North Beach Development Corp.MIAMI BEACH
BUDGET AND PERFORMANCE IMPROVEMENT
Internal Audit Division
TO: Jorge M. Gonzalez, City Manager
INTERNAL AUDIT REPORT
VIA:
FROM:
DATE:
Kathie G. Brooks, Budget and P~rt rmance Improvement Director
James J. Sutter, Internal Auditor (/Jl
October 28, 2008
AUDIT:
PERIOD:
North Beach Development Corporation Audit
October 1, 2006 through March 31, 2008
This is a regularly scheduled audit of a non-profit agency receiving monies annually from the City's
General Fund Citywide accounts.
INTRODUCTION
The North Beach Development Corporation or NBDC was first founded in 1983 as Normandy
lsle/71 st Street Association; it was incorporated as a non-profit 501 (c)3 entity under its present name
in 1988. Since its inception, NBDC has been dedicated to promoting the commercial and residential
development of North Beach, encouraging physical revitalization of the area, and enhancing and
improving the quality of life for its residents. The specific geographical location of the community is
described as being bounded by 63rd Street on the south, 8ih Terrace on the north, the Atlantic
Ocean on the east, and Biscayne Bay on the west.
NBDC numbers among its achievements the North Beach Fac;:ade Renovation Program, which
provided financial assistance to property and business owners to refurbish the physical appearance
of their properties. The Fac;:ade Renovation Program ran from 1993 to 2005 and assisted
approximately fifty owners, providing a total of $5,000,000 over the duration of the program.
NBDC also played a vital role in the renovation of the Byron-Carlyle Theatre, which reopened in
2004 as a multi-use performance space. They were also active in supporting the construction of the
North Shore Youth Center and is working to position the North Beach Band Shell as a vital
performance space for the community. Finally, NBDC also works with developers, providing
community feedback and support for new construction in North Beach.
The NBDC is governed by a Board of Directors with its corporate offices presently located at 7 455
Collins Avenue, suite #207. Membership is open to all persons 18 years of age and older who
reside, own property, own a business or work in the North Beach area. There shall be an annual
meeting of members to elect directors and conduct any other business as might come before the
meeting. Board meetings shall be held at least four times each year.
The Miami Beach Festival of the Arts established in 197 4 was produced by the City's Fine Arts
Board until 2004. At that time production was outsourced to NBDC, which staged the next four
events with the help of an annual $75,000 allocation from the City. However, the 2008 Festival of
the Arts was produced by the City due to NBDC's financial difficulties and the loss of their President
and Executive Director prior to the event's start.
NBDC received monies from a grant with the Miami-Dade County Tourist Development Council, as
well as from donations, memberships and fundraisers during the audit period. In addition, the City
provided NBDC with the following grant revenues:
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Internal Audit Report
North Beach Development Corporation Audit
October 28, 2008
FY 2006/07
NBDC $20,000
Festival of the Arts $75,000
Total $95,000
FY 2007/08 Total
$20,000 $40,000
$0 $75,000
$20,000 $115,000
The City provided NBDC with the above funds through the City Budget's General Fund Citywide
Accounts under the City Service expenditure category (Special Projects). There is no written
funding agreement with the City specifying how the supplied funds should be spent and what
corresponding reports are to be filed. To receive the funds for the annual grant, they must first
submit an invoice to the City's Finance Department requesting payment. The check is subsequently
issued and the monies are deposited into the NBDC's main bank account to pay general operating
expenditures. For the Festival of the Arts grant, invoices were submitted for partial amounts and the
monies were deposited into a separate bank account to pay for expenses relating to the Festival.
The agency does not have an annual audit performed by an independent accountant.
OVERALL OPINION
North Beach Development Corporation (NBDC) has experienced difficult financial times, the
disconnecting of members and several changes in leadership during the lastfew years. As a result
the non-profit organization has had to reduce its offered services and programs as it struggles to
maintain financially solvent. New leadership emerged in December 2007 and is trying to reinvent
the organization but first it needs to correct the past's shortcomings. Debts are being paid; trust is
being restored, etc. but it will take time. The following items were noted during testing and are in
need of improvement:
• The accounting records maintained were not always complete thereby hindering
accountability and the audit trail.
• The non-profit organization did not adequately document their expenditures' business
purpose and some payments included late charges and/or exempt taxes.
• Annual for 990 tax returns and certified financial statements were not prepared by an
independent accounting firm during the audit period.
• The City does not presently require non-profit organizations receiving citywide funds to sign
grant agreements to specify how the monies are to be spent, what records should be
provided, etc.
PURPOSE
To determine whether grantee's revenues and expenses related to the City grant were properly
accounted for, recorded and repotied.
OBJECTIVES
1. Confirm that grant revenues received from the City were deposited intact, properly
documented and correctly recorded.
2. Confirm that tested monies were expended for the grantee's specified programs.
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Internal Audit Report
North Beach Development Corporation Audit
October 28, 2008
3. Confirm that annual certified financial statements (if required) were timely submitted, and the
amounts reported therein agree with corresponding amounts previously reported to reports
submitted to the City.
FINDINGS, RECOMMENDATIONS AND MANAGEMENT RESPONSES
1. Finding: Accounting Records Maintenance
North Beach Development Corporation or NBDC's maintained accounting records were
occasionally incomplete. For example, check registers were not always supported by the
accompanying invoices or they did not detail the expenditures' business purpose, names of
attendees, etc. for less obvious purchases like meals, rooms, etc. It was difficult and time
consuming to reconstruct this data due to the amount of elapsed time and the departure of
the previous officers.
