OIG No. 23-01: Miami Beach Watersports Center Inc.Joseph M. Centorino, Inspector General
TO:
FROM:
DATE:
PROJECT:
PERIOD:
Honorable Mayor and Members of the City Commission
Joseph M. Centorino, Inspector General
February 8, 2023
Miami Beach Watersports Center, Inc. Lease Agreement Audit/Contract Oversight
OIG No. 23-01
February 1, 2021 -- January 31, 2022
The City of Miami Beach Office of the Inspector General (OIG) examined the performance of
Miami Beach Watersports Center, Inc. ("Watersports Center") with selected provisions of its
Lease Agreement with the City related to the construction, operation, and maintenance of a
rowing facility at the Ronald W. Shane Center located at 6500 Indian Creek Drive (pictured below).
The OIG Auditor also reviewed the related performance of the City Fleet and Facilities
Management Department Asset Management Division, responsible for monitoring compliance
with the executed agreement. This examination focused on activities occurring during the
February 1, 2021 through January 31, 2022 audit period.
Page 1 of 16
INTRODUCTION
On December 14, 1988, the City of Miami Beach entered into a Lease Agreement with the Miami
Beach Jewish Community Center, Inc. (JCC) for the parking facility located at 65" Street and
Indian Creek Drive to construct and operate a rowing facility, including a boat yard. On November
21, 1989, the City and the JCC entered into the First Amendment to the Lease Agreement,
enlarging the size of the leased premises. On November 20, 1991, the Lease Agreement was
amended and restated, extending the lease term to twenty years, thus enabling the lessee to
obtain a financial commitment from the University of Miami to participate in the construction of the
rowing facility building. As part of the Amended and Restated Lease Agreement terms, the City
also appropriated a matching contribution of $225,000 to construct additional improvements for
the rowing facility.
In 1996, the City authorized the assignment of the Lease Agreement from the JCC to the
Watersports Center, a not-for-profit corporation established to operate and maintain the facility.
In 2002, the Watersports Center, as the current lessee, entered into a Second Amended/Restated
Consolidated Lease (Consolidated Lease) with the City.
The City of Miami Beach, as the landlord, and the Watersports Center d/b/a Miami Beach Rowing
Club were parties to the Second Amended/Restated Consolidated Lease, dated July 10, 2002,
for the lease of property known as the Ronald W. Shane Center, located at 6500 Indian Creek
Drive, for the operation of a rowing facility, including other ancillary uses. The Consolidated Lease
authorized extensive capital improvements to the premises, which included the construction of a
boathouse and a second-floor events venue. It also permitted Watersports Center to secure
financing for the improvements, with the consent of the City, and for a term that was not to exceed
the lease term, secured by a leasehold mortgage.
In 2007, the Watersports Center completed a $2 million expansion project, which included the
construction of a dry dock facility and a second story to the building existing at the time. As
permitted under the lease, it secured a portion of the financing for the expansion project from its
benefactor, the Shane Family Foundation Corporation (Foundation), through an unsecured
$850,000.00 loan.
The Watersports Center still owed monies to the Foundation for its investment and the
Consolidated Lease was set to expire on May 21, 2021, so it requested a new nine-year lease to
continue its not-for-profit operations in the community. On January 13, 2021, the City Commission
adopted Resolution No. 2021-31557, waiving by 5/7" vote the formal competitive bidding
requirement and approving a new Lease Agreement. Consequently, the City entered into a new
Lease Agreement with the Watersports Center on March 16, 2021, for the continued operation
of a rowing center through January 31, 2030.
OVERALL OPINION
The Watersports Center (lessee) provides low-cost rowing, teaching, and training for men,
women, and young adults. It is open to the general public, Monday through Friday from 9:00 am
to 5:00 pm, provided the users meet the minimum safety requirements of the United States
Rowing Association and the operational requirements. The center is an international destination
for Olympic rowers and home of the Miami Beach Rowing Club, which annually hosts the Head
of the Indian Creek Regatta and other collegiate races, benefiting the local economy.
Page 2 of 16
The following deficiencies identified during the audit period require corrective action:
1. The Watersports Center was not fully compliant with the stated insurance requirements in
Section 9.2 of the Lease Agreement.
2. The Watersports Center was not compliant with the hazardous materials requirements
pursuant to Sections 9.5 and 9.7 of the Lease Agreement.
3. Subleases were executed by the lessee without approval of the City Manager pursuant to
Section 13.1 of the Lease Agreement.
In addition, the OIG Auditor has identified several areas of the Watersports Center operations that
suggest opportunities for improvement related to the following:
1. Amortization of the unsecured promissory note
2. Re-selling of Parking Department hangtags sold at cost to the lessee
3. Repairs and Maintenance responsibilities
4. Resort tax monies that may be due to the City from the sale of food and beverages at
future special events held on the premises
SCOPE, OBJECTIVES, AND METHODOLOGY
The primary scope of this audit was to determine whether the Watersports Center complied with
the provisions set forth in the Lease Agreement related to its operation. The audit focused on the
following general objectives during February 1, 2021 through January 31, 2022 audit period:
• Determine whether the lessee maintained the required insurance coverage.
