State Beachfront Management Agreement (City Operational)MIAMI BEACH
BUDGET AND PERFORMANCE IMPROVEMENT
Internal Audit Division INTERNAL AUDIT REPORT
TO: Jorge M. Gonzalez, City Manager
VIA: Kathie G. Brooks, Budget and Perfor,rnqnc;e Improvement Director
James J. Sutter, Internal Audito~,,,z:)/LV FROM:
,_/"
DATE: March 31 , 2008 I
AUDIT: State Beachfront Management Agreement (#3595) Operational Review
October 1, 2006 through September 30, 2007 PERIOD:
This audit report is the result of reviewing the operational controls surrounding the City's managing
of the State Beachfront Management Agreement No. 750-0006 dated February 3, 1982 and the
corresponding first amendment extending its terms through February 7, 2032. A separate audit
report focusing on our financial review was issued to the State in accordance with the agreement.
INTRODUCTION
State Beachfront Management Agreement No. 3595 requires that the City of Miami Beach remit to
the Florida Department of Environmental Protection 25% ("sand tax") of any and all monies the City
collects from private concerns for the use of State beachfront property. In addition, in accordance
with state statutes, the City collects sales tax along with the beachfront rental revenue, and remits
same to the State. There are three categories of beachfront property users:
• Operators of beachfront concessions seaward of Lummus Park, Ocean Terrace, North
Shore Open Space Park and Pier Park (Boucher Brothers and Penrod Brothers,) who pay
for use of the beachfront as per their respective contractual agreements.
• Miami Beach hoteliers and condominium associations, which pay beach upland fees to the
City on an annual basis, at the same time that they pay their Occupational License fees.
• Members of the public who run organized, usually one time only, events on the beach, such
as weddings, volleyball tournaments and corporate affairs. These are called Special Events,
and payments are remitted to Tourism and Cultural Development.
The following table lists the State's sand tax portion (25%) of the monies collected by the City for the
use of State beachfront property for the City's last three fiscal years:
*
Category FY 2004/05 FY 2005/06 FY 2006/07 * Total
Beachfront Concessions $134,293 $125,558 $150,111 $409,962
Hoteliers and Condo Associations $29,676 $31,476 $33,664 $84,816
Special Events $25,646 $34,328 $22,856 $82,830
Total $189,615 $191,362 $206,631 $587,608
This column's figures represent the amounts that should have been paid to the State of Florida and not those
actually paid. The $539.59 underpayment listed in finding #1 should accompany the next quarterly payment
due April 20, 2008.
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Internal Audit Report
State Beachfront Management Agreement Operational Review (#3595)
March 31, 2008
OVERALL OPINION
Miscellaneous Cash Receipts and Payment Vouchers were accurately calculated and separated into
the appropriate general ledger accounts. In addition, this data along with upland fee revenues was
properly entered into the City's Financial System and/or the Special Events Fee Log. However, the
City inadvertently underpaid sand tax totaling $539.59 to the State of Florida during the past fiscal
year as shown in the attached schedule.
In summary, the following shortcomings were noted and are in need of improvement (see detailed
findings below):
• The City inadvertently underpaid the State of Florida by a net total of $539.59 due to incomplete
and/or inaccurate calculations.
• Sales tax on upland fees was not collected, imputed or forwarded to the State of Florida during
the past five fiscal years. The Finance Department contends that these upland fees are
collected as a license fee rather than rent and should be exempt. We believe that the City
should seek a formal opinion on whether these fees are subject to the State's sales tax.
• General ledger account 601-7000-229068 (sand tax) erroneously contained a credit balance at
year end when it should be a pass through account.
• The upland sand tax payment was incorrectly posted to vendor identification number 014771
entitled the Department of Natural Resources.
PURPOSE
The purpose of this audit is to determine whether the City complied with State Beachfront
Management Agreement No. 3595 by accurately calculating, timely remitting and properly recording
sand tax monies to the Florida Department of Environmental Protection equal to 25% of any and all
revenues collected from private concerns for the use of State beachfront property.
FINDINGS, RECOMMENDATIONS AND MANAGEMENT RESPONSES
Finance Department
1. Finding: State's 25% portion of sand tax not paid correctly
Internal Audit's testing found a variety of calculation errors by the Finance Department
causing both sand tax underpayments and overpayments to the State of Florida during the
fiscal year. The net result was a $539.59 underpayment to be included in the City's next
quarterly payment.
Found underpayments included the Richmond Hotel, Beta Epsilon/Cadillac LLC and Crystal
Beach Development Corporation's upland fee payments received after the 04/02/07 IDS
report was run, incorrect deductions of outstanding license balances that are exempt from
the sand tax (smoke detectors, restaurant, etc.) and an inclusion of exempted revenues
received from the Royal Palm Hotel. Meanwhile, found overpayments included monies
remitted on exempt beach concession license fees and the duplication of two upland fee
payments (Riutel Florida and II Villagio Condominium).
Page 2 of 7
Internal Audit Report
State Beachfront Management Agreement Operational Review (#3595)
March 31, 2008
Recommendation ( s ):
The $539.59 underpayment to the State of Florida should be added to the City's next sand
tax payment. Greater care should be taken to ensure that remitted sand tax payments are
complete and accurate.
Management Response:
Finance will include the $539.59 payment on the next scheduled remittance to the Florida
Department of Environmental Protection quarterly payment.
2. Finding: Applicability of sales tax on beach upland fees
The City's Finance Department has not collected sales tax from hoteliers and condo
associations for at least the past five fiscal years when they pay beach upland fees as part of
their annual occupational license fees. Neither has the tax been imputed from the amounts
received, nor has it been sent on to the State. Conversely, the fees collected from the
beach concessionaires and Special Events permittees for the use of state beachfront
property were noted to include sales tax, which was forwarded to the State. According to the
Florida Department of Revenue, the collection of sales tax is required when there is rental of
real property. We believe that these fees maybe subject to the sales tax in a similar manner
as those collected for other beach concessionaires since they represent agreements to
operate beachfront concessions.
The following lists the amounts of upland fees collected and the amount of sales tax liability
calculated if imputed at 7% for the last five fiscal years:
FY 2002/03 FY 2003/04 FY2004/05 FY 2005/06 FY 2006/07 Total
Upland Fees $138,380 $144,800 $118,705 $125,558 $134,656 $662,099
Collected
Sales Tax $9,053 $9,473 $7,766 $8,214 $8,809 $43,315
Imputed
Recommendation(s ):
The Finance Department's position of not collecting sales tax is based upon the method of
collection. They contend that it is collected as a license fee rather than rent. While this may
raise a valid argument for its exclusion, the Finance Department should further research this
subject and obtain documentation stating which position is correct. This item is a
continuation from last year's audit report as no known opinion has been rendered to date.
If deemed taxable, the feasibility of collecting the sales tax from the hoteliers and condo
associations at the time that the beach upland fees are paid, along with occupational license
fees, should be explored. Otherwise, the City may also be able to exclude future sales tax
remittances for its beach concessionaires.
Management Response:
The Finance Department believes that the Upland Fee is for the privilege to do business.
However, we will continue to get clarification on the taxability of the fee. If this fee is
determined to be taxable, we will apply sales tax on a go forward basis.
3. Finding: Incorrect general/edger balance
General ledger account number 601-7000-229068 (Florida Dept Natural Resources
Taxation) is increased by the recording of any sand tax revenues received during the fiscal
Page 3 of 7
Internal Audit Report
State Beachfront Management Agreement Operational Review (#3595)
March 31 , 2008
year and decreased by the corresponding payments made to the State of Florida. This
account is used as a pass through and any balance remaining after period ending should be
paid within 20 days after the close of the period. However, the account had a
$16,822.01 credit balance at year end while the subsequent check paid on 10/18/07
amounted to $6,277.80 apparently indicating that the Finance Department did not reconcile
this account prior to closing the year.
Attempts to determine the root cause of the credit balance were hindered by the lack of an
adequate description in the general ledger. Entries merely listed "LI receipt posting" for
license receipt posting and did not list the corresponding vendor making searches more time
consuming. Sampled entries indicated that the credit balance was due primarily to the
inclusion of such previously exempt license fees as beach concession-food, water sports
and equipment costing $604 annually each. These license fees were correctly exempted
from sand tax when previously calculated in Permits Plus but were incorrectly included
following the City's August 2007 conversion to the Eden System's Licensing Module.
Recommendation(s}:
The Finance Department should closer review general ledger accounts prior to fiscal year
end to ensure their accuracy. Eden representatives should also be contacted to change the
description field from "LI receipt posting" to the name of the vendor making the payment to
help facilitate reconciliation. Going forward, sand tax should not be remitted on received
beach concession license fees.
Finally, the Finance Department should review all entries causing the $16,822.01 credit
balance and make any needed correcting journal entries. Those involving exempt beach
concession license fees should be reclassified to the City's general fund.
Management Response:
The Finance Department has set up the payment of these concessionaire fees to
automatically split the 25% to a Liability account. Finance has reconciled the September 30,
2007 year end balance of $18,280.13 and remitted the check promptly together with the
$539.59 in item 2.
4. Finding: Financial posting to two different vendor accounts
Typically, one vendor number should be assigned to each vendor in the City's Financial
System and all relevant transactions should be entered under that number. Otherwise, this
decentralization of data for the vendor results in excessive vendor accounts thereby
confusing the users. Although an improvement over the prior fiscal year's entries, review of
the City's Financial System entries showed that the fiscal year 2006/07 quarterly sand tax
payments were posted to two different vendor numbers/accounts.
The Finance Department issued four quarterly checks for revenues received from
beachfront concessions and special events to the Florida Department of Environmental
Protection or vendor identification number 006672. Meanwhile, the upland fee sand tax
payment was sent to the Department of Natural Resources or vendor identification number
014771. Subsequent inquiries were unsuccessful in trying to determine the reason for the
existence of the two vendors.
Recommendation(s }:
Both of the aforementioned vendor accounts presently remain open but the preferred
approach is to close 014771 and have all subsequent sand tax entries made to vendor
Page 4 of 7
Internal Audit Report
State Beachfront Management Agreement Operational Review (#3595)
March 31, 2008
identification number 006672. The Finance Depa1iment should periodically sort through the
current vendor accounts in an effort to purge or eliminate any unnecessary duplication.
Management Response:
Finance is in the process of reviewing the multiple vendors' setup for the Florida Department
of Environmental Protection and will update the vendor files accordingly to simplify and leave
only one vendor with all the history of payments.
EXIT CONFERENCE
An exit conference was held on March 5, 2008 in the Finance Department. Participants included
Georgina Echert (Assistant Finance Director), Raul Soria (Revenue Manager), James Sutter
(Internal Auditor) and Mark Coolidge (Senior Auditor). All parties were in agreement as to the
contents of this report. Management responses were solicited and included in our report.
JJS:MC:mc
Audit performed by Mark Coolidge
cc: Patricia Walker, Chief Financial Officer
Georgina Echert, Assistant Director, Finance Department
F:\obpi\$AUD\DOC07-08\REPORTS-FINAL\BEACH 07 CITY RPT.doc
Page 5 of 7
Internal Audit Report
State Beachfront Management Agreement Operational Review (#3595)
March 31, 2008
CONCESSIONAIRE
1500 Ocean Drive Associates
2 2201 Collins Avenue, LLC
3 Alexander Hotel
4 Arden Savoy
5 Art Center South Florida
6 Avista Studios
7 Best Western Atlantic Beach
8 Beta Epsilon/Cadillac LLC
9 BGW Design Limited
10 Blue and Green Diamond
11 Boucher Brothers
12 Continuum on So. Beach
13 Crystal Beach Development
14 CSC Traymore
15 Days Inn Art Deco
16 Days Inn Oceanside
17 Deco Productions
18 Decoplage Condo Assn.
19 Delano Hotel
20 Doubletree Surfcomber Hotel
21 East End Volleyball
22 Eden Roc Hotel
23 Exclusive Marketing Inc.
24 Fontainebleau Hotel
25 Four Points/Sheraton
26 Frere Independent
27 Hello Florida Inc.
28 Holiday Inn Miami Beach
29 Hospitality by Brenda Gordon, Inc.
30 II Villaggio Condo Assn.
31 Innovative Events
32 Katrina's/The Bath Club
33 Lead Dog Marketing Group
34 Marseille Hotel
35 Miami Beach Marriott
36 On Board Entertainment
37 Palms South Beach
38 Penrod Brothers
39 Polo Line LLC
40 Quality Inn
41 Regency Party Rentals
42 Riande Continental Hotel
43 Richmond Hotel
44 Riutel Florida
SCHEDULE OF FEES COLLECTED
BEACHFRONT MANAGEMENT AGREEMENT
FISCAL YEAR 06/07
TOTAL FEES*
$1,792.00
5,664.00
3,680.00
1,200.00
6,308.40
5,887.84
3,264.00
4,208.00
3,785.04
0.00
583,457.40
5,024.00
1,344.00
1,376.00
2,336.00
2,128.00
1,373.84
10,000.00
3,328.00
1,760.00
446.52
5,600.00
3,709.08
10,000.00
3,456.00
747.68
2,989.72
3,968.00
175.24
2,032.00
560.76
3,200.00
140.60
1,808.00
3,776.00
8,859.80
3,936.00
58,999.40
4,759.04
3,600.00
1,404.68
4,016.00
1,712.00
4,544.00
$1,344.00
4,248.00
2,760.00
900.00
4,731.30
4,415.88
2,448.00
3,156.00
2,838.78
0.00
437,593.05
3,768.00
1,008.00
1,032.00
1,752.00
1,596.00
1,030.38
7,500.00
2,496.00
1,320.00
334.89
4,200.00
2,781.81
7,500.00
2,592.00
560.76
2,242.29
2,976.00
131.43
1,524.00
420.57
2,400.00
105.45
1,356.00
2,832.00
6,644.85
2,952.00
44,249.55
3,569.28
2,700.00
1,053.51
3,012.00
1,284.00
3,408.00
Page 6 of 7
25% DUE
STATE
$448.00
1,416.00
920.00
300.00
1,577.10
1,471.96
816.00
1,052.00
946.26
0.00
145,864.35
1,256.00
336.00
344.00
584.00
532.00
343.46
2,500.00
832.00
440.00
111.63
1,400.00
927.27
2,500.00
864.00
186.92
747.43
992.00
43.81
508.00
140.19
800.00
35.15
452.00
944.00
2,214.95
984.00
14,749.85
1,189.76
900.00
351.17
1,004.00
428.00
1,136.00
REMITTED
TO STATE
$362.63
1,416.00
920.00
300.00
1,577.10
1,471.96
816.00
0.00
946.26
158.50
146,498.35
1,256.00
0.00
344.00
584.00
532.00
343.46
2,500.00
832.00
440.00
111.63
1,400.00
927.27
2,500.00
864.00
186.92
747.43
992.00
43.81
430.12
990.69
800.00
35.15
452.00
944.00
2,214.95
984.00
14,749.85
1,189.76
900.00
351.17
1 '143.75
(1,154.13)
2,645.75
OWED
TO STATE
$85.37
0.00
0.00
0.00
0.00
0.00
0.00
1,052.00
0.00
(158.50)
(634.00)
0.00
336.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
77.88
(850.50)
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
(139.75)
1,582.13
(1 ,509.75)
Internal Audit Report
State Beachfront Management Agreement Operational Review (#3595)
March 31, 2008
SCHEDULE OF FEES COLLECTED
BEACHFRONT MANAGEMENT AGREEMENT
FISCAL YEAR 06/07
25% DUE
CONCESSIONAIRE TOTAL FEES* 75% OF TOTAL STATE
45 Ritz Carlton 6,016.00 4,512.00 1,504.00
46 Royal Palm 0.00 0.00 0.00
47 Sagamore Hotel 1,472.00 1,104.00 368.00
48 SC Collins LLC 4,711.68 3,533.76 1,177.92
49 Shelborne Beach Resort 4,080.00 3,060.00 1,020.00
50 Soiree Miami Inc. 280.36 210.27 70.09
51 South Seas Hotel 1,872.00 1,404.00 468.00
52 TBA Global Events 3,271.04 2,453.28 817.76
53 The Bentley Beach 1,744.00 1,308.00 436.00
54 The National 2,560.00 1,920.00 640.00
55 The Raleigh Hotel 1,824.00 1,368.00 456.00
56 The Setai Resort and Condo 4,272.00 3,204.00 1,068.00
57 The Shore Club Hotei/Philips 5,200.00 3,900.00 1,300.00
58 Wyndham Miami Beach Resort 6,864.00 5,148.00 1,716.00
Total $826,524.12 $619,893.09 $206,631.03
*Excludes sales tax
Page 7 of 7
REMITTED OWED
TO STATE TO STATE
1,504.00 0.00
(917.30) 917.30
586.58 (218.58)
1,177.92 0.00
1,020.00 0.00
70.09 0.00
468.00 0.00
817.76 0.00
436.00 0.00
640.00 0.00
456.00 0.00
1,068.00 0.00
1,300.00 0.00
1,716.00 0.00
$206,091.45 $539.59