UNIVERSITY OF NEVADA LAS VEGAS FOOD SERVICES MANAGEMENT AGREEMENT Internal Audit Report August 1, July 31, 2012

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1 UNIVERSITY OF NEVADA LAS VEGAS FOOD SERVICES MANAGEMENT AGREEMENT Internal Audit Report August 1, July 31, 2012 GENERAL OVERVIEW The University of Nevada, Las Vegas (UNLV) contracted with ARAMARK EDUCATIONAL SERVICES, LLC (ARAMARK), on an exclusive basis, to provide meals and non-alcoholic beverages for resell to its students, faculty, staff and guests, provide a snack and beverage vending program through subcontracts and to provide a catering program on a nonexclusive basis. In return for the right to provide services, the university receives commissions from ARAMARK, which is based on contractual guaranteed minimum amounts, or sales activity. During the two year audit period, UNLV received $4.0 million in guaranteed commissions. The contract excludes operations and catering for the UNLV William F. Harrah College of Hotel Administration, the Las Vegas Hospitality Campus Project and concessions and catering for UNLV intercollegiate athletic venues. This agreement commenced on August 1, The agreement is for an initial period of five years with an option to renew for an additional five years. The food services operation at UNLV falls administratively under the Office of Vice President for Student Affairs. Direct responsibility within UNLV for overseeing ARAMARK s performance of contract requirements rests with the Executive Financial Officer - Office of the President, with dotted line reporting to the Office of Vice President for Student Affairs. ARAMARK manages its food services operations at UNLV through its associate district manager. (AUDIT COMMITTEE 08/30/13) Ref. A-2f, Page 1 of 10

2 SCOPE OF AUDIT The Internal Audit Department has completed a review of the Food Services Contract (Food Services Management Agreement) for the first two contract years commencing on August 1, 2010 and ending July 31, The scope of our review included an examination of compliance with the food services contract, review of accounting records and other auditing procedures as we considered necessary. The tests included, but were not necessarily limited to these areas. 1. Reviewing the food services contract and subsequent amendments for compliance with Nevada System of Higher Education (NSHE) contract policy and to determine whether the terms of the agreement are in compliance. 2. Reviewing food service commissions paid to the university for accuracy, and supporting cash controls and sales records. 3. Reviewing support for vending commissions paid to the university. 4. Testing accuracy and support for meal plan charges. 5. Verifying that catering services were charged at mutually agreed to prices. 6. Testing the contract reporting requirements. 7. Testing maintenance and repairs participation. 8. Testing utilities and refuse cost participation. 9. Examining the capital equipment inventory assigned to the contract. 10. Verifying required insurances and bonding, and licenses and permits. 11. Verifying the required financial commitment funding occurred. 12. Reviewing adequacy of oversight for the food services provided. (AUDIT COMMITTEE 08/30/13) Ref. A-2f, Page 2 of 10

3 In our opinion, we can be reasonably assured the Food Services Contract is operating in a satisfactory manner. However, implementation of the following recommendations would further improve operations. FINANCIAL COMMITMENTS Section 14.J. of the contract agreement noted ARAMARK would make annual contributions to UNLV for Campus Life Event Fund, Presidential Catering Fund, Advancement Fund and Sustainability Initiatives. Subsequently, agreement occurred for these contributions to be met through application of catering credits, excluding the Sustainability Initiatives. Our review noted catering credits were occurring, but the catering credit applications fell short of the annual funding requirements. This included $28,790 for Campus Life Event Fund, $1,037 for Presidential Catering Fund and $18,104 for the Advancement Fund. Also, the expenditures to support Sustainability Initiatives are $7,374 under the $24,000 required for the two year period. We recommend these contribution shortages be carried forward on the spreadsheets that identify available catering credits and sustainability monies to be expended. The carry-forward balances are now included on our spreadsheets. The current balances are $16,636 for Campus Life Event Fund, $186 for Presidential Catering Fund, $15,869 for the Advancement Fund, and $9,592 for Sustainability Initiatives fund. The Executive Financial Officer, Office of the President, directly oversees this contract. All requests are be approved and monitored by the Executive Financial Officer. She will ensure that this process occurs properly in the future. (AUDIT COMMITTEE 08/30/13) Ref. A-2f, Page 3 of 10

4 UTILITIES PARTICIPATION Section 14.A. of the contract agreement noted ARAMARK will make payments to UNLV for its proportionate share of utilities (gas, electric, water and sewer) and refuse removal. Our review noted ARAMARK was paying their proportionate share of utilities and refuse, except for the Book & Bean within the LIED Library and the Einstein s within the Science and Engineering Building. Based on discussions with UNLV management these costs were estimated to be approximately $10,000 a year, including both operations. utility costs. We recommend UNLV begin billing ARAMARK for their proportionate share of the The total annual billing is ~$18,500. Aramark has been billed for their proportionate share of utility costs. The Executive Financial Officer, Office of the President, directly oversees this contract and will ensure that this process occurs properly in the future. VENDING SERVICES Exhibit B of the contract identified the requirements and stipulations for operating Vending Services (Snack and Beverages). The Scope of Work identified that the replacement, relocation and additions of machines must be approved in advance by UNLV. We determined (AUDIT COMMITTEE 08/30/13) Ref. A-2f, Page 4 of 10

