Spectacor Management Group Close-out Audit of the Convention Center,MlAMIBEACH
BUDGET AND PERFORMANCE IMPROVEMENT
Internal Audit Division INTERNAL AUDIT REPORT
TO:
VIA:
FROM:
DATE:
AUDIT:
PERIOD:
Jorge M. Gonzalez, City Manager
Kathie G. Brooks, Budget and P·A. r~ anc mprovement Directo~;A
James J. Sutter, Internal Audito'j~
December 1, 2008
Spectacor Management Group Close-out Audit of the Convention Center, Colony Theatre
and Byron Carlyle Theatre
as of July 31st, August 31st or September 30th, 2008 (based on the records available)
This report is the result of a specially requested audit by City Management due to the City
Commission's recent selection of Global Spectrum to replace Spectacor Management Group (SMG)
who had operated the Convention Center and other various City facilities for the past eighteen
years.
INTRODUCTION
The City of Miami Beach has operated a Convention Center since 1958. The building was
expanded in 1968, in 197 4, and was again expanded and totally renovated in 1987. Since that time,
the City has invested an additional $35 million in capital improvements to the facilities. The
Convention Center currently has a pending list of capital improvements valued at approximately
$16,400,000 which excludes expansion.
The Convention Center is approximately 1.1 million gross square feet, with about 502,000 square
feet of exhibition space. The 2007/08 fiscal year operating budget for the Convention Center is
$9,502,883 and does not include depreciation, management service fee or debt service; the Colony
Theatre operating budget is $425,799; and the Byron Carlyle Theatre operating budget is $312, 215.
On December 19, 1990, the City entered into a Management Services Agreement with Spectacor
Management Group or SMG for the operation and management of the Miami Beach Convention
Center (MBCC) and the Jackie Gleason Theater of the Performing Arts (TOPA). The City
Commission renewed this agreement, several times in substantially the same form until the passage
of Resolution No. 2004-25645 on July 28, 2004 when SMG was given additional management
oversight of the Bryon Carlyle Theatre, the Colony Theatre and the Little Stage Theatre.
On June 21, 2007 the City Commission selected Live Nation to operate TOPA, changing the name
of the venue to The Fillmore Miami Beach at the Jackie Gleason Theatre. The Live Nation
agreement ends on August 31, 2017 but can be extended for an additional five years by the
contractor provided that designated conditions are met. Although SMG no longer operated this
facility, they remained responsible for the building's maintenance.
Then the City Commission through the passage of Resolution No. 2008-26860 authorized the City
Administration to enter into negotiations with Global Spectrum for the management and operation of
the Convention Center, Colony Theatre and Byron Carlyle Theatre as of October 1, 2008 thereby
ending SMG's eighteen year affiliation with the City.
\1\/e ore commilteclto providing excellent public setvice one/ solely lo oil who live, work, one/ ploy in our vibrant, lropicol, historic communily.
Internal Audit Report
Spectacor Management Group Closeout Audit of the Convention Center, Colony Theatre and Byron
Carlyle Theatre
December 1, 2008
OVERALL OPINION
Due to the availability of financial records, selected general ledger balances and payouts were
typically confirmed as of July 31, 2008, August 31, 2008, or September 30, 2008, depending on the
documentation completion and availability. The records reviewed were easily located, properly
organized and well maintained.
All tested objectives were approved in advance by the City Administration and are discussed
separately in each of the areas listed below. In summary, Internal Audit believes that the balances
reviewed below reasonably represent the amounts listed on SMG's records for the corresponding
audited period. In addition we questioned the following expenditures:
• Legal fees of $162,276.56 paid to the law firm of Rosen, Switkes & Entin were incurred by
SMG in defense of a wrongful termination lawsuit filed by SMG employee Louis Perrero.
• Two travel expense reports totaling $3,129.20 were submitted by SMG Corporate officials
whose trip's business purpose were not identified and may have been to strategize on how
to retain the City contract.
• Federal Express was paid $1,290.68 to ship SMG's records back to their corporate offices in
Philadelphia, PA.
