Production SUD Inc. – Antiques Market Management Agreement<9 MIAMIBEACH
BUDGET AND PERFORMANCE IMPROVEMENT
Internal Audit Division INTERNAL AUDIT REPORT
TO:
VIA:
FROM:
Jimmy L. Morales, City Manager ~
John Woodruff, Office of Budget~nd P rformance Improvement Department Directo
James J. Sutter, Internal Auditor a AI---·· ·
~v
DATE: November 6, 2013
AUDIT: Production Sud, Inc. Management and Operation Agreement Audit
PERIOD: October 1, 2010 through May 5, 2013 (the last marketfor the 2012/13 fiscal year)
This report is the result of a regularly scheduled audit of the management and operation of the
Antiques and Collectibles market held on Lincoln Road, Jefferson Avenue and Michigan Avenue
during seventeen designated dates (weather permitting) between October and May annually in
adherence to the signed concession agreement.
INTRODUCTION
After Production Sud, Inc. staged the Antiques and Collectibles market for several years as a
special event, the City Commission adopted Resolution No. 2004-24947 authorizing the
issuance of a Request for Proposals (RFP) to manage and operate the same under a
concession agreement. They were subsequently selected and approved via Resolution No.
2004-25682 to operate the market between October 1, 2004 and September 30, 2005 with the
City having the sole discretion for an additional one year term.
RFP No. 30-05/06 was issued during this agreement's renewal period which eventually resulted
in the City Commission's adoption of Resolution No. 2006-26281 and its attached concession
agreement authorizing Production Sud, Inc. to manage and operate the Antiques and
Collectibles market through September 30, 2009. This detailed document covered a variety of
topics including concession fees, facility maintenance, facility uses, etc. with the City ultimately
opting to extend its terms an additional three years through September 30, 2012. Lastly, the
City Commission through the ratification of Resolution No. 2012-27997 approved the Finance
and Citywide Projects Committees recommendation to extend this expired concession
agreement's terms on a month to month basis until at least May 31, 2013.
OVERALL OPINION
Production Sud, Inc. (concessionaire) has managed and operated the Antiques and Collectibles
market in Miami Beach for more than ten years. This vendor based business requires strong
internal controls, sufficient documentation and perpetual supervision to help ensure compliance
with the signed concession agreement's terms and to verify that the monies collected and
remitted to the City are sufficient.
Unfortunately, the City has not adequately monitored the concessionaire's actions to determine
their appropriateness during the audit period. Additionally, the concessionaire did not maintain
sufficient organized detailed information listing which vendors were present at each market, how
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Internal Audit Report
Production Sud, Inc. Management and Operation Agreement Audit
November 6, 2013
many tents and/or tables were rented, what amounts were paid by the vendor and when, etc.
that would support their corresponding remittances to the City. In its absence, one has to rely
on the concessionaire's integrity that all identified vendor payments were deposited intact into
their Bank of America operating account. Given this assumption, the following shortcomings
were noted based on our site visit observations, inquiries of key personnel and testing of the
documents provided:
• Financial deficiencies are listed which resulted in the concessionaire underpaying the
City by a total of $12,364.68 plus potentially the cost of this audit pending the outcome of
future discussions per section 6 of the signed concession agreement.
• The concessionaire was not billed interest and late charges for tested rental, Field
Monitor salary reimbursements and pressure cleaning payments received after the due
dates specified in the signed concession agreement.
• Various inconsistencies observed with the signed concession agreement's terms during
a Sunday May 5, 2013 site visit are listed.
• Space rental prices charged to market vendors were increased from Exhibit 3.1 of the
signed concession agreement despite not first receiving approval from the City Manager
or his designee.
• The current required $2,500.00 security deposit in section 4.1 of the signed concession
agreement does not satisfactorily protect the City's interests in the event of the
concessionaire's nonperformance.
• The City's Redevelopment Coordinator or his designee did not receive or request the
audited annual statements of gross receipts required in section 6 of the signed
concession agreement during the audit period.
• The last insurance policy certificate received from the concessionaire by the
Redevelopment Coordinator expired on January 14, 2012 thereby potentially increasing
the City's risk exposure. Once requested from the concessionaire, a new policy was
promptly received which was subsequently approved by the City's Risk Manager for
sufficiency.
• The concessionaire was not required to pay the City prior to the engagement occurring
per Police Off-Duty Standard Operating Procedure #011. Also, the corresponding
monies remitted were not timely delivered to the Central Cashier's Office for processing
as shown by the 116 days that it took for January 29, 2012's payment to be deposited
and posted to the City's Financial System after it was received by the police officer at the
market's conclusion.
PURPOSE
The purpose of this audit is to determine whether Production Sud, Inc. timely paid the
appropriate monies to the City which is properly supported with sufficient documentation and
internal controls; was in compliance with such selected signed concession agreement terms as
maintaining the required insurance coverage, selling only approved products, positioning
vendors in accordance with the site plan, etc.; and whether all the tested payments received
were timely and accurately recorded in the City's Financial System.
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SCOPE
1. Confirm by examination of the provided books, records and operation, that Production
Sud, Inc. (concessionaire) used acceptable accounting control devices, internal controls
and records to control sales and that the corresponding payments were correctly
calculated and timely remitted in accordance with the signed concession agreement
2. Confirm that tested files and records are neatly organized, sufficient and properly
maintained.
