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Audit finds flaws in Palo Alto's management of nonprofits

Critical review prompts city to strengthen policies for monitoring partner agencies

Palo Alto's agreement with Pets In Need, which operates the local animal shelter, was among the contracts recently scrutinized by the city auditor, Baker Tilly. Embarcadero Media file photo by Veronica Weber.

Palo Alto is preparing to tighten its policies around contracts with nonprofit groups after an audit found that the city's existing agreements suffer from a lack of clear expectations and insufficient monitoring.

The audit, which was performed earlier this year by the firm Baker Tilly, closely scrutinized 10 of the city's 46 agreements that had a contract amount of $10,000 or more in fiscal year 2021. These include Palo Alto's long-standing partnerships with organizations such as Alta Housing, the nonprofit developer that had administered the city's below-market-rate housing program since 1974, and MidPen Media Center, which provides public, educational and government access channels.

The audit found that the city has fallen short in monitoring whether some of its nonprofit partners are providing the expected service. Three of the 10 contracts that the firm had reviewed "did not include adequate information of performance and reporting expectation," Chiemi Perry, manager of public sector advisory at Baker Tilly, told the council's Policy and Services Committee at its June 14 discussion of the audit.

"Also, three of those 10 agreements had instances of noncompliance with the required reports in the agreements," Perry said.

One example that the audit cited was Pets In Need, the nonprofit that runs the city's animal shelter on East Bayshore Road. Its monthly reports did not include all the information that its agreement with the city had required, the audit found.

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Project Safety Net, a nonprofit that is dedicated to fostering youth well-being, was more than two months late in submitting a required report for Dec. 31, 2021. Auditors were told that "less attention was paid to monitoring the compliance with the agreement due to limited staffing and a shift in priorities during the pandemic," the report states.

The auditors also could not find the monthly report for Ecology Action, which provides energy-efficiency services, because the project manager who was monitoring the contract retired last August and the documents could not be located, according to the report.

In some cases, the agreements fail to specify what type of information the partner agencies are required to provide. For example, the city's agreement with Alta Housing fails to define the reporting requirements that the nonprofit developer is expected to provide. Its contract with the Downtown Streets Team, meanwhile, requires the nonprofit to pick up litter but the nonprofit is not obligated to provide information pertaining to litter pickup, the audit states.

The city's relationship with its nonprofits has faced scrutiny over the past two years thanks to highly publicized scandals at Downtown Streets Team, where top administrators were accused of sexually harassing employees and fostering a drinking culture. The council had requested that the nonprofit provide an independent review of the harassment allegations as a condition of renewing the agreement. Though the Downtown Streets Team declined to provide the report, the council ultimately agreed to sign new agreements with the nonprofit after being assured that it had strengthened its governance measures.

More recently, city officials have been in dispute with Pets In Need, a nonprofit that took over the city's shelter operations in early 2019 and which has accused the city of failing to live up to its promises to upgrade the aged facility. The tension between Pets In Need escalated in the fall after seven puppies died in the nonprofit's custody while being transported from Central Valley last August, triggering an investigation of animal cruelty. The nonprofit in November gave the city a one-year notice of termination, though the two sides had since agreed to delay the severance by six months as they work on a new deal.

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While the agreements mostly pertain to the duties that nonprofits are required to perform, in some cases they also outline the city's responsibilities. The audit cites the example of Pets In Need, which attributed its intention to cut ties with Palo Alto to "the failure of the City to meet the timelines for the construction and renovation projects specified in the Agreement."

The audit recommends that Palo Alto "ensure that the City's responsibilities to be included in the agreement are achievable before agreements are signed to avoid noncompliance with the agreements."

Kiely Nose, director of the Administrative Services Department, said the city's first step will be to "really beef up and revise our policies and procedure regarding the agreements in alignment with the recommendations contained in the audit." Both she and City Manager Ed Shikada largely agreed with the report's findings and committed to strengthening the city's policies on monitoring its agreements with nonprofits.

"This audit was really a good opportunity for us to look at where are the areas that we could perhaps do some beefing up in terms of maintaining a level of consistency in expectations while also taking a bit of a risk assessment framework perspective on where our attention should be paid," Shikada said.

Baker Tilly recommended that the city maintain a list of all nonprofit agreements and "periodically report to the City Council on performance of nonprofit organizations and any issues identified, resolved, and outstanding as appropriate," the audit states.

Without good governance, the audit states, "the City may not manage risks effectively to achieve the City's goals and serve the interest of its citizens."

The firm also recommends that the city track the performance of nonprofit organizations "to identify the risks associated with continuing the relationships (e.g. risk of not achieving the goals, reputation risk) and discontinuing the relationship (e.g. risk on not finding alternatives) and take appropriate actions to address the risks in a timely manner."

The audit recommends that all nonprofit agreements "consistently define the service level expectations, including the goals, performance measures, and reporting requirements that enable the City to monitor the performance of the nonprofit organizations and achievement of intended benefits."

"The higher the risk associated with an agreement, the more refined the performance and reporting expectations should be," the audit states. "The City should also ensure that appropriate City resources are assigned to high-risk agreements to manage such contracts and relationships adequately. Underperformance should be discussed with the organizations before it becomes an issue, and appropriate corrective actions should be taken to improve performance."

As the city moves toward strengthening its policies, Mayor Pat Burt said it's important for the city to strike a balance between ensuring compliance and allowing some of the smaller nonprofit partners to operate without stringent and burdensome reporting requirements.

"How do we assure that as we tighten our standards where appropriate, we don't really choke off the ability of some of these community partners to help our community in very cost-efficient and beneficial ways?" Burt asked.

Council member Alison Cormack also concurred with the report's findings and said it's important for the city to create a new framework for nonprofits to ensure that they are all treated in a similar fashion. At the same time, she acknowledged that the city will have to pay more attention to the risks associated with nonprofits that provide services pertaining to animal safety and children.

"There are some real obvious places where, regardless of the amount or the wonderfulness of the people providing these services, we're going to have to be more thoughtful," Cormack said.

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Gennady Sheyner
 
Gennady Sheyner covers the City Hall beat in Palo Alto as well as regional politics, with a special focus on housing and transportation. Before joining the Palo Alto Weekly/PaloAltoOnline.com in 2008, he covered breaking news and local politics for the Waterbury Republican-American, a daily newspaper in Connecticut. Read more >>

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Audit finds flaws in Palo Alto's management of nonprofits

Critical review prompts city to strengthen policies for monitoring partner agencies

by / Palo Alto Weekly

Uploaded: Tue, Jun 28, 2022, 9:17 am

Palo Alto is preparing to tighten its policies around contracts with nonprofit groups after an audit found that the city's existing agreements suffer from a lack of clear expectations and insufficient monitoring.

The audit, which was performed earlier this year by the firm Baker Tilly, closely scrutinized 10 of the city's 46 agreements that had a contract amount of $10,000 or more in fiscal year 2021. These include Palo Alto's long-standing partnerships with organizations such as Alta Housing, the nonprofit developer that had administered the city's below-market-rate housing program since 1974, and MidPen Media Center, which provides public, educational and government access channels.

The audit found that the city has fallen short in monitoring whether some of its nonprofit partners are providing the expected service. Three of the 10 contracts that the firm had reviewed "did not include adequate information of performance and reporting expectation," Chiemi Perry, manager of public sector advisory at Baker Tilly, told the council's Policy and Services Committee at its June 14 discussion of the audit.

"Also, three of those 10 agreements had instances of noncompliance with the required reports in the agreements," Perry said.

One example that the audit cited was Pets In Need, the nonprofit that runs the city's animal shelter on East Bayshore Road. Its monthly reports did not include all the information that its agreement with the city had required, the audit found.

Project Safety Net, a nonprofit that is dedicated to fostering youth well-being, was more than two months late in submitting a required report for Dec. 31, 2021. Auditors were told that "less attention was paid to monitoring the compliance with the agreement due to limited staffing and a shift in priorities during the pandemic," the report states.

The auditors also could not find the monthly report for Ecology Action, which provides energy-efficiency services, because the project manager who was monitoring the contract retired last August and the documents could not be located, according to the report.

In some cases, the agreements fail to specify what type of information the partner agencies are required to provide. For example, the city's agreement with Alta Housing fails to define the reporting requirements that the nonprofit developer is expected to provide. Its contract with the Downtown Streets Team, meanwhile, requires the nonprofit to pick up litter but the nonprofit is not obligated to provide information pertaining to litter pickup, the audit states.

The city's relationship with its nonprofits has faced scrutiny over the past two years thanks to highly publicized scandals at Downtown Streets Team, where top administrators were accused of sexually harassing employees and fostering a drinking culture. The council had requested that the nonprofit provide an independent review of the harassment allegations as a condition of renewing the agreement. Though the Downtown Streets Team declined to provide the report, the council ultimately agreed to sign new agreements with the nonprofit after being assured that it had strengthened its governance measures.

More recently, city officials have been in dispute with Pets In Need, a nonprofit that took over the city's shelter operations in early 2019 and which has accused the city of failing to live up to its promises to upgrade the aged facility. The tension between Pets In Need escalated in the fall after seven puppies died in the nonprofit's custody while being transported from Central Valley last August, triggering an investigation of animal cruelty. The nonprofit in November gave the city a one-year notice of termination, though the two sides had since agreed to delay the severance by six months as they work on a new deal.

While the agreements mostly pertain to the duties that nonprofits are required to perform, in some cases they also outline the city's responsibilities. The audit cites the example of Pets In Need, which attributed its intention to cut ties with Palo Alto to "the failure of the City to meet the timelines for the construction and renovation projects specified in the Agreement."

The audit recommends that Palo Alto "ensure that the City's responsibilities to be included in the agreement are achievable before agreements are signed to avoid noncompliance with the agreements."

Kiely Nose, director of the Administrative Services Department, said the city's first step will be to "really beef up and revise our policies and procedure regarding the agreements in alignment with the recommendations contained in the audit." Both she and City Manager Ed Shikada largely agreed with the report's findings and committed to strengthening the city's policies on monitoring its agreements with nonprofits.

"This audit was really a good opportunity for us to look at where are the areas that we could perhaps do some beefing up in terms of maintaining a level of consistency in expectations while also taking a bit of a risk assessment framework perspective on where our attention should be paid," Shikada said.

Baker Tilly recommended that the city maintain a list of all nonprofit agreements and "periodically report to the City Council on performance of nonprofit organizations and any issues identified, resolved, and outstanding as appropriate," the audit states.

Without good governance, the audit states, "the City may not manage risks effectively to achieve the City's goals and serve the interest of its citizens."

The firm also recommends that the city track the performance of nonprofit organizations "to identify the risks associated with continuing the relationships (e.g. risk of not achieving the goals, reputation risk) and discontinuing the relationship (e.g. risk on not finding alternatives) and take appropriate actions to address the risks in a timely manner."

The audit recommends that all nonprofit agreements "consistently define the service level expectations, including the goals, performance measures, and reporting requirements that enable the City to monitor the performance of the nonprofit organizations and achievement of intended benefits."

"The higher the risk associated with an agreement, the more refined the performance and reporting expectations should be," the audit states. "The City should also ensure that appropriate City resources are assigned to high-risk agreements to manage such contracts and relationships adequately. Underperformance should be discussed with the organizations before it becomes an issue, and appropriate corrective actions should be taken to improve performance."

As the city moves toward strengthening its policies, Mayor Pat Burt said it's important for the city to strike a balance between ensuring compliance and allowing some of the smaller nonprofit partners to operate without stringent and burdensome reporting requirements.

"How do we assure that as we tighten our standards where appropriate, we don't really choke off the ability of some of these community partners to help our community in very cost-efficient and beneficial ways?" Burt asked.

Council member Alison Cormack also concurred with the report's findings and said it's important for the city to create a new framework for nonprofits to ensure that they are all treated in a similar fashion. At the same time, she acknowledged that the city will have to pay more attention to the risks associated with nonprofits that provide services pertaining to animal safety and children.

"There are some real obvious places where, regardless of the amount or the wonderfulness of the people providing these services, we're going to have to be more thoughtful," Cormack said.

Comments

felix
Registered user
Another Palo Alto neighborhood
on Jun 28, 2022 at 7:01 pm
felix, Another Palo Alto neighborhood
Registered user
on Jun 28, 2022 at 7:01 pm

No kidding.
Downtown Streets Team is a prime example. The Council recently gave it more money, yet when a Councilmember asked if anything had changed - he was met with a shrug.

See the article on paonline just posted about its founder and longtime Director who finally stepped down. It’s a graphic example of how the City reneged on its responsibility to exercise reasonable oversight while supplying more and more money to DTST.
It’s quite shocking.


