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HomeMy WebLinkAbout1920-12 Fair & Expo Trending costs (Final 8-18-20)Fair & Expo – Trending costs report #1920-12 August 2020 Fair & Expo – Trending costs 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 Deschutes County Internal Auditor 1300 NW Wall St Bend, OR 97703 541-330-4674 David.Givans@Deschutes.org Audit committee: Daryl Parrish, Chair - Public member Jodi Burch – Public Member Tom Linhares - Public member Scott Reich - Public member Summer Sears – Public member Stan Turel - Public member Patti Adair, County Commissioner Nancy Blankenship, County Clerk Nick Lelack, Community Development Director Take a survey by clicking HERE Fair & Expo – Trending costs report #1920-12 August 2020 TABLE OF CONTENTS: HIGHLIGHTS 1. INTRODUCTION 1.1. Background on Audit …………..……………..……………………………………………. 1 1.2. Objectives and Scope ……………….……..…………….…..…….…………………… 1-2 1.3. Methodology …………………………………….………….………………………..……… 2-3 1.4. Background on Fair & Expo ……………………………………………...…………… 3-5 2. FINDINGS and OBSERVATIONS 2.1. Common size and variance analyses ……....……………………………….… 5-19 2.2. Recommendations …………………………………………………………………….. 20-30 2.3. Compliance recommendations …………………………………………………. 30-33 3. MANAGEMENT RESPONSES 3.1. Fair & Expo Department ……………………………………………………..... 33-37 3.2. Finance Department …………………………………………………………...... 38-39 Fair & Expo – Trending costs report #1920-12 August 2020 HIGHLIGHTS Why this audit was performed: A desire to better understand trending costs of Fair & Expo. What was recommended: Recommendations include: • setting up receivables in the County accounting system; • budgeting accounts expected to have activity; • controlling entertainment costs; • changing some County Fair budget information; • communicating budget expectations; • contracting for entertainment should include appropriate approvals and legal review; • following statute for Fair fund transfers; and • building a reserve for the County Fair fund; and • considering a new Fair Association agreement. Fair & Expo - Trending costs The Deschutes County Audit Committee authorized the review of fiscal trends with Deschutes County Fair & Expo at the request of the Board of County Commissioners and Budget Committee in developing the FY2021 budget. What was found Fair & Expo Fair & Expo revenues from rights and signage could use greater oversight as some FY 2020 sponsorships have not been received. Some kitchen costs could be reflected in costs of food and beverage division. A capital purchase from capital reserves was split into two transactions and didn't receive appropriate approvals. Noted some suggestions from review of the food and beverage inventory process. County Fair County Fair budget provided accounting information that unfairly raises questions. County Fair budgeting could be improved as there were a number of line items with activity that were not budgeted. Major entertainment and rodeo costs increased more than originally planned. The management transition likely put additional pressure on controls over expenditures. Concert contracting could be strengthened and improved by including appropriate approvals and legal counsel review. County Fair entertainment contract process could be improved as they lacked uniform contracts and legal review. Compliance and legal areas County Fair funds are restricted and may call into question any transfers out of the fund. The County Fair Agreement with the Fair Association no longer represents how the County Fair is operated. Deschutes County Internal Audit Fair & Expo – Trending costs report #1920-12 August 2020 Page 1 1. Introduction 1.1 BACKGROUND ON AUDIT Audit Authority: The Deschutes County Audit Committee authorized the review of fiscal trends with Deschutes County Fair & Expo at the request of the Board of County Commissioners and Budget Committee in preparing the FY2021 budget. The objectives were determined through discussions with the County Administrator, Department, Board of County Commissioners, and Fair Board. 1.2 OBJECTIVES and SCOPE “Audit objectives” define the goals of the audit. Objectives included: 1) Review and trend accounting (budget and actual) for Fair & Expo; County Fair; RV Park and associated reserve funds (funds 615, 616, 617, 618, 619). Annual trend and possibly monthly for near term pandemic impacts, as applicable. Distinguish work by fund. 2) Identify significant variances (based on % and $) in revenue and expenditure accounts from budget or expectation for additional analyses. Look for reasons for higher costs and lower revenues and how approved. a) Some previously identified areas include: • Fair: Rodeo, entertainment, food & beverage, misc. supplies, and Sunday event • Fair & Expo: Food & beverage (inventory levels), utilities, camping fees, and events 3) Be aware of any issues with compliance with federal and state regulations and requirements, as may be applicable. Scope and timing: The audit commenced in June 2020 and extended into July 2020. All Fair & Expo funds, policies, and procedures in affect at 6/2020 with an emphasis on operating funds. Covid-19 pandemic impacts started in the middle of March 2020. The scope of the audit did not include all aspects of internal Fair & Expo – Trending costs report #1920-12 August 2020 Page 2 controls employed. The work occurred during the COVID-19 pandemic. 