3. Confirm that the concessionaire is current with all tested taxes, fees and licenses.
4. Confirm that the concessionaire has complied with such selected criteria described in
the signed agreement as maintaining the required insurance coverage, adherence to
approved product listings and site plans, the timeliness of submitted documents, etc.
5. Confirm that the concessionaire's remitted market payments were complete and
accurately calculated.
6. Confirm that all tested payments received were timely and accurately recorded in the
City's Financial System.
PROCESS DESCRIPTION
The Antiques and Collectibles market was approved to operate on Lincoln Road between
Meridian Avenue and Alton Road on designated Sundays between the hours of 9:00am and
6:00pm. The approved concession area also included Michigan and Jefferson Avenues
between South and North Lincoln Lanes whereby the respective parking meters were bagged
and the streets closed. Vendors are permitted to sell antiques (items created at least 100 years
prior), vintage goods (items of high style and quality created at least 25 years prior) and
collectibles Uewelry, reproductions, bric-a-brac, memorabilia, arts and creative uses of recycled
components, etc. in the spirit of antique and/or vintage) in accordance with the site plans in
Exhibits 2.1 and 2.2 of the signed concession agreement. Any changes from the site plan or
items sold have to be approved in advance by the City Manager or his designee.
Production Sud, Inc. (concessionaire) was required to furnish the City with a $2,500.00 security
deposit in accordance with section 4.1 of the signed concession agreement plus the following
monies for each staged market date:
• 12.5% of gross receipts within thirty days following the end of each month for which a
market is held. Additional rental monies shall be due if the $29,400.00 annual minimum
guarantees promised to the City exceeds the total of the 17 designated annual market
payments.
• At least one off-duty police officer at the concessionaire's sole cost and expense is to be
present during all hours of operation including set-up and break down periods.
• $18.00 per hour for a minimum of two hours per market date is to be paid to reimburse
the City for costs incurred by the Office of Real Estate, Housing and Community
Development's Field Monitor in monitoring the concessionaire's activities (to increase by
5% annually after the initial agreement's terms ended on September 30, 2009 which
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therefore equaled $18.90 for the 2009/10 fiscal year, $19.85 for the 2010/11 fiscal year
and $20.84 for the 2011/12 and 2012/13 fiscal years).
• The designated parking meter space rental and administrative charges associated with
the bagging of the meters on the 1600 blocks of Jefferson and Michigan Avenues.
• $266.67 annually to help cover the cost of pressure cleaning the concession area to be
paid as follows: $100.00 by December 31st, another $100.00 by March 31st and the
remaining $66.67 balance by June 30th.
The following table summarizes the rounded payments received from the concessionaire during
the audit period by fiscal year and revenue source (excludes those amounts owed according to
finding number 1):
Revenue Source Fiscal Year Fiscal Year 10/01/12-Total By
2010/11 2011/12 03/31/13 Revenue
( 6 MONTHS) Source
Rent (12.5% of Gross Receipts) $35,750 $34,835 $35,723 $106,308
Off-Duty Police Officer $6,800 $7,335 $11,190 $25,325
Field Monitor $662 $640 $583 $1,885
Meter Space Rentals $3,130 $5,060 $5,110 $13,300
Pressure Cleaning $100 $0 $267 $367
Total by Fiscal Year $46,442 $47,870 $52,873 $147,185
The Office of Real Estate, Housing and Community Development's Redevelopment Coordinator
was tasked with monitoring the concessionaire's compliance with the signed agreement's terms.
The individual market payments and supporting documentation (excluding parking meter space
rentals) were received by his designee, an Office Associate V, before being processed by the
Finance Department's Central Cashier's Office and posted to the applicable general ledger
accounts in the City's Financial System.
Meanwhile, the concessionaire's meter space rental payments were received by the Parking
Department's Meter Rental Liaison where they were separately recorded and tracked to ensure
that all balances were paid in full before the corresponding 29 parking meters were red bagged
by the Enforcement Division. This recording process was recently changed in March 2013 as
received payments are now processed by the Central Cashier's Office and posted to the City's
Financial System just like the other aforementioned received concessionaire payments.
FINDINGS, RECOMMENDATIONS AND MANAGEMENT RESPONSES
1. Finding: Financial Deficiencies Resulting in the Concessionaire Owing the City a Total
of $12,364.68 Plus Potentially the Cost of the Audit are Listed
The following financial deficiencies totaling $12,364.68 were found after conducting
inquiries with key personnel and reviewing Production Sud, Inc.'s (concessionaire)
provided documentation:
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a. The Office of Real Estate, Housing and Community Development's Field Monitor
is to be present to monitor operations for a minimum of two hours daily on market
days. Subsequent inquiries found that the dates that the market operated, the
number of vendors and/or tents present, etc. were not recorded during the
completion of his assigned duties. As a result, the City is dependent on the
effectiveness of the concessionaire's implemented internal controls and the
accuracy of the records maintained in reporting their gross receipts.
