CIN) w.ebsite. Additionally, SGVCOG staff requested
assistance from staff at the Southern California Association of Governments (SCAG) to develop
a distribution list of additional finns to send the RFPs to and that would potentially submit
proposals (Refer to W IP Ref. 1.2a for potential bidder list and W IP Ref. 1.2b for email to
SCAG), the SGVCOG sent the RFPs to all California potential bidders on that list. As directed
by Caltrans staff, the period to submit responses to the RFP was 15 business days. During this
period, only one proposal was received in response to each RFP. IBI Group submitted proposals
to complete work on the Irwindale and the Duarte projects, and the Arroyo Group submitted a
proposal to complete work on the La Verne project. Prior to the release of the RFPs, the
SGVCOG and each of the three cities developed an independent cost estimate that served as the
basis for allocating the funds and establishing the budget foreach project. This data was utilized
during the review of the prop1osals.
In addition, the SGVCOG organized an evaluation panel that interviewed each of the applicants
on Monday, November 5th, 2007. The evaluation panel consisted ofthe following individuals:
Marisa Creter (SGVCOG)
Ray Hamada (Irwindale)
Page 1of2
ATTACHMENT I
Jason Golding (Duarte)
Arlene Andrew (LaVerne)
Linda Wright (Caltrm.s)
Each of the proposals was scored using an evaluation form that was developed by SGVCOG
staff (see W/P Ref. 1.4a for a sample form). While Caltrans staff attended and observed the
evaluation process, they did not complete an evaluation form. At the conclusion of that process,
Caltrans project manager issued notice to proceed.
Although IBI Group and Arroyo Group were identified .as the preferred consultants by the
respective cities, the consultant selections were not predetermined. As discussed above, the
SGVCOG demonstrated a public solicitation process that provided open competition to those
procurements. The shortened timeframe and previous/concurrent work done were the main
reasons that there was only one bidder bid on those respective projects. This Caltrans timeline
required that all work be completed by February 28, 2008 (four months from the time of
solicitation), when this was originally envisioned as a three-year study effort. The SGVCOG
informed Cal trans on this matte,r and. requested an extension. Caltrans extended the deadline to
March 31, 2008 {five months from the time of solicitation) which was still not enough time for
such a project. The SGVCOG informed Caltrans before sending out the RFPs that unless a fum
was previously doing work With the Cities, it is unrealistic to complete the project in such a
time:frame. Tills, and the previous work done, were the main factors as to why there was only
one bidder on each ofthe t h r e t ~ RFPs.
After the Evaluation Panel made recommendations regarding award of the contract, the
SGVCOG evaluated the reasonableness of the consultants' costs utilizing available information
including: l) comparing the cost estimate prepared independently by SGVCOG Planning
Dir:ectors Technical Advisory Committee (fAC) and 2) ensuring that the homly rates that were
proposed to be charged by the consultants (IBI Group and the Arroyo Group) were equivalent to
the rates being charged by these same consultants to the Gold Line Construction Authority and
the City ofLa Verne for similar work.
ffil Group and Arroyo Group were awarded based on the results of the solicitation processes and
price analysis processes mentioned above, NOT because they were predetermined by the Cities.
Page 2 of2
ATTACHMENT I
Response to Finding 1.5
Finding:
The scope of work listed in the RFP for the City of La Verne services lacked a clear and accurate
description of the technical requirements, which would make it unlikely that an interested party
(other than the Arroyo Group) would be able to respond appropriately. 49 CFR Part 18.36(c)(3)
states in part, "Grantees will have written selection procedures for procurement transactions.
These procedures will ensure that all solicitations. (i) Incorporate a clear and accurate
description ofthe technical requirements for the material, product or service to be procured. ... ''
Citation on report:
49CFRPart 18.36(c)(3)
Management Response:
The SGVCOG believes the scope of work was adequately developed for potential bidders. The
scope of work was originally developed by SGVCOG Planning Directors Technical Advisory
Committee (T AC). This group is comprised of Planners, Planning Directors, and Community
Development Directors from across the San Gabriel Valley. These professionals hold advanced
degrees in urban planning and have extensive experience in managing planning projects similar
that which was being undertaken as part of the CBTP grant. This scope of work was intended to
prevent duplication of effort and leverage off of existing efforts in order to most efficiently use
funds. In 2005, the RFP (including scope of work) and proposal were provided to and reviewed
by Caltrans District 7 staff (Melanie Bradford) who raised no objection and concern at the time.
(see W/P Ref. 1.5a) In 2007, City of Duarte, Irwindale and La Verne revised the scop.e of work
respectively based on work done between 2005 and 2007 and also to meet their jurisdiction's
specific needs (see WIP Ref. 1.5b through 1.5e).
As discussed in management response I .4, an unrealistic timeline required all work to be
completed by March 31, 2008 (five months from the time of solicitation), when this was
originaJly envisioned as a three-year study effort. The abbreviated timeline, coupled with work
previously done for the cities, would curtail any interest on the part of vendors except for those
vendors that were already familiar with the project(s).
ATTACHMENT I
Response to Finding 1.6
Finding:
Further, we found that while a single RFP was prepared for the City of La Verne services, with
no mention of the intent to enter into separate contracts, two separate contracts were awarded.
One contract was between SGVCOG and Arroyo and the other between Arroyo and the City of
La Verne. 49 CFR Part 18.36(b)(9) states in part "Grantees and subgrantees will maintain
records to detail the significant history of a procurement. These records will
include ... the selection ofcontract type ... "
Citation on report:
49 CPR Part 18.36(b)(9)
Management Response:
The City of La Verne independently decided to let a second contract funded entirely by local
monies. That contract was not related to the SGVCOG's solicitation. In 2004, in preparation for
and in coordination with tlhe corridor-wide TOD planning effort, the Gold Line Foothill
Extension Construction Authority required each jurisdiction that was planned to have a station to
submit a definitive location hy the end of that year. In order to identify a site, the City of La
Verne, in partnership with the University of La Verne (UL V) and the Los Angeles County Fair
Association (Fairplex), undertook a public procurement process to identifY a consultant to
undertake an alternatives anadysis to identify a site. This was a two step process that included
both a request for qualification (RFQ) and a request for proposals (RFP). After completing a
public solicitation process for this planning the Arroyo Group was selected from among
six firms that submitted proposals.
After this initial work was completed and a station location was identified, these three entities
(City of La Verne, Fairplex and ULV) expanded the scope of work to include additional analysis
of the selected station location. To accomplish this, approximately $120,000 in additional fimds
were identified. The agencies opted to enter into another agreement with the Arroyo Group,
based on the results ofthe initial solicitation. Due to the source of the funds (all local money),
the entities were not required to undertake a second solicitation process. (Ref. 1.6a LaVerne
Letter)
By that time, the City of La Verne had begun work with the SGVCOG on the CBTP grant. h1
order to avoid duplication of effort, .the City delayed executing the second contract with the
Arroyo Group (all local money) until the procurement process was completed for the CBTP
grant. In the fall of 2007, the SGVCOG, in partnership with the City of La Verne, then
Wldertook a solicitation process to secure a consultant to complete work for the CBTP
grant. The SGVCOG's scope of work was structured to compliment the scope of work to be
completed under the aforementioned City of La Veme/Fairplex/ULV effort (all local
money). However, the SGVCOG scope of work included separate and defined deliverables that
. could be completed by a different consultant, working with the City's identified consultant (the
Arroyo Group). Ultimately, the Arroyo Group submitted a response to \SGVCOG's request for
Page 1 of2
ATTACHMENT I
proposals (RFP) and was selected by the Proposal Review Committee (PRC). Upon selection by
the PRC, the SGVCOG undertook a negotiation process with the Arroyo Group. The
SGVCOG's scope of work was fmalized simultaneously with the City of La Verne's scope of
work to ensure timely completion of the SGVCOG work by the March 31, 2008 deadline and to
ensure that there were defined objectives and de1iverables.
Summary
The auditors misunderstood the nature of this procurement, the RFP prepared for the City of La
Verne did not resulted in two contracts as described on this finding; the contract between the
City ofLa Verne and Arroyo Group ($142,000) was awarded to Arroyo Group before the CBTP
grant and it was fully funded with local fund. The RFP prepared for the City of La Verne only
resulted in one contract of$46
7
575. The reason the RFP included other tasks already awarded to
Arroyo was to illustrate to bidders the whole picture of the completed project Nevertheless, the
RFP the SGVCOG prepared for the City of La Verne did not result in two separate contracts.
(Refer to W fP Ref. 1.1f for contract)
Page2of2
ATTACHMENT I
Response to Finding 1.7
Finding:
The three consultant RFPs resulted in sole source procurements. Sole source procurements
require that a cost analysis be performed. SGVCOG did not perform a cost analysis on the three
sole source contracts. A cost analysis is the process ofverifying proposed cost data and elements
of the estimated includiing hourly rates, fringe benefits, overhead, and profit No evidence
of a cost analysis was found in the procurement files, or additional documents provided by
SGVCOG. None of the doc:uments broke oosts into enough detail to analyze the cost data or to
negotiate profit. 49 CFR Part 18.36(f) states in part, " ..Grantees and subgrantees must perform
a cost or price analysis in connection with every procurement action... A cost analysis will be
necessary ... for sole source procurements ... Grantees and subgrantees will negotiate profit as a
separate element of the price for each contract in which there is no price competition and in all
cases where cost analysis is perlortned ..."
49 CFR Parts 18.36(f)
Management Response:
According to 49 CFR Parts 18.36 section 4 states in part "Procurement by noncompetitive
proposals is procurement through solicitation of a proposal from only one source, or after
solicitation of a number of sources, competition is determined inadequate ...( d). After solicitation
of a mnnber of sources, competition is detennined inadequate. i) Cost analysis, i.e., verifying the
proposed cost data, the proj!:::ctions of the data, and the evaluation of the specific elements of
costs and profits, is require--d. ii) Grantees and suhgrantees may be required to submit the
proposed procurement to the awarding agency for pre-award review in accordance with
paragraph {g) of this section." Paragraph (g) of this section stated in part "grantees and
suhgrantees must on request make available for awarding agency review
procurements documents ..." It should be noted that Federal regulations did not require the
SGVCOG to. obtain approval from Caltrans for sole source procurements. The SGVCOG is
required to have a cost analysis and upon request to make available for a pre-award review.
The SGVCOG conducted an independent cost estimate and cost analysis for the three
procurements mentioned in finding 1.7 which includes all of the elements required by the above
mentioned CFR.
In order to create the task plan and budget included in the CBTP grant application, SGVCOG
staff developed an independent cost estimate utilizing existing information available regarding
fair and reasonable costs and associated with such a soope of work. This effort,
which was completed in 2004, included researching hourly rates charged by consulting finns in
the applicable field, and man-hour estimates were developed with input from staff with planning
expertise including members of the SGVCOG's Planning Directors, Technical Advisory
Committee (TAC). This cost estimate developed on a task basis. Additionally, this task
Page 1 of3
ATTACHMENT I
plan utilized information from a previous application submitted by SGVCOG and SCAG to
undertake a similar scope ofwork.
Later. after it was detennined to split the effort into three discreet scopes of work, each city,
utilizing existing information regarding hourly rates and man-hour estimates, developed specific
budgets for each of their scopes of work. These budgets varied based on the subtasks and level
of detail being sought out by each city, thus determining the split of the available grant funds.
Additionally, the overall cost estimates for the projects were compared to similar planning efforts
undertaken as part ofSCAG's Compass Blueprint Demonstration Project Program.
Once the SGVCOG released the RFPs and received proposals, each of the submitted proposals
were compared to these city-specific estimates. Additionally, prior to executing the contracts,
SGVCOG staff confirmed that rates that were to be charged by the selected finns were consistent
with the rates being charged by the finns for the. Gold Line Construction Authority TOD
Corridor Study and the La Verne Station Site Analysis, with increases for annual cost of living
adjustments. Using the task level budgets provided by the firms, the hourly rates, and
information gathered from the firms during the selection process, COG staff confirmed that the
proposed man-hour estimates and rates were comparable to the previously completed
independent cost estimate.
Furthermore, the SGVCOG organized an evaluation panel that interviewed each of the
proposers. The evaluation panel consisted of the fqllowing individuals:
Marisa Creter (COG)
Ray Hamada (Irwindale)
Jason Golding (Dua::rte)
Arlene Andrew (LaVerne)
Linda Wright (Caltrans)
Each of the proposals were scored using an evaluation form. And "Costs" is one of the criteria
the evaluation panel evaluated. It is apparent that the COG undertook action (price analysis) to
ensure costs awarded to those. proposals were fair and reasonable.
Also n::fer to the following supporting documents for further reference:
- W/P Ref. 1.7aCOG Independent Cost Estimate
- W/P Re 1.7b Minutes :from TAC confinning that the Committee reviewed and approved
of the proposed scope of work and task plan
W/P Ref. L7c Sample houtly rate comparison utilizing data from La Verne Station site
Analysis RFP
- W/P Ref. 1.7d Matrix of comparable Compass Blueprint Demonstration projects' total
costs.
WIP Ref. L 7e IBI Hourly Rates Charged to Gold Line TOD Corridor Assessment Study
(This information was included in the IBI Proposal to Gold Line. An email dated
11/4/2009 reconfirms the rates charged to Gold Line Construction Authority.)
WIP Ref. 1.7fArroyo Gronp rate comparison
Page 2of3
ATTACHMENT I
In addition, the SGVCOG asked about the necessity of performing a pre-award review. (see
W /P Ref. 1. 7 g) Cal trans informed the SGV COG that a pre-award review was not necessary.
Page 3 of3
ATTACHMENT I
Response to Finding 1.8
Finding:
The SGVCOG Board did not approve the three consultant contracts between SGVCOO and the
Arroyo Group or the IBI Group. The Executive Director entered into the contracts with Arroyo
and IBI, but they were never approved or authorized by the SGVCOG Board. SGVCOG
Bylaws, Article IV Executive Director (B), states in part, "Subject to the authority ofand as
directed by the Governing Board... to retain consultants ... " There was no evidence provided to
show the Board had directed and authorized the Executive Director to enter into the three
consultant contracts.
Management
The February 15, 2007 SGVCOG Governing Board Regular Meeting Minutes stated
11
a
motion was made to .. 2) Authorize the SGVCOG Executive Director to negotiate and execute
sub-contracts with the Cities of La Verne, Irwindale, and Duarte as related to the
abovementioned grant, 3) Authorize the Executive Director, on behalf of the SGVCOG, to
charge up to fifteen percent or $36,770, of the total grant award, $245,130, for
administrative fees and expenses, as permitted in the terms of the grant agreement." It is noted
that the COG Board authoriz1ed Executive Director to enter into these. three contracts. (see WfP
Re 1.8a for Board Minutes).
In addition, the SGVCOG General Counsel reviewed and approved the execution of each of the
three contracts between the SGVCOG and the consultants. The General Counsel would not
approve the execution of the contracts if the Executive Director did not have the proper authority
to enter into contracts with consultants.
The SGVCOG originally wanted to sub contract the grant to the cities but Caltrans instructed the
SGVCOG that could not be done. That is why the SGVCOG changed the contractual
relationship, but not the intent of the working relationship and organization. However,
SGVCOG Board had already authorized the Executive Director to execute any and all contracts
relating to this matter; therefore, no additional action was necessary.
W/P Ref. Llk is a memo to the Governing Board asking for authority to process with the grant.
It clearly authorizes Executive Director to negotiate and execute any and all contracts related to
the grant. W/P Re1.8a (see Section Vl.D, page 3) for minutes of the meeting approving
SGVCOO Management to execute the contracts on this grant.
ATTACHMENT I
Response to Finding 1.9
Finding:
SGVCOG failed to maintain adequate documentation of the procurement process followed in
relation to the MSA. Other than the contract, no procurement documentation was available at
the SGVCOG office at the time of the audit. Upon our request, SGVCOG was able to retrieve
the RFP, AAI's proposal, and a memorandum from the City Managers Committee Chair to the
Governing Board (Memorandum) which included a summary of its actions and a
recommendation that AAI be awarded the contract. Although the Memorandum stated the RFP
was sent to four consulting firms, none were named and there was no other documentation to
support the RFP had been publicized. The RFP listed six selection criteria, but did not include
how the criteria would be evaluated or weighted. The Memorandum stated one proposal was
received from AAI.
49 CFR Part 18.36(b )(9) states in part, "Grantees and subgrantees will maintain records
sufficient to detail the significant history ofprocurement. These records will include, but are not
necessarily limited to the following: rationale for the method of procurement, selection of
contract type, contractor selection or rejection, and the basis for contract price." 49 CFR Part
18.36(d)(3)(i) states in part, ..Requests for proposals will be publicized and identify all
evaluation factors and their relative importance ... "
Per the Memorandum, t h e n ~ was only one proposal received in connection with this RFP,
meaning it was a sole source procurement transaction and required a cost analysis. There was no
documentation provided to support that a cost analysis was conducted. 49 CFR Part 18.36(f)
states in part. " ...A cost analysis will be necessary .. .for sole source procurements. .. . Grantees
and subgrantees will negotiate profit as a separate element ofthe price ... in all cases where cost
analysis is performed."
Citation on report:
49 CFRPart 18.36(d)(3)(i)
49 CFR Part 18.36(b)(9)
49 CPR Part 18.36(f)
Management's Response:
The AAI procurement was fimded solely with local money and was done before there were any
State/Federal grants. Therefore, 49 CFR Part 18.36 Procurement should not apply to the Master
Service Agreement between the SGVCOG and Arroyo Associates. It is not a requirement that
the SGVCOG should have the mentioned documentation on file as it was not a federal funded
procurement.
During the audit, the SGVCOG provided the RFP, AAI's proposal, and memorandwn from the
City Managers Committee Chair to the Governing Board which included a summary of its
actions and recommendation that AAI be awarded the contract in 2004. The findings stated that
the SGVCOG lacked support to show the RFP was publicized and since there was only one bid,
Page 1 of2
ATTACHMENT I
a cost analysis was needed and the SGVCOG had no documentation to show a cost analysis was
performed. 49 CFR Part 18.42 Retention and access requirements for records stated "Except as
otherwise provided, records must be retained for three years from the starting date specified in
paragraph (c) of this section." Paragraph c stated
1
'When grant support is GQntinued or renewed at
annual or other intervals, the retention period for the records of each funding period starts on the
day the gra11tee or subgrantee submits to the awarding agency its single or last expenditure report
for that period." This is not applicable because when the SGVCOG awarded the contact to AAI
in 2004, there was no Cal trans grant or fimding involved.
AAI rates were verified by the SCAG Audit in 2006 and Caltrans reviewed and approved
payment for services rendered using those approved hourly rates.
In the future, when there is a new MSA procurement, being cognizant of the possibility of other
Federal/State grants, the procmement will be done in accordance with Federal and State
regulations.
Page 2of2
ATTACHMENT I
Response to Finding 2