• Determine whether the lessee is current with required permits, taxes, and licenses.
• Determine whether the Asset Management Division is sufficiently monitoring the lessee
and timely identifying any deficient actions.
• Determine whether the lessee is timely remitting all tested monies due to the City.
• Determine whether the lessee complies with other selected provisions of the Lease
Agreement.
• Other audit procedures as deemed necessary.
The audit methodology included the following:
• Reviewed applicable sections of the Lease Agreement between the City and the
Watersports Center;
• Interviewed and made inquiries of City staff to gain an understanding of internal controls,
assess control risk, and plan audit procedures;
• Conducted substantive testing consistent with stated audit objectives, including, but not
limited to, examination of pertinent transactions and records;
• Performed site visits and made observations of facility activities;
• 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.
Page 3 of 16
FINDINGS, RECOMMENDATIONS, AND RESPONSES
1. THE WATERSPORTS CENTER WAS NOT FULLY COMPLIANT WITH THE STATED
INSURANCE REQUIREMENTS IN SECTION 9.2 OF THE LEASE AGREEMENT.
Section 9.2.1 of the Lease Agreement, effective March 16, 2021, states as follows:
LESSEE shall maintain the below required insurance in effect duration of the Lease. The
maintenance of proper insurance coverage is a material element of the Lease and failure
to maintain or renew coverage may be treated as a material breach of the Lease, which
could result in the termination of the Lease.
(a) Worker's Compensation Insurance for all employees of Lessee as required by Florida
Statute 440, and Employer Liability Insurance for bodily injury or disease. Should
Lessee be exempt from this Statute, Lessee and each employee shall hold the City
harmless from any injury incurred during performance of the Lease. Lessee shall also
submit (i) a written statement detailing the number of employees and that they are not
required to carry Workers' Compensation insurance and do not anticipate hiring any
additional employees during the term of this Lease or (ii) a copy of a Certificate of
Exemption.
(b) Commercial General Liability Insurance on an occurrence basis, including products
and completed operations, property damage, bodily injury, and personal & advertising
injury with limits no less than $1,000,000 per occurrence, and $3,000,000 general
aggregate.
(c) All-Risk property and casualty insurance, written at a minimum of eighty (80%) percent
of replacement cost value and with replacement cost endorsement, covering all
improvements installed in the Demised Premises by or on behalf of Lessee and
including without limitation all of Lessee's personal property in the Demised Premises
(including, without limitation, inventory, trade fixtures, floor coverings, furniture, and
other property removable by Lessee under the provisions of this Lease.
(d) Automobile Liability Insurance covering any automobile, if Lessee has no owned
automobiles, then coverage for hired and non-owned automobiles, with limit no less
than $1,000,000 combined per accident for bodily injury and property damage.
(e) Liquor Liability Insurance on an occurrence basis, including property damage, bodily
injury and personal & advertising injury with limits no less than $1,000,000 per
occurrence. (Required, if necessary.)
(f) Lessees' and Users' Liability Insurance Program (TULIP) -- Lessee is required to
have all third parties that will rent the Demised Premises for special events provide
proof of Liability coverage with the City of Miami Beach endorsed as an additional
insured for the designated event. If Third Party user does not carry their own
Commercial General Liability insurance, coverage will need to be purchased for the
use of the facility through the City provided Lessees' and Users' Liability Insurance
Program.
The TULIP's general liability insurance protects both the Facility User (the third party)
and the City of Miami Beach against claims by third parties who may be injured or
experience damage as a result of attending or participating in an approved event.
In addition, Section 9.2.6 Verification of Coverage states as follows: Lessee shall furnish
the City with original certificates and amendatory endorsements, or copies of the
applicable insurance language, effecting coverage required by this Lease. All certificates
and endorsements are to be received and approved by the City before Lessee may
conduct operations at the Demised Premises. However, failure to obtain the required
Page 4 of 16
documents prior to conducting operations shall not waive Lessee's obligation to provide
them. The City reserves the right to require complete, certified copies of all required
insurance policies, including endorsements, required by these specifications, at any time.
CERT/FICA TE HOLDER MUST READ:
CITY OF MIAMI BEACH
c/o EXIGIS Insurance Compliance Services
P. 0. Box 4668 - ECM #35050
New York, NY 10163-4668
Kindly submit all certificates of insurance, endorsements, exemption letters to our
servicing agent, EXIGIS, at: Certificates-miamibeach@riskworks.com"
The City entered into a master customer agreement with Exigis LLC (Exigis) on July 14,
2018, to use its RiskWorks software, a proprietary web-based Risk Management
Operating System comprising a suite of configurable web-enabled risk, insurance, and
treasury Application Modules. One of the software's claimed benefits on its website is to
centralize the administration and automate the request, follow-up, processing, auditing,
and tracking of Certificates of Insurance.
