Boucher Brothers Beachfront Concession Agreement(g M~AMIBEACH
BUDGET AND PERFORMANCE IMPROVEMENT
Internal Audit Division INTERNAL AUDIT REPORT
TO:
VIA:
FROM:
DATE:
AUDIT:
PERIOD:
Jorge M. Gonzalez, City Manager ffi
Kathie G. Brooks, Budget andYJ Prfor ance Improvement Director
James J. Sutter, Internal Auditor #
December 14, 2011
Boucher Brothers Miami Beach, LLC Beachfront Concession Agreement Audit
November 5, 2009 through November 4, 2010 (Concession Agreement Year 9) for
Revenues but was extended through January 31, 2011 for Non-Revenue Items
This report is the result of a regularly scheduled audit of the amended and restated concession
agreement in effect between the City and the Boucher Brothers Miami Beach, LLC for providing
beachfront concessions between November 5, 2009 and November 4, 2010. Lummus Park and
Ocean Terrace site visits were conducted during January 2011 so analysis performed on
products, pricing, signage, etc. was completed as of that time thereby extending the
corresponding audit period.
The concessionaire has properly employed an independent CPA firm to conduct annual reviews
beginning with fiscal year four based on previously adopted agreed upon procedures. The
primary focus of this audit is to test the concessionaire's compliance with topics not addressed
by the external independent auditor.
INTRODUCTION
The adoption of City Resolution 2001-2646 authorized Boucher Brothers Miami Beach, LLC
(concessionaire) to operate the beachfront food, beverage, sundry and equipment rental
concessions at Lummus Park, Ocean Terrace and North Shore Open Space Park as of
November 5, 2001 for five years. The City Administration has since allowed the suspension of
operations in North Shore Open Space Park due to beach erosion and the corresponding
positioning of life guard stations.
The concessionaire is required to remit to the City either a sliding percentage between 15% and
25% of its food and beverage gross receipts (based on volume) and 20% of its sundries and
beach equipment gross receipts, or a first year minimum guaranteed amount of $412,500 and
adjusted annually by 5% per annum, whichever is greater. The initial minimum guarantee
amount was due on March 5, 2002, with all subsequent annual minimum guarantee payments
due on the anniversary date of the Commencement Date (November 51h), and shall be
increased by 5% each year plus 7% state sales tax (concession agreement year nine equaled
$652, 111.90). The fiscal year end settlement or true-up (if applicable as there was none owed
in concession agreement year 9) is due on December 31 51 of each year during the term of the
concession agreement.
The concessionaire also agreed to remit to the City 20% of its water sports rentals gross
receipts, or a minimum guaranteed amount of $30,000 and adjusted annually by 5% per annum,
We are committed to providing excellent public service and safety to all who live, work, and play in our vibrant, tropical, historic community.
Internal Audit Report
Boucher Brothers Miami Beach LLC Beachfront Concession Agreement Audit
December 14, 2011
whichever is greater. Said initial minimum guarantee shall be paid on March 5, 2002, and on
the anniversary date of the Commencement Date (November 51h) each year thereafter, and
shall be increased by 5% each year plus 7% state sales tax (concession agreement year nine
equaled $47,426.32).
The initial five year concession agreement was due to expire on November 4, 2006 but a five
year option period could be exercised pending the approval of both parties. After months of
meetings to discuss and renegotiate certain contract provisions, the City Commission on May
18, 2005 approved changes to the concession agreement via Resolution 2005-25884 thereby
effectuating the terms until November 4, 2011.
The concessionaire subcontracted with Monty's Miami Beach LLC to provide the food and
beverage services on the beaches seaward of Lummus Park. In return, the concessionaire
received each day's source documents (cash register tapes and inventory reports) shortly after
the conclusion of each month. These revenues are included in the concessionaire's monthly
gross receipts, as well as the year end true-up settlement calculations. Additionally, the City's
Resort Tax Section receives a 2% monthly remittance of the subconcessionaire's food and
beverage taxable sales. Monty's Miami Beach LLC's services were terminated in November
2010 as the concessionaire now operates the food and beverage beachfront concessions.
The administration and enforcement of the concession agreement is the responsibility of the
Office of Asset Management. Meanwhile, the Finance Department is responsible for the
processing and recording of any payments received, including remitting 25% to the State of
Florida as a sand tax for monies received from the use of the beaches according to the State
Beach Management Agreement.
Internal Audit reviewed the past three years of reported revenues under the concession
agreement's and their corresponding distribution among the applicable City's general ledger
t rtdbl accoun s as repo e eow:.
