Anchor Shops Retail Space LeasingIV\ i A/\/\ I B
BUDGET AND PERFORMANCE IMPROVEMENT
Internal Audit Division INTERNAL AUDIT REPORT
TO:
VIA:
FROM:
Jorge M. Gonzalez, City Manager .0
Kathie G. Brooks, Budget and Perfor ance Improvement Director ,!!f:;Z>
James J. Sutter, Internal Auditor~~~~-
DATE: August2, 2010
AUDIT: Anchor Shops Retail Space Leasing
PERIOD: October 1, 2007, through December 31, 2009
This report is the result of an audit performed on the Anchor Shops Retail lease agreements in
accordance to our Audit Plan.
INTRODUCTION
The management and leasing for the retail component of the Anchor Shops was initially managed
under a Retail Space Master Lease agreement between the Miami Beach Redevelopment Agency
(RDA) as landlord, and the MB Redevelopment, Inc. for Loews Hotel Corporation as master tenant.
Upon early termination of this agreement on March 20, 2000, the RDA temporarily managed and
leased the Anchor Shops retail spaces.
On January 19,2001, the RDA entered into a Management and Leasing Agreement with the Miami
Beach Community Development Corporation, Inc. (MBCDC) in association with Felenstein Koniver
Stern Realty Group (FKS). This contractual relationship with the MBCDC and FKS has continued
through the present time. The current agreement commenced on May 1, 2007, and ended on April
30, 2010, with one option to renew for another 3-year term. The procurement of this agreement
resulted from RDA Resolution No. 548-2007, which approved a waiver of competitive bidding,
finding it to be in the best interest of the RDA and authorizing its execution. The three year renewal
of this agreement was approved by the RDA through Resolution No. 570-2010 dated 6/9/10
extending the agreement through April 30, 2013. Throughout the duration of this contractual
relationship, the Anchor Shops retail spaces have remained occupied; therefore, the part of the
agreement that deals with leasing services has been of a very limited nature. MBCDC has not been
involved in procuring and negotiating leases for vacant or soon to become available spaces,
although it has dealt with lease assignments, renegotiations of terms and lease renewals. In all
cases, MBCDC has presented the negotiation details to the RDA for the decision making process of
accepting or rejecting the proposed terms and conditions of any new agreement.
As part of their management function, MBCDC receives rent payments from tenants and deposits
these into a City's bank account established and controlled by the Finance Department for that
purpose. MBCDC sends copies of deposit slips and rent payment checks to Finance for
accountability of payments and transaction processing. The Finance Department Revenue section
is responsible for making the entries to the appropriate general ledger accounts; bank statement
reconciliation and addressing bank related issues, such as returned checks, is segregated to
another area of the Finance Department. Monthly rent payment checks are debited to general
ledger account# 465-7000-1 01301 -Suntrust RDA City Ctr. Since these rent payments include a
7% sales taxes, the tax amount is separated and the actual rent amount is credited as an account
receivable to general ledger account # 465-7000-115170 (Accounts Rec-Rents RDA). This
transaction is offset by a credit entry to recognize the revenue to account# 465-8000-362210
We ore comrnitteclto providing excellent public service oncl safety to oil who live, work, oncl ploy in our vii:Hont, tropicol, historic community.
Internal Audit Report
Anchor Shops Retail Space Leasing
August2, 2010
(Rent/Lease Property-Mise); sales taxes are also entered to general ledger account# 465-7000-
208100 (State Sales Tax Payable).
The Anchor Shops retail spaces are all occupied and tenant information is presented below:
Initial Term Square Annual
Anchor Shops Tenant Term Minimum
Years Year Footage Rent (1)
1560 Collins Avenue, Inc. 5 2 2,697 $ 102,486.00 d/b/a Absolutely Suitable, Shan
Liquor Lounge Cafe 12 1 2,371 $ 88,740.00
Cadiac 15 11 4,236 $ 232,980.00 d/b/a US Vintage
Training Camp of South Beach 06 10 5 2,884 $ 87,641.04
Vacation Tours of South Beach 15 11 721 $ 18,024.96
ArtConnection International (2) 11 6 721 $ 23,992.44
BBQ Beach 10 4 6,217 $ 143,808.00
(1) Annual rent amounts as of 12/31/2009
(2) Amount resulted from our calculations based on $1999.37/month $ 697,672.44
per finding # 1 b
OVERALL OPINION
As a result of our testing during the audit, we were able to identify some deficiencies in reference to
Anchor Shops tenants' compliance with the terms and conditions of their lease agreements, such as
insurance coverage, maintaining current business tax receipts, security deposits and being current
in their monthly rent payments. Deficiencies were also noted in MBCDC's management and leasing
responsibilities, such as calculation of annual rent adjustments for tenants, enforcement of late
charge fees for payments received after the due date. Areas identified for corrective action include:
1. Training Camp of South Beach and ArtConnection International had rent increases based on
CPI changes that were calculated incorrectly by MBCDC that resulted in incorrect payment
adjustments for these tenants.
