May 11,2011

WENDY GREUEL

CONTROLLER

Honorable Antonio R. Villaraigosa, Mayor Honorable Carmen Trutanich, City Attorney Honorable Members of the City Council of the

City of Los Angeles

Cell phones and smart phones have become a large part of our daily routine - we use them for personal and professional use, and we strive to achieve the most value for the services we receive. The same logic should be applied in a business setting, including maintaining an accurate count of cell phones. Unfortunately, the City of Los Angeles did not even know how many cell phones it had! Each department kept count of its own phones; however, until I conducted an audit, no one knew the city had nearly 12,000 cellular devices.

My audit shows that the City wasted money on unnecessary cell phone costs, and could have saved as much as $1 million by optimizing cell phone plans. This is unacceptable.

Management of city cell phones is decentralized by department, without any citywide oversight or accountability. Simply put, nobody is minding the store. Nobody is holding departments accountable nor is anyone providing guidance on $4.8 million worth of cell phone contracts.

The audit, which focused on a sample of 7 city departments, including some with the highest cell phone costs, suggests that as much as $1 million could have been saved with a little diligence. It identified 563 cell phones that had zero usage for two or three consecutive months, at a total cost of about $46,000 in recurring charges. The audit also found that departments inadequately monitored usage, leading to poor plan selection and unnecessary costs of over $28,000 in extra charges for directory assistance and the like, within only a 3 month period. Without close monitoring, these extra charges could amount to over $100,000 in a year.

200 N. MA I N STREET, SU ITE 300, LOS ANGELES, CA 90012 • (213) 978-7200 • HTTP://CONTROLLER.LACITY.ORG

AN EQUAL EMPLOYMENT OPPORTUNITY- .AFFIRMATIVE ACTION EMPLOYER

Further, without centralized oversight of cell phone contracts and individual departments failing to ensure that cell phone carriers complied with requirements to "optimize" the plans to fit the departments' usage, the City regularly paid more for cell phones than necessary. If the optimization reports provided by only 4 departments are reflective of what could be achieved citywide, the potential savings could have ranged from $375,000 to nearly $1,000,000.

The audit brought to light that current policies for issuing cell phones to city employees are not appropriate for today's workforce and recommends that ITA determine more cost effective options. Other options are not only viable, but are in practice in other cities throughout the nation. Issuing stipends rather than cell phones to most employees who are required to be available by mobile devices could save the city $1.2 million immediately.

My audit provides an immediate path towards cost savings and better oversight through recommendations on managing cell and smart phone usage. As an additional cost savings option, I encourage others to follow my lead in giving up their City cell phones­depending on the cell phone plan, it may not cause staff to incur any additional costs but will provide real cost savings for the City.

As the Mayor and Council continue deliberations on reducing the City's budget deficit, we need to constantly review what the City does and how we do it. We need to take the opportunity to focus on our core services and gain a better understanding of a luxury versus a necessity. Each and every proposed efficiency should be evaluated to determine what services taxpayers should be paying for, especially during these financially challenging times.

Sincerely,

/{}!}fte~~,/ WE~YGREUEL City Controller

WE:NDY GRE:UE:L

CONTROLLER

May 11, 2011

Robert "Bud" Ovrom, General Manager Department of Building & Safety 201 N. Figueroa, Suite 1000 Los Angeles, CA 90012

Olga Garay, General Manager Cultural Affairs Department 201 N. Figueroa Street, Suite 1400 Los Angeles, CA 90012

Randi Levin, General Manager and Chief Technology Officer Information Technology Agency Room 1400, City Hall East 200 North Main Street Los Angeles, CA 90012

Enrique C. Zaldivar, Director PW/Bureau of Sanitation 1149 South Broadway, 9th floor Los Angeles, CA 90015-2213

Ladies and Gentlemen:

June Lagmay, City Clerk Room 360, City Hall 200 North Spring Street Los Angeles, CA 90012

Tony M. Royster, General Manager & City Purchasing Agent General Services Department 111 East First Street, Room 701 Los Angeles, CA 90012

Charlie Beck, Chief of Police Los Angeles Police Department 100 West First Street, Suite 1072 Los Angeles, CA 90012

Enclosed is a report entitled "Audit of Citywide Cell Phone Usage." A draft report of this report was provided to your Department on April 22, 2011. Comments provided by your Department at the exit conference were evaluated and considered prior to finalizing this report.

Please review the final report and advise the Controller's Office by June 13, 2011 on planned actions you will take to implement the recommendations.

200 N. MAIN STREET, SUITE 300, LOS ANGELES, CA 90012 • (213) 978-7200 • HTTP://CONTROLLER.LAC!TY.ORG

AN EQUAL EMPLOYMENT OPPORTUNITY- AFFIRMATIVE ACTION EMPLOYER

May i 1, 201 i Page 2

If you have any questions or comments, please contact me at (2 i 3) 978-7392.

Sincerely/ jJ b.-;::-J~/v--FARID SAFFAR, CPA Director of Auditing

Enclosure

cc: Reverend Jeff Carr, Chief of Staff, Office of the Mayor Miguel A. Santana, City Administrative Officer Gerry F. Miller, Chief Legislative Analyst Marsha L. Brown, President, Board of Building and Safety Commissioners York Chang, President, Cultural Affairs Commission John Mack, President, Police Commission Gerald Chaleff, Executive Officer, Office of the Chief of Police Cynthia M. Ruiz, President, Board of Public Works Independent City Auditors

City of Los Angeles Office of the Controller

AUDIT OF CITYWIDE CELL PHONE USAGE

May 11,2011

Wendy Greuel City Controller

TABLE OF CONTENTS

EXECUTIVE SUMMARY .................................................................................... 3

CONTROLLER'S ACCOUNTABILITY PLAN ................................................................ 8

INTRODUCTION AND BACKGROUND ..................................................................... 11

SECTION 1: CELL PHONE ISSUANCE ................................................................... 19

SECTION II: SELECTION OF CELL PHONE PLANS AND CONTRACTS ............................... 28

SECTION Ill: MONITORING CELL PHONE COSTS ..................................................... 31

SECTION IV: CONTRACT OVERSIGHT .................................................................. 35

APPENDIX A: RANKING OF RECOMMENDATIONS ..................................................... 38

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EXECUTIVE SUMMARY

The Controller's Office has completed an audit of citywide cell phone usage. The primary objective of the audit was to assess the efficiency and effectiveness of the City's oversight and management of cell phone usage and identify opportunities to reduce cell phone costs. The audit focused on evaluating the criteria used by departments to assign cell phones to individual users, how departments select the most cost-effective phone plans and vendor contracts and how effectively City departments monitor cell phone usage for appropriate business use.

The audit was performed in accordance with Generally Accepted Government Auditing Standards and covered activities from June 2010 through October 2010. Fieldwork was conducted between October 2010 and April 2011 and focused on a representative sample of seven City departments, which included departments with the highest cell phone costs, as well as smaller departments:

BACKGROUND

• City Clerk m Cultural Affairs Department m Department of Building and Safety m General Services Department "' Information Technology Agency Ill Los Angeles Police Department "' Public Works, Bureau of Sanitation

City employees may be assigned a cell phone for use in the course of their employment when it provides an economic, efficient, and secure solution to the City's business needs.

Since the City lacks a centralized inventory of City-issued cell phones, the Controller's Office requested all City departments, including the offices of elected officials and the three proprietary departments, to report the number of cell phones, smart phones (e.g., Blackberrys) and aircards 1 assigned to their employees or under their control. Surveyed

1 Aircards are wireless broadband data devices that enable users to access the Internet with their laptops.

3

departments and offices reported a total of 11,791 cell or smart phones2 and 4,099 aircards Citywide. For Council-controlled departments, there are approximately 6,500 cell phones issued to 32,000 employees. For some departments, many of the cell phones are used only for the "push-to-talk" feature, which works much like a walkie­talkie, and the cell phone feature itself is not used.

Wireless devices are provided under multiple contracts for cell phone/pager equipment, services, accessories and messaging. Sprint, AT&T, Verizon and T-Mobile provide cell phone service and Skytel3 provided service for the City's pagers. All of the contracts are cooperative agreements based on contracts established by the federal General Services Administration (GSA), the Western States Contracting Alliance 0JVSCA), or the

· State of California (CWC).

Over the last two fiscal years, the cell phone expenditures (including aircards) for Council-controlled departments have declined from $6.3 million in FY 2008-09 to $4.8 million in FY 09-10. As of February, 2011, expenditures total $3.2 million; though if the average monthly expenditures remain the same, the City may end up paying $4.8 million by fiscal year-end.

Cell phones are managed and paid for by individual departments. Each department determines who on their staff should be issued a cell phone or smart phone. Departments that were part of our review generally cited the primary need for their employees to have a mobile device was to improve their efficiency and responsiveness, which is especially critical now that Departments have fewer staff. Departments also determine which contracted carrier and individual phone plan to select, how to monitor cell phone usage, whether to make changes to these selections, and how and when to retrieve and deactivate the wireless device.