• Three SMG employees received a combined total of $19,458.53 in excess for severance
pay due to incorrectly included time spent working for SMG at non-Miami Beach facilities. In
addition the payment of this severance pay totaling $133,056.91 appears not to be for
normal operating expenses, as stated in the management agreement, but rather for the
termination of the agreement.
• SMG Corporate currently owes the City $2,459.00 due to the payment of relocating
expenses for the former Assistant General Manager through payroll.
Performed testing was more limited than would be necessary to express an audit opinion.
Accordingly, we do not express such opinion. Alternatively, we have identified the findings that
resulted from such tests performed.
PURPOSE
The purpose of this audit was to determine the reasonableness of certain general ledger accounts
held by Spectacor Management Group to be relinquished to the City in order to facilitate the
transition to Global Spectrum as of October 1, 2008. Where there are recommendations to improve
procedures, they have been forwarded to City administration for review with Global Spectrum. In
addition, a cursory review of selected expenditures was petiormed to ensure that expenses are
supported by sufficient documentation.
OBJECTIVES AND TESTING RESULTS
1. Objective:
Results:
Confirm that accounts receivable balances are valid and represent actual
monies owed.
As of August 31, 2008, SMG showed sixteen account receivable balances on
the General Ledger for a combined total of $1,462,892.32, not including
allowances for doubtful accounts. Ending balances as of September 30 1h,
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Internal Audit Report
Spectacor Management Group Closeout Audit of the Convention Center, Colony Theatre and Byron
Carlyle Theatre
December 1, 2008
2008 were not yet available, as SMG employees were working on the month
and fiscal year end books closing. The following table illustrates the sixteen
accounts and their balances as of August 31, 2008:
$ 487,636.12
12002 NR FOOD & BEVERAGE $ (91,016.40)
12005 NR OTHER-RENT A PC $ 1,706.65
12006 NR AUDIO VISUAL $
12007 NR TELEPHONE $ 11,249.25
12008 NR ELECTRICAL EDLEN $ 33,862.31
12009 NR ELECTRICAL EDD HELMS $ 56,105.46
12010 NR ELECTRICAL TRI CITY $ 6,750.4
12011 NR ELECTRICAL OTHER $
12012 NR NEW WORLD SYMPHONY $ 34,097.89
12016 NR TICKET MASTER $ 785.00
12019 NR CITY $ 5,639.92
12037 NR CITY FUNDING $ 703,574.14
12049 NR SMG CORPORATE $ 65,235.49
12050 NR SMG OTHER BILLINGS $
12051 NR OTHER INTER CO.-COLONY $ 71,564.00
12052 A/ROTHER INTER CO.-BYRON $ 36,156.00
12053 A/R BYRON CARLYLE DUE FROM MBC $ 15,493.00
12054 NR COLONY DUE FROM MBCC $ 24,053.00
12060 A/ROTHER $
TOTALS $ 1 ,462,892.32
Notes:
a) The amount of$ 1 ,462, 892.32 represents gross balances. Accounts receivables
net of allowance for doubtful accounts were $ 1, 396, 7 45.13 as of August 31, 2008.
Total Allowance for doubtful accounts was$ 66,147.19 as of August 31, 2008.
b) Amounts reflected on GIL account number 12049 (AIR SMG Co1porate)
represents director salaries paid directly from the City to SMG that needs to be
clepositecl on the Convention Center's accounts. The balance for this account
should be zero at year encl.
In order to verify these balances, a copy of the Accounts Receivable Aging
report was requested. However, the Accounts Receivable Aging report
reflected only those outstanding receivables on the A/R Control Account,
which excludes other accounts receivables for commissions earned from
different concessions with sub-contractors, management fees earned,
receivables for City funding requirements, and Communication tower usage
rentals. As a result, additional supporting documents for the remaining
accounts were requested to substantiate the account activity and ending
balances. All Information and support was provided by SMG employees
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Internal Audit Report
Spectacor Management Group Closeout Audit of the Convention Center, Colony Theatre and Byron
Carlyle Theatre
December 1, 2008
2. Objective:
Results:
accordingly.
The balance for the "Accounts Receivable Food and Beverage" account was
reflected as a credit balance, therefore reducing the overall balance of
accounts receivable. Testing results and inquiries showed that the credit
balance on the account was the result of commissions paid for event food,
beverage, and catering in excess of commissions earned. Therefore,
Internal Audit recommends reclassifying any credit balance receivables to
the appropriate deferred revenue or liability account, which would better
reflect the true balance for receivables. The overpayment of food and
beverage commissions as of August 31 61 , 2008 was $91,016.40, which may
be different at fiscal year end.
Considering that the "Accounts Receivable Control" account represented
fifty-seven percent (57%) of the total gross receivable balance, excluding
Accounts Receivable for City Funding, Internal Audit selected a sample of all
customer and/or subcontractor accounts with a balance over $4,000.00. As
a result, files and invoices were reviewed for eighteen accounts with a
combined balance of $436,804.59 or ninety percent (90%) of the total
balance on the "Accounts Receivable Control". No exceptions were noted
from the reviewed documents.
In addition, Internal Audit selected a sample of seven credit memos issued in
order to determine the validity of the same. One of the selected credit
memos for the amount of $1,771.74 could not be found, while supporting
documentation for the remaining six was provided.
Testing showed that credit memos were being issued to correct receivable
input or invoice creation overstatements. It was observed that invoices were
completed for the customers holding the events; however, payments for the
events are also received from subcontractors of the event holder or other
organizations, depending on what agreements were made. If the name on
the check does not match the name of the event holder, and because the
system does not allow posting any payments received to cash, an invoice
was created to record the cash payment received with the name reflected on
the check. This represented a duplicate entry for accounts receivable and in
order to correct it, credit memos had to be issued to the event holder's
account. As a result, there is a risk that monies received for which the event
holder could not be identified would be entered a second time with the name
of the organization making the payment.
Confirm that cash held in the banks are valid and that timely reconciliations
are performed.
SMG maintained seven different active bank accounts varying by facility
(MBCC, Byron Carlyle/Colony Theatres) and function (operating, escrow and
payroll). Reviewed August 2008 bank reconciliations were completed timely,
within thirty days of month end, and properly by SMG staff. The following is a
listing of the accounts and their reconciled balances as of August 31, 2008:
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Internal Audit Report
Spectacor Management Group Closeout Audit of the Convention Center, Colony Theatre and Byron
Carlyle Theatre
December 1, 2008
3. Objective:
Results:
3200398706 $ (11,230.74)
MBCC ESCROW 3200398719 $2,355,594.91
MBCC BOX OFFICE 3200398722 $ 23,411.71
TOPA OPERATING (a) 3200398696 $ 105,918.57
TOPA BOX OFFICE (a) 3200398670 $ 67,065.37
TOPA ESCROW (a) 3200398683 $ 22,733.67
PAYROLL 3200441543 $ 61,821.33
(a): "TOPA" accounts are used to record the financial activity of the Byron Carlyle and the
Colony Theaters. The account names have not been updated on the chart of accounts, the
general/edger or the bank statements. The Theater Of Performing Arts (TOPA) is no longer
operated by SMG as of June 21, 2007.
Each bank account and corresponding reconciliation was analyzed. Six
questioned voided checks were found to be properly accounted for. In
addition, two cash withdrawals of $10,000 and $30,000 used to provide
change for public shows were scrutinized. Proper documentation and
approvals were noted and the monies were returned, less an immaterial $37
cash shortage, via Brinks to Citibank shortly after the shows' conclusion.
Internal Audit noted that SMG prepared manual checks in August 2008
primarily for union dues, child support payments and event settlement
refunds. SMG staff said that these checks were issued manually because
they needed to be done timely and could not always wait for the end of the
month check run.
Although all tested manual checks properly contained two signatures and
appeared to be for valid purposes, it does increase the risk that someone
could bypass system controls and misappropriate monies. Therefore,
Internal Audit believes that all non-payroll checks should be automated and
run through the designated software system, while all payroll checks should
be cut by Automated Data Processing or ADP. Global Spectrum agrees and
will have two check runs per month with no more manual checks issued.