2. BBQ Beach, Liquor Lounge Cafe, and Training Camp of South Beach have not renewed their
business tax receipt. Two other tenants, Shan and US Vintage, paid their business tax
receipts fees after the due date, but were not assessed late penalties.
3. Finance uses a "straight line" method for monthly revenue recognition of rent payments;
however, the method does not consider adjustments to rent on some contracts based on CPI
increases or rent changes occasionally made based on mutually agreed terms. We also
found that the monthly amount currently entered as account receivable and revenue for
ArtConnection International was incorrect.
4. BBQ Beach and Liquor Lounge Cafe were consistently late in their rent payments, respectively
14 and 10 times, during the 15-month period reviewed, but late charges were only assessed
approximately 20% of the times. Another tenant, ArtConnection International was late twice
during the same period and no late charges were ever assessed.
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5. MBCDC does not maintain information regarding the date all payments are received from the
tenants, only the date when rent checks are deposited at the bank. This information is
necessary to accurately assess late payment charges. In addition, we found several errors on
their monthly report to the RDA with details of management fee, reimbursable expenses, and
rent payments for a 15-month period reviewed that resulted in a net overpayment of $290.77
of the management fee paid to MBCDC.
6. Finance is recording late payment charges collected from tenants as account receivable
entries to the general ledger rather than as revenue entries, since MBCDC is not identifying
check deposit information between rent and late fee payments.
7. There is no evidence for a security deposit of $10,031 being paid by the Liquor Lounge Cafe.
8. The Certificate of Liability Insurance for Shan; US Vintage; Training Camp of South Beach;
Vacation Tours of South Beach; and ArtConnection International include general liability
insurance coverage limits of $1,000,000 for each occurrence and $2,000,000 for general
aggregate, which is lower than specified in the lease agreement.
Additional details regarding the above mentioned and other areas in need of correction are provided
on the Findings, Recommendations, and Management Responses section of this report.
PURPOSE
To ensure that the management and leasing contractor is adequately performing their functional
responsibilities in compliance with their agreement with the RDA, and that tenants of the Anchor
Shops are complying with the terms and provisions of their respective lease agreements and making
their required rent payments in a timely manner.
SCOPE
1. Review the Management agreement between the RDA and MBCDC, evaluating the adequacy
of the procurement process that led to the execution of the agreement, and confirm that
MBCDC is in compliance with the key provisions of this agreement.
2. Review current lease agreements for each retail space tenant at the Anchor Shops to confirm
that they are in compliance with the terms and key provisions of the leases.
3. Confirm that all lessees have obtained their required annual business tax receipts and secured
the proper insurance coverage.
4. Confirm that the all lease monthly rent payments, and common area maintenance charges are
billed in accordance with the terms of the lease, including all the consumer price index
increases as specified in the lease agreement.
5. Confirm that all monthly rent payments were timely received and correctly reported in the City's
Financial System.
FINDINGS, RECOMMENDATIONS, AND MANAGEMENT RESPONSES
1. Finding-Tenants Rent Payment Increases
Three Anchor Shops retail space tenants, Training Camp of South Beach, Vacation Tours of
South Beach, and ArtConnection International have clauses in their lease agreements that
allow increases to rent payments according to the Consumer Price Index (CPI). We reviewed
MBCDC notices of rent increases sent to these tenants during their current agreements to
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determine the accuracy of the rent adjustments. The following discrepancies for two of these
tenants were noted as a result of our testing:
a. Training Camp of South Beach. On the notice for rent payment changes starting on
10/1/09, MBCDC correctly indicated that the CPI for July 2009 was less than for July
2008 and they informed the tenant that there would be no rent increase since the CPI
change was negative. However, this was not in agreement with the terms of the
contract, since the rent adjustment should have been based on the greater of 3% or CPI
change. Based on the 3% adjustment factor, the tenant's monthly rent should have
been increased from $7,090.70 to $7,303.42. Consequently, the tenant has underpaid
monthly rent by $212.72 plus tax since the beginning of the current term year.