However, the concessionaire did not maintain sufficient detailed documentation
for each market date to facilitate reconciling to the reported gross receipts and
revenues paid to the City. For example, a summary revenue report was not
maintained for each market date that listed the name of each participating
vendor; the number of tents and tables rented with the corresponding amounts
due; the amounts paid by the vendor with the associated date(s) and payment
method; the relevant deposit date and amount; etc.
The concessionaire did provide bank statements, cancelled checks and credit
card listings showing that monies were received but no assurances could be
obtained regarding their completeness. As a result of these insufficient records,
Internal Audit had to assume that all vendor payments were deposited intact into
their Bank of America operating account and were properly separated from other
monies attributable to the concessionaire's operation of a Coconut Grove antique
store.
b. A comparison of the 51 agreed upon market dates occurring during the audit
period (17 annually x 3 years) with the concessionaire's corresponding payments
found that the City did not receive payment for five different dates. Of these, the
concessionaire claimed that markets were held on May 8, 2011, February 19,
2012 and February 26, 2012 and they proceeded to remit the corresponding
rental payments of $1,141.88, $2,510.63 and $2,618.75 respectively in June
2013.
They continued to state that another unreported market date (October 9, 2011)
was cancelled due to rain. As previously mentioned, the Field Monitor did not
record whether the market was actually held so the City had to rely on the
integrity of the concessionaire. An internet weather search found that the .27
inches of precipitation were received on October 9, 2011 but realizes that this
data is not necessarily the determining factor as the concessionaire decides 72
hours in advance of the market date based on meteorological forecasts whether
to hold the market due to the costs involved. For example, the April 29, 2012
market was held but few vendors showed as 2.86 inches of rain fell during the
day but conversely the April 21, 2013 market was cancelled due to predicted rain
but none occurred.
c. Section 4.2 of the signed concession agreement states "During the initial term,
and any renewal term, of the Agreement, Concessionaire shall pay the City, on a
monthly basis, and within thirty (30) calendar days from the end of each month
during the term herein, an amount equal to twelve and one half (12.5%) percent
of Concessionaire's gross receipts ...... The term "gross receipts" is understood to
mean all income, whether collected or accrued, derived by the Concessionaire
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under the privileges granted by this Agreement, excluding amounts of any
Federal, State, or City sales tax, or other tax, governmental imposition,
assessment, charge or expense of any kind, collected by the Concessionaire
from customers and required by law to be remitted to the taxing or other
governmental authority." Subsequent testing found that any profits earned from
table rentals (vendors are charged $12.00 for each table rented while Sunshine
Tents and Event Rentals were paid $8.00 each less any applicable delivery
charges) were incorrectly excluded from the concessionaire's gross receipt
calculations as they believed that no monies were made as it was a pass
through. Internal Audit's subsequent calculations allowing for 15 unrented tables
at each market date, determined that the concessionaire owes the City a total of
$2,532.33 for unreported table rental revenues during the audit period excluding
late fees.
d. The concessionaire charges vendors an additional $20.00 to be located on a
corner which was confirmed with several vendors during our Sunday May 5,
2013 site visit. Again, these additional revenues were incorrectly excluded from
the concessionaire's gross receipt calculations and their corresponding payments
to the City. Upon review of the site plan and per discussions with the
concessionaire, there were 24 corner spaces available whereby the
concessionaire could have charged applicable vendors an extra $20.00 each. It
was subsequently calculated using this assumption and allowing for three rain
outs (October 9, 2011, April 29, 2012 and April 21, 2013) during the audit period
that the concessionaire owes an additional $2,880.00 to the City excluding late
fees.
e. Section 10.3 of the signed concession agreement states "Concessionaire shall
reimburse the City on a quarterly basis throughout the Term of this Agreement, in
the amount of One Hundred ($100) Dollars; said reimbursement represents the
City's cost to pressure clean the Concession Area, as defined herein." Since the
concessionaire only operates annually October through May (8 months), the
annual pressure cleaning fee payments were prorated to equal $266.66 ((8
months operating/12 months in a year) x ($1 00.00 quarterly payments x 4
quarters). Subsequent testing found that only $366.67 in pressure cleaning
payments were received during the audit period resulting in the City being owed
a total of $434.34 (($266.67 x 3 years audited) -($366.67 in payments received).
Section 3.6.2 of the signed concession agreements state "Additionally,
Concessionaire agrees and understands that a Field Monitor, who will report to
and be under the direction of the City, is required to and be under the direction of
the City, is required for a minimum of two (2) hours daily on Oay(s) of
Operation.... Concessionaire's responsibility for the costs associated with said
Field Monitor position for the initial term shall be limited to eighteen ($18. 00)
dollars per hour {10101106-09130109}. During the renewal term, said limit shall
be increased by five (5%) percent per contract year {$18.90 for 10101109 -
09130110, $19.85 for 10101110-09/30111, and $20.84 for 10101111 -09130112
and 10101112-09130113}." Testing found that the concessionaire underpaid the
City by a total of $246.75 in Field Monitor salary reimbursements which consisted
of five market dates' payments of $206.42 that were not received ($39. 70 for May
8, 2011; $41.68 for February 19, 2012; $41.68 for February 26, 2012; $41.68 for
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December 9, 2012; and $41.68 for December 23, 2012) plus $40.33 resulting
from various payments made at the incorrect hourly rates. The concessionaire
subsequently remitted $123.03 upon notification from Internal Audit thereby
reducing the amounts currently owed for Field Monitor salary reimbursements to
$123.72 ($246.75-$123.03).
