INTERNAL AUDIT DIVISION CLERK OF THE CIRCUIT COURT

Transcription

1 INTERNAL AUDIT DIVISION CLERK OF THE CIRCUIT COURT AUDIT OF CONVENTION & VISITORS BUREAU TOURIST DEVELOPMENT COUNCIL Ken Burke, CPA Clerk of the Circuit Court Ex Officio County Auditor Robert W. Melton, CPA*, CIA, CFE Chief Deputy Director Internal Audit Division Audit Team Lori Perry, MS, CBM, CGM Internal Audit Manager Ken Green Internal Auditor II OCTOBER 13, 2005 REPORT NO *Regulated by the State of Florida

2 October 13, 2005 The Honorable Chairman and Members of the Board of County Commissioners We have conducted an audit of the St. Petersburg/Clearwater Area Convention and Visitors Bureau (CVB). Our audit objectives were to determine the adequacy of internal controls over CVB approving the costs associated with its various contracts; the reasonableness and legal compliance of costs and resources utilized; and the adequacy of the performance measures used by CVB to monitor and assess the overall CVB performance, individual CVB departments and programs, and CVB contractors and partners. Overall, we conclude the CVB is operating in accordance with applicable rules and regulations; however, we found inadequate controls over some of the administrative functions of the CVB. Opportunities for improvement are presented in this report. We appreciate the cooperation shown by the staff of the Convention and Visitors Bureau during the course of this review. Respectfully Submitted, Approved: Robert W. Melton, CPA*, CIA, CFE Chief Deputy Director Internal Audit Division Ken Burke, CPA Clerk of the Circuit Court Ex Officio County Auditor *Regulated by the State of Florida

3 AUDIT OF CONVENTION AND VISITORS BUREAU TABLE OF CONTENTS PAGE EXECUTIVE SUMMARY 2 INTRODUCTION 3 OPPORTUNITIES FOR IMPROVEMENT 5 FOLLOW-UP TO PREVIOUS RECOMMENDATIONS 18

4 EXECUTIVE SUMMARY We have conducted an audit of the St. Petersburg/Clearwater Area Convention and Visitors Bureau (CVB). Overall, we conclude the CVB is operating in accordance with applicable rules and regulations; however, we found inadequate controls over some of the administrative functions of the CVB. We noted opportunities for improvement. We estimate that CVB overpaid an advertising agency by approximately $485,0000; of this amount, $330,000 was overpaid because of including the amount of the service fee paid to the agency as a part of the base on which it calculated its total fee. The $485,000 overpayment also included $150,000 paid to the advertising agency for services that had been ordered and completed by CVB staff members not the advertising agency. We noted $5,039 of cash discounts that had been taken by the agency in remitting invoices but credit was not passed back to the CVB. Internal controls over contract compliance and costs are inadequate. For 48% of the invoices we reviewed, proper documentation was not present to support the invoice charges. For example, invoices we reviewed from the $140,000 annual contract with a local market research firm to provide historical visitor research data, as well as future projections, did not provide any amount of time devoted to the tasks either in total or classified by duties, as required by the terms of the contract. We also found little evidence of forecasts from this firm during our review, even though the contract requires the firm to forecast and report monthly, seasonal, and annual estimates of occupancy, visitor volume, expenditures, and room-nights for the St. Petersburg/Clearwater area. The process used to select and/or retain the three foreign marketing representatives (located in Canada, England, and Germany) was not competitive. They have annual contracts averaging $157,000 each. We noted additional expenses paid to the Canadian marketing firm that we consider to be a part of the base fee. The CVB does not routinely obtain assurance that advertising costs are within industry averages. Examples include $96,152 paid to USA Today for time periods within one month, and $75,000 paid to Travelocity.com for the period April-June, Normally, advertising is measured, planned, executed, and then later reviewed for effectiveness based on standard industry criteria. We found no evidence to suggest that CVB is conducting any meaningful review or post-evaluation of their advertising effectiveness. We also noted other internal control weaknesses in CVB operations. Our report contains a total of 15 recommendations for improvement.