Additionally, in the manner the contract states the adjustment clause, the minimum rent
is to be adjusted by 3% regardless of what the CPI change is (the greater of 3% or CPI
but to a maximum of 3%), which basically makes the CPI change irrelevant. For the rent
change calculations on 2007 and 2008, MBCDC used incorrect CPI indices or the wrong
CPI tables (the All Urban Consumers Index instead of the Urban Wage Earners and
Clerical Workers Index. However, this did not result in inaccurate adjustment amounts
since a 3% increase was to be used regardless of the CPI change.
b. ArtConnection International. The change notice for 2007 showed an incorrect CPI
increase of 5.1 %, but indicated that using the maximum increase of 3% allowed by the
agreement, the rent would be increased to $1 ,945.55. However, based on the correct
CPI increase of 2.8%, the rent should have only been adjusted to $1 ,941.14. For
December 2008, we noted that MBCDC erroneously used the All Urban Consumers
index, resulting in a CPI increase of 4.9%, but the increase was capped at 3%.
However, since the base rent used from 2007 was incorrect, as described earlier, the
resulting increase for 2008 was also incorrect; instead of increasing to $2,003.92, it
should have increased to $1 ,999.37. This difference was also carried through the
December 2009 rent amount.
Recommendation
We recommend that rent increases for these tenants be recalculated for the term years
indicated above and rent payments, whether over or short, be adjusted accordingly and
properly communicated to the tenants. MBCDC also needs to ensure that the required CPI
indices are being used and the appropriate CPI change is applied for rent adjustment.
Furthermore, the rent increase conditions on the Training Camp of South Beach agreement
need to be reviewed and amended accordingly to ensure accurate adjustments.
Management's Response (RDA)
In July 2009, MBCDC informed Training Camp of South Beach that the CPI change between
years was negative; therefore, there was no rent increase. Internal Audit is correct in that the
actual wording in the lease would have required a 3% increase no matter what the CPI change
was between years. It should be noted that the wording pertaining to escalation provisions in
the Lease is inconsistent from the others, in that the language should state that that rent will
be adjusted by the lesser of 3% or CPI, not the greater of 3% or CPI, which is the way the
lease is currently written. All parties agreed that the wording in the Lease is confusing and
needs to be clarified. The Legal Department has recommended addressing this change in the
form of a Letter Agreement between the Landlord and the Tenant, which can be executed by
the Executive Director (City Manager) without formal action by the RDA.
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In December 2007, MBCDC used the wrong CPIIndex (All Urban Consumers) which caused
Art Connection International to pay .2% more in rent than they should have. They were
increased to $1,945.55 and should have been $1,941.14 or $4.41 too much. The 3% increase
in December 2008, was applied to the higher amount so $2,003.92 was paid instead of
$1,999.37 or $4.55 too much. Through May, 2010 they will have paid $134.82 too much rent
which will be credited to the Tenant.
To ensure that MBCDC is calculating CPI increases correctly, MBCDC provides the RDAwith
notice via email, reflecting the calculation of the respective rent adjustment(s). MBCDC has
agreed that for all future rent escalation calculations, it will include a copy of the actual CPI
table for the RDA to cross-reference to verify payments are in fact correct.
The resulting underpayment by Training Camp in the amount of $212.72 has since been paid
and the overpayment by Art Connection in the amount of $124.82 was credited back to the
Tenant in May, 2010.
2. Finding-Tenants Without Current Business Tax Receipts
We reviewed the status of business tax receipts (BTR) for all tenants of the Anchor Shops
retail spaces to confirm they are current in the payment of license fees, and only two were
found to have current BTRs, and three have pending BTRs and carry penalties for late
payment of licensing fees as described below:
• BBQ Beach has two BTR's pending, 9/30/08 and 9/30/09. The Eden system shows a
balance due for $1,421.54, representing a 25% penalty for late payment of the 9/30/08
licensing fees. This tenant also owes payment of the licensing fees for FY 09-10 and the
corresponding penalty for non-payment.