1.3 METHODOLOGY “Audit procedures are created to address the audit objectives” Audit procedures included: • Discussing objectives with the Board of County Commissioners, County management, Fair & Expo management, and Fair Board. • Financial analyses – including common size and trending by accounting fund /organization /object for actual results of operations (develop understanding of revenue and expense recognition) and over calendar period for County Fair; • Identifying any areas warranting additional review (additional review is judgmental and can include review of supporting documentation, authorizations, and additional analyses); • Interviewing Fair & Expo management, staff, and selected Fair Association director on trends and observations; • Observing food and beverage inventory for fiscal year end associated compilation of inventory value; • Judgementally reviewing accounting support for selected accounts, postings, and purchases (including inventory purchases); and • Review associated statutes and agreements governing Fair & Expo. 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. (2018 Revision of Government Auditing Standards, issued by the Comptroller General of the United States.) The County Internal Auditor position was created by the Deschutes County Code as an independent Fair & Expo – Trending costs report #1920-12 August 2020 Page 3 office conducting performance audits to provide information and recommendations for improvement. 1.4 BACKGROUND ON FAIR & EXPO DEPARTMENT Table I Fair & Expo Change in Net Position by FY (2017-2019) Fair & Expo operates from a 320-acre site in Redmond. In addition to hosting the County Fair, the facility is used for more than 400 events annually with an emphasis on youth, agricultural, commercial, and educational opportunities for the citizens of Deschutes County. The facility has over 167,000 square feet of exhibit space, 120,000 square feet of covered livestock and equestrian arenas, 400 horse stalls, a 105 space RV park complex, and at its center a four-acre County park. The Department has currently 10 full-time employees and a total budget of nearly $2.7 million. Source: Deschutes County CAFR's FY 2017, 2018 and 2019. (County Fair included in Fair & Expo) Fair & Expo – Trending costs report #1920-12 August 2020 Page 4 Table II County Fair revenues to expenses without transfers (Calendar 2017- 2019) The Fair & Expo Department is an enterprise department within the County, which means they are to operate like a for-profit business. FY 2019 showed a somewhat consistent operating loss to prior periods. The operating losses are funded mostly through supporting transfers since 2017 when the property tax levy ended. These transfers come primarily from Transient Room Tax (TRT) and general fund. The County Fair is included in Fair & Expo numbers shown above, however the occurrence of the County Fair in July/August means there are some revenues and expenses that are not reflected properly in fiscal year reporting (without accruals). The 12 month calendar year reporting to the left is prepared by Finance and shows a clearer picture of the County Fair results. Transfers in from Transient Room Tax (TRT) for marketing vary and amounted to $200 thousand for the 2019 Fair. Transfers were not included in this presentation. Fair & Expo – Trending costs report #1920-12 August 2020 Page 5 The County Fair has historically been a positive contributor to the results of Fair & Expo. The 2019 Fair was the 100th anniversary of the Fair incurred a number of costs outside of the norm in order to raise the bar on the event. The net contribution as shown above from the budget for the 2019 Fair (within the FY 2020 budget) was about $145 thousand. 2. Findings and Observations The audit included limited procedures to understand the systems of internal control since the audit was primarily focused on investigating specific variances in expenditures. No significant deficiencies were found in this audit. 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 compliance and efficiency 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 opportunities 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. 2.1 Common size and variance analyses The common size and percent change analyses are useful in identifying accounts worth further examination. These were done down to the line item, but are shown below in aggregate for perspective. Common size are taken as a percentage of identified revenues. Percent change represent the increase (decrease) from prior year. FY 2020 numbers were pulled in July 2020 but probably did not include all of the final year-end adjustments. Fair & Expo – Trending costs report #1920-12 August 2020 Page 6 Table III.1 Fair & Expo High Level common size and % change comparisons. (FY 2017-2020) Table III.2 County Fair High Level common size and % change comparisons. (FY 2017-2020) Expenditures have been growing as a percentage of revenues. The budgeted expenditure level has not been keeping pace with actual, at least as used in