RECENT EFFORTS TO REDUCE CELL PHONE COSTS

Given the City's current budget deficit, it is important that expenditures be examined for potential elimination or, at a minimum, reduction in the amount paid. While cell phones may provide for efficiencies, this comes at a cost to the City totaling almost $5 million annually. A justifiable business need to improve departmental operations must be balanced against the related costs for this technology. In addition, ongoing cell phone costs, which can vary dramatically based on specific plans and actual use, should be closely monitored, to ensure the best use of City funds.

Cell phone costs have been discussed in several recent official communications, including Council motions that have directed managers to pursue savings through renegotiated contracts or reduce the number of cell phones issued to employees.

2 Smart phones refer to B!ackberrys or similar devices that combine cell phone capability with extensive additional functionality, at a higher monthly cost. 3 The contract with Skytel Communications, Inc. for pagers expired January 21, 2011. A new carrier contract for pagers was executed with USA Mobility Wireless, Inc.

4

On March 1, 2011, the City Controller recommended the City Council and Mayor work toward a 60% reduction in City-issued cell phone expenses by July 1, 2011. On March 2, 2011, the Council adopted a recommendation for City departments (except public safety departments which includes Police, Fire, General Services and Emergency Management) to immediately reduce the number of cell phones by 10% and to renegotiate cell phone contracts and plans as a means to achieve savings.

OVERALL ASSESSMENT

Although our audit focused on seven departments, we believe the findings may be representative of the City, as a whole. We found the City cannot b~ assured that the number of cell phones assigned to employees is justified and necessary for City business. A significant number of cell phones did not have sufficient justification as to why the employee needed a City-issued cell phone. In addition, closer monitoring of cell phone usage could yield reduced costs by ensuring the most cost-effective cell phone carrier or plans are selected.

We noted that some departments were not adequately or consistently reviewing cell phone invoices to determine if changes were needed to previously selected phone plans. As a result, costs were incurred that could have been minimized or possibly avoided. For example, we found that costs were incurred due to exceeding the plan's included services and exceeding allowed text messaging. We also noted that there is no Citywide analysis of the carriers and their plans to identify the most cost-effective solution for the City's specific business needs. The lack of centralized oversight hindered the City's opportunity to potentially save hundreds of thousands of dollars in cell phone costs.

Based on our audit, the City can achieve substantial savings related to cell phone expenses. There are opportunities to reduce the number of City-provided cell phones by deactivating unused phones and through a more critical analysis of the justified business need as compared to City's cost for providing the phones. In addition, paying a stipend to employees for the business use of their personal phone would also result in substantial savings, as a tiered payment amount could be less than the amount paid for a City-issued device, and Departments would also realize efficiencies by eliminating the cumbersome administrative burden of reviewing cell phone plans and related detailed invoices.

KEY FINDINGS

);.>- Ceil phones were assigned without initiaily or periodicaily confirming there is an appropriate business need.

Based on a sample of 174 cell phone assignments, we noted that for over half (56%) of the cell phones, the departments lacked a detailed and specific cost­benefit justification supporting a stated business need for the phone. In the absence of any document that would demonstrate that management had

5

determined that the costs of providing a City phone to specified employees were adequately offset by the direct benefits to the City, departments cannot determine if the cell phone assignment was justified. By not assessing the cost effectiveness of a business need for a cell phone, the City is incurring costs by just having the phone available. We identified 563 cell phones that had zero usage for two or three consecutive months, at a total cost of about $46,000 in recurring charges.

);> Some departments did not adequately monitor cell phone usage to determine the most cost effective phone plan. In additionl unnecessary cell phone costs were incurred for extra charges such as directory assistance, call-forwarding and other services.

Some of the departments were not adequately or consistently reviewing cell phone bills to ensure costs were minimized. We identified costs incurred for services such as directory assistance, call forwarding and text messages that sometimes tripled or quadrupled the base-cost of the selected phone plans. For July- September 2010, the departments reviewed incurred over $28,000 in extra charges. Without close monitoring of cell phone charges, especially to identify whether the most cost­effective plan has been selected, these extra charges could amount to over $100,000 in a year.

);> The City lacks centralized oversight of cell phone contracts and departments did not ensure that cell phone carriers comply with the optimization contract provision.

The General Services Department (GSD) administers the City's cell phone contracts and the Information Technology Agency (ITA) provides support as the "technical" expert. However, neither of the Departments provides centralized oversight of the City's cell phone contracts, nor provides guidance on how to minimize costs.

Several of the issues noted in our audit could have been mitigated ifthere had been a single entity within the City to identify which cell phone plans provide the best value for the City's needs and which contract is the most cost-effective. There are numerous individual plans offered by the carriers and, as our audit disclosed, departments did not ensure the phone plan with the best value was selected for their users. Further, because the City decentralized cell phone management to each department, there was no single entity in the City that monitored cell phone costs Citywide to identify any significant trends. From FY 06-07 to 07-08 cell phone costs increased by over 164% from $2.04 million to $5.38 million and increased again in FY 08-09 by 17% to $6.29 million. However, no one identified the rise in costs and if it was appropriate. Additionally, although the City benefitted from a 24% reduction in costs in FY 09-10, again, no one within the City can explain what prompted the reduction. As a result, the City cannot be assured as to whether these cost reductions could have benefitted the City in prior years.

6

Also, the City's contracts with Verizon, Sprint and AT&T contain an optimization provision which requires the carrier, after the initial plan assignment, to routinely identify those users that are not in the most optimized plan and work with departmental coordinators to place users in the most optimized plan. This would result in minimizing phone costs.

However, we noted that none of the carriers routinely provided optimization reports to all of the departments reviewed. Only four departments (GSD, ITA, LAPD and DBS) indicated they received the optimization reports, and then, only one to two times a year. DBS indicated reports were received from AT & T quarterly but this frequency seems to be the result of the Department requesting to meet with the carrier's representative to achieve cost savings.

The optimization reports are a critical tool for departments to use to save on cell phone costs. GSD, ITA, LAPD and DBS provided copies of four optimization reports received from July 2009 through December 2010. The carriers identified projected savings ranging from 7.89% to 21% if the suggested plan changes were implemented. While DBS confirmed that the carrier's suggestions had been fully implemented, the other departments either delayed implementing the plan changes due to other cell phone changes, or identified where costs could be reduced beyond the carrier's suggestions.

If the savings identified by the carriers for these four departments are reflective of what could be achieved Citywide, the potential savings could have ranged from $375,000 to as much as $998,000.4

Without a centralized function for analyzing phone plans and contracts, along with strong contract oversight, the City cannot be assured that the carriers fully comply with optimization provisions and that departments take action to ensure cell phone costs are minimized.

REVIEW OF REPORT

A draft audit report was provided to the seven Departments reviewed during the audit on April 22, 2010. Exit conferences were conducted with each Department, at which time the audit staff discussed the findings and recommendations in the draft audit report with the Departmental management and staff. The Departments' comments during the exit conferences were evaluated and considered, as we finalized the report.

Several departments reported they had already begun to implement some of the audits recommendations, by deactivating some phone lines, and revising plans to achieve cost savings.

4 Potential savings based on FY 09/10 celt phone expenditures ($4, 752,917) x 7.89% and 21% for the minimum and maximum savings.

7

CONTROLLER'S ACCOUNTABILITY PLAN

Section I. Cell Phone Issuance

Department General Managers should:

1. Establish specific criteria for assigning cell phones to employees.

2. Ensure each cell phone assignment is supported by a documented, specific justification and management approval. The justification must describe the following:

a. Business need for the cell phone that includes a cost/benefit analysis;

b. What other forms of communication are available and why they are not adequate; and,

c. Why the lack of a cell phone would hinder the department's operational effectiveness or efficiency.

3. Ensure the cell phone assignments are evaluated on a periodic basis to ensure the business need for the cell phone remains valid.

4. Establish procedures to deactivate cell phones when the assigned user leaves the department or City service.

5. Ensure cell phones with zero usage are identified and management approval is obtained to continue or deactivate the cell phone service.

6. Consider whether cell phones can be shared by employees working different shifts within the same units/divisions.

Section II. Selection of Cell Phone Plans & Contracts

7. Department General Managers must ensure that cell phone usage is monitored to identify whether the most cost effective plan has been selected.

8

27

27

27

28

28

28

28

28

28

30

ALL DEPTS.

ALL DEPTS.

8. ITA management should perform periodic analyses of each carrier's voice and data plans to identify ones that are the most cost-effective and inform departments of the results

Section Ill. Monitoring Cell Phone Costs

9. ITA should develop Citywide policies regarding extra services and whether they are permissible and should be minimized, or prohibited.

10. Department General Managers should implement policies and procedures to ensure extra services and the associated costs comply with the City's policies.