5 INTRODUCTION Scope and Methodology We have conducted an audit of the St. Petersburg/Clearwater Area Convention and Visitors Bureau (CVB) of the Pinellas County Tourist Development Council (TDC). The objectives of our audit were to determine the adequacy of the internal controls over CVB approving the costs associated with its various contracts; determine the reasonableness and legal compliance of costs and resources utilized; and to determine adequacy of the performance measures used by CVB to monitor and assess the overall CVB performance, individual CVB departments and programs, and CVB contractors and partners. In order to meet these objectives, we reviewed CVB contracts and tested the related transactions for adequate controls over the costs and ownership rights of the deliverables. Internal controls were also reviewed for local industry participation invoicing/receipts, ownership/rights of contract deliverables, and advertising revenues. Costs and resources utilized for advertising, travel expenditures, entertainment expenditures, and memberships were examined for reasonableness and legal compliance. Performance measures used by the CVB to monitor and assess the overall CVB performance were reviewed for adequacy. The audit period was October 1, 2002 through June 30, However, our review of processes and transactions was not necessarily limited to the audit period. We have also conducted a follow-up review of recommendations made in our previous report dated June 8, Overall Conclusion Overall, the CVB is operating in accordance with applicable County rules, regulations and agreements; however, we conclude that there are inadequate controls over some of the administrative functions of the CVB. While some areas of the CVB that are closely monitored by other independent agencies (e.g., employee expense reimbursements by BCC Finance) are well controlled, similar internal control procedures are not in place to provide safeguards over other significant areas of expenditures or revenue. Opportunities for improvement are presented in this report. Of the 13 recommendations in our previous report, eight have been implemented, two were partially implemented, and three were not implemented. We encourage management to implement all of our previous recommendations. Background On August 28, 1978, the Board of County Commissioners (BCC) adopted Ordinance establishing a two percent Tourist Development Tax where use of these tax revenues was exclusive to tourist advertising and promotion for Pinellas County and its communities. The ordinance was based on Section , Florida Statutes. This tax is levied on visitor accommodations (hotels, motels, condominiums, campgrounds, etc.) 3

6 INTRODUCTION that are rented out for a period of six months or less. On December 6, 1978, the BCC created the TDC. This eleven-member board is appointed by the BCC, and the BCC chair serves as the chair of the TDC. Other members include elected officials, hoteliers and representatives of the tourism industry in Pinellas County who serve four-year terms. The original ordinance has been amended several times to reflect the current tax collection of four percent, allowing proceeds to be also used for debt service on Tropicana Field, beach nourishment, and other tourism development matters. In 1991, the BCC voted to adopt the name, Pinellas Suncoast Convention & Visitors Bureau and in 1992, the name was changed to the St. Petersburg/Clearwater Area Convention & Visitors Bureau. In 1998, the CVB underwent a major restructuring that incorporated staff from Discover Florida s Suncoast and the St. Petersburg/Clearwater Area Film Commission into the CVB as County employees - increasing the number of staff positions from 10 to 21. The fiscal year 2004 budget provided for 31 permanent positions, $2.2 million in Personal Services expenses, and $7.5 million in Operating Expenses. The TDC and staff of the CVB are responsible for making recommendations to the BCC on matters relating to the Tourist Development Tax. This tax is used to strengthen the local economy and increase employment through the ongoing promotion and development of tourism, Pinellas County s major industry. The CVB is charged with enhancing the County s economy by increasing direct visitor expenditures and job development, training and retention in the tourism industry. The CVB works domestically and internationally to develop and enhance tourism in both the leisure and meetings markets, and targets consumers, travel media, the travel industry, meeting and conference planners, sports promoters, and film producers. 4

7 OPPORTUNITIES FOR IMPROVEMENT Our audit disclosed certain policies, procedures, and practices that could be improved. Our audit was neither designed nor intended to be a detailed study of every relevant system, procedure or transaction. Accordingly, the opportunities for improvement presented in this report may not be all-inclusive of areas where improvement may be needed. 1. CVB Internal Controls Over Contract Compliance And Costs Are Inadequate. During our audit, we reviewed the following contracts in terms of deliverables and performance: CVB Vendor FY 03 Contract Amount FKQ Marketing $4,461,320 Research Data Services $140,250 KGM Marketing $155,355 Schuch-Beckers Touristic Services GmbH $147,018 TTM International $169,405 Accelerated Mailing & Marketing $25,000 Touristikdienst Truber $25,000 Total FY 03 Contract Amounts $5,123,348 We noted the following concerns: A. For 50 FKQ invoices (48%) tested, proper documentation was not present to support the invoice charges. Some of these invoices were for services related to developing advertisements for various publications, and were considered ads in progress. Although the CVB Advertising Manager approves these for payment, we believe that there should be some type of documentation attached to the invoices for audit purposes. The contract states that all invoices shall be submitted in detail sufficient for proper pre-audit and post-audit to insure that the work was performed, expense incurred, or service rendered actually took place, and that the correct amount has been charged. Each invoice submitted shall be supported by a copy of the vendor invoice, and proof of performance or proof of receipt of goods or services contracted for. These described conditions were noted in our previous report. 5