comparison with revenues. Revenues declined significantly in 2020 (Covid 19) so many of the more fixed costs of operations are represented. Percentage change also shows the overall improvement in revenues up to the Covid 19 shutdown but expenditures have trended at a higher rate. As represented in the fiscal year accounting, the 2019 County Fair (100th anniversary) represented in FY 2020 had slightly lower revenues and higher expenses resulting. However, this accounting does not match or reflect the seasonality of the County Fair that occurs in July/August. Fair & Expo – Trending costs report #1920-12 August 2020 Page 7 Table III.2.1 County Fair High Level common size and % change comparisons. (12 month Fair accounting for 2016-2019) Table III.3 RV Park High Level common size and % change comparisons. (FY 2017-2020) \ Contrasting with the prior analysis in Table III.2, the calendar representation of the County Fair is a fairer accounting of the overall Fair. Especially since FY 2020 accounting records had not been completed for this analysis and as well for the budget presentation. As shown in Table II and discussed later, this calendar presentation actually reflects a positive net revenues over expenditures. This is a better way to present the results in situations where there is not an accrual accounting. Expenditures, however, continue to show a significant increase. Revenues and expenditures are pretty comparable along trends. FY2020 numbers are down due to the onset of the Covid-19 pandemic. Fair & Expo – Trending costs report #1920-12 August 2020 Page 8 Graph I FY 2020 Monthly Fair & Expo resources by month with estimated lost revenue The following items (resources or expenditures) were reviewed further: These were selected judgmentally or because of change from trend or expected norm. CALCULATIONS: Common size calculations are taken as a percentage of identified revenues. Percent change calculations represent the increase (decrease) from prior year. FY 2020 numbers were pulled in July 2020 but these do not include all of the final year-end adjustments. FAIR & EXPO (Fund 615) 1) RESOURCES: a) Event revenue declined significantly with the Covid-19 pandemic. All events were discontinued from March on. Between the events and associated food and beverage revenue lost is estimated to be around $565 thousand. As indicated in Graph I, the Covid-19 pandemic came at a time when Fair & Expo typically receive Fair & Expo – Trending costs report #1920-12 August 2020 Page 9 Table IV.1 Interfund payment common size and % change comparisons. Table IV.2 Beginning working capital common size and % change comparisons. Table IV.2.1 Trend in actual to budget in beginning working capital their greatest levels of revenues. b) Interfund payments increased during COVID-19 due to a number of staff that were picked up by other departments and the department was reimbursed for their costs (inclusive of all the fringe costs). This offsets some of the salary and benefit costs. c) d) Beginning working capital was budgeted to come in at $80 thousand and came in at a deficit of $94 thousand. This swing of $175 thousand increased the level of needed resources. As seen in this trending, the working capital expectations continue to be over budgeted. Fair & Expo – Trending costs report #1920-12 August 2020 Page 10 Table IV.3 Camping fees common size and % change comparisons. Table IV.4 Rights common size and % change comparisons. Table V.1 Employee common size and % change comparisons. Table V.2 Overtime common size and % change comparisons. e) Camping fee revenues declined due to equestrian events cancelled with the Covid-19 pandemic. f) Rights and signage revenue down due to $17 thousand of uncollected receivables. {See recommendation below} 2) EXPENDITURES: a) Employee costs continued to great extent except for one retirement. Costs were somewhat offset by interfund reimbursements. b) Overtime increased more than budgeted for the year due to grounds staff person going on medical leave and increased coverage. Fair & Expo – Trending costs report #1920-12 August 2020 Page 11 Table V.3 Electricity common size and % change comparisons. Table V.4 Building and Grounds Repair & Maint. common size and % change comparisons. Table V.5 Time management common size and % change comparisons. Table V.6 Equip. Repair & Maint. supplies common size and % change comparisons. c) Electricity a bit high but department has been shutting down usage as much as possible. Percentage is higher since on lower revenue amount. d) Building and grounds repairs and maintenance was higher as some items in here (upgrade to LED fixtures) could be capital purchases as well. e) Time management leave (TML) can vary a bit from plan. TML resulted from a couple of employees cashing in TML and a retirement cashing in all TML. Without the retirement, the comparison would have been closer to budget. f) Fair & Expo – Trending costs report #1920-12 August 2020 Page 12 Table V.7 Software Maint. Agreements common size and % change comparisons. Table V.8 Conference & Seminars common size and % change comparisons. Equipment repair & maintenance had a number of charges related to the kitchen that might be charged to