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HomeMy WebLinkAboutAudit Reports - Public - Arizona Sports & Tourism Authority (AZSTA) Audit - Glendale Budget & Finance Arizona Sports & Tourism Authority (AZSTA) Audit February 22, 2022 Independent Internal Audit Program 1 Independent Internal Audit Program Arizona Sports & Tourism Authority (AZSTA) Audit Table of Contents Executive Summary 2 A. Introduction 3 B. Background 3 C. Objective 4 D. Key Outcomes 4 E. Audit Results and Recommendations 4 F. Process Improvement Opportunities 6 G. Audit Scope and Methodology 6 H. Data Reliability 7 2 Independent Internal Audit Program Arizona Sports & Tourism Authority (AZSTA) Audit Executive Summary As part of our FY 2022 Audit Plan approved by the City Council, City of Glendale's Independent Internal Audit Program (IIAP) conducted a performance audit of the City's agreement with the Arizona Sports & Tourism Authority (AZSTA). The audit was performed to evaluate the processes related to events held at State Farm Stadium (SFS) and the corresponding sales tax remitted to the State of Arizona Department of Revenue (DOR), along with subsequent tax rebates from the City to AZSTA. Audit Objectives: The objective of this audit was to ensure the City is complying with the tax rebate provisions of its agreement with AZSTA. Where possible, we identified opportunities to improve the communication and reporting accuracy amongst all parties involved. Audit Conclusions: Overall, IIAP noted that the Tax & License (T&L) division within Budget & Finance has instituted procedures to help ensure that the City is aware of all SFS events and is working proactively with event hosts/vendors, the AZSTA and stadium accounting teams, and DOR to determine if taxes are filed timely and accurately. Finding: For one event during the period reviewed, the sales tax filing was incorrect, resulting in tax rebates owed to AZSTA of approximately $55,000. Description: The City’s IIAP and Tax & License division staff verified through the DOR website that for all but one of the FY20 & FY21 events at SFS, the taxes were filed appropriately and timely. For the event that was not done correctly, the T&L Manager worked with the stadium accounting team, the vendor, and DOR to obtain information related to their events at SFS since January 2017. The vendor had changes in their organization and filing location (address) during that period, leading to the inaccuracy. Correcting payments are in process, along with the corresponding rebates to AZSTA. The payments to AZSTA total approximately $55K for the vendor in question. Severity: Low 3 Independent Internal Audit Program Arizona Sports & Tourism Authority (AZSTA) Audit A. Introduction The City of Glendale's Independent Internal Audit Program (IIAP) conducted a performance audit of the City's agreement with the Arizona Sports & Tourism Authority (AZSTA). The audit was performed to evaluate the processes related to events held at State Farm Stadium (SFS) and the corresponding sales tax remitted to the State of Arizona Department of Revenue (DOR), along with subsequent tax rebates from the City to AZSTA. B. Background The City of Glendale entered into agreements with multiple entities when the new stadium for the Arizona Cardinals was being developed and constructed. As construction and use of the facility evolved, these agreements changed/expired/renewed as appropriate. One such agreement currently in place is with AZSTA. For events held at SFS, the tax on ticket, food & beverage, and merchandise sales must be reported to the DOR. After the responsible party files these Transaction Privilege Taxes (TPT or sales taxes) with the state, DOR remits the assessed amounts (tax revenue) to the City. A percentage of those revenues is allocated across Police, Fire, and Transportation funds, with the balance going to the City's General fund. That remaining (General fund) amount - for sales occurring at SFS - is subsequently rebated to AZSTA. ASM Global (ASM) is the management company for State Farm Stadium (SFS), home to the Arizona Cardinals, Fiesta Bowl, and many other events scheduled throughout each year, including the Super Bowl in 2023 and the NCAA Final Four in 2024. ASM manages over 300 venues around the globe, working with vendors and organizations to hold events ranging in size from worldwide concert tours and/or sporting events, to local business, school, or civic functions. While there normally is a steady stream of sporting, concert, and other events at SFS, the COVID pandemic has canceled or severely limited attendance to many events over the past two years. Therefore, tax filings and corresponding rebates to AZSTA from the City have been negatively impacted. Even before the pandemic, during FY19, AZSTA questioned the amounts rebated from the City. They felt that the rebates appeared too low in comparison with the volume and size of events held at SFS. Subsequent research conducted by Budget & Finance, its Tax & License (T&L) division, and DOR determined that substantial amounts of missed or incorrect payments were owed to AZSTA. In July and August of 2019, payments totaling approximately $5.3 million were made to AZSTA, correcting the error and allowing the City to fulfill its obligation in the agreement and square the account. Because of this past error, the FY22 audit plan includes this review to ensure rebate payments to AZSTA are now made correctly and timely. 