8 OPPORTUNITIES FOR IMPROVEMENT B. The reimbursement of expenses for the Canadian KGM marketing firm included items that we consider to be part of the basic services fee paid to the firm. Our concern included the reimbursement of $1,021 for the purchase, configuration, and setup of a computer, including the annual Internet access service, $100 for a computer network setup, $246 for land telephone, WATTS line and cellular phone expenses, and $77 for a fax machine repair. The KGM contract states that the progress payments represent all expenses incurred by KGM related to the performance of this agreement, including salaries and wages, office space, telephone, FAX, and postage. The methodology used to select and/or retain the three foreign marketing representatives is subjective. These marketing firms located in Canada, England, and Germany, have annual contracts averaging $157,000 each and are not selected via the County s RFP process. The CVB Operating Procedures Manual does not address any systems or procedures related to monitoring, measuring and evaluating contractors service and performance regarding these contracts. C. We also noted a duplicate request and subsequent payment was made on a $747 invoice submitted on two different occasions for air travel reimbursement from a foreign representative. We did not find a subsequent credit issued for this error by the CVB foreign representative, or a charge back by the CVB, and the duplicate payment should be recovered. Internal controls in the form of formal policies and procedures over contract compliance and costs should be in place. This would help ensure that personnel are managing and transacting an organization s business that most effectively promotes adequate safeguards. Management has not developed or implemented formal contract compliance and cost control policies and procedures. D. Invoices we reviewed from the $140,000 annual contract with a local market research firm to provide historical visitor research data, as well as future projections, did not provide any amount of time devoted to the various tasks either in total or broken down by time spent by duties, as required by terms of the contract. The contract categorizes the firm s responsibilities into five tasks and it states that all amounts invoiced shall be subject to receipt of a detailed statement of services rendered and this shall include a breakdown of time spent in the performance of this contract according to the structure of duties above. We Recommend the CVB develop and implement formal contract compliance and cost control policies and procedures to strengthen controls over: 6

9 OPPORTUNITIES FOR IMPROVEMENT A. The advertising agency s requirements to provide proper documentation to support invoice charges. B. The review of foreign marketing firms requests for expense reimbursements. C. The data research firm s requirements to submit the amount of time devoted to the various contract tasks with each monthly invoice. Management Response: A. All invoices submitted to the Finance Department of the Clerk of Court were paid in full and proper documentation for payment was included as directed by the Finance Division. This procedure is specified and required by the Finance Division of the Clerk of Court and is the same one that has been in place through all previous internal audits and the procedure has been explained to the staff of the Internal Audit Division of the Clerk of Court. CVB does pay the Finance Division of the Clerk of Court for pre-audit functions and should those payment procedures need modification then the Internal Audit Division of the Clerk of Court should provide the Finance Division with appropriate direction. B. KGM Marketing has reimbursed the county for non-allowable expenses submitted in error. Relating to the CVB Operating Procedures Manuel not addressing any systems or procedures relating to monitoring, measuring and evaluating contractor s service and performance regarding these contracts, the contracts themselves require the contractor to provide monthly activity reports to the CVB. These reports are presented at monthly scheduled public meetings to the members of the Tourist Development Council and to the Board of County Commissioners, as well as being posted on a marketing website available for review by any person in the tourism industry in Pinellas County. C. A reimbursement check has been received from the foreign representative for air travel. This request was submitted in error and management has developed policies and procedures for contract compliance and cost control. D. The research contract did state that a breakdown of time spent in the performance of the services rendered is required. The FY06 research contract does not include that provision. The CVB supports a project approach with results of a specific deliverable and the research meets that criteria. Internal Audit Reply: A. While we will discuss these situations with the Clerk s Finance Division, their focus is ensuring the expenditure meets legal requirements for the expenditure of public funds. The CVB has primary responsibility to ensure it receives the services it is paying for, formally monitoring and evaluating the service 7

10 OPPORTUNITIES FOR IMPROVEMENT provided, and ensuring the expenses represent the most cost-effective use of public funds. The CVB cannot shift their accountability to someone else. 2. CVB Contractors Have Not Fully Complied With Terms Of Their Contracts. The CVB contractors have not fully complied with their contract terms during the FY period, and as a result, we estimate that the CVB has overpaid approximately $485,000 during that period. The $485,000 of effects from noncompliance of these contract terms includes: A. An estimated $330,000 overpayment of the FKQ advertising agency service fee rates. The FKQ contract states, the contractor account service fee shall be adjusted to the amount earned at year end as a 15% percentage of actual costs expended on promotional advertising. FKQ is receiving a service fee that is calculated on the total amount of the contract including, the service fee itself. Progress payments are made uniformly through the contract year, but no yearend adjustment is made to calculate the fee based on actual promotional expenses alone without the amount of the fee added into the formula, as noted in the table below: FQK FY2002 Contract Amt. Paid % Contract Terms % $ Over Pmt. Media expenses $3,759,308 $3,759,308 Production expenses 644, ,453 Contingency expenses 161, ,113 Total Expenses $4,564,874 $4,564,874 Agency Fee expense $805, % $684, % $120,835 Totals FY 2002 $5,370,440 $5,249,605 $120,835 The difference amounted to an overpayment of $120,835 for FY The $805,566 agency fee paid to FKQ in the example above represents a 17.6% fee, not the 15% fee prescribed in the contract. We estimate that the FKQ service fee was overpaid by approximately $330,000 in the FY contract, due to the improper calculation of service fees. This includes the $121,000 from 2002, and estimates for 2003 and 2004, based on the contract amounts for those years. B. An estimated $150,000 overpayment of FKQ fees for services that had been entirely ordered and utilized by CVB staff members not FKQ. 8

