BOARD OF COUNTY COMMISSIONERS
TOURIST DEVELOPMENT COUNCIL
ST. PETERSBURG/CLEARWATER AREA
CONVENTION AND VISITORS BUREAU
OPERATIONS AND INTERNAL CONTROL
REPORT NO. 2000-07
DATED: JUNE 8, 2000
The Board of County Commissioners
The Clerk of the Circuit Court
Pinellas County, Florida
The Internal Audit Division has conducted a review of the Pinellas County Tourist Development Council's (TDC) St. Petersburg/Clearwater Area Convention & Visitors Bureau (CVB) operations and internal controls.
The purpose of this audit was to: 1) review the adequacy of policies and procedures governing the operations; 2) review the internal control structure for administering activities; 3) test controls related to monitoring contractual services; 4) test selected controls related to the payment for services; and 5) follow up on prior audit recommendations.
We flowcharted the administrative and internal control structure related to payment authorization. We reviewed the CVB's written policies and procedures related to the selection, approval, and execution of programs in effect during the period October 1, 1998 to March 31, 1999. We reviewed selected programs to determine whether they were implemented in compliance with laws, regulations, policies and procedures. We reviewed selected disbursements of County funds and the provision of services to determine whether they complied with program prerequisites. We performed other auditing procedures that we considered relevant.
Pursuant to the Local Option Tourist Development Act, Section 125.0104, Florida Statutes, the Board of County Commissioners (BCC) has adopted an ordinance establishing a Tourist Development Tax. The ordinance prescribes that the tax revenue be used to fund the BCC's tourist development plan. The tourist development plan provides financing for beach renourishment projects, debt service on bonds for Tropicana Field, funding for the CVB, and expenditures for promoting and advertising tourism. The TDC was established by the BCC to make recommendations for the effective operation of the special projects or uses of the tourist development tax revenue raised by the tax levied and perform such other duties or functions as may be prescribed by ordinance or resolution. The TDC is responsible for continuously reviewing all expenditures of tax revenue and is required to report all expenditures believed to be unauthorized to the BCC. The tourist development plan for the fiscal year 1998/99 provided approximately $1.8 million for beach renourishment, and $4.6 million for debt service. The BCC contracted with Yesawich, Pepperdine & Brown (YP&B) for marketing and advertising services in the amount of $4.6 million.
The results of our review are shown below. They begin with an overall evaluation, followed by a detailed discussion of the findings and recommendations with management's responses.
The Internal Audit Division has conducted a review of the CVB. We have concluded that the policies and procedures reviewed did not provide an adequate internal control environment. The CVB did not adequately administer the YP&B contract for marketing and advertising services. We believe that there are certain matters which, if addressed, will result in improved operations.
FINDINGS, RECOMMENDATIONS AND RESPONSES
FINDING 1 - Documentation for production approvals was inappropriate.
The YP&B contract states, "The CONTRACTOR will not commence work on any project or program without the authorization of the Director, her designee, or the CVB, and will place no advertising until its recommendation(s), including estimated cost of media, agency service fees if applicable, and production, have been submitted to and approved by the Director of the CVB or her designee."
The CVB Director or her designee authorizes work by signing a "Media or Production Estimate." The estimate is attached to a "Contract Purchase Release" along with original invoices and then forwarded to the Finance Division to authorize payments. We found 19 of the 87 invoices tested were submitted for payment attached to inappropriate, unrelated "Media or Production Estimates." We found one estimate totaling $2,927,285 that covered advertising in five different countries and contained multiple categories such as Consumer Magazines, Consumer Newspaper, Outdoor, Internet, Trade, Television, and Discretionary. The United States - Consumer Magazine category alone was estimated at $797,848. The estimate did not provide sufficient detail to determine authorization of an individual expenditure. This estimate was used to approve 168 advertisements in 61 different publications.
FINDING 2 - Payment authorizations were not of sufficient detail to allow for a proper audit.
The YP&B contract requires that "All statements or invoices for fees or other compensation for services rendered or expenses incurred submitted by the CONTRACTOR to the COUNTY shall be submitted in detail sufficient for proper pre-audit and post-audit thereof to insure that the work performed, expense incurred, or service rendered actually took place and that the correct amount has been charged."
