OIG No. 20-01: Audit of Taste Bakery MB City Hall LLC d.b.a Taste Bakery CafeMIAMI BEACH MEMORANDUM
City of Miami Beach, 170 0 Convention Center Drive , Miami Beach , Florida 33 139, www.miamibeachfl.gov
Office of the Inspector General
Tel : 305-673-7020
November 15, 2019
TO: Honorable Mayor and Members of e
FROM: Joseph Centorino, Inspector Gene al
RE: Taste Bakery MB City Hall LLC d/b/
OIG Audit No. 20-01
Executive Summary
Attached is the Office of Inspector General 's audit of selected financial records and transactions
of Taste Bakery MB City Hall d/b/a Taste Bakery Cafe for the period of November 1, 2017 through
January 31, 2019. The audit was performed to determine whether Taste Bakery Cafe complied
with the app licable sections of their Lease and Concession Agreements.
Based on the results of our audit, it was concluded that compl iance with the Lease and
Concession Agreements was generally adequate and their terms were being adhered to.
However, improvement is needed to ensure that rental payments are timely remitted to the City.
The audit determined that, as a result of untimely rental payments, the tenant owes an addi tional
$954.1 0. In addition, the tenant's insurance coverage should be further reviewed to ensure
compliance with the terms of the agreement.
We would like to personally thank Taste Bakery's management and pertinent Office of Real Estate
and Human Resources Department staff for thei r cooperation and assistance during this audit
process.
M IAMI BEACH FINAL AUDIT REPORT
City of Miami Beach, 1700 Convention Center Drive , Miami Beach , Florida 33139, www.miamibeachfl.gov
Office of the Inspector General
Tel : 305-673-7020
TO :
FROM :
DATE:
AUDIT:
PERIOD :
Honorable Members of the City Commission
Joseph Centorino, Inspector Genel!::/
November 15, 2019
Taste Bakery MB City Hall LLC d/ a Taste Bakery Cafe
November 1, 2017 to January 31, 2019
This report is the result of a regularly scheduled audit of selected financial records and
transactions of Taste Bakery MB City Hall d/b/a Taste Bakery Cafe for the period of November 1,
2017 through January 31, 2019. The audit was performed to determine whether Taste Bakery
Cafe complied with the applicable sections of their Lease and Concession Agreements.
INTRODUCTION
On November 1, 2017 the City entered into a Lease Agreement with Taste Bakery MB City Hall
LLC d/b/a Taste Bakery Cafe , for approximately 734 square feet of Unit 4 of 1701 Meridian
Property of Condominium a/kla 773 17th Street, Miami Beach, Florida 33139. In addition to this
Lease Agreement , the parties also entered into a Concession Agreement for the management
and operation of a food and beverage concession in the outdoor space adjacent to 773 17th Street.
As disclosed in the Lease Agreement, the City offered the tenant, in consideration of a 40%
discount for City employees, a reduced annual rent on the demised premises and concession, in
the amount of one dollar ($1 ), plus additional rent comprised of the tenant's proportionate share
of the common area maintenance (CAM), property taxes, and insurance due to the City on a
monthly basis. The 40% discount is offered on the purchase price of all food and beverages from
any Taste Bakery location within the City to all employees with an active and verified City issued
employee identification, whether the purchase is made on-site or ordered for delivery. The City
reimburses the tenant a maximum of $200,000 per contract year towards the City employee
d iscount. As it relates to non-employee sales, the tenant is responsible for paying the City an
amount equal to five percent (5%) of their annual gross receipts for sales made at the demised
premises, until the receipts delivered to the City have reached the $200,000 contribution for
employee discounts.
OVERALL OPINION
Based on the results of our audit, it was concluded that compliance with the Lease and
Concession Agreements was generally adequate and their terms were being adhered to.
However, improvement is needed to ensure that rental payments are timely remitted to the City .
The audit determined that, as a result of untimely rental payments , the tenant owes an additional
$954.10. In addition, the tenant's insurance coverage should be further reviewed to ensure
compliance with the terms of the agreement.
We are committed to providing excellent public service ond safety to all who live , work , and play in our vibrant, tropical, historic community.
Final Audit Report
Audit of Taste Bakery MB City Hall LLC d/b/a Taste Bakery Cafe
November 15, 2019
SCOPE, OBJECTIVES, AND METHODOLOGY
The scope of this audit was to determine whether Taste Bakery MB City Hall d/b/a Taste Bakery
Cafe complied with selected terms of the Lease and the Concession Agreements entered into
with the City on November 15\ 2017. The audit covered the period November 1, 2017 through
January 31, 2019, and selected transactions prior and subsequent to this period. In general, the
audit focused on the following objectives:
• To determine whether the tenant complied with the rental payment terms of the Lease and
Concession Agreements.
• To determine whether rental payments were remitted timely.
• To ensure remitted rental payments were properly recorded in the City's Financial System
and deposited into the City's treasury.
• To determine whether employee discounts were offered only to employees with an active
and verified City issued employee identification.
• To determine whether reimbursement requests submitted by the tenant were properly
supported, were accurately calculated and did not exceed $200,000 during the 2018 fiscal
year.
• To determine whether insurance coverage was adequate and in compliance with the terms
of the Lease and Concession Agreements.
• Other audit procedures as deemed necessary.
We conducted this performance audit in accordance with the Standard Operating Procedures of
the City of Miami Beach Office of the Inspector General 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 policies and procedures; interviewed and made inquiries of
appropriate personnel to gain an understanding of internal controls;
• Performed testing consistent with the audit objectives, including but not limited to
examination 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: Rental Payments were not Timely Remitted to the City
As per Section 3.1 of the Lease Agreement, the tenant's payment of rent, shall commence
on November 1st, 2017 and thereafter, on each first day of subsequent months. The base
rent for the demised premises shall be for one dollar ($1) per contract year. Furthermore,
as per Section 3.2, in addition to the base rent, tenant shall also pay as additional rent, its
proportionate share of common area maintenance (CAM), property taxes, and insurance
(see table below).
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Final Audit Report
Audit of Taste Bakery MB City Hall LLC d/b/a Taste Bakery Cafe
November 15,2019
Section 19.1 .6 states that, it is expressly agreed and understood by and between the
parties that any installments of rent accruing under the provisions of the lease which shall
not be paid when due shall be subject to a late charge of fifty dollars ($50), plus interest
at a rate of eighteen percent (18%) per annum, or the maximum amount allowable under
Florida law, whichever is lesser, from the due date of the payment until such time as
payment is actually received by the City.
Description !Annual Amount ~onthly Payments Due Due Date
Annual Rent $ 1.00 -Nov 1st
Additional Rent on Proportionate Share
(1) Common Area Maintenance (CAM) 2,936.04 244.67 1st day of the month
(2) Property Taxes 4,890.36 407.53 1st day of the month
(3) Insurance 660.60 55 .05 1st day of the month
* Plus app li cab le sales t ax
The Office of the Inspector General performed a review of all rental payments due for the
period of November 1, 2017 through January 31, 2019 to ensure compliance with the
terms of the Agreement. The payments shown below were not remitted timely, but no
penalties or interest were assessed by the City . As a resul t, $954 .10 in late fees ($750.00)
and interest ($204.1 0) is due to the City .
Late Payment of Monthly Rent
Late Fees
and
Paid Date Interest Interest
as per #of Days Late Fee Due (18% Assessed
Period Due Date Munis Late Due per annum) Yes/No?