Although these pressure cleaning and Field Monitor salary reimbursement
amounts were fixed for each year, the Redevelopment Coordinator or his
designee did not create a City Bill in the Eden System's Accounts Receivable
module in advance for each market date with the prescribed amounts. Instead,
the current practice was to create the corresponding City Bill only upon receipt of
the monies thereby making it more difficult to identify missing or incorrect
payments.
Section 6 of the signed concession agreement states "The City shall be responsible for
paying all costs associated with such audits, unless the audit(s) reveals a deficiency of
five percent (5%) or more in Concessionaire's statement of gross receipts for any year or
years audited, in which case the firm shall pay to the City, within thirty (30) days of the
audit being deemed final (as specified below), the cost of the audit and a sum equal to
the amount of the deficiency revealed by the audit, plus interest;." Pending the outcome
of this audit, the current concessionaire's total gross receipts financial deficiency equals
10.99% (($50,170.08 rents+ $20,258.64 table rentals+ $23,040.00 corner booth space
tent rentals) I ($850,468.08 in total gross receipts reported to the City during the audit
period) which exceeds the 5% threshold thereby making Production Sud, Inc. potentially
responsible for the costs of this audit.
Recommendations:
The implementation of the following recommendations should help resolve the findings
addressed above:
a. The concessionaire should create and maintain a summary revenue report for
each market date that contains the name of each participating vendor; the
corresponding number of tents and tables rented and amounts due; the payment
type, date received and the amount for each vendor; the corresponding bank
deposit information; etc. This report could be used to help calculate each
market's gross receipts and should be submitted along with the corresponding
payment to the Office of Real Estate, Housing and Community Development to
help provide a better audit trail.
Any cash paying vendors should receive a pre-numbered receipt to verify that
monies were received. Also, the concessionaire should maintain supporting
documentation informing readers of each bank deposit's composition and/or
consider using a separate bank account for Antiques and Collectibles market
transactions.
b. The new Field Monitor hired on March 25, 2013 has been recording the number
of vendors present at each market and their locations, the number of tents used,
etc. along with his other duties. The City should subsequently compare this
information with the submitted payment's supporting documentation to verify their
accuracy.
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The City should also ensure that payments are received for each designated
market date. If the market date is cancelled for rain, illness, etc. then the
concessionaire should submit a signed letter stating so which should then be
confirmed by the City's Field Monitor.
c-d. Going forward under the current expired concession agreement's terms, any
additional monies collected from vendors such as for renting tables (less their
rental cost) and corner spaces should be included in the concessionaire's gross
receipts. As a result of their omission from gross receipts during the audit period,
the separate City Bills should be created in the Eden System's Accounts
Receivable Module for $2,532.33 and $2,880.00 respectively unless the
concessionaire provides timely sufficient documentation showing the
inaccuracies of these estimated amounts.
e. The City should more closely review the accuracy and completeness of the
concessionaire's pressure cleaning and Field Monitor salary reimbursement
payments. He/she should also create City Bills in advance for these fixed
amounts to help increase the likelihood that the correct monies are received for
each market date. Meanwhile, City Bills for $434.34 and $123.72 should be
promptly created invoicing the concessionaire for not remitting the required
pressure cleaning and Field Monitor salary reimbursement payments.
Based on the results of this audit and the ensuing negotiations, the City should invoice
the concessionaire for the costs associated with this audit if the amount of the deficiency
continues to exceed the 5% threshold designated in section 6 of the signed concession
agreement.
Management Responses (Office of Real Estate, Housing and Community Development):
As of March 30, 2013, the Office of Real Estate hired a full time Field Monitor who has
been effectively documenting the necessary information in order to properly ensure the
accuracy of the information provided by the concessionaire, which includes the
categories which he monitors, such as, number of vendors and/or tents present at a
particular day; whether or not said vendor was using electricity at the site, whether or not
there was security present and also spot check vendors in order to ascertain how much
they are paying for their space/tents etc. ("Market Information"). The first Antiques and
Collectibles market which the Field Monitor had an opportunity to monitor was May 5,
2013, which was also the last day this market was open.
In addition, a new Leasing Specialist was assigned effective April 29, 2013 to manage
the Antiques and Collectibles market on behalf of the City. Since May 16, 2013, the
Office of Real Estate is reporting to the Director of Tourism, Culture and Economic
Development. The department has been in the process of setting up procedures to
improve the accountability and efficiency of the Office of Real Estate. The Office of Real
Estate will require the concessionaire to complete a designated vendor listing form which
will have to be submitted with the percentage rent every month. This form will allow the
Leasing Specialist to compare what the Concessionaire has submitted with the report
prepared by the Field Monitor.