*
**
Year? YearS Year9
11/05/07-11/05/08-11/05/09-
11/04/08 11/04/09 11/04/10 Totals
Gross Receipts:
Rentals $2,591,959 $2,594,183 $2,341,009 $7,527,151
Food & Beverage $789,849 $743,471 $454,654 $1,987,974
Water Sports $269,489 $247,420 $214,493 $731,402
Sundries* $0 $0 $0 $0
Total Receipts $3,651,297 $3,585,074 $3,010,156 $10,246,527
Total Payments to City:
Miami Beach Rent Portion $518,074 $509,881 $490,331 $1,518,286
Florida Sand Tax Portion ** $172,692 $169,960 $163,443 $506,095
Total Rent $690,766 $679,841 $653,774 $2,024,381
Florida Sales Tax $48,354 $47,589 $45,764 $141,707
Total Paid $739,120 $727,430 $699,538 $2,166,088
Sundries were last sold by the concessionaire in year 5 of the agreement covering 11/05/05-11/04/06 due to their lack of
demand and profitability. A 01/19/11 site visit found that they are currently being sold again at the food & beverage kiosks
and concessionaire management said that they will be subsequently reported in concession agreement year 10.
State Beachfront Management Agreement No. 3595 requires the City of Miami Beach to remit 25% ("sand tax") of any
and all monies collected from private concessionaires or other private concerns for the use of State beachfront property to
the Florida Department of Environmental Protection.
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Internal Audit Report
Boucher Brothers Miami Beach LLC Beachfront Concession Agreement Audit
December 14, 2011
OVERALL OPINION
The Office of Asset Management stated that they are pleased with the Boucher Brothers overall
performance in providing beachfront concessions at Lummus Park and Ocean Terrace.
Although the inherent risks associated with this cash based business still exist, Internal Audit
was able to achieve a higher comfort level with reported gross receipts due to the
implementation of previous audit recommendations and the annual completion of reports by
independent external companies in adherence with previously approved agreed upon
procedures.
The concessionaire was found to be essentially in compliance with the terms tested in the
amended and restated concession agreement. Reported gross receipts, rental calculations,
and rental payments were timely paid and were essentially correct based on the documents
provided. Also, the City's Finance Department correctly recorded all revenue, state sales tax
and State Beach Management Agreement (sand tax) receipts. Finally, the concessionaire's
business tax receipts and resort tax filings were current as of the completion of this audit and
the required irrevocable letter of credit was maintained.
However, the following items were identified during testing which are in need of corrective
action:
• The incorrect percentage was multiplied by contract year 7's food and beverage gross
revenues resulting in $426.38 (including $27.89 in state sales tax) being owed to the
City.
• A 01/19/11 site visit found that the concessionaire either added products or charged
prices that exceeded those previously authorized by the City Manager in the amended
and restated concession agreement's exhibits.
• The concessionaire has not provided monthly revenue reports in adherence with section
5 of the restated and amended concession agreement. Also, the agreement does not
specify any time frame for which the independent CPA firm's report on agreed upon
procedures is due.
• Miscellaneous shortcomings are addressed such as the 91h Street water sports kiosk
displaying signage of offered products and their pricing without first obtaining City
approval, signed customer water sports agreements did not contain the amount paid and
minor formula errors existed in the concessionaire's Excel spreadsheet which did not
affect the amount owed/paid to the City.
• The concessionaire incurred City Bills totaling $1,113 for sanitation violations during the
audit period that were not initially paid. Upon notification of the outstanding amounts by
Internal Audit, the concessionaire promptly negotiated with the City's Code Compliance
Division whereby they paid $863 as the remaining monies were waived.
PURPOSE
The purpose of this audit was to determine whether the concessionaire and subconcessionaire
paid the correct monies based upon their supporting records; was otherwise in compliance with
the selected terms in the restated and amended concession agreement; and whether the City
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Internal Audit Report
Boucher Brothers Miami Beach LLC Beachfront Concession Agreement Audit
December 14, 2011
received and correctly recorded all revenue, sales tax and State Beachfront Management
Agreement (sand tax) monies.
SCOPE
1. Confirm by examination of the concessionaire's books, records and operation, that the
concessionaire and subconcessionaire was using sufficient internal controls over
revenues.
2. Confirm that the concessionaire properly calculated and timely paid the correct amounts
to the City in accordance with the restated and amended concession agreement.
3. Confirm that the concessionaire has made the necessary payments and is current with
tested taxes, business tax receipts and licenses.
4. Confirm that the concessionaire has complied with selected criteria outlined in the
restated and amended concession agreement.