Nov-17 12/1/17 1/10/18 40 $ 50.00 $ 22.73 N
Dec-17 12/1/17 1/10/18 40 50.00 22.70 N
Jan-18 1/1/18 1/10/18 9 50.00 11.35 N
Feb-18 2/1/18 2/13/18 12 50.00 11 .33 N
Mar-18 3/1/18 3/16/18 15 50.00 11.33 N
Apr-18 4/1/18 4/6/18 5 50.00 11.33 N
May-18 5/1/18 5/7/18 6 50.00 11.33 N
Jun-18 6/1/18 7/5/18 34 50.00 22 .66 N
Jul-18 7/1/18 7/5/18 4 50.00 11.33 N
Aug-18 8/1/18 8/16/18 15 50.00 11.33 N
Sep-18 9/1/18 9/17/18 16 50.00 11.33 N
Oct-18 10/1/18 10/3/18 2 50.00 11.33 N
Nov-18 11/1/18 11/14/18 13 50.00 11.35 N
Dec-18 12/1/18 12/10/18 9 50.00 11.33 N
Jan-19 1/1/19 1/3/19 2 50.00 11.33 N
$ 750.00 $ 204.10
It was noted that City generated bills do not have a department specific remittance address
(only specify City Hall's main address), and payments received are not date/time stamped
making it difficult to determine when the payment is received .
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Final Audit Report
Audit of Taste Bakery MB City Hall LLC d/b/a Taste Bakery Cafe
November 15, 2019
Recommendation( s ):
The Office of Real Estate should bill and collect the late fees and interest due to the City.
In addition, the Office of Real Estate should work with City Management to enable the
specific department on the remittance (in this case Office of Real Estate) to facilitate the
routing of the payments, and for the department to be able to account for when the
payment is received. An alternative solution could be for the Office of Real Estate to create
a lockbox account for faster and more efficient payment processing.
Management's Response (Office of Real Estate):
As indicated above, City generated bills do not have a department specific remittance
address and only specify the main City Hall address. Payments may be received by the
City via standard mail, express mail, bank wire, online payment or hand delivery to the
cashier's window. Mailed payments are usually received by the City's Central Services
Division and must be forwarded to the Finance Department for processing. Payments
received by the City without an invoice are often deposited into a miscellaneous account
and staff must research the payment in the miscellaneous account and request a journal
entry adjustment which then reflects the receipt date as the journal entry date. Given the
various delivery options, and potential delays, it is often difficult to determine when
payments are initially received by the City versus when they are posted in the system. As
such, late fees are typically not assessed until 30 days from the due date. The Office of
Real Estate agrees that the payments for the periods of November 2017, December 2017,
and June 2018, received in excess of 30 days of the due date should incur a late fee and
interest. The Office of Real Estate billed customer in the amount of $218.09 on November
6, 2019.
Implementation Date:
The Office of Real Estate billed Taste Bakery in the amount of $218.09 on November 6,
2019.
Audit Observation:
Although the Office of Real Estate determines its enforcement practices, the creation of a
thirty (30) day grace period does not address the problem of determining the date of the
receipt. If concerns exist as to determining the actual date that the payment was received,
then corrective action should be taken to remedy the shortcoming rather than to give
vendors additional time before assessing the late charges specified in the Agreement.
Therefore, it is recommended that the Office of Real Estate establish and consistently
follow a designated method to determine the actual date that the payment is received.
Examples include utilizing a bank's lockbox services whereby all customer payments are
directed to a special post office box, maintaining the concessionaires/lessees' envelopes
so that the postmark date can be used as the benchmark, etc.
2. Finding: Unable to Determine Compliance with Insurance Coverage Requirements
In accordance with Section 10 of the Agreement, before beginning any work and
throughout the term of the Lease (including renewal periods), tenant shall, at its sole cost
and expense, comply with all insurance requirements of the City. It is agreed by the parties
that tenant shall not occupy the Demised Premises until proof of the following insurance
coverage has been reviewed and approved by the City' s Risk Manager. Provider shall
indicate that insurance coverage has been obtained which meets the requirements as
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Final Audit Report
Audit of Taste Bakery MB City Hall LLC d/b/a Taste Bakery Cafe
November 15, 2019
outlined below by submitting original certificates of insurance to the City's Risk Manager
and Asset Manager respectively:
(1) Worker's Compensation for all employees of the provider as required by Florida
Statute 440 and Employer' s Liability coverage in accordance with the Florida
Statutory requirements.
(2) General Liability on a comprehensive basis in an amount not less than $1,000,000
combined single limit per occurrence, for bodily injury and property damage. City
of Miami Beach must be shown as an additional insured with respect to this
coverage.