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Based upon the recommendations contained in the Audit Report, Office of Real Estate
shall implement the following new procedures:
• Continue with the current practice of having the field monitor prepare Market
Information;
• Require the concessionaire to submit the completed designated vendor listing
form when making the monthly remittance;
• Require the concessionaire to provide receipts from the vendors for each
remittance;
• If the market date is cancelled for rain, illness, etc., the concessionaire will be
required to submit a signed letter stating so, which information will be confirmed
by the City's Field Monitor's report;
• The Asset Manger will set up automatic payments on the Eden System for the
fixed sums which the concessionaire owes so that these sums may be secured
per the agreement;
• The Asset Manager shall secure the proper insurance requirements prior to
providing the signed management agreement to concessionaire and set up with
Eden and Outlook, the expiration dates so that they will be automatically updated
by the support staff.
b. With the Field Monitor effectively documenting the Market Information, along with
the Supplemental Management Practices, the office will be able to accurately
manage the markets. Upon being placed on notice of this balance, the
concessionaire paid in full.
c-d. With the Field Monitor effectively documenting the Market Information, along with
the Supplemental Management Practices, the office will be able to accurately
manage the markets. The Office of Real Estate has billed the concessionaire for
these sums and payment in full has been received.
e. As part of the Supplemental Management Practices, commencing with the new
contract for the Antiques and Collectibles Market, Office of Real Estate has set
up, in the Eden System, all fixed sums when they come due, so that an
automatic bill will be generated in advanced. Moving forward, as Leasing
Specialist reviews receivables each month, bills for late fees and additional
penalties will be mailed out. Office of Real Estate has billed concessionaire for
the sums due for uncollected pressure cleaning and Field Monitor fees and
concessionaire has paid.
Concessionaire Responses:
We apologize for not submitting payments for three shows, May 2011, February 19th
and 26th 2012. One of the principles was very sick during this period, which was an
emotional and chaotic period for us. This is the only time in so many years that this has
happened and we think the new systems setup by the City of Miami Beach and
Production Sud will address this problem and Production Sud has since submitted these
three payments to the City. n the past, the City has issued bills quarterly for the
pressure cleaning, and we may have been confused by the change in procedure. Going
forward, we offer to pay for the entire year all at one time. We will depend on the City's
judgment.
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2. Finding: The Concessionaire was Not Billed Interest and other related Late Charges for
Tested Payments Received after the Markets' Designated Due Dates
Section 4.2 of the signed concession agreement states "During the initial term, and any
renewal term, of the Agreement, Concessionaire shall pay the City, on a monthly basis,
and within thirty (30) calendar days from the end of each month during the term herein,
an amount equal to twelve and one half (12.5%) percent of Concessionaire's gross
receipts (PG)." As needed, the concessionaire issued separate checks to pay for the
rent, off-duty police officer(s), Field Monitor's salary reimbursement, parking meter space
rentals and pressure cleaning associated with the staged Antiques and Collectibles
markets. If any of these payments were not received by the due dates listed in section
4.2, the signed concession agreement states that they are subject to interest at 12% per
annum (section 4.5) plus a late charge of $50.00 per day for any payment received after
five days of its due date (section 13.2). While this daily late fee is specifically outlined in
the agreement, calculation of these fees for any extended period of time causes the
amount owed to be extremely high as shown below.
The Office of Real Estate, Housing and Community Development did not time/date
stamp any of the reviewed concessionaire payments supporting documentation upon
receipt. Given the occasional lengthy span between the concessionaire's prepared
check date and the actual date it was processed by the Finance Department's Central
Cashier's Office, Internal Audit elected to use the check date as the date received in its
calculations to determine the payment's timeliness. Given this conservative assumption,
testing identified that the following number of late payments were received resulting in
the listed interest and late charges being applicable:
• 24 of the 49 applicable market dates (51 scheduled dates - 2 complete rain outs)
or 48.98% of the received rental payments resulting in $1,330.02 in interest and
$95,450.00 in late charges. $77,600.00 of these total late charges or 81.30%
originated from the concessionaire's failure to pay the rental payments
associated with the May 8, 2011, February 19, 2012 and February 26, 2012
markets until notified by Internal Audit of their omission.
• 23 of the 47 applicable market dates (51 scheduled dates - 2 complete rain outs
-December 9, 2012 and December 23, 2012 for which payment has not yet
been received) or 48.94% of the received Field Monitor salary reimbursement
payments resulting in $27.43 in interest and $96,500.00 in late charges.
$77,450.00 of these total late charges or 80.26% originated from the
concessionaire's failure to pay the rental payments associated with the May 8,
2011, February 19, 2012 and February 26, 2012 markets until notified by Internal
Audit of their omission. Furthermore, the amount of interest and late charges will
also increase once the missing Field Monitor salary reimbursement payments for
December 9, 2012 and December 23, 2012 are received.
• Three of the four pressure cleaning payments received (five others have not
been received to date) or 75% resulting in $9.30 in interest and $13,400.00 in
late charges. Again, the amount of interest and late charges will increase once
these five missing payments have been remitted.
Despite the receipt of these numerous late payments, it was determined that the City's
Redevelopment Coordinator or his designee did not invoice the concessionaire for any
interest ($1 ,366.75 total above) and/or late charges ($205,350.00 total above) incurred
during the audit period.
