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TO: HONORABLE MAYOR AND MEMBERS OF THE CITY COUNCIL
FROM: DIRECTOR OF FINANCE AND INFORMATION TECHNOLOGY
DATE: JULY 6, 2004
SUBJECT: PURCHASING ORDINANCE REVISION
Staff Coordinator: Kathryn Downs, Accounting Manager
Introduce Ordinance No.____ AN ORDINANCE OF THE CITY OF RANCHO PALOS VERDES RELATING TO PURCHASE ORDERS AND AMENDING SECTION 2.44.070 OF THE RANCHO PALOS VERDES MUNICIPAL CODE to allow for an increase of the purchase amount requiring the use of a purchase order from $50 to $500.
BACKGROUND AND DISCUSSION
Currently, the City’s purchasing system, as defined in Chapter 2.44 of the Municipal Code, outlines financial controls used to secure services, supplies and equipment. Subsection 2.44.070 currently defines the use of purchase orders as follows:
"A. All purchases of materials, supplies and services shall be by serially numbered purchase orders authorized by the signature of the ordering department head and city manager or his or her designee. These exceptions are allowed:
1. All purchases of less than fifty dollars that are processed by the presentation of an invoice acceptable to and paid from the petty cash fund, and for which reimbursement is authorized and available from petty cash." [underlining added]
Per the Municipal Code, purchases of less than fifty dollars do not require the use of a purchase order.
Finance & Information Technology Staff desires to improve the efficiency of the Purchasing and Accounts Payable function within the Finance Department. Staff recently analyzed annual purchasing activity and discovered that approximately 1,200 purchase orders are issued annually. Approximately 300 (or 25%) of these purchase orders are for amounts less than $500 and include:
Finance & Information Technology Department processing time for each purchase order averages approximately 20 minutes. Therefore, the processing of purchase orders for amounts less than $500 takes approximately 100 man-hours per year.
Recently, the Finance & Information Technology Department upgraded the City’s financial software (approved by City Council on March 2, 2004). The upgraded software includes a check requisition function with various levels of approvals. Subject to the City Council’s approval of the proposed Ordinance, Staff will implement the following procedures with respect to invoices less than $500:
Staff believes that adequate internal controls exist to allow for an increase of the purchase amount requiring the use of a purchase order from $50 to $500. Staff requests the City Council consider the proposed ordinance revising Subsection 2.44.070 of the City’s Municipal Code (see attached), including the following revision of exception 1.
"All purchases of less than five hundred dollars that are processed by the presentation of an invoice acceptable to and approved by the Department of Finance."
The proposed Ordinance does not require 30- day notification.
Finance Staff obtained survey information from the California Society of Municipal Finance Officers (CSMFO) regarding purchase order thresholds from various California cities with comparable populations. The results of that survey are as follows:
Only 2 of the 13 responding cities maintain purchase order thresholds less than $500.
Although the proposed Purchasing Ordinance revision is expected to improve the efficiency of the Purchasing and Accounts Payable function with the Finance & Information Technology Department, Staff does not anticipate that the revision will have any fiscal impact.
Director of Finance and Information Technology
W:\FYE 2003-04\20040706_Purchasing Ordinance Revision.doc
ORDINANCE NO. ______
AN ORDINANCE OF THE CITY OF RANCHO PALOS VERDES RELATING TO PURCHASE ORDERS AND AMENDING SECTION 2.44.070 OF THE RANCHO PALOS VERDES MUNICIPAL CODE
THE CITY COUNCIL OF THE CITY OF RANCHO PALOS VERDES DOES ORDAIN AS FOLLOWS:
Section 1. Paragraph (1) of Paragraph A of Section 2.44.070 of Chapter 44 of Title 2 of the Municipal Code is hereby amended to read as follows, with all remaining portions of Paragraph A of Section 2.44.070 of Chapter 44 of Title 2 of the Municipal Code retained without amendment:
"1. All purchases of less than five hundred dollars that are processed by the presentation of an invoice acceptable to and approved by the Department of Finance."
Section 2. The City Council declares that the provisions of this ordinance are severable. If, for any reason, any sentence, paragraph, or section of this ordinance is determined by a court of competent jurisdiction to be invalid, such determination will not affect the validity of the remaining provisions of this ordinance.
PASSED, APPROVED and ADOPTED this ____ day of ____, 2004.
STATE OF CALIFORNIA )
COUNTY OF LOS ANGELES )ss
CITY OF RANCHO PALOS VERDES )
I, JO PURCELL, City Clerk of the City of Rancho Palos Verdes, do hereby certify that the whole number of members of the City Council of said City is five; the foregoing Ordinance No. ____ was duly and regularly adopted by the City Council of said City at a regular meeting thereof held on _____________, 2004, and that the same was passed and adopted by the following roll call vote: