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HomeMy WebLinkAboutAudit Reports - Public - John Q Hammons Agreement - Audit Follow-up - 7/11/2017 Date: July 11, 2017 To: Kevin R. Phelps, City Manager From: Candace MacLeod, City Auditor Subject: Audit Follow-up: John Q Hammons Agreement As part of the FY16 approved audit plan, the City Auditor’s Office completed an audit of the John Q Hammons (JQH) Management and Lease Agreement (Agreement) in January 2016. This was the second audit of the Agreement by the City, as the initial one was performed in 2012. The 2016 report included 35 recommendations to strengthen controls. Although management concurred with the recommendations in the 2016 audit, the results indicated that actions had not been taken to address the majority of issues originally reported in 2012. An additional audit follow-up was conducted in March 2017. The 2017 follow-up indicated that out of the 35 recommendations in the 2016 audit, 26 were addressed, including the hiring of a contract manager in October 2016. The remaining open items include: • Clarifying JQH’s rights regarding utilization of the City’s Media Center • Determining whether an amendment to the Agreement is required relating to the provision of annual audited financial statements to the City by JQH • Completing a physical inventory of City-owned AV equipment located at the Convention Center and Expo Hall • Developing a capital maintenance schedule in conjunction with JQH • Completing a physical inventory of City-owned assets at the facility, along with tagging and recording the items • Re-instituting a process for fire inspectors to review plans for special events held at the facility An additional follow-up will be performed to determine the status of the open items. Please let me know if you have any questions. Attachment cc: Michael D. Bailey, City Attorney Lisette Camacho, Assistant Director Budget and Finance Tom Duensing, Assistant City Manager Jack Friedline, Director of Public Works Terry Garrison, Fire Chief Vicki Rios, Director of Budget and Finance __________________________________________________________________________________________ City Auditor’s Office 1 JQ Hammons Follow-up Recommendation Management Response January 2016 Management Response March 2017 Status 1.1 The CMO should assign staff to request, review and reconcile, on an ongoing basis, the detail for JQH quarterly revenue-based rent reports including: adjustments; third party expenses; booking schedules; contracts; and rates for the Managed Property and Media Center. Concur. The CMO will assign staff to request, review and reconcile, on an ongoing basis, the detail for JQH quarterly revenue-based rent reports including: adjustments; third party expenses; booking schedules; contracts; and rates for the Managed Property and Media Center by September 30, 2016. The quarterly revenue- based rent reports are reconciled by a Senior Accountant and reviewed by the Accounting Program Manager or the Controller. Beginning with QE March 2017 report, JQH will provide details of each event upon request. Additionally, a Contract Program Manager was hired in October 2016. Closed 1.2 The CMO should assign staff to verify whether the 2014 reported revenue and revenue- based rent for the Expo Hall is accurate. Concur. The CMO will assign staff to verify whether the 2014 reported revenue and revenue-based rent for the Expo Hall is accurate by September 30, 2016. The Contract Program Manager will request the details for the 2014 reported revenue for JQH Expo Hall and Budget and Finance will review the reports for accuracy by May 30, 2017. Closed 1.3 The CMO should assign staff to determine if revenue from self- parking and Arena events is being generated, reported and paid to the City. Concur. The CMO will assign staff to determine if revenue from self-parking and Arena events is being generated, reported and paid to the City by September 30, 2016. JQH no longer uses self- parking. JQH invoices patrons through invoicing and charging the guest’s bill per day. During events, JQH uses an attendant. All forms of income generated through parking is reported monthly to the City. Closed 1.4 The CMO should assign staff to request and review Parking Facility procedures to ensure adequate controls have been established over the collection and reporting of parking revenue. Concur. The CMO will assign staff to request and review Parking Facility procedures to ensure adequate controls have been established over the collection and reporting of parking revenue by September 30, 2016. The City received the JQH Cash handling procedures in February 2017. Closed 1.5 The CMO should assign staff to determine whether the City should be earning interest on quarterly revenue- Concur. The CMO will assign staff to determine whether the City should be earning interest on quarterly revenue-based rent Budget & Finance will review the interest rate on the Bank of New York Mellon account by July 31, 2017. Open __________________________________________________________________________________________ City Auditor’s Office 2 JQ Hammons Follow-up Recommendation Management Response January 2016 Management Response March 2017 Status based rent payments in the City’s bank account. payments in the City’s bank account by September 30, 2016. 1.6 The CMO should work in conjunction with the City Attorney’s Office to clarify JQH’s rights to utilize the Media Center. Concur. The CMO will assign staff to work in conjunction with the City Attorney’s Office to clarify JQH’s rights to utilize the Media Center by September 30, 2016. The Contracts Program Manager was hired in October 2016. The Contracts Program Manager will work with the City Attorney’s Office to clarify JQH’s rights to utilize the Media Center by September 30, 2017. Open 1.7 The CMO should work in conjunction with the City Attorney’s Office to determine whether a contract amendment is needed to clarify responsibilities of JQH and the City to address compliance and performance issues. Concur. The CMO will assign staff to work in conjunction with the City Attorney’s Office to determine whether a contract amendment is needed to clarify responsibilities of JQH and the City to address compliance and performance issues by September 30, 2016. The Contracts Program Manager was hired in October 2016. The Contracts Program Manager will work with the City Attorney’s Office, the City Manager’s Office, and representatives of JQH to determine whether a contract amendment is needed to clarify responsibilities of JQH and the City to address compliance and performance issues by September 30, 2017. Open 1.8 Budget and Finance should ensure revenue- based rent journal entries are supported by adequate documentation, receive secondary levels of review and are posted in a timely manner. Concur. Budget and Finance will include a copy of the JQH quarterly report along with the bank statements on all new entries effective April 30, 2016. Budget and Finance staff met on March 2, 2016 to review required documentations to support journal entries. Adequate supporting documentation (JQH quarterly report and bank statement) is attached to journal entries. Journal entries receive secondary levels of review and are posted in a timely manner. Closed 1.9 Budget and Finance should monitor JQH revenue-based rent payments, report any late payments, and calculate, report and Concur. Budget and Finance will endeavor to monitor revenue-based rent payments, report any late payments and report and bill interest owed on late Revenue-based rent payments are monitored by a Senior Accountant and late payments are reported to management Closed __________________________________________________________________________________________ City Auditor’s Office 3 JQ Hammons Follow-up Recommendation Management Response January 2016 Management Response March 2017 Status bill interest owed on late payments. payments effective April 30, 2016. and the Contracts Program Manager. 1.10 Budget and Finance should ensure the June 1, 2008 Series 2008 Ninth Supplemental Trust Indenture from the City to the Bank of New York Trust Company is recorded with the City Clerk’s Office. Concur. Budget and Finance will record the Series 2008 Ninth Supplemental Trust Indenture at the City Clerk’s Office by April 30, 2016. On April 26, 2016, it was confirmed that Series 2008 Ninth Supplemental Trust Indenture was recorded at the City Clerk’s Office - contract #10798. Closed 2.1 Budget and Finance should review the City’s current process of imputing sales tax on revenue-based rent and determine if this is the appropriate method for this Agreement, and any other city agreements. Concur. Budget and Finance will review its process for imputing sales tax on JQH revenues and other agreements by April 30, 2016. After reviewing the contract, tax code, and tax rulings, Tax & License has concluded that the City should be filing and remitting tax on both Base Rent and Revenue-Based Rent. Closed 2.2 Budget and Finance should ensure sales tax is collected and paid by JQH for all revenue- based rent that was reported to the City in 2013, as applicable. Concur. Budget and Finance will review all transactions and ensure sales tax is imputed for revenue-based rent collected in 2013, if applicable, by April 30, 2016. Budget and Finance determined during its review that the impact of amending the tax returns outweighs the benefit. Closed 2.3 Budget and Finance should enhance controls over the preparation, review and timely posting of sales tax payments associated with the Agreement. Concur. Budget and Finance will review its process for posting sales tax payments by April 30, 2016. Sales tax payments are reviewed by a Senior Accountant, Accounting Program Manager, or Controller and posted prior to the sales tax remittance deadline. Closed 3.1 The CMO should assign staff to request that JQH provide quarterly and annual certifications of revenue-based rent reported to the City in accordance with the Agreement. Concur. The CMO will assign staff to request that JQH provide quarterly and annual certifications of revenue-based rent reported to the City in accordance with the Agreement by September 30, 2016. Starting with QE March 31st 2017 report, JQH will include language to the effect of: “I certify the report is true and accurate to the best of my knowledge” from their Controller or CFO. Closed 3.2 The CMO should exercise the City’s right Concur. The CMO will assign staff to coordinate with JQH We have notified JQH of the City’s right to exercise Open __________________________________________________________________________________________ City Auditor’s Office 4 JQ Hammons Follow-up Recommendation Management Response January 2016 Management Response March 2017 Status to conduct a financial audit JQH’s records. of its intent to clarify the issues identified in this report, identify the necessity of contract amendments, and communicate the City’s intent to further ensure the financial records are accurate and proper revenue is received by September 30, 2016. a financial audit, but are not moving forward with it at this time. The City is reviewing the contract to see if amendments will be needed by September 30, 2017. 