Native to the BAY
Registered user
Old Palo Alto
on Jun 28, 2022 at 8:16 pm
Native to the BAY, Old Palo Alto
Registered user
on Jun 28, 2022 at 8:16 pm

Damning . The lack of a real & transparent effort for low income seniors, individuals, disabled, families to access Alta Housing waitlists, or who to contact there or how one might get on a “closed” waitlists is opaque at best — if not down right wrong. What did one of their YouTube videos reveal? how to look for housing? It checked obscure box, was trite w broad strokes 4 anxious local folks. The very mission of providing housing & services for local residents in dire need of affordable, safe quality housing is nil. Alta has to be one of the city’s most lucrative 501(c)3 partners w only a link to profit’s website & is a dead end. 99% of their housing stock waitlists are closed!! Why? Anyone surely, especially if they work or live in Palo Alto, should be able to get on a waitlist . Also why can’t one get on their MV property lists? Meanwhile 2017 Related/Mayfield (Stanford owned soil) runs a warm water 71 unit residential complex where main sewer pipes bust regularly, faucets leak, appliances are fire hazards, wall outlets burn out, and not one resident has their own single parking space because ... the 1million dollar parking puzzle is unsafe, not ADA accessible, does not accommodate small utility vehicles (The Erector set would collapse with a 6.0 Earthquake & stops functioning w power outages. very least the City must provide other housing affordable options on their website, like Eden, Mid-Pen etc. where is the Audit for Project Centennial ? A friend had a humiliating and major privacy invasive experience with them. PC just a had a mass job turn-over! Why? PA Housing & development dept revamp, I say. What a disgrace. The system is rigged against the poor, needy, people of color. Meanwhile appears V-Rents (Wall Street) owns 25% of rental stock in PA & they charge above market 4 less than optimal, trashy rental properties. The City has to get honest with its true poverty numbers . Let us in on it. What R the #’s?


eileen
Registered user
College Terrace
on Jun 29, 2022 at 9:25 am
eileen , College Terrace
Registered user
on Jun 29, 2022 at 9:25 am

Native to the BAY, thanks for the comment above. You seem to have more information about
Alt Housing. I too wonder how anyone in this city can get on their waiting list! There needs to be much more transparency! Who is getting this housing and why are ALL the lists closed??


mjh
Registered user
College Terrace
on Jun 29, 2022 at 10:59 am
mjh, College Terrace
Registered user
on Jun 29, 2022 at 10:59 am

Doesn’t reflect well on the city manager who, under the city’s charter, has broad powers and leeway as to how he manages the city, the departments, and the staff, and limits how much council can intervene or influence other than through control of the major items in the budget and broad policy.


eileen
Registered user
College Terrace
on Jun 29, 2022 at 11:54 am
eileen , College Terrace
Registered user
on Jun 29, 2022 at 11:54 am

mjh, I totally agree with your comment above. And yet, the city manager is paid very well as are his many employees!


Online Name
Registered user
Embarcadero Oaks/Leland
on Jun 29, 2022 at 12:01 pm
Online Name, Embarcadero Oaks/Leland
Registered user
on Jun 29, 2022 at 12:01 pm

Totally agree with the two previous posters about the city manager. When does his term end and what's the procedure for choosing his replacement? Let's hope it's better than the last one where the new CM gets an extra year's salary and benefits IF his performance is so horrible that he's fired or forced to resign.


Native to the BAY
Registered user
Old Palo Alto
on Jun 29, 2022 at 1:50 pm
Native to the BAY, Old Palo Alto
Registered user
on Jun 29, 2022 at 1:50 pm

@Eileen. Follow the money and the research. Alta Housing rents their headquarters from Sobrato on West Bay Shore. After 6 years, Sobrato & city just reached a deal on Fry’s 3.5 acres — a set aside 4 desperately needed, completely doable low-income housing for a non-profit developer to build there. Guess who will get the bidding/winning contract? Yes. The other California housing Corp, Alta. The others like Eden, Mid-pen , Charity, Bridge, etc ... don’t stand a chance of building there— even though these affordable builders are really good developers for the poor. They to should be given a fair shake to provide safe, quality, low-income housing for the poor and unfortunate low-wage local residents that desperately need good choices. If only Alta and City and Sobrato were transparent about the real chances of a local resident/family/senior getting a unit on that site. I’d be okay w Alta holding the monopoly of the housing yet who of us locals get in seems to be opaque and super duper selective, discretionary and secretive. Hello. Sabrato has spent last years beefing up their “giving” tools which make them look them look uber good. My beef w Alta and City is housing is anti multi generational flexible to all income , family size, life transitions, abilities — and especially to support low wage local workers who are the backbone to this economy. I am all for awarding a contract to a local developer, yet are the partnering contractors, architects, laborers, vendors local to the Peninsula too?