Finally, Internal Audit noticed that Citibank billed August 2008 service
charges totaling $373.81 for TOPA box office and $192.08 for MBCC payroll.
We questioned why Citibank was used rather than Sun Trust, which handles
all the City's monies and does not typically bill the City for service charges.
SMG staff said that these accounts were created a long time ago and have
just been carried forward. We were subsequently told that Global Spectrum
plans to move all the bank accounts to SunTrust.
Confirm that deposits held in escrow for future events are complete and are
recorded correctly.
A schedule of Convention Center events was obtained and ten future events
were selected for testing. All the corresponding event files were easily
located and they contained the desired information.
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Internal Audit Report
Spectacor Management Group Closeout Audit of the Convention Center, Colony Theatre and Byron
Carlyle Theatre
December 1, 2008
4. Objective:
Results:
5. Objective:
Results:
The event files' Contract Status Reports and Settlement of Proceeds were
reviewed as they identified the amounts due and by what date, as well as if
and when they were received. The deposit amounts received were then
traced to July 2008's Cash Escrow Account and Advance Deposit Report
Reconciliation. All were present except for two that were received after the
report was run (one on 08/11/08 and the other on 09/12/08).
This report was properly reconciled to the July 2008 SMG escrow bank
statement and all sampled deposits were accounted for. Testing was
performed as of July, since the August statements and reports were not
initially available for our review. Therefore, Internal Audit feels reasonably
assured that the deposits held in escrow for future events for a combined
amount of $2,378,328.58 ($2,355,594.91 for MBCC and$ 22,733.67 for the
Colony and Byron Carlyle Theatres) are complete and are recorded correctly
as of July 31, 2008.
Confirm that advance ticket sales are properly recorded and safeguarded for
future events.
Inquiries revealed that SMG in essence had stopped promoting future events
at the Colony and Byron Carlyle Theatres when they knew that they had lost
the City contract as of 09/30/08. Therefore, there were only two remaining
future shows scheduled, Asia Song on our Soil at the Colony Theatre on
1 0/1 0/08 and The Eric Vloeimans Trio held at the Byron Carlyle Theatre on
1 0/1 0/08, with advance ticket sales.
The advance ticket sales 09/30/08 balance of $65.00 was collected by
Ticketmaster. We reviewed the provided Ticketmaster reports and found the
listed payments to be in agreement with the amounts deposited in SMG's
bank statements.
One thing of note was the amount of fees charged by Ticketmaster and how
much they can vary. For example, a deposit of $39.90 was made on the
$40.00 received for the Asia Song on our Soil show. Yet, only $15.25 was
received from the $25.00 payment to attend the Eric Vloeimans Trio event.
We did not perform any testing to determine if these fees were reasonable or
if they were within industry standards.
Confirm whether any retained deposits for past events should be returned to
the event promoters or need to be transferred to the operating account.
Internal Audit reviewed the July 2008 Cash Escrow Account and Advance
Deposit Report Reconciliation looking for any retained deposits from past
MBCC events. Testing was performed as of July, since the August
statements and reports were not initially available for our review. Six events
were identified with one (IBEX dated 11/01/06) containing a $.50 immaterial
difference excluded from further analysis.
Page 6 of 11
Internal Audit Report
Spectacor Management Group Closeout Audit of the Convention Center, Colony Theatre and Byron
Carlyle Theatre
December 1, 2008
6. Objective:
Results:
The event files for these remaining five were reviewed and all had been fully
settled based upon review of the records present. The $4,500 listed
shortage for the EXXXotica show was completely offset by the $4,500
overage from the Microsoft Tech Tour. SMG staff will adjust these accounts
to reflect a zero balance. Meanwhile, the monies retained in escrow for the
remaining three events (Trafik Tradeshow, CBS Television and Tetrak Pak
Mixo Walkout) should be moved to the operating bank account. Two have
since been transferred with only the deposit monies in the amount of
$4,681.25 for the Tetrak Pak Mixo Walkout event not yet corrected due to
temporary difficulties in accessing the bank accounts during the transition.
Confirm that tested unpaid expenses have been accrued and are reported
on the contractor's records.