Department General Managers should:

11. Establish policies prohibiting the use of City­issued cell phones for routine personal use.

12. Ensure employees reimburse the City for personal calls made on an emergency basis using a City-issued phone_

13. ITA management should pursue developing a citywide policy on cell phones that would provide more cost-effective options for the City. This would include setting a tiered stipend amount to be paid to employees with a justified business need for a City cell phone or data device, based on the anticipated necessity and use of the device.

9

31 ITA

32 ITA

33

ALL Depts

34

34

ITA 35

Section IV. Contract Oversight

14. The Mayor should direct ITA to formally assume . responsibility for contract oversight of the City's cell phone contracts. ITA management should:

a. Ensure it is knowledgeable about each carrier and the cell phone plans that are offered to identify the pfan(s) that would generally satisfy the City's needs for the least cost, and any on-line tools provided that can help departments manage cell phone usage. The analysis of cell phone plans should include a comparison of flat-rate plans, pooled-minute plans and individual plans to identify the plan that will minimize costs.

b. Notify City departments' cell phone coordinators of the identified least-cost plan(s) that should be selected for the cell phone users and any on-line tools provided by the carriers to help manage cell phone usage.

c. Monitor the City's total cell phone costs by carrier on a periodic basis to identify any significant changes in costs that should be reviewed more closely.

d. Ensure cell phone carrier contracts and any contract extensions are executed timely.

15. ITA should establish a process to ensure optimization reports are received . by departments on a periodic basis and that suggestions for cost savings are implemented by departments.

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37 Mayor ITA·

37 ITA

37 ITA

37 ITA

38 ITA

INTRODUCTION AND BACKGROUND

City employees may be assigned a cell phone for use in the course of their employment when it provides an economic, efficient, and secure solution to the City's business needs.

Based on self-reported information provided by City departments in February 2011, there are 11,791 City-issued cell phones (including smart phones) and 4,099 aircards5

Citywide. For some departments, many cell phones are used only for the "push-to-talk" feature which works like a walkie-talkie, and the cell phone feature itself is not used make or receive calls.

The departments with the most City-issued cell phones are shown in Table 1 below:

Table 1 Departments with Highest Number of Cell Phones

Cell Smart Department Phones Phones Total

Department of Water & Power 3,401 570 3,971 Los Angeles Police Department 979 546 1,525 Los Angeles World Airports 440 432 872 Los Angeles Fire Department 659 140 799 General Services Department 528 52 580 Department of Building & Safety 408 86 494 Bureau of Street Services 362 25 387 Bureau of Sanitation 234 90 324

Totals 7,011 1,941 8,952 Source: Department responses to Controller request dated January 20, 2011.

Table 2 provides details on the number of cell phones, smart phones (e.g., Blackberrys) and aircards under the control of each City department and office, including elected officials and the three proprietary departments - Los Angeles World Airports, Department of Water and Power and the Harbor Department, along with 2010 employee counts.

5 Aircards are wireless broadband data devices that enable users to access the Internet with their laptops. Airtime usage for aircards is included as a separate charge on the cell phone invoices.

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Table 2 City Cell Phones and Aircards

Self~Reported by Dept based on Controller Feb. 2011 SuNey{Unaudited .. . '·· .·.-... · .. ·

•·•· .... ;o~e~J . : .·:2910;:: ;· Cell Smart Total :~tb~~~:: • .• : . . staff ... ·.

.,.<., ... Phones Phones Phones ·······•.·Rafloo···· Aircards , ......... . ... ·:·

.. :· •• •••••••••• •••••••••••

Dept. of Aging 3 0 3 ············,·· .. ·~··)9. ·· 8o/o 0

Animal Services Dept. 79 6 85 .• ,.,_ ..• · .. 328 ··.···26% ..... , ,......... · . 0

Dept. of Building & Safety 408 86 494 . ,··: .>73d . ''68%: 338

Chief Legislative Analyst 2 9 1 1 ·; ·' 45 :··24°4 2

City Administrative Officer 0 17 17 104 16% . ·, . 0 . ': .. :.·· J% City Attorney 38 141 179

.. .. .,_

•·•··s83 : .. : .· 20 .. 25

City Clerk 0 4 4 ·· ... 74 ·····: 5% 3

City Clerk- Elections {Notes 1 & 3) 98 3 101 ·.::· .

.•. · .... · 207 .',~ 0

Community Dt:vt?lu..., ... "'m Dept. 0 108 108 ~ ····39~ 2

City Controller 0 11 11 ····< .. ·:·•:··· .. 158 ··•···yolo. 1

Los Ar.yele::o Convention Center 23 34 57 .... 114 ........ ·. soo1o' 2

Council District 1 0 15 15 ·:::: .:,.; • ... j9 .. 79% 0 :· .. ·::;.:.

12 . . .. .. ... .. ... : . ~ ...

57% Council District 2 0 12 • ... : ... ·. 2_1 . ···. 0

Council District 3 4 4 8 ·:: .•j§_ ' ·:...": ,· ~C}"o 0

Council District 4 2 20 22 ·.·.·:':. :. 18 ···122% 0

Council District 5 0 19 19 .' ' 2b .. . ·: 95% 0

Council District 6 0 is 15 ;•: Jt.l . . . ···•·····. '79o/o 0

Council District 7 1 13 14 I :: · ..

~·· .... j§_ .. ·.·_ :.: .... .. ···~ 0

Council District 8 3 3 6 . : 23 .26% 0

Council District 9 2 12 14 ...

······16 ···•··•··•··as%· 0

Council District 10 0 7 7 .. . rz ... · ... ··,y-4:% 0

Council District 11 0 16 16 •••..... ·.· .. ·:.·. jg

.: ... :··: . : 84% 0

Cou.ncil District 12 0 10 10 : : :' :: 17 · .· '59o/o ,: .. 0 : ... ...••.•. 22 · ) 86iiJo Council District 13 0 19 19

. . 0 .;.,.. .

Council District 14 0 11 11 1::···.·····., ..•• 23 ·· ..... · .. ·· 4'so/o 1 Council District 15 1 13 14

... ; 1_§_ .~ 1 ...:..'.' .. .. ~ ..

Cultural Affairs Dept. ...... · .. . ,·.

0 8 8 40 1.··. : 20% 1 Dept. on Disability 0 1 1

.·:··· 15 ... ·· .. 7% 0 '

: ... ,.

El Pueblo de Los Angeles 5 2 7 · .. ·,

' 11 ••.. 64% 0

E'"'1er~encv M::m~m~ment Dept. 3 22 25 23 I<·. ··t09% 8

Employee Relations Board 0 0 0 .3 1.···· 'bo/~ 0

City Ethics Commission 0 5 5 '·.

21 24% 0

Office of Finance 0 8 8 .329 · .. ·, 2o/o 18

Fire Dept. {Note 2) 659 140 799 · .• 3821: · ..•. ·21% 70

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.... 2010 · .• Phones/ Cell Smart Total Employe~ ·· ·•.< Staff

J?~rau n.:llt Phones Phones Phones . Count* Ratio Aircards

General Services Dept. (f'!Qte~) 528 52 580 :.·: .· •1792 ... .•. 32o/o 24

Los An~dt-<:> Housing Departl!lent 156 23 179 53!) . 33°/o 145

Information Technology Age'1cy 94 70 164 .• 547 ... 30% 1

Library Dept. 7 21 28 . 669 4% 11

M~r's Office (Note 4) 0 220 220 178 .· 124% 10 Dept of Neigllb.u. IIVVU

Erupuvv"'l u<:ait 4 0 4 .19 21% 0

Personnel Dept. 6 30 36 378 .10% 0

City Planning Dept. 10 39 49 238 21% 0

Police Dept 979 546 1525 •.• 12777 12_'Yo 2260 ..

Board of Public Works 2 12 14 . 97 14% 0

PW I Bureau of Contract Admin. 215 11 226 ... 300 .75% 0

PW I Bureau of~EJ!9ineering 100 19 119 746 16% 7

PW I Bureau of Sanitation (Note3l 234 90 324 .· 2493 ~ 250

PW I Bureau of Street Lighting 74 22 96 ·····.····zoj ·.48Yo 0

PW I Bureau of Street Services 362 25 387 .. 1047 37% 21

Dept of Recreation & Parks 159 22 181 1499 12% 3

Dept. of Trans_IJ_ort~tion 190 84 274 1398 . 20% 154

Office of the Treasurer 0 3 3 ·:19 .. .·iQJo .. 4

Los Angeles Zoo 1 5 6 . 192 ·. 3j'o 0 · ..

