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Miami Design Preservation League (Period 1-1-16 to 6-30-18) 9-30-2018MIAMI BEACH INTERNAL AUDIT REPORT City of Miami Beach, 1700 Convention Center Drive , Miami Beach , Florida 33139, www.miamibeachfl.gov Office of Internal Audit Tel : 305-673-7020 TO: Jimmy L. Morales , City Manager VIA: Mark D. Coolidge, Interim Internal FROM : Norman Blaiotta, Senior Aud itor DATE : September 30, 2018 AUDIT : Miami Design Preservation League, Inc. Management Agreement Audit PERIOD : January 1, 2016 through June 30, 2018 This report is the result of specific request made by the City Admin istrat ion to verify compliance with selected provisions in the signed management agreement between the City and the Miami Design Preservation League, Inc. during the period of January 1, 2016 through June 30, 2018. INTRODUCTION The Miami Design Preservation League, Inc. or MDPL was originally formed in August 1976 as a project to hono r the United States bicentennia l. Formed by Barbara Baer Capitman and friends, it the oldest Art Deco society in the world according to their website. This non-profit 501(c)(3) organization has the goal of preserving, protecting, and promoting the cultural, social, economic, environmental and architectural integrity of the Miami Beach Architectural Historic District and all other areas of the City of Miami Beach where historic preservation is a concern. MDPL provides cultural and educational programs to Miami-Dade County residents, surrounding counties , citizens of Florida and to national and international visitors and tourists. The ir programs are developed for the public and have special appeal to those interested in art , design, architecture, history, preservation , urban and community planning and development. MPDL is governed by a Board of Directors that meets at least once per year or more frequently as determined by resolution of the members to discuss such items as financial data, upcoming events, goals and objectives, etc. In addition, there are various other committees (Executive Committee, Human Resources Committee, Art Deco Weekend Committee, etc .) that conduct separate meetings as needed to discuss pertinent issues. The non-profit organization is currently comprised of seventeen employees including the vacant Executive Director position . They also receive assistance from their members as well as a strong volunteer base . · Their corporate offices are located at 1001 Ocean Drive in the City owned Ocean Front Auditorium which underwent a City capital renovation program that was substantially completed in October 2009 . In addition to the City's Ocean Rescue Division 's offices , this building houses the following MDPL primary component un its : We ore committed to providing excellent public service and safety to all who live , work, and play in our vibrant, tropical , historic community Internal Audit Report Miami Design Preservation League, Inc. Management Agreement Audit September 30, 2018 First Floor • an Art Deco Welcome Center which provides a central point of information for an estimated 10,000 patrons each month; responds to inquiries; conducts tours and educational programs regarding the City's history and the importance of its architectural heritage; etc.; • an Art Deco Visitor's Center Museum which tells the story of the Art Deco District by providing materials on display comprised of a permanent collection and short-term exhibitions lasting from one (1) to six (6) months; • an Art Deco Lecture and Film Hall which is a multi-purpose space equipped with audio-video capability, flexible seating arrangements and sliding panels to configure the space as desired; and • an Art Deco Visitor's Center Gift Shop which sells affordable and authentic Art Deco and Art Deco themed merchandise as well as the ticketing location for offered tours Second Floor • Administrative Offices The City Commission initially adopted Resolution No. 2009-27288 and its attached management agreement authorizing MDPL to operate at this facility through December 31, 2014 with the City having the sole option to renew for two (2) additional five-year terms. Upon reaching this expiration date and satisfying the benchmarks specified in section 2 of the management agreement, the City agreed to extend the terms for an additional five (5) years through December 31, 2019. Similarly, the City has the sole option to renew the agreement for an additional five (5) year term through December 31, 2024. MDPL annually stages Art Deco Weekend, which was last held January 12th through 14th 2018, where it drew an estimated 150,000 people. It is a free community cultural festival celebrating Miami Beach architecture, history, art and entertainment with more than 85 individual events such as a Lecture Series, Film Series, Guided Tours, Retro Fashion Show, Classic Car Show, Deco Kids Club, etc. In addition, MDPL offers such regularly scheduled tours throughout the year as Official Art Deco Walking tours, self-guided audio tours, Lincoln Road tours and the South Beach Scandals tours. MDPL also arranges for privately offered tours like the Gay and Lesbian Walking tour, Jewish Miami Beach tours, Mediterranean Architecture tours, etc. Other provided services include exhibits, lectures and panel discussions to name a few. MDPL's fiscal year covers April 1st through March 31st which differs from the City's October 1st through September 3Qth fiscal year. Although containing several months that were outside the designated thirty-month audit period, the following table provides a summary of their reported revenues and expenses (rounded to the nearest dollar and presented alphabetically) for MDPL's 2014/15, 2015/16 and 2016/17 fiscal years based on their submitted audited financial statements: Page 2 of 20 Internal Audit Report Miami Design Preservation League, Inc. Management Agreement Audit September 30, 2018 04/01/14-03/31/15 04/04/15-03/31/16 04/01/16 -03/31/17 (Draft)* Revenues: Art Deco Weekend $182,400 $166 ,071 $238 ,281 Contributions $53,170 $48,513 $34,8 84 Grants $208 ,778 $155,220 $283,842 Membership Dues $8,427 $20 , 143 $6,240 Museum Entry Fees $49,685 $42,854 Other Income $35 ,209 $11 ,865 $1,546 Tours & Educational Programs $397,181 $376,288 $308,062 Welcome Center Sales $618,681 $577,046 $566 ,439 Total Revenues: $1,503,846 $1,404,831 $1,482,148 Expenses: Art Deco Weekend ($296,623) ($316,325) ($302,667) Welcome Center ($247,810) ($233,458) ($191,747) Administration ($974,988) ($914,795) ($918 ,231) Interest ($532) ($3,822) MBAT Settlement Expense ** ($136 ,938) Total Operational Expenses: ($1,519,421) ($1,465, 110) ($1,553,405) Net Operational Income: ($15,575) ($60,279) ($71,257) Total $586,752 $136 ,567 $647,840 $34,8 10 $92,539 $48,620 $1 ,081,532 $1,762,167 $4,390,827 ($915,615) ($673,015) ($2,808,013) ($4,354) ($136,938) ($4,537,935) ($147,108) * The