• Liquor Lounge Cafe, has an expired BTR since 9/30/09. This tenant carries a balance of
$488.14 in the Eden system for a late payment penalty that was not included as part of
the payment when it was made on 2/2/10. However, this penalty represents only 10% of
the licensing fees instead of the 25% that was not assessed when payment was made 4
months late; this penalty is approximately $1,220.
• Training Camp of South Beach also has an expired BTR since 9/30/09.
We also found two other tenants that paid their BTR renewal fees after the due date, but did
not have the late penalties assessed. 1560 Collins Avenue, Inc. d/b/a Shan, paid its license
renewal fee on 1/28/10, but a late penalty of 25% (approximately $434) was not collected
when the payment was made. Similarly, Cadiac, Inc. d/b/a US Vintage, paid for its license
renewal fee on 12/4/09, but a late penalty of 20% (approximately $51 0) was also not collected.
We discussed non-current BTR issues with the Revenue Manager in the Finance Department,
who indicated that businesses with pending licenses are referred to Code Compliance for
enforcement at least on a monthly basis. He also indicated that current BTRs are sometimes
held for issuance even when fees have been paid, as a result of non-payment of other
accounts due, such as resort taxes, unpaid code violation fines, etc. We verified that the five
tenants without a current BTR were included on the most recent list sent to Code Compliance
as of 2/17/10.
Recommendation
We recommend that proper follow up be given for these pending BTRs by Finance and Code
Compliance to ensure licenses are renewed promptly and all due fees and late charges are
collected. The RDA should also consider participating in this effort, since these tenants
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represent commercial entities at the Anchor Shops and they should be properly licensed to
operate their business in a City owned property.
Management's Response (RDA)
MBCDC's scope does not include verifying individual tenant's compliance with regulatory
and/or taxing authority requirements, including occupational licensing, remittance of business
and/or resort tax, etc. The audit makes note that delinquent BTRs are handled between
Finance and Code Compliance. However, in an effort to facilitate this process, MBCDC has
since issued correspondence to all the tenants, requiring them to provide the Landlord with
copies of current receipts licenses/permits.
Management's Response (Finance)
The Finance Department disagrees with aspects of the recommendation. For example, proper
follow up is given to BTR renewals, as the Finance Department meets regularly with the Code
Compliance Division to review BTRs and businesses that are not compliant. Businesses that
are not compliant with their BTR requirements, including those located at the Anchor Shops,
are forwarded to the Code Compliance Division for action as mentioned in this same audit.
The subject matter was discussed and acknowledged at the March 25, 2010 and April 29,
2010 Finance and Citywide Projects Committee meetings.
The processes involved and the system used for BTR renewals may have a BTR appear as
being paid in the system, but this does not mean the BTR is issued, as the Finance
Department, per City Code, withholds BTRs when the customer is arrears with any monies
due to the City, including but not limited to utility bills, resort taxes, and/or City bills. Once
payment for the renewal has been received, City staff review the accounts of each customer to
determine if they are current on all obligations to the City in accordance with Article V, Section
1 02-37 4 of the City Code. Then if the customer is current, the City mails out the actual BTR
document to the customer. If the customer is delinquent on City obligations and payment for a
BTR renewal has been received, pursuant to Article V, Section 102-37 4 of the City Code, the
City withholds the BTR document and sends a letter to the customer stating the amount due
and that the delinquencies must be resolved before receiving their BTR. This has proven to
be a valuable tool in assisting the City with collections of delinquent utility bills, resort tax
obligations, special assessments, liens, and other payments due to the City.
3. Finding -Recognizing revenue from lease rent payments
Monthly rent payments due from Anchor Shops tenants are entered as account receivable with
debits to general ledger account# 465-7000-115170 (Accounts Rec-Rents RDA), and
recognized as revenue with offsetting credit entries to general ledger account# 465-8000-
362210 (Rent/Lease Property-Mise). These entries are made according to a "straight line"
method of revenue recognition used by the Finance Department. This method takes into
account the annual based rent for each tenant's contract year, totaled by the number of years
and divided by the number of months for the term of the contract. However, the method does
not take into account adjustments to rent on some contracts based on CPI increases, or that
tenants sometimes do not make payments as required each month and the fact that rent
payments are occasionally adjusted based on mutually agreed terms.