11 OPPORTUNITIES FOR IMPROVEMENT Another example of contract non-compliance related to FKQ was charging a 15% service charge for transactions that were implemented and completed solely by CVB personnel and not by FKQ. Because the invoices were forwarded to FKQ for processing, even though they had been sent to CVB by the vendors, FKQ automatically included these costs in their 15% agency fee equation. Our review of these invoices included all of the FKQ production invoices for FY 2003, indicating that CVB was solely involved with the transaction. There were 86 vendor invoices contracted through the CVB of this nature, totaling $ 338,096; FKQ would have earned $50,714, or a 15% service fee for doing nothing more than paying these invoices and recording them on their budget/billing recap. If this practice in FY 2003 is representative of the other two years of their contract, more than $150,000 of service fees were paid to FKQ during their 3-year contract for little, if any, legitimate service provided. C. $5,038 of cash discounts were utilized by FKQ in remitting for agency invoices but credit was not passed back onto CVB. The FKQ contract states that credits due the County will be made when earned. Additionally, the contract states, invoices will be paid promptly by the contractor to receive cash discounts Our review found one example of FKQ paying newspaper advertisement invoices and utilizing the 3% early payment discount of $1,974, and then requesting reimbursement from CVB for the full, undiscounted amount of the invoice. The total amount of discount taken but not credited to the County for this particular newspaper for FY 2003 would have been $5,038. D. There was also non-compliance with some of the terms of the CVB contract with Research Data Services, a professional market research firm, to guide, support, and monitor the advertising and marketing activities. This is a core mission of the CVB, and projections relating to tourists are a key factor to the success of the CVB. This contractor agreed to provide monthly, quarterly, and annual projections of the number of tourists, their expenditures and budgets, as well as of the related resort tax collections in the County. Task III of the contract states that the firm would forecast and report monthly, seasonal, and annual estimates of occupancy, visitor volume, expenditures, and room-nights for the St. Petersburg/Clearwater area. We found little evidence of forecasts from this firm during our review. Most of the data reported was historical in nature. The forecast information reported by this firm was actually summaries of one-month projections made by local property and industry managers. The following examples of the firm s forecasts found are from its July, 2004, Visitor Profile report, dated September 8, 2004: Compared to 2003, over the next three months, properties report reservations up or the same for (no quantification was included in the report) 9

12 OPPORTUNITIES FOR IMPROVEMENT Over the next three months (compared to the same period last year), industry managers Expect growth or stability for the following market segments (no quantification was included in the report) Technically these are forecasts, but we question their value. This market research contract also stated that all amounts invoiced shall be subject to receipt of a detailed statement of services rendered and this shall include a breakdown of time spent in the performance of this contract according to the rate structure of the duties above. As an example, Task III of the contract forecasting and reporting monthly, seasonal, and annual estimates would require an accounting of time spent on that task. However, invoices did not indicate any amount of hours worked, even in total. E. Although approved by the CVB, and not in contradiction with any contract terms, we also noted questionable spending via the FKQ agency contract relating to the purchase of various pieces of computer hardware (eight invoices totaling $28,833). These were charged as CVB promotional expenses, but should have been considered purchases of fixed assets. These examples reflect that personnel are not managing and transacting the business in a manner which adequately safeguards County assets and resources. CVB management has not established policies and procedures that would ensure contract compliance. CVB contractors should comply with the terms of their contracts with the CVB, or if not practical, the contracts should be revised and renegotiated accordingly. We Recommend the CVB recover the estimated $485,000 from its FKQ Marketing advertising agent. In addition, the CVB should: A. Cease paying agency fees in excess of contract amounts. B. Pay advertising agency fees only paid for actual services performed. C. Ensure all credits and discounts utilized by the advertising agency are passed on to the CVB. D. Require the CVB research firm to provide all the required projections, and the breakdown of time spent by contract function. E. Restrict expenditures to those reasonable and necessary to provide a public benefit. 10

13 OPPORTUNITIES FOR IMPROVEMENT Management Response: A. Final payments for advertising agency service fees are determined by the Finance Department of the Clerk of Court and CVB staff have no involvement in calculating the final payment to the advertising agency. Past advertising fees calculated on the contract were made with the interpretation of the fees being based on the total advertising budget. This was done with the understanding of all parties. The current contract fee agreement is based on media placed and services performed. B. These fees for services were related to the technology activities which were developed and approved for inclusion in the advertising agency budget. Those technology services have now been bid out through a county RFP process and are no longer part of the advertising agency. C. Cash discounts utilized by the advertising agency could not have been possible under the county system which does not allow for prepayment of services not performed. The advertising agency did place the company funds at risk by prepaying programs which could have been cancelled before completion. D. CVB staff and the Tourist Development Council do believe that Research Data Services is in full compliance with the contract and does provide all Reports as stipulated in the contract and also provides two future directed forecasts monthly. In addition, verbal forecasts are provided during the monthly presentation to the Tourist Development. All research information provided by Research Data Services is of great value to the tourism industry and county and has assisted greatly with guiding our marketing activities for years. E. The technology purchases have been assigned asset numbers and the technology marketing budget has now been assigned, through the county RFP process, to a technology firm through an approved contract. Internal Audit Reply: A. While we will discuss these situations with the Clerk s Finance Division, their focus is ensuring the expenditure meets legal requirements for the expenditure of public funds. The CVB has primary responsibility to ensure it receives the services it is paying for, formally monitoring and evaluating the service provided, and ensuring the expenses represent the most cost-effective use of public funds. The CVB cannot shift their accountability to someone else. C. It is not appropriate for the agency to receive a discount on payment to a contractor, and then bill the County for the full, undiscounted amount. As noted in our comment, we noted in one instance, the company made $5,038 from the County using this technique. We are unaware of how many other instances 11