Finding 2 of the draft audit is a contention that a conflict of interest existed pursuant to 49 CFR
Part 18.36 and California Government Code section 1126 because the owner and president of
Arroyo Associates, Inc. (AA1) also provided services through the Master Services Agreement
(MSA) as the Executive Director of the SGVCOG. The draft audit claims that, as a result ofthis
alleged conflict, all MSA costs reimbursed under the CB1P grant, totaling $36,937 for AAI labor
and postage, are disallowed.
The draft audit points out that the SGVCOG has no staff and AAI provides an Executive
Director to manage the day-today operations ofthe SGVCOG including determining the level of
effort necessary for project-related services and accoWlting functions such as collecti9n of dues,
payment of bills, preparation of Department billings, and monthly financial statements. AAI also
provides the SGVCOG with staff for services and the accounting functions, and
office facilities, equipment, and supplies.
Citation on report:
49 CPR Part 18.36(bX3)
California Government Code section 1126
Management Response:
49 CPR Part 18.36
Finding 2 contends that a conflict of interest existed pursuant to 49 CPR Part 18.36(b)(3), which
provides in pertinent part: "No employee, officer, or agent of the grantee or subgrantee shall
participate in ... the administration of a contract supported by Federal funds if a conflict of
interest, real or apparent, would be involved. Such a conflict would arise when: ... the employee,
officer or agent... has a financial or other interest in the firm selected for award .... "
Finding 2 states: "By acting as the Executive Director and also providing services and the staff
for the day-to-day operations of SGVCOG, the owner and President of AAI was making
management decisions for SGVCOG that result in financial compensation to AAI, and in turn,
resulted in financial compensation to the Executive Director as the owner and President of AAI."
It is the SGVCOG's position that there was no violation of the provisions of 49 CFR Part 18.36
because the Executive Director's participation in the administration of the Agreement did not
result in any financial or other interest for AAI. The MSA already provided that AAI would
serve as SGVCOG staff prior to the Agreement The services provided by AAI pursuant to the
MSA were paid on a monthly flat fee basis. AAI did not separately charge the SGVCOG for the
labor and costs under the Agreement, and no additional compensation was received by AAI for
such labor and costs. In fact, AAI does not constitute a ''fmn selected for award" under 49 CFR
18.36 because AAI was already under contract with the SGVCOG to operate as its staff. AAI
;. was not separately selected and awarded a contract subsequent to the Agreement to perform
services under the Agreement See Response to Finding 1.9 and Refs. 1.9a-1.9c; 2.la.
1
ATTACHMENT I
The situation found here would have been no different if the Executive Director was a salaried
employee overseeing salaried employee staff performing services pursuant to the Agreement.
Nothing in the performance of services, leading to the costs to be reimbursed, would have
resulted in an increase to the: Executive Director's or the staff's salaries. Nothing in the
performance of the Executive Director's duties, or the performance of AAI staff pursuant to the
Agreement, resulted in any financial compensation or other benefit to AAI, nor could it have,
when AAI was already Wlder contract to provide Executive Director and staff services at a flat
monthly fee.
Government Code section 1126
For the same reasons quoted above, it was concluded in Finding 2 that there existed a violation
of Government Code section 1126. Subdivision (a) of Section 1126 provides in pertinent part:
[A] local agency officer or employee shall not engage in any
activity, or enterprise for compensation which is inconsistent, incompatible, in
conflict with, or inimical to his or her duties as a local agency officer or employee
or with the duties, functions, or responsibilities of his or her appointing power or
the agency by which he or she is employed. The officer or employee shall not
petform any work, service, or counsel for compensation outside of his or her local
agency employment where any part of his or her efforts will be subject to
approval by any other officer, employee, board, or commission of his or her
employing body, unle:ss otherwise approved in the manner prescribed by
subdivision (b).
Subdivision (b) provides in pertinent part: "Each appointing power may subject to
approval of the local agency... those outside activities which, for employees under its
jwisdiction, are inconsistent wi1th, incompatible to, or in conflict with their duties as local agency
officers or employees."
As set forth above with respe1::t to the finding in relation to 49 CPR 18.36, AAI performed
services pursuant to the Agreement as SGVCOG staff, not under a separate consultant
agreement. Therefore, it is a stretch to say there was any "outside activity" which would trigger
the of Section 1126. The MSA between the SGVCOG and AA1 was approved by
the SGVCOG Board. See Ref. 1.9a. Pursuant to the MSA and SGVCOG Board approval, AAI
staff, as SGVCOG staff, performed services pursuant to the Agreement, with no additional
compensation. AAI' s performance of services pursuant to the Agreement was not only
consistent with its performance of services pursuant to the MSA, it was within the scope of work
of the MSA. The SGVCOG Board did not prohibit such an arrangement; rather, it affirmatively
approved it. See Ref. 1.8a {p. 3, item D.); 2.1a.
In Mazzola v. City and County of San Francisco, 112 Cal. App. 3d 141, 155 (1980), the
California Court of Appeal ruled that an airports commissioner did not violate Section 1126 by
concurrently serving as the bl!lSiness manager and financial secretary-treasurer of the local
chapter of the Plumbers' Union and recommending and supporting a strike in that capacity. The
Court of Appeal concluded that by appointing the appellant as airports commissioner with full
\ knowledge of his union position, "respondents impliedly approved of Mazzola's dual status
within th1e meaning of section 1126. Having acknowledged Mazzola's concurrent positions for
2
ATTACHMENT I
several years, and without having properly notified Mazzola of any redetermination of his status,
respondents are precluded from basing its charge of 'official misconduct' against Mazzola upon
a violation ofsection 1126."
As in Mazzola, the SGVCOG Board had full knowledge of AAI, and the Executive Director's
position at AAI, when it approved the. MSA and when it approved the Agreement. Therefore, it
cannot be said that there was any engagement in an outside activity determined by the SGVCOG
to be inconsistent with, incompatible to, or in conflict with the Executive Director's and AAI
stafrs duties as local agency officers or employees under Section 1126. See also 79 Ops. Cal.
Atty. Gen. 288, p. 10 (1996) ("[S]ection 1126 is not and that before an employee
may be deemed to have violated the statute, he or she must be given notice of the proscribed
activities, the intended disciplinary action to be taken, and the appeals procedure therefrom.")
Furthermore, Section 1126 finds conflict in those outside activities that are performed ''for
compensation." As already stated, there was no additional compensation to AAI from
performance of the Agreement, which was included in its scope of duties as SGVCOG staff
under the MSA. See Ref. 2.1 a. There was no amendment to the MSA for additional
compensation for the performance ofthe Agreement.
Prior Audit
The draft audit references the previous audit report dated June 22, 2006, in which Caltrans
determined that a conflict of interest existed in the role of the Executive Director of the
SGVCOG and his role as the ownl;lr and President of AAI with respect to a SGVCOG Planning
and Oversight Agreement. However, although the draft audit is dated April 2011, it does not
take into account the measures implemented by the SGVCOG to resolve the previous conflict
issues. See Ref 2.1 b. The SGVCOG took all the measures outlined as necessary by Caltrans in
its letter dated February 28, 2008.
The draft audit of the period prior to the completion of these measures provides an inaccurate
picture of the SGVCOG's performance following the initial audit. Furthermore, the draft audit
does not take into account the differences between the circwnstances relating to the previous
audited Planning and Oversight Agreement and the circumstances of the Agreement subject to
the current audit, in particular, the fact that there was no separate agreement with AAI to perform
services pu;rsuant to the Agreement.
District 7 Involvement
As set forth throughout the responses to the findings, Cal.trans District 7 executives and staff was
consulted and were active participants at every step throughout the performance of the
Agreement. See Response to Findings 1.2, 1.8, and 3.1. SGVCOG sought, and District 7
executives and staff agreed to provide and did provide assistance and were involved in the entire
procurement and contract administration process throughout the performance of the Agreement.
See Response to Findings 1.4, ll.5, and 1.7. Throughout their involvement. Caltrans staff did not
raise any of the issues involved in this audit, including any conflicts of interest issues, and were
fully aware of the previous Caltrans audit, as well as the SCAG audit, that were occtming
concurrently with the performance Wlder this Agreement.
Proposed
3
ATTACHMENT I
Although the SGVCOO does not concede the existence of any conflict of interest, nor any
violation of 49 CFR Part 18.36 or Government Code section 1126, in response to the draft audit,
it is cmrently taking measures to avoid the conflict perceived by Caltrans and to assuage any
fears of Caltrans with respect to any conflicts issues. The SGVCOG Board has approved the
retention of a contracts administrator to oversee all contracts and grants. This contracts
administrator will be an employee of the SGVCOG and have no affiliation with AAI. The
SGVCOG Board has directed the SGVCOG Executive Committee to create an interim and long
term solution for the filling of this new position. A contracts administrator shall be hired by the
SGVCOG with the goal of beginning work as soon as feasible, hopefully by August 2011. The
Executive Conunittee of the SGVCOG has given direction to reach out to SCAG and Los
Angeles County for assistance in filling this position. The SGVCOG Board has also given
direction for a comprehensive review of all internal audit procedures, and revision of those
procedures as needed. The SGVCOG City Manager's Steering Committee has been authorized
to hire a qualified accounting fliill to perform this review. By taking these measures, the
SGVCOG seeks to avoid or resolve a "high-risk" designation by Caltrans.
4
ATTACHMENT I
Response to Finding 3.1
Finding:
As noted in Finding 2, SGVCOG has no employees and contracted with AAI to provide all
administrative services and staff through the MSA. Our audit foWld that SGVCOG was unable
to establish an audit trail between the Department billings for MSA services related to the CBTP
grant and the monthly fees SGVCOG prepaid to AAI for MSA services.
The Agreement, Section IIL9 a states in part SGVCOG> " ... agrees to comply with ... 49 CFR,
Part 18 ... " 49 CFR Part 18.20(a) states in part,"... Fiscal control and accounting procedures of
the State, as well as its subgrantees and contractors, must be sufficient to-- . . . (2)
Permit the. tracing of funds to a level of expenditure adequate to establish that such funds have
not be used in violation of the restrictions of prohibitions of applicable statues."
The MSA required a flat monthly fee to be paid by SGVCOG in advance of services rendered.
AAI invoices to SGVCOG reflected the flat monthly fee for all services versus a breakdown of
costs by direct (e.g. projectfgrant-telated) and indirect (administrative) activities. SGVCOG's
billings to the Department reflected direct staff hours for CBTP grant-related activities and
hourly rates. SGVCOG was unable to demonstrate how the monthly fee paid for MSA services
reconciled to the Department billings. Therefore, all costs reimbursed Wider the CBTP grant,
totaling $36,937 for MSA costs
1
are disallowed due to noncompliance with the Agreement.
Citation on report:
49 CFR Part l8.20(a)
Management response:
The SGVCOG paid Arroyo a flat monthly fee for administration work performed. Arroyo
invoices to the SGVCOG reflect services via a breakdown of cost by direct (project/grant
related) ;and indirect (administrative) activities. The SGVCOG invoiced Caltrans for direct labor
costs. Although the invoice from Arroyo to the SGVCOG lacked information regarding the
direct labor costs (hours, rates ... etc), the amounts the SGVCOG invoiced Caltrans can be
supported by Arroyo's timeshe,ets.
Caltrans approved the SGVCOG's billing rates used in the SCAG audit that took place during
this same time period. In addition, the amounts billed to Caltrans in the grant were less than the
actual hours Arroyo's staff put on the project. Attached in W/P Ref. 3.la is a comparison
spreadsheet of the hours reported to Caltrans vs. what was incurred by Arroyo. In total, Arroyo
incurred significantly more hours than what was reported to Caltrans for reimbursement. (Refer
to 3.1a for 2007 timesheets summary, 3.1b for 2008 timesheet summary and 3.1c for hourly rate
schedule.)
Although the SGVCOG did not have all payroll hours by position and project in its accounting
system, such infonnation was available to the SGVCOG on Arroyo's timesheets. Arroyo now
includes timesheets and other supporting data with its invoices to SGVCOG.
Page 1 of2
ATTACHMENT I
Furthermore, in the SCAG audit dated November 15, 2006, SCAG audited and approved Arroyo
labor rates (W/P Ref. 3.1d for detail). SCAG included Caltrans auditor Teresa Greisen and
District Ts David Sosa on the distribution list It is clear that the labor rates the SGVCOG billed
to Caltrans for this grant were less than the SCAG approved labor rates for the s a m ~ period.
Additionally, the SCAG audit report for an overlapping audit period (see W/P Ref. 3.le)
examined the hours and rates charged to SCAG. The audit concluded that the SGVCOG
reeordkeeping was determined to be adequate to support costs charged and labor costs were
supported by timekeeping records and payroll registers.
The above discussions clearly demonstrate the allowability and reasonableness of the amount the
SGVCOG billed to Caltrans for reimbursement as well as the adequacy of the record keeping
system.
Page2of2
ATTACHMENT I
Response to Finding 4.1
Finding:
We noted that SGVCOG did not report local match on the first two billings to the Department, as
required. The Agreement Section III.S.b further states in part SGVCOG " ... shall contribute not
less than the required match mnount ... on a proportional monthly or quarterly basis coinciding
with its usual invoice frequency.
Management respcmse:
Local match exceeded the grant requirements.
The COG concurs that there was no local match included in the first invoice. The first billing to
the Department (invoice# 1) was primarily related to initial planning work (e. g. review contract
requirements, conduct meeting with various parties. and planning). There were no expenditures
incurred by Cities or contractors during that period.
However, the SGVCOG did report local match on the second billing to the Department The
second invoice was for the period of September 13
1
b, 2007 through November 9, 2007. There
was in-kind matching hours for that period. Refer to W/P Ref. 4.lb for detail; the Match Hours
schedules provided by the City of Invindale and the City of Duarte are for the period or
September 2007 through January 2008. which covers the period ofthe second and third bilJings.
WIP Ref. 4 .l shows that total In-Kind ma,tch ($72, 786) and Cash match ($49) 17) exceeded
requirements of$49,026.
ATTACHMENT I
Response to Finding 4.2
Finding:
Local cash match reported on the subsequent billings, are disallowed due to a lack of an audit
t r a i l ~ a.q discussed in Finding 3.
Management response:
Hours reported as local cash match can be supported by Arroyo's timesheet. In W/P Ref. 3.la is
a comparison spreadsheet of the hours reported to Caltrans (including cash match) vs. what is on
Arroyo's timesheets. As illustrated on spreadsheet, in total Arroyo staff did significantly more
hours on this project than what was reported to Caltrans for reimbursement.
Refer to management response 3.1 for complete response on Finding 3..
ATTA-CHMENT I
Response to Finding 4.3
Finding:
SGVCOG did not maintain documentation for the eligibility of local in-kind match on claimed
costs. SGVCOG reported $62,584 as in-kind match provided by the Cities of Irwindale, Duarte
and la Verne. In-kind match from the Cities of Irwindale and Duarte only consisted of a
summary sheet reflecting position titles, hours and hourly rates. In-kind match from the City of
La Verne only consisted of copies of invoices paid to the Arroyo Group under a separate
