City’s Process for Evaluating and Setting User Fees Follow-Up

The City of Chicago Office of Inspector General (OIG) has completed a follow-up to our June 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 2018 audit was to determine whether the City complied with its Financial and Budgetary Policies in evaluating and setting user fees, and followed national best practices embodied in the recommendations of the Government Finance Officers Association (GFOA). OIG found that the City did not adhere to its own policies or GFOA recommendations. We also found that the City did not perform accurate full-cost analyses. 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.

Based on the results of the audit, OIG recommended that OBM:

  1. develop a fee policy and accompanying practices that align with GFOA recommendations;
  2. create a complete list of all City fees and establish a schedule for their periodic review;
  3. ensure that fee proposals are supported by full-cost analyses, ask departments to perform these analyses for OBM’s review and validation, and develop templates and instructions to guide the departments in this task;
  4. consider incorporating long-term forecasting in its process for evaluating and setting fees;
  5. begin a pilot program for department-performed full-cost analyses and document the results of the pilot;
  6. provide more information regarding fees to the public and present more opportunities for public feedback;
  7. ensure that future full-cost analyses accurately account for all direct and indirect costs, as recommended by GFOA; and
  8. consider developing an alternative Cost Allocation Plan, revising the current Plan, or setting indirect cost rates for each department.

In its response to the audit, OBM described corrective actions it would take related to several of OIG’s recommendations. However, it disagreed with the recommendations to enhance public transparency, support fee proposals with full-cost analyses, and consider developing an alternative Cost Allocation Plan to support future full-cost analyses.

In November 2019, OIG inquired about the status of corrective actions taken by OBM. Based on OBM’s follow-up response, OIG concludes that OBM has fully implemented four corrective actions, partially implemented two, and not implemented two. Specifically, OBM:

  1. developed a fee policy and practices that align with GFOA recommendations;
  2. developed a master list of fees and a periodic review schedule;
  3. declined to ask departments to perform full-cost analyses, but did require them to provide complete direct and indirect cost information to OBM through a uniform template each time a fee is up for review;
  4. declined to explicitly incorporate long-term forecasting, but did address some of the related risks by establishing a periodic fee review schedule;
  5. did not begin a pilot program for department-performed full-cost analyses;
  6. did not provide additional public information or opportunities for public feedback regarding fees;
  7. ensured that fee analyses accurately account for direct and indirect costs by developing its cost information template and developing an indirect cost rate; and
  8. developed a Citywide indirect cost rate for use in fee analyses, and added language to its fee policy requiring annual updates to this rate and allowing the use of more detailed indirect cost rates when necessary.