During our testing, we learned that to recognize some of the accruals for
each month, SMG personnel would not contact those vendors for which the
invoices had not yet been received in order to recognize the actual amounts
or the best estimate for the expenses to be accrued. Accrued expenses
account totaled $278,142.86 as of August 31, 2008.
In addition, monthly accruals already recorded would automatically reverse at
the beginning of the next month to allow for the recording of the correct
expenses and account for any discrepancies, should any exist. However,
Internal Audit found at least 6 accrued expenses totaling $10,621.75
(adjusting journal entry or AJE number 280821 dated 09/19/2008) that
started being accrued since 2006 or 2007's Boat Show and have not been
paid as of yet. The accrued amounts represent City charges for fire
personnel and traffic control personnel. The accruals were reversed at the
beginning of every month, but because no invoices were received from the
City, the amount continued to be re-entered and re-accrued each month with
the balance being continually carried forward. The reason for carrying the
accrued balance forward was explained to be the result of one of two
possibilities:
1. The City may not have invoiced SMG for the expenses, or
2. The accrued amount may have been overstated
However, SMG should follow up on accrued amounts to verify and ensure
any adjustments prior to the end of every fiscal year. Over or under
estimating the accrued expense could result in a potential departure from
Generally Accepted Accounting Principles' (GAAP) Matching Principle if paid
in a future year (any difference would be recorded in a future year and not in
the period incurred or earned).
Furthermore, there was a carrying forward balance in the Accrued Expenses
account that has been carried forward many years. The carrying amount
was estimated to be approximately $30,000.00 and has never been
reconciled. Therefore, Internal Audit recommends the reconciliation of
accrued expenses and the follow up of any outstanding invoice accrued prior
Page 7 of 11
Internal Audit Report
Spectacor Management Group Closeout Audit of the Convention Center, Colony Theatre and Byron
Carlyle Theatre
December 1, 2008
7. Objective:
Results:
to year end.
Confirm that there are no unusual expenses paid by the contractor over
those necessary to conduct business on behalf of the management
agreement.
Invoices were reviewed to determine whether they are non-qualified
expenditures that should have been paid by SMG rather than by the City.
Our first step was to review the August 31st and September 30th check runs
looking for anything unusual. SMG's vendor files for the current fiscal year
were checked for authenticity. Any vendor whose business purpose was not
immediately known was further investigated on the Internet. Inquiries were
also made with SMG personnel to learn of vendors' business relationships
with SMG.
Internal Audit is questioning the following expenditures which appear to not
be operating expenses:
a. SMG employee Louis Perrero was terminated in 2005 and shortly
thereafter filed a lawsuit against the company. Associated legal fees
totaling $162,276.56 were paid to the law firm of Rosen, Switkes &
Entin. While this SMG employee worked at the Miami Beach
Convention Center, we believe that this cost is a result of defending
SMG's management practices and should be borne solely by them.
In addition, no evidence was found that the City agreed to reimburse
SMG for these fees. This item has been forwarded to the City's
Legal Department for further review.
b. Two travel expense reports were submitted by Bob McClintock and
Shauna Elvin for $1,224.41 and $1,904.79 respectively. These two
individuals work for SMG corporate in Philadelphia, PA and traveled
to Miami Beach in July and August 2008. The expense reports did
not include any specific business reason. For example, the
McClintock report listed the purpose as "client meeting" for 7/22/08
and no business purpose was listed for Elvin's report. SMG staff
questioned said that the travel may have been related to making an
effort to try and convince the City Commission to renew SMG's
contract. SMG should clarify the business purpose of these
expenditures prior to the City accepting the merits of this expenditure.
Bob McClintock stated via an 11/26/08 e-mail that his trip's business
purpose was to commence the transition process but Shauna Elvin's
included both and will be absorbed by SMG.
c. Federal Express invoice numbers 2-923-49444 and 2-914-12264
totaling $1,290.68 were for sending SMG's records back to their
corporate offices in Philadelphia. We feel that this expense does not
relate to the operating cost of the facilities but rather to the
management company and should be paid by SMG. Bob McClintock
stated via an 11/26/08 e-mail that this cost should be paid by SMG.