submitted CPA prepared financial statements for the fiscal year ending 03/31/17 are still in draft status and have not knowingly been finalized to date . ** On August 29, 2016, a Miami-Dade Circuit Court ordered MDPL to pay a former audio tour provider the amount of $136,938 for breach of contract arising out of a December 2010 audio tour agreement which will accrue interest at 4.75% commencing on the judgment date. OVERALL OPINION Miami Design Preservation League, Inc. or MDPL is a non-profit 501 ( c)(3) organization that operates from the City owned Ocean Front Auditorium and as such it has agreed to comply with the signed management agreement's terms. Therefore, all terms should be followed unless communicated to and approved by the City in advance. Although MDPL performs many worthwhile community services in support of their mission and has satisfied many of the reviewed terms in the management agreement, the following shortcomings were noted during testing that are in need of corrective action: • MDPL's fixed $1,992 .12 monthly utility reimbursement payments to the City have not been changed since the January 1, 2010 inception of the management agreement and the charges are not sufficient to cover their associated costs . Page 3 of 20 Internal Audit Report Miami Design Preservation League, Inc. Management Agreement Audit September 30, 2018 • MDPL charged facility rental rates and security deposits that differed from Exhibit C of the management agreement without first obtaining the City's approval and no documentation was provided to verify that the two (2) reviewed renting organizations maintained the required insurance coverage for the scheduled events. Furthermore, MDPL did not charge, collect or remit $1,557.50 in state sales taxes due to the State of Florida on these rental transactions. • Only 169 and 125 paid memberships for the fiscal years ending March 31, 2015 and March 31, 2017 respectively were attained which is significantly less than management agreement section 2's benchmark requirement of 243 based on the documentation provided. • Tested documents and/or reports were not always timely submitted to the City in adherence to the management agreement. • Deviations were noted from the management agreement that were not sufficiently documented and/or communicated to the City prior to be being implemented by MDPL. • A City appointee to MDPL's Executive Committee was recently appointed Treasurer of the non-profit organization which could cause a potential conflict of interest on any future issues that may arise. PURPOSE To determine whether the Miami Design Preservation League, Inc. complied with the tested management agreement terms during the period of January 1, 2016 through June 30, 2018. SCOPE 1. Confirm that the three benchmarks specified in the management agreement continue to be satisfied. (management agreement section 2) 2. Confirm that the Art Deco Museum is open and free to the public for the agreed upon hours. (section 4.1.5) 3. Confirm the existence of the Visitor's Center, Museum, Lecture and Film Hall, Barbara Capitman Research Archives, Art Deco Academy/Tour School, Preservation Education, College and Adult Continuing Education and Gift Shop. (section 4.2.2) 4. Confirm that facility rental rates are in adherence with the mutually approved rental rates specified in Exhibit C, that proper insurance policies are submitted and reviewed, and whether any food and beverage catering services were provided. (section 4.2.2i) 5. Confirm that a maximum of five (5) fundraising events are staged per year unless approval is received from the City Manager. (section 4.2.2j) 6. Confirm that the hours of operation for the non-profit organization's component units is compliant with the management agreement's terms. (section 5.5) 7. Confirm that the required quarterly written report of all events scheduled for the upcoming quarter plus those that occurred during the previous months, and the number of participants were submitted to the City Manager or his designee. (section 5.6) Page 4 of 20 Internal Audit Report Miami Design Preservation League, Inc. Management Agreement Audit September 30, 2018 8. Confirm that any additional revenue generating activities conducted on the premises other than those stated in the management agreement were approved in advance by the City Manager. (section 6.1) 9. Confirm that the required annual report accompanied by audited financial statements prepared by a Certified Public Accountant were submitted to the City within 120 days after its September 3Q1h year end. (section 6.2) 10. Confirm that a detailed line item annual operating budget was submitted annually by May 15th which included a projected income statement, balance sheet, etc. (section 7.1) 11. Confirm that the fixed monthly utility reimbursement payments were completed, timely submitted to the City, and sufficiently covers the utilities expenses incurred. (section 15.1) 12. Confirm that the required insurance coverage is maintained. (section 20) 13. Confirm that the City has maintained at least a 30% membership on their Executive Committee and that all members have voting privileges. (section 34.10) FINDINGS, RECOMMENDATIONS AND AUDITEE RESPONSES The management responses received from the Miami Design Preservation League on October 5, 2018 in response to the stated findings and recommendations are attached in their entirety starting on page 17 of this audit report. 1. Finding: Miami Design Preservation League, Inc. 's or MDPL's Fixed $1,992.12 Monthly Utility Reimbursement Payment to the City has not been Changed since the January 1, 2010 Inception of the Management Agreement and their Charges are Not Sufficient to Cover the Associated Costs Section 15.1 of the signed management agreement states that Miami Design Preservation League, Inc. (MDPL) shall reimburse the City a flat fee of $1,992.12 monthly for utilities costs (including water, electricity, gas, heating, cooling, cable, internet, telephone, sewer, trash collection, etc.). Furthermore, it continues to state that the City reserves the sole right at any time during the term to adjust the monthly flat fee paid by MDPL upon giving thirty (30) days prior written notice. Testing determined that the $1,992.12 monthly flat fee charged has not been changed since the management agreement's January 1, 2010 inception. The only noted utilities paid by the City in need of reimbursement were water, sewer and electricity so the corresponding City issued monthly water/sewer invoices and the Florida Power & Light (FPL) electric bills for the Ocean Front Auditorium property located at 1001 Ocean Drive were reviewed. Although section 15.1 does not specifically include storm water, City Code section 110-109(a) states ''A storm water utility fee is hereby assessed against each property within the city. To assess the foregoing fee against each property within the city, the public works department shall stablish an account for each property (or each use thereon) based upon existing city utility accounts, applications for service, and county tax assessor property information or other ownership records." Therefore, the Office of Internal Audit contends that the 1001 Ocean Drive property was incorrectly not billed monthly storm water charges. Page 5 of 20 Internal Audit Report Miami Design Preservation League, Inc. Management Agreement Audit September 30, 2018 As the Ocean Front Auditorium building is shared by the City's Ocean Rescue Division and MDPL, the square footage occupied by both including an equal sharing of the common area, was obtained so that the proportion of utilities applicable to each party could be calculated. It is understood that the building's public restrooms would result in higher City water/sewer usage fees but there was no known way to calculate the associated charges unless a sub- meter is installed. Regardless, the public restrooms were present when the management agreement was negotiated and would have been included in determining the agreed upon $1,992.12 monthly utility reimbursement amount. The Office of Real Estate provided City Resolution No. 2009-27288 which reported that the Ocean Front Auditorium building contained a total of 14,487 square feet of which the Ocean Rescue Division occupies 3,653 square feet and the common areas equal 3,495 square feet. As a result, MDPL's total occupied square footage was calculated to be 9,086 which is comprised of 7,339 directly utilized square feet (14,487 -3,653 -3,495) plus 1,747 in common area square footage (3,495 x 50%). This 62.7% calculated occupied square footage percentage (9,086/14,487) was then consistently applied to the total of the combined water/sewer and FPL electric bills received to determine the amount pertaining to MDPL. Using this approach consistently, the calculated monthly amounts owed by MDPL were compared to the $1,992.12 reimbursement payment whereby the following differences were identified for the stated periods: A B MDPL percentage Amount Paid to Period Water/Sewer Difference Electric Charges Charges (A+B) x 62.7% City Jan. -Dec. 2015 $35,471.28 $14,946.33 $31,611-.84 $23,905.44 ($7,706.40) Jan. -Dec. 2016 $29,468.60 $40,025.29 $43,572.67 $23,905.44 ($19,667.23) Jan. -Dec. 2017 $29,915.90 $20,679.80 $31,723.57 $23,905.44 ($7,818.13) Jan. -June 2018 $13,820.74 $8,921.06 $14,259.11 $11,952.72 ($2,306.39) Total $108,676.52 $84,572.58 $121,167.19 $83,669.04 ($37 498.15) In addition, the table below summarizes the amount of storm water charges not charged to the property and the portion applicable to MDPL for the same January 2015 through June 2018 period: * A B c D E Total Monthly Fee* MDPL's Months in Total Storm Fiscal Year Base Fee* ERU ** Percentage* This Water Unpaid (AxB) (Cx62.7%) Period Amount (D x E) Jan. -Dec. 2015 $16.67 I $22.67 15 $250.05 / $340.05 $156.78 / $213.21 12 $2,050.65 Jan. -Dec. 2016 $22.67 I $23.30 15 $340.05 I $349.50 $213.21 / $219.14 12 $2,576.31 Jan. -Dec. 2017 $23.30 15 $349.50 $219.14 12 $2,629.68 Jan. -June 2018 $23.30 15 $349.50 $219.14 6 $1,314.84 Total $8,571.48 As the rates' effective date is as of October 1st, the calculation is based on 9 months at the lower rate and 3 months at the highest rate for each calendar year. ** Equivalent Residential Units or ERU were based on the Storm Water Utility Fee Calculation Worksheet provided by the Public Works Department. Page 6 of 20 Internal Audit Report Miami Design Preservation League, Inc. Management Agreement Audit September 30, 2018 In summary, the City has not charged MDPL a sufficient monthly amount to cover the non- profit organization's proportionate share of the monthly electric, water and sewer utilities based solely on occupied square footage. As calculated above, the City has subsidized MDPL a total of $37,498.15 for the forty-two ( 42) month period reviewed, which equates to an average of $10, 713. 76 per year or $892.81 per month. Furthermore, the property was not charged storm water which would result in MDPL owing the City an additional $219.14 per month at the current rate of $23.30 per ERU in effect since January 2016. Lastly, Office of Internal Audit staff determined the increase in utilities rates that have occurred since January 2010. In doing so, it was found that, although electric rates showed minimal variances during this period, the water and sewer rates have increased about 23.4% or an annual average of 2.66% and storm water rates have increased from $9.04 to $23.30 monthly per ERU as of June 30, 2018. Ignoring changes in consumption, a percentage of these increases were not passed on to MDPL. Recommendation( s ): The City should increase MDPL's monthly future $1,992.12 utility payments to offset their proportionate share of the costs, including storm water, which in some cases have increased significantly in the past 8 Y2 years. Also, the Office of Real Estate should review the property's monthly utility bills at least annually to determine if the utility payment amounts need to be adjusted due to an increase in costs or consumption. Any monthly reimbursement adjustments deemed necessary should be promptly, communicated in writing to MDPL so that their future remitted payments can accurately reflect this revision. Tourism. Culture and Economic Development Department Response: The Office of Real Estate will work with Public Works to develop a current calculation to determine the appropriate proportionate share for electricity, water, sewer and storm water. As noted, MDPL shares the water meter with Ocean Rescue (which contains locker rooms/showers); the public restrooms connected to the Ocean Rescue building, which operate and are open to the public for longer hours than MDPL; and the outdoor public showers, which are accessible at all times. Accordingly, MDPL's water consumption is substantially less on a proportionate square footage basis and an appropriate adjustment is necessary. Implementation Date: Pending review by Public Works 2. Finding: MDPL Charged Facility Rental Rates and Security Deposits that Differed from Exhibit C of the Management Agreement without First Obtaining the City's Approval and No Documentation was Provided to Verify that the Two (2) Reviewed Renting Organizations Maintained the Required Insurance Coverage for the Scheduled Events Section 4.2.2(i) of the management agreement paraphrased requires MDPL to charge the mutually approved facility rental rates specified in Exhibit C; renters of the premises shall provide certificates of insurance coverage that are to be compliant with Exhibit D's terms as determined by the City's Risk Manager; and renters can secure their own food and beverage catering service for the event. Page 7 of 20 Internal Audit Report Miami Design Preservation League, Inc. Management Agreement Audit September 30, 2018 Additionally, section 4.2.2(i) refers to the City approved rental rates and policies and procedures listed in Exhibit C of the management agreement. However, Exhibit C states "{NOT FINAL -SEE SECTION 4.2.2(1)}" but then it continues to list the 2010/11 benchmarked rates and contracts using the Miami Beach Botanical Gardens and the FIU Wolfsonian plus a fee scale with rental rate discounts prior to listing MDPL's unsigned facility rental policy and procedures. Furthermore, the management agreement states that the mutually developed rental rates and policies and procedures subject to final approval by the City Manager no later than six (6) months following the commencement date {January 1, 201 O} with the City having the sole right to amend these rates and policies and procedures. As a result, it was concluded that the listed 2010/11 benchmarked rental rates presented in Exhibit C were in effect unless the City specifically approved the charging of different rates in advance of the scheduled events. MDPL management stated that the facility is not rented more frequently due to difficulties associated with moving the museum's exhibits which occupy a large majority of the first floor along with the Art Deco Welcome Center and Art Deco Visitor's Center Gift Shop. Review of their provided accounting records found that the facility was rented only on the following four (4) occasions during the thirty-month audit period whereby the listed amounts were collected: * Association of Architecture 0 anization Pacific 2.1 Entertainment Group Firefl Creative Entertainment Holsen Inc. Total S:':t>l 11/03/16 05/04, 05/05, 05/08 -05/12 and 05/15 -05/19/17 $1,250 $2,750 $27,814 The amount collected of $22,814 includes $1,814 of the renter's $5,000 security deposit which was retained to repair the damaged Lecture Room's floors. The supporting documentation for these four (4) facility rentals was requested from MDPL management but records were only received for two (2), Pacific 2.1 Entertainment Group (Pacific) and Firefly Creative Entertainment (Firefly). A subsequent analysis of these two (2) facility rentals terms with those in the management agreement identified the following differences: a. The rates charged Pacific were $1,750 per day for 12 days ($1,750 x 12 days= $21,000) which differs from Exhibit C's 2010/11 facility rental rates of $1,500 for six (6) hours and $250 each additional hour for the Lecture Hall. Meanwhile, MDPL's contract charged Firefly $1,250 for their one (1) day rental of the same Lecture Hall. Pacific and Firefly were also charged security deposits of $5,000 and $750 respectively which varies from the $700 security deposit listed in the 2010/11 stated rates. In addition, the 2010/11 facility rental rates include such additional fees as a $35 annual MDPL membership fee, a $25 per hour MDPL facility attendant fee and a $150 janitorial fee which were not charged on either companies' contracts. Despite these variances from Exhibit C's stated terms, no documentation was provided indicating that the City was notified in advance or had approved any of these rate revisions. Page 8 of 20 Internal Audit Report Miami Design Preservation League, Inc. Management Agreement Audit September 30, 2018 b. Although MDPL is an active 501(c)(3) corporation that is exempt from paying state sales tax, they would owe sales tax on these rental contract transactions as neither Pacific nor Firefly are exempt organizations. As a result, MDPL would owe the State of Florida a total of $1 ,557.50 excluding late charges which is comprised of $1,470 ($21,000 x 7%) from Pacific and $87.50 ($1,250 x 7%) from Firefly. Yet, no monies were knowingly remitted to the State of Florida based on the documentation provided. c. Section 4.2.2(i)(i) states that facility renters, excluding the City, shall be required to provide proof of adequate insurance coverage per Exhibit D as determined by the City's Risk Manager. Subsequent inquiries with MDPL management found that Pacific and Firefly's insurance certificates were obtained and reviewed internally but they were not forwarded to the City's Risk Manager for approval. Although MDPL included a reminder section on each company's invoice specifying the required insurance coverage, no documentation was provided to Internal Audit staff to verify that they were obtained, reviewed and/or sufficient. d. Although questioned MDPL management did not recall whether any food and/or beverages were served, Firefly's contract states that catering was provided for 80 people. As MDPL does not have a valid resort tax account, any subsequent remittances would have had to been paid by the associated caterer. However, the name of the caterer is not listed so there was no known means to confirm whether food and/or beverages were served and whether the City received the corresponding amount of resort tax. Recommendation(s): MDPL should charge the facility rental rates listed in Exhibit C unless the modification is presented and approved in advance by the City. Going forward, it is recommended that other similar management agreements contain an annual escalator clause and a range of approved rates that gives the designated organizations some flexibility in their negotiations. MDPL should promptly remit the applicable amount of state sales tax from all four (4) of the facility rental transactions unless they can confirm that any of the organizations satisfied all the State of Florida's exemption requirements. If they cannot locate any additional documentation for the two (2) rentals for which no information was provided, then they should assume that the entire amount collected is subject to state sales tax. Lastly, MDPL should attain a resort tax registration number from the City and collect, report and remit 2% of gross receipts to the City on behalf of any unregistered caterers associated with facility rentals. For any registered caterers, MDPL should provide a listing to the City of any catered events in the Ocean Front Auditorium to be reviewed in the event of a subsequent resort tax audit. Tourism. Culture and Economic Development Department Response: It is not unreasonable for MDPL to increase its rates; however, the City Manager's approval should have been requested and, if approved, the new rates should have been formalized in writing. The Office of Real Estate will advise MDPL to submit a current rate schedule for the City Manager's approval. Page 9 of 20 Internal Audit Report Miami Design Preservation League, Inc. Management Agreement Audit September 30, 2018 Verification of state tax remittance is not within the purview of the Office of Real Estate, nor does the agreement require submission of such records to the Office of Real Estate. The City relies on MDPL, as manager of the facility, to provide the required insurance, for facility renters, to the City, as required under the agreement, and to ensure its caterers pay appropriate resort taxes, as applicable. Implementation Date: 30 days 3. Finding: Only 169 and 125 Paid Memberships for the Fiscal Years Ending March 31, 2015 and March 31, 2017 Respectively were Attained which is Significantly Less than Management Agreement Section 2's Benchmark Requirement of 243 Based on the Documentation Provided Section 2 of the management agreement summarized states that MDPL's management agreement will be extended an additional five (5) years provided that on December 31, 2014 and December 31, 2019 they were in (1) good standing and free of default, (2) continue to operate, manage, program and maintain the premises in accordance with the agreement and they have meUsatisfied the following three (3) specific benchmarks: a. Development and implementation of the Art Deco Museum contemplated in section 4.2.2(b); b. Increase in membership by at least fifty percent from its 216 members as of January 1, 2010 of which at least 75% shall be paid; and c. Provide a minimum of twelve (12) educational programs each contract year during the initial term. Upon request, documentation was provided verifying that the requirements surrounding the development and implementation of the Art Deco Museum and the twelve (12) educational programs were satisfied during the reviewed fiscal years ending March 31, 2015; March 31, 2016; March 31, 2017; and March 31, 2018. Similarly, annual membership listings were requested for the same period but only records thru 2016 were received. Additional records were not available due to ongoing litigation and a software membership program conversion. Therefore, the annual membership levels had to be calculated through alternate means to determine whether the benchmark of 324 total members (216 x 150%) with at least 243 (324 x 75%) being paid members continue to be satisfied. Ignoring timing differences, the following approach was taken to determine whether the paying membership benchmark was satisfied: • Dollar totals for membership dues were obtained from MDPL's audited financial statements for the fiscal years ending March 31, 2015, March 31, 2016 and March 31, 2017 (draft). • Calculations were then completed to determine the number of paying members by performing the corresponding division assuming that every membership paid the minimum amount of $50 each to be conservative. Page 10 of 20 Internal Audit Report Miami Design Preservation League, Inc. Management Agreement Audit September 30, 2018 A1,1dit¢d PJ11ancial St~ternent$' F)'E 03/3V15 l=VE 'f)S/3J/16 F~f,'f)~/~l,/i! ' ;>. ' Membership Dues Revenue (MDR) $8,427 $20,143 $6,240 MDR / $50 (rounded to the nearest whole number) 169 403 125 Paid Members Benchmark 243 243 243 Number of Members Difference (74) 160 (118) Percentage of Members Short of Benchmark 30.45% N/A 48.55% As a result, it was concluded that MDPL did not satisfy the benchmark of having at least 243 paid members for two (2) of the three (3) fiscal years reviewed as determined from their audited financial statements as they were only able to attain 169 and 125 paid members for the fiscal years ending March 31, 2015 and March 31, 2017 respectively based on the documentation provided. Recommendation( s ): MDPL should continue to satisfy or exceed all benchmarks established in the management agreement for the remainder of the term. Tourism. Culture and Economic Development Department Response: The benchmarks were required for the 2014 renewal, to ensure the nonprofit was fulfilling its purpose at that time. MDPL's membership figures have fluctuated since it obtained the 2014 renewal. MDPL has advised the City the current membership is 397 although the total paid members is unclear. MDPL must provide documentation that the current paid members is a minimum of 243. Implementation Date: 30 days Internal Audit's Observation: In clarifying the auditee's management response to finding #3 which is presented in its entirety at the end of this audit report, only paid members were analyzed due to the limited documentation provided. As a result, the benchmark requires MDPL to maintain a minimum of 243 paid memberships (216 x 150% = 324 x 75% = 243) out of 324 total memberships (includes both paying and non-paying members). 4. Finding: Tested Documents and/or Reports were Not Always Timely Submitted to the City in Adherence to the Management Agreement Testing was performed of various management agreement sections requiring MDPL's submittal of various documents and/or reports to the City whereby the following deficiencies were noted: a. Section 5.6 states "MDPL shall provide the City Manager or his designee with a quarterly written report of all events, scheduled in the Premises for the upcoming quarter and, with each such report, shall also report on the events which actually occurred during the previous months, and the number of persons participating in those events." Although MDPL routinely maintained this information in a rolling Excel spreadsheet, they were not knowingly submitted to the City other than the quarterly report for the period ending June 30, 2018. Page 11of20 Internal Audit Report Miami Design Preservation League, Inc. Management Agreement Audit September 30, 2018 b. Section 6.2 states "Throughout the Term, and no later than one hundred and twenty (120) days following the closing of the City's fiscal year (October 1st -September 3oth), MDPL shall provide the City Manager with an annual report of all uses, services, programs, events and activities (including, without limitation, all revenue generating activities broken down into the percentage categories set forth in Section 6. 3 hereof) conducted on the Premises for the prior year, along with audited financial statements. Said statements shall be certified as true, accurate and complete by MDPL and by its certified public accountant." Therefore, these audited financial reports for MDPL's fiscal year which ends on March 31st annually are therefore due by the following January 29th. It is best practice to have financial statements audited timely to help identify any possible accounting errors and/or frauds earlier, to indicate the organization's true financial position and alert readers to any going concern issues, to help facilitate borrowing monies from financial institutions, etc. All reviewed financial statement audits were completed by Brody & Associates Certified Public Accountants and were issued with an unqualified clean opinion. Although it was confirmed that they were all sent to the City's Office of Real Estate, they were not time/date stamped to indicate exactly when they were received. A comparison of the date listed on the Independent Auditors' Report page indicating when the Certified Public Accountants issued their report to the designated annual due dates found the following: Fiscal Year Endina Due Date Date Completed # of Davs Late 03/31/15 01/29/16 10/17117 627 03/31/16 01/29/17 10/17/17 261 03/31/17 01/29/18 Not Comoleted (In Draft Form) 244* * Assumes that the draft audit report was completed on September 30, 2018. c. Section 7.1 states "Throughout the Term, MDPL shall prepare and present, by May 1 flh of each year, a proposed, detailed line item annual operating budget for the Premises for each City fiscal year (October 1st -September 3Qfh) during the Term hereof, for review and approval by the City Manager. Said budget shall include a projected income and expense statement; projected year-end balance sheet; statement of projected income sources; and application of funds." Although annual budgets with a projected income and expense statement and a statement of projected income sources were furnished to the City's Office of Real Estate, the reviewed documentation did not include the required projected year-end balance sheet and an application of funds information. d. Section 16.1 states that MDPL shall be solely responsible for and shall pay (to the City) a flat fee of $1,992.12 per month before delinquency. The management agreement is silent concerning the due date for each utilities payment and/or the interest rate to be applied against any late payments. Using the first of the following month as the due date, it was determined that twenty (20) of the thirty (30) month audit period payments (66.67%) were received late ranging from a low of one (1) day for May 2017 to a high of 343 days for January 2016. If a 12% interest rate were to be applied, it was calculated that MDPL would owe the City a total of $666.67 in late charges. Page 12 of 20 Internal Audit Report Miami Design Preservation League, Inc. Management Agreement Audit September 30, 2018 e. Section 20 lists the required insurance coverage to be maintained at all times by MDPL. In addition, it states that they shall provide certificates to the City's Risk Manager for approval. Inquiries found that these certificates were not furnished annually to the City's Risk Manager to determine their sufficiency concerning the agreement's terms. However, Office of Internal Audit staff requested the current insurance policy which once received was forwarded to and approved by the City's Risk Management Division. Recommendation( s ): MDPL should remit all required documents and/or reports specified in the management agreement to the designated City personnel within the established timeframes. If the due date is not established, then a mutual consensus should be reached by both parties specifying the due date and any applicable late charges to be levied. Going forward, all Office of Real Estate agreements should specify a due date and applicaole late charges if any monies owed or required documents are not received timely by the City. Management Response (Tourism. Culture and Economic Development Department): MDPL did timely submit annual programming reports that contained all requisite information required in the quarterly reports, including detailed events that occurred during each quarter of the audit period. Nonetheless, the quarterly programming reports should also be submitted as required under the agreement. MDPL must improve its annual reporting of all uses, services, programs, events and activities to be in compliance with the timeframes contained in the agreement. The Office of Real Estate agrees with Internal Audit. The documents provided should have included the required projected year-end balance sheet and an application of funds information. The management agreement does not provide for charging interest on the utilities payments. Section 23.2 of the management agreement designates the City Manager or designee as appropriate recipient of required documents. MDPL did timely submit the most current certificate of insurance to the Office of Real Estate, which was reviewed internally, and subsequently provided to the Office of Internal Audit prior to commencement of the audit review. Implementation Date: N/A 5. Finding: Deviations were Noted from the Management Agreement that were Not Sufficiently Documented and/or Communicated to the City Prior to being Implemented by MDPL The management agreement is a comprehensive document commencing on January 1, 2010. Over the past 8 Y2 years, there has become a need to clarify some points that are being treated differently by MDPL than as stated in the agreement. These differences may or may not be material enough to warrant an amendment to the agreement but at a minimum they should be supported with documentation showing mutual consent to the revised terms. Examples of these tested differences involve the following management agreement sections: Page 13 of 20 Internal Audit Report Miami Design Preservation League, Inc. Management Agreement Audit September 30, 2018 • Section 4.1.5 requires MDPL to keep the museum free to the public. Yet, testing found that a $5 entrance fee is collected from adults while children are permitted entry at no charge to the museum. Although no documentation was provided, MDPL management stated that the City Administration verbally gave them permission to charge the designated fee. • Section 4.2.2(d) states that the Barbara Capitman Research Archives are to be permanently housed on the premises and to be made available by appointment. Due to space limitations, MDPL staff stores the more commonly requested archives in their second-floor administrative offices but most of the records are permanently stored at the Safeguard Storage facility located at 515 NW 36 1h Street where they can be transferred to the Ocean Front Auditorium as needed. • Section 4.2.2(f) states that MDPL will implement a four (4) week seminar program for Florida International University (FIU) architecture and urban planning students to study in Miami Beach to learn about the City's architectural styles, and explore the impact of historic preservation and its effect on economic revitalization. However, inquiries found that this program was never implemented as instead MDPL opted to pay a FIU student each year to help catalog Miami Beach architecture styles. • Section 5.8 specifies the normal hours of operation for the different MDPL functions. Testing found that the Art Deco Visitor's Center Museum, the Art Deco Visitors Center and the Administrative Offices were open longer hours than those listed in section 5.8. Conversely, the Art Deco Visitor's Center Gift Shop is open less hours each day than the stated hours due to a lack of business according to questioned MDPL staff. • Section 9.1 states that MDPL is responsible for maintaining the interior of the premises with the City being responsible for any costs related to capital improvements or infrastructure repair and/or replacement. Meanwhile, section 9.6 states that MDPL shall be responsible for and provide reasonable security measures as may be required to protect and secure the premises. Given these terms, MDPL management showed Office of Internal Audit staff that the City installed a door that contains a push bar giving internal access to anyone on the second-floor exterior balcony. Once inside, the individual would have the ability to enter any unlocked areas including the first floor Art Deco Visitor's Center Museum via the elevator. MDPL staff have periodically noted individuals jumping on the balcony from the south side stairwell from which they can enter the building by using the push bar. Although no damage or injuries have apparently occurred to date, MDPL's Acting Executive Director/Business Manager acknowledged that she heard an intruder enter the building after hours in January 2018 which heightened security concerns. Recommendation( s ): Any deviations from the management agreement's terms should be communicated to and approved by the City in writing prior to being implemented. Any material deviations should Page 14 of 20 Internal Audit Report Miami Design Preservation League, Inc. Management Agreement Audit September 30, 2018 be approved by the City Commission and the agreement amended before they are implemented while the resulting documentation should be maintained as support for any immaterial deviations from the stated terms. Finally, the exterior second-floor door containing the push bar should be replaced or better secured as soon as possible. Tourism. Culture and Economic Development Department Response: The Office of Real Estate agrees with Internal Audit that MDPL should obtain approval from the City regarding any deviations from the management agreement. Implementation Date: N/A 6. Finding: A City Appointee to MDPL's Executive Committee was Recently Appointed Treasurer of the Non-Profit Organization which could cause a Potential Conflict of Interest on any Future Issues that may Arise Section 34.10 of the management agreement states "The City's representation on MDPL 's Executive Committee (or such other successor entity to the Executive Committee that MDPL may create during the Term) shall be a number proportionate to the total number of members of the Committee, but in no event Jess than thirty percent (30%). The City's members shall all be voting members of the Executive Committee." It was verified that the City currently has three (3) voting members on the ten (10) member Executive Committee for a thirty percent (30%) representation in satisfaction of section 34.10. However, one (1) of these three (3) individuals was recently appointed Treasurer of MDPL. Although this dual participation does not contradict any wording in the management agreement, it could cause a potential concern if future difficult and/or conflicting issues arise between the City and MDPL. Recommendation( s ): The City Administration should consider appointing a new individual to MDPL's Executive Committee that is not concurrently serving as Treasurer of the non-profit organization. Similarly, the City should consider amending section 34.1 O's terms going forward and any other agreements with similar provisions. Management Response (Tourism. Culture and Economic Development Department): The management agreement does not prohibit City appointees from acting in a dual capacity. The management agreement should be amended if the City wishes to prohibit this situation. Implementation Date: N/A EXIT CONFERENCE Participants included Tourism, Culture and Economic Development Department Interim Director Heather Shaw, Office of Real Estate Director Mark Milisits, Chief Financial Officer John Woodruff, Public Works Department Director Roy Coley, Interim Internal Auditor Mark Coolidge and Senior Auditor Norman Blaiotta. Any agreed upon changes were subsequently made and the revised draft audit report was then sent electronically to Miami Design Preservation League, Inc. on September 25, 2018 for review. Management responses were solicited from all pertinent parties and once received were included in this audit report. MDPL's management responses were attached in their entirety as Exhibit A located at the end of this audit report. All parties were in agreement with the contents of this report. Page 15 of 20 Internal Audit Report Miami Design Preservation League, Inc. Management Agreement Audit September 30, 2018 F:\OBPl\$AUD\INTERNAL AUDIT FILES\DOC17-18\REPORTS -DRAFT\MIAMI DESIGN PRESERVATION LEAGUE MANAGEMENT AGREEMENT AUDIT RPT 09-21-18.docx cc: Kathie G. Brooks, Assistant City Manager Eric Carpenter, Assistant City Manager John Woodruff, Chief Financial Officer Heather Shaw, Interim Tourism, Culture and Economic Development Department Director Mark Milisits, Office of Real Estate Director Roy Coley, Public Works Department Director Marie Hernandez, Acting Executive Director/Business Manager, Miami Design Preservation League, Inc. Page 16 of 20 Internal Audit Report Miami Design Preservation League, Inc. Management Agreement Audit September 30, 2018 EXHIBIT A MDPL MANAGEMENT RESPONSES October 5, 2018 City of Miami Beach Attn: Norman Blaiotta, Senior Auditor 1700 Convention Center Drive Miami Beach, FL 33139 e -............ _ ..... Subject: MDPL Management Response to City of Miami Beach Internal Audit Report, draft dated September 25 , 2018 Dear Mr. Blaiotta, Thank you for the draft report and opportunity to provide a response to areas of issue or recommendations for improvement. We appreciate the time and professional attention you and your team have provided in this audit, and wish to include the following statements to the sections as appropriate. As a general comment, MDPL appreciates and h ighly values the relationship and responsibility we have with the City of Miami Beach since 1993, as a result of the Management Agreement and provisional use of the Ocean Front Auditorium facility. Our daily efforts over the past 25 years to provide services of va lue to the community are aligned with those of the City. We believe that most of the issues noted in this report are easily solvable with efforts to improve administrative management at MDPL. To this end, we have already taken steps for improvement defined in this response. 1. Obtained outside expert consulting support to review our operations, management policies, procedures and accountability, financial management, and nonprofit governance. 2 . Initiated a series of educational presentations regarding effective board governance and responsibilities, including proper oversight of leadership staff and operational performance. 3. Defined deficiencies identified improvement needs and made recommendations for corrective action to the Board of Directors. It is important to note that MDPL operates with an all-volunteer board, typical of most IRS designated nonprofit entities. As a membership organization, we are dependent on board member appointed through an annual election of our members. This process does not always result in providing a board with the skills needed to effectively operate a nonprofit, and for that reason in December 2017 we contacted and eventually retained an expert consultant to assist in improving our oversight, operations and financial management. Page 1 of4 Page 17 of 20 Internal Audit Report Miami Design Preservation League, Inc. Management Agreement Audit September 30, 2018 - ' MIAMI DESIGN PllES(llVllllON lEflGIJE As a result of our governance and managerial improvement efforts, we have already taken the following steps to ensure operations which meet our obligations both as a nonprofit and good steward of donor support - most Importantly the Management Agreement: 1. Suspended a leadership employee, pending final determination by the Board of Directors. 2. Initiated Immediate assessment of compliance to the Management Agreement, and presented Information In the report dated July 6, 2018, covering the months of April, May and June, 2018. 3. Included the fY 2019 Annual Budget and Summarized Balance Sheet forecast, which was due in May. 4. Included measurement to benchmark requirements to support achievement of each item . 5. Included the 2018/2019 Programmatic Plan, also due in May. 6. Expanded the operational consultant's role to assist with leadership needs. We hope this general overview of performance improvement steps will provide confidence In MDPL's ability to continue effective operations which meet both community needs and obligations to the Management Agreement. The following information defines specific inputs to each section of the draft report, as requested. If you have any questions with this input or need further details, please don't hesitate to contact me. I am readily available to address any further needs to help finalize your internal audit. Sincerely, !.:cJF Chair of the Board ~ ~ -7./fl' • • . . •. ,; .,,,.. • <::-<-.;:.,..·~~ -a e 1er9.P ez · Busines s-M anager, Acting Executive Director Page 2 of4 Page 18 of 20 Internal Audit Report Miami Design Preservation League, Inc. Management Agreement Audit September 30, 2018 1 MIAMI DESIGN PRESERVATION LEAGUE FINDINGS, RECOMMENDATIONS AND AUDITEE RESPONSES 1. Monthly Utility Reimbursement Payment to the City-MDPL recognizes the City's options for fee increases. MDPL requests that any increase be made effective for the beginning of MDPL's new fiscal year (April 1), in order to ensure budget allocation for the expense. MDPL also requests that increase notifications be provided by the end of January of each year to facilitate proper budgeting for the change in expenses . 2. Facility Rental Rate and Security Deposit Charges -MDPL recognizes the variance in rental agreements for Pacific and Firefly, as identified. MDPL has made changes in leadership personnel due to these deficiencies and identified that the Contract General Manager will now be Marie Hernandez, Business Manager and 18 year employee of MDPL, who will ensure compliance for all future rental agreements. Additionally, MDPL would like to identify that Holsen Inc. did not actually utilize the facility as a rental space. Holsen Inc. obtained a permit from the City to host a tent in front of the Ocean Front Auditorium, and requested space from MDPL to store supplies. MDPL will take the recommended actions to attai.n a resort tax number and promptly remit the applicable state sales tax amounts for the past rentals identified. 3. Annual Paid Memberships -MDPL recognizes the performance to membership benchmark requirements and the estimates of membership numbers included in the audit. (NOTE: The Benchmark Requirement is 324, not 243, typo?). MDPL's current membership count as of June 18, 2018 is 397, based on program reports from May, and a manual report from June, which can be provided upon request. Membership as of May 2018 was 262, and an additional 135 members (all paid) were added in June. 4. Documents and Reports -MDPL recognizes the identified deficiencies in reporting, and has taken steps to correct reporting as reflected in the Quarterly Report filed July 6, 2018. This report included the delinquent budget/projected income and expense statement and projected year-end balance sheet. MDPL requests further clarification on exact format requirements for "application of funds" information. MDPL believes that the projected budget includes details regarding projected income and sources, projected expenses and application of funds as defined expenses, and projected year-end balances for operating assets. Page 3 of4 Page 19 of 20 Internal Audit Report Miami Des ign Preservat ion League , In c. Ma nagement Agreemen t Audit September 30 , 2 018 5. Deviations in Agreement not Documented -MDPL recognizes that many of the deviations over the agreement term have been verbally obtained during meetings with City representatives, and should be formalized and provided to the City for review and records retention . MDPL will end eavor to document all variances and provide this list with the next Quarterly Report to be provided in the next few weeks, representing results from July, August and September activities . MDPL would like to point out that the decision to charge a $5 entrance fee was agreed to in a meeting, precipitated due to challenges presented by the homeless population seeking bathroom facilities and refuge w ithin the Ocean Front Auditorium Facility. The Research Archives are stored in a separate secure facility to address concerns for preservation presented by hurricanes. The current archival space is inland speciflcally to be lower risk in the event of a catastrophic storm. The hours of operation were adjusted for weekend nights to address the issues of traffic in the store and museum by the crowds which frequent Ocean Drive after 7 pm on Thursday, Friday and Saturday n ight s. The daytime opening hours were changed form 10 am to 9 am to better serve visitors. MDPL welcomes the assistance by the City to rep lace t he push-bar door w it h a more secure door for the location . · 6. City Appointee Potential Conflict of Interest~ MDPL recognizes the issue identified for a City Representative who is also a Board Member, and further, an officer. The MDPL Bo ard agrees with the importance of the City Representatives' participation on the Executive Committee, and welcomes their continued inputs . We also concur with the potential conflicts identified if a Representative holds an officer or board voting position during times when controversial issues are pending before the City Commission or Boards. MDPL is certainly open to changes in City Appointee representation , as has already been discussed in June with the City Manager. Page 4of4 Page 20 of 20