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Recommendations:
The Office of Real Estate, Housing and Community Development should time/date
stamp all concessionaire received documents to aid in determining the timeliness of their
submittal. Furthermore, the City should more closely monitor the concessionaire's
payments to ensure that they are received by the designated due dates. If not, a City
Bill in the Eden System's Accounts Receivable Module should be promptly created
invoicing the concessionaire for the applicable amount of interest and late charges
incurred which would include the remaining unpaid amounts identified above. Finally,
the City Administration should decide on the appropriate amount to invoice the
concessionaire as the $50.00 daily late charge provision seems unreasonable as it
represents 150 times the calculated interest due.
Management Responses (Office of Housing, Real Estate and Community Development):
Pursuant to the Supplemental Management Practices, Office of Real Estate will be able
to capture any interest or late charges which accrue, as they accrue. The Administration
is currently determining whether or not to charge concessionaire for the interest or late
charges which have accrued.
3. Finding: Assorted Inconsistencies Observed with the Signed Concession Agreement's
Terms during a Sunday May 5, 2013 Site Visit are Listed
The following points summarize the results of Internal Audit's observations and inquiries
during a Sunday May 5, 2013 site visit of the Antiques and Collectibles market:
a. The signed concession agreement's section 2 supported by Exhibits 2.1 and 2.2
describe the concession area as Lincoln Road between Meridian Avenue and
Alton Road plus Michigan Avenue bordered by South and North Lincoln Lanes.
Furthermore, it states that the concessionaire shall not deviate from or alter the
approved site plans without the prior written consent of the City Manager or his
designee according to section 3.1.2.
The concessionaire provided an amended site plan which included Jefferson
Avenue between North and South Lincoln Lanes due to the loss of the 1100
block of Lincoln Road between Lenox Avenue and Alton Road. The inclusion of
vendor booths on Jefferson Avenue with its openness allowed the
concessionaire to exceed the maximum number of booth space tent rentals (115)
listed in Exhibits 2.1 and 2.2 of the signed concession agreement during various
markets in deference to section 3.1.3. For example, documentation provided by
the concessionaire showed that 123 tents were rented at the February 3, 2013
market.
b. A majority of vendors did not have their designated placards posted showing
such identifying information as their name, their assigned vendor number and the
authorized products to be sold.
Recommendations:
The implementation of the following recommendations by both the concessionaire and
the City should help facilitate market operations:
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November 6, 2013
a. The concessionaire should not exceed the maximum number of booth space tent
rentals (115) at a designated market date without prior approval from the City.
b. Market vendors should always display their placards providing their identifying
information to its readers.
Management Responses (Office of Real Estate, Housing and Community Development):
Through the Supplemental Management Practices, Office of Real Estate should be able
to determine whether or not the concessionaire is in compliance with the approved site
plan and enforce same. The new contract should specify a maximum amount of
spaces/tents which may be designated for this location and further require that the
concessionaire require vendors to display their placards providing their identifying
information to its readers.
Concessionaire Responses:
Production Sud thought that it was sufficient to simply inform the City's Field Monitor
about any price changes and any show cancellations due to weather. Note: the Field
Monitor was informed about any price changes; also any and all changes were also
reflected in the vendor contracts on our website and were also listed and calculated in all
monies submitted to the City. We will conform to any new procedures that the City puts
forward. The amended site plan was submitted by the City in response to the Antique
Market losing 28 spaces on th.e 11 00 block of Lincoln Road for three seasons which was
a loss of revenue for Production Sud, and also the City of Miami Beach. Placards are
always affixed on all tents with vendor name/ info, by 6.a.m. or earlier. As to show
dealers where they are placed on that morning of the show.
4. Finding: Space Rental Prices were Changed from Exhibit 3.1 of the Signed Concession
Agreement without First Receiving City Approval
Section 18 of the signed concession agreement states "Concessionaire agrees that
prices charged for facilities and or space (booth) rental, be consistent with the price
schedule(s) herein submitted by the Concessionaire and approved by the City and
incorporated herein as Exhibit 3. 1 to the Agreement. All subsequent price increases and
amendments to Exhibit 3. 1 must be approved in writing by the City Manager, or his
designee, and prior to such changes being implemented within the Concession Area a
new updated Exhibit 3. 1 will be incorporated into this Agreement. Notwithstanding the
foregoing, Concessionaire agrees and acknowledges that any discounted prices it may
offer for the rental of facilities shall not in any way reduce the amount of remuneration
due to the City, including but not limited to the Percentage of Gross (Section 4. 2), which
shall be based and calculated on the prices set forth in said Exhibit 3. 1."
The concessionaire provided documentation showing that vendors were consistently
charged $185.00 for single booth space tent rentals and $170.00 for each tent when
more than one is rented. However, the rental fee schedule in Exhibit 3.1 of the signed
concession agreement states that single prices should be $165.00 from October through
December, $185.00 for January and February, and $165.00 for March through May.
Similarly, double booth space tent rental fees are to equal $300.00 from October through
December, $330.00 for January and February, and $300.00 for March through May.
Although the concessionaire and the City both benefit from these increased prices
charged, no evidence was found indicating that the City Manager or his designee had
approved these revisions in advance or had created a new Exhibit 3.1.