During our review of the rent schedule/straight line information provided by Finance, we noted
that payment changes for some contract years had not been incorporated into the Cadiac
tenant schedule. In addition, we found that the annual/monthly rent amounts $86,520/$7,210
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currently entered for ArtConnection International as account receivable and revenue are
incorrect. This tenant in its 61h contract year, started with annual/monthly rent payments of
$21,630/$1,802.50 that were adjusted beginning on year 2 based on CPI changes to its
current monthly rent of $2,003.92. It should be noted that the current amount is considered
incorrect as described on finding #1 b.
Recommendation
We recommend that the method used for entering accounts receivable amounts and
recognizing revenue be re-evaluated to consider a change from the current straight-line
method to actual "rent payment due" amounts. This would require timely communication from
the RDA/MBCDC to Finance of adjustments and changes to tenants rent payments throughout
the year. Considering the fact that there are only seven tenants, this should not require a
significant effort. We further recommend that the rent amounts entered as account receivable
and revenue for the past several months be adjusted accordingly.
Management's Response (RDA)
The RDA will work with Finance to determine how best to address its reflection of CPI
increases and/or periodic adjustments to Tenants' rents, given the limitation of the Eden
Contracts module in being able communicate or automatically reflect such adjustments. With
regards to the incorrect rent amount entered for Art Connection in its straight line accounting
method, Finance had based its entry on an incorrect spreadsheet entry, rather than actual rent
amounts being recorded.
Management's Response (Finance)
The straight-line method used for recording rental receivables was mandated by the City's
external auditors. The method recommended by the Internal Audit office was in use by
Finance staff until external auditors requested the change. The Finance Department will
arrange a meeting with our external auditors and Internal Auditor to review the best and/or
required method for recording these revenues. The Finance Department will also schedule
regular meetings with the Redevelopment Agency in order to stream-line communication
efforts for the actual accounting of monthly lease payments.
4. Finding -Past due rent payments
All lease agreements require rent payments be made by the 5th day of the month and that for
any payments made after the 5 days, a late charge of 5% of the monthly rent amount be
assessed. Also, for payments overdue after 15 days an additional late charge of 1.5% will be
added for a total of 6.5%. However, MBCDC does not maintain complete records of rent
payment receipt dates and thus did not provide this information for us to review and verify
whether payments were received by the due date. As an alternative, we used the bank
deposit date information included on the MBCDC monthly reports to the RDA for the 15-month
payment period reviewed (September 2008 through November 2009). The testing criteria
used was based on the assumption that a payment was late if checks were deposited the 11th
day of the month or later (allowing an extra 5 days for a grace period). Based on this, some
tenants were found to be consistently late as detailed in the following exceptions:
• BBQ Beach: This tenant was late 14 of the 15 months reviewed and only 3 times late
charges were assessed and paid.
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• Liquor Lounge Cafe: Tenant was late 10 of 15 months during the review period, but only
2 late charges were assessed and paid.
• ArtConnection International: Tenant was late twice in 15 months and no late charges
were ever assessed.
We were informed by the Redevelopment Coordinator that in July 2009, BBQ Beach advised
the RDA that because of the economic environment on Washington Avenue, he could not
afford to keep up with the rent payments and requested a temporary deferral of a portion of the
rent. A request for a rent reduction from $11,200 to $7,400 +tax, subject to repayment once
business picked up, was forwarded to the City Manager's Office for further direction, but the
item was never taken up according to the RDA. During this time, the tenant assumed its
request had or would be approved and started remitting the reduced payments for August
2009. We were also informed that this payment arrangement lasted for a period of 4 months
and that the tenant made a commitment to pay for the deferred rent amounts in installments
along with the regularly scheduled rent payments.
Recommendation
We recommend that MBCDC begin to maintain a complete record of the date a rent payment
is received, such as date stamping and/or a payment register. This would allow appropriate
late charges to be accurately calculated and assessed for overdue rent payments as stated in
the lease agreements, especially for those tenants that consistently make their payments after
the due date. In recent periods and due to economic conditions in the area, late payment
charge enforcement has been lenient. However, the RDA needs to re-evaluate whether these
charges will be collected or deferred to a future date.
Management's Response (RDA)
MBCDC's monthly management reports have been changed to reflect the dates on which the
rents were actually received.