Subtotals 4,452 ~088 6,540 32,644 20% 3,362

Los _Angeles World A~urt_h 440 432 872 .328.1 27% 66

Dept. of Water and Power 3401 570 3971 N/A* N/A* 594

Harbor Department 287 121 408 949 43% 77

Totals, City!IVId<:: 8,580 3,211 11 791 4,099 *Count per 2010 Salaries Paid to umque positions (employees) per Department, per PAYSR run and posted to Controller website. LADWP utilizes its own payroll system; therefore, the DWP employee count was not available (N/A). Note 1: The City Clerk activates cell phones during election periods for temporary staff. The Department tt)Jut tt:::u 182 current tetiiJ.lUI at y staff· however this number fluctuates according~ to election needs.

Note 2: The Fire Dept reported that 246 phones are SPCII~ units with zero monthly_ access cha_Iges. Note 3: Some phones utilize only the push-to-talk feature and calls cannot be received or placed. (General Services- 314; Sanitation- 37. City Clerk-Elections - 84 assigned to temporary staff with instructions to use pu.§h~to-tatk featureonly exceptfor elll_'::'l_~t:_ll_lAtS:-Note 4: The Mayor·~ Office _assigns 86 phones to contractor Intervention workers for the Gang Reduction and Youth_Q_ev~l_o.£f!l~flL((3~RYD) fJIU!-Jial .

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As of January 2011, the City had five multi-year contracts for cell phone/pager equipment, services, accessories and messaging.6 Sprint, AT&T, Verizon and T-Mobile provide cell phone service, and Skytel provided service for the City's pagers. All of the contracts are cooperative agreements based on contracts established by the federal General Services Administration (GSA), the Western States Contracting Alliance (WSCA), or the State of California (CWC). Table 3 shows FY 09/10 expenditures for each of the City's cell phone/pager contracts.

Table 3 CELL PHONE AND PAGER CONTRACTS

FY 2009/10 PRIMARY CARRIER CONTRACT PERIOD

EXPENDITURES CONTRACTING

AGENCY

Sprint/Nextel Oct 2006-May 2011 $3,005,121 ewer AT&T Mar 2007-0ct 2012 1,192,736 WSCA Verizon July 2006-May 2011 555,060 ewer T-Mobile Mar 201 0-May 2012 0 GSA TOTAL EXPENDITURES

(CELLPHONES & AIRCARDS) $4,752,917 Skytel Comm. Inc. July 2005-Jan 2011 147,833 GSA TOTAL EXPENDITURES

(INCL. CELLPHONES,

AIRCARDS AND PAGERS) $4,900,750 . ' Source: C1ty s Supply Management System (SMS) and GSO's contract files.

From FY 2006-07 through FY 2008-09, cell phone costs (excluding pagers but including aircards) increased from $2 million to $6.3 million. FY 2009-10 cell phone costs totaled $4.8 million. Expenditures for FY 2010-11 from July through February total $3.2 million; and if the average monthly cell phone expenditures remain the same, by fiscal year end the City may end up paying $4.8 million, about the same as the prior year.

6 The contract with Skytel Communications for pagers expired January 21, 2011. A new carrier contract for pagers was executed. 7 The California Wireless Contract (CWC) expired on October 2, 2010. City contracts based on that contract simultaneously expired. This has resulted in multiple short-term contracting solutions, which are expected to continue through 2012.

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Cell Phone Expenditures FY 2007 to FY 2011

$7,000,000.00 $6,000,000.00 $5,000,000.00 $4,000,000.00 $3,000,000.00 $2,000,000.00 $1,000,000.00

$-

FY2007

Cell Phone Guidelines

FY2008 FY2009

Fiscal Year

FY2010 FY2011 (Jul-Feb

annualized)

The City's policies and procedures related to cellular services were established by the Information Technology Agency (ITA). The City's Administrative Code states that the IT A has the authority and responsibility to develop and recommend City policy for information and communications systems and networks, and to develop and establish standards for the acquisition, implementation, and use of information and communications systems and their security. 8 ITA authority does not extend to proprietary departments.

ITA's Cellular Services Policies and Procedures state the following:

• General Managers or their designees have the authority and responsibility to review and approve the issuance of cellular telephones and pagers, monitor their usage, and ensure that the employee usage guidelines are observed by the assignees.

• Departments are to review cell phone assignments monthly and validate the need for such services.

111 Departments are to work with employees to determine the most cost­effective rate plan available and review invoices to ensure that employees are not incurring additional expenses by exceeding their respective plan's allocated minutes.

e Each department is to distribute detailed cell phone bills to assignees within one week's receipt of the invoice. Employees must review the monthly usage and reimburse the City for personal cell phone calls and pager messages. Employees are to reimburse the City for personal usage

8 Los Angeles Administrative Code, Division 22, Chapter 26, Article 1, Section 22.640(d).

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even if their usage does not exceed the wireless plan's monthly allocation of minutes.

Decentralized Authority

Since 1996, the City has managed its cellular services through a decentralized process wherein departments are responsible for issuing and activating cell phones, as well as paying the vendors directly for cellular services. Each City department determines who should be issued a cell phone or smart phone, which contracted carrier to select, which individual phone plan to select, how to monitor cell phone usage, if and whether to make changes to any of these selections, and how and when to retrieve and deactivate wireless devices.

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0BJECTIVES.J ScOPE AND METHODOLOGY

The primary objective of this audit was to assess the efficiency and effectiveness of the City's oversight and management of cell phone usage (our audit considers cell phones to include smart phones9 and "push-to-talk" phones). Based on a selected sample of Council-controlled City departments, we evaluated the departments' processes for:

1. Establishing appropriate criteria for determining which employees need cell phones;

2. Monitoring cell phone usage for appropriate business usage and reducing unauthorized or excessive cell phone costs;

3. Determining which cell phone contracts and phone plans provide maximum value for its business needs based on cell phone usage; and

4. Identifying and collecting reimbursement from employees for personal calls.

The audit also evaluated the effectiveness of the City's contract oversight and monitoring for the cell phone contracts 10

.

Our audit was performed in accordance with Generally Accepted Government Auditing Standards and covered activities from June 2010 through October 2010. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives.

Fieldwork was conducted between October 2010 and April 2011 and focused on seven City departments, which included departments with the highest cell phone costs, as well as smaller departments:

• City Clerk m Cultural Affairs Department • Department of Building and Safety • General Services Department m Information Technology Agency • Los Angeles Police Department 11!1 Public Works, Bureau of Sanitation

9 Smart phones refer to Blackberrys or similar devices that combine cell phone capability with extensive additional functionality, at a higher monthly cost. 10 Our audit scope focused on the Council-controlled departments and offices, as the current cell phone contracts, reported expenditures, and IT A policies apply specifically to them. The three City proprietary departments were not included in our cell phone review, though many of our recommendations may also be applicable, and could be considered by their respective management to reduce costs.

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We reviewed the departments' cell phone policies and procedures for issuing cell phones and interviewed management and staff to obtain an understanding of how cell phone costs are monitored. We reviewed cell phone billing data from Sprint and AT & T for each of the departments for the period July 2010 through September 2010. 11 Our audit focused on cell phone/smart phone usage and costs, including those cell phones that are used for the "push-to-talk" or Direct Connect feature. Aircards and pagers were not included in our audit analyses.

11 Electronic billing data was requested from Verizon, however, it was not provided within sufficient time during our fieldwork to be analyzed. Further, Verizon services accounted for a relatively low amount of costs in comparison to Sprint and AT&T.

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AUDIT FINDINGS AND RECOMMENDATIONS

Section 1: Cell Phone Issuance

As indicated in ITA's Cellular Services Policy and Procedures, a request for cell phone assignment should be submitted only if the employee meets at least one of the following criteria:

1. Level of Responsibility: The employee must be at a level of significant responsibility (e.g., executive staff or division head with extensive field operation duties) within the department as determined by the issuing department's General Manager or designee.

2. Emergency Operations Response: The employee requires cell phone access for emergency response purposes or requires continuous contact or immediate response to situations that promote public or employee safety.

3. Field Operations: The employee has direct responsibility for managing field operations or responsibilities that require a significant amount of time in the field or in vehicles and receives a high volume of time-sensitive calls.

While the issuance criteria provide some rationale for assigning cell phones, the Policy and Procedures also state that each request for cellular services should address cost/benefit issues. This element requires more explanation as to why the cell phone is necessary, as opposed to checking off a box for the issuance criteria cited above. The Cellular Services Application has a Cost/Benefit Justification section that asks for the following cost/benefit information:

• The responsibilities that necessitate the use of a cell phone.

• Reasons why other forms of communication are not adequate or cost effective.

• Examples of situations where the lack of a cell phone has significantly hindered operational effectiveness or efficiency.

• Potential savings resulting from the assignment of a cell phone.

Based on our review of seven departments, the City cannot be assured that the number of cell phones assigned to employees was adequately justified. That is, whether the additional City costs that would be incurred had been adequately weighed against the expected benefits, which were determined critical to City business.

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Finding No. 1: Cell phones were assigned without initially or periodically confirming there was an appropriate business need.