Page 8 of 11
Internal Audit Report
Spectacor Management Group Closeout Audit of the Convention Center, Colony Theatre and Byron
Carlyle Theatre
December 1, 2008
and managing the Facility, including, but not limited to: employee
compensation and related expenses (e.g., base salaries, bonuses,
severance and car allowances)". The City agreed to the severance payout
policy of one week for every one year worked at the MBCC for those
employees not retained.
The City's Tourism & Cultural Development Director provided a Severance
Payout Report that listed the amounts payable to the thirteen applicable
employees totaling $133,056.91. One employee named Luckrisha Anderson
was subsequently retained by Global Spectrum after her severance pay was
received (approved by the Tourism & Cultural Development Director).
Internal Audit confirmed that all payroll severance payouts correctly equaled
those listed on the schedule provided. However, it was noted that the
severance schedule incorrectly included time spent working for SMG at non-
Miami Beach facilities for three employees. As a result, SMG should
reimburse the City $19,458.53 for the overpayments in severance pay and
has been agreed to by SMG's Bob McClintock via e-mail.
While the management agreement's definition of operating expenses
includes severance as an example, we feel that severance pay is not a result
from promoting, operating, maintaining and managing the facility and
therefore is not an operating expense. Severance payments usually are
voluntary payments and are not required by law. In addition, the City should
not incur a financial burden for changing contractors or agents in connection
to expiring contracts or service agreements. Therefore, Internal Audit
believes that the City should contest the payment of this severance pay.
This matter has been forwarded to the City's Legal Department for further
review.
In addition, the City should ensure that severance pay is excluded from the
current agreement with Global Spectrum. The City's Tourism & Cultural
Development Director said that this item has been removed from the Global
Spectrum agreement being finalized.
Fiscal Year End Bonus
The City's Tourism & Cultural Development Director provided a Bonus
Report detailing the authorized payouts for the six applicable SMG
management employees. All calculations were correct based on the listed
information and the subsequent payouts were deemed accurate.
However, review of SMG's payroll for the pay period ending 09/14/08 found
that the former Assistant General Manager was granted an additional
$10,000 bonus for relocation expenses. It was subsequently determined that
the corresponding $6,735.00 check after deductions forfederal taxes, social
security and Medicare was issued by SMG Corporate and paid with their
funds. Therefore, SMG owed the City for the difference of $3,265.00 plus
the employer's portion of social security and Medicare taxes.
The employee on 09/22/08 paid $620.00 for social security via personal
check# 201. Upon notification, SMG Corporate sent a $951.00 check for the
Page 10 of 11
Internal Audit Report
Spectacor Management Group Closeout Audit of the Convention Center, Colony Theatre and Byron
Carlyle Theatre
December 1, 2008
JJS:mc:fm
aforementioned employer's portion. Given these payments, it was calculated
that SMG Corporate still owes the City $2,459.00, which was previously paid
from the City's payroll account. The following illustration summarizes how we
arrived to the amount of $2,459.00 owed to the City:
Amount owed to the City:
Bonus gross amount:
Social Security Tax (Employer portion) paid to IRS:
Medicare Tax (Employer portion) paid to IRS:
Total gross amount owed to the City:
Less payments and monies funded:
Employee payment received:
SMG payment received:
Net check (Check# 00006000) funded by SMG:
Total amount (net} still owed to the City:
$10,000.00
$ 620.00
$ 145.00
$10,765.00
$ (620.00)
$ (951.00)
$(6,735.00)
$ 2,459.00
Based on the above information, the amount of $2,459.00 should be paid by
SMG or deducted from their incentive fees. SMG is requesting additional
information on this subject before a final determination is made.
F:\obpi\$AUD\INTERNAL AUDITFILES\DOC0?-08\REPORTS-DRAFT\CONVENTION CENTER.doc
(Audit performed by Mark Coolidge and Fidel Miranda)
cc: Hilda Fernandez, Assistant City Manager
Patricia Walker, Chief Financial Officer
Max Sklar, Tourism and Cultural Development Director
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