The Leases provide the Landlord with the discretion of assessing late fees and/or penalties for
past due rent, but does not require such. The wording specifically states "may be charged" as
opposed to "shall be charged". Historically, late fees have only been assessed for repeat
offenders, and in certain instances where tenants have fallen severely behind in rent,
negotiated settlements and payment plans have been structured for payment of back-due rent,
in lieu of pursuing default proceedings and risking an empty space with no rent. The current
prevailing economic downturn, going on two years now, significantly increases this probability
and requires such discretionary decisions almost on a monthly basis. It should be noted that
in one specific instance identified in the Audit, BBQ Beach requested a temporary deferral of a
portion of its rent between August and December, 2009, which the RDA advised in writing
could not be granted without formal approval of the Administration. Due to a
misunderstanding between the Tenant and MBCDC, the Tenant proceeded to remit reduced
rent for the period, even though the Administration had not granted the temporary deferral.
Upon realizing this, MBCDC was directed to work with the Tenant to collect the difference in
rent due, which has since been paid in full.
In addition, subsequent to the May 7 follow-up meeting with MBCDC, correspondence was
issued to all the tenants informing them that going forward; the Landlord shall be enforcing
penalty provisions for late rent.
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5. Finding -Monthly report from MBCDC to the RDA
On a monthly basis the MBCDC submits a report of management fees and reimbursable
expenses, which also details rent payments and late fees collected from the tenants. The
details of payments received for each tenant include date check is deposited at the bank,
gross payment amount (excluding taxes), and check amount which includes the sales tax.
However, the report does not include the actual payment date, which prevented us from
performing a complete review to determine if late charges were accurately assessed, as
detailed in the previous finding. Our review and verification of all rent payments included on
this report for a period of 15 months revealed numerous errors for gross rent amounts and the
rent + tax amounts; these were found on 6 consecutive reports between October 2008 and
March 2009. Gross rent amounts reported incorrectly (over/under) resulted in a net
overpayment of $290.77 for the 4% management fee paid to MBCDC.
Recommendation
As recommended in the prior finding, MBCDC should maintain a record of the payment receipt
date and include this information as part of the monthly report prepared for the RDA. Due to
the number of errors noted, this report should be verified for accuracy prior to being submitted
to the City. We further recommend a more comprehensive review be performed by the RDA
to ensure payment information is accurately reflected. MBCDC should also credit the $290.77
overpayment in their next monthly report detailing management fees due.
Management's Response (RDA)
Pursuant to the Audit report's recommendations, MBCDC has initiated a policy of date-
stamping checks received and revising its monthly reporting format, which as noted above
reflected the date on which the checks were actually deposited as opposed to the date on
which they were received. Additionally, in instances where tenants have failed to remit rent
within five days from the due date, MBCDC will communicate such directly the RDA to
determine the course of action to take. Historically, by the time the RDA receives MBCDC's
monthly reports, tenants have since remitted their rent, making difficult for the RDA to go back
and require MBCDC to assess late payments against a tenant.
With regards to overpayment to MBCDC in the amount of $290.77, MBCDC acknowledges
that certain accounting errors were made, primarily by a former a staff person. MBCDC has
since gone back and reconciled the reports in question and will credit the RDA for the small
difference due. It should be note that since April of 2009, reports are reviewed by a second
person for accuracy.
6. Finding -Recording late fee payments in the Eden System
We found that payments of late charges made during 2009 were credited as account
receivable entries to general ledger account# 465-7000-115170 (Accounts Rec-Rents RDA)
instead of as a revenue entry to general ledger account # 465-8000-362210 (Rent/Lease
Property-Mise). This was brought to the attention of the Financial Analyst that processes the
Anchor Shops rent payment transactions, who indicated that he was not provided with
sufficient information by MBCDC to differentiate what is a regular rent payment or a late fee
payment.
Recommendation
We recommend that MBCDC establish a method to identify when late charge payments are
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included among the deposits sent to the Finance Department, to ensure that late payment
amounts are properly entered to the revenue account instead of the accounts receivable
account.
Management's Response (RDA)
The RDA has begun forwarding the monthly management reports to Finance in order to
accurately post payments received from the tenants, which should address the issue.
Management's Response (Finance)
The Finance Department will be invited to the next meeting scheduled between the RDA/Asset
Management and MBCDC in order to address information given to the City by MBCDC
7. Finding-Security deposits
We reviewed the amount of security deposit required according to the Lease Agreement
Summary for each tenant. We traced the security deposits to the general ledger account
where these are maintained (account #565-7000-229019-Miscellaneous Deposits) and to a
Finance Department report, Anchor Shops Rent Security Deposits & Parking Access Cards
Deposits, as of 12/31/2009. We noted that there is no record of a security deposit of $10,031
for the Liquor Lounge Cafe.