The contract's scope required 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 the production of 500,000 Visitors Guides, 400,000 Meeting Planners Guides and 700,000 Travel Agents Directories with Miles Media Group. These materials are the fulfillment pieces that are used to respond to inquiries from the CVB's $4.6 million advertising campaign, the collateral materials distributed at trade shows and materials provided to travel agents during familiarization tours. The contract specifies that approximately 40 pages in the Visitors Guide, ten pages in the Travel Agent's Directory and nine pages in the Meeting Planner's Guide will be available for advertising sales. The contract between the Miles Media Group and YP&B stated that the compensation for the cost of production for all three publications 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.
FINDING 3 - 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. A primary component of the pricing formula for Media Commitments is the "medium's published rate schedule." The auditor was not able to obtain published rate schedules from the CVB in order to test prices charged to the County for media placements.
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.
FINDING 4 - Payments for contracted services exceeded their authorized amount.
The "Media or Production Estimate" documents the maximum amount authorized by CVB management to be paid for a specific project. The estimates generally include an additional 10% contingency balance. The "Media or Production Estimates" are attached to the associated "Contract Purchase Release" along with original invoices and then forwarded to the Finance Division for processing. The auditor reviewed a total of 106 invoices attached to the YP&B "Contract Purchase Release" order processed during the month of February. We found estimates for only 65 of those invoices. In reviewing those estimates we located 15 estimates that exceeded their authorized amount. The CVB Director, or her designate, did not approve any increases in the estimates. Payments were authorized without acknowledgment by CVB management that the "Media or Production Estimates" were exceeded.
FINDING 5 - Partial payments on "Media or Production Estimates" are not monitored.
YP&B is submitting invoices representing a partial or a progress payment against a "Media or Production Estimate". They are supposed to be submitting "a recapitulation of credits and debits affecting previously submitted statements or invoices . . . for invoices presented for payment." We found 13 of the 50 invoices reviewed represented only a partial payment against the estimate. The invoices didn't indicate they were for partial payments 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" either.
FINDING 6 - Advance payments were improperly authorized.
The contract states, "Each invoice submitted by the CONTRACTOR to the COUNTY 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 for projects that exceed FIVE THOUSAND AND NO/100 ($5,000) DOLLARS may be billed on a percent of completion or progress basis, provided that the invoices contain sufficient supporting detail. . . ." Florida Statute 28.235 states, "The clerk of the circuit court is authorized to make advance payments on behalf of the county for goods and services, including, but not limited to, maintenance agreements and subscriptions, pursuant to the rules or procedures adopted by the Comptroller for advance payments of invoices submitted to agencies of the state."
The CVB authorized payments for work to be performed that did not meet requirements for progress payments as defined in the contract or advance payments as authorized under Florida Statutes. The payments observed included:
Invoice No. P17755 Voucher No. 480475 Travel Agent Directory $ 100,000
Invoice No. P17750 Voucher No. 480470 Visitor Discovery Guide $ 145,000
Invoice No. P17547 Voucher No. 480488 Meeting Planners Guide $ 55,000
Invoice No. P18145 Voucher No. 491630 Sales Video $ 37,500
FINDING 7 - BCC Purchasing Policy was not complied with.
The Pinellas County Code states, "Except as otherwise provided in this division, the director of purchasing shall serve as the principal public purchasing official for the county and shall be responsible to the board of county commissioners and shall be responsible for the procurement of supplies, services and construction in accordance with this division."
The Pinellas County Purchasing Department, Policy and Procedure Manual states, "It is recognized that the authority to procure equipment, commodities and services rests with the Board of County Commissioners."
The YP&B contract includes the production of brochures and related sales materials. YP&B contracted with the Miles Media Group to produce 700,000 Visitors Brochures, 500,000 Travel Agent Directories, and 400,000 Meeting Planner Guides. The freight charges associated with these materials totaled $44,786.25. These freight charges were invoiced separately and authorized by CVB to be paid directly to Miles Media Group. We could not find where CVB obtained any written competitive quotations despite an increase of over $10,000 from last year. Purchasing did not have any involvement in the procuring of these freight services from Miles Media Group.