3.3 The CMO should assign staff to verify whether or not JQH has received indoor advertising revenue and determine if the City is owed any additional revenue- based rent. Concur. The CMO will assign staff to coordinate with JQH of its intent to clarify the issues identified in this report, identify the necessity of contract amendments, and communicate the City’s intent to further ensure the financial records are accurate and proper revenue is received by September 30, 2016. JQH is not advertising and is not receiving revenue from indoor advertising. The City is not owed any additional revenue-based rent. Closed 3.4 The CMO should ensure audit clauses, including the requirement to submit annual audited financial statements to the City, are included in City agreements, as applicable. Concur. The CMO will assign staff to coordinate with JQH of its intent to clarify the issues identified in this report, identify the necessity of contract amendments, and communicate the City’s intent to further ensure the financial records are accurate and proper revenue is received by September 30, 2016. The City will review the contract to see if amendments will be needed by September 30, 2017. Open 4.1 The CMO should assign staff to perform a physical inventory of City-owned AV equipment located at the JQH facility, ensure all City capital assets are tagged, recorded and follow-up on any missing assets in accordance with Finance’s capital asset procedures. Concur. The CMO will assign staff to perform a physical inventory of City-owned AV equipment located at the JQH facility, ensure all City capital assets are tagged, recorded and follow-up on any missing assets in accordance with Finance’s capital asset procedures by September 30, 2016. A Media Center physical inventory was performed by Budget and Finance on January 6, 2017. Asset addition, disposal, and transfer forms were reviewed and updated as part of the process. There is high activity at JQH during the spring and early summer months and access to the Convention Center and Expo Hall will be limited. Budget and Open __________________________________________________________________________________________ City Auditor’s Office 5 JQ Hammons Follow-up Recommendation Management Response January 2016 Management Response March 2017 Status Finance will complete the physical inventory check of the Convention Center and Expo Hall by September 30, 2017. 4.2 The CMO should assign staff to determine if the City is owed additional revenue-based rent from rentals of City AV equipment by JQH. Concur. The CMO will assign staff to determine if the City is owed additional revenue- based rent from rentals of City AV equipment by JQH by September 30, 2016. The City transferred operational responsibility of the equipment to JQH in January 2008. The Transfer agreement did not reserve the right for the City to collect on revenue-based rent. JQH has asserted that the transfer of the AV equipment was a sale to them and that they paid for the equipment. City staff has not been able to find any evidence to either prove or deny this assertion. Nevertheless, over the course of their operations for the past 9 ½ years, JQH has maintained, repaired, disposed of, or replaced the equipment at their cost. Budget and Finance is performing a physical inventory to tag any City- owned capital assets at the arena and disposal of those assets will follow established City procedures. Closed 4.3 The CMO should determine, in conjunction with the City Attorney’s Office and other City departments, whether the transfer, utilization and disposal of City AV equipment complies with the Agreement and other City policies. Concur. The CMO will assign staff to determine, in conjunction with the City Attorney’s Office and other City departments, whether the transfer, utilization and disposal of City AV equipment complies with the Agreement and other City policies by September 30, 2016. The City transferred operational responsibility of the equipment to JQH in January 2008. The Transfer agreement did not reserve the right for the City to collect on revenue-based rent. JQH has asserted that the transfer of the AV equipment was a sale to them and that they paid Closed __________________________________________________________________________________________ City Auditor’s Office 6 JQ Hammons Follow-up Recommendation Management Response January 2016 Management Response March 2017 Status for the equipment. City staff has not been able to find any evidence to either prove or deny this assertion. Nevertheless, over the course of their operations for the past 9 ½ years, JQH has maintained, repaired, disposed of, or replaced the equipment at their cost. Budget and Finance is performing a physical inventory to tag any City- owned capital assets at the arena and disposal of those assets will follow established City procedures. 5.1 The CMO should assign staff to work in conjunction with JQH to develop a Capital Maintenance Schedule and accounts, as appropriate. Concur. The CMO will assign staff to work in conjunction with JQH to develop a Capital Maintenance Schedule and accounts, as appropriate, by September 30, 2016. This process was started in January and will be completed by September 30, 2017. A capital maintenance schedule will be developed after a full inventory is completed. Open 6.1 The CMO should assign staff to perform a physical inventory and tag and record City- owned physical assets at the Managed Facility, in accordance with Capital Assets Procedures. Concur. The CMO will assign staff to perform a physical inventory and tag and record City-owned physical assets at the Managed Facility, in accordance with Capital Assets Procedures, by September 30, 2016. A Media Center physical inventory was performed by Budget and Finance on January 6, 2017. Asset addition, disposal, and transfer forms were reviewed and updated as part of the process. There is high activity at JQH during the spring and early summer months and access to the Convention Center and Expo Hall will be limited. Budget and Finance will complete the physical inventory check of the Convention Center and Expo Hall by September 30, 2017. Open 6.2 The CMO should perform periodic inventory counts of Concur. The CMO will assign staff to perform periodic inventory counts of City- The finalized inventory check, once complete, Closed __________________________________________________________________________________________ City Auditor’s Office 7 JQ Hammons Follow-up Recommendation Management Response January 2016 Management Response March 2017 Status City-owned physical assets located at the Managed Facility. owned physical assets located at the Managed Facility by September 30, 2016. will be reviewed every two years. 