5. Confirm that the concessionaire has maintained the required insurance coverage and
irrevocable letter of credit to sufficiently protect the City's interests.
6. Confirm that all beachfront rental revenues, State Beachfront Management Agreement
monies, and sales taxes were correctly recorded in the City's Financial System.
FINDINGS, RECOMMENDATIONS AND MANAGEMENT RESPONSES
1. Finding-Concession Agreement Year 7's True-up Covering 11105107 through 11104/08
Was Miscalculated Resulting in the City Being Underpaid by $426.38
Section 4 of the amended and restated concession agreement discusses concession fee
payments. In summary, the City is to receive a minimum guarantee payment annually
on November 51h and a true-up payment (if applicable) by December 31 51 . The true-up
payment is due when the defined percentage of actual gross revenues exceeds the
amount previously paid in the minimum guarantee.
While outside the audit period, it was determined that an inadvertent calculation error
occurred during year 7's true-up. The concessionaire is required to remit to the City a
defined percentage of annual food and beverage gross revenues per Exhibit 4.3 of the
amended and restated concession agreement that increases as revenues also increase
past designated thresholds.
Food and beverage gross revenues for the concession agreement year ending 11/04/08
totaled $789,848.50 but the incorrect percentage of 15% was applied to the entire
amount when it should have increased to 16% for the $39,848.50 in revenues that fell
into the $750,001 through $1,000,000 range. As a result, the concessionaire owes the
City a total of $426.38 which includes $27.89 in state sales tax.
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Internal Audit Report
Boucher Brothers Miami Beach LLC Beachfront Concession Agreement Audit
December 14, 2011
Recommendation( s)
The concessionaire should remit the outstanding $426.38 for concession agreement
year 7 covering 11/05/07 through 11/04/08.
Concessionaire Response:
A check was submitted to City to make up for inadvertent error.
2. Finding -Product and Price Changes Were Made Without Prior Authorization from the
City Manager or his Designee
Exhibit 3.1 of the restated and amended concession agreement lists the approved beach
rental, water sports and sundry products and prices for Lummus Park. The same water
sports products and prices for Lummus Park are also included in Exhibit 3.4.1. Similarly,
Exhibit 3.2.1 lists the food and beverage products and prices which includes a footnote
that prices are subject to change within a 15% range to be sold in Lummus Park.
Furthermore, section 3.1 requires any amendments to Exhibit 3.1 be approved in writing
by the City Manager or his designee prior to such changes being implemented and a
new exhibit be incorporated into the agreement. Similar wording can be found in
sections 3.2.1 for food and beverage and 3.4.1 for water sports.
The concessionaire provided two letters dated 01/23/06 and 02/06/08 requesting
authorization from the City for listed price changes but no documentation could be found
whereby their requests were approved. Therefore, Internal Audit opines that the prices
listed in the restated and amended concession agreement's exhibits are still in effect.
A 01/19/11 site visit found that the concessionaire's prices charged (adjusted for taxes
and the 15% markup percentage where applicable) for twelve products exceeded those
authorized in the aforementioned exhibits. The higher prices ranged from ice tea selling
at $.12 more to thirty minute single person wave runner rides selling at $10.45 more.
Furthermore, the parasailing prices were restructured from being time specific as stated
in exhibits 3.1 and 3.4.1 to varying prices based on the number of riders.
Recommendation( s)
The concessionaire should have the City authorize all pnc1ng and product changes
before they are implemented in accordance with the terms listed in the signed amended
and restated concession agreement. This could be resolved by better monitoring and
communication between the parties.
Concessionaire Response:
Concessionaire management maintains that approval was granted by the City
Administration for the implemented price changes but new exhibits were not submitted.
Finally, the concessionaire agrees that better communication between the parties is
needed.
City's (Office of Real Estate. Housing & Community Development) Response:
Staff agrees with Internal Audit's recommendation. Additionally, Staff will reiterate to
Boucher Brothers the applicable sections of the Boucher Brothers Miami Beach LLC
Public Beachfront Concession Agreement executed February 2, 2012 (hereinafter
referred to as "New Concession Agreement").
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Internal Audit Report
Boucher Brothers Miami Beach LLC Beachfront Concession Agreement Audit
December 14, 2011
3. Finding-City Requested Documents
Section 5 of the amended and restated concession agreement states "A monthly report
of gross receipts must be submitted to the City, through the Finance Department's
Revenue Supervisor, to be received no later than thirty (30) days after the close of the
month". These monthly reports have not been received by the Finance Department
since the agreement's inception and no known attempts have been made to request and
collect this information from the concessionaire. The Office of Asset Management did
not pursue these reports since the agreement is based on an upfront minimum
guarantee payment and any risk of non-payment is greatly reduced. However, these
reports can be useful to the City in helping to estimate the amount of the
concessionaire's lump sum annual true-up settlement (if any) due at fiscal year end.
Furthermore, Section 5 states "Concessionaire shall submit at the end of each contract
year, an annual statement of gross receipts, in a form consistent with generally accepted
accounting principles. Additionally, such statement shall be accompanied by a report
from an independent CPA firm which shall perform certain agreed upon procedures ... "
Although the concessionaire has complied with this provision and the corresponding
annual reports have not identified any material shortcomings, there is no specified due
date mentioned in Section 5. In many City agreements, the concessionaire has only
ninety days to submit the required audit, review, etc. to the City. Analysis found that the
reports furnished for concession agreement years 3 through 8 ranged from a high of 556
days to a low of 238 days after the November 51h concession agreement year end.
Recommendation( s)
The required monthly reports should be submitted timely to the Finance Department's
Revenue Supervisor and the Asset Manager. In turn, the City should develop a specific
practice to review this information each month as a monitoring procedure. If these
monthly reports are deemed not necessary then this provision should be removed from
the concession agreement. Finally, the next concession agreement negotiated and
approved by the City Commission should have a due date by which the required report
stating the results of the independent CPA firm's agreed upon procedures is to be
furnished to the City.
Concessionaire's Response:
Concessionaire management has performed Agreed Upon Procedures each required
year and two years of audits. The City Administration did not request monthly reports
from year 1 due to the up-front minimum guarantee payment and annual true-up.
City's (Office of Real Estate. Housing & Community Development) Response:
Monthly reports are deemed necessary and the requirement is so stated in Section 5
(Maintenance and Examination of Records) of the New Concession Agreement. Staff
has created a Monthly Report Review Process.
Staff and Concessionaire have agreed on a due date of February 10 of each year for the
required annual statement of gross receipts and the report stating the results of the
independent CPA's report.
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Internal Audit Report
Boucher Brothers Miami Beach LLC Beachfront Concession Agreement Audit
December 14, 2011
City's (Finance Department) Response:
The Finance Department agrees with the Internal Audit Report, the Concessionaire has
complied with Section 5 requirements which state "Concessionaire shall submit at the
end of each contract year, an annual statement of gross receipts, in a form consistent
with generally accepted accounting principles. Additionally, such statement shall be
accompanied by a report from an independent CPA firm which shall perform certain
agreed upon procedures ... " The Agreement is silent as to when the above is due, and
the referenced Section 5 requirements have been complied with, as verified by this
audit. If the City desires to establish a fixed due date for the above mentioned Section 5
requirements, it should be negotiated upon the next agreement.
The Finance Department has relied upon the above referenced report to analyze the
concessionaire's lump sum annual true-up settlement (if any) due at the end of every
fiscal year. As mentioned in the Audit, as the guaranteed upfront minimum payment,
greatly reduces the risk non-payment to the City. If a report was sent on a monthly basis
to the City, it would require analysis. We understand that the Office of Economic
Development and Asset Management has created a new Financial Analyst II position.
We would recommend that this position be charged with the responsibility of reviewing
these monthly reports which carry no cash payment.
4. Finding -Miscellaneous Shortcomings are Addressed
Testing performed on other concession agreement sections and the annually furnished
concessionaire's Excel spreadsheet used to support the concessionaire's claimed gross
revenues found the following assorted shortcomings:
a. Section 21.10 of the amended and restated concession agreement states "Any
signage posted by Concessionaire on its facilities and equipment shall be subject
to the prior approval of the City as to size, shape and placement of same." A
01/19/11 site visit found that the 91h Street water sports kiosk was closed but a
sign listing the rides offered, the associated prices and the corresponding
payment forms was affixed to the front and was visible to all passersby.
Although Internal Audit maintains that a displayed price listing is a valuable
internal control, no evidence was provided to show that the City had supplied
prior approval.
b. Sequentially numbered water sports agreements are to be prepared for each
customer wishing to participate. Review of six randomly sampled days found
that all were present except for one numbered 9795. However, the reviewed
signed customer agreements did not list the amount paid hindering Internal
Audit's attempts to reconcile the daily water sport rentals amount with those
reported in the concessionaire's Excel spreadsheet.
c. Minor immaterial formula errors were found in the concessionaire's provided
Excel spreadsheet which did not affect the amounts paid to the City were
subsequently forwarded to the concessionaire for correction.
Recommendation( s)
The concessionaire should implement the following recommendations:
a. No signage should be displayed on the beach unless it is first approved by the
City. However, price listings should be displayed in some manner at all
concessionaire facilities accepting customers' monies.
b. All sequentially numbered customer signed water sports agreements should be
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Internal Audit Report
Boucher Brothers Miami Beach LLC Beachfront Concession Agreement Audit
December 14, 2011
maintained (including voids). Also, they should contain the amount of monies
that the customer is remitting so that it can be more easily reconciled to the
concessionaire's Excel spreadsheet.
c. The concessionaire and independent CPA firm should continue to review the
maintained Excel spreadsheet and its formulas for accuracy. The errors
identified by Internal Audit and any others subsequently discovered should be
immediately corrected.
Concessionaire's Response:
a. Water sports staff inadvertently forgot to put away the price listing prior to leaving
for the day in deference to normal operating procedures.
b. Boucher Brothers management will meet to determine where to record the
customer's payment on the pre-printed water sports agreements.
c. The identified errors were quickly correctly and they did not affect the amount
owed to the City. The spreadsheet is continually reviewed for accuracy by
Boucher Brothers management and its external auditors but occasionally
mistakes go unnoticed.
City's (Office of Real Estate, Housing & Community Development) Response:
a. Staff agrees with Internal Audit's recommendation. Section 21.10 (Signage) of the
New Concession Agreement requires the City to approve all advertising, signage and
postings. While price listings have not yet been posted or approved by the City, or
posted, the Concessionaire, in conjunction with the new Coca Cola contract, is in the
process of designing the price postings for the City's approval.
b. Staff agrees with Internal Audit's recommendation.
c. Staff agrees with Internal Audit's recommendation
5. Finding -City Bills Issued for Sanitation Violations Were Not Timely Paid
Review of the City's Eden and Permits Plus systems found that the beach
concessionaire was issued two Sanitation violations during the audit period totaling
$1,113. The first City Bill #17784 dated 07/06/10 for $50 was issued for failing to clean
up the trash around the beach chairs and umbrellas. While the second, City Bill #18270,
dated 07/25/10 for $1 ,063 was for operating without garbage collection and for dumping
such biohazard waste as paint and paint brushes.
When questioned about the $1,113 outstanding balance, the concessionaire claimed no
knowledge of the citations which could not be confirmed. At a minimum, these City Bills
are required to be resolved before the concessionaire's 2010/11 fiscal year business tax
receipts were issued but they were not. Upon being notified by Internal Audit, the
concessionaire contacted the Code Compliance Administrator whereby they negotiated
the citations downwards to $863 which was promptly paid on 01/14/11 with the
remaining $250 balance being waived.
Recommendation(s)
Although the concessionaire had not previously received any citations, they should strive
to ensure that the surrounding beach areas are kept clean. If additional citations are
issued, the concessionaire should be promptly notified so that the problem is corrected
and any associated fines are paid. Finally, the Finance Department's Licensing Section
should ensure that no outstanding amounts are owed to the City before business tax
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Boucher Brothers Miami Beach LLC Beachfront Concession Agreement Audit
December 14, 2011
receipts are issued.
Concessionaire's Response:
Once notified by Internal Audit of the outstanding City Bills, the necessary payment to
reduce the balance to zero was immediately made to resolve the issue.
City's (Finance Department) Response:
The Finance Department Business Tax Section does not issue Business Tax Receipts
(BTR) to businesses which show outstanding amounts due to the City in our database
system. If an amount is owed to the City, the Finance department withholds the BTR
until payment is received in full.
EXIT CONFERENCE
An exit conference was held to discuss the audit report and to solicit management responses
noted above. Participants included Financial Analyst II Richard Ajami, Redevelopment
Specialist Robert Reboso, Assistant Finance Director Georgina Echert, Internal Auditor James
Sutter and Senior Auditor Mark Coolidge. The audit report was also emailed to Boucher
Brothers Miami Beach LLC management. The concessionaire's management responses were
subsequently received and were added to this audit report. Management responses from the
affected City departments were subsequently received and were also included in this audit
report. All were in agreement with the contents of this report.
JJS:mc
Audit performed by Senior Auditor Mark Coolidge
F:\OBPI\$AUD\INTERNAL AUDIT FILES\DOC1 0-11 \REPORTS -FINAL\BOUCHER BROTHERS RPT.docx
cc: Hilda Fernandez, Assistant City Manager
Patricia Walker, Chief Financial Officer
Anna Parekh, Office of Real Estate, Housing & Community Development Director
Perry Boucher, Boucher Brothers Miami Beach, LLC
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