We selected a sample of cell phone assignments from five of the seven departments reviewed to determine whether the department had reasonable justification for the assignment. Neither City Clerk or Cultural Affairs (125 and 8 cell phones, respectively) prepares any written documents justifying the issuance of cell phones to its employees.

Our sample included cell phones with both high and zero usage for the period July through September 2010. More than half of the cell phones did not have sufficient justification for assignment to City personnel, as noted in the Table 4 below.

Table 4 Number of Cell Phones without a Justified Business Need

·--#of Cell Phones # and % of Cell Phones Without

Department Reviewed a Justified Business Need LAPD 37 30 81% Sanitation 44 34 77% GSD 40 22 55% Building & Safety 40 9 23% ITA 13 3 23%

Totals 174 98 56%

Depts. with No Supporting Total# of Documents for Cell Cell Phone Issuance: Phones City Clerk 125 Unknown Unknown Cultural Affairs 8 Unknown Unknown

Lack of Approved, Written Justification for Cell Phones

LAPD None of the 37 LAPD phones reviewed had an approved Cellular Services Application (Application) for the cell phone. Management indicated it was unaware that this Application existed, but stated that each cell phone assignment is evaluated using ITA's criteria. However, none of the 37 LAPD cell phone assignments in our sample were supported with a detailed, specific justification of a stated business need for the phone that had been assessed relative to its ongoing cost

LAPD's policy is to automatically assign Blackberrys to Command Staff, identified as the rank of Captain and above, due to the significant level of responsibility and requirements to handle emergency response and field operations, thus meeting ITA's criteria. Seven of the sampled phones were assigned to Command Staff. One

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additional phone was identified by LAPD as being assigned to Command Staff; however, this individual was not an Acting Captain during our review period. As a result, we did not include this phone assignment as meeting the criteria for Command Staff assignment. For the remaining 30 phones, the Department lacked a detailed, specific cost-benefit justification that supported the business need for the phone assignment.

Additionally, according to the Department, 20 of the cell phones in our sample were paid for with special funds (e.g., grant funds); however, the special funding had ended for 12 of the phones and were being paid for from the General Fund. Regardless of the funding source, cell phones should only be assigned when they provide a more economic and efficient solution to the City's business needs, and not because of funding availability.

We also noted one LAPD unit kept multiple phones or aircards activated and ready for emergency use. This causes the Department to incur monthly charges until an emergency arises. Efficient use of carrier websites that allow for immediate activation, deactivation or suspension of cell phones, offer an alternative to this practice.

Bureau of Sanitation Thirty-two of the 44 Sanitation cell phones in our sample did not have an approved Application. In ten cases, the only documentation we observed was a receipt for the cell phone, but this did not indicate a business need and why a cell phone was necessary for the employee. Two of the cell phones were not assigned to a specific employee but to a unit or the "shift superintendent", which can be an effective shared solution for a particular business need.

General Services Department Sixteen of the 40 GSD cell phones in our sample did not have an approved Application. In three cases, the cell phone was not assigned to a specific employee but to a unit or location. We also noted that a few phones were assigned to employees in part for emergency communications.

While we acknowledge the importance of communications during an emergency, it is not clear whether a City-issued cell phone and the associated costs are necessary for individuals such as management analysts. Other options are available, such as calling the employee's home or personal cell phone if contact is necessary in the case of a real emergency. For all phone assignments, GSD did not have a documented analysis to weigh the impact of those needs against the costs of providing a City-issued cell phone to specified employees.

Department of Building and Safety We found Application forms for each of the 40 DBS cell phones in our sample; however, all of the forms had the same, pre-printed justification, regardless of whether the cell phone was issued to the General Manager or a Systems Analyst and none of the forms signified management approval. The Department indicated that management approval

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and specific justification would be documented on Communication Service Requests (CSRs). The Department considers the Application only as an employee request for the cell phone. Yet, the Department could locate only 6 CSRs (of the sampled 40 phones).

In reviewing both the Applications and CSRs (which included management approvals and justifications), the business need was sufficiently demonstrated for 27 cell phones assigned to field inspection staff and an alternate Safety Assessment Team Leader. However, the Department lacked a detailed justification and business need for the remaining 13 phones. Four of those were assigned to the General Manager, Executive Officer, Deputy or Assistant Deputy Superintendents, which could meet the criteria of executive management, leaving 9 phones that lacked any written cost-benefit justification of their business need.

Information Technology Agency One of the 13 ITA cell phones in our sample did not have an approved Application. As a result, it could not be determined whether there was a business need for this cell phone.

City Clerk and Cultural Affairs Department Neither of these departments utilizes the City's Cellular Services Application to document the employee's business need for a cell phone. Both departments issue cell phones to executive staff, which in the case of Cultural Affairs, accounts for its eight phones, all of which are smart phones.

In addition to executive staff, the City Clerk assigns a number of cell phones to managers, and its Elections Division activates additional cell phones for temporary staff during an election. Some of the cell phones can only be used as "push to talk" and cannot be used to make or receive calls.

For both departments, the General Managers' direction was considered sufficient justification for designated staff to receive a City-issued cell phone or smart phone. However, by not utilizing the City's Cellular Services Application, neither the City Clerk or Cultural Affairs could demonstrate how the necessity for the device was adequately assessed against the relative costs.

Unacceptable Justification

We conducted testwork to determine whether departments' cell phone assignments complied with criteria established by ITA's Cellular Services Policy for justifying the issuance of a City cell phone to employees in our selected samples. We reviewed the departments' Cellular Services Applications or considered information provided by the departments to determine whether the employee met at least one of the following criteria:

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o Level of responsibility - the employee must be at a level of significant responsibility (e.g., executive staff or division head with extensive field operation duties);

o Emergency operations response - the employee requires cell phone access for emergency response purposes or requires continuous contact or immediate response to situations that promote public or employee safety;

o Field operations - the employee has direct responsibility for managing field operations or responsibilities that require a significant amount of time in the field or in vehicles and receives a high volume of time-sensitive calls.

Additionally, we reviewed the Applications or departmental information to determine whether the cost/benefit of a City cell phone was considered by the department. For example, did the department document the following?

o Responsibilities that necessitate the use of cell phone;

o Reasons why other forms of communication are not adequate or cost effective;

o Examples of situations where the lack of a cell phone has significantly hindered operational effectiveness or efficiency;

o Potential savings resulting from the assignment of a cell phone.

The results of our testwork are described below.

LAPD As previously noted, LAPD's policy is to automatically assign Blackberrys to Command Staff (defined as the rank of Captain and above), due to the significant level of responsibility and requirements to handle emergency response and field operations, thus meeting ITA's criteria. Of the 37 phones in our sample, 7 were assigned to Command Staff.

For the remaining 30 phones, the Department lacked detailed, specific cost-benefit justification that supported the business need for assigning a City· cell phone. In the absence of a demonstrated need that considers the relative costs of the phone, we cannot determine if these cell phone assignments were justified.

Also, 20 cell phones were assigned to a unit/division as part of a special-funded program or activity. In some cases, instead of a written justification showing why the cell phones were necessary as part of the grant-funded program, the Department

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provided us with grant documents showing only an allocation of funds for estimated cell phone costs.

General Services Department Of the 40 GSD cell phones in our sample, one Application explained why a Sprint aircard was needed for a Sr. Carpenter, but did not justify the business need for the employee's cell phone.

Department of Building and Safety Nine of the 40 DBS cell phone assignments in our sample lacked any written justification and business need. Four of the phones were assigned to Structural Engineers. According to DBS, some of its engineering personnel need a City cell phone since they may be called to respond to emergencies and must assist Police and Fire by determining if buildings are safe to enter. DBS designates these staff as members of Safety Assessment Teams (SAT). However, none of these phones was supported by justification noted on a CSR. In the absence of a documented business need that considers the costs to be incurred, the Department cannot determine if the cell phone assignment met the criteria set by ITA or the Department, and was therefore appropriately justified.

Also, based on a review of 500 DBS phones, we identified 61 cell phones that had zero usage from July 2010 through February 2011. The related monthly recurring charges (net of carrier credits) for these lines totaled approximately $8,000. We followed up on a sample of 14 of these phones and according to the Department, two of the phones were assigned as "inventory", in the event the phones become lost or inoperable. Eight of the phones were assigned to staff to be used when there is training, testing or an emergency, and were assigned to SAT leaders. Subsequent to our inquiry of the business need for the 14 phones, the Department deactivated six of them. One of the deactivated cell phones had been assigned to an employee who resigned in November 2010. By not ensuring there is a demonstrated business need that considers the relative costs for each cell phone assignment, the Department incurred unnecessary costs.

Information Technology Agency Of the 13 ITA cell phones in our sample, one employee's pager had been replaced with a cell phone. However, there was no justification for the cell phone on the Application.

Inadequate Justification

Bureau of Sanitation Two of the 44 Sanitation phones in our sample had Applications with ITA's standard criteria checked off (i.e., level of responsibility, emergency operations response, or field operations). However, there was no written justification explaining the cost/benefit issues that were considered in assigning the phones.