4 Independent Internal Audit Program Arizona Sports & Tourism Authority (AZSTA) Audit C. Objective The objective of this audit was to ensure the City is complying with the tax rebate provisions of its agreement with AZSTA. Where possible, we identified opportunities to improve the communication and reporting accuracy amongst all parties involved. D. Key Outcomes This audit indicated that the City’s T&L division has instituted procedures to help ensure awareness of all SFS events and is working proactively with event hosts/vendors, the AZSTA and ASM accounting teams, and DOR to determine if taxes are filed timely and accurately. E. Audit Results and Recommendations Finding: For one event during the period reviewed, sales tax filings were incorrect, resulting in tax rebates owed to AZSTA of approximately $55,000. Condition During the period July 1, 2019 through June 30, 2021 (fiscal years 2020 and 2021), SFS held 110 events for many different organizations. The events included games (various pro and amateur sports), concerts, vehicle shows and sales, group & private tours, corporate banquets, and home shows. Near the end of FY20, tours and events were cancelled due to the pandemic. For FY21, there were far fewer events scheduled, many of which had very limited attendance due to COVID. Based on the number of events, various parties involved, and the overall cumbersome tax filing process, many opportunities for errors existed. On January 18, 2022, the City’s IIAP and Tax & License Managers met with the ASM and AZSTA accounting teams at State Farm Stadium. We reviewed the process and timelines related to events held at SFS, and which parties are filing the associated sales taxes with the State. When organizations book an event at SFS, they are supplied with a Facilities User Guide (FUG) that explains how taxes are to be filed, including contact info for the Arizona Department of Revenue and the City's Tax & License department. Upon cursory review during the meeting, the T&L Manager noted that it was out-of-date on some items and offered to bring the information current in their document. In addition, the ASM accounting team will work with their marketing/booking teams to create a template or checklist for vendors/event hosts to help promote understanding and consistency with respect to all aspects of SFS events, including filing taxes appropriately. Making the document more accurate and current should reduce potential errors and allow the vendors/host organizations to file their taxes more accurately and timely. The majority of vendors at SFS are "repeat customers" that hold events annually or several times per year. However, those organizations could have turnover in their accounting departments, so sending the updated FUG for each engagement should benefit all parties. 5 Independent Internal Audit Program Arizona Sports & Tourism Authority (AZSTA) Audit Criteria The main risk posed to missing tax revenues and subsequent rebates to AZSTA occurs when the responsible party fails to file with DOR after an event is held, or files using the incorrect location. ASM regularly notifies the City's T&L division about upcoming events and includes the relevant contact information for each vendor/hosting organization. In addition, T&L looks at the SFS website frequently to see if new events have been announced. IIAP staff asked ASM to provide a complete list of all events held at SFS from July 1, 2019 through June 30, 2021. Depending on how the contract is written for each event, taxes will be filed directly by the vendor or by ASM on the vendor's behalf. To accomplish testing, IIAP staff completed the required training and was granted access to the DOR sales tax system. With various queries, along with research provided by the City's T&L division, we determined that one vendor with multiple events had filed incorrectly on numerous occasions dating back to January 2017. T&L worked with the vendor and DOR, and correcting payments are in process, along with the corresponding rebates to AZSTA. The payments to AZSTA total approximately $55K for the vendor in question. It is important to note that the City is responsible for rebating to AZSTA their portion based on what has been filed with DOR; the City cannot control what or when the vendor files. If a vendor files using the SFS address as its filing location, the amount they file (which is subsequently sent to the City by DOR) will be split amongst the various City funds as appropriate during the following month. Once discovered, any errors in over/under tax remittance will be corrected with additional payments or credits to AZSTA as needed. Cause Manual processes amongst many various parties with built in timing delays and possible employee turnover, coupled with incomplete and/or out-of-date tax information, provides the opportunity for error in tax reporting and subsequent rebates to AZSTA. Effect Possible incorrect tax revenues and corresponding rebates to AZSTA can occur. The dollar impact would depend upon the number, type, and size of events held at State Farm Stadium each year. Recommendation IIAP recommends that the City's T&L division should continue to work proactively with the AZSTA and ASM accounting teams, DOR, and the various vendors hosting events at SFS to catch and prevent potential tax filing errors. By updating the relevant portions of the Facilities User Guide for SFS and continually matching upcoming events to the tax filings the month after they occur, the City can help ensure its compliance with the terms in our AZSTA agreement. 