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Internal Audit Report
Production Sud, Inc. Management and Operation Agreement Audit
November 6, 2013
Vendors will also occasionally not show up to the markets resulting in unmanned tents
and leaving the concessionaire with no financial recourse since they are not obligated
per a signed contract. In these instances, other vendors are typically permitted to use
these tents at no charge. Similarly, the concessionaire will allow pre-selected vendors to
use extra tents at no charge during slower markets to make them fuller and more
attractive to patrons as confirmed during the May 5, 2013 site visit. Finally, the
concessionaire operates two booths at each market. The concessionaire did not treat
these aforementioned complimentary booth space tent rentals as if they were paying
vendors and include these unpaid full amounts in the gross receipts figure upon which
12.50% is due to the City.
Recommendations:
The concessionaire should fully comply with section 18 of the signed concession
agreement and not increase prices unless approved in advance by the City Manager or
his designee. Also, any complimentary booth spaces/tents given to vendors or used by ·
the concessionaire should be included in the amounts paid to the City as if the
corresponding individuals had remitted full price.
Management Responses (Office of Real Estate, Housing and Community Development):
Office of Real Estate is preparing a letter agreement between the City and
concessionaire to update the current fees so the concessionaire may be brought under
compliance.
Concessionaire Responses:
The contract referred to above here is from October 2008 to May 2009 season and
Production Sud has not charged that older $165 fee change since then. Also, the City
was sent all the fees with any adjusted rates on that year. $185 is the current uniform
price since Oct 2010 to 2013. It is also an industry standard to allow booked vendors to
move items into an adjoining empty tent the day of the show at no extra cost to any
dealer's lucky enough to be situated close by, as it is important that the show looks full
and successful at all times. It is also an industry standard that the promoters do not pay
for their tents, or their presence at the shows, as they promote the event & conduct all
public and dealer information. During even slower market months we need to address
that this is a Special Event, and we need to make it as exciting and interesting as we
can, as to compete and compare this city and the Antique Markets, as done in all major
cities like London, Paris, New York City.
5. Finding: The Listed Areas in the Signed Concession Agreement Effective since October
2006 Needs to be Updated
Review of the signed concession agreement's terms in effect since October 1, 2006
contained the following terms that are in need of revision:
a. Section 3.10 of the signed concession agreement states that the concessionaire
shall obtain the applicable "Retail Sales" category City occupational
license/business tax receipt. However, subsequent inquiries with the City's
Revenue Supervisor found that this category does not apply to them as they
were properly charged instead as "agents, broker, dealers ... " during the audit
period unbeknownst to the Redevelopment Coordinator.
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Internal Audit Report
Production Sud, Inc. Management and Operation Agreement Audit
November 6, 2013
b. Section 4.1 of the signed concession agreement summarized states that the
concessionaire is to furnish the City with a $2,500.00 security deposit. This
payment was received and processed by the Finance Department's Central
Cashier's Office on January 12, 2005. Furthermore, section 14 entitled
"performance bond or alternate security" was labeled as "intentionally omitted" in
the signed concession agreement. Therefore, the City's primary means to help
secure the concessionaire's performance is the $2,500.00 retained security
deposit but the average market total booth space rental payment received during
the audit period was $2,169.56 ($1 06,308.51 total rent payments/49 market
dates for which payments were received).
Recommendations:
The next negotiated and approved concession agreement should consider containing
the following terms:
a. The concessionaire should only be required to annually obtain a business tax
receipt as it should not mention a specific category since they are subject to
change. Its attainment should be confirmed by the Redevelopment Coordinator
with any found differences immediately addressed with the Licensing Section and
the concessionaire.
b. The next approved concession agreement should require a larger security
deposit and/or irrevocable letters of credit, performance bond, etc. to better
protect the City in the event of the concessionaire's nonperformance. It is
recommended that the security deposit at least equal the average of three
months market rental payments to adequately protect the City during the time
that it would take for a new Request For Proposal to be issued and a new
concessionaire selected.
Management Responses (Office of Real Estate. Housing and Community Development):
The Office of Real Estate shall incorporate the following in the new concession
agreement:
a. The concessionaire should be required to annually obtain a business tax receipt
with at least the "agents, broker, dealers ... " category.
b. The next approved concession agreement should require a larger security
deposit of at least equal the average of three months market rental payments to
adequately protect the City during the time that it would take for a new Request
For Proposal to be issued and a new Concessionaire selected.
6. Finding: The Audited Annual Statements of Gross Receipts Required in Section 6 of the
Signed Concession Agreement were Not Submitted or Requested during the Audit
Period
Section 6 of the signed concession agreement states "Concessionaire shall submit at
the end of the initial term (and, if approved, the renewal term), an audited annual
statement of gross receipts, in a form consistent with generally accepted accounting
principles." However, no evidence was found indicating that the concessionaire had
submitted any audited annual statements of gross receipts during the audit period or that
the City's Redevelopment Coordinator had noticed their omission and requested their
submittal.
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Production Sud, Inc. Management and Operation Agreement Audit
November 6, 2013
Recommendations:
The concessionaire should immediately submit audited annual statements of gross
receipts for each fiscal year since October 2010 to the City. Once received, the audited
gross receipts figures should be compared to the monthly payments supporting
documentation with any differences immediately investigated.
Management Responses (Office of Real Estate, Housing and Community Development):
The Office of Real Estate has already requested the last three years of audited Annual
Statements of Gross Receipts and the accountant for the concessionaire is in the
process of preparing same.