7.1 The CMO should assign staff to ensure indoor and outdoor advertising and naming rights associated with the Agreement are optimized on an ongoing basis. Concur. The CMO will assign staff to ensure indoor and outdoor advertising and naming rights associated with the Agreement are optimized on an ongoing basis by September 30, 2016. Budget and Finance determined during its review that the cost outweighs the benefit. Closed 7.2 The CMO should assign staff to ensure event booking rights under the Agreement are maximized and tracked on an ongoing basis Concur. The CMO will assign staff to ensure event booking rights under the Agreement are maximized and tracked on an ongoing basis by September 30, 2016. Event booking opportunities under the agreement have been communicated to Public Facilities and Events. Closed 7.3 The CMO should assign a contract administrator to monitor the terms and conditions of the Agreement and work with City departments to optimize revenue opportunities. Concur. A contract compliance position is currently being evaluated which would be included in the FY17 budget request. The City hired a Contract Program Manager in November 2016. Closed 8.1 The CMO should assign staff to review JQH utility costs and determine if they are being paid in accordance with the Agreement. Concur. The CMO will assign staff to review JQH utility costs and determine if they are being paid in accordance with the Agreement by September 30, 2016. Staff reviewed monthly utility reports and they are being paid in accordance with the Agreement. Closed 8.2 The CMO should assign staff to assess how the Media Center and Managed Property are metered for electricity, water and sewer. Concur. The CMO will assign staff to assess how the Media Center and Managed Property are metered for electricity, water and sewer by September 30, 2016. There are not separate meters. JQH did request separate meters, but it was ”prohibitively expensive.” JQH monitors the meters daily and provides a monthly report to the City. Closed 9.1 The CMO should assign staff to review the base rent calculation in the Agreement, as applicable, in Concur. The CMO will assign staff to review the base rent calculation in the Agreement, as applicable, in conjunction with the City A review and adjustment to the base rent calculation was performed in 2010 and both parties, JQH and the Closed __________________________________________________________________________________________ City Auditor’s Office 8 JQ Hammons Follow-up Recommendation Management Response January 2016 Management Response March 2017 Status conjunction with the City Attorney’s Office. Attorney’s Office by September 30, 2016. City, accepted the calculations. 9.2 The CMO should assign staff to determine and document how parking lots and spaces are assigned and utilized at the Parking Facility and adjacent lots. Concur. The CMO will assign staff to determine and document how parking lots and spaces are assigned and utilized at the Parking Facility and adjacent lots by September 30, 2016. A review of the parking lot and spaces was completed. Closed 9.3 Budget and Finance should monitor base rent payments and notify JQH when base rent payments are late. Concur. Budget and Finance will monitor the base rent payments and notify JQH when payments are late beginning April 30, 2016. The City requested wire payments from JQH, but they can only provide checks. The checks are date stamped when received. Additionally, base rent payments are monitored by Budget and Finance and JQH will be notified when they are late. Closed 10.1 The CMO should designate staff to meet with JQH regarding special events held at the Managed Property. Concur. The CMO will designate staff to meet with JQH regarding special events held at the Managed Property by September 30, 2016. The City is reinstituting a process to have a Fire Inspector review the plans for special events by September 30, 2017. Open 11.1 The CMO should assign staff to request copies of insurance coverage as required under the Agreement and provide copies to the City’s risk manager for review. Concur. The CMO will assign staff to request copies of insurance coverage as required under the Agreement and provide copies to the City’s risk manager for review by September 30, 2016. The City hired a Contract Program Manager in November 2016 who has received the new certificate of insurance and will monitor certificates. Closed 11.2 The CMO should assign staff to maintain copies of the insurance certificates in the JQH contract file. Concur. The CMO will assign staff to maintain copies of the insurance certificates in the JQH contract file by September 30, 2016. The City hired a Contract Program Manager in November 2016 who has received the new certificate of insurance and will monitor certificates. Closed 12.1 The CMO should assign staff to establish a comprehensive contract file for the Agreement and ensure records are retained in Concur. The CMO will assign staff to establish a comprehensive contract file for the Agreement and ensure records are retained in accordance with The City hired a Contract Program Manager in November 2016 who will monitor and keep records. Closed __________________________________________________________________________________________ City Auditor’s Office 9 JQ Hammons Follow-up Recommendation Management Response January 2016 Management Response March 2017 Status accordance with approved retention schedules. approved retention schedules by September 30, 2016.