14 OPPORTUNITIES FOR IMPROVEMENT have occurred where the agency billed the County more than actually paid. We are concerned that CVB management appears to condone this practice. 3. Assurance that CVB Advertising Costs Are Reasonable And Comparable To Industry Average Costs Is Not Adequate. The CVB does not routinely obtain assurance that advertising costs are within industry averages. Once we had demonstrated and quantified several areas of concern that had adversely impacted the advertising costs (Opportunity for Improvement No. 2), or were of significant potential risk, we did not attempt to quantify any further differences between CVB advertising costs and those of the industry. Examples of advertising during the audit period are listed in the table below. Examples of CVB Advertising Costs Amount Media Time Period Description $22,522 Travelocity.com Oct Nov 03 Internet $11,535 Meetings and Conventions Oct 03 Magazine $18,962 Golf Digest Nov 03 Magazine $43,815 St. Pete Times Aug.17, 19, 24, Newspaper $14,165 AAA Going Places Sept Oct 03 Magazine $89,321 NY Times Aug.1, 15, Newspaper $96,152 USA Today Aug.1, 8, 15, Newspaper $65,800 Orlando Sentinel Aug.3,10,17,24,31 03 Newspaper $75,000 Travelocity.com Apr Jun 03 Internet $13,065 Coastal Living Sep Oct 03 Magazine CVB Management stated: We receive advertising rate cards from various advertising vendors, and other rates are available on-line via the Internet. We periodically compare these to the rates actually charged to us via our ad agency. However, our audit determined that this testing/comparison is not performed on a regular basis. Also, the CVB pre-audit procedures of the advertising invoices received from FKQ do not include testing of the rates. This weakness in controls over the advertising media rates results in a risk that the advertising expenses may not be reasonable, or may not be comparable to average industry rates. The estimated overpayment of $485,000 identified in Opportunity No. 2 represents 3.69% of the advertising expenses over the life of the three-year agency contract. We are also concerned with the following unquantifiable risks: A) CVB is not testing on a regular basis the advertising rates being charged to them. 12

15 OPPORTUNITIES FOR IMPROVEMENT B) CVB is not monitoring to determine that they are receiving all the vendor discounts and credits given to the ad agency. C) CVB is not performing a financial analysis related to receiving a credit from an ad agency contractor for allowing it to retain all ad revenue. Currently, the contractor is providing a flat credit amount to the CVB in exchange for the contractor retaining all advertising revenues. The amount of revenue received by the contractor is not disclosed to the CVB; therefore, the CVB does not know if this is the most cost-effective arrangement. D) Contracts (or agreements that should be a contract) are utilized without processing through the County RFP procedures. Normally, advertising is measured, planned, executed and then later reviewed for effectiveness, based upon standard industry criteria; such as, cost per thousand, reach, frequency, gross rating points and impact/results (i.e., increased visitors, conferences, etc.). We found no evidence to suggest that CVB is conducting any meaningful review or post-evaluation of their advertising effectiveness. Internal controls in the form of formal policies and procedures over advertising costs should be in place. This would help ensure that personnel are managing and transacting the organization s business in the most cost effective manner, promoting adequate safeguards over County resources. CVB management relies heavily upon their advertising agency to control the advertising rates utilized. However, there is reduced incentive for this agency to manage these advertising resources in the most efficient manner because the agency is guaranteed a 15% fee for all dollars spent through their firm. The CVB cannot document any efforts on its part to test and/or monitor the agency s efficiency in this regard. Some of these described conditions were noted in our previous report. We Recommend the CVB implement controls to ensure that the cost effectiveness of their advertising dollars are maximized. These controls would include: A) Testing to ensure advertising rates are comparable to those of industry standards in accordance with the size of the advertising budget and in accordance with contracted rates, time slots or, in the case of print advertising, located within the contracted placement, correct dates and dimensions. B) Ensuring that the CVB is receiving all the vendor discounts and credits given to the ad agency. C) Performing a cost-benefit analysis related to the receiving of a flat fee from an ad agency contractor and allowing that contractor to retain all ad revenue from 13