5 through discussions with the vending services provider and UNLV staff that a notification and approval process is not established for the replacement, relocation or addition of machines. We also noted through discussions with UNLV staff that they had not performed independent validation of the accuracy of the number of machines and locations indentified on the monthly vending commission report. We recommend the vending services provider comply with the contract requirements to request approval of UNLV to replace, relocate or add vending machines. A notification and approval process is now in place. First Class vending (Contractor) will notify UNLV Risk Management before any machine is replaced, relocated or added. This will insure UNLV is aware of all vending machines. A physical audit was completed in October All machines were verified. A physical inventory will be done on an annual basis. The Executive Financial Officer, Office of the President, directly oversees this contract and will ensure that this process occurs properly in the future. We also recommend that UNLV perform periodic audits to validate the accuracy and completeness of the vending commission report received. Detailed receipts were collected on all 131 machines and a spot check of sales per machine was completed. No material discrepancies were noted. In our opinion the controls in place (AUDIT COMMITTEE 08/30/13) Ref. A-2f, Page 5 of 10

6 are operating in a satisfactory manner. An audit will be completed annually. The report will be provided to the Executive Financial Officer. The Executive Financial Officer, Office of the President, directly oversees this contract and will ensure that this process occurs properly in the future. COMMISSIONS ARAMARK provides a monthly revenue commission spreadsheet to UNLV, which includes year-to-date information comprised from system generated reports. We reviewed the spreadsheet for inclusion of food service operations and meal plan cost elements and for accuracy of the commission rates by operation. We noted the spreadsheet is materially accurate. However, bonus dining dollar redemptions were included in the Cash and Dining Dollars commission amount that should have been excluded. Additionally, the spreadsheet excluded commissions due on non-resident meal plans that should have been included. No effect on commissions due resulted since the guaranteed annual commissions of $2.0 million a year for both contract years were above the actual annual commissions earned based on sales. We also noted the commission due from Panda Express is based on weekly sales figures ed to ARAMARK, without requiring additional support such as detailed sales activity reports to reconcile with the Panda Express sales figure. Additionally, we noted the contract is not updated to identify the additions or deletions of contracted food service operations. Therefore, some operations listed in the contract were never active at UNLV and some active operations are not identified in the contract. We recommend the monthly revenue commission spreadsheet be adjusted for (AUDIT COMMITTEE 08/30/13) Ref. A-2f, Page 6 of 10

7 inclusion/exclusion of items identified above and UNLV request a detailed sales report to support the sales and commissions received from Panda Express. The monthly revenue commission spreadsheet reflects all current food service operations and meal plan cost elements. It will up-dated as changes are made. Additionally, a detailed sales report, which supports reported sales and commissions, is now received from Panda. The Executive Financial Officer, Office of the President, directly oversees this contract and will maintain supporting documentation to insure all operations and meal plan cost elements are current. We also recommend the contract be updated to reflect termination or addition of food service operations and the applicable commission rate for added operations. The University now documents all changes to food services operations through a Memorandum of Understanding with Aramark. These changes are mutually agreed upon by Aramark and the Executive Financial Officer, Office of the President. The Executive Financial Officer, Office of the President, directly oversees this contract and will ensure that this process occurs properly in the future. (AUDIT COMMITTEE 08/30/13) Ref. A-2f, Page 7 of 10

8 CAPITAL EQUIPMENT INVENTORY We performed a review to verify controls are established to account for the capital equipment items identified in Attachment 1 to Exhibit A of the contract. This included performing a physical inventory of 20 items. Our review noted three items that could not be located or supported with records to substantiate property removal or disposal. We recommend the contract list of capital property be reviewed for accuracy due to possible updates that may have occurred due to turnover of food operations, or equipment condition changes occurring since inception of the contract. Our inventory records have been updated to accurately reflect current inventory items. The three items identified were a soft-serve ice cream machine, a pizza oven, and a freezer. This area was refurbished by Aramark. This area contained a Burger King and Pizza Hut under the prior food service provider. It is now a Subway. The Pizza Oven and Freezer were disposed during the transition. The soft-serve ice cream machine was relocated to the Burger Studio in the Student Union. We perform an annual review of inventory items. We will continue to update our inventory records as changes occur. (AUDIT COMMITTEE 08/30/13) Ref. A-2f, Page 8 of 10

9 The Internal Audit Department appreciates the assistance and cooperation received from UNLV and ARAMARK. Las Vegas, Nevada November 14, 2012 Lauren Tripp Senior Internal Auditor J. Vito Hite Internal Audit Manager Sandra K. Cardinal Assistant Vice Chancellor for Internal Audit (AUDIT COMMITTEE 08/30/13) Ref. A-2f, Page 9 of 10

10 AUDIT: UNLV Food Services Contract AUDIT PERIOD: 08/01/ /31/2012 NUMBER OF FINDINGS: 7 NUMBER OF RECOMMENDATIONS IMPLEMENTED: 7 Nbr Finding Agree Implemented Est Date of Completion 1 Contribution shortages not being carried forward X Yes 2 University not getting utilities reimbursement from vendor X Yes 3 UNLV must approve vending machine changes X Yes 4 UNLV to perform periodic audits to validate accuracy of vending machine inventory X Yes 5 Commission reports do not fully reflect sales X Yes 6 Contract should be updated to reflect current food service operators X Yes 7 Capital inventory list not accurate X Yes Campus Audit 4505 Maryland Parkway Box Las Vegas, Nevada (702) FAX: (702) (AUDIT COMMITTEE 08/30/13) Ref. A-2f, Page 10 of 10