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General Services Department Five of the 40 GSD phones in our sample did not have adequate or sufficient justification noted on the Applications. For three of the phones, the Applications had ITA's standard criteria checked off; however, there was no written justification explaining the cost/benefit issues that were considered in assigning the phones. Two additional phones were assigned to management analyst staff for "enhanced communication capability for response/field use." It is not clear why cell phones were necessary for staff that would appear to work in an office.

Information Technology Agency For one of the 13 ITA cell phones in our sample, the justification for a cell phone was not adequately explained. The Application indicated that the cell phone was necessary for staff to reach a manager; however, there was no indication that the manager spent time in the field, or why other communication options would not be available.

Continued Business Need is Not Periodically Confirmed

We also noted that departments do not periodically confirm the continued need for a cell phone after it is initially assigned. For example, our testwork disclosed that GSD had three phones assigned to terminated employees, and one phone assigned to an employee who transferred to another department. GSD continued to incur monthly recurring charges for three of the phones. GSD incurred over $2,400 in charges from the employees' termination dates through March 2011.

LAPD also had three phones that were not immediately deactivated when they were no longer needed. In one case, an employee retired in January 2010 but the phone was not deactivated until the end of 2010. For another phone, although the Department sent it to salvage in March 2010, it was not deactivated and the charges continued until we notified the Department and it was deactivated in February 2011. For these two phones, the LAPD incurred about $1,000 in unnecessary costs. ln addition, about 80 GSD phones were deactivated as a result of our audit inquiries about the Department's processes to manage cell phones.

To determine whether there were additional cell phones assigned to terminated employees, we compared the employee names shown on the Sprint and AT&T bills from July through September 2010 to the City's payroll system, PaySR. We identified 26 employees who -had terminated City service between January and September 1, 2010, and yet the cell phones remained activated. An additional 25 employees had been terminated prior to January 2010 with active cell phones. There were also 21 employees who transferred to another City department between January and September 1, 2010. We noted that nine terminated employees were subsequently re­hired by the City; however, phones should be deactivated once an employee leaves City service, or the department, to avoid incurring unnecessary costs.

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Cell Phone Records are Not Kept Current

Based on the employee names provided by City departments, the cell phone bills detail the charges by employee and their assigned cell phone number. Cell phone carrier records must be kept current, since the assigned employee is responsible for reviewing their respective charges and identifying any personal use for reimbursement.

However, employee names on the bill may be outdated and not show the current employee who is assigned the cell phone, On a sample basis, we attempted to trace employee names from GSD's cell phone bills to the Department's Applications to confirm only current, active employees were assigned phones. In some cases, the Application forms could not be readily found, possibly due to changes in the employee assigned the phone.

To ensure accountability for cell phone charges, including identifying any personal usage, the correct employee name must be noted on the cell phone bills. Departments must be able to readily discern which employee is responsible for their respective charges. Some departments accomplish the billing review by distributing hard-copies of the bill to employees. Most carriers also offer on-line access to review billing data; however, none of the departments we reviewed had pursued this online alternative.

Cell Phones with Zero Usage

By not scrutinizing the need for a cell phone, costs may be unnecessarily incurred. Based on billing data from AT&T and Sprint for the seven departments in our review, we noted 126 cell phones had zero usage for two consecutive months and an additional 437 phones had zero usage for all three months. The charges for these phones for the months of zero usage totaled $46,131. The breakdown of zero usage phones by department is shown below in Table 5.

c Clerk 2 $145 16 $1 615

Build 12 421 22 634

General Services 39 139 114 7 912

ITA 0 0 7 407

Police 62 3 832 247 24 237

Bureau of Sanitation 11 856 31 933

Subtotals 126 $7 393 437 $3 738

Totals & 3 months 563 131

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While these phones may have been initially needed, based on our three-month analysis, they appear to be unnecessary. If the departments had periodically determined whether there was a business need for the cell phones, these costs would have been avoided.

Unless departments examine the business need for City-issued cell phones on an individual basis and periodically confirm that the need continues to exist, there is a risk that there are more cell phones being issued to employees than necessary. As a result, cell phone costs are not minimized.

In addition, departments with round-the-clock operations should consider whether cell phones can be shared by employees on different shifts within the same unit. This would reduce the number of cell phones needed along with the associated monthly recurring charges.

Recommendations:

Department General Manag~rs should:

1. Establish specific criteria for assigning cell phones to employees.

2. Ensure each cell phone assignment is supported by a documented, specific justification and management approval. The justification must describe the following:

a. Business need for the cell phone that includes a cost/benefit analysis;

b. What other forms of communication are available and why they are not adequate; and,

c. Why the lack of a cell phone would hinder the department's operational effectiveness or efficiency.

3. Ensure the cell phone assignments are evaluated on a periodic basis to ensure the business need for the cell phone remains valid.

4. Establish procedures to deactivate cell phones when the assigned user leaves the department or City service.

5. Ensure cell phones with zero usage are identified and management approval is obtained to continue or deactivate the cell phone service.

6. Consider whether cell phones can be shared by employees working different shifts within the same units/divisions.

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Section II: Selection of Cell Phone Plans and Contracts

As with individual consumer phone plans, the City's contracts offer a variety of plans, with set or unlimited plan minutes, and a set number or unlimited text messaging and data plans. Some plans also include direct connect services or pooling of call minutes. Other voice plans offer a flat-rate billing just for the minutes of usage.

Per ITA's policies, departments should work with employees to determine the most cost-effective rate plan available, and review invoices to ensure additional expenses are not incurred by exceeding what is allowed under the plan, such as a maximum number of minutes.

Our review disclosed that some departments were not reviewing cell phone invoices to determine if changes were needed to previously selected phone plans. As a result, costs were incurred that could have been minimized and possibly avoided. We found that costs were incurred due to exceeding the services included in the plans.

We also noted that there is not a Citywide analysis of the carriers and their plans to identify the most cost-effective for specific business needs.

Finding No. 2: Some departments do not adequately or consistently monitor cell phone usage to determine the most cost effective phone plan.

Some of the departments have incurred additional costs. for services that could have been avoided if cell phone usage had been monitored to determine the most cost­effective plan. For example from July through September, almost $23,000 in text messaging costs were primarily incurred by LAPD, Sanitation, DBS and GSD phones as demonstrated in Table 6 below. Depending on the carrier, unlimited text messaging plans could have been selected for $20 a month.

Table 6 Text Messaging Costs

#of Phones #of Phones per month per month

with charges with charges Department Text Charges >$20 to $100 >$100 ITA $5 0 0 Cultural Affairs 41 0 0 GSD 1,414 9 2 DBS 1,724 10 3 Sanitation 3,681 35 9 LAPD 15,773 114 31 Total $22,638 168 45

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As Table 6 shows, LAPD's phones accounted for most of the three-month cost at $15,773. In one case, an employee incurred $600 during one month for text charges that could have cost only $20, if the department had changed the employee's phone plan to one that included unlimited text messaging.

DBS added unlimited text messaging for $20 per month to one high-cost user's account, while another user that averaged $165 per month in text-messaging costs was not identified by the Department and, as a result, continued to incur excess costs. While some costs may have been reimbursed by employees, there remained texting costs that exceeded the cost of an unlimited text plan.

We also noted Cultural Affairs paid a monthly charge for an international calling plan for six of its eight phone users, even though international travel occurred only a few times during FY 2009-10. Instead of requesting international calling access only when it is needed, the Department incurred $2,680 for 12 months' charges. Another department informed us that instead of adding a calling plan for international travel, a temporary phone is ordered from the carrier for a nominal charge per day, plus airtime and shipping fees to return the phone. As an alternative, one of the carriers suggested activating the international calling plan just for the month of travel. Either alternative would have minimized the Department's cell phone costs.

Departments should monitor cell phone usage and the related charges to ensure excessive or unnecessary charges are not incurred.

Recommendation:

7. Department General Managers must ensure that cell phone usage is monitored to identify whether the most cost effective plan has been selected.

Finding No.3: The City does not have a consistent approach for determining which cell phone contract and plans will .provide the best value for its business needs.

The City has contracts with multiple carriers to provide cell phone services. All of the contracts are through cooperative agreements with the State, federal or multi-state (WCSA) entities. Since these public sector entities can provide a higher volume of business than a single city, the City benefits from favorable discount rates.

Each of the carriers has numerous voice and data plans available. There are stand­alone and pooled plans with different minute thresholds, as well as, unlimited plans and pay-per-use plans. Users can also select various add-on data plans for text and email messaging, internet access and services for international use. While plans may be similar among the carriers, it is difficult to find the exact same plan for pricing

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comparison purposes. For example, for one carrier, we noted the monthly recurring charges can vary from $119.98 for unlimited voice and data use for Blackberry devices, to $12.99 for a national pay-per-use cell phone plan. For another carrier, the Blackberry unlimited data monthly plan was $33.49, and $0.065 for a flat rate cell plan. In order to determine which carrier's plans are the most cost-effective, departments need to determine their business needs and identify the plan(s) that are the best fit at the most economical price.