16 OPPORTUNITIES FOR IMPROVEMENT CVB booklets and the CVB website vs. the CVB retaining all ad revenue. D) Policies and procedures requiring contracts (or agreements that should be a contract) be processed through County RFP procedures. Management Response: A. The County has determined that a professional advertising agency will aid the county and perform the functions and services of researching, recommending and developing the advertising campaign for the CVB. The advertising agency does represent that it has the professional staff to perform those functions and to provide reports on those activities. CVB staff does review advertising rates from various vendors and the reports provided by the agency. B. CVB is monitoring to determine that the County is receiving all the vendor discounts and credits to the advertising agency during review of invoices presented for payment. C. CVB is not conducting a financial analysis since the contract fee is based on a flat percentage for services rendered. The current advertising agreement does not allow the agency to retain all advertising revenues. D. Advertising agency has the ability to purchase and/or cancel media, develop and produce support materials and promotions for promotional advertising and solicit proposals from vendors to determine that the County is receiving competitive rates on projects conducted on behalf of the County. Estimates are then generated for approval prior to the onset of a project as noted in the contract. 4. Internal Controls Are Inadequate For CVB Invoicing And Cash Receipts From Industry Participation Of Local Tourism Industry Members. During our review we noted the following areas where internal controls could be improved: A. Internal controls are inadequate for the CVB invoicing of industry participation of local tourism industry members for cooperative advertising, and participation in sales missions and trade shows. The Co-Op Advertising Program amounted to $684,000 in FY 2004 and the balance ($93,000) of the monies sent to the CVB is primarily receipts for local industry participation in sales missions and various trade shows in an effort to offset some of the shows costs (booths, flowers, carpeting, furniture, etc.) to the CVB. The basis of industry participants remittances to the CVB result from their decisions to participate with the CVB in industry trade shows, sales missions, and/or co-op advertising. After an industry participant notifies a CVB 14

17 OPPORTUNITIES FOR IMPROVEMENT department of its intent to participate, that particular department will prepare a letter (invoice) of its own design that is mailed to the participants that notes the a) purpose, b) amount due, and c) the payment due date. However, these invoices are not pre-numbered, neither on a departmental basis nor the CVB as a whole. Also, there is no consolidated report of the various CVB invoices issued from the various departments. B. Internal controls are inadequate for the receipts from CVB invoicing for industry participation of local tourism industry members for cooperative advertising, and participation in sales missions and trade shows. There is no actual practice or procedure being utilized to ensure that all checks received are actually deposited in the County s bank account. Also, there are no actual practices or procedures employed to determine that checks are received for all departmental invoices issued. When the CVB Administrative Support Supervisor receives checks from industry participants, she records these daily on a Check Receipt monthly log and then gives the checks to the CVB Accountant that same day. Although the Administrative Support Supervisor gives the Accountant a copy of the CVB invoice that the check pertains to, she does not give him a copy of her Check Receipt log that contains the recording of the check being received. When the Accountant receives the checks from the CVB Administrative Support Supervisor, he records them on his own Check/Deposit Log. He does not receive a copy of the Check Receipt monthly log prepared by the CVB Administrative Support Supervisor. He deposits the checks once per week in the bank and he sends a copy of his Check/Deposit Log to the bank, as well as to the BCC Finance Department. However, he does not give a copy of his Check / Deposit Log to the Administrative Support Supervisor the person who initially received the checks. Adequate internal controls are necessary to help ensure assets are reasonably safeguarded. Without these controls, the risk of loss or misappropriation is increased. Some of these described conditions were noted in our previous report. We Recommend CVB management implement adequate policies and procedures to strengthen the internal controls related to: A. The CVB invoicing of industry participation of local tourism industry members for cooperative advertising, and participation in sales missions and trade shows. B. The receipts that result from CVB invoicing for industry participation of local tourism industry members for cooperative advertising, and participation in sales missions and trade shows. 15

18 OPPORTUNITIES FOR IMPROVEMENT Management Response: A. Accounting for the cooperative advertising funds is now handled using a dual control process recommended by the internal auditor. A system for numbered invoices had already been created and implemented prior to the audit. I will seek Internal Audit s assistance in developing appropriate internal controls (i.e. procedures) for implementation by CVB staff. B. Accounting for industry participation for cooperative advertising and sales missions and trade shows is now handled by using a dual control process recommended by the internal auditor. A system for numbered invoices had already been created and implemented prior to the audit. I will seek Internal Audit s assistance in developing appropriate internal controls (i.e. procedures) for implementation by CVB staff. 5. Internal Controls Are Inadequate For The Advertising Revenue Related To The CVB Website And Vacation Guide Booklets. Internal controls are inadequate for the advertising revenue related to the CVB website and vacation guide booklets. We could not locate any policies or procedures related to advertising revenue for the CVB website or vacation guide booklet. During the period of September 2002 December 2003, Miles Media, a sub-contractor of the CVB advertising agency, gave the CVB a $50,000 credit toward their costs to publish the CVB vacation guide booklets in consideration for Miles Media retaining all revenue generated by Miles Media selling ads in that booklet and also on the CVB website. CVB management can not determine whether this arrangement is an effective arrangement for CVB and the County since they do not get Miles estimated or actual ad revenue to compare to the CVB credit received. CVB management stated that ads are necessary to have a good booklet and website. If we sold them ourselves we would have to hire at least one more person just for that purpose. CVB s conclusion is inadequate because they have not performed a financial comparative analysis of potential advertising revenue vs. the cost of generating that revenue. The CVB should maximize the revenue impact to the County from the sales of advertisements on the CVB website and the vacation guide booklet. There are no CVB internal control policies or procedures related to the sales of advertising on their website or booklets, and we are unable to quantify the potential effect of this without a CVB comparative analysis. We Recommend CVB develop and implement policies and procedures related to the sale of advertisements on its website and in their booklets. These should include the requirement of a financial comparative analysis of any arrangement involving a third party performing a sales function. 16