The OIG Auditor reviewed the insurance profile that appears in Exigis for the Watersports
Center. Although the system listed the lessee as compliant with the corresponding
parameters entered by City staff, the stated parameters were not fully aligned with the
requirements in the Lease Agreement. The parameters set in Exigis differ from those in
Section 9.2.1 of the Lease Agreement in that they do not contain the required insurance
coverage related to Commercial General Liability in the aggregate, Automobile Liability,
and Liquor Liability.
The following parameters were set in Exigis related to the Watersports Center Lease
Agreement:
MIAMI BEACH
RtoRIS
Summary
Compliance Type: Type 5 Leases
vendor Type: Type5- Leases
Commer0al General ~ability
Workers Compensation/Employer's Liability
-Financial Strength Rating must be greater than or equal to + -Financial Size Category must be greater than or equal to VI -per occurrence Limit must be greater than or equal to $1,000,000 -City of Miami Beach shown as an additional insured with respect to this coverage
·Certificate Holder must contain CIT OF MIAMI BEACH
-Financial Strength Raping must be greater than or equal to +
-Financial Size Category must be greater than or equal to VI
- Statutory Limit as required by applicable law.
-Certificate Holder name must contain City of Miami Beach
Consequently, concerns arose as to whether the Exigis evaluation accurately reflected
whether the Watersports Center was fully compliant with contractual insurance
requirements.
Asset Management Division, which monitors compliance with stated terms, did not create
the insurance parameters in Exigis, and relied on its evaluation results reporting
compliance. Questioned Exigis staff by the OIG Auditor confirmed that the system
evaluated compliance based on the requirements entered into its software by the City.
Page 5 of 16
The OIG Auditor determined that the lessee maintained Commercial Liability insurance
for the fiscal year 2022/23 listed a general aggregate of $2,000,000, which is less than the
$3,000,000 aggregate required in Section 9.2.1 (b) of the Lease Agreement. Also, the
required Automobile Liability insurance or Liquor Liability insurance required in Sections
9.2.1(d) and (e), respectively, were not submitted to Exigis, raising concerns about their
sufficiency.
On December 6, 2022, the OIG Auditor requested that the Risk Management Division
Director review the Certificates of Insurance downloaded from Exigis for the periods of
March 20, 2021, through March 20, 2022, and March 20, 2022, through March 20, 2023,
for compliance with the stated requirements. The response received from the Risk
Management Director on December 9, 2022, the e-mail stated, "They were not compliant
in both years reviewed."
Recommendation(s ):
The insurance parameters for the Watersport Center entered into Exigis should be revised
by City staff to mirror the requirements listed in Section 9.2 of the Lease Agreement. Asset
Management Division staff should notify the Watersports Center of the Commercial
Liability insurance deficiency and the missing policies related to the required Automobile
Liability insurance or Liquor Liability insurance coverage. If not timely resolved, the
available disciplinary actions in the Lease Agreement may be enforced by the City.
Risk Management Division Response:
The Risk Management Division has determined continuous lease(s) and property
management agreement(s) monitoring. This agreement's insurance requirements differ
from our standard insurance groups set up initially in the insurance tracking software.
Effective now, all lease(s) and property management agreement(s) should be sent to Risk
Management Division for review before execution. Review before execution will increase
adherence or provide a rationale for a variance to our standard insurance requirements.
Upon execution, a final copy is sent to Risk Management Division for record-keeping,
monitoring, and re-evaluation at renewal.
Asset Management Division Response:
Although Exigis did not provide accurate information, the Asset Management Division did
take it upon themselves to secure the correct Certificates of Insurance or COis, which
were received November 2022, bringing the COi to $4M of Commercial Liability coverage
(on two policies) and $1 M in auto. They do not sell liquor, so Liquor coverage is not
necessary.
Miami Beach Watersports Center, Inc. Response:
There are no sales of alcohol at the Center. The Center has not rented the facility to the
public for events since February 2020. The rental operation did not resume after the Covid
pandemic closure and there are no plans to resume a rental operation at this time. Prior
to Covid, renters were required to contract the services of a licensed and insured caterer.
The caterer provided a liquor liability COi naming the Center. The Center hold two liability
policies and certificates were provided to Asset Management for both. Together they cover
the required $3,000,000 aggregate. Proof of auto insurance was provided to Asset
Management and accepted. For 2023, a COi for auto insurance naming the City of Miami
Beach was submitted.
Page 6 of 16
2. THE WATERSPORTS CENTER WAS NOT COMPLIANT WITH THE HAZARDOUS
MATERIALS REQUIREMENTS IN SECTIONS 9.5 AND 9. 7 OF THE LEASE
AGREEMENT.
Section 9.5 of the Lease Agreement states, "Lessee shall (i) not cause or permit any
hazardous material to be brought upon, kept or used in or about the Demised Premises
by Lessee, its agents, employees, contractors or invitees without the prior written notice
to Lessor, demonstrating to Lessor that such hazardous material is necessary or useful to
Lessee's use of the Demised Premises and will be used, kept and stored in a manner that
complies with all laws regulating any such Hazardous Material so brought upon or used
or kept in or about the Demised premises..."
Section 9.6 defines hazardous materials as "(a) pesticides and insecticides; (b) petroleum
and its constituents; (c) any substance which is or may hereafter be defined as or included
in the definition of "hazardous substance," "hazardous materials," "hazardous waste,"
"pollutants or contaminants," "solid waste" or words of similar import under the
Comprehensive Environmental Response, Compensation and Liability Act...(d) any other
substance, the exposure to or release of which is
regulated by any governmental entity having
jurisdiction over the Demised Premises or the operation
thereon; and ( e) any substance that does or may pose
a hazard to the health or safety of the persons
employed at or invitee on the Demised Premises."
During a July 20, 2022 site visit to the Watersports
Center, the OIG Auditor found such hazardous
materials as gasoline and other fuels used for the
coaches' boats being stored in an unlocked room with
an open door located next to the boathouse ( see
picture). The Watersports Center Executive Director
explained that the door is usually locked, and it was
promptly secured.
•
Section 9.7 of the Lease Agreement requires the lessee
to disclose to Lessor every January 1 all the names and
amounts of hazardous materials stored, used, or disposed of on-premises or which
Lessee intends to store, use or dispose of on the Demised Premises. Inquiries with the
Asset Management Division Director found that this required report was not furnished by
the lessee, nor was it specifically requested.
Recommendation( s ):
All hazardous materials stored on the premises should always be properly secured.
Furthermore, the lessee should timely furnish the required hazardous materials report to
the Asset Management Division pursuant to Section 9.7. Although Section 9.7 does not
specify whether the annual hazardous material report needs to be filed if no hazardous
materials were stored on the premises during the stated period, it is recommended that
the report be filed each January 1° and the Lease Agreement be clarified.
Asset Management Division staff should periodically perform unannounced site visits of
leased properties to verify compliance with stated requirements. The corresponding
results should be documented and maintained in the lessee's file, and any identified
deficiencies should be forwarded to the lessee for prompt resolution.
Page 7 of 16
Asset Management Division Response:
Lessee has been notified of the required hazardous material notification each year. The
Asset Management Division and Facilities Managers conduct regular site visits each year
(both unannounced and scheduled). This is a standard practice. Identified deficiencies are
communicated with Lessee by the Facilities Department as necessary.
Miami Beach Watersports Center, Inc. Response:
The storage room used for gasoline was overseen and approved by a fire inspector as
part of Phase I of the Center's expansion project in 2002-2004. The sign-off should be on
file with the building department. The gasoline for the coaches' boats is stored in
containers inside fireproof cabinets in the dedicated gas storage room. The storage room
door is usually kept locked but occasional human error occurs, which we will work to
minimize. The annual report of hazardous materials storage and use was not requested
until this year and was submitted 1/24/2023.
3. SUBLEASES WERE EXECUTED BY THE LESSEE WITHOUT APPROVAL OF THE
CITY MANAGER, AS REQUIRED BY SECTION 13.1 OF THE LEASE AGREEMENT
Lease Agreement Section 13.1 "Right and Conditions of Assignment" states as follows:
This Lease is not freely assignable, and no assignment, transfer, sublease, subconcession
or license agreement shall be valid unless there is a prior written consent by the Lessor,
which consent shall be within the sole discretion of the Lessor, and such instrument of
assignment (the "Assignment'') that has been consented to is in writing, which Assignment
must contain an assumption agreement, duly executed by the Assignee of this Lease and
in recordable form, wherein and whereby the Assignee accepts the assignment and
assumes and agrees to timely and fully perform and comply with all of the Lessee's
covenants and agreements contained in this Lease, and unless and until written notice
(the "Notice'') shall have been given to the Lessor by the Assignor and Assignee, (the
Notice to be given in the manner hereinafter prescribed as the manner and method for
giving Notice), enclosing a duplicate-original or photocopy of the original instrument of
Assignment and the address at which Notice may thenceforth be given to the Assignee.
Approval of any assignment or transfer to an entity other than a not-for-profit corporation
shall be conditioned upon the renegotiation of the rent to be paid under this Lease to reflect
a fair market value of the Demised Premises. Subleases, subconcessions, or license
agreements consistent with the uses set forth in paragraph 4. 1 are subject to the approval
of Lessor, which approval shall not be unreasonably withheld. The term of any approved
sublease, subconcession or license agreements shall not exceed a period of time beyond
the stated expiration date of this Lease.
The City Manager, on behalf of Lessor, shall be authorized to approve Assignments of the
Lease. Simultaneously with the approval of this Lease, Lessor hereby approves Barry
University and the University of Miami, as subtenants under the Lease, for the use of the
Facility, subject to the City Manager's review and approval of the sublease.
Section 13.2 states the following: The Lessor covenants and agrees that it will, within sixty
(60) days after service of Notice upon it of a proposed assignment of this Lease, giving
the name and post office address of the proposed Assignee, advise the Lessee in writing
as to whether the Lessor will consent to the assignment of the Lease and further advise
the Lessee in writing of the existence or nonexistence of any default on the part of the
Lessee under the terms of this Lease, and if there is any default or defaults, a statement
setting forth such default or defaults. Lessor's failure to give such advice in writing within
Page 8 of 16
the time required shall not constitute either notice of the absence of any default, or consent
to the proposed assignment. Only Lessor's response in writing of the existence or not of
a default and permission or not of an assignment shall be effective with respect to each
such item.
The Watersports Center entered into agreements authorizing the following subtenants to
use the facility during the audit period for which the deficiencies stated below were noted:
A. University of Miami:
Although the Sublease Agreement with the University of Miami was named in
Section 13.1, evidence was not provided indicating the City Manager's approval of
the sublease. However, the Sublease Agreement was signed by the Assistant City
Attorney as a witness, but the Lease Agreement does not state that the City
Manager can designate the responsibility to another person nor was any
corroborating evidence provided. Therefore, the OIG Auditor could not verify
whether the Sublease Agreement was approved by the City Manager pursuant to
Section 13.1.
In addition, neither the Lease Agreement nor the Sublease Agreement require the
University of Miami to maintain and submit related Certificates of Insurance for
review/approval to the City Risk Management Division. Consequently, the OIG
Auditor was unable to verify whether the University of Miami maintains proper
insurance coverage to adequately safeguard the City concerning the center.
B. Barry University:
Although the Sublease Agreement with Barry University was named in Section
13.1, evidence was not provided indicating the City Manager's approval of the
sublease. The Sublease Agreement was signed by the Assistant City Attorney as
a witness, but the Lease Agreement does not state that the City Manager can
designate the responsibility to another person nor was any corroborating evidence
provided. Therefore, the OIG Auditor could not verify whether the Sublease
Agreement was approved by the City Manager pursuant to Section 13.1.
In addition, neither the Lease Agreement nor the Sublease Agreement require
Barry University to maintain and submit related Certificates of Insurance for
review/approval to the City Risk Management Division. Consequently, the OIG
Auditor was unable to verify whether the University of Miami maintains proper
insurance coverage to adequately safeguard the City concerning the center.
C. Hydrow Inc.:
Miami Beach Rowing Club entered into an agreement with Hydrow Inc. on
September 25, 2020, for the use of the premises. The Sublease Agreement may
be extended for an additional annual term with mutual written consent of both
parties (Hydrow Inc. and Miami Beach Watersports Center, Inc.).
The OIG Auditor did not receive evidence of prior written approval from the City
Manager regarding the Sublease Agreement with Hydrow Inc. In addition, the
Sublease Agreement did not include any insurance requirements, nor were any
related Certificates of Insurance furnished to the City Risk Management Division
for review/approval.
Page 9 of 16
Recommendation(s):
The Watersports Center should not enter into Sublease Agreements unless prior written
consent is received indicating City Manager approval pursuant to Section 13.1. The OIG
Auditor recommends that the existing Sublease Agreement between the Watersports
Center and Hydrow Inc. be reviewed by the City, and be revised as deemed necessary.
Also, the OIG recommends any City approved Sublease Agreements should include
insurance requirements reviewed/approved by the Risk Management Division to minimize
the City's risk exposure.
Asset Management Division Response:
The Lessee has been notified and educated on the proper timing of providing the Asset
Management Division with notification on a new sub-lease, even if they are short term, so
that the City Manager has time to review and provide approval.
Miami Beach Watersport Center, Inc. Response:
Subleases for Miami University and Barry University - The Center accepted the lease
agreements signed by the assistant city attorney as valid and approved. We were unaware
the agreement with Hydrow Inc also required city manager approval. Our understanding
was "tenants" referred to year-round tenants only. If Hydrow requests to return in the
future, we will submit any agreement for the city manager's approval.
OPPORTUNITIES FOR IMPROVEMENT
The following observations were noted by the OIG and are presented as opportunities for
improvement:
1. Amortization of the unsecured promissory note
A Commission Memorandum dated January 13, 2021 reported that the Finance and
Economic Resiliency Committee (FERC) discussed the request of the Watersports Center
for a new nine-year lease, in order to amortize a portion of the Capital Contribution
Balance, and found the request to be reasonable, when comparing the term of the Lease
Agreement with other non-profit entities similarly situated. FERC recommended in favor
of approving a new nine-year lease based upon listed essential terms.
The OIG Auditor reviewed the financial statements of the Watersports Center, audited by
Menendez & Company CPA for the years ended June 30, 2021, and 2020, as well as for
the years ended June 30, 2020, and 2019.
Note 4 in the audited financial statements for the years ended June 30, 2021, and 2020
stated, "In 2003, the Organization issued an interest-free unsecured promissory note to
the Shane Family Foundation Corporation, which was founded by the Chairman of the
Organization's Board of Directors, in exchange for cash. The promissory note was
amended in 2011. The promissory note provides for quarterly principal payments in the
amount of $1,500 through November 2154 with the remaining principal balance due in
December 2154. There were no loan payments made during the year. The note had an
outstanding balance of $792,000 as of June 30, 2021, and 2020, respectively."
Page 10 of 16
Maturities of the note payable by the Watersports Center to Shane Family Foundation
Corporation subsequent to June 30, 2021, are as follows:
2022
2023
2024
2025
2026
Thereafter
$6,000
6,000
6,000
6,000
6,000
762,000
$792,000°
Furthermore, Article Ill - Amount of Rent of the Lease Agreement requires the
Watersports Center to pay an annual rental of ten dollars ($10.00) to the City. Meanwhile,
the audited financial statements report "In-kind contributions" for the leased facility to equal
an average of $273,891 per year ($268,485 for 2019 + $273,855 for 2020 + $279,332 for
2021 )/3 years) under the Revenues. Gains, and other Support in-kind contributions line
item (see below).
Revenues, Gains and other support 2019
$ 349,007
$ 186,989
$ 210,164
$ 242,797
$ 268,485
$ 13,819
Membership dues
Facility fees
Program fees
Contributions and grants
In-kind Contributions
Forgiveness PPP loan
Net gain on sale of assets
2020
$ 390,124
$ 108,439
$ 143,304
$ 127,039
$ 273,855
$ 75,400
$ 2,080
2021
$ 352,015
$ 105,511
$ 210,528
$ 143,718
$ 279,332
Total $ 1,271,261 $ 1,120,241 $ 1,110,304
Note 2 of the reviewed financial statements stated, "...in-kind contributions consisted of
the use of land and facilities leased from the City of Miami Beach, see Note 5." Note 5
further stated, "...Annual Rent of $10 for the leased property. is below fair market value.
Accordingly, the fair market value of the annual rent is determined each year by the
Organization's management, and the difference between the fair market value and the
$10 rent is recorded as an in-kind contribution and expense in the accompanying
statement of activities. The in-kind contribution and expense for the year ended June 30,
2021 and 2020 was $279,332 and $273,855, respectively."
Recommendation(s)
Although it does not necessarily directly affect the City, it is recommended that the
Watersports Center apply a larger portion of the monies saved in rent toward reducing the
balance of its loan due to the Shane Family Foundation Corporation ($273,891 average
saving per year). The faster repayment of the unsecured loan to the Foundation would
better protect the Watersports Center if the current Lease Agreement is not renewed by
the City upon expiration and would better align with the essential terms approved by the
FERC.
For example, if the lessee were able to increase its quarterly installment payments to
$22,000 ($88,000 yearly), it should be able to fully repay the Shane Family Foundation
Corporation prior to the expiration of the current Lease Agreement on December 31, 2030.
An annual loan payment of $88,000 represents 7.92% of the lessee's 2021 audited total
Page 11 of 16
revenues ($88,000/$1, 110,304) and 32.13% of the average savings per year
($88,000/$273,891 ).
Asset Management Division Response:
Although it does not necessarily directly affect the City, it is recommended that the
Watersports Center apply a larger portion of the monies saved in rent toward reducing the
balance of its loan due to the Shane Family Foundation Corporation ($273,891 average
saving per year). The faster repayment of the unsecured loan to the Foundation would
better protect the Watersports Center if the current Lease Agreement is not renewed by
the City upon expiration and would better align with the essential terms approved by the
FERC.
Miami Beach Watersport Center, Inc. Response:
The OIG recommendation is being forwarded to the board treasurer for review and
consideration.
2. Re-selling of Parking Department hangtags sold at cost to the lessee
The OIG Auditor discovered that the Watersports Center sells hangtags allowing vehicles
to park in the City owned P82 lot located at 6500 Indian Creek Drive in front of the Ronald
W. Shane Center. The P82 lot contains a total of 71 parking spaces available for public
parking.
When questioned, the Executive Director of the Watersports Center responded that "the
center purchases the parking tags annually in an agreement with the parking department".
These hangtags are purchased from the City Finance Department's Customer Service
Division. The OIG Auditor contacted the Customer Services Manager, who explained that
the City sold reusable hangtags annually at cost to the Watersports Center for the P82 lot
and provided the following chart showing related sales made since 2008:
MIAMI BEACH WATERSPORTS CENTER, INC.
Date Quantity $ Per Unit Total EXPIRATION
9/12/2008 300 $ 1.27 $ 381.00 9/30/2009
9/21/2009 300 $ 0.76 $ 228.00 9/30/2010
9/27/2010 300 $ 1.76 $ 528.00 9/30/2011
9/8/2011 150 $ 0.76 $ 114.00 9/30/2012
9/13/2012 150 $ 1.67 $ 250.50 9/30/2013
9/23/2013 150 $ 2.78 $ 417.00 9/30/2014
9/12/2014 250 $ 2.48 $ 620.00 9/30/2015
9/10/2015 200 $ 2.61 $ 522.00 9/30/2016
9/8/2016 200 $ 2.61 $ 522.00 9/30/2017
9/6/2017 125 $ 3.09 $ 386.25 9/30/2018
9/7/2018 125 $ 3.18 $ 397.50 9/30/2019
9/10/2019 125 $ 2.22 $ 277.50 9/30/2020
9/22/2020 125 $ 3.18 $ 397.50 9/30/2021
8/17/2021 120 $ 3.28 $ 393.60 9/30/2022
7/8/2022 100 $ 3.52 $ 352.00 9/30/2023
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Although the City does not require the lessee to sign a written agreement related to
subsequent usage of the hangtags, the OIG Auditor's review of financial documentation
provided by the Watersports Center found that the lessee sells these hangtags for a
regular cost of $70 each, but offers them to its customers at $40 each as part of its early
registration bonus.
Recommendation(s)
The City Parking Department should determine whether it is beneficial for the City to sell
the parking hangtags at cost and then to have the Watersports Center re-sell the hangtags
to third parties at a higher cost and retain the difference. The OIG recommends that any
customers receiving a discounted price on their purchase of parking hangtags should be
required to sign in advance a written agreement with the City concerning the permissibility
of their subsequent usage.
Asset Management Division Response:
The City Parking Department should determine whether it is beneficial for the City to sell
the parking hangtags at cost and then to have the Watersports Center re-sell the hangtags
to third parties at a higher cost and retain the difference. The OIG recommends that any
customers receiving a discounted price on their purchase of parking hangtags should be
required to sign in advance a written agreement with the City concerning the permissibility
of their subsequent usage. Claudia Wong of the City's Parking Department communicated
with Elaine Roden of Miami Beach Watersports on January 5, 2023. Ms. Wong agreed
with the OIG findings and will be schedule a formal meeting the Miami Beach Watersports
Center, Inc. to review the proper process of City hang tags.
Miami Beach Watersport Center, Inc. Response:
The hangtag arrangement was made with former parking director Saul Frances and Dr.
Ronald Shane. They had a meeting and agreed the Center could purchase the hangtags
annually and resell them to the membership at a price the Center set. The details from
that meeting were not memorialized, years ago arrangements were often completed
verbally, but our understanding has always been that we had permission to resell the
hangtags and would not have sold them otherwise. They were advertised at $70 but we
don't actually charge that amount. Some were sold for $40 but many are given to
volunteers, the university tenants for team vans, trainers, coaches, and rowers on
scholarships. We would like to have the ability to cover the cost of the hangtags, but we
will follow the direction from the Parking Department in this matter.
3. Repairs and Maintenance responsibilities
Article XVIII Section18.1 of the Lease Agreement provides as follows: the Lessee
covenants and agrees with the Lessor that during the Lease term, exclusive of the Lessor's
Maintenance Responsibilities, the Lessee will keep in good State of maintenance and
repair any and all buildings and other improvements, fixtures and equipment upon the
Demised Premises; Lessee will not suffer or permit any strip, waste or neglect of any
buildings and improvements; and the Lessee will perform day-to-day housekeeping and
janitorial services and the repair and replacement of all improvements, fixtures, and
equipment on the Demised Premises, including interior plumbing and interior electrical
repairs; maintain the elevator (maintenance and repair agreement) and HVAC (routine
maintenance agreement solely); and maintain the interior paint, as often as it may be
necessary to keep the interior of the buildings and improvements, fixtures and equipment
on the Demised Premises in a good state of repair and condition (collectively, "Lessee's
Maintenance Responsibilities).
Page 13 of 16
Article XIX Lessor's Maintenance responsibilities states as follows: Except as expressly
provided in this Lease, it is understood by the parties hereto that Lessor shall be
responsible for the maintenance, and replacement (at Lessor's sole discretion), of the
capital improvements or infrastructure (i.e. including, but not limited to, the roof, structural
elements and infrastructure, HVAC (repair and replacement only), exterior structural
plumbing and sewer lines, and structural electrical, seawall, exterior paint, exterior
windows, etc.) for the Demised Premises (collectively, "Lessor Maintenance
Responsibilities''). Lessee shall provide Lessor with prompt notice of needed capital
improvements or repairs, so that Lessor, in its sole discretion, may prioritize and
appropriate the funds necessary for any needed capital improvements or infrastructure
repairs. Lessor will perform Lessor's Maintenance Obligations in accordance with the
same standards as Lessor provides for other facilities owned or operated by Lessor.
The reviewed maintenance report dated November 3, 2021, performed by the Facilities
and Fleet Management Department Facilities Zone Manager, was provided to the OIG
Auditor on July 26, 2022 by the Executive Director of the Ronald W. Shane Center. The
detailed report assigns responsibility to the appropriate party to perform needed
maintenance and repairs at the facility. Some examples of the needed work involved the
following:
• Exterior Landscaping
• Front door closure
• Emergency lights
• Expired extinguisher
• Broken fountain first-floor gym to the right
• Cleaning of the first-floor vents and first-floor gym men's room vents
• First-floor gym cracked mirror
• First-floor gym women's room sink caulking
• First-floor gym electric outlet
• Rear bay exit light and sign
• 2" floor-high hats
• 28-floor lights
• Elevator certificate
• Exterior strobes
The Asset Management Division Director then provided a July 27, 2022 email to the OIG
indicating the status and associated cost of the items included on the inspection report
responsibility of the Property Management:
• First-floor gym ceiling leak - completed $308.45
• Hurricane windows first floor - Not yet on the capital schedule
• Ceiling hole first-floor gym 2- Completed $48.69
• Ceiling water in ducts - Roof Project to be completed in 2022
• Rear exit gym steps concrete - Completed $133.74
• Rear gym sealing around ducts - Completed $279.61
• Garage doors rusting - Completed $2,008.26
• Rear bay exterior lights - Completed $1,448.10
• Rear bay doors rusting - Completed
Page 14 of 16
• Rear bay floor vents - Completed $221.60
• Rear building hose connection-Completed $63.53
• Exterior painting and cracks - Completed $1,260.00
• 24floor missing ceiling tiles - Completed $1,586.85
• 2%-floor ceiling leaks - Roof Project to be completed in 2022
• Conference room ceiling holes - Completed $1,572.23
• Auditorium vents - Completed $54.40
• Ceiling cracks 2° floor hallways - Completed $1,620.00
• Chartering - Reported to Code Compliance
• Dock - Not complete Capital Improvement Project in 2023
• Iguanas - Citywide project, which is ongoing and not part of this Agreement
• Electrical panel outside - In Progress/waiting on parts, Estimate replacement cost
$7,231.50
• Exterior paint - Completed $1,288.45
Recommendation( s)
The OIG Auditor recommends that in the future the City consider the repairs and
maintenance needed by aging City-owned buildings in its future Lease Agreements during
negotiations to determine any monies due from the lessee. The OIG suggests the creation
of a standardized formula to determine an equitable rent based on such factors as the
community goodwill fostered, the value and age of the facility, etc. that should be
consistently applied to prospective lessees.
Asset Management Division Response:
The Asset Management Division agrees with the OIG's observation. This practice is
already in place. The Asset Management team has budgeted "property condition
assessments" for such future lease agreement negotiations.
4. Resort tax monies may be due to the City from the sale of food and beverages at future
special events held at the Ronald W. Shane Center
Although no special events were held during the audit period at the Ronald W. Shane
Center based on the furnished documentation, OIG staff noted that the Lease Agreement
does not include a provision requiring the lessee to remit any associated resort taxes due
to the City.
Chapter 102, Article IV, Division 4, Sec. 102-307(a) of the City Code imposes a tax (Resort
Tax) of four percent on the rent of every occupancy of a room or rooms in any hotel, motel,
rooming house, or apartment house in the City, and two percent upon the total sales price
of all applicable items of food, beverages, alcoholic beverages, or wine sold at retail of
any restaurant. A restaurant is further defined as: "any business or place for serving food
or refreshments required by law to be licensed by the hotel and restaurant commission of
the state, or any premises licensed by the city for sale of intoxicating liquor or wine."
Section 4.1 of the Lease Agreement states, " ... The Facility shall not be used as a
restaurant or bar; however, there may be catered events (e.g., picnic, barbeque, dinner,
luncheon, etc.), conferences and meetings and other activities typical of a hall for hire."
The Office of the City Attorney has previously opined to the OIG that any prepared food
products served by caterers operating from a permanent physical (business) location in
Miami Beach are subject to resort tax food and beverage provisions.
Page 15 of 16
Recommendation( s ):
The Lease Agreement should be amended to include a provision to ensure that the City
receives any resort taxes due stemming from rentals of the Ronald W. Shane Center.
Asset Management Division Response:
Ms. Roden of Miami Beach Watersports has been made aware of the resort tax fee
program. If and when the facility reinstates private, catered parties, they will enforce (via
their venue contract) the required City Resort Tax payment by the caterer. The Asset
Management Division will discuss further with the City's Legal Department to determine
the possibility of amending this Agreement to incorporate such language into the
Agreement.
Miami Beach Watersport Center, Inc. Response:
The Center has not rented the facility to the public for events since February 2020. The
rental operation did not resume after the Covid pandemic closure and there are no plans
to resume a rental operation at this time. If that changes, we are aware resort taxes may
be due to the City and the center will be in compliance with the requirement.
Respectfully submitted,
dz
cc: Alina T. Hudak, City Manager
Eric Carpenter, Deputy City Manager
Adrian Morales, Facilities and Fleet Management Department Director
Marla Alpizar, Human Resources Department Director
Sonia T. Walthour, Human Resources Assistant Director
Elaine Roden, Miami Beach Watersports Center, Inc. Executive Director
OFFICE OF THE INSPECTOR GENERAL, City of Miami Beach
1130 Washington Avenue, 6 Floor, Miami Beach, FL 33139
Tel: 305.673.7020 • Fax: 305.206.5509 • Hotline: 786.897.1111
Email: CityofMiamiBeachOIG@miamibeachfl.gov
Website: www.mbinspectorgeneral.com
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