Concessionaire Responses:
We agree with the City's recommendations for facilitating the shows, we feel that the
current audit addresses any documentation requested for this period. Our C.P.A. as
required by the City of Miami Beach has complied with any requests made by the City.
7. Finding: The Concessionaire did Not Timely Provide the City's Redevelopment
Coordinator or his Designee with Updated Insurance Policy Certificates to Help Ensure
that Sufficient Coverage was Maintained
Section 11 of the signed concession agreement details the insurance coverage
requirements to be maintained at all times. In reviewing the Redevelopment
Coordinator's files, it was found that the concessionaire's most recent provided
insurance certificate expired on January 23, 2012, yet no documentation was found
requesting the submittal of a new policy. At Internal Audit's request, a new certificate
was promptly provided which was immediately approved for sufficiency by the City's
Risk Manager.
Recommendations:
The City should always timely receive any new insurance certificates issued to the
concessionaire. The Eden System's Contract Management Module should be used to
help track the insurance coverage's expiration dates as a compensating internal control.
Once received, the certificate should continue to be reviewed by the City's Risk Manager
for sufficiency with any deficiencies immediately corrected.
Management Responses (Office of Real Estate, Housing and Community Development):
As part of the Supplemental Management Practices, the Office of Real Estate has
requested updated insurance certificates, in accordance with the contract and the
expiration dates will be entered in the Eden System, as a reminder to update same for
next year.
Concessionaire Responses:
Regarding the 23rd Jan 2012 expired insurance certificate; the City's Redevelopment
Coordinator received a copy of our insurance policy covering the period covering
between Jan 2012 up to the 2013 period. Furthermore, we recently added automobile
coverage to our insurance policy so that we are in compliance.
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Internal Audit Report
Production Sud, Inc. Management and Operation Agreement Audit
November 6, 2013
8. Finding: Off-Duty Police Officer Payments were not Received Prior to the Engagement
and the Corresponding Monies were not Timely Delivered to and Processed by the
Central Cashier's Office
Police Off-Duty Standard Operating Procedure #011 summarized requires all applicants
requesting police off-duty services to pay in advance to help ensure that the
corresponding officers receive their compensation in a secure and timely manner, as
well as to recover the costs incurred by the City for providing the services. Testing found
that the concessionaire provides the off-duty police officer(s) working the Antiques and
Collectibles market with a check payable to the City of Miami Beach at the end of each
market date which was to be then brought to the Off-Duty Office before eventually being
delivered to the Finance Department's Central Cashier's Office for processing. Although
Internal Audit was unable to determine the root cause of the delay, a comparison of the
check date with the Eden System's processing date determined that the number of days
ranged from a low of 10 (November 7, 201 0) to a high of 116 (January 29, 2012).
Recommendations:
The Police Department's Off-Duty Office should create a City Bill invoicing the
concessionaire prior to each market date for the requested amount of hours plus
administrative charges. The police officer should not be dispatched unless the monies
are received in advance of the off-duty engagement where they should be promptly
delivered to and processed by the Central Cashier's Office to help offset any costs
incurred by the City.
Management Responses (Police Department):
A review of the Antiques and Collectibles File in the Off-Duty Office shows payments for
services are received by the job coordinator the same day services are rendered. This
payment is transmitted to the Off-Duty Office within 2 -3 days on average. The above
noted delay is not the result of late payments by the concessionaire, but rather delays in
processing by the Off-Duty Office and Finance Personnel. These delays are largely the
result a shortage of administrative staff within the Off-Duty Office. Over the past year
the Off-Duty Office was operating with 1 Administrative Aide as opposed to the budgeted
2. The noted vacancy is now filled and the required training completed. Moving forward
the goal of the Off-Duty Office will be to complete payment processing within 30 days,
but under no circumstances will the officers be paid prior to the processing of
concessionaire payments.
Concessionaire Responses:
We understand that the City requires that the Police Department be paid in advance in
order to protect the City. We were reliably paying our police officer at the day of the
show mainly to save us from one more errand. We will comply with the City's
requirement to pay the police officer show in advance.
EXIT CONFERENCE
An exit conference was held on July 26, 2013 in the Office of Budget and Performance
Improvement. Participants included Max Sklar (Tourism, Cultural Affairs and Economic
Development Director), Gisela Nanson Torres (Leasing Specialist) Ricky Falls (Field Monitor),
James Sutter (Internal Auditor) and Mark Coolidge (Senior Auditor). A second meeting was
held on September 12, 2013 with the concessionaire. All parties were in agreement as to the
contents of this report. Management responses were solicited and included in our report.
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Internal Audit Report
Production Sud, Inc. Management and Operation Agreement Audit
November 6, 2013
JJS:MC:mc
F:\OBPI\$AUD\INTERNAL AUDIT FILES\DOC12-13\REPORTS-FINAL\PRODUCTION SUD, INC. RPT.docx
(audit performed by Mark Coolidge, Senior Auditor)
cc: Kathie G. Brooks, Assistant City Manager
Max Sklar, Tourism, Cultural Affairs & Economic Development Director
Patricia Walker, Chief Financial Officer
Raymond Martinez, Police Chief
Louis Bondi and Anthony Angione, Production Sud, Inc.
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