contract.
Management's Response:
The in-kind match provided by the Cities of Irwindale and Duarte was from their payroll records
and was summarized in spreadsheet format breaking down the in-kind ammmt by position, hours
and hour rates. Such information is verifiable against respective cities' payroll records.
The in-kind match from the City of La Verne consisted of invoices paid to Arroyo Group under a
separate contract That contract was awarded to Arroyo Group to perform analytical works for
its station location; it was not funded by Caltrans nor funded by Federal money. But because the
scope of work for that contract was similar with the CBTP grant project, the City of La Verne
used this contract to fulfill the local matching requirement.
Refer to contract 1.1 d through 1.1 f. It shows that the contract amomt for La Verne was
substantially less than the other two cities. And the reason is as explained above; work
performed by Arroyo Group under that separate contract was paid by La Verne with local funds
that otherwise might have been paid for under t h ~ CBTP grant.
In addition, the SGVCOG requests the Cities to certifY that they were aware of 1he local
matching requirements, and all in-kind amounts reported were accurate.
;.
ATTACHMENT I
Response to Finding #5
Finding:
a) IBI and Arroyo consultant invoices included service dates prior to the execution dates of the
consultant contracts. The service dates listed on the detail supporting the consultant invoices did
not agree and in several instances included overlapping dates from prior invoices. Because the
supporting documentation for the consultant invoices was insufficiently detailed, we were unable
to calculate the amount of potential overpayment due to cOSts incurred prior to the execution
dates, or due to overlapping services dates.
b) Of the 11 consultant invoices, we noted three (27%) instances of unsupported consultant contract
costs. Specifically, the support for services ffi1 provided to the City of Irwindale was less than
the amount billed by $1,056 and $4,695 for the periods ended February 29, 2008 and March 31,
2008, respectively. The support for an Arroyo billing was less than the amount billed by $1,356
for the period February 26, 2008 to March 25> 2008. As a result, $7,106 is disallowed.
When the unsupported contract costs were brought to the attention of SGVCOG, staff contacted
the consultants to obtain support for additional costs not previously billed. SGVCOG did not
toll ow the requirements of its own contracts, which led to overpayment. Specific clauses of the
-- - . with SGVCOG are quoted below.
Section 5(c) states in part, "SGVCOG shall independently review each invoice submitted
by the CONSULTANT to determine if said invoice is in compliance with all provisions of this
AGREEMENT...."
Section 5(f) states in part, ... Any costs or services billings not invoiced by [April 30,
2008] shall not be reimbursed or paid."
c) We also found that the ][8[ consultant was paid in excess of the amount of its contract. The
contract was not to exceed $66,500, SGVCOG paid to ffii $68,467, for its services in the City of
Irwindale. (The difference of $1,967 is already included in the disallowed $7,106 above.)
d) SGVCOG inappropriately requested reimbursement from the Department for consultant costs not
yet paid in three out of five billings. Specifically, SGVCOG issued nine consultant checks on the
three billings. Eight of nine consultant checks were issued within days or on the day of the
Department billings. All nine checks cleared the. bank after SGVCOG deposited the
reimbursements from thf: Department. See the chart below for illustration. The Agreement
Section ill.6.b states in part SGVCOG, " ... must not only have incurred the expenditures .. ,but
must bave also paid for those costs to claim any reimbursement."
Department
Bilfing
Number
Date of SGVCOG
Cheeks to
ConsultaDt
Date of
CGVCOG Billing
to Department
Date of Deposit or
Department
Reimbursement
bySGVCOG
Date Consultant
Checks Cleared
3 1/30/08 211108 4/8/08 4/11/08 (3)
4 3/12108 3/12/08 4/29/08 515/08 (2) &
5116108 (l)
5 4/18/08 4/18/08 6/2/08 6/4/08 (1 ); 6/5/08
(1) & 6/6/08 (1)
Page 1of2
ATTACHMENT I
Management Resp_onse or Action:
a) The contract's period of performance between the SGVCOG and IBI was November 7. 2007
through March, 2008, which is consistent with the service period on the consultant's invoices;
however, the contract was not signed by the SGVCOG until December 10, 2007.
The contract's term between SGVCOG and Arroyo Group was December 5, 2007 through March
31, 2008, which is consistent with period of performance on the consultant's invoices; however, it
was not signed by Arroyo until December 6, 2007.
b) The SGVCOG required their consultants to report their hours/exj,enditures in an excel format
stipulated Caltrans. Consultants input their hours/expenditures to this spreadsheet and then
submitted it to the SGVCOG for billing. It was noted on the three instances mentioned on finding
5 ~ there were. some formula errors on the excel spreadsheets causing them to foot incorrectly.
When the consultants submit invoices to the SGVCOG, they ensured the totaJ invoice amount
matched with what is in their system. The payments the SGVCOG paid to the consultants were
based on the total invoice amount and amonnt available on the contract. When the excel error
was brought up to our attention by the Caltrans auditors, we investigated and requested additional
d:ocwnentation from the consultants and were able. to show the Caltrans auditors that our
payments made to the consultants were the correct amounts and they were properly supported.
c) The reason why the SGVCOG paid $1,967 (less than 3%) in excess of the IBI contract was
because Caltrans District 7 Contract Manager instructed the SGVCOG that the remainingfunspent
money on the CBTP grant must be utilized. This instruction was the reason the SGVCOG asked
the ffil to perform additional work in order to utilize this balance.
To iUustrate this point;. refer to invoice #6 @ W/P Ref. 4.lb. That invoice was only for the
amount of $169. The reason why the SGVCOG submitted such a small invoice to Caltrans for
reimbursement was because Caltrans informed the SGVCOG that the project had a balance of
.$169 unspent grant and instructed COG staff to submit an invoice to utili7.e the remaining
balance. All invoices to Caltrans were reviewed and paid by Caltrans District 7 Contract
Manager with no exception.
d) The SGVCOG paid for those questioned costs on or before the day of the Department billings.
GAAP required "Accrual Accounting" method, to look at 'Checks Cleared Date' to determine the
paid date would be "Cash Accounting". As in all GAAP prepared financial statements. Cash
ledger is eredited at the time your checks are cut not when the checks are cleared.
Also refer to Fund Transfer Agreement Section 6.b@ WIP Ref. Sa for more detail.
Page 2 of2
ATTACHMENT I
Response to Finding 6
Finding:
SGVCOG lacked an adequate contract management system. As a result, SGVCOG risks over or
under billing the Department or other funding sources. 49CFR Part 18.36(b )(2) states, "Grantees
and subgrantees will maintain a contract administration system which ensures that contractors
perform in accordance with the terms, conditions, and specifications oftheir contracts or
purchases orders.> Specific examples are noted below:
Within SGVCOG's consultant contracts, we noted inconsistent language is used when
describing the services to be provided or compensated. Failure to have clear, consistent
contract language increases the risk for non-compliance and overpayment. Specifically,
a) Section 5(a) ofthe Arroyo contract states in part, that" ... payment ... is based upon
CONSULTANT'S delivery of the Preliminary Design Framework Plan inclusive of
Subtasks 4.2 (a) through (i) as described in the Scope of Services, Exhibit A ... ". but there
are only five (versus nine) subtasks listed under task 4.2.
b) Section 5{a) ofboth the IBI contracts state in part, that IBI" ... shall be compensated in
the manner and amounts specified in Page 13 of the CONSULTANT'S Proposal ...
which is included as Exhibit A. ... " The IBI proposal for the City of Duarte services
listed only four tasks. and the proposal for the City oflrwindale listed five tasks. When
invoicing SGVCOG, mi charged time to six separate tasks under both contracts.
SGVCOG did not maintain relevant documentation to ensure proper delivery of services.
c) Section 3 ofthe SGVCOG contract with Arroyo integrated the services ofa separate
contract between Arroyo and the City of La Verne. However, when we requested to
review that contract, SGVCOG had to request the contract from the City of La Verne.
d) In May 2004, the SGVCOG Governing Board authorized the Executive Direct to procure
financial audit services and execute a contract with the selected Certified Public
Accounting (CPA) firm for the period 2004-2009. Subsequently, the Executive Director
engaged the services of the selected CPA, but did not execute a contract with the CPA.
Instead, the Executive Director stated they relied upon the CPA's annual engagement
letter.
e) The tenn ofthe contracts between SGVCOG and IBI was November 7. 2007 through
March 31, 2008, but the contracts were not sent to IBI for signature until November 16t
2007. The c o n t r a c ~ were not signed by IBI until December 4, 2006, and they were not
signed by SGVCOG until December I0, 2007 (contract execution date). As noted in
Finding 5 above, SGVCOG allowed IBI to bill for services prior to the execution date of
the contracts.
f) The term ofthe contract between SGVCOG and Arroyo was December 5, 2007 through
March 31, 2008, but it was not signed by Arroyo Wltil December 6, 2007 (contract
execution date). As noted in Finding 5 above, SGVCOG allowed Arroyo to bill for
services prior to the exe,cution date ofthe contract.
g) SGVCOG accepted and processed 11 consultant invoices from IBI and Arroyo. Our
audit noted all II invoices lacked receipt dates, and evidence of review and approval.
Page 1of3
ATTACHMENT I
Management's Responses:
The Funding Transfer Agreement stipulates that a Pre-Award audit of the SGVCOG must be
conducted as a condition of the grant. In preparation of moving folVIard with the grant, in
January 2007, the SGVCOG Executive Director requested that Caltrans conduct a Pre-Award
Audit of the Agency's organization, including contract management policies and procedures,
prior to initiation of work on the grant (See WIP Ref. 1.7g). At that time, Cal trans District 7 staff
and management determined that a Pre-Award Audit survey was not necessary and declined the
request.
Had the Executive Director's request and the grant requirement been honored, the Pre-Award
audit survey would have identified any deficiencies in the SGVCOG's contract management
system, amd the issues related to contract and grant management would have been addressed
prior to the start of work on the grant program.
With regards to the specific findings, SGVCOG's consultant contract and the findings above;
responses are as follows:
a) That was a typo and we have addressed it in current contracts.
b) The footnote on Page 13 of the IBI contracts in question (refer to WfP Ref. 6.a and 6.b)
stated "We propose to complete all tasks by March 31, 2008. At the initial kick off
meeting we will develop the detailed schedule and deliverables with City staff." It clearly
states there will be changes made to the task plan set forth in the contract and the basis
for the subsequent billings and contract management.
Additionally, all invoices and progress reports went through three levels of review and
approval: 1) at the city level and 2) at the SGVCOG level prior to submittal to 3) Cal trans
District 7 contract management ofrevieW and final approval. In addition at Caltrans, the
invoice and progress reports were reviewed at two additional levels including the
Caltrans District 7 contract manager and her immediate supervisor prior to issuing final
approval and payment.
c) The Arroyo contract with the City of La Verne was not part ofthe procurement process
and should not be part ofthe SGVCOG contract file. The auditor was mistaken that the
second contract was part ofthis solicitation. It was not and had been awarded by the City
of La Verne months prior. That contract and the consUltant's scope ofwork used as was
a reference document in preparing the RFP scope and evaluating the vendor's response.
However, we did use this City cash expenditure as match. See response fmding 1.6 for
further explanation.
d) The auditing service was procured using an open and competitive bidding process and
was approved by the COG's General Counsel. It is not uncommon nor in violation of any
federal, state or local procurement requirement to rely on an engagement letter for
setting forth the scope of work and the terms and conditions relating to the conduct of an
annual audit. The SGVCOG has utilized this method of contracting for the last 15 years
and not a single auditor including Cal trans has raised this issue prior to tlris review.
Page 2of3
ATTACHMENT I
e) We agree with this comment. Caltrans would not permit an extension ofthe time frame
and time was of the essence to proceed with the work to meet the contractual time frames.
Therefore, the contract allowed billing for work that was completed after the contractor
was selected but before the final contract was executive with all required signatures.
f) Same as above (e).
g) New procedures call for dating and initialing all reviewed invoices. However, it should
be noted that all invoices and progress reports went through two levels of review: once at
the city level and again at the SGVCOG level prior to submittal to Caltrans District 7. In
addition at Caltrans District 7 the invoice and progress reports were reviewed prior to
issuing.
The SGVCOG management believes their contract management processes are adequate. More
importantly, Caltrans District 7 contract management and supervisory personnel also believed
the SGVCOG's contract management policies and procedures were satisfactory. Caltrans
reviewed and approved every invoice and progress report without a single question being raised
for each invoice submitted for payment. The cities involved concur that the contractors provided
the services as specified in the itime frame and cost that was outlined in the contract.
Page 3of3
ATTACHMENT I
Response to Finding 7 -Inadequate Financial Management System
Finding:
1) SGVCOG's fmancial management system had significant deficiencies, as noted in
Findings 1, 3, 4, 5 and 6. In addition, SGVCOG lacked a project costing system, and
documented policies and procedures over procurement, financial management, grant
management and contact management. As a result, SGVCOG was not in compliance
with the grant agreement language and there is an increased risk for errors and
ilTegularities to occur and not be detected.
2) While we noted SGVCOG did not have documented policies and procedures during the
grant period, in conflict with the stated MSA requirement, SGVCOG subsequently
initiated, but had not completed, the drafting of policies and procedures during om audit.
Management's Response:
1) The auditor's citation about the prior audit is not correct. The prior Caltrans audit was
narrow in scope and dealt with conflict of interest issues. Those audit findings were
challenged and later resolved by a Federal Judge. A second audit ofthe SGVCOG, which
was done simultaneously to the Caltrans Conflict of Interest Audit focused on the
incurred cost contract between Southern California Association of Governments and the
SGVCOG. The SCAG's final audit report which was published in November 2006 did
not identify concerns about contract administration or the inadequacies of the financial
management system and its ability to comply with appropriate Federal and State rules
and regulations. The SCAG auditor wrote "In our review we determined that
SGVCOG's system was adequate to record costs under federal
r1eimbursement programs. Recordkeeping was determined to be adequate to
support costs charged and labor costs were supported by timekeeping records and
payroll registers. We examined the. direct labor costs and indirect costs of the
SGVCOG, including financial independent auditor's reports and
federal tax returns for the years under audit. Invoices charged to SCAG were
examined and the houtr.s and rates charged were traced to original timesheets and
payroll records. No eneptions were noted in our review, except as detailed below."
(See W!P Ref. 3.lg for SCAG audit report dated November 15, 2006)
Assessing the nature and magnitude of SGVCOG's projects (mainly for planning), the
SGVCOG management believes their financial management system is adequate.
2) It was the SGVCOG staff's understanding, based on the February 28, 2008
correspondence and subsequent conversations with both SCAG and Caltrans
management,_ that the auditor would be reviewing policies and procedures that were
developed in accordanc'e with the requirements outlined in the February 28, 2008 letter.
(Ref. 2.1 b) Instead, the auditors focused on the policies and procedures that existed prior