Access to prior year's QuickBooks data was initially hindered by confusion over the system
password and the location of needed files. However, this problem was subsequently
rectified and much of the requested data was provided.
In addition, NBDC management did not maintain separate accounting records indicating how
their main revenue sources were spent. This practice is important for grant monies and
other restricted private contributions or future monies may be lost and any misspent monies
may have to be repaid.
Recommendation(s):
Detailed accounting records should be properly maintained in both QuickBooks and their
hard copy files. All invoices should clearly indicate the expenditures' business purpose, the
names of attendees, etc. to facilitate the audit trail. Furthermore, NBDC should prepare
operating policies and procedures as soon as possible which properly explain the
accounting and reporting processes. Policies and procedures serve as an instruction
manual in the event employees leave the organization. Finally, separate accounting files
should be maintained to show how any grant monies and large contributions received were
expended.
Management Response:
Current NBDC management has taken steps to correct the shortcomings of previous
administrations. The organization has been streamlined as there are no longer any full time
employees as we presently depend on dedicated volunteers, including our active and
passionate Executive Board. All current accounting records are properly maintained both in
QuickBooks and in hard copy files and can be reviewed by the City at any time.
2. Finding: Questionable Program Expenditures
NBDC provided sufficient expenditures to justify the receipt of the City funds during the audit
period. However, uncertainty existed over the business purpose of an additional fourteen
checks totaling $5,644, written during the period 10/10/06 to 2/22/07 which lacked
supporting documentation. Seven of these checks were payable to individuals, four to an
event planner, one to a film production company, one to a restaurant and one to cash .. The
$1,690 cash withdrawal on 02/02/07 had nothing present to indicate how it was spent or by
whom.
Reviewed invoices showed that penalties and/or interest were frequently incurred and paid.
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Internal Audit Report
North Beach Development Corporation Audit
October 28, 2008
In fairness to NBDC's current management, these debts were inherited from previous
management but portions were paid by City donated grant revenues. Financial agreements
were made with such vendors as La Gorce Country Club, Sun Sentinel, Pitney Bowes,
Office Depot, etc. whereby reduced amounts were negotiated and paid. Current expenses
have been greatly reduced to compensate for NBDC's smaller revenue intake and recent
invoices are being paid timely to prevent the levying of additional late charges.
NBDC is also exempt from remitting state sales and/or county taxes but several instances
were noted whereby these taxes were inadvertently charged and paid. For example, state
and county taxes were paid on three individuals' room rentals at the Days Inn North Beach
during the 2007 Miami Beach Festival of the Arts.
Recommendation(s):
NBDC management should ensure that all future expenditures are business related, paid
timely, net of taxes and properly supported with documentation.
Management Response:
Again, the previous individuals that were responsible for these expenditures and the
corresponding lack of documentation are no longer associated with NBDC. The current
Administration is closely scrutinizing all monies spent as it attempts to become economically
viable. New agreements are being reached with vendors whereby old debts are being paid
off and more favorable terms are selected for the future.
3. Finding: Annual Tax Returns and Audits Not Prepared
Form 990 is an annual reporting return that NBDC must file with the Internal Revenue
Service. It provides information on the filing organization's mission, programs, and finances
and is due on the 151h day of the fifth month after the end of their accounting period unless
extensions were requested and granted.
Inquiries revealed that NBDC has not filed these tax returns for the past four years as of the
conclusion of this audit. Therefore, they may be subject to a penalty of $20 a day for each
day the return is not filed. The maximum penalty for any one return is the lesser of $10,000
or five percent of the organization's gross receipts for the year. Information has recently
been provided to an independent accounting firm so that these delinquent 990 forms can be
prepared and filed with the Internal Revenue Service.
Similarly, annual financial statement reviews were not performed by an independent
accounting firm during the audit period. Questioned NBDC staffwere unsure ofthe last one
completed but believe it to be circa 2005.
Recommendation(s):
The delinquent form 990s should be filed with the Internal Revenue Service as soon as
possible. Similarly, any late charges levied by the Internal Revenue Service should be paid
promptly. NBDC should also have an independent accounting firm perform annual reviews
of their financial statements which should be submitted to the City within ninety days
following the conclusion of their fiscal year.
Management Response:
NBDC is presently working with a CPA firm to have all the previous IRS form 990s filed.
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Internal Audit Report
North Beach Development Corporation Audit
October 28, 2008
4. Finding: Absence of a Grant Agreement
The City provides grant monies to NBDC annually but does not require a signed agreement
detailing how the funds are to be spent, what reports are to be filed, is an audit or review
required and by when, etc. Therefore, the City has little voice once the funds are disbursed
other than to withhold future contributions and is unsure if the monies were spent properly.
Other organizations like Miami-Dade County and the Miami Beach Visitor and Convention
Authority require that the non-profit organizations sign a grant agreement before issuing any
grant monies.
Recommendation(s ):
The City should research the possibility of securing procure a signed grant agreement
detailing the desired terms that it wants enforced prior to disbursing the designated monies.
Management Response:
The City is researching the options available to formalize the grant process for non-profit
agencies receiving funds through the citywide accounts. NBDC is receptive to this as long
as it applied universally to all organizations receiving monies.
EXIT CONFERENCE
The draft audit report was sent electronically to NBDC's Carol Hausen for review and to solicit
management responses. NBDC's responses were received on 10/28/08 and are included in this
report.
JS:MC:mc
(Audit performed by Mark Coolidge, Senior Auditor)
F:lobpi\$AUD\INTERNAL AUDIT FILESIDOC07-08\REPORTS-Finai\NBDC RPT.doc
cc: Carol Hausen, President, North Beach Development Corporation
Jose Cruz, Budget Officer
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