Follow-Up of OIG’s Audit on Evaluating and Setting User Fees Finds That the City Has Made Improvements But Will Not Increase Transparency or Full-Cost Analyses

The City of Chicago Office of Inspector General (OIG) has completed a follow-up to its 2018 audit of the City’s process for evaluating and setting user fees. Based on the Department’s responses, we conclude that the Office of Budget and Management (OBM) has fully implemented four of the eight corrective actions related to the audit findings, partially implemented two, and not implemented two. The purpose of the initial audit was to determine whether the City complied with its financial and budgetary policies in evaluating and setting user fees, and whether it followed national best practices. OIG found that the City did not regularly review all fees to determine whether they were set at levels designed to recover the cost of the services or achieve other policy goals, in addition to the lack of a comprehensive list of fees and uncertainty as to how many fees existed. This created the risk that the City may not identify operational efficiencies because department leadership and City Council have no basis for knowing the actual cost of providing services to the public.

OIG made several recommendations to improve the City’s operational efficiencies concerning user fees, such as:

• develop a fee policy and accompanying practices that align with the Government Finance Officers Association (GFOA);
• create a complete list of all City fees and establish a schedule for their periodic review;
• ensure that fee proposals are supported by full-cost analyses, and ask departments to perform these analyses for review and validation;
• provide information about fees to the public and offer opportunities for feedback; and
• ensure that future full-cost analyses accurately account for all direct and indirect costs.

OBM described corrective actions it would take regarding most audit recommendations but disagreed with OIG’s suggestions to enhance public transparency or support fee proposals with full-cost analyses. However, OBM has implemented OIG’s recommendations in developing:

• a fee policy and practices that align with GFOA recommendations;
• a master list of fees and a periodic review schedule;
• a Citywide indirect cost rate for use in fee analyses; added fee policy language requiring annual updates to this rate and allowing the use of more detailed indirect cost rates when necessary.

“We commend OBM for revising its fee policy and committing to review fees on a regular basis. However, a critical part of the equation remains missing—the full cost of what the City spends on services. To adequately inform meaningful policy debates respecting how the City intends to fund critical services that balance the important but often competing public interests of revenue needs and equitable outcomes, the City Council and the public must know what it costs to collect garbage, conduct inspections, or house stray animals—and transparently set fees with full knowledge of how much of that cost they are choosing to recoup,” said Inspector General Joe Ferguson. “Compiling an accurate list of all the fees the City charges is a crucial first step, but it’s imperative that we analyze future fee proposals and keep taxpayers in the know to ensure transparency and trust in City operations.”

The full report can be found online:

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