to that period and a time that overlapped with their last audit.
ATTACHMENT II
California Department of Transportation
Audits and Investigations
Analysis of Response to Draft Audit Report P1580-0009
San Gabriel Valley Council ofGovernments
Analysis of Response 1.1
SGVCOG's statement that all three procurements were 1mder $100,000 is incorrect. Table 1.1
identifies the budget and contract amounts for each consultant contract. Only the RFP for the
City ofIrwindale services was budgeted under $100,000, but SGVCOG did not identify or treat
the procurement as a small purchase. However, even small purchases require price or rate
quotatiOllS from an adequate number ofqualified sources and, where competition is detennined
inadequate, a cost analysis to verify the proposed cost data, the projections ofthe data, and the
evaluation ofthe specific elements ofcosts and data.
S G V C O G ~ s response does not address the failure to identify the evaluation and scoring
methodology to potential bidders as required by49 CFR Part 18.36 {c) (3) (ii). Therefore, this
portion ofFinding 1 is unchanged, other than to cite additional criteria.
Table 1.1
Agency RFP B1Jdget Contract Amount Awardee
City ofDuarte $102,464 I $93,149 ffiiGroup
City ofIrwindale $68,636 ! $66,500 ffiiGroup
City ofLa Verne $188,575 $46,575 Arroyo Group
Analysis ofResponses 1.2., 1.3 aDd 1.4
The response pro"\'ided by SGVCOG included new information that was not previously provided
to the Department during the audit field work. Based on the newly received information,
additional audit work was performed to substantiate SGVCOG's response. As a result, related
sections ofthe finding were removed from the final audit report. However, SGVCOG should
ensure that in the future, supporting documentation is maintained for advertisement and
publication activities to ensme a fair and competitive procurement.
Analysis of Response 1.5
Based on further review and discussion, this portion ofFinding 1 was removed from the final
report.
Attachment II
September 7, 2011
Page2
Analysis of Response 1.6
The contract between SGVCOG and the Arroyb Group is for a substantially smaller scope of
services and dollar amount than was identified in the RFP and included in the Arroyo Group's
proposal. As a result, SGVCOG should have cancelled the RFP and re-advertised for the scope
ofservices it intended to contract
On the same day SGVCOG entered into a contract with the Anoyo Group, the City of LaVerne
(City) also entered into a contract with the Arroyo Group. The scope ofservices and dollar
amount in Arroyos contract with the City is substantially the same as the Arroyo Group's
proposal to SGVCOG' s RFP. The contract between the City and the Arroyo Group incorpomted
the same scope ofwork as the SGVCOG's contract with the Arroyo Group. Additionally,
Section 7 ofthe City's contract with the Arroyo Group states in part, ... As indicated in Exhibit
E, Consultant shall invoice the San Gabriel Valley Council ofGovernments (SGVCOG) for tasks
comprising $46,57 5 ... In the event that Consultant does not receive payment from [SG VCOG]
the {City] shall be responsible for these payments .. " This raises additional concerns as to
whether the use of State fimds was reasonable and necessary.
The :final audit report was revised to reflect the substantial difference between the RFP and the
Arroyo Group contract.
Analysis of Response 1.7
With the exception ofone additional document provided with the written response, all
documentation provided in support of SGVCOG's response to Finding 1.7 was already reviewed
and analyzed by A&I prior to issuance ofthe draft report. The documentation provided was
insufficient to support that a cost analysis was performed. Specifically, SOVCOG did not
provide evidence ofcompliance with 49 CFR Part 18.36(f)(l), (2), (3) and (4).
SGVCOG has not shown it performed a cost analysis and modifications to the finding were
limited to clarification of criteria.
Analysis of Response 1.8
The wording of Action Item D ofthe February 15, 2007 SGVCOG Governing Board minutes
reads in part, " ... a motion was made to: 1) Approve the resolution to renew acceptance of
Caltrans' Community-Based Transportation Planning Grant Award ... 2) Authorize the
SGVCOG Executive Director to negotiate and execute sub-contracts with the Cities ofLa Verne,
Irwindale, and Duarte ... 3) Authorize the Executive Director ... to cl!arge fifteen percent ... for
administrative fees and expenses ... "
Attachment II
September 7, 2011
Page3
The action taken by the Board on February 15, 2007 was specific to subcontracts with the Cities
ofLa Verne, Irwindale, and Duarte. The procurement process for the three consultants was not
initiated until October 11, 2007. SGVCOG has not provided evidence that the Executive
Director obtained authorization from the Board to negotiate and execute the three consultant
contracts.
This portion ofthe finding was modified for clarity and moved lUlder Finding 6 in the final audit
report.
Analysis of Response 1.9
SGVCOG did not provide documentation to support that the Master Services Agreement
between SGVCOG and Arroyo .Associates, Inc. (AAI) was procured in compliance with 49 CFR
Part 18.36. SGVCOG stated that 49 CFR Part 18.36 should not apply to the MSA. However,
SGVCOG billed the Department for staff costs that were performed under the MSA.
Compliance with 49 CFR Part 18, including procurement ofthe MSA is required for costs to be
allowable. This portion ofthe finding was reworded for clarity.
Analysis of Response 2
An inherent conflict ofinteres.t exists within the organization due to the dual roles ofthe
Executive Director in his position as Executive Director as well as owner and president ofAAI.
As owner and president ofAAI, the Executive Director has a financial interest in AAI's contract
with SGVCOG. The Executive Director ofSGVCOG participates in the adm:inistration of
AAI's contract with the SGVCOG. The Executive Director is directly responsible for managing
all day to day activities ofSGVCOG; assigning, supervising and removing AAI employees from
SGVCOG work; assigning SGVCOG work assignments to himself and staff; df,rterrnining the
level ofeffort required for work assignments for SGVCOG; detennining the types ofprojects,
number ofprojects) level ofeffort to expend per project, and the mix ofAAI staff versus
consultant effort on projects for SGVCOG. These activities are inherently detrimental to the
interests ofSGVCOG and the Governing Board as the Executive Director is profiting by the
services perfonned by his AAI staff for SGVCOG at his own direction. AAI receives a monthly
flat fee for certain services performed for SGVCOG, as well as additional fees for other services
provided that are not within the scope of the flat monthly fee. AAI has clients in addition to
SGVCOG. By directing the workload ofAAl staff, the Executive DirectQr directly controls the
profit received by AAI,, and in tum by himself as the owner and President of AAI. Therefore, an
inherent conflict ofinterest exists Within the organization itself.
SGVCOG has stated that because AAI is paid on a flat monthly fee and that AAI did not charge
SGVCOG extra fees to administer this grant, the Executive Director did not profit from the work
Attachment II
September 7, 2011
Page4
AAI did for SGVCOO on the grant) and, therefore no conflict ofinterest exists. The fact
remains that there is an inherent conflict ofinterest within the organization due to the dual roles
ofExecutive Director in his role as Executive Director and as owner and President ofAAI.
Additionally, ifSGVCOG is seeking to be reimbursed for work provided by AAI, SGVCOG
must have been required to pay for that work. However, SGVCOG contends that AAI did not
separately charge SGVCOG for the labor and costs under the CBTP grant Agreement. In that
case, SGVCOG should never have billed the Department This issue is further discussed in
Analysis ofResponse 3.1 below..
The finding remains the same.
Analysis of Response 3.1
SGVCOG's response to Finding 3 states in part, " ... The SGVCOG invoiced Caltrans for direct
labor costs . ... " SGVCOG' s response to Finding 2 states in part. " ... .A.AI did not separately
charge the SGVCOG for the labor and costs under the Agreement [CBTP grant1 and IW
additional compensation was received by AAI for such labor and costs. . ....
The AAI invoices to SGVCOG do not include billings for CBTP grant activities. The AAI
invoices state that the monthly fees are for two other SGVCOG projects/funding sources
unrelated to the CBTP grant. Therefore, SGVCOG did not incur CBTP grant-related
expenditures billed by AAl and has no AAI costs to bill to the Department. As there are no AAI
costs to bill, the response regardling the labor rates is irrelevant.
SGVCOG cannot establish an audit trail between the Department billings for MSA services
related to the CBTP grant and the monthly fees SGVCOG prepaid to AAI for MSA services.
Therefore, modifications to the finding were limited to providing additional clarification.
Analysis of Response 4.1
SGVCOG's response is not supported by documentation. No local match was reported on the
first and second invoice.
SGVCOG's response pertaining to excess match is not supported by documentation.
SGVCOG's summary table ofmatch payments is overstated by inclusion ofcumulative amounts
reported on prior invoices and duplicated costs in the grand total.
This portion ofthe finding was modified for clarity.
Attachment II
September 7, 2011
PageS
Analysis of Response 4.2
As discussed in the Analysis of Response 3.1, SGVCOG did not incur labor expense related to
the CBTP grant. Therefore, there are no SGVCOG expenses available to claim as local match.
Further, AAI costs may not be claimed as in-kind match due to the conflict ofinterest discussed
in Finding 2.
This portion of the finding was modified to reference Finding 2.
Analysis of Response 4.3
SGVCOG provided additional documentation to :further support the eligibility ofthe in-kind
match contribution, specifically signed statements from City officials regarding the nature ofthe
matching funds. However, the information provided in the response relating to labor costs from
the Cities ofDuarte and Irwindale was insufficiently detailed. We requested and received
additional documentation to support the in-kind match from the Cities of Duarte and Irwindale.
The documentation was analyzed and used to recalculate the allowable in-kind match. The
finding was modified to reflect the amount of unallowable match.
Analysis of Response. 5a
Regardless ofthe term ofthe contract stated in the body ofthe contract, a contract is not valid
until the date of the last signature. 1bis is the date ofcontract execution and no costs incurred
prior to the execution date should be billed. SGVCOG did not address the overlapping service
dates. SGVCOG's statement that the performance periods (for the ffil Group contracts) are
consistent with the consultant's invoices is not supported by documentation.
'This portion ofthe finding remains, but a specific example was removed.
Analysis of Response Sb
We disagree with SGVCOG's statements. The original support for the consultant payments in
question was less than the amount SGVCOG billed the Department. The additional support
obtained subsequently was for costs that were not previously charged to SGVCOG. Proper grant
management practices would reduce the risk ofbilling unsupported and/or unallowable costs.
SGVCOG does not address our concern that their consultant contracts had specific requirements
for timely submission and review ofconsultant invoices.
This portion ofthe finding was modified for clarity.
Attachment II
September 7, 2011
Page6
Analysis of Response 5c
SGVCOG acknowledges that the mi Group contract was overpaid. Additional work performed
over the contract amount required an amendment to the original contract. SGVCOG, and not the
Department, is responsible for managing their own contracts and determining eligibility of costs.
This portion ofthe finding remains the same.
Analysis of Response Sd
Regardless ofthe method SGVCOG used to record costs in the general ledger, the
docmnentation shows all nine consultant checks were cashed after the
reimbursementwas deposited into SGVCOG's bank account.
This portion ofthe finding was modified to identify the period oftime the consultant checks
were outstanding.
Analysis of Response 6
We do not agree with SGVCOG's implication that a pre-award audit was the only method
available to SGVCOG to identifY deficiencies. The prior audit report dated June 22, 2006
identified significant concerns related to contract management that were brought to
attention. SGVCOG did not enter into the consultant contracts until December 2007, providing
17 months for SGVCOG to review and improve its own contract management practices.
Except as noted below, the. finding remains unchanged.
Analysis of Response 6a
SGVCOG acknowledged the error.
This portion ofthe finding remains the same.
Analysis of Response 6b
The footnote states, "We propose to complete all tasks by March 31, 2008. At the initial kick off
meeting we will develop the detailed schedule and deliverables with City staff. " This language
does not suggest the tasks would be changed. SGVCOO did not provide a record of the agreed
upon schedule or deliverables.
While the Department has a grant oversight responsibility, SGVCOG is responsible for proper
management of its consultant contracts.
Attachment II
September 7, 2011
Page7
This portion ofthe finding remains the same.
Analysis of Response 6c
As discussed in the Analysis ofResponse 1.6, SGVCOG and the City ofLa Verne entered into
separate contracts with the .Arroyo Group on the same day. Based on our review of the Arroyo
Group proposal and copies of the resultant contracts, the two Arroyo Group contracts are related.
The method ofprocurement is irrelevant to whether the integrated and referenced contract should
have been maintained in SGVCOG's contract file.
This portion ofthe finding was revised to include a direct quote from the Arroyo Group contract
to identify the contract reference to the City of La Verne's contract
Analysis of Response 6d
SGVCOG's intention was to procure services for a five year period. In order to manage and
ensure re,ceipt ofservices provided spanning multiple years, the terms and conditions ofthe
contractual relationship should be agreed to in writing. SGVCOG did not provide a copy ofthe
engagement letter to show that the specific contract terms and conditions were included.
This portion ofthe finding remains the same.
Analysis of Responses 6e and 6f
SGVCOG agrees with the finding.
A portion ofthe finding was rernoved from the final report.
Analysis of Response 6g
SGVCOG indicates they have initiated new procedures. It is SGVCOG's responsibility to
ensure costs are adequately reviewed and t!pproved prior to requesting from the
Department.
This portion ofthe finding remains the same.
Analysis ofResponse 7.1
The prior audit is not mentioned in Finding 7. We do not agree with SGVCOG's statement that
the conflict ofinterest finding was resolved by a Federal Judge. The Memorandum ofOpinion
Regarding Conflict ofInterest by the Honorable John Zebrowski reads in part, "Contrary to the
argu'/1Je11.ts ofSCA G and SGVCOG, the evidence preponderates that [the Executive Director] did.
in fact participate in administration ofthe [Planning and Oversight Agreement] . .. [the
Attachment II
September 7, 2011
Page8
Executive Director's] involvement as both theprovider ofthe work ... and as uverseer ofthat
same work ... constituted a "conflict ofinterest, real or apparent,, within the meaning of49 CFR
18.36. Hence the record does establish a violation f?f49 CFR 18.36.. "
The SCAG audit covered a prior period (July 1, 2002 through July 30, 2005). Our audit period
was March 1, 2006 through March 31, 200&. SGVCOG incurred the majority ofcosts under our
audit between September 2007 and March 2008.
This portion ofthe finding remains, but duplicative criteria were removed.
Analysis of Response 7.2
The requirements outlined in the: February 28, 2008 letter are associated with the finding and
concerns first identified in our prior audit report. In response to deficiencies identified in
Attachment I of the prior audit report, SGVCOG stated, " ... that newprocedures are being
developed tofurther adj'uat lapses in the procedures that lead (sic) to the mistakes. " That
response was dated April 26, 2 0 l D 6 ~ . allowing sufficient time for SGVCOG to develop and
implement policies and procedures prior to administering the CBTP grant in September of2007,
when the majority ofthe project work began.
In. the current response, SGVCOG did not provide documented policies or procedures over
procurement, financial management, grant management, or contract management. SGVCOG did
not discuss the lack ofa project costing system, provide supporting documentation to refute the
finding, or describe whether any changes were made to resolve the finding.
This portion ofthe finding remains the same.
SGVCOG CONFLICT OF INTEREST POLICY
DOCUMENTS RELATED TO 2008 SETTLEMENT
PAYMENT FROM SGVCOG TO CONWAY


DOCUMENTATION RELATED TO HOMELESS
COUNCIL
DOCUMENTS RELATED TO INTERN PROGRAM
EMAILS WITH SGVCOG LEGAL COUNSEL
REGARDING CLOSING OF SGVCOG OFFICES ON
FRIDAY
INFORMATION RELATED TO CHIP CONWAY
JEFFERS STAFF REPORT REGARDING GRANT
FUNDS
CONTRACT WITH CITYGATE
CITYGATE REPORT
Management Consultants Folsom (Sacramento)
2250 East Bidwell Street, Suite 100 Folsom, CA 95630
(916) 458-5100 Fax: (916) 983-2090
Organizational
Management Audit
for the







February 2, 2012

San Gabriel
Valley Council of
Governments

Table of Contents page i
TABLE OF CONTENTS
SE CTI ON PA GE
Section I-Executive Summary ................................................................................................. 1
1.1 A Brief Background ....................................................................................... 1
1.2 Our View on the Major Issues ....................................................................... 2
1.3 Concluding Thoughts ..................................................................................... 5
Section I I-I ntroduction and Study Design .............................................................................. 6
2.1 Report Organization ....................................................................................... 6
2.2 Contracted Scope of Work ............................................................................. 7
2.3 Preliminary Document Review ...................................................................... 8
2.4 Study Design .................................................................................................. 8
Section I I I-Overview and Analysis of the SGVCOG`s Organizational Structure ........... 10
3.1 Introduction .................................................................................................. 10
3.2 History and Background .............................................................................. 10
3.3 A Review oI the SGVCOG`s Governance Structure ................................... 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 City Managers` and Other Technical Advisory Committees
(TACs) ............................................................................................. 13
Section I V-Evaluation of Management of Operations ........................................................ 16
4.1 Introduction .................................................................................................. 16
4.2 Analysis of Operational Requirements, Staffing, and Operational
Management Structure ................................................................................. 16
4.3 Analysis of Administrative Control over Consultants and the Management
of 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
Section VComparison of the SGVCOG Operations with the Gateway Cities COG ....... 21
5.1 Introduction .................................................................................................. 21
5.2 Administrative Budget and Labor Costs ...................................................... 23
5.3 Dues Structure .............................................................................................. 25
Section VIReview of the Management Services Agreement Between Ar royo Associates
and the SGVCOG ................................................................................................. 30
6.1 Introduction .................................................................................................. 30
6.2 Analysis of Management Services Agreement ............................................ 30
6.3 Additional Services for Grant Administration other than
'Core Services ............................................................................................ 31
6.4 Timekeeping Procedures .............................................................................. 31
6.5 SGVCOG Staffing Options and Related Costs ............................................ 33
Section VI IEvaluation of the Structure and Relationship Between the SGVCOG and
ACE JPA ............................................................................................................... 35
7.1 Introduction .................................................................................................. 35
7.2 Analysis of Operational Requirements, Staffing, and Operational
Management Structure ................................................................................. 35
Section VI I IFindings and Recommendations ..................................................................... 39
8.1 Summary of Findings and Recommendations ............................................. 39
8.1.1 Evaluation of Management Operations ........................................... 39
8.1.2 Comparison of Organizational Operations with the Gateway Cities
Council of Governments .................................................................. 40
8.1.3 Review of the Management Services Agreement Between Arroyo
Associates and the SGVCOG .......................................................... 40
8.1.4 Evaluation of the Structure and Relationship Between the SGVCOG
and ACE JPA ................................................................................... 41
Appendices
Appendix AList of Those Interviewed as a Part of This Study
Appendix BList of Documents that were Reviewed


Table of Contents page iii
Table of Tables:
Table 1SGVCOG Board Executive Committee ....................................................................... 12
Table 2Gateway Cities Annual Administrative Costs .............................................................. 24
Table 3Gateway Cities Annual Dues and Assessments Revenues ........................................... 24
Table 4Arroyo Associates Expenses Under MSA Ior 'Core Services ................................... 24
Table 5Arroyo Associates Income from MSA Contract........................................................... 25
Table 6Dues and Assessments for the Gateway Cities COG for the 2011-12 Fiscal Year ...... 26
Table 7Dues and Populations for the SGVCOG for the 2011-12 Fiscal Year ......................... 28

Section IExecutive Summary page 1
SECTION IEXECUTIVE SUMMARY
Management is doing the things right.
Leadership is doing the right things. --- Peter Drucker
The San Gabriel Valley Council of Governments (SGVCOG) commissioned Citygate
Associates, LLC, to perform a high-level and focused review of the organization. This study is
taking place at the mid-point in time concerning the construction of SGVCOG`s major project,
the Alameda Corridor Extension through the San Gabriel Valley.
The construction of this project will ultimately cost in the magnitude of $1.4 billion dollars, and
will extend the Alameda Transportation Corridor from its current terminus in Los Angeles to the
eastern 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 be
significantly 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 looking
forward 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 Line
extension 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 dynamism
going on within the San Gabriel Valley.
1.1 A BRIEF BACKGROUND
The SGVCOG was formed in 1994 as a Joint Powers Agency (JPA) with a membership of 31
cities, three Los Angeles County supervisorial districts and a representative of the San Gabriel
Valley`s three water agencies.
We were impressed by those we interviewed both inside and outside the SGVCOG about how
well 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 summary
list of the scope of work issues covered in each respective section. This will orient the reader to
how we have addressed all of the scope of work issues listed in Section 2.2.

Section IExecutive Summary page 2
1.2 OUR VIEW ON THE MAJOR ISSUES
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, in
some cases, are broader than the specific scope of work issues, but in all cases, incorporate them.
They are as follows:
Issue #1: Completion of the Outstanding Caltrans Audit. Analyze and Evaluate
the Current Structure and Operational Management Structure of SGVCOGV
Grant Administration, Management Practices, and F inancial Controls.
In its most recent letter dated December 12, 2011 Caltrans says that it 'looks Iorward to the
resolution of the conflict of interest between SGVCOG and Arroyo Associates, Inc., reviewing
the written administrative procedures and operational plan, receipt of $42,687
1
. . ., and working
with 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.
The Caltrans letter also states 'it was determined that the Master Services Agreement between
SGVCOG and its consultant, Arroyo Associates, Inc. (AAI), creates a conflict of interest.
(Emphasis added.) While Citygate finds this conclusion of Caltrans to be a bit mystifying, we
nonetheless propose our recommended remedy in this report.
2

As background for the reader, Caltrans issued its most recent audit dated September 7, 2011,
'included a Iinding that a conIlict oI interest existed because the Management Services
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 SGVCOG
to Arroyo. This amount will be reimbursed from unexpended grant funds that are specified in the grant from
Caltrans for administrative expenses. The balance of $5,750 will be reimbursed by the City of Irwindale for
computational errors Ior 'in-kind services.
2
This is reIerred to in other correspondence as 'apparent conIlict oI interest. The alleged conflict of interest is
caused by the fact that under the Management Services Agreement (MSA) between the SGVCOG and Arroyo
Associates, Inc., Arroyo was performing services as both the Executive Director and as a recipient of a grant
contract.

Section IExecutive Summary page 3
Arroyo to provide staff services to the COG and for the President of Arroyo to serve as the
COG`s Executive Director.
3

While we believe that Caltrans` major point oI contention is the SGVCOG`s Management
Services Agreement, their Corrective Action Plan dated December 9, 2011 indicates that a
follow-up audit will also include 'a review oI SGVCOG`s Iinancial management system
including internal controls, policies and procedures, and project costing system. Further, it will
also include SGVCOG`s compliance with State and Federal regulations.
As Citygate states in this report, we found no weaknesses or discrepancies in the project
management systems and internal finance controls that we reviewed. It is possible that Caltrans
has some criteria pertaining to State and Federal regulations that we are not familiar with. None
of the correspondence from Caltrans that we reviewed referred to specific deficiencies in the
SGVCOG`s management systems or what 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.
Recommendation VI-3: It is recommended that the SGVCOG proceed to comply with the
Corrective Action Plan within the timeframe specified.
Issue #2: Replace the SGVCOGVCurrent Management Services Agreement
(MSA) with In-house Employees through Employment Agreements.
In order to eliminate Caltrans` objection to contracting for staff from the private sector through
an 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 Executive
Director, 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 play
an even greater role in constructing regional projects, especially in transportation and
environmental 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 to
employ their staff. We recommend that the SGVCOG investigate the cost and means of
converting the core staII oI Iive employees to 'in-house employees. Furthermore, transitioning

3
The Iull background on this issue is contained in a memorandum entitled 'Caltrans Audit and ConIlict oI Interest
Issue, Irom Richard D. Jones, SGVCOG General Counsel, to the SGVCOG Board, dated October 20, 2011.

Section IExecutive Summary page 4
the SGVCOG staff to in-house employees will provide the most viable approach in the future for
hiring successive staff members.
Recommendation VI-2: SGVCOG investigate the cost and terms oI bringing a 'core staII oI
employees 'in-house to provide management oI the SGVCOG.
Issue #3: Examine the Structure and Relationship between the SGVCOG and
its Subsidiary, the Alameda Corridor-East (ACE) Construction Authority.
ACE was created in 1998 to serve as the construction arm of SGVCOG to build a series of grade
separations along this corridor, as we mentioned, earlier. The current estimated cost to complete
the 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
'unity oI command. Nevertheless, Citygate believes that these issues can be overcome iI the
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.
Recommendation VI I-1: The SGVCOG Governing Board should continue to clarify and
reiterate its oversight role and use the Public Works and City
Managers` TACs to ensure that all relevant inIormation and a
recommendation are provided to move Phase II of the project forward
to completion.
Issue #4: Focus on Completing the ACE Project.
While recognizing the potential risks associated with a large public works project, the greatest
risk may be creating any unnecessary delays in moving forward and completing the project on
time 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 and
recommendations from ACE concerning the project mix and budget, including setting aside
adequate reserves for project closeout.
No specific recommendation is made, here.

Section IExecutive Summary page 5
Issue #5: Consider the Long-Term Direction for the 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 the
future within a time-frame of five to ten years.
For example, we were asked to compare the similarities and differences of the SGVCOG with
the Gateway Cities COG. The latter COG has chosen a role of facilitating projects rather than
implementing 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 the
SGVCOG 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 ago
will not be appropriate five years from now.
Recommendation 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
'business risks Ior the Gateway Cities COG which is discussed
elsewhere in this report.
1.3 CONCLUDING THOUGHTS
Citygate feels that it is important to conclude this summary with several comments about
SGVCOG`s 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 Governing
Board and its various committees. It reflects the standard of care that the SGVCOG`s Executive
Director has exercised in employing the very best qualified people on the SGVCOG`s staII.
Finally, as part of our document review, we reviewed the last three annual performance reviews
of the Executive Director by the Governing Board. All three reviews gave him high marks. For
example, last year`s review (2010) stated, 'Over 85 oI respondents rated the ED`s work as
superior` or above average` in all categories.