6 Independent Internal Audit Program Arizona Sports & Tourism Authority (AZSTA) Audit Management’s Response We concur with the recommendation and corrective action is already in place. Partial payment from the vendor who filed in error has occurred, with the remainder to follow in March of 2022. The T&L Manager will provide ASM with the updated information for their Facilities User Guide by March 31, 2022. The City will continue to work proactively with all parties to ensure that all SFS events and corresponding tax filings/rebates are accounted for timely and accurately. F. Process Improvement Opportunities As noted above in the Condition section of the finding, updating the FUG and creating a template or checklist for vendors/event hosts should help promote understanding and consistency with respect to all aspects of SFS events, including filing taxes appropriately. Originally, the hope for this audit was to see if the process could be streamlined through automation. Unfortunately, the overall process involves reliance upon too many outside parties and delivery of tax data from the DOR that is not as user friendly as it could be. Continued cooperation with ASM on notification of upcoming SFS events, along with the City's proactive approach to working with vendors and DOR together, should reduce the possibility of potential errors moving forward. G. Audit Scope and Methodology IIAP conducted a performance audit of the City's agreement with the Arizona Sports & Tourism Authority (AZSTA). The audit was performed to evaluate the processes related to events held at State Farm Stadium for the period July 1, 2019 through June 30, 2021. We conducted this performance audit in accordance with the Government Accountability Office (GAO)'s generally accepted government auditing standards as well as the Institute of Internal Auditors (IIA)'s international professional practices framework. 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 the audit objective. The objective of this audit was to ensure the City is complying with the tax rebate provisions of its agreement with AZSTA. Where possible, we identified opportunities to improve the communication and reporting accuracy amongst all parties involved. IIAP determined internal controls over the following areas were relevant to our objectives: • Timeliness, consistency, and accuracy in the filing of sales taxes for events held at State Farm Stadium; • Compliance with the tax rebate provisions in the City’s agreement with AZSTA during the period under audit. 7 Independent Internal Audit Program Arizona Sports & Tourism Authority (AZSTA) Audit To accomplish our objective, IIAP performed the following activities: • Interviewed members of the ASM and AZSTA accounting teams and the City’s T&L Manager; • Obtained and reviewed the agreement currently in place with AZSTA; • Obtained and reviewed the FUG provided to vendors/host organizations holding events at SFS; • Completed the required training and gained access to the DOR’s sales tax system; and, • Determined whether sales taxes were filed appropriately for all events occurring at SFS during fiscal years 2020 and 2021. H. Data Reliability The primary data utilized for the work performed in this audit was obtained directly from ASM and the DOR website. IIAP also used financial data obtained directly from the Tyler MUNIS Simplicity System, the City’s financial system of record, to verify the amounts rebated to AZSTA were correct. MUNIS data reliability is reviewed annually during the audit of the City’s financial reports and the Comprehensive Annual Financial Report (CAFR) performed by the City’s external auditor. 8 Independent Internal Audit Program Arizona Sports & Tourism Authority (AZSTA) Audit Appendices Appendix 1 Definitions of Audit Findings Rankings We assigned the risk rankings based on our professional judgment. A qualitative assessment of high, medium or low helps to prioritize implementation of corrective action as shown in the table below. High Critical control weaknesses that expose the City to a high degree of combined risks. Recommendations from high-risk findings should be implemented immediately (preferably within 3 months), to address areas with most significant impact or highest likelihood of loss, misappropriation or damage related to the City assets. Medium Represents less than critical weaknesses that expose the City to a moderate degree of combined risks. Recommendations arising from medium-risk findings should be implemented in a timely manner (preferably within 6 months), to address these risks and strengthen or enhance efficiency in internal controls on areas with moderate impact and likelihood of exposure. Low Represents a low level of risk or control weaknesses and the exposure is not likely to expose the City and its assets to significant losses. However, they should be addressed in order to improve efficiency and effectiveness of operations. Recommendations arising from low-risk findings should be implemented within 12 months.