However, we noted that the majority of the departments do not analyze which cell phone contract provides the best value for their communication needs. Only DBS and LAPD could provide any analyses comparing the cell phone carriers. However, these analyses are outdated. Carriers continually modify the phone plans offered to customers. Therefore, these departments' analyses are not relevant for selecting a current carrier's plan(s). According to staff, LAPD's review was done several years ago, but compared only two of the cell phone carriers and was based on basic plan descriptions and the associated plan costs. DBS' comparison was also done several years ago, in 2007, but included three of the cell phone carriers that had current contracts at that time. DBS' analysis was more comprehensive than LAPD's since it included a field test using phones from each carrier to assess coverage and looked at other aspects, such as, customer support, phone maintenance and battery life. However, the conclusions from the departments' analyses were not consistent DBS concluded that AT&T would provide the best value while LAPD concluded that Sprint offered the best value for its needs.

Recently, ITA has changed its approach to minimizing cell phone costs by transitioning some of its employees' cell phone plans to flat rate plans. ITA states that flat rate pay­per-use plans result in significantly lower costs while still allowing employees to be available via cell phone. In April, 2011, ITA formally shared this analysis with other City departments for their consideration.

To maximize the benefit of the different carrier contracts, the analysis of the various carriers and plans should be centralized and conducted periodically. This will ensure carriers and their plans are reviewed using the same criteria, and require only one entity to be knowledgeable about the numerous aspects of each carrier and the many different voice and data plans.

Without centralized responsibility for assessing carriers and plans, each of the 34 Council-controlled departments, Council offices and proprietary departments must become experts in this area and complete individual analyses to ensure cost-effective choices are being made.

Recommendation:

8. ITA management should perform periodic analyses of each carrier~s voice and data plans to identify ones that are the most cost-effective and inform departments of the results.

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Section Ill: Monitoring Cell Phone Costs

Finding No. 4: Unnecessary cell phone costs are paid by the City for directory assistance, call forwarding, international calls and other services.

Our analysis of a limited number of invoices disclosed cell phone charges incurred by employees that were over and above the monthly recurring charges (monthly service charge associated with selected voice and data plans). The extra charges included directory assistance (411) calls, call forwarding, international calls, roaming and miscellaneous charges (e.g., subscription services for text alerts, ring-tone purchases, international roaming, etc.). Table 7 shows the total costs incurred for these types of services from July through September 2010.

Department LAPD GSD Sanitation Remaining Depts. Reviewed

Total

Table 7 Charges in Excess of Phone Plans

July- September 2010 Call

411 Forwarding International Roaming $2,117 $1,260 $231 $230

50 31 2 154 47 161 0 110

0 0 0 136

$2,214 $1,452 $233 $630

Total Misc. Cost

$505 $4,343. 461 698 221 539

0 136

$1 '187 $5,716

ITA's policies state that employees should be discouraged from using the 411 directory assistance due to the high cost for each call. There were also high costs associated with call forwarding, international calls, and miscellaneous charges that include subscription services for text notifications and alerts, international roaming and ring tones. The extra charges we identified should be avoided, if not prohibited, unless a department specifically authorizes an employee to obtain the service for a valid business use.

There is a lack of monitoring and review by departments; and as a result, excessive costs were incurred. Departments are not reviewing the cell phone invoices for these types of unnecessary charges and do not have policies prohibiting employees from using these services. Without adequate monitoring by departments, unnecessary and excessive costs will continue to be incurred.

Recommendations:

9. ITA should develop Citywide policies regarding extra services and whether they are permissible and should be minimized, or prohibited.

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10. Department General Managers should implement policies and procedures to ensure extra services and the associated costs comply with the City's policies.

Finding No. 5: Most of the departments' policies do not effectively prohibit personal calls or require employees to identify and reimburse the City for personal calls.

We found that Cultural Affairs and the LAPD do not have any written policies regarding personal use of City issued cell phones. Employees are not required to review cell phone bills to identify and reimburse the City for personal calls. Instead, the departmental Cell Phone Coordinators review the phone bills for "reasonableness."

For phones temporarily assigned to the City Clerk's Elections staff, there is a strict prohibition on using City-issued phones for personal calls; however, there is no process to have employees review bills and confirm whether any of the calls were for personal business. For the City Clerk's permanent staff, personal usage is not addressed as long as the usage has not exceeded the cell phone plan allowance.

Although IT A and GSD require employees to reimburse the City for personal calls, the amount employees should be charged has not been determined. As a result, the practice is not to require employees to reimburse the City for personal calls unless the plan minutes have been exceeded and the employee incurred additional charges.

Of our sample departments reviewed, only the Bureau of Sanitation and DBS have policies in place requiring employees to review their cell phone charges, and identify and reimburse the City for personal calls. For example, DBS set a $0.15 per minute reimbursement rate for personal calls made during peak hours. The reimbursement rate is higher for other specific usage, such as text messages, out-of-area calls, etc. However, DBS' procedures require staff to distribute and retrieve marked-up copies of a 2,800 page bill each month.

Cell phones are considered City property and are issued to employees for City business. Departments must have effective policies and procedures in place to ensure City-issued equipment is used appropriately and charges paid by the City or other funding sources relate only to that business use.

The practice of holding employees accountable for charges that exceed a plan's allowance does not discourage personal use, since an employee could be using the cell phone for personal calls up to the allocated minutes at the City's expense. By not requiring employees to identify and reimburse the City for personal calls, departments cannot determine whether the phone plan could be changed to reduce costs and employees are not held accountable for using the cell phones for non-City business.

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To eliminate the administrative burden and complicated procedure of processing reimbursements and reduce costs, some governmental jurisdictions pay their employees a stipend rather than providing an agency-issued cell phone. Cities that have adopted this approach cite reduced costs as well as other efficiencies, since staff will no longer have to administer a variety of in-house programs and monitor plans for their employees. Staff would also no longer need to carry two cell phones.

The monthly stipend is a set amount that is used to compensate employees for the business use of their phones, and would help cover, but not entirely pay, a monthly phone bill. The amount is determined by considering the estimated usage and justified business need of the employee's position. For example, Dayton, OH employees who are required to carry cell phones as part of their jobs receive a monthly allowance of $20 to offset the cost. In Roanoke, VA, employees receive $50 a month towards their personal data assistants such as smart phones, for access to email and other advanced functions.

The City can achieve significant cost savings by moving toward a stipend for the majority of its cell phones and smart phones. For example, if the City was to replace all current cell phones and smart phones with a $20 or $50 stipend (excluding phones issued to LAPD), it could result in a reduction of $1.2 million from the total amount paid to cell phone carriers last year. Additional savings could also result as Departments would no longer dedicate internal staff resources for plan management and invoice review.

There may be certain functions, such as field-based positions like sanitation workers, janitors, construction managers, and building inspectors, for which paying a stipend may not be an optimal solution. However, for administrative personnel who have been issued a City cell phone or smart phone for the primary purpose of allowing them to be more responsive to management (including reaching them in case of emergency), eliminating a City-issued cell phone and instead paying an appropriate stipend payment, would be of benefit to the City.

Recommendations:

Department General Managers should:

11. Establish policies prohibiting the use of City-issued cell phones for routine personal use.

12. Ensure employees reimburse the City for personal calls made on an emergency basis using a City-issued cell phone.

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13. ITA management should pursue developing a citywide policy on cell phones that would provide more cost-effective options for the City. This would include setting a tiered stipend amount to be paid to employees with a justified business need for a City cell phone or data device, based on the anticipated necessity and use of the device.

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Section IV: Contract Oversight

Finding No. 6: The City lacks centralized oversight of the cell phone contracts.

Historically, GSD administered the City's cell phone contracts while ITA provided support as the "technical" expert. However, neither of the Departments provides centralized oversight of the City's cell phone contracts, nor provides guidance on how to minimize costs.

Several of the issues noted in our audit could have been mitigated if there had been an entity within the City to identify which cell phone plans provide the best value for the City's needs and which contract is the most cost-effective. As our audit disclosed, there are numerous individual plans offered by the carriers and departments did not ensure the phone plan with the best value was selected for their users. Under the City's decentralized model, each department is expected to be knowledgeable about each carrier's phone plans and stay current with any carrier-imposed changes. This also applies to any carrier on-line tools that could help manage cell phone use. It is more reasonable that a centralized oversight function should be knowledgeable about each carrier, as well as the plans that are offered, in order to identify the cell phone plan(s) that would generally satisfy the City's needs for the least cost and any on-line tools provided by the carriers to manage cell phone use.