Section IIIntroduction and Study Design page 6
SECTION IIINTRODUCTION AND STUDY DESIGN
2.1 REPORT ORGANIZATION
This report provides the results of Citygate Associates, LLC`s high-level review of the San
Gabriel Valley Council of Governments (SGVCOG). The report identifies in broad terms the
history, governance, organizational structure, separation of authority, management of grants, and
issues 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 as
key issues. We recognize that many of these issues will require further study, and have designed
our report to provide a 'roadmap to the Board in dealing both with the internal and external
issues that we have identified.
In addition to providing findings and recommendations, we have provided optional solutions in
several 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 a
summary 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`s Organizational Structure: Review
and 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, and
employment arrangements.
Section VI Review of the Management Services Agreement (MSA) between Arroyo
Associates and the SGVCOG: Analysis of SGVCOG staffing options and
estimated costs.
Section VII Evaluation of the Structure and Relationship between the SGVCOG and the
ACE Joint Powers Agreement: Analysis of the responsibilities of each
organization.
Section VIII Findings and Recommendations: A concluding section listing all findings
and recommendations throughout the report.

Section IIIntroduction and Study Design page 7
In each of the appropriate sections mentioned above, this report will cite specific findings and
recommendations. In order to provide a comprehensive summary, a complete listing of all
findings and recommendation is presented in Section VIII. The findings and recommendations
have 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 CONTRACTED SCOPE OF WORK
Citygate`s scope oI work is defined in the contract dated November 8, 2011 between the San
Gabriel Valley Council of Governments (SGVCOG) and Citygate Associates, LLC. This
contract summarizes the services to be provided as follows:
Analyze the current structure including the 'day-to-day operational requirements
and staffing.
Evaluate operational management structure and provide recommended options for
'Best Practices and estimated costs associated.
Evaluate the administration and control of all contracts between the SGVCOG
and consultants.
Review and evaluate the management of all SGVCOG grants.
Analyze the SGVCOG`s Iinancial practices comparing to 'Best Practices
including applicable 'checks and balances or separation oI authority.
Provide a comparison of organizational operations and assessment with the
'Gateway Cities Council oI Governments.
Review and assess the 'Master Services Agreement between Arroyo Associates
and the SGVCOG.
Evaluate the structure and relationship between the SGVCOG and the ACE Joint
Powers Agreement and provide recommendations for improvement if needed.
Provide recommendations on SGVCOG staffing options and related costs.
Review and analyze current policies and procedures.
Citygate`s scope oI work did not include either a Iinancial audit or a program compliance audit.
Throughout the report, we make reference to the scope of work item (or items) that are relevant
to each section.
Citygate`s proposed findings and recommendations are confined to those that pertain to the
operations 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, its
subsidiary agency.

Section IIIntroduction and Study Design page 8
2.3 PRELIMINARY DOCUMENT REVIEW
Prior to Citygate`s on-site work, we requested and were provided with a number of documents
for review as shown in Appendix B on page 44.
2.4 STUDY DESIGN
Since this is a focused and limited management review, it required a well-thought-out effort to
understand the fundamental issues, collect relevant data, evaluate and analyze the data and to
make appropriate findings and recommendations.
Because of the limited time available to conduct our field work, our report focuses on the key
issues that have been identified that contribute to achieving the mission of the SGVCOG. These
center 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 expectations
of grant providers.
The study design for this assignment included the following steps:
An initial discussion between Citygate`s Project Team members
4
and the
SGVCOG`s Sub-Committee prior to the on-site work to understand the specific
subject areas, leadership and management concerns about the SGVCOG.
Furthermore, we clarified our client contact point for progress reports, and
clarification, where needed.
A thorough and continuing review of the above-referenced documents so that the
Project 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
In this report, reIerences to 'Citygate indicate Citygate Associates, LLC. ReIerences to 'Citygate`s Project Team
members or 'Project Team members reIer to the Iirm`s two consultants, both oI whom spent two and one-half
days on site in the SGVCOG offices interviewing the members of the SGVCOG Sub-Committee, as a group, and
then 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 a
selected 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,
and a Iormer city manager with Iamiliarity with the San Gabriel Valley. ReIerences to 'we reIer to the consensus oI
the Project Team members and Citygate Associates, LLC.

Section IIIntroduction and Study Design page 9
SGVCOG and ACE Boards,
5
management and selected staff, and selected outside
individuals who could contribute to understanding the history and issues relative
to conducting this study.
Development of an interview schedule that provided sufficient time to conduct
twenty-four interviews with the above-referenced elected officials, management
staff members, and outside contributors.
A Project Kick-Off meeting with the Sub-Committee to clarify expectations and
desired project outcomes.
Follow-up interviews were needed in some cases to cross-check facts, and to
further 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 on
the Sub-Committee.

Section III-Overview and AnaIysis of the SGVCOG's OrganizationaI Structure page 10
SECTION III-OVERVIEW AND ANALYSIS OF THE SGVCOG'S
ORGANIZATIONAL STRUCTURE
3.1 INTRODUCTION
In this section of the report, Citygate briefly discusses the background and history of the
SGVCOG to provide context for the remaining sections of the report. We then discuss the
relationships between the SGVCOG Governing Board, the Board of Directors of ACE (a
subsidiary), the management of both entities, and the role of the Technical Advisory
Committees, especially the City Managers` TAC.
3.2 HISTORY AND BACKGROUND
Founded in 1994, the San Gabriel Valley Council of Governments (SGVCOG) is a Joint Powers
Authority (JPA) of 31 incorporated cities in the San Gabriel Valley, the three Supervisorial
Districts representing the unincorporated areas in the San Gabriel Valley, and a representative of
the Valley`s three water agencies. Collectively, these agencies represent the Valley`s two million
residents living in 31 incorporated cities and numerous unincorporated communities.
The SGVCOG is the largest and most diverse sub-regional council of governments in Los
Angeles County, with the exception of the even-larger six-county area formed by the Southern
California 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 and
under-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 and
Local Independence. The San Gabriel Valley`s cities account Ior 40 percent oI Los Angeles
County`s cities, 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 unincorporated
communities, including such significant communities as Altadena, Hacienda Heights, and
Rowland 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 forge
a consensus in addressing issues that impact all the cities and communities. The SGVCOG was
the first of its kind in Southern California and remains the largest council of governments in Los
Angeles County. The San Gabriel Valley is represented by two U.S. Senators, five Members of

Section III-Overview and AnaIysis of the SGVCOG's OrganizationaI Structure page 11
Congress, six State Senators, seven Assembly members, and three of the five Los Angeles
County 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 Gabriel
Valley. 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 have
many shared issues and projects that intersect multiple jurisdictions, such as traffic congestion,
transit projects, park and open space, air quality regulations, watersheds planning, and solid
waste regulations.
3.3 A REVIEW OF THE SGVCOGS GOVERNANCE STRUCTURE
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, regional
characteristics, demographics, and even political priorities. Consequently, there is ever-present
what might be called a political 'centriIugal Iorce that tends to pull the member agencies apart,
diluting political solidarity and even creating conflicts between members.
One could argue that this 'centriIugal Iorce becomes stronger as programs move Irom
generalized, region-wide topics such as air quality, to more specific, local issues such as freeway
locations. Said another way, planning is easier than implementation.
In spite of these natural political dynamics, the SGVCOG has been remarkably successful in
achieving 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 traditionally
competed for resources with other regions such as central Los Angeles, the West Side, South
Bay, etc.
Additionally, the SGVCOG leaders must be given credit for providing consistency and focus on
the 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 31
cities, three supervisorial districts, and the San Gabriel Valley Water Districts JPA. The
Governing Board meets monthly, and is responsible as the governing body, including appointing
the Executive Director of the COG.

Section III-Overview and AnaIysis of the SGVCOG's OrganizationaI Structure 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 Council
Standing Policy Committees, and the Chairperson of the Alameda Corridor East Construction
Authority.
Table 1SGVCOG Board Executive Committee
President
1
st
Vice President
2
nd
Vice President
3
rd
Vice President
Past President(s) (remaining on Board)
Secretary and Treasurer (non-voting Executive Director)
COG Policy Committee Chai rs (Transportation; Energy,
Environment and Natural Resources; Housing,
Community, and Economic Development)
COG Technical Advisory Committee Chai rs (non-
voting City Managers, Public Works, Planners)
3.3.2 Standing Policy Committees
The Governing Board has established three standing committees to develop policy
recommendations in specific functional areas consistent with the overall mission of the Council.
Currently, these are: the Transportation Committee; the Energy, Environment and Natural
Resources 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 Committees
In addition to the High Speed Rail Working Group, on July 11
th
, 2011, the Board Executive
Committee appointed another ad hoc committee to review the SGVCOG`s structure, staIIing,
and management practices. That committee is composed of the President, the 1
st
and 2
nd
Vice
Presidents, and the Ace Board Chair (who is also a SGVCOG Board Member). The City

Section III-Overview and AnaIysis of the SGVCOG's OrganizationaI Structure page 13
Managers` TAC 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. As
mentioned earlier, the Project Team initially met with this committee to clarify that it would
serve as our client contact point. Citygate used the Sub-Committee as the contact point for
reporting purposes.
3.3.4 City Managers' and Other TechnicaI Advisory Committees (TACs)
The SCVCOG Board has established three Technical Advisory Committees (TACs)City
Managers, Planning/Community Development Directors, and Public Works/Transportation
Directorsfor the purpose of providing input, as may be requested by the Governing Board.
These committees have broad powers 'including, but not limited to Council work programs,
budgets, priorities, policies, programs and practices.
6

One of the activities of the City Managers` TAC has been to set up the ACE Phase II Review
Sub-Committee to develop a cost/benefit assessment of the projects in the ACE Phase II Study
and 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 as
ACE and SGVCOG staff.
7

We understand that the City Managers` TAC is currently reviewing ACE Phase II study
recommendations from the Public Works TAC, with the intention of making project and funding
recommendations 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, and
technical 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-Overview and AnaIysis of SGVCOG's Organizational Structure page 14
Governing Board
Executive
Director
General
Counsel
Accountant/
Treasurer
Office
Manager
Staff #1 (MC) Staff #2 (JL) Staff #3 (CS) Staff #4 (GB)
Core Services (.4 FTE)
xGoverning Board
xTransportation
Committee
xEENR Committee
xCityManagers TAC
xPublic Works TAC
xPlanning TAC
xEnergyWorking Group
Grants (.6 FTE)
xEnergy Wise
xCalRecycle
xWatershed
xSCE CEESP
xEnergyUpgrade
Grants (.75 FTE)
xSCE CEESP
Core Services (.5 FTE)
xGoverning Board
xExecutive Committee
xEENR Committee
xHousing Committee
xPlanning TAC
xEnergyWorking Group
xWater Working Group
Grants (.5 FTE)
xEnergy Wise
xWatershed
xSCE CEESP (EE CAP)
xEnergyUpgrade
Core Services (.1 FTE)
xPublic Works TAC
xSolid Waste Working
Group
Grants (.9 FTE)
xEnergy Upgrade
xEnergyWise
xSCE CEESP (EEMIS)
xAll record keeping
SGVCOG Staff Responsibilities

Section III-Overview and AnaIysis of SGVCOG's Organizational Structure page 15
COG Standing
Committees
Transportation
Committee
J. Fasana, Chair
Steve Ly
CityCouncil
Representatives,
CityTransportation
Engineers
Lower LA& SGV Rivers and
Mtns Conservancy
D. Bertone, SanDimas
M. Clark, Rosemead
Planners Technical Advisory
Committee
D. Chantarangsu
L. Stevens
CityCommunityDevelopment
Staff andPlanners
Public Works Technical
Advisory Committee
S. Yauchzee
K. Hassel
CityPublic Works Engineers
CityTransportationEngineers
City Managers Technical
Advisory Committee
D. Parrish
R. Bobadilla
GoldLine Foothill
Extension
S. Pedroza, Claremont
League of California Cities
Liaison
S. Pedroza, Claremont
MTATAC
L. Stephens
B. Janka
C. Bradshaw
Transportationand
Communications
T. Spohn, Industry
S. Ly, Rosemead
Community, Economic and
HumanDevelopment
G. Sund, Supv. District 5
G. Murabito, Glendora
J. Gonzales, So. El Monte
Energy andEnvironment
S. Pedroza, Claremont
D. Bertone, SanDimas
Treasurer/Auditor
C. Conway
Executive
Committee
Angel Carrillo
Barbara Messina
MaryAnnLutz
Joe Gonzales
JohnFasana
GinoSund
Sam Pedroza
DavidSpence
Carol Herrera
Tom King
Tim Spohn
Energy, Environment and
Natural Resources
Committee
S. Pedroza, Chair
D. Bertone, Vice Chair
CityCouncil
Representatives
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
K':W
ACE Construction
Authority
T. Spohn, Chair,
Cityof Industry
Dave Gutierrez
SanGabriel
ACE Board
COG Technical Advisory
Committees
COG Ad Hoc Committees
SGVCOG Governing Board
35 Member Agencies
Executive Director
N. Conway
HighSpeedRail
Working Group
CityCouncil Representatives
CountySupervisor
Representatives
CityStaff
Other COG AdHoc
Committees maybe formed
toaddress issues as directed
bythe Board
Legal Counsel
R. Jones, Jones & Mayer
Housing, Community, and
Economic Development
Committee
G. Sund, Chair
G. Murabito
CityCouncil Representatives
CityHousing &
Redevelopment Staff
Committees, Sub-Committees, and Technical Advisory Committees Supporting the Governing Board

Section IVEvaluation of Management of Operations page 16
SECTION IVEVALUATION OF MANAGEMENT OF OPERATIONS
4.1 INTRODUCTION
The scope of work items covered in this section are:
Analyze the current structure including the ~day to day operational
requi rements and staffing.
Evaluate operational management structure and provide recommended
options for ~best practices and estimated costs associated.
Evaluate the administ ration and control of all contracts between the
SGVCOG and consultants.
Review and evaluate the management of all SGVCOG grants.
Review and analyze cur rent policies and procedures.
4.2 ANALYSIS OF OPERATIONAL REQUIREMENTS, STAFFING, AND OPERATIONAL
MANAGEMENT STRUCTURE
We reviewed both the organizational and staff relationships of the COG management and
operational staff. (See organization charts shown previously on pages 14 and 15). These charts
reveal both the functions performed by the various COG committees and the distribution of staff
between 'core services paid Ior Irom membership dues, and grant-funded program activities of
each member of the staff.
One of the benefits associated with this staffing arrangement is that eligible grant-Iunded 'core
service overhead expenses Ior staII salaries and beneIits, as well as Iixed direct costs such as
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 the
Executive Director. One of the Staff Analysts is employed on at three-quarters time basis, so the
full-time equivalent of Staff Analysts is 3.75 FTE.
An Accountant/Treasurer (Bookkeeper) is also employed, but reports directly to the Governing
Board. This creates a reporting 'Iirewall between the staff members who generate time-sheets
and review invoices from vendors and consultants, and the accountant who reviews and approves
those source documents.
While a financial audit is outside the scope of our work, we reviewed sample time sheets and
compared them with task lists associated with each of the Staff Analyst positions. Tasks assigned

Section IVEvaluation of Management of Operations page 17
to these Staff Analyst positions generally fall into two categories: (1) staff support to the
Governing Board, the Standing Committees, and the Technical Advisory Committees (TACs);
and (2) grant administration and program operations. What we mean by 'program operations is
that these Staff Analysts actually perform some of the work associated with specific grants.
Other 'program operations are perIormed by outside consultants.
As a cross-check, our interview sample of Board members corroborated the fact that the Staff
Analysts` quality of work is highly regarded and appreciated.
Finding I V-1: The SGVCOG has a very small administrative operation. Having
all five staff members report directly to the Executive Director
does not create a span-of-control issue and creates an efficient
reporting relationship. Because of the small number of staff, the
Staff Analysts are Iamiliar with each other`s assignments, and
can substitute for each other, if need be.
Recommendation I V-1: Before the Governing Board decides and acts on
adding a new project or program, require the
Executive Director to provide a cost estimate and
staffing strategy for implementation.

