HomeMy WebLinkAbout1516-2 County Fair-Food and Beverage report 1516-2 (Final 11-4-2015)2015 County Fair - Food and Beverage #15/16-2 November 2015
2015 County Fair –
Food and Beverage
(operated by
County Fair & Expo)
To request this information in an alternate format, please call (541) 330-4674 or send email to David.Givans@Deschutes.org
Deschutes County,
Oregon
David Givans, CPA, CIA, CGMA
Deschutes County Internal Auditor
PO Box 6005
1300 NW Wall St, Suite 200
Bend, OR 97708-6005
(541) 330-4674
David.Givans@Deschutes.org
Audit committee:
Shawn Armstrong, Chair - Public member
Chris Earnest - Public member
Lindsey Lombard – Public member
Michael Shadrach - Public member
Jennifer Welander - Public member
Anthony DeBone, County Commissioner
Nancy Blankenship, County Clerk
Dan Despotopulos, Fair & Expo Director
2015 County Fair – Food and Beverage #15/16-2 November 2015
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2015 County Fair – Food and Beverage #15/16-2 November 2015
TABLE OF
CONTENTS:
HIGHLIGHTS
1. INTRODUCTION
1.1. Background on Audit …………..………………………………………...…… 1
1.2. Objectives and Scope ………………….…………………………………… 1-2
1.3. Methodology …………………………………….…………………...….......… 2
2. FINDINGS
2.1. Internal Control Observations ………………..………………………..…… 3-4
2.2. County Fair Concession Activities ..……………………………………..… 4-9
2.3. Compliance with Laws and Regulations ………………………………… 9-10
3. MANAGEMENT RESPONSES
3.1. Fair & Expo Management ………………………………………...….. 11-12
3.2. Finance Department ..…………………………………………………….. 13
2015 County Fair – Food and Beverage #15/16-2 November 2015
HIGHLIGHTS
Why this audit was
performed:
This report focuses on the
County’s food and beverage
profitability at the County Fair
over the prior concession
arrangement as well as a review
of controls over this activity at
the County Fair.
What is recommended
Recommendations included:
addressing the identified
cash control weaknesses for
food and beverage
operations;
establishing separate
oversight of non-register
controlled alcoholic beverage
sales;
weighing the benefits of
promoting more third party
food concessionaires instead
of competing with them ;
weighing the benefits and
costs of having the ability to
accept credit cards for food
and beverage activities;
requiring vendors provide
receipts to customers;
utilizing a sales type
category on registers with
separately handled credit
card sales; and
determining how to comply
with Oregon budget law and
County Code for establishing
service fees.
2015 County Fair - Food and Beverage (operated by County Fair & Expo)
What was found
On average, County Fair attendees spend $10 per person on food and beverage . This is up 14%
from 2014. Most of the food and beverage sales are generated from third party concessions.
Observations on 2015 County Fair profitability under new food and beverage arrangement
The Fair & Expo’s food and beverage operation
at the County Fair is responsible for all alcohol
beverage sales as well as eight food stands.
As indicated in the chart to the right, preliminary
results show a positive change for the County
operated food and beverage operations at the
Fair. This is in comparison to gross profit
estimated under the prior concessionaire
arrangement using 2015’s sales.
Additional gross profit rate information on food
and beverage activity might better inform the
County whether it is beneficial to have more
third party concessions for the County Fair.
County food and beverage efforts represent only 15% of food and beverage gross sales.
The County’s inability to accept credit cards for sales of food, beverage and alcohol during the
Fair puts it at a disadvantage to the third party concessionaires who generally accept credit
cards.
Recommendations on internal controls
There were some areas identified for the County’s food and beverage operation (at the County
Fair) warranting additional oversight and control.
Recommendations regarding laws and regulations
Service fees established for the County Fair & Expo (including County Fair) do not follow
outlined public processes.
Deschutes County Internal Audit
2015 County Fair – Food and Beverage #15/16-2 November 2015
Page 1 of 13
1.
Introduction
1.1 BACKGROUND ON AUDIT
Audit Authority:
The Deschutes County Audit Committee authorized the review of the new Fair & Expo food and beverage
activity in the Internal Audit Program Work Plan for FY 15/16. County and Fair & Expo management
requested for the County Fair food and beverage operation be included as a part of the audit with an
emphasis on internal controls. This deviation from the workplan was discussed with the audit committee.
This report focuses on the 2015 County Fair food and beverage operations performed by the County.
Fair & Expo food and beverage operations
In September 2014, the County Fair & Expo management replaced the sole source contracted
concessionaire for all catering and concessions at the Fair & Expo for an in house food and beverage
service. This also allowed the County some flexibility in allowing outside caterers a ccess to the facility.
The County manages all alcoholic beverage services.
The prior concessionaire at the 2014 County Fair provided all alcoholic beverage sales concessions as well
as provided some food concessions. For the 2015 County Fair, the new County food and beverage activity
handled all alcoholic beverage sales and operated some food and beverage booths. The County’s new
Food & Beverage Manager used to manage the prior concessionaire’s business with the County.
1.2 OBJECTIVES and SCOPE
Objectives:
The audit objectives include:
1) Review for appropriate internal controls over cash handling procedures and business processes for
County food and beverage operations (at the County Fair).
2) Assess information (for the County Fair) indicating whether the County food and beverage
operations were more successful than the prior concessionaire arrangement.
3) [Deferred to 2016 internal audit] Assess whether overall food and beverage operations appear to
be more successful than the previous concessionaire arrangement.
4) Be aware of any issues with compliance with federal and state regulations and requirements, as may
be applicable.
DESCHUTES COUNTY
INTERNAL AUDIT
REPORT
DESCHUTES COUNTY
INTERNAL AUDIT
REPORT
2015 County Fair – Food and Beverage #15/16-2 November 2015
Page 2 of 13
Scope:
This audit work is focused on County operated food and beverage operations for the 2015 County Fair.
Review of food and beverage concessions operated by third party vendors was limited. The County hires a
consultant to oversee the accountability of third party food and beverage concessions. Revenue activity
(and associated fees) of the third party vendors were reviewed in context of overall operational results.
Internal audit work on this project was primarily conducted in August 2015 through October 2015. The
County Fair occurred from July 29 through August 2, 2015. County Fair & Expo and County Fair
accounting information were provided by management through 9/30/2015. Some prior year and
comparative information was provided by management. Management provided Fair admission data used
for the per capita results. Food and beverage accounting information was on a cash basis and did not
provide accruals, inventory adjustments, and depreciation adjustments that may better present operations.
An overall gross profit percentage was used to allocate direct costs over the County Fair food and beverage
activities. This will likely understate profit for the higher margin areas like alcoholic beverage sales.
Accounting and associated information was reviewed for reasonableness and was found to be acceptable
for the audit objectives. Specific laws or regulations identified as relating to stated audit objectives were
limited to those associated with establishing or increasing service fees.
1.3 METHODOLOGY
Audit procedures included:
Observations of business and cash handling processes during selected days of the 2015 County Fair.
o County policy F-11 regarding cash handling practices provides guidance adopted by the
County for departments.
Interviews and observations of staff (includes temporary staff).
Analyses of information provided on County Fair & Expo for the County Fair and associated food and
beverage operations.
Additional research on state budget laws and County code related to establishing fees.
We conducted this performance audit in accordance with generally accepted government auditing
standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate
evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We
believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on
our audit objectives.
(2011 Revision of Government Auditing Standards, issued by the Comptroller General of the United States.)
DESCHUTES COUNTY
INTERNAL AUDIT
REPORT
2015 County Fair – Food and Beverage #15/16-2 November 2015
Page 3 of 13
2. Findings
Observations in this audit were not considered to be significant deficiencies. A significant deficiency is
defined as an internal control deficiency that could adversely affect the entity’s ability to initiate, record,
process, and report financial data consistent with the assertions of management in the financial statements.
The findings noted were primarily control, efficiency and effectiveness matters.
Audit findings result from incidents of non-compliance with stated procedures and/or departures from
prudent operation. The findings are, by nature, subjective. The audit disclosed certain policies, procedures
and practices that could be improved. The audit was neither designed nor intended to be a detailed study
of every relevant system, procedure or transaction. Accordingly, the oppo rtunities for improvement
presented in the report may not be all-inclusive of areas where improvement may be needed and does not
replace efforts needed to design an effective system of internal control.
There were some security and safeguarding findings and observations discussed with Fair & Expo
management not included in this report. This is consistent with the public record exemption available to
limit revealing security measures established for protecting property and individuals ORS 192.501(23).
2.1 Internal Control Observations
Some additional controls could enhance oversight over County food and beverage
activities at the County Fair.
There were some areas identified within the County’s food and beverage operation at the County Fair
warranting additional oversight and control. Those areas included:
Cash handling for food and beverage sales lacked adequate segregation and oversight. Staff
sometimes handle monies without dual custody.
Cash register closeout and over-ring procedures were not tightly controlled.
Some registers were borrowed for the event and had not been properly setup in advance.
Non-register controlled sales (which include some alcoholic beverage sales) lack effective control
and segregation of duties.
Change monies are not recounted at beginning and end of day.
Management of food and beverage receipts is handled separately from gate receipts. This
duplicates similar efforts that may be more effectively handled together. Centralizing this oversight
may also allow better segregation of duties as well as dual oversight in counting out unaccounted for
cash.
2015 County Fair – Food and Beverage #15/16-2 November 2015
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In the absence of adequate segregation of duties and oversight over cash, cash may not be properly
accounted for. Separate people should perform custodianship and reconciling activities. In the absence of
centralized oversight over cash, Fair & Expo management is duplicating efforts and may not be as effective
in each area. Some of the control issues are contributed to by the extensive use of temporary staff during
the Fair.
No missing monies were identified during the course of these observations. In the absence of sufficient
controls, monies may not all be appropriately accounted for and it might be problematic determining with
who or where a loss occurred.
It is recommended for Fair & Expo management to address the identified cash control weaknesses
for food and beverage operations.
With efficiency in mind, some of these weaknesses may be addressed through consolidating cash
handling efforts with the existing gate receipt process operated by Finance. It is thought this could be
done without increasing overall staff assigned to these processes.
It is recommended for non-register controlled alcoholic beverage sales be overseen by someone
not involved in those sales.
2.2 County Fair Concession Activities
Preliminary results are positive for change to County operated food and beverage
operations for 2015 County Fair.
Food and beverage gross profit (adjusted)
For the 2015 County Fair, the County operated food and beverage operations appear to be more
successful than the prior concessionaire arrangement. The 2015 food and beverage results were 15%
better than the prior concessionaire arrangement. This was assessed primarily through comparisons of per
capita gross profit (adjusted) between 2015 and as estimated for 2015 under the previous concession
arrangement (as seen in Chart 1 and Table 1).
Gross profit was only adjusted for 2015 to reflect incremental additional indirect management costs incurred
from having a food and beverage operation. The estimated indirect management costs of $8 thousand are
not being accounted for under the County Fair.
2015 County Fair – Food and Beverage #15/16-2 November 2015
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Chart 1:
County per
capita gross
profit
(adjusted) by
year at County
Fair
Table 1:
Gross profit
(adjusted) for
County Fair
food &
beverage by
period
See additional data under Table 1
The per capita results indicate (on a concession basis) that 2015 results were 16% lower than 2014. The
prior concession arrangement was in place for 2014. The County’s move to an in-house service reduced
the impact to 4% below the 2014 per capita results. This is while Fair admissions in 2015 were down 4%
from 2014 as temperatures rose 4% to an average of 98 degrees in 2015. Management indicates that
higher temperatures can influence sales. County Fair & Expo management indicates the current market
conditions would not sustain (into 2015) the previously negotiated profit share rate for the concessionaire
arrangement. The prior concessionaire rate levels were used since an estimate of current contracting
conditions could not be determined. A decline in concession rate levels would further support the in-house
food and beverage arrangement.
in Dollars
Per Capita
Gross profit (adjusted)* 2015 ** 2015 *** 2014
2015** 2015*** 2014
Alcohol - County $ 61,236 $ 55,924 $ 65,435
$ 0.88 $ 0.80 $ 0.90
Food & beverage -
County 20,483 15,062 23,484
0.29 0.22 0.32
County food & beverage $ 81,719 $ 70,986 $ 88,919
$ 1.17 $ 1.02 $ 1.22
Concessions - Vendor 126,337 126,337 99,209
1.81 1.81 1.36
Total Food & Beverage $208,055 $197,323 $188,128
$ 2.98 $ 2.83 $ 2.57
Estimated County concession equivalent
* adjustment to gross profit for estimated indirect costs (only 2015 **)
** Utilized overall gross profit rate of 49%
*** Profits estimated under prior concession arrangement for County activity
See Chart 1
2015 County Fair – Food and Beverage #15/16-2 November 2015
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Chart 2:
2014 and 2015
County Fair per
capita gross
sales by
source
Chart 3:
Composition of
2015 food and
beverage
(indicating
source,
per capita gross
sales, and
percentage)
As far as total food and beverage activity, the analyses in Table I indicates increased concession activity
and higher per capita profits. The vendor concession activity showed greater strength than the County by
improving 33% on a per capita basis from 2014. Some of the County’s decrease was due to operating
three less concession stands than 2014 and having those performed by third party concessionaires. Third
party concession stands increased 23% by increasing by five overall stands in 2015 (from twenty-two in
2014).
Food and beverage gross sales
On average, County Fair attendees spend $10 per person on food and beverage. Overall sales are up
fourteen percent (14%) on a per capita basis from 2014. As indicated in Chart 2, the third party food
concessions gained in share and represent most of the food and beverage activity.
From 2014, gross sales increased more (by 20%) for third party vendor concessions as compared to county
food and beverage activities (at 2%). As indicated previously, third party vendor stands increased to
twenty-seven stands, which was partly due to the County discontinuing three concession stands.
{No recommendation}
2015 County Fair – Food and Beverage #15/16-2 November 2015
Page 7 of 13
Should the County continue to compete with its County Fair food vendors?
The County Fair food and beverage operations are provided primarily through third-party vendors. As
indicated in Chart 3, the County food and beverage efforts represent only 12% of all activity (15% on just
food and beverage). The County borrows a number of food booths just for the County Fair.
The County’s overall profit margin is 49% for food, beverage and alcohol. Food and beverage profitability is
expected to be much less than for alcoholic beverage sales.
The County Fair accounting for food and beverage activity is not so specific as to know the gross profit for
just food and beverage activity. To support continued food and beverage activities at the County Fair, the
County should be achieving profits on food and beverage sales of at least 25% (after indirect management
costs). Twenty five percent (25%) of gross sales is the fee the county receives from third party
concessionaires. Gross profit margins would need to be better than 25% to make competing attractive.
This might be possible but given the additional labor, oversight and management it might be a very
marginal return over the 25% assured through food concession arrangements. In addition, Fair & Expo
management indicates there are numerous third party vendors interested in being part of the County Fair.
Current accounting for food and beverage is insufficient to detail the gross profit rate down to the food and
beverage level (excluding alcohol).
The County would also likely continue the food and beverage services provided at the rodeo and event
center for better service to the customers. In 2015, this represented only 15% of the County’s food and
beverage activity.
On a subjective level, the marketing and signage efforts for County food and beverage booths had
significantly less color, advertising, and appeal than the professional concession stand vendors.
It is recommended for Fair & Expo management to consider and weigh the benefits of promoting
more third party food concessionaires at the County Fair instead of competing with them.
It is recommended for Fair & Expo management to develop an estimate of their gross profit margin
for food and beverage operations during the Fair. This might be achieved easier by subtracting out the
alcohol beverage activity from the accounting.
2015 County Fair – Food and Beverage #15/16-2 November 2015
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County food, beverage and alcohol stands could not accept credit cards.
Unlike many of the third-party concession vendors, the County did not accept credit cards for sales of
alcoholic beverages or food and beverage during the County Fair. Not having the option to accept credit
cards puts the County at a significant disadvantage when selling food and beverage and might have
affected sales.
For some customers, credit cards are a customary way of paying for services and goods. The Fair & Expo
has a limited number of credit card machines and they are utilized primarily for gate entrance fees. Current
concession registers are not capable of processing credit card transactions. It is not clear that ATM’s
available at the Fair & Expo center can substitute for having the ability to take credit cards.
It is not possible with available information to assess the monetary impact for lack of credit card processing
abilities. Credit card processing technology is still evolving for remote usage. Any credit card solutions
considered would need to comply with the latest PCI standards. It is not clear what additional costs there
would be for accepting credit cards and to what extent it could be used throughout the year.
It is recommended that Fair & Expo weigh the benefits and costs for having the ability to accept
credit cards for food and beverage sales.
Oversight of third party food vendor sales through credit card machines could be
improved.
Some third party vendors process credit cards independent of their cash registers. In these circumstances,
it is possible for a credit card sale to occur and not be entered into the cash register. Receipts are not
required to be provided. A credit card receipt is not a sale receipt in this circumstance. It is possible to
understate sales being used for determining their concession fees if credit card sales are not reported.
The County receives 25% of the gross proceeds on all third party food and beverage concession sales.
Registers are monitored for compliance but credit card machines are not.
Sales from registers are not always tracking the source of payment. Most registers can track separate
forms of payment (i.e. cash, check, charge). If sales were defined by their source of payment (i.e. credit
card sales vs. cash), it would be possible to check if all credit card transactions were entered.
2015 County Fair – Food and Beverage #15/16-2 November 2015
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In the absence of receipts being issued for credit card sales, it is possible that not all sales will be
accounted for and appropriate fees collected.
It is recommended for Fair & Expo management to require vendors provide receipts to customers.
They might consider providing a sign telling customers to expect to receive a receipt.
It is recommended for vendors with credit card processing separate from their register, utilize a
sales type category for credit card sales that will allow comparison of credit cards sales processed
to those entered into the register.
2.3 Compliance with Laws and Regulations
Fees for the County Fair & Expo (including County Fair) do not follow outlined public
processes.
The County’s current fee schedule (set during the budget process) does not include fees for the County Fair
& Expo operations (including County Fair). Fair & Expo management has established fees for that include
concessions, rental and sponsor fees. The Director has discretion to negotiate fees and uses their fee
schedule for guidance on a not-to-exceed basis to maximize use of facilities and fees generated. The
Director has discretion to waive fees for certain non-profit and community events.
The County has a fee setting process for all departments in the development of the countywide budget.
County Code (§4.12) regarding service fee adjustments sets requirements for departments in managing
service fees. These requirements include:
an analyses of current fees, actual cost of services provided and recommended fee adjustments, if
any;
use of a hearing for any adjustments to fees and charges and new fees and charges; and
a publication of all fees and charges for services.
Oregon statute (ORS 294.160) outlines the opportunity for receiving public comment on new and increased
fees.
County Fair & Expo fees have not been integrated into the County fee setting process since thei r operations
became part of the County. As an enterprise fund, Fair & Expo management may need more latitude than
2015 County Fair – Food and Beverage #15/16-2 November 2015
Page 10 of 13
most County operations to have a fee structure that allows some flexibility. This may be accomplished with
a not to exceed fee structure and providing the Director some latitude with fees to assure that fees are
maximized for the operations. Washington County, OR has a fair complex for which it has published fees.
It is recommended County Fair & Expo management determine how to comply with Oregon budget
law and County Code for establishing service fees. This may include a process to involve public
comment in their fee setting process as well as publishing their fees along with other County fees. The
discretion on fees should be documented as part of this process.
It is recommended for County management to periodically review Fair & Expo’s assessed fee
variance from established fees.
2015 County Fair – Food and Beverage #15/16-2 November 2015
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3.
Management
Responses –
County Fair &
Expo -
Dan
Despotopulos,
Fair & Expo
Director
October 29, 2015
We agree with all of your recommendations. We will begin working on all of these immediately and
have our plan completed no later than March 1, 2016. This will allow us plenty of time to be prepared
for the annual Fair, which is August 3-7, 2016.
1. It is recommended for Fair/Expo management to address the identified cash control
weaknesses for food and beverage operations.
We agree and will meet with Finance and discuss this at our scheduled monthly meeting in December
to start the process.
2. It is recommended for non-register controlled alcoholic beverage sales be overseen by
someone not involved in those sales.
We agree and will begin working on this to come up with a satisfactory solution. We may look at selling
tokens pre-purchased at a specified location(s). This would control the cash handling.
3. It is recommended for Fair/Expo management to consider and weigh the benefits of
promoting more third party food concessions at the County Fair instead of competing with
them.
We agree with this recommendation and as a result of the extensive work done in this audit it shows
this would be a good direction to follow. We will begin to accept applications for food booths 12/1/15
and will take the list and see which ones would/could benefit us.
2015 County Fair – Food and Beverage #15/16-2 November 2015
Page 12 of 13
County Fair &
Expo
(continued)
4. It is recommended for Fair/Expo management to develop an estimate of their gross profit
margin for food and beverage operations during the Fair.
We agree with this recommendation and can remove the alcohol activity from our totals. We will have
to do a better job of breaking things down to attain that goal. The challenge being we may order 10 lbs.
of hamburger for example and sell 8lbs. during the fair and use the remaining 2 lbs. for events after the
Fair. Same would apply to alcohol, we may have x amount of kegs/parti al kegs left, which we will sell at
events after Fair. We will begin work immediately on this.
5. It is recommended that Fair/Expo weigh the benefits and costs for having the ability to
accept credit cards for food and beverage sales.
We agree with this recommendation, however would like to point out we do have 6 ATM locations for
patrons to access cash, also with the new chip readers it becomes a slow process, one that takes up to
1 minute / 30 seconds approx. We discovered this at our gates last year where lines were long and
things were somewhat slower. We will look into this to see if there is a speedier process. We have
found that folks are using their debit cards more often.
6. It is recommended for vendors with credit card processing separate from their registers,
utilize a sales type category for credit card sales that will allow comparison of credit card sales
processed to those entered into the register.
We agree with this recommendation and will enter this into our contracts that will be available online
12/1/15. At the end of each shift each credit card machine will be required to do a report of total sales,
which will match up to the cash register credit card sales. They will be required to each day show their
cash register tapes that match up to the credit card report.
7. It is recommended for County management to periodically review Fair/Expo’s assessed
fee variance from established fees.
We agree with this recommendation and have as a matter of practice anytime we increase a fee for
gate admission or vendor booth space, which is not very often, had approval from the County Fair
Board and County Fair Association Board of Directors. We will in a timely manner have all of this info
included in the County fee scheudle for the public hearing.
2015 County Fair – Food and Beverage #15/16-2 November 2015
Page 13 of 13
Finance
Department,
Wayne Lowry,
Finance
Director/
Treasurer
Comments on the recommendations:
Cash Control Weaknesses – It is not clear that the Finance effort will continue into the future. We need
to talk with Dan about potentially paying for that service in the future. The process works very well as it
is currently laid out and is tightly controlled. I am not sure we could handle daily closing of a number of
food and beverage registers and deposits with the same staff. No question the cash controls you
mention in your recommendations should be reviewed and implemented in a practical way.
Fair Fees and Charges – I suggest that the Fair fees and charges be included in the County fee
schedule each year and be included in the public hearing. As you mention, the fees and charges would
be the maximum for each type of rental. The fee schedule could have a statement in it that the Fair
Director has discretion to waive or reduce fees below the max. Perhaps to keep some control over this
process, the Fair Director could prepare a report each year or quarter that shows fees that were waived
or reduced and provide an explanation for each.
Thoughts on Dan’s responses:
We are willing to meet with Dan anytime and discuss our thoughts on control improvements. I think the
token idea for alcohol sales would work well and provide a better environment for solid cash controls.
On recommendation #4, Fair staff need to develop a better inventory system for their food and
ingredient inventory. If they are going to be in the food and beverage business, they should look into
some sort of more sophisticated inventory system.
{End of Report}
Please take a survey on this report by clicking on the attached link:
https://www.surveymonkey.com/r/1516-2_FairConcessions
All photos contributed by David Givans