Recommendation
This tenant should be informed of the non-compliance with the security deposit requirement of
their lease agreement and that payment of this amount should be promptly submitted.
Management's Response (RDA)
Liquor Lounge maintained that it had remitted a security deposit under its previous lease which
the Administration cannot find record of. On May 14, 2010, the Tenant was put on 30-day
notice that unless such evidence can be substantiated, that it will need to address remitting
such deposit amount. Following extensive research by the City and the Tenant, no trace of a
deposit could be found stemming back to its previous lease. As such, on July 31, 2010, the
Tenant remitted a check for the full amount of the deposit.
Management's Response (Finance)
The Finance Department will be invited to the next meeting scheduled between the RDA/Asset
Management and MBCDC in order to address deposit issues.
8. Finding-Tenants Insurance Coverage
All Anchor Shops tenants were found to have mostly the same insurance coverage
requirements as part of their lease agreements as detailed in section 6.1: All Risks Property,
Comprehensive General Liability, Worker's Compensation & Employer's Liability, and
Business Interruption Insurance. However, the lease agreement summaries, which contain
the key terms and conditions of the contract, only specify a requirement for Comprehensive
General Liability coverage of $2,000,000 per occurrence. Our review of the Certificates of
Liability Insurance for all tenants confirmed that coverage was only for general liability
insurance, but with policy limits of $1,000,000 for "each occurrence" and $2,000,000 for
"general aggregate." The tenants with this policy coverage were: 1560 Collins Avenue, Inc.,
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d/b/a Shan; Cadiac, Inc., d/b/a US Vintage; Training Camp of South Beach 06; Vacation Tours
of South Beach; and ArtConnection International. This was brought to the attention of the
City's Risk Manager, who indicated that in his opinion a general liability policy is all the
coverage needed for this type of contract, and that the City normally requires a $1,000,000 per
occurrence/aggregate.
Recommendation
Insurance coverage for Anchor Shops tenants should be reviewed with the City's Risk
Manager to evaluate current requirements as per the agreement and determine if these are
reasonable and necessary to protect the City's interests. As a result of this evaluation, the City
should consider either a modification of requirements per section 6.1 of the agreement or
requiring tenants to increase their general liability insurance coverage to $2,000,000 per
occurrence/aggregate.
Management's Response (RDA)
The wording in the leases pertaining to insurance requirements is misleading, since according
to Risk Management, it does not conform to industry standard and would be very difficult, if
not impossible to obtain if actually required. All tenants currently carry $1,000,000 per
occurrence and $2,000,000 in general aggregate, which not only conforms to industry
standard but is also acceptable to the City. It should also be noted that the Legal Department
has opined that as long as tenant coverages meet the City's requirements, the leases do not
need to be amended. With regards to those policies that didn't name the City and/or the RDA
as additional insured, they have since been corrected, with updated copies of the respective
certificates returned to the City.
EXIT CONFERENCE
An exit meeting was held on May 6, 2010, to discuss the audit report and to solicit management
responses noted above. Attendees were Anna Parekh, (Director of Real Estate, Housing and
Community Development), Kent Bonde, (Redevelopment Coordinator), James Sutter (Internal
Auditor) and Luis Lopez (Audit Consultant). A subsequent meeting with the contractor agency
(Miami Beach Community Development Corp) was held on May 7, 2010 with Roberto Datorre,
(President) and Don Tomlin, (COO). The report was subsequently forwarded to the Finance
Department for comments and responses related to their area. Responses received were
incorporated in this report.
JJS:LL:II
Audit performed by Luis Lopez, Internal Audit Contractor
F:\obpi\$AUD\INTERNAL AUDIT FILES\DOC09-10\REPORTS-FINAL\Anchor Shops Retail.doc
cc: Hilda Fernandez, Assistant City Manager
Anna Parekh, Director of Real Estate, Housing and Community Development
Kent Bonde, Redevelopment Coordinator
Patricia D. Walker, Chief Financial Officer
Roberto Datorre, President, Miami Beach Community Development Corp.
Don Tomlin, COO, Miami Beach Community Development Corp.
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