Parking In-Car MetersH
BUDGET AND PERFORMANCE IMPROVEMENT
Internal Audit Division
TO: Jorge M. Gonzalez, City Manager
INTERNAL AUDIT REPORT
VIA:
FROM:
DATE:
Kathie G. Brooks, Budget and~erf. or ance Improvement Director
James J. Sutter, Internal Audita · .. ~Af--·
November16,2010 ·
AUDIT: Parking In-Car Meters
PERIOD: October 01, 2008 through June 30, 2010
This report is the result of a scheduled audit to verify that proper controls are in place to ensure
the integrity, reliability, and accuracy of revenues and inventory with respect to the Parking In-
Car Meter Program, as well as compliance to rules and regulations.
INTRODUCTION
On September 17, 2008, the Mayor and Commission approved an amendment to the City's
parking rate ordinance which adjusted several rates, including parking meter rates south of 23rd
Street from $1.00 per hour to $1.25 per hour. The changes were conditionally approved subject
to the implementation of an in-car meter program, which would allow residents to receive a 20%
discount for metered parking in this zone; therefore, instead of a $1.25 per hour, bona fide
residents continue to enjoy the $1.00 per hour rate.
The in-car meter is a light-weight, credit card sized personal parking meter that can be used for
the payment of parking fees in areas with existing parking meters or pay and display machines.
This device allows the user to initially purchase and subsequently reload a value of pre-paid
parking time either via telephone with a credit card, through a website, or at the City's Parking
Department. In-car meters are also known as iPark and in-vehicle parking meter (IVPM).
On September 9, 2008, the City entered into an agreement with ePark Systems, Inc for the
purchase of the iPark device and prepaid parking reloads in the amount not to exceed $25,000,
which is within the City Manager's purchasing authority.
Each iPark unit costs $20.00 and this cost is passed on to the user with no up charge or
markups from the City. Reloads are available in $25.00 and $50.00 values. City residents pay
$26.00 when purchasing reloads worth $25.00 and pay $52.00 when purchasing reloads worth
$50.00, while non-residents pay $27.00 for reloads worth $25.00 and $54.00 for reloads
purchased worth $50.00.
iPark sales began on Monday, November 241h, 2008 with results that surpassed Parking
Department's expectations and as a result, the Mayor and City Commission approved an
increase of $75,000 (from $25,000 previously approved to $1 00,000) that could be allocated for
purchasing iPark devices and reloads in an amount not to exceed $100,000 per year.
In-Car meter devices are now available to be purchased at the City's Parking Department
and/or at selected retailers such as Publix and Walgreens. However, iPark devices with
discounts for City residents are exclusively sold at the City's Parking Department.
We ore com milled to providing excellent public service ond solely to o/1 who live, work, one/ piCI)I in our vibront, lropicol, historic community
Internal Audit Report Parking In-Car Meters
November 16, 2010
So far, the program has maintained momentum and the number of individuals benefiting from it
seems to be steadily increasing. To that extent, the following table helps to illustrate actual
participation in the program during our audit period (October 1, 2009 through June 30, 201 0):
Number of iPark devices Number of Reloads
Sold Sold
Fiscal Resident Non-Residents Resident Non-Residents
Year Residents Non-Residents s ($25.00) ($25.00) s ($50.00) ($50.00)
FY 09 2,568 512 1,463 393 1,461 337
FY10* 1,104 405 2,807 646 2,825 778
Totals 3,672 917 4,270 1,039 4,286 1,115
*: The numbers reflected for F1scal Year 2010 represent 8 months (Oct. 1, 2009-June 30, 201 0)
OVERALL OPINION
Along with the increase in participation and popularity of the in-vehicle meter program, the
Parking Department has been successful at documenting and communicating procedures to be
consistently applied and followed regarding the software used and operations related to the
program. The department has also succeeded in establishing a consistent inventory monitoring
and quarterly reconciliation including a physical inventory count. However, the following areas
within the operation were identified in need of correction and/or improvement:
1. Costs incurred as a result of the in-car meter program are not being fully recovered.
2. Applicable sales taxes are not being collected in relation to the sale of iPark devices and
prepay time reloads.
3. Purchase of iPark devices, time reloads and related expenses are not performed using a
purchase order. Instead they are being processed as direct payments (DP).
4. General Ledger postings and journal entries currently completed to account for revenues
and expenses as a result of reloads do not correlate to and best describe the nature of
the actual transaction.
Additional details regarding the above findings have been provided on the "Findings,
Recommendations, and Management Responses" section of this report.
PURPOSE
The purpose of this audit is to ensure that proper controls are in place to maintain integrity,
reliability and accuracy of revenues collected under the program. Verify controls and
accountability of inventories purchased as well as compliance to rules and regulations that will
help to sustain the ongoing operations of the in-car meter program.
SCOPE
1. Verify that proper controls are in place to ensure the integrity, reliability, and accuracy of
meter time pre-payments and revenues in relation to this program.
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Internal Audit Report Parking In-Car Meters
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2. Verify in-car meter inventory controls and accountability.
3. Verify compliance to stipulated rules, regulations, and ordinances.
4. Verify that Standard operating policies and procedures are documented and consistently
followed by all personnel.
FINDINGS, RECOMMENDATIONS, AND MANAGEMENT RESPONSES
1. Finding -Costs incurred as a result of the in-car meter program are not being fully
recovered.
According to Exhibit A section 2, paragraph 2.2 of the agreement between the Parking
Department and ePark, the City's vendor for the iPark devices and reloads, a fee of $2.00
is assessed to the City for every reload purchased in increments of $25.00, while a fee of
$3.25 is accessed for every reload purchased in increments of $50.00. Concurrently and
under the same Exhibit A, but section 3, paragraph 3.2, the City is assessed a convenience
fee equal to 5% of the transaction value for every reload that is purchased by the
customers through the internet or through the vendor's telephone network.
Not withstanding and in addition to other discounts already offered for iPark devices
purchased by City residents, including the 20% hourly rate discount when used in the
South Beach Zone and a $10.00 preloaded credit, the Parking department only passes
through to City residents $1.00 of the $2.00 assessed by the vendor for reloads purchased
worth $25.00 and $2.00 of the $3.25 assessed by the vendor for reloads purchased worth
$50.00. As a result, City residents pay $26.00 when purchasing reloads worth $25.00 and
pay $52.00 when purchasing reloads worth $50.00. At the same time, the City incurs a
non-recoverable cost of $1.00 for every reload purchased worth $25.00 and incurs a non-
recoverable cost of $1.25 for every reload purchased worth $50.00 by City residents.
Non-recoverable costs incurred by the City for reloads purchased by City residents are then
off-set by $0.75 for every reload purchased worth $50.00 by non-residents. In the case of
non-residents, the entire reload fee of $2.00 per reload purchased worth $25.00 is passed
through to the customer and a margin of $0.75 is added to the $3.25 reload fee for reloads
purchased worth $50.00. As a result, non-residents pay $27.00 for reloads worth $25.00
and $54.00 for reloads purchased worth $50.00. Considering that some reloads purchased
by either City residents or non-residents (2,986 reloads out of a total of 10,710 reloads
sold) are purchased through the internet and through the vendor's telephone system as a
convenience to customers, as well as to the Parking Department, a non-recoverable cost of
5% of every reload amount is incurred by the City on top and beyond the previously
mentioned costs incurred for reloads purchased by City residents.
Lastly, Internal Audit learned that in order to provide an incentive to retailers, such as
Publix and Walgreens to sale iPark devices for non-resident customers, iPark devices are
sold to them at $19.00 each, instead of $20.00 which is the City's acquisition cost for the
devices. As a result, the City incurs $1.00 of non-recoverable cost for each unit sold to a
retailer. Furthermore, customers who purchase their iPark device at a retailer also have
thirty days to return their iPark to the Parking Department and receive a full $20.00 refund
for their purchase of the iPark. Considering that the iPark was sold at $19.00 to the retailer,
the City incurs another $1.00 of non-recoverable cost for every iPark sold through a retailer
and returned within 30 days of purchase.
In order to better illustrate the overall non-recoverable costs incurred by the City so far
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Internal Audit Report Parking In-Car Meters
November 16, 2010
under this program, we have created the following table using reported figures during our
audit period (October 01, 2008 through June 30, 201 0):
4,270 Resident reloads worth
$25.00
,286 Resident reloads worth
50.00
371 iPark devices sold to
retailers
$115,369 worth of reloads
(reload value) done through
the vendor's web-site and
$1.00 per reload fee
$1.25 per reload fee
$1.00 per unit sold
5% of total reload value
$ 4,270.00
$ 5,357.50
$ 371.00
$ 5,768.45
No units sold at a retailer have been returned within 30 days of purchased. Therefore no
costs have been experienced yet as a result of this type of transaction described above.
Recommendation( s)
The Parking Department should implement a strategy to phase out the $10.00 pre loaded
limited time introductory offer into each iPark sold to residents. Although the strategy has
been used, according to the Parking Department, as a promotion tool to provide an
incentive and increase sales, the program seems to be gaining sufficient momentum,
considering that a 20% hourly rate discount is already provided under this program.
Furthermore, a complete cost per unit analysis should be performed in order to identify any
additional cost incurred by the City on top and beyond the 20% revenue reduction resulting
from discounts already offered to City residents through this program. Once completed, the
Parking Department should go back to Commission to discuss whether to recover all
additional costs incurred through this program or to continue to operate as currently done
despite the additional costs being incurred.
Management's Response( s)
The limited $10 reload offered to City of Miami Beach Residents will be discontinued
effective December 1, 2010, shortly after the two (2) year anniversary of the inception of
the in vehicle parking meter program.
Additionally, we will seek direction from the City Manager's Office on whether or not to
pursue approval from the City Commission regarding recovering the additional costs
incurred.
2. Finding -Applicable sales taxes are not being collected in relation to the sale of iPark
devices and prepay time reloads.
No Sales and Use taxes are being collected for and/or paid to the State by the City in
reference to the sale of the iPark devices and corresponding reloads. As per Title XIV,
chapter 212 of the Florida Statutes, such sale of a tangible personal property is a taxable
transaction. Furthermore, it is the responsibility of the City to collect and pay such sales
taxes to the State.
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Internal 'Audit Report Parking In-Car Meters
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In addition, Internal Audit opines that revenues from reloads should be subject to Sales and
Use taxes considering that the parking rent prepayments are done in denominations of
$25.00 and/or $50.00 only, plus applicable fees.
Moreover, assessing sales taxes on the revenues generated from the reloads represents a
more conservative approach and in our opinion, in the best interest of the City. At a
minimum, considering that reload prepayments can be used to park on off-street as well as
on-street parking spaces, it is reasonable to assess and pay the state Sales and Use Tax
on fifty percent (50%) of the reload amount. Any other approach should be documented
and researched with the Florida Department of Revenue to ensure compliance.
Recommendation( s)
The Parking Department should assess/back-out and pay to the State sales taxes for the
sale of iPark devises and reloads in all future transactions.
Management's Response( s)
Parking Department Administration agrees with these recommendations and will be
implementing them as follows:
• $20 purchase of the iPark device. An additional 7% sales tax will be charged to the
customer at the point of sale of the device effective December 1, 2010, since this will
require software reprogramming by the vendor.
• $25 and $50 reload. As mentioned above, the devices can be used both on-street and
off-street and currently the devices do not provide a way to retrieve historical
information to determine the exact amount of time purchased on-street or off-street.
After further review, we have concluded that the most accurate way to estimate sales
tax for prepaid parking is by utilizing the previous year's total on-street and off-street
revenue recorded for multi-space and single space meters and utilize the off-street
revenue percentage as the baseline to calculate sales tax remittance to the State.
This method of calculating taxes will be retroactively effective to October 1, 2010.
3. Finding -Purchase of iPark devices, time reloads and related expenses are not performed
using a purchase order. Instead they are being processed as direct payments
(DP).
City purchases of iPark devices are not being performed using a Purchase Order (P.O.), as
best practices would require. Instead, every vendor invoice is being paid through Direct
Payment (DP). Considering that maximum annual amount of $100,000 has been approved
by the Mayor and City Commission under Resolution No. 2009-26983 for the purchase of
in-car parking meters and prepaid parking reloads, creating purchase orders would
contribute to better accountability to ensure that the maximum annual amount is not
exceeded and at the same time maintain better controls through the required approvals.
Recommendation( s)
Purchase Orders (P.O.) should be created in order to purchase iPark devices from the
vendor. In addition a file with each vendor invoice, a copy of the Purchase order, and a
copy of the packing slip and/or bill of lading should be maintained for further reference.
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Internal Audit Report Parking In-Car Meters
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Management's Response(s)
The initial process or recording ipark sales and the payment to the vendor was set-up in
conjunction with the Finance Department, as most of these fees are a pass-through to the
vendor. The Parking Department Administration met again with the Finance Department
and the Procurement Department to determine the best way to address these concerns.
As a result of this meeting, a new inventory expense account has been created, in lieu of a
balance sheet inventory account. A purchase order will be open with this account in order
to pay for the devices and the revenue received for the purchase of the devices will also be
recorded in this inventory expense account.
Additionally, the reload fees collected will be recorded as miscellaneous revenue instead of
the deferred revenue account that was later utilized to pay the vendor for these fees.
These fees will instead be paid to the contractor from a parking operating expense account
through a purchase order.
4. Finding -General Ledger postings and journal entries currently completed to account for
revenues and expenses as a result of reloads do not correlate to and best
describe the nature of the actual transaction.
Currently the following transaction is recorded on the City's General Ledger as a result of
the sale of reload time for the iPark devices:
1) For sale of resident reloads worth $25.00:
Cash ................................................ $26.00
Revenue ............................................. $24.00
Vendor Fees Payable ........................... $ 2.00
Once the reload fees are paid to the vendor, then the transaction is recorded as follows
using the same example above:
Vendor Fees Payable ........................... $ 2.00
Cash .................................................. $ 2.00
The same rationale is used when recording the sale of reloads to customers despite the
reload's amounts worth. As a result, fees assessed to the Parking Department by the
vendor are treated as if they were collected from the customers on behalf of the vendor.
However, reload fees assessed by the vendor represent a contractual obligation for the
Parking Department. At the same time, customers who purchase the reloads have no
obligation with the vendor regarding any fees assessed to the Parking Department. The
Parking Department in its sole discretion may increase the purchase price of the reload to
cover for the additional cost incurred as a result of the fees assessed by the vendor, which
constitutes additional revenues from the transaction. In addition, there is no authority for
the Parking Department to collect any fees on behalf of a vendor. Continuing to record
reload transactions in this manner also results in an understatement of revenues and
expenses in relation to this program.
Recommendation( s)
Instead of the current method used to record transactions resulting from the sale of iPark
reloads, Internal Audit recommends the following method and rationale:
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Internal Audit Report Parking In-Car Meters
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Using the same example in the above finding:
1) For sale of resident reloads worth $25.00:
Cash ................................................. $26.00
Vendor Fees-Expense ......................... $ 2.00
Revenues-Parking ............................... $25.00
Revenues-Reload Fee ......................... $ 1.00
Vendor Fees Payable ............................ $ 2.00
Once the Fees are paid to the vendor then the transaction should be recorded as
follows:
Vendor Fees Payable ........................... $ 2.00
Cash .................................................. $ 2.00
Using this method also helps to properly account for revenues subject to Sales and Use
Tax as required by the Florida Department of Revenue and better account for revenues
and expenses as a result of these transactions. Communications with the Finance
Department regarding our recommendation were successful, as the change in method
does not create a major accounting change or require additional resources from the
Finance Department. No objections were expressed during our communications.
The Parking Department should implement the recommended methodology and rationale
to record transactions as a result of the sale of reloads as soon as possible. In addition,
this method and rationale should be consistently used when recording the sale of reloads in
accordance to the reload value.
Management's Response(s)
Parking Management agrees with Audit's recommendation and as mentioned above has
met with Finance and the necessary changes have been made to the parking revenue
system in order to properly record the revenue as detailed above.
EXIT CONFERENCE
An exit meeting was held on October 22, 2010 to discuss the audit report and to solicit
management responses noted above. Attendees were Saul Frances, Parking Director, Charles
Adams, Parking Assistant Director, Greeten Steele, Senior Administrator Manager, Rocio
Rodriguez, Financial Analyst Ill, Sasha Gonzalez, Customer Service Liaison, James Sutter,
Internal Auditor and Fidel Miranda, Auditor. Management responses were received shortly
thereafter. All were in agreement with the contents of this report.
Audit performed by Fidel Miranda, Auditor
F:lobpi\$AUD\INTERNAL AUDIT FILESIDOC09-10\REPORTS-FINAL\PARKING IN-CAR METERS.docx
cc: Jorge Gomez, Assistant City Manager
Saul Frances, Parking Director
Charles Adams, Parking Assistant Director
Patricia Walker, Chief Financial Officer
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