Having a centralized oversight function also ensures consistency in. analyzing the carriers' plans to identify the most cost-effective plan(s). The analysis should include a comparison of flat-rate plans, pooled minute plans and individual plans to identify which plan will minimize costs. As previously noted, DBS and the lAPD analyzed the carriers several years ago and each identified a different carrier as providing the most cost­effective service for their needs.

In addition, centralized oversight of the City's cell phone contracts helps to mitigate excessive costs. From FY 06-07 to 07-08 cell phone costs increased by over 164% from $2.04 million to $5.38 million and increased again in FY 08-09 by 17% to $6.29 million. Because each department paid its own cell phone bills, there was no single entity in the City that identified the rise in costs, or if it was appropriate. Although the City benefitted from a 24% reduction in costs in FY 09-10, again, no one within the City can explain what prompted the reduction. As a result, the City cannot be assured as to whether these cost reductions could have benefitted the City in prior years.

Lastly, in 2009, GSD and ITA met to discuss transitioning the responsibility for overseeing the cell phone contracts to ITA, since the contracts are for services rather than tangible goods, which are considered commodities. Although the contracts are piggybacked onto other governmental agencies' contracts, ITA did not take timely action to obtain Council approval to seek extensions. As a result, two of the contracts were allowed to expire on October 2, 2010 without a replacement contract in place. The contracts have been extended through short-term solutions.

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According to ITA management, through a series of recent meetings between the two departments, it has been agreed that IT A will assume the role of Contract Administrator for the cell phone contracts, which would include developing the specifications based on the City's needs, working with the vendors to provide optimization standards and reporting tools, and disseminating information to Departmental users of the contracts to support decision-making. However, the responsibility for contract management, including soliciting bids based on ITA-developed specs, and executing contracts and amendments, would remain with GSD.

Recommendation:

14. The Mayor should direct ITA to formally assume responsibility for contract oversight of the City's cell phone contracts. ITA management should:

a. Ensure it is knowledgeable about each carrier and the cell phone plans that are offered to identify the plan(s) that would generally satisfy the City's needs for the least cost, and any on-fine tools provided that can help departments manage cell phone usage. The analysis of cell phone plans should include a comparison of flat-rate plans, pooled minute plans and individual plans to identify which plan will minimize costs.

b. Notify City departments' cell phone coordinators of the identified least­cost plan(s) that should be selected for the cell phone users and any on­line tools provided by the carriers to help manage cell phone usage.

c. Monitor the City's total cell phone costs by carrier on a periodic basis to identify any significant changes in costs that should be reviewed more closely.

d. Ensure cell phone carrier contracts and any contract extensions are executed timely.

Finding No.7: The departments did not ensure that the carriers fully complied with the optimization contract provision.

The City's contracts with Verizon, Sprint and AT&T contain an optimization provision which requires the carrier, after the initial plan assignment, to routinely identify those users that are not in the most optimized plan and work with the City Department Telephone coordinators to place users in the most optimized plan.

However, we noted that none of the carriers routinely provided optimization reports to all of departments reviewed. Only four departments (GSD, ITA, LAPD and DBS) indicated they received the optimization reports, and even then, only one or two times per year. DBS indicated reports were received from AT&T quarterly, but this frequency seems to

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be the result of the Department requesting to meet with the carrier's representative to achieve cost savings.

The optimization reports are a critical tool for departments to use to save on cell phone costs. GSD, IT A, LAPD and DBS provided copies of four optimization reports received from July 2009 through December 2010. The carriers identified projected savings ranging from 7.89% to 21% if the suggested plan changes were implemented.

Only DBS confirmed that the carrier's suggestions were fully implemented. LAPD indicated that other changes were being considered by the Department and the carrier's suggestions were put on hold and were not implemented until February 2011. GSD indicated that although the carrier identified savings for some phones, its older phone plans offered lower costs so the optimization plan was not implemented. ITA considered the carrier's proposal, but determined that costs could be further reduced by implementing a flat rate, pay-per-use plan for the majority of its phones.

Though two of the departments reviewed indicated they were able to minimize costs beyond the carriers' optimization reports, the opportunity to reduce cell phone costs was demonstrated for GSD, ITA, LAPD and DBS. If the savings identified by the carriers for these four departments are reflective of what could be achieved Citywide, potentially the savings could have been from $375,000 to as much as $998,000.12

Without a centralized function for analyzing phone plans and contracts, along with strong contract oversight, the City cannot be assured that the carriers fully comply with optimization provisions and departments take action to ensure cell phone costs are minimized.

Recommendation:

15. ITA should establish a process to ensure optimization reports are received by departments on a periodic basis and that suggestions for cost savings are implemented by departments.

Respectfully submitted,

T. William Newman, CPA, CFE lhal Auditor Ill

rul~dt--Siri Khalsa, CPA Deputy Director of Auditing

April27, 2011

~.~AL c;:::~ Farid Saffar, A Director of Auditing

12 Potential savings based on FY 09/10 cell phone expenditures {$4,752,917) x 7.89% and 21% for the minimum and maximum savings.

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Section Number

II

Appendix A

OFFICE OF THE CONTROLLER Audit of Citywide Cell Phone Usage

Ranking of Recommendations

Summary Description of Findings

1. Justification for cell phone issuance is lacking.

2. Most cost-effective plan is not selected.

3. No consistent approach to identify cell phone contract with best value.

Ranking Code

N

N

N

u

N

Recommendations Department General Managers should:

1. Establish specific criteria for assigning cell phones to employees.

-2. Ensure each cell phone assignment is supported by a documented, specific justification and management approval. The justification must describe the following:

a. Business need for the cell phone that includes a cost/benefit analysis;

b. What other forms of communication are available and why they are not adequate; and,

c. Why the lack of a cell phone would hinder the department's operational effectiveness or efficiency.

3. Ensure the cell phone assignments are evaluated on a periodic basis to ensure the business need for the cell phone remains valid.

4. Establish procedures to deactivate cell phones when the assigned user leaves the department or City service.

5. Ensure cell phones with zero usage are identified and management approval is obtained to continue or deactivate the cell phone service.

6. Consider whether cell phones can be shared N by employees working different shifts within

the same units/divisions.

N

N

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7. Department General Managers must ensure that cell phone usage is monitored to identify whether the most cost-effective plan has been selected.

8. ITA management should perform periodic analyses of each carrier's voice and data plans to identify ones that are the most cost-effective and inform departments of the results.

Section Summary Description of Ranking Number Findings Code Recommendations

Ill 4. Unnecessary costs incurred N 9. ITA should develop Citywide policies for directory assistance, call regarding extra services and whether they forwarding, etc. are permissible and should be minimized,

or prohibited.

N 10. Department General Managers should implement policies and procedures to ensure extra services and the associated costs comply with the City's policies.

5. Most departments do not Department General Managers should:

effectively prohibit personal N 11. Establish policies prohibiting the use of calls or seek reimbursement. City-issued cell phones for routine

personal use.

N 12. Ensure employees reimburse the City for personal calls made on an emergency basis using a City-issued cell phone.

N 13. IT A management should pursue developing a citywide policy on cell phones that would provide more cost-effective options for the City. This would include setting a tiered stipend amount to be paid to employees with a justified business need for a City cell phone or data device, based on the anticipated necessity and use of the device.

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Section Summary Description of Ranking Number Findings Code Recommendations

IV 6. Lack of centralized oversight N 14. The Mayor should direct ITA to formally of cell phone contracts. assume responsibility for contract

oversight of the City's phone contracts. ITA management should:

a. Ensure it is knowledgeable about each carrier and the cell phone plans that are offered to identify the plan(s) that would generally satisfy the City's needs for the least cost, and any on-line tools provided that can help departments manage cell phone usage. The analysis of cell phone plans should include a comparison of flat-rate plans, pooled-minute plans and individual plans to identify which plan will minimize costs.

b. Notify City departments' cell phone coordinators of the identified least-cost plan(s) that should be selected for the cell phone users and any on-line tools provided by the carriers to help manage cell phone usage.

c. Monitor the City's total cell phone costs by carrier on a periodic basis to identify any significant changes in costs that should be reviewed more closely.

7. Not all departments ensure 15. ITA should establish a process to ensure

carriers comply with N optimization reports are received by

optimization contract departments on a periodic basis and that

provision. suggestions for cost savings are implemented by departments.

Description of Recommendation Ranking Codes

U ~ Urgent- The recommendation pertains to a serious or materially significant audit finding or control weakness. Due to the seriousness or significance of the matter, immediate management attention and appropriate corrective action is warranted.

N - Necessary - The recommendation pertains to a moderately significant or potentially serious audit finding or control weakness. Reasonably prompt corrective action should be taken by management to address the matter. Recommendation should be implemented no later than six months.

D - Desirable - The recommendation pertains to an audit finding or control weakness of relatively minor significance or concern. The timing of any corrective action is left to management's discretion.

N/A- Not Applicable

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