Finding I V-2: Based upon our analysis of the current workload, we believe that
the staff is working at capacity. Care should be taken, however,
in adding programs without discontinuing other lower priority
activities or supplementing resources.
Recommendation I V-2: Maintain the current staffing arrangement and
structure.
4.3 ANALYSIS OF ADMINISTRATIVE CONTROL OVER CONSULTANTS AND THE MANAGEMENT
OF GRANTS
A total of two outside consulting contracts are currently administered by the SGVCOG staff. The
Staff Analysts are responsible for monitoring and reviewing the work products from these
consultants. Additionally, the Lead Staff Analyst reviews their invoices to cross-check between
work performed and work billed. All source records are kept in the respective project logs
associated with each respective project for a historical record and audit purposes.

Section IVEvaluation of Management of Operations page 18
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 managing
the 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, and
diaries 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 process
relating to describing the purpose and process for delivering the work under the
grant.
Grant invoices and payment requests: complete records of all payment records
documenting the reason for payment, amount, and source of payment funds.
Post-grant records: including audit by grantor agency, all correspondence relating
to audit findings, and closeout.
We also note that the Lead Staff Analyst routinely checks with each respective grant-providing
agency`s grant manager, monthly, to be assured that invoices 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 the
function of performing grant implementation. We understand the concern about creating a
conflict 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 the
California 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 Edison
Company is included within Edison`s own internal auditing systems. The CPUC audits Edison`s
rate payer programs, of which SGVCOG`s program is one oI many.
Finding I V-3: The administration of grants requires maintaining detailed
records indexed chronologically and by subject matter. We find
that the SGVCOG`s records and grant management systems are
Iollowing 'best practices.

Section IVEvaluation of Management of Operations page 19
Recommendation I V-3: Maintain and continue using the current grant
management system.
4.4 OPTIONS FOR ALTERNATIVE ORGANIZATIONAL STRUCTURES FOR GRANT
MANAGEMENT
Citygate was asked to consider an organizational arrangement whereby 'core administrative
services would be handled by Arroyo Associates, and grant management activities would be
handled by a separate management services company under a separate contract, thus eliminating
any 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 be
engaged to perform all contract management functions, including contract compliance and
expenditure 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 nobody
was inordinately profiting from the grant program.
It seems to Citygate that this would be not only overly complicated and less effective, but also
most likely be far more expensive. Grantmaking organizations often want to be familiar with the
capabilities of personnel responsible for the implementation of the grant project. There is a high
level of relational cultivation between the grantmaker and grantee throughout the grant
management 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 a
single point of contact. Furthermore, the SGVCOG staff would then be required to monitor the
work of the third-party contractor implementing the grant program.
II Citygate`s recommendation to bring the core staII 'in house is implemented, then grant
programming work could either be done by 'in house staII or, iI desirable, the Governing Board
could outsource to outside contractors just as it is done within municipal organizations of the
member agencies of the SGVCOG. This would be transparent in terms of the SGVCOG`s
budget, and would avoid any issues of conflicts of interest.

Section IVEvaluation of Management of Operations page 20
4.5 ANALYSIS OF FINANCIAL MANAGEMENT INCLUDING CONTROLS
We have noted that internal controls are in place to assure that all labor hours are reviewed by a
supervisor and signed off as accurate. These verified reports are then referred to the SGVCOG`s
Treasurer/Auditor for consolidation into billing statements which are either assigned to payment
Irom 'core service revenues, or sent to the respective grant manager oI the respective agencies
for monthly review and reimbursement by that agency.
On an annual basis, the SGVCOG is audited by outside auditors. Additionally, the SGVCOG is
also audited by each respective grant-providing agency to verify that all expenses meet grant
contract 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 also
note 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 practices
that provide clear and detailed audit trails.
In terms of services provided by the staff, we have reviewed detailed job and activity
descriptions, and work logs documenting what each employee has performed each month. These
logs provide a check that the work actually performed matches each employee`s job assignments.
We find that the workload is well distributed, and the organizational structure is more than
adequate 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 I V-4: We believe that adequate internal controls are in place to
maintain best practices concerning the core activities and grant
programs maintained by the SGVCOG.
Recommendation I V-4: As a good practice, the SGVCOG`s annual auditors
should be routinely asked to review all time-keeping
and program management activities for compliance
with generally accepted accounting practices and State
and Federal grant requirements.

Section VComparison of the SGVCOG Operations with the Gateway Cities COG page 21
SECTION VCOMPARISON OF THE SGVCOG OPERATIONS WITH THE
GATEWAY CITIES COG
5.1 INTRODUCTION
The scope of work item covered in this section is:
Provide a comparison of organizational operations and assessment with the
~Gateway Cities Council of Governments.
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 Angeles
County, as well as the County of Los Angeles and the Port of Long Beach. Its organizational
mission 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 the
SGVCOG. 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 direct
implementation 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 be
characterized as a sub-set of the Southern California Associations of Governments (SCAG). Its
function in terms of the Gateway Cities COGV programs and initiatives is:
First: A Forum
Second: A Planner
Third: A Consensus Builder
Fourth: An Advocate
The Gateway Cities COGV approach is to assist in the formation of consortia of member cities
and 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.

Section VComparison of the SGVCOG Operations with the Gateway Cities COG page 22
Maintaining the necessary public relations to render public support and
understanding.
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 regional
agencies 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 role
of a facilitator in creating projects within its region.
Recommendation 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
'business risks Ior the Gateway Cities COG which is
discussed elsewhere in this report.

Section VComparison of the SGVCOG Operations with the Gateway Cities COG page 23
5.2 ADMINISTRATIVE BUDGET AND LABOR COSTS
The Gateway Cities Council of Governments is similar in membership size to the SGVCOG (31
agencies 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 Services
Agreement (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 a
hybrid 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 PERS
system at the time of his employment. Consequently, this arrangement was negotiated between
the COG Board and the Executive Director.
Two additional staff members, including the Assistant Executive Director (for finance) chose to
remain in the PERS system, so two member cities, Norwalk and Bellflower, each agreed to
respectively employ one of these latter employees. The Gateway Cities COG has agreements
with these cities, and reimburses them for all employment costs, including fringe benefits and
PERS retirement costs. As a consequence, the Gateway Cities COG has worked out a way to not
contract 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 levels
of the Gateway Cities COG and SGVCOG, given the various differences in program priorities,
activities, and grant projects.

Section VComparison of the SGVCOG Operations with the Gateway Cities COG page 24
Table 2Gateway Cities Annual Administrative Costs
Category Cost Notes
Labor Costs
Full-time directly employed
employees
$304,008
3 employees, including the
Executive Director
Contract employees through
Cities 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 services
costs (similar to SGVCOG MSA)
$855,069
Table 3Gateway Cities Annual Dues and Assessments Revenues
Category Cost
Revenues from member dues $ 619,000
Assessments from cities on
freeway corridor projects
$ 597,500
MTA contribution $ 200,000
Total Revenue* $1,416,500
*Difference between revenues and cost is for special projects. (Total Labor +
Total Operational Cost Total Revenue)
Table 4Ar royo Associates Expenses 8QGHU06$IRU&RUH6HUYLFHV
Employees Salaries Benefits
*
Total
Executive Director $150,000 35.9% $203,850
3 staff providing "core
services
$204,000 35.9% $277,236
Rent $ 72,000
Telephone/internet $ 7,200
Office Supplies $ 12,000
Totals $572,286
* These cost figures were provided by Arroyo, and Citygate was advised that this percentage of direct labor cost
represents all Iringe beneIits, Social Security costs, workers` compensation, and all other payroll related costs.

Section VComparison of the SGVCOG Operations with the Gateway Cities COG page 25
Table 5Ar royo Associates I ncome f rom MSA Contract
Contracts Income
MSA $422,000
MSA Amendment #1 $105,000
Total Paid to Arroyo under MSA $527,000
It should be noted that Arroyo`s expenses Ior 'core services to the SGVCOG in Table 4 exceed
the income Ior 'core services shown in Table 5. It was explained to us that the shortIall in
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 and
Arroyo Associates, it appears that the administrative costs (which are summarized above) for the
SGVCOG 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 DUES STRUCTURE
We also compared the dues structure between the two COGs. The dues breakdown for the
Gateway Cities COG is as follows: (Note: Table shown on following page.)

Section VComparison of the SGVCOG Operations with the Gateway Cities COG page 26
Table 6Dues and Assessments for the Gateway Cities COG for the 2011-12 Fiscal Year
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 9,533.50
Bell 6,500.00 2,917.73 2,179.04 11,596.77
Bell Gardens 8,000.00 5,811.92 2,581.68 16,393.60
Bellflower 8,000.00 4,304.27 2,751.89 15,056.16
Cerritos 9,500.00 5,693.11 3,921.95 19,115.06
Commerce 8,000.00 2,657.38 2,856.85 13,514.23
Compton 9,500.00 7,890.21 3,795.47 21,185.68
Cudahy 6,500.00 2,266.21 1,904.69 10,670.90
Downey 9,500.00 8,613.59 4,108.04 22,221.63
Hawaiian Gardens 6,500.00 1,773.02 1,762.63 10,035.65
Huntington Park 8,000.00 5,208.84 2,675.15 15,883.99
La Habra Heights 7,000.00 7,000.00
La Mirada 8,000.00 4,447.00 2,837.06 15,284.06
Lakewood 8,000.00 6,150.19 3,041.33 17,191.52
Long Beach 16,000.00 28,140.16 15,898.74 60,038.90
Lynwood 8,000.00 5,653.28 2,593.43 16,246.71
Maywood 6,500.00 2,468.90 1,911.29 10,880.19
Montebello 8,000.00 5,250.78 3,437.92 16,688.70
Norwalk 9,500.00 8,403.06 3,614.12 21,517.18
Paramount 8,000.00 4,890.72 2,545.05 15,435.77
Pico Rivera 8,000.00 5,317.63 2,783.34 16,100.97
Santa 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 12,945.92
South Gate 8,000.00 7,040.95 2,887.51 17,928.46
Vernon 6,500.00 1,004.76 2,268.28 9,773.04
Whittier 8,000.00 6,376.93 3,423.31 17,800.24
Port of Long Beach 20,000.00 20,000.00
County of Los
Angeles
53,283.00 53,283.00
Total Base Dues
and Assessments
$291,783 $140,701 $85,446 $517,930.62
I-710 Assessments
Long Beach $37,500
County of Los
Angeles
35,000
Carson 25,000

Section VComparison of the SGVCOG Operations with the Gateway Cities COG page 27
Agency Base Dues
Transportation
Assessment MTA Deputy Total
Compton 25,000
Downey 25,000
Huntington Park 25,000
Lynwood 25,000
Paramount 25,000
South Gate 25,000
Bell 10,000
Bell Gardens 10,000
Commerce 10,000
Cudahy 10,000
Maywood 10,000
Signal Hill 10,000
Vernon 10,000
Total I-710
Assessments
$317,500
91/605
Assessments

Artesia $20,000
Bellflower 20,000
Cerritos 20,000
Compton 20,000
Downey 20,000
Hawaiian Gardens 20,000
Lakewood 20,000
Long Beach 20,000
Norwalk 20,000
Paramount 20,000
Pico Rivera 20,000
Santa Fe Springs 20,000
Whittier 20,000
County of Los
Angeles
20,000
Total 91/605
Assessments
$280,000
In total, the Gateway Cities COG dues and assessments for 29 agencies is $1,115,430 for the
current fiscal year.

Section VComparison of the SGVCOG Operations with the Gateway Cities COG page 28
The dues breakdown for the SGVCOG is as follows:
Table 7Dues and Populations for the SGVC OG for the 2011-12 Fiscal Year
Agency
2011 Population
Dept. of Finance
Actual 2010-11
Dues
Estimated 2011-12
Dues
Alhambra 83,450 $30,000 $30,000
Arcadia 56,548 $22,016 $21,964
Azusa 46,399 $19,762 $18,920
Baldwin Park 75,664 $29,481 $27,699
Bradbury 1,059 $5,289 $5,318
Claremont 35,053 $16,282 $15,516
Covina 47,931 $19,887 $19,379
Diamond Bar 55,766 $23,306 $21,730
Duarte 21,380 $11,937 $11,414
El Monte 113,785 $30,000 $30,000
Glendora 50,260 $20,849 $20,078
Industry 451 $20,558 $20,035
Irwindale 1,426 $20,558 $20,035
La Canada Flintridge 20,301 $11,378 $11,090
La Puente 39,930 $18,007 $16,979
La Verne 31,153 $15,215 $14,346
Monrovia 36,686 $16,995 $16,006
Montebello 62,792 $24,734 $23,838
Monterey Park 60,435 $24,508 $23,131
Pasadena 138,915 $30,000 $30,000
Pomona 149,243 $30,000 $30,000
Rosemead 54,034 $22,327 $21,210
San Dimas 33,465 $16,084 $15,040
San Gabriel 39,839 $17,895 $16,952
San Marino 13,185 $9,025 $8,956
Sierra Madre 10,948 $8,330 $8,284
South El Monte 20,174 $11,788 $11,052
South Pasadena 25,692 $12,764 $12,708
Temple City 35,673 $15,768 $15,702
Walnut 29,439 $14,798 $13,832
West Covina 106,400 $30,000 $30,000
LA County District 1 N/A $30,000 $30,000
LA County District 4 N/A $30,000 $30,000
LA County District 5 N/A $30,000 $30,000
SGV Water Agencies N/A $30,000 $30,000
Totals 1,497,476 $719,540 $701,211

Section VComparison of the SGVCOG Operations with the Gateway Cities COG page 29
SGVCOG dues are $701,211 versus $1,115,430 for the Gateway Cities COG. It is hard to draw
an 'apples to apples comparison between the two agencies because of how membership dues
and assessments are allocated differently. It is fair to say, however, that revenues available for
'core management services are considerably more Ior the Gateway Cities COG as are 'core
administrative expenses.
The other significant difference between the two agencies is that the Gateway Cities COG
employs its 'core service staII as employees rather than contracting through a private
management firm or firms for administrative services.
The Gateway Cities COG has also taken a flexible approach in how their staff members are
employed, thus allowing two employees to receive fringe benefits, including PERS retirement
through employment through segregate member cities, and direct employment with those
employees not wishing to be members of PERS.

