Fifth and Alton Parking Garage Financial Review (Period 01-01-16 to 12-31-17) 04-26-18M IAMIBEAC ·H INTERNAL AUDIT REPORT
City of Miami Beach, 1700 Convention Center Drive , Miami Beach , Florida 33139, www.miamibeachfl.gov
Office of Internal Audit
Tel : 305-673-7020
TO: Jimmy L. Morales, City Manage ~
VIA: Mark D. Coolidge, Interim Intern I A ditor M t)c.,.....
FROM : Coral Vivolo, Auditor oj
DATE : April 26, 2018
AUDIT : Fifth and Alton Parking Garage Financial Review
PERIOD : January 1, 2016 to December 31, 2017
This report is the result of a request made by the City's Parking Department to review the
financial records of the Fifth and Alton Parking Garage, in which the City owns a portion ( 46%)
of the parking spaces. This audit primarily focused on determining (1) whether operating
expenses were properly allocated to the Garage as there are separate retail businesses on the
property; (2) whether the annual Contributions due from the use of the parking spaces by the
retail businesses were properly remitted, and (3) whether any excess monies in the operating
account were properly distributed between the designated parties.
INTRODUCTION
In May 2005, the Mayor and City Commission adopted Resolution No. 2005-25899, approving a
Development Agreement between the City of Miami Beach and AR&J Sobe, LLC (Developer)
for the development of the project referred to as "Fifth and Alton," a public-private project
whereby the City owns a portion of the parking spaces ( 46% of the approximately 1,100 parking
spaces) of the multi-level commercial building used for supermarket/retail/restaurant space.
On December 30 1h, 2009, a Declaration of Condominium was recorded with the Miami-Dade
County Clerks of Courts in which the terms of the Development Agreement were detailed. As
per Section 10.4 of said Declaration, the Developer is responsible for operating, maintaining,
and replacing all portions of the property in a first class manner; and the City is responsible for
operating access, validation and collection systems for the Garage in a first class manner
(subject to other provisions of the Declaration). In addition, the City and the Developer agreed
on allocating all Garage related expenditures in proportion to the number of City owned spaces
(500 or 46%) and Developer owned spaces (587 or 54%). Thus, as per Section 10.5 an
operating bank account, accessible to both the Developer and the City, was created for all
revenues to be deposited and all related operating expenses to be paid from.
In December 2012, AR&J Sobe, Inc. sold their beneficial ownership interests in the Garage to
Edens Limited Partnership (Edens). As a result, Edens, in partnership with the City, became
responsible for the operations of the Garage while the terms of the Declaration remained
unchanged.
On a monthly basis, Edens is responsible for providing copies of the Garage's financial
statements to the City's Finance Department who subsequently performs a cursory review
searching for any non-Garage transactions, verifies the 46% vs. 54% allocation between the
We are committed to providing excellent public service and safety to all who live , work , and play in our vibrant, tropical , historic community.
Internal Audit Report
Fifth and Alton Parking Garage Financial Review
April 26, 2018
City and the Developer, and completes the bank reconciliation. Afterwards, the Finance
Department prepares a summary financial sheet that is forwarded to the Parking Department to
be used to determine Edens' financial position in relation to the approved budget and whether
any monies need to be contributed to help meet operating expenses. The summary financial
sheet is included as part of the department's monthly Parking Status Report.
OVERALL OPINION
Based on the results of our audit, it has been concluded that the Garage is essentially being
operated in accordance with the terms of the Declaration of Condominium. However, it was
noted that certain internal controls require enhancements due to the following deficiencies:
• Edens Limited Partnership (Edens) improperly allocated $66,262 in expenses to the
Garage operations.
• Excess funds totaling $258,693 as of December 31, 2017 in the operating account were
not distributed to either the City or the Developer. In addition, no actions were taken on
any disbursements due from prior calendar years in accordance with the Declaration of
Condominium's terms.
• Annual Retail Contributions were not properly calculated by Edens resulting in a $50,947
overpayment to the City.
SCOPE, OBJECTIVES, AND METHODOLOGY
The scope of this audit was to determine compliance with selected provisions of the Declaration
of Condominium of 5th & Alton Condominium, recorded in Official Records Book 27133, at Page
4420, of the Public Records of Miami-Dade County, Florida. The audit covered the period
January 1, 2016 through December 31, 2017, and various transactions as needed made prior
and subsequent to this period. This audit focused primarily on the following objectives:
• to determine whether operating expenses were properly allocated;
• to determine whether the annual Retail Contributions were calculated in accordance with
Section 10.3 (d) of the Declaration; and
• to determine whether disbursements/deficiencies were properly distributed between the
City and Edens.
We conducted this performance audit in accordance with the Standard Operating Procedures of
the City of Miami Beach Office of Internal Audit as well as internal audit best practices. Those
require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a
reasonable basis for our findings and conclusions based on our audit objectives. We believe
that the evidence obtained provides a reasonable basis for our findings and conclusions based
on our audit objectives.
The audit methodology included the following:
• Reviewed applicable provisions within the City Charter and Code of Ordinances, and
City policies and procedures;
Page 2 of 8
Internal Audit Report
Fifth and Alton Parking Garage Financial Review
April 26, 2018
• Interviewed and made inquiries of City and external companies' personnel in order to
gain an understanding of the internal controls (relative to the operations of the garage),
assess control risk, and plan audit procedures;
• Performed substantive testing consistent with the audit objectives, including but not
limited to examination, on a sample basis, of applicable transactions and records;
• Drew conclusions based on the results of testing, made corresponding
recommendations, and obtained auditee responses and corrective action plans; and,
• Performed other audit procedures as deemed necessary.
FINDINGS, RECOMMENDATIONS AND MANAGEMENT RESPONSES
1. Finding: Edens Limited Partnership (Edens) Improperly Allocated $66,262 in Expenses
to the Garage Operations
As per Section 10.5 (c) of the Declaration of Condominium, the cost of maintaining,
repairing, insuring, and, when necessary, replacing those portions of the property (or
components thereof), including the Garage, as enumerated on Schedule 1, in the
percentages noted on said Schedule, whether or not technically a part of the Retail
Space (the "Operating Expenses"), shall be allocated to the Garage and shall ultimately
be payable by the City and Developer {Edens Limited Partnership or Edens} in
proportion to the number of City Spaces and Retail Spaces owned by each from time to
time (i.e. City 46% and Edens 54%).
In order to determine whether expenses paid were properly allocated to the Garage, the
financial statements and supporting documentation (i.e. invoices/receipts) for selected
expenses such as painting and maintenance personnel, were requested, obtained and
reviewed. During calendar years 2016 and 2017, the painting expense allocated to the
Garage totaled $195,878 as per the financial statements. However, after reviewing the
corresponding invoices in the amount of $200,266 (prior to any allocations), it was noted
that the allocation of six (6) invoices totaling $156,387 were incorrectly done, as 100% of
the cost was allocated to the Garage. As per Schedule 1 of the Declaration, only 90% of
the cost (or $180,240) should have been allocated to the Garage, and the remaining
10% to the Retail Space. As a result, $15,638 ($156,387 x 10%) was over allocated to
the Garage.
Furthermore, the Maintenance Personnel expenses were also reviewed whereby it was
noted that $50,624 of "Total Other Non-Direct Expenses" was allocated to the Garage
under the maintenance personnel category for allocation of the Miami office, human
resources, technology and corporate accounting resources during calendar years 2016
and 2017. However, after reviewing the Declaration, it is unclear why these fees are
being charged to the Garage as a total of $50,000 in management fees are paid
annually for the management services of the Garage operations. Several documented
requests were sent to the Edens asking for clarification but no satisfactory responses
were received to date.
Per discussions with the Parking Department, this agreement was monitored by the
City's Economic Development Division Director until his December 28, 2012 termination
date. Afterwards, it was apparently not re-assigned to another City department as no
one was knowingly tasked with monitoring its terms. As a result, the City's Office of Real
Page 3 of 8
Internal Audit Report
Fifth and Alton Parking Garage Financial Review
April 26, 2018
Estate was assigned in January 2018 the responsibility of monitoring and enforcing the
agreement's terms going forward.
Recommendation( s }:
It is recommended that additional monies incorrectly allocated to the Garage for painting
expense ($15,638) be reimbursed by the Retail Space and deposited into the operating
bank account. In addition, it is recommended that the additional $50,624 charged to the
Garage operations for "Total Other Non-Direct Expenses" be reimbursed by Edens and
deposited into the operating bank account.
Management's Response (Edens}:
Edens is reviewing the invoices associated with the painting expense and will respond
based on its findings and will discuss with the City. Related to the "Total Other Non-
Direct Expenses", Edens agrees with the findings that there is an allocation of costs
such as office rents, technology costs, etc, but Edens would like to further discuss with
the City on re-evaluating whether the costs to manage the garage is at market rate prior
to Edens reimbursing for the "Total Other Non-Direct Expenses".
Implementation Date: July 2018
Management's Response (City's Parking Department):
The Parking Department agrees with the recommendation made by the Office of Internal
Audit and will work together with the City's Office of Real Estate and the Finance
Department to ensure that the overpayment of painting expense from the operating
account be reimbursed.
Implementation Date: July 2018
Management's Response (City's Office of Real Estate}:
The Office of Real Estate also agrees with the recommendation made by Internal Audit.
We will work together with the City's Parking and Finance Departments and will discuss
this issue with Edens to ensure that overpayment of painting expense from the operating
account be reimbursed.
Implementation Date: July 2018
2. Finding: Excess Funds Totaling $258,693 as of December 31, 2017 in the Operating
Account were Not Distributed to Either the City or the Developer
As per Section 10.5 (d) of the Declaration, Developer shall consult and coordinate with
City in preparing an annual budget for Revenue and Operating Expenses, which budget
shall be prepared and finalized at least 60 days before the year end for the prior budget.
In addition, as per Section 10.5 (g) of the Declaration of Condominium, following each
annual reconciliation, and subject to any audit adjustments, any amounts in the
operating account in excess of three months of projected operating expenses1 shall be
distributed to the City ( 46%) and Edens (54%). Similarly, Section 10.5 (b) indicates that if
1 Although, the Declaration does not contain any wording to define how three months of projected Operating
Expenses is to be calculated, the monthly average for each calendar year was used as the basis for each calculation
as it was determined to be the most equitable method.
Page 4 of 8
Internal Audit Report
Fifth and Alton Parking Garage Financial Review
April 26, 2018
at any time the Operating Account has insufficient sums to cover Operating Expenses,
the City and Edens shall deposit the deficiency within three (3) business days after
notice in the same aforementioned percentages.
In order to determine whether there were any excess balances in the operating account
to be distributed, the monthly bank statements as well as the financial statements from
01/01/15 through 12/31/17 were reviewed. While reviewing the financial statements, it
was noted that a total of $811,400 in "Other Liabilities" consisting of $373,248 due to the
City ($137,526 + $189,722 + $46,000) and $438,160 due to Edens for contributions
made during 2009 and 2012 to cover operating expenses as required by Section 10.5
(b). Furthermore, an additional contribution in the amount of $162,380 remitted by the
City in September 2013 was not included for a total of $535,628 ($373,248 + 162,380)
due to the City.
At the same time, it was determined that during calendar years 2015 through 2017, there
were sufficient funds in the operating account to cover three (3) months of estimated
expenses and to distribute these excess funds between the City and Edens as per
Section 10.5 (g) of the Declaration. Exhibit A located at the end of this audit report
provides a detailed analysis of the calculations performed. As of 12/31/17, there was a
total excess in the operating account of $258,693 ($599,361 -$340,668) of which 46%
or $118,999 should have been distributed to the City. However, no monies have been
distributed to date which is most likely due to the City's lack of sufficient monitoring of
the agreement's terms.
Recommendation( s ):
The City's Parking Department and the Office of Real Estate as well as Edens should
review the available funds in the operating account on a continuous basis so that any
future disbursements could be promptly made as the money becomes available (i.e.
taking into account the required three (3) months of estimated operating expenses
balance to be maintained). Furthermore, all parties should reach a consensus as to the
manner in which the three months of projected expenses will be consistently calculated
going forward in the determination of the annual disbursements/deficiencies needed by
the City and Edens.
Management's Response (Edens):
Edens agrees that excess cash in the Operating Account should be distributed between
the City and Edens. It is important to note that monthly operations of the garage is
currently yielding a loss of up to $35,000/monthly as well as the garage will be making
an insurance payment of approximately $400,000 to $420,000 in the second half of
2018. It is certainly reasonable for the Garage to distribute funds to both the City and
Edens but it is likely that a cash contribution will have to be made by both parties to fund
the insurance payment due in the second half of the calendar year.
Implementation Date: Year end 2018
Management's Response (City's Parking Department):
Taking into consideration the above statement made by Edens, the Parking Department
believes it is best to not distribute any excess monies. Monthly reviews are on-going to
determine if any monies need to be contributed. Meanwhile, a year end analysis will be
Page 5 of 8
Internal Audit Report
Fifth and Alton Parking Garage Financial Review
April 26, 2018
performed with the Finance Department and the Office of Real Estate to conclude
whether any available monies can be disbursed .
Implementation Date: Year end 2018
Management's Response (City's Office of Real Estate):
The Office of Real Estate agrees with the recommendation made by Internal Audit.
Going forward, we will work with the Parking and Finance Departments to help ensure
that any excess available monies are distributed when due .
Implementation Date: Year end 2018
3. Finding: Annual Retail Contributions were Incorrectly Calculated by Edens Resulting in
a $50,947 Overpayment
As per Section 10.3 (g) of the Declaration of Condominium, employees and customers of
the occupants of all of the Retail Space shall be entitled to park in the Garage free of
charge, subject to the validation and decal provisions, and payment of the agreed upon
annual expense contribution (the "Contribution") for parking spaces by the owner of the
Retail Space . The amount of the Contribution shall be $313,500 (based on a formula
calculation in the Declaration) per annum (plus applicable sales tax) and shall be paid in
12 monthly installments on or before the fifth day of each month in advance commencing
on the date the Garage first opens for normal business operations. The amount of the
Contribution shall increase by 2.5% (over the prior year's Contribution) per year starting
on the January 1 immediately following the third anniversary of Full Occupancy of the
Retail Space (2013).
In order to determine whether the Contribution was properly remitted, the financial
statements for calendar years 2015, 2016, and 2017 were reviewed. Testing found that
during calendar years 2014 through 2017 the Contribution amounts were not properly
calculated by Edens, thus resulting in an overpayment of $50,947 as shown below.
f tt~ ~t . ,.. . ., ' ... ,.,.,, tfti~'-,Y,1]ii;l~))i~lrl ll·tmil~·,~~~~' ·,•' ~ \' ·, 'r )jll 11d 'l
-"""\""'""" ~·:-) ~~"1 • 1"' .-.~ ' ' ' "',, ...,,.4\ ~__':'~_-_j!_ -1]•_'.:!-~1.;.· t !:1 ll.'l'1.'J~" _ .. i.l ':. 1. ~ ' ';''·~·'1·.;;.~
2010 First 3 Years-
2.5% increase
$ 313,500 $ 26,125
2011 per year does 313,500 26,125 NOT REVIEWED
2012 not apply 313,500 26,125
2013 2.50% 321,338 26,778
2014 2.50% 329,371 27,448 321,600 7,771
2015 2.50% 337,605 28,134 313,015 24,590
2016 2.50% 346,045 28,837 389,312 (43,267)
2017 2.50% 354,696 29,558 394,738 (40,042)
Total Overpayment $ (50,947) __:..__....!........:.._--:..
This deficiency most likely occurred due to Edens' personnel changes and was not
realized and corrected due to the City's lack of sufficient monitoring.
Page 6 of 8
Internal Audit Report
Fifth and Alton Parking Garage Financial Review
April 26, 2018
Recommendation( s ):
It is recommended that the City's Office of Real Estate monitor future Contributions to
help ensure that the correct annual contribution is remitted. In addition, we recommend
that the City's Office of Real Estate discuss with Edens the preferred method to correct
the $50,947 Contribution overpayment.
Management's Response (Edens):
Edens agrees with the findings and attributes the deficiency to a change of personnel
over the past several years. There have been three accountants responsible for the
Garage accounting records during the period under Audit. Edens has documented the
methodology for the Retail contribution as noted above and has addressed it in monthly
Retail Contributions in 2018. Additionally, Edens suggests that the overpayment be
addressed through a ratable reduction to the monthly Retailer contribution throughout
the remaining months in 2018. Since the contribution was not increased on January 1st
2018 from $29,513 to $30,297 the current underpayment as of March 2018 is $2,351
(i.e. ($30,297-$29,513) x 3 months). The remaining overpayment of $48,596 will reduce
Edens monthly Retail contribution throughout the remaining 9 months of 2018 (i.e.
($50,947-$2,351 )/9 months= $5,400 monthly reduction).
Implementation Date: June 2018
Management's Response (City's Office of Real Estate):
The Office of Real Estate agrees with the recommendations made by Internal Audit.
The Office of Real Estate will monitor the Contribution to help ensure its accuracy.
Additionally, the Office of Real Estate will provide a Contribution schedule to the Finance
Department to ensure accuracy of the payments upon receipt.
Implementation Date: June 2018
EXIT CONFERENCE
An exit conference was held in the Parking Department's Small Conference Room. Participants
included Saul Frances (Parking Department Director), Laura Franco-Rubines (Assistant Parking
Department Director), Rocio Alba (Administrative Services Manager), Charles Dike (Senior
Management Analyst), Mark Milisits (Asset Manager), Coral Vivolo (Auditor) and Mark Coolidge
(Interim Internal Auditor). Afterwards, a draft copy of this audit report was sent to Edens Limited
Partnership and AR&J Sobe, LLC for their review. All parties were in agreement as to the
contents of this report. Management responses were solicited and included in our report.
F:\OBPI\$AUD\INTERNAL AUDIT FILES\DOC17-18\REPORTS-FINAL\5th and Alton Report.doc
cc: Kathie G. Brooks, Assistant City Manager
John Woodruff, Chief Finance Officer
Saul Frances, Parking Department Director
Mark Milisits, Asset Manager
Nicole Shiman, Vice President-Investments, Edens Limited Partnership
Elias Droubi, Director of Property Operations, Edens Limited Partnership
Page 7 of 8
Internal Audit Report
Fifth and Alton Parking Garage Financial Review
April 26, 2018
Exhibit 1
$464,702
112,368 -88,532
155.284 -88,581
-84,028
6
-75,533
-92,608
-98,177
-65,276
-452,466
Oct-15 162,068 -62,468
Nov-15 106,156 -60,247
Dec-15 147,201 -85,363
Total $2.068.391 ($1,332,804)
Jan-16
Feb-16
Mar-16
Apr-16
May-16
Jun-16
Jul-16
Aug-16
Sep-16
Oct-16
Nov-16
Dec-16
Totals
1,362,671
$735,587
178,525 -95,278
116,124 -70,646
160,146 -59,821
141,399 -99,308
114,183 -77,697
198,169 -76,927
109,921 -419,608
112,161 -52,870
107,110 -100,815
112,588 -65,545
83,179 -126,111
113,674 -74,254
$2,282,764 ($1,318,880)
~~ --~------------------
..,:: ____________ ;_.-=-::::: ___ -~_-~ •· "'"'
~ "'·.... -~··= ->:;;...~.:.. ____ -,, ....... -
115,247
113,556
Page 8 of 8
-$963,884
Jan-17 105,617
Feb-17 119,814
Mar-17 125,257 -H
Apr-17 95,687 -204,126
May-17 129,660 -98,686
Jun-17 103,991 -74,612
Jul-17 119,123 -98,393
Aug-17 97,856 -117,425
Sep-17 59,018 -71 ,747
Oct-17 121,603 -115,088
Nov-17 90,489 -55,476
Dec-17 101,311 -428,819
Totals $2,233,310 ($1,633,949)
--~-----~~ . -----1
~--.-_ '!' ~~---~::::.~J::..:::.,-.-,: >~-~----:~~-~;;
345,740
340,668