FINDING 8 - Contractors are representing themselves as agents of the County.
The Personal Services Contract between Pinellas County and Yesawich, Pepperdine & Brown states, "It is hereby mutually agreed that the CONTRACTOR is and shall remain 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." The agreements were for cooperative advertising with the Florida Tourism Industry Marketing Corporation and the Superior Small Lodging Agreement with the Property Review Program and The Earl Palmer Brown Advertising Agency. The CVB's actions, either intentionally or by want of ordinary care, would allow a third person to believe that an agency relationship exists between CVB and YP&B. This apparent authority would allow YP&B to bind the County in a contractual relationship.
FINDING 9 - The CVB's "Operating Procedure Manual" is inadequate.
The manual does not adequately address procedures related to the administration, evaluation or monitoring of material promotional activities. The TDC has budgeted over $4.6 million for the development and execution of an annual marketing/advertising plan. The manual perfunctorily addresses planning, creation, production, and payments.
The manual does not adequately address the provision of services for tourism-related guests. Entertainment expenses are permitted when meeting with travel writers, tour brokers and other persons connected with the tourist industry. The manual does not stipulate which CVB personnel are permitted to engage in these activities, expenditure limits, or records to be maintained.
The CVB 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. CVB personnel provide, arrange, and make expenditures for transportation, lodging, meals, and other reasonable items in connection with the performance of promotional duties. For example, CVB personnel regularly accept meals and admissions to attractions when accompanying familiarization tours. The manual does not state when it is prohibited to accept a payment, service, or thing of value from a client.
FINDING 10 - The CVB solicits money, goods, and services from the public without proper BCC authorization.
The Florida Attorney General has written in an advisory legal opinion that "Public officers may collect fees and service charges for services rendered only when and to the extent authorized by law. An officer demanding fees or service charges from the public or the state or other governmental bodies must point to a particular statute authorizing them. Moreover, such statutes are to be strictly construed."
The State Code of Ethics for Public Officers & Employees, and the Pinellas County Personnel Rules generally prohibits the soliciting of special privileges or favors.
The CVB previously contracted with an outside firm, Discover Suncoast Florida, to do promotional activities. The contract required the firm to solicit in-kind contribution of airline travel, limousine service, meals, hotel accommodations, attraction admissions, gift certificates, etc., from tourism-related business. The Discover Suncoast Florida organization has now been folded into the CVB. The CVB maintained an in-kind contribution program totaling approximately $3.6 million during the 1998/99 fiscal year. Cash payments received from clients during the audit period exceeded $50,000. The CVB is unique to County agencies in that 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.
FINDING 11 - Procedures for receiving and safeguarding promotional goods and monies are inadequate.
Cash payments received from clients during the audit period exceeded $50,000. Upon receipt, the mail is distributed to the party it is addressed to. It is not opened; payments are not removed, restrictively endorsed or logged. Checks are received by various CVB personnel prior to being forwarded to an Administrative Specialist. The invoices sent out by the department sections are not numbered or recorded.
Funds and promotional materials are solicited, invoiced, received, and recorded by the same individual or department. The individual departments maintain their own records as to the request and receipt of invoiced payments and promotional materials. Procedures regarding the receipt and accounting for donated cash, goods, and services are inadequate.
FINDING 12 - The CVB sponsors promotions with private funds.
The CVB sponsors various programs, publications, and events for the purpose of promoting Pinellas County as a tourism destination. Some of these 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 associated with a promotion may exceed its cost. Fees collected may be minimal compared to the value of the promotion. We could not find any policies, procedures or guidelines that address participation in public/private promotions.
FINDING 13 - There are no Cooperative Advertising program guidelines.
The CVB media program expends in excess of $1,300,000 on cooperative advertising for magazines, newspapers, and television. Cooperative advertising is a cost-sharing 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 cooperative advertising partnerships. Guidelines are needed since cooperative advertising benefits specific private companies, including those that contribute to the in-kind contribution program.
Audit supervised by:
Audit performed by:
Billye M. Wilcox, Sr., CPA
Chief Deputy Director
Internal Auditor Division
Karleen F. De Blaker
Clerk of the Circuit Court
Ex Officio County Auditor
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