19 OPPORTUNITIES FOR IMPROVEMENT Management Response: TDC Advertising Committee approved the agreement executed by the advertising agency on behalf of the CVB. The situation cited was an extraordinary opportunity and has been evaluated by the TDC, advertising agency and CVB staff numerous times over the years. Going forward, CVB will require a financial comparative analysis. 17

20 FOLLOW-UP TO PREVIOUS RECOMMENDATIONS

21 FOLLOW-UP TO PREVIOUS RECOMMENDATIONS This section reports our follow-up on actions taken by management on the Recommendations for Improvement in our June 8, 2000 audit of the Convention and Visitors Bureau. The recommendations contained herein are those of the prior audit, followed by the current status. 1. Documentation For Production Approvals Was Inappropriate. We found 19 of 87 invoices tested were submitted for payment attached to inappropriate, unrelated Media or Production Estimates. We found one estimate totaling $2.9 million that covered advertising in 5 countries in multiple advertising categories. The estimate did not provide sufficient detail to determine authorization of an individual expenditure it was used to approve 168 ads in 61 different publications. Recommendation: Management should ensure that the Media or Production Estimates attached to the Contract Purchase Release provides sufficient detail as to individual expenditures for Finance to adequately pre-audit. The documentation submitted to authorize payment should specifically address the expenditure being approved. Status: Implemented. 2. Payment Authorizations Were Not Of Sufficient Detail To Allow For A Proper Audit. The contract s scope required Yesawich, Pepperdine & Brown (YP&B) to provide and produce the necessary materials for placing advertisements and the production of brochures and related sales material. YP&B subcontracted for production, and its contract stated that the compensation would be the advertising revenue, plus $501,708.86, plus pre-press costs and other items if purchased. The estimated costs of production and advertising revenues forgone were not disclosed. We found in 55 of the 110 invoices reviewed that the documentation was insufficient to allow verification that the correct amount was charged. Recommendation: Payment authorizations should be submitted in sufficient detail to allow for a proper pre-audit and post-audit. 19

22 FOLLOW-UP TO PREVIOUS RECOMMENDATIONS Status: Not Implemented. Payment authorizations still are not submitted with sufficient detail to allow for a proper pre-audit and post-audit, primarily in the production areas. See Opportunity for Improvement No The CVB Does Not Verify Media Prices. The CVB relies on estimates and pricing data provided by YP&B to develop, recommend and implement the advertising campaign approved by the BCC. We did not find any policies and procedures for checking prices prior to the execution of a Media or Production Estimate. In the case of cooperative media agreements there was also insufficient documentation necessary to determine that the correct amount had been charged. Recommendation: Management should compare prices contained within the medium s published rate schedule to the Media or Production Estimates prior to authorization. Status: Not Implemented. Management still does not compare prices contained within the medium s published rate schedule to the Media or Production Estimates prior to authorization. See Opportunity for Improvement No Payments For Contracted Services Exceeded Their Authorized Amount. We found estimates for only 65 of the 106 invoices tested. In reviewing those estimates we located 15 estimates that exceeded their authorized amount. The CVB Director did not approve any increases, and payments were authorized without acknowledgement by CVB management that the Media or Production Estimates were exceeded. Recommendation: Increases to Media or Production Estimates should be submitted and approved by the Director of the CVB prior to placing advertising or completing work. Status: Implemented. Increases to Media or Production Estimates are submitted and approved by the Director of the CVB prior to placing advertising or completing work. 20

23 FOLLOW-UP TO PREVIOUS RECOMMENDATIONS 4. Partial Payments On Media Or Production Estimates Are Not Monitored. YP&B is submitting partial or progress payment invoices and is not submitting a recap of credits and debits affecting previously submitted statements or invoices. The invoices did not indicate that they were for partial payment or recap other invoices paid. The CVB does not maintain a cumulative total of invoices that have been paid against each Media or Production Estimate. Recommendation: Management needs to monitor partial payments to ensure that authorized Media or Production Estimates are not exceeded. Status: Implemented. Management does monitor partial payments to ensure that authorized Media or Production Estimates are not exceeded. 5. Advance Payments Were Improperly Authorized. The contract states, Each invoice submitted shall be supported by a copy of the vendor invoice and proof of performance or proof of receipt of goods or services contracted for. The contract does allow for invoicing of major production charges on a percent of completion or progress basis, provided that the invoices contain sufficient supporting detail. Section , Florida Statutes, authorizes advance payments pursuant to the rules or procedures adopted by the Comptroller. The invoices noted were not supported by proof of performance or proof of receipt; they did not demonstrate savings to the County, and the documentation did not indicate that the goods or services were essential or that they were only available if advance payment was made. Recommendation: Management should not authorize any advance payments. Payments should only be authorized based upon invoices containing sufficient supporting detail as required by the contract. Status: Implemented. No examples of advance payments were noted. 6. BCC Purchasing Policy Was Not Complied With. The Director of Purchasing shall serve as the principal public purchasing official for the County. The freight charges for brochures and sales materials via a YP&B subcontractor totaled about $45,000. These freight charges were invoiced 21