Section VIReview of the MSA between Arroyo Associates and the SGVCOG page 30
SECTION VIREVIEW OF THE MANAGEMENT SERVICES AGREEMENT
BETWEEN ARROYO ASSOCIATES AND THE SGVCOG
6.1 INTRODUCTION
The scope of work items covered in this section are:
5HYLHZ DQG DVVHVV WKH 0DVWHU 6HUYLFHV $JUHHPHQW EHWZHHQ Ar royo
Associates and the SGV COG.
Provide recommendations on SGVCOG staffing options and related costs.
6.2 ANALYSIS OF MANAGEMENT SERVICES AGREEMENT
The Management Services Agreement between the SGVCOG and Arroyo Associates, Inc. was
first 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 (with
the exception of the Treasurer/Secretary), and paying all materials and supplies, including office
rent and equipment costs.
In other words, the contract is designed to provide 'turn key administrative and management
support to the SGVCOG.
The SGVCOG may terminate the Agreement at any time, but Arroyo is entitled to receive
compensation through the severance provisions of the contract.

Section VIReview of the MSA between Arroyo Associates and the SGVCOG page 31
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 the
formation and operation of new committees and the coordination of new programs that are being
overseen by SGVCOG, which included:
Coordinate, review and oversee all work and activities in connection with the
Homeless Services Needs Assessment, the CPUC Local Government Partnership
Program, 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 the
SGVCOG elected officials and/or member agency staff members, in addition to oversight over
the activities in the first bullet, above.
Consequently, Citygate considers these activities associated with the 'core services oI the MSA
for purposes of comparing revenues to expenditures Ior 'core administrative services.
6.3 ADDITIONAL SERVICES FOR GRANT ADMINISTRATION OTHER THAN &ORE SERVICES
Two additional amendments to the MSA exist relating to the administration of grants:
Amendment #2 is for the Southern California Edison`s CaliIornia Long-Term Energy-Efficiency
Strategic Plan (CEESP).
Amendment #3 is for being a sub-recipient of the Energy Upgrade California initiative of the
County of Los Angeles funded by the California Energy Commission and the U.S. Department
of Energy.
6.4 TIMEKEEPING PROCEDURES
As part of our scope of work, Citygate has been asked to review the timekeeping procedures
used by Arroyo to bill time to grant-Iunded activities as opposed to 'core related services under
Amendments #2 and #3 and the basic MSA and Amendment #1, respectively.

8
'Attachment One, Management Services Agreement, Grant and Committee Coordination, July 1, 2008.

Section VIReview of the MSA between Arroyo Associates and the SGVCOG page 32
Citygate`s observation is that Arroyo currently employs six people, including the Executive
Director, who are devoted to supporting the SGVCOG. (Actually, one person is employed on a
three-quarter basis; the full-time equivalent staff available is 5.75 FTE.) These are salaried
employees, 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 and
Amendment #1.
As shown earlier in Tables 4 and 5 in Section 5.2, the revenue generated from member dues falls
short oI covering Arroyo`s costs Ior providing 'core services under the MSA by an estimated
amount of $45,286. The shortfall is made up of revenues generated from eligible grant
allocations or administrative services.
As presented in Section IV, Citygate has reviewed the grant management and timekeeping
systems employed by Arroyo, and found them to be adequate. Key timekeeping procedures
including 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 are
finalized.
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 extensive
financial audit to verify that all reported and billed time equals the equivalent of 5.75 employees
calculated at their respective salary rates. However, it is important to note that a total 1.75 FTEs
are funded by grant sources and paid for in arrears; in other words, the SGVCOG is reimbursed
for only grant-related work already performed. The auditors of the grant providers have not
found any excessive billing or ineligible costs to date. Furthermore, while Arroyo bills the
SGVCOG 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

Section VIReview of the MSA between Arroyo Associates and the SGVCOG page 33
invoice a detailed and necessary breakdown and distribution of staff time to the various funding
sources (both MSA and grant funds).
Finding VI-1: The current fixed price retainer Management Services Contract
does not provide for a breakdown oI hours assigned to 'core
service activities versus grant-funded activities performed.
Recommendation VI-1: Monthly billing invoices should be prepared reflecting
the distribution of staff time to funding sources.
6.5 SGVCOG STAFFING OPTIONS AND RELATED COSTS
Citygate is aware of the protracted negotiations between SGVCOG and Caltrans concerning
ineligible costs and the appearance 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 Board
from Richard D. Jones, the SGVCOG General Council and an even more recent letter from
Caltrans addressed to Nicholas Conway, SGVCOG Executive Director.
Citygate perceives that there is general agreement that the current Management Services
Agreement 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 Citygate`s experience, we see COGs usually employing their management by hiring public
employees. 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 between
managing the SGVCOG and managing as well as administering
grant 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.

Section VIReview of the MSA between Arroyo Associates and the SGVCOG page 34
Recommendation VI-2: SGVCOG investigate the cost and terms of bringing a
'core staII oI employees 'in-house to provide
management of the SGVCOG.

Finding VI-3: The current Caltrans 'corrective action plan dated December 9,
2011 represents Caltrans` latest position aIter a series oI
protracted negotiations with the SGVCOG.
Recommendation VI-3: It is recommended that the SGVCOG proceed to
comply with the Corrective Action Plan within the
timeframe specified.

Section VIIEvaluation of Structure and Relationship Between SGVCOG and ACE JPA page 35
SECTION VIIEVALUATION OF THE STRUCTURE AND RELATIONSHIP
BETWEEN THE SGVCOG AND ACE JPA
7.1 INTRODUCTION
The scope of work item covered in this section is:
Evaluate the structure and relationship between the SGVCOG and the ACE
Joint Powers Agreement and provide recommendations for improvement if
needed.
7.2 ANALYSIS OF OPERATIONAL REQUIREMENTS, STAFFING, AND OPERATIONAL
MANAGEMENT STRUCTURE
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 associated
with extending the Alameda Transportation Corridor from Los Angeles through the San Gabriel
Valley.
Various organizational structures were considered, including the formation of an independent
Joint Powers Authority such as the Gold Line Construction Authority which is separate from the
SGVCOG.
For various reasons, not the least of which would be the complexity of what was originally
estimated to be a $0.9 billion project requiring a highly skilled construction management
organization, 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 the
SGVCOG Governing Board is a member.
Under the terms of the SGVCOG Bylaws, ACE has authority to hire an Executive Director that
reports directly to the ACE Board, and to hire other staff, approve project budgets, and
administer contracts to build the component projects associated with the overall ACE Project.
The SGVCOG`s decision to create ACE included a commitment to undertaking the following:
10

Identifying projects for ACE to implement;

10
Some oI the material in this section is sourced Irom a report entitled, 'Relationship oI ACE and COG submitted
to the SGVCOG Governing Board by the Executive Director, February 17, 2011.

Section VIIEvaluation of Structure and Relationship Between SGVCOG and ACE JPA page 36
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, the
estimated overall cost of the project is $1.4 billion with completion around 2017. Based on the
current amount of funds available, we are told that no more than six grade separation projects
can 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 raised
discussion asking if there is adequate oversight over ACE and if there is any liability to
SGVCOG if there are budget shortfalls, litigation, and other potential adverse outcomes.
It is not within Citygate`s scope oI work to assess what has occurred in the past, nor what should
be built going forward. Our assignment is to assess the organizational relationship between the
SGVCOG 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 Governing
Board, Executive Director, and staff, whether intentionally or not, this organizational scheme
violates or at least weakens the 'unity oI command principle. That is to say, the principle where
one executive and one board are held responsible and accountable for the results of the
organization.
Duties, responsibilities, and accountability for the ACE Project have become divided and
ambiguous between the SGVCOG and the ACE agency that it created. It is not surprising that
the ACE Board and management have evolved more and more to assume control of not only the
implementation of the project, but also the planning and prioritization of the component projects.
The structural relationship between SGVCOG and ACE is, in Citygate`s opinion, an invitation
for this to happen.
Regardless of the strengths or weaknesses of this divided relationship of duties, it is clear that
neither executive director is subordinate to the other and that their respective responsibilities are
separate.
Citygate also believes that the accountability, success, and responsibility for carrying out the
ACE Project is a shared responsibility. This is a monumental project with major implications
concerning the improvement of the distribution oI goods Irom the metropolitan region`s ports to
inland destinations.

Section VIIEvaluation of Structure and Relationship Between SGVCOG and ACE JPA page 37
We believe that the SGVCOG Governing Board has a crucial stake in ensuring a successful
outcome 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 are
completed, 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
clariIy its role and the division oI responsibilities in a series oI 'white papers prepared by the
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 dividing
responsibilities between the SGVCOG Governing Board and the ACE Board.
Our understanding is that the division of responsibilities between SGVCOG and ACE are along
these 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 the
ACE Project by being responsible for the ultimate approval oI the project`s
content and budget.
The City Managers` and Public Works TACs are the linkage between the two
Boards. Recommendations concerning project content and budget come through
these 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
the political impacts oI an 'unsuccessIul project could
accrue not only to the San Gabriel Valley region, but also to the region`s constituent public
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 Board
concludes 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.

Section VIIEvaluation of Structure and Relationship Between SGVCOG and ACE JPA page 38
severing the relationship between the COG and its subsidiary agency would further clarify
authority and responsibilities, thus restoring the 'unity oI command principal reIerred to earlier.
We do not know how difficult this reorganization would be to accomplish, but we have been told
that this was researched and considered in the past. At that time, it was considered feasible that
ACE could be made into a joint powers authority with full control over all aspects of the ACE
Project. Grant funds for the project could be reassigned to the new JPA. Citygate is unable to say
whether there would be any unknown consequences regarding such a reorganization.
Maintain the current organizational relationship between SGVCOG and ACE: Under what
Citygate believes is an ultimately more satisfactory alternative, the SGVCOG Governing Board
would continue to assume responsibility for providing oversight and approval of the ACE work
program and budget through recommendations from the City Managers` and Public Works
TACs.
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 its
subsidiary organization, ACE, creates ambiguity concerning
accountability and responsibility for project planning and
budgeting of the component projects comprising the overall ACE
Project. 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.
Recommendation VI I-1: The SGVCOG Governing Board should continue to
clarify and reiterate its oversight role and use the
Public Works and City Managers` TACs to ensure
that all relevant information and a recommendation
are provided to move Phase II of the project forward
to completion.

Section VIIIFindings and Recommendations page 39
SECTION VIIIFINDINGS AND RECOMMENDATIONS
This report section summarizes Citygate`s findings and recommendations that we believe will
permit the SGVCOG to move ahead.
8.1 SUMMARY OF FINDINGS AND RECOMMENDATIONS
8.1.1 Evaluation of Management Operations
Finding I V-1: The SGVCOG has a very small administrative operation. Having
all five staff members report directly to the Executive Director
does not create a span-of-control issue and creates an efficient
reporting relationship. Because of the small number of staff, the
Staff Analysts are Iamiliar with each other`s assignments, and
can substitute for each other, if need be.
Recommendation I V-1: Before the Governing Board decides and acts on
adding a new project or program, require the
Executive Director to provide a cost estimate and
staffing strategy for implementation.

Finding I V-2: Based upon our analysis of the current workload, we believe that
the staff is working at capacity. Care should be taken, however,
in adding programs without discontinuing other lower priority
activities or supplementing resources.
Recommendation I V-2: Maintain the current staffing arrangement and
structure.

Finding I V-3: The administration of grants requires maintaining detailed
records indexed chronologically and by subject matter. We find
that the SGVCOG`s records and grant management systems are
Iollowing 'best practices.
Recommendation I V-3: Maintain and continue using the current grant
management system.

Section VIIIFindings and Recommendations page 40

Finding I V-4: We believe that adequate internal controls are in place to
maintain best practices concerning the core activities and grant
programs maintained by the SGVCOG.
Recommendation I V-4: As a good practice, the SGVCOG`s annual auditors
should be routinely asked to review all time-keeping
and program management activities for compliance
with generally accepted accounting practices and State
and Federal grant requirements.
8.1.2 Comparison of Organizational Operations with the Gateway Cities Council
of Governments
Finding V-1: The Gateway Cities COG is primarily focused on serving the role
of a facilitator in creating projects within its region.
Recommendation 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
'business risks Ior the Gateway Cities COG which is
discussed elsewhere in this report.
8.1.3 Review of the Management Services Agreement Between Arroyo
Associates and the SGVCOG
Finding VI-1: The current fixed price retainer Management Services Contract
does not provide Ior a breakdown oI hours assigned to 'core
service activities versus grant-funded activities performed.
Recommendation VI-1: Monthly billing invoices should be prepared reflecting
the distribution of staff time to funding sources.


Section VIIIFindings and Recommendations page 41
Finding VI-2: There is the appearance of a conflict of interest between
managing the SGVCOG and managing as well as administering
grant programs.
Recommendation VI-2: SGVCOG investigate the cost and terms of bringing a
'core staII oI employees 'in-house to provide
management of the SGVCOG.

Finding VI-3: The current Caltrans 'corrective action plan dated December 9,
2011 represents Caltrans` latest position aIter a series oI
protracted negotiations with the SGVCOG.
Recommendation VI-3: It is recommended that the SGVCOG proceed to
comply with the Corrective Action Plan within the
timeframe specified.
8.1.4 Evaluation of the Structure and Relationship Between the SGVCOG and
ACE JPA
Finding VI I-1: The structural relationship between the SGVCOG and its
subsidiary organization, ACE, creates ambiguity concerning
accountability and responsibility for project planning and
budgeting of the component projects comprising the overall ACE
Project. Responsibilities need to be clarified in order to assure the
best outcome and to mitigate risks for the project.
Recommendation VI I-1: The SGVCOG Governing Board should continue to
clarify and reiterate its oversight role and use the
Public Works and City Managers` TACs to ensure
that all relevant information and a recommendation
are provided to move Phase II of the project forward
to completion.

Appendix AList of Those Interviewed for This Study page 42
APPENDIX A
LIST OF THOSE INTERVIEWED AS A PART OF THIS STUDY
ELECTED OFFICIALS
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, 1
st
Vice President, SGVCOG
Sam 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
STAFF MEMBERS
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 AList of Those Interviewed for This Study page 43
OTHERS INTERVIEWED
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 BList of Documents that were Reviewed page 44
APPENDIX B
LIST OF DOCUMENTS THAT WERE REVIEWED
Prior to and during Citygate`s on-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.
(including 'White Papers on 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.

Appendix BList of Documents that were Reviewed page 45
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.

DOCUMENTS & LINK TO VIDEO REGARDING
RELATIONSHIP BETWEEN CITYGATE AND
CONWAY
http://www.youtube.com/watch?v=gP9oASlsVSA