Annette
Registered user
College Terrace
on Jul 6, 2022 at 7:22 am
Annette, College Terrace
Registered user
on Jul 6, 2022 at 7:22 am

Once again I miss the LIKE button. I would have used it to LIKE the comments above expressing concern about Palo Alto's City Manager. Shikada was promoted to the position of City Manager in 2018. Per one article “the council opted to avoid the city’s typical recruiting process, which usually involves a nationwide search, a selection of finalists and opportunities for the public to weigh in.” Then-mayor Kniss made the motion to promote Shikada, even while acknowledging that the process was “compacted”. Several Councilmembers spoke about the process, defending their action despite the obvious flaws.

When CC voted on his contract, Tanaka dissented, arguing that there should instead be a fixed component and a variable that reflects a correlation between the City’s performance and the City Manager’s. What a concept.


Consider Your Options.
Registered user
Another Palo Alto neighborhood
on Jul 6, 2022 at 11:32 am
Consider Your Options. , Another Palo Alto neighborhood
Registered user
on Jul 6, 2022 at 11:32 am

The city manager's "term" ends when he retires or when he is dismissed by City Council. He is an employee of the City of Palo Alto, not an elected official.


mjh
Registered user
College Terrace
on Jul 6, 2022 at 7:50 pm
mjh, College Terrace
Registered user
on Jul 6, 2022 at 7:50 pm

My understanding is that when hired City Manager Shikado negotiated a contract that includes $3 million in compensation if he is fired.


Annette
Registered user
College Terrace
on Jul 6, 2022 at 8:22 pm
Annette, College Terrace
Registered user
on Jul 6, 2022 at 8:22 pm

I'd have to check the CC minutes from 2018 to confirm, but I think what he negotiated is a severance package of a year's salary and benefits should he be fired or forced to resign. Put differently, while CC may cut services here and there b/c the City is short on funds, it plans to be sufficiently well funded to pay a City Manager to not work. Is that really the best use of public funds?


Online Name
Registered user
Embarcadero Oaks/Leland
on Jul 7, 2022 at 11:25 am
Online Name, Embarcadero Oaks/Leland
Registered user
on Jul 7, 2022 at 11:25 am

@Annette, true. It was covered by the media when Liz Kniss pushed through those terms of Shikada's employment contract while insisting that he grabbed up immediately and thus was the only candidate the city interviewed.

One has to wonder about a city that would give its manager huge financial incentives to perform so poorly he gets fired or is forced to resign.


Curmudgeon
Registered user
Downtown North
on Jul 8, 2022 at 12:07 pm
Curmudgeon, Downtown North
Registered user
on Jul 8, 2022 at 12:07 pm

Look very closely at anything involving Kniss. Especially if it involves departure from normal procedures


Online Name
Registered user
Embarcadero Oaks/Leland
on Jul 8, 2022 at 12:23 pm
Online Name, Embarcadero Oaks/Leland
Registered user
on Jul 8, 2022 at 12:23 pm

@Curmudgeon, you mean like her attempt to limit campaign contributions from regular residents but not from the business interests that backed her? You mean like her laughable claim that PA has no traffic problems and that people should just take alternate routes? Or, how when pushed on the question of traffic, she advocated having KIDS hand out traffic citations to drivers???

How she became president of the local League of Women Voters -- which used to have a stellar reputation -- is a case in point, esp. given how she got her buddies to delay the investigation into her own campaign finance irregularity for years while she continued to push pro-development acolytes like Mayor Fine, City Council Members Cormack and Wollbach.

You'll recall Mr Fine's temper tantrum exit from PA politics and how Ms Cormack never met a development project she didn't like, including her laughable plan to convert Town & Country Shopping Center to "medical/retail" as the pandemic was ending without ever defining what that is even though it would have produced no sales tax revenue To name just one of those she backed.

We have her -- and them -- to thank for the ridiculous and disproportionate number of office buildings in PA which of course pushed up the housing targets just like her backers wanted.


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