the food and beverage division. See recommendation below. g) Software maintenance appears to be mostly for their EventPro software. They went to a cloud version of the software in late FY 2019 that increased the costs for FY 2020 more than expected. Management was able to address so that costs are almost half in FY 2021. h) Conference and seminars had significantly more costs than budgeted. Geoff Hinds indicated that these costs were broken out whereas they had been in other categories and indicated that advertising and promotion was one area that benefitted. This account was down. Staff attended the following conferences: Connect Pacific Northwest (Portland, OR); CONNECT Marketplace (Louisville, KY); Teams Conference (Redmond, OR); Cascadia Conference (Portland, OR); Digital Marketing Conference (virtual); and Leadership skills training (Bend, OR). Approvals: Geoff Hinds, Director. Fair & Expo – Trending costs report #1920-12 August 2020 Page 13 Table VI Food & Beverage resources common size and % change comparisons. Table VII.1 Temp Help –Labor common size and % change comparisons. FOOD AND BEVERAGE (Fund 615) 3) RESOURCES a) Composition of revenues is pretty close but down from the lost events. Margins on food sales appears to be lower. That is probably contributed to by the food ordered and not used when the pandemic occurred. See further discussion with food and beverage costs below. 4) EXPENDITURES a) Temp labor is up. Hourly cost for temp labor has increased by 4.5% but overall composition compared to concession, catering and alcohol revenues has been trending up. The actual usage rate is significantly higher than budgeted. This component can significantly impact profitability. Management should consider their plan for controlling these costs and budgeting for them accurately. Fair & Expo – Trending costs report #1920-12 August 2020 Page 14 Table VII.2 Rental Equipment / Non-Office common size and % change comparisons. Table VII.3 Bank & Trustee Charges common size and % change comparisons. Table VII.4 Food & Beverage costs common size and % change comparisons. b) Rental equipment includes rentals of linens and other materials that are pretty consistent over time, however prices for these have escalated and has driven costs up. These were discontinued once the pandemic occurred and the Director is looking at options. c) Bank and trustee fees reflect the increased usage of credit cards to make purchases. This is part of the business that hasn’t been budgeted yet. d) Food costs are higher as a percentage of sales and this is thought to have been the costs born near the pandemic but without sales. Alcohol costs probably due to more beer being held beyond dates since going into pandemic without associated sales. Overall composition of food and beverage costs as a percentage to food and beverage revenues is around 24%. FY2020’s rate of nearly 27% makes sense with the additional inventory purchasing and spoilage without additional revenues. FY2020 Budgeted food and beverage costs rate of 18% Fair & Expo – Trending costs report #1920-12 August 2020 Page 15 Table VIII.1 Entertainment- Major common size and % change comparisons Table VIII.1.1 Entertainment- Major composition and authorizations is perhaps overly optimistic. COUNTY FAIR (Fund 616) 5) RESOURCES a) As noted in Table II, revenues were closely aligned with prior year. b) Beginning working capital for FY2021 was budgeted to come in at $0 and came in at a deficit of $48 thousand. This unfavorable variance increases the level of needed resources. See recommendation below. 6) EXPENDITURES a) This accounting object is comprised of concert acts and associated costs. Description Amount Authorizations Concerts (with backstage management fee) $ 421,525 Dan Despotopulos signed contract/Geoff Hinds Munis / Greg Munn Munis (See recommendation) Video 6,500 Ross Rogers Munis / Geoff Hinds Munis Lighting - Basic 35,000 Ross Rogers contact / Geoff Hinds Munis / Tom Anderson Munis Lighting extra – Old Dominion event lighting 30,647 Originally posted to Rental Equipment - Ross Rogers contact / Geoff Hinds Munis / Erik Kropp Munis Lighting extra – Collective soul event lighting 4,300 Originally posted to Rental Equipment - Ross Rogers contact / Geoff Hinds Munis TOTAL $ 497,972 {Budget of $450,000} Fair & Expo – Trending costs report #1920-12 August 2020 Page 16 Table VIII.2 Entertainment- Grounds common size and % change comparisons Table VIII.3 Rodeo common size and % change comparisons Concerts were all approved in the overall budget since there was a fundamental increase from prior year for the 100th Fair. However, there were a number of event driven costs for mainly the largest act (Old Dominion) that drove costs higher than budgeted. The Fair Coordinator indicated these production level costs were driven by the act. At the time of the Fair, the Director was made aware of the costs but there was nothing clear about the amount and the extent of the costs until they were billed. Our contract stipulated the limitations of a County Fair venue. See recommendation regarding management of costs. See recommendation regarding workflow for Munis approvals. See recommendation below about contracting