24 FOLLOW-UP TO PREVIOUS RECOMMENDATIONS separately and authorized by CVB to be paid directly to the subcontractor. We could not find where CVB obtained any written competitive quotes, and the purchasing department did not have any involvement in this process. Recommendation: CVB management should contract services and authorize payments in compliance with the BCC purchasing policy. Status: Not Implemented. See Opportunity for Improvement No Contractors Are Representing Themselves As Agents Of The County. The County YP&B contract states YP&B is an independent contractor and is not an employee or agent of the County. YP&B employees signed contracts on signature lines labeled St. Pete/Clearwater CVB and Representing the St. Petersburg/Clearwater CVB. Recommendation: Management should enforce the Independent Contractor clause. Status: Implemented. We found no evidence of this practice on the documents we reviewed during our current audit. 8. The CVB Operating Procedure Manual Is Inadequate. The manual does not adequately address procedures related to the administration, evaluation or monitoring of material promotional activities. The manual does not adequately address the provision of services for tourismrelated guests. The manual does not address acceptances of payments, services, meals, things of value, or gifts. The manual does not set any prohibitions or instruct CVB personnel on the proper documentation of activities. The manual does not state when it is prohibited to accept a payment, service, or thing of value from a client. Recommendation: The CVB manual should stipulate, in adequate detail, all CVB policies and procedures associated with material activities and programs. These procedures should strictly adhere to Florida Statutes. 22

25 FOLLOW-UP TO PREVIOUS RECOMMENDATIONS Status: Partially Implemented. Although the CVB Operating Procedures Manual dated January 2004 is significantly improved from the manual in existence during the prior audit, the manual still does not adequately address procedures related to the administration, evaluation or monitoring of material promotional activities. See Opportunity for Improvement Nos. 1, 3, 4 & The CVB Solicits Money, Goods, And Services From The Public Without Proper BCC Authorization. The CVB maintained an in-kind contribution program totaling about $3.6 million during FY Cash payments during the audit period exceeded $50,000. CVB personnel solicit money, goods, and services from the public. In exchange for in-kind contributions, additional fees, or charges, further privileges or promotional benefits may be extended to individual organizations. There are no policies and procedures regarding the in-kind contribution program. Recommendation: The CVB should not solicit payments, services, or things of value from the public, because there are no policies or guidelines. Status: Implemented. 10. Procedures For Receiving And Safeguarding Promotional Goods And Money Are Inadequate. Cash payments and checks are received by various CVB personnel prior to being forwarded to an administrative specialist. The invoices sent out by the department are not numbered or recorded. Funds and promotional materials are solicited, invoiced, received, and recorded by the same individual or department. Recommendation: The CVB should institute internal controls that properly segregate duties and institute proper safeguards over the solicitation, receipt, and disposition of assets. Status: Partially Implemented. See Opportunity for Improvement No

26 FOLLOW-UP TO PREVIOUS RECOMMENDATIONS 11. The CVB Sponsors Promotions With Private Funds. Some of the CVB promotions are partially paid for with private contributions. These promotions include sales missions, trade shows, promotional merchandise, and other activities. CVB management decides which promotions will include private participants, fees to be charged, and who qualifies as a participant. Fees collected with a promotion rarely match (over or under) the cost of the promotion. We could not find any policies, procedures, or guidelines that address participation in public/private promotions. Recommendation: Management should seek guidance from the TDC on public/private promotions. Policies and procedures should be developed accordingly. Status: Implemented. 12. There Are No Cooperative Advertising Program Guidelines. The CVB media program spends more than $1.3 million on cooperative advertising for magazines, newspapers, and television. Cooperative advertising is a costsharing arrangement where two parties splice together their ads into the same media spot. The terms can vary with the number of participants and responsibilities. CVB policies do not address terms, fees, allocation of costs, reporting requirements, or required approvals as they relate to these partnerships. Guidelines are needed since cooperative advertising benefits specific private companies, including those that contribute to the in-kind contribution program. Recommendation: Management needs policies and procedures to provide guidance for cooperative advertising partnerships. Status: Implemented. The CVB Operating Procedures Manual notes the procedures for receipt of Co-Op advertising checks, and presents the guidelines for utilizing cooperative advertising. 24