(3) Business interruption insurance sufficient to insure tenant for no less than one (1)
full year of loss of business, with the City named thereon as loss payee to the
extent permitted by applicable law.
(4) All-Risk property and casualty insurance, written at a minimum of eighty percent
(80%) of replacement cost value and with replacement cost endorsement, covering
all leasehold improvements installed in the Demised Premises by or on behalf of
tenant and including without limitation all of tenant's personal property in the
Demised Premises (including, without limitation, inventory, trade fixtures, floor
coverings, furniture, and other property removable by tenant under the provisions
of this Lease).
In order to determine whether the tenant was properly insured, the current Certificate of
Insurance (valid for the period of 01/16/2019 -01/16/2020 and 04/10/19-04/10/20 for
worker's compensation), and the current Evidence of Property Insurance (valid for the
period of 11/07/18-11/07/19) were reviewed. As part of our testing, Office of the Inspector
General staff contacted the City's Risk Management Division (Risk Management), as they
are the responsible party for ensuring and approving coverage, to obtain confirmation of
compliance. As it relates to requirements #s 1 and 2 above, Risk Management confirmed
compliance via email communication. However, as it relates to requirements #s 3 and 4
above, though Risk Management indicated compliance, it was noted as to requirement
#3, that while coverage is indicated for business income, it does not specify whether the
coverage is sufficient to insure the tenant for no less than one ( 1) full year of business
loss. Regarding requirement # 4 above, the Evidence of Property Insurance provides
coverage, but it does not specify whether the coverage is at eighty percent (80%) of
replacement cost value and with replacement cost endorsement, covering all leasehold
improvements installed in the Demised Premises. Office of Inspector General staff
continued to follow-up with the Risk Management Division to obtain additional
documentation to substantiate compliance, but as of September 27 1h, no supporting
documentation had been received. As a result, we were unable to determine whether the
tenant is in compliance with the insurance coverage requirements as stipulated in the
Agreement.
Recommendation( s ):
It is recommended that the City's Risk Management Division further review the Evidence
of Property Insurance and obtain any additional documentation directly from the tenant or
the insurance provider to help ensure proper coverage.
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Final Audit Report
Audit of Taste Bakery MB City Hall LLC d/b/a Taste Bakery Cafe
November 15,2019
Management's Response (Risk Management Division):
Certificates of insurance are generally provided to the department that manages the
agreements and then forwarded to Risk Management or a managing contractor for review
and approval. Among the thousands of contracts that we monitor for compliance with
insurance requirements, lease agreements are unique in that they require coverages that
are typically found in other goods and services type agreements. In this particular case,
business interruption and property insurance are required with elements of the coverage
tied to information that is not shared with the Risk Management team, such as the lessee's
estimated annual revenue and value of leasehold improvements.
As it relates to Taste Bakery Cafe, on October 29, 2019 we obtained the average annual
revenue amount as well as the value of leasehold improvements that was needed to
determine if the certificate provided showed acceptable coverage for Business Interruption
and Property Insurance. Based on the information, we can conclude that Taste Bakery
Cafe is compliant with the insurance requirements pertaining to the aforementioned
coverages.
Going forward, our office will conduct an audit of all leasehold agreements with similar
insurance requirements and work with the Office of Real Estate staff to remediate any
deficiencies. Also, prior to any new lease agreements or renewal of current agreements,
we will require that the scope and insurance language be sent to Risk Management to
ensure that language is accurate and meets industry standards.
Implementation Date:
The Risk Management Division has obtained documentation from the Office of Real
Estate. Coverage was reviewed and determined to be in compliance.
F:\OBPI\$AUD\INTERNAL AUDIT FILES\DOC18-19\REPORTS-FINAL\TASTE BAKERY AUDIT REPORT 11-15-19.docx
cc: Jimmy L. Morales, City Manager
Mark Taxis, Assistant City Manager
John Woodruff, Chief Financial Officer
Mark Milisits, Division Director, Office of Real Estate
Sonia Bridges, Division Director, Risk Management & Benefits
Audit conducted by: Coral Delgado, Auditor
Audit reviewed by: Mark D. Coolidge, Interim Internal Auditor
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