for concerts. b) This line item was made up of numerous types of agreements. Contracts vary from using the contractor’s agreement or the County’s basic form. Some are signed by staff and some are signed by Fair Association volunteers. Some of the contracts lack signatures. See contracting recommendation. c) The 100th County Fair added a 5th day of costs to the rodeo and a couple of other costs not anticipated. The most significant costs were for the rodeo prize money and management. Rodeo prize monies appear to have been increased beyond what is customary and represented one of the highest in the Northwest for the number of competitors. Fair & Expo – Trending costs report #1920-12 August 2020 Page 17 Table VIII.3.1 Rodeo composition and authorizations Description Amount Authorizations Rodeo prize money $ 37,100 Geoff Hinds initialed invoice /Geoff Hinds Munis / Erik Kropp Munis Up from $19,200 in Prior Year Rodeo event management 27,800 Geoff Hinds initialed invoice /Geoff Hinds Munis / Erik Kropp Munis Up from 21,200 in prior year Fighting Bulls 9,409 Dan Despotopulos contract / Geoff Hinds Munis Rodeo Clown 8,000 Dan Despotopulos contract / Geoff Hinds Munis Barrelman – 5 performances 7,000 Geoff Hinds Contract / Geoff Hinds Munis Rodeo Announcer – 5 days 6,500 Dan Despotopulos contract / Geoff Hinds Munis Sound system – 5 days 6,000 Dan Despotopulos contract / Geoff Hinds Munis Scoreboard system 5,625 Fair Assoc. contact / Dan Despotopulos contract / Geoff Hinds Munis Rodeo prizes – buckles (for 2020 Fair) 2,789 Fair Assoc. / Geoff Hinds Munis Rodeo photos 2,500 Geoff Hinds contract /Geoff Hinds Munis Hay for rodeo 2,240 Geoff Hinds Munis Vet Services 1,250 Geoff Hinds Munis TOTAL $ 116,213 {Budget of $65,000) The prior Fair Director indicated he had all major contracts signed, but any rodeo management and prize money contracts signed by him could not be found. A record of any prior contract could not be located or the department’s file on the rodeo vendor. From discussions with the prior Director it didn’t sound like he would have approved an increase in Fair & Expo – Trending costs report #1920-12 August 2020 Page 18 Table VIII.4 Electricity common size and % change comparisons Table VIII.5 Bank & Trustee charges common size and % change comparisons Table VIII.6 Grants & Contributions common size and % change comparisons the rodeo prize money. The Fair Association Director involved with the rodeo indicated these contracts were all reviewed with the prior Director (Dan Despotopulos). d) The Fair is charged for the August electricity bill which is higher than July. Might consider whether this is appropriate. If consider recommendation for charge for event center it would be implied that normal costs would be included and may not charge for this directly. e) This is not currently budgeted but there is a consistent need and usage of credit card sales for food and beverage. See recommendation for additional budgeting by line item consistent with actual charges. f) The County was requested to provide $10,000 in support and cover the Directors’ insurance at the request of Fair Association. Same as 2019 and hasn’t been budgeted consistently in last two years. Not budgeted for FY 2021. See budgeting recommendation. Approved by Geoff Hinds, Director in Munis. There seems to be no current agreement or contract that requires this support. Fair & Expo – Trending costs report #1920-12 August 2020 Page 19 Table VIII.7 Program supplies common size and % change comparisons Table VIII.8 Miscellaneous supplies common size and % change comparisons Table VIII.9 Tools & Equipment common size and % change comparisons g) The program supplies are mostly for 2020 Fair - Fair queen costs but these lack any budgeting. Refer to budget recommendation. h) Miscellaneous supplies appear to be appropriate expenses but who is driving these costs. They are submitted by 4H and Fair management. Reference budget recommendation. i) These are capital purchases made for five televisions and associated mounting. The current Director indicated these TV purchases were cheaper than renting for 100th County Fair presentations. Fair & Expo – Trending costs report #1920-12 August 2020 Page 20 2.2 Recommendations FAIR & EXPO Rights and signage sponsorships occur from the event center down to website banners. Fair & Expo revenues from rights and signage could use greater oversight. Fair & Expo revenues from rights and signage could use greater oversight as some FY 2020 sponsorships have not been received as of July 2020. The department uses a paper tracking system, but some amounts billed back in April have not been followed up on into July. The Fair & Expo has a significant number of sponsors ranging from the event center naming rights down to website banner advertising. The paper system lacks transparency and staff isn’t consistently following up on outstanding receivables. Some of this is due to the transition subsequent to the retirement of one of the administrative staff. There was $17 thousand over three sponsors identified as still requiring follow-up. This is income on the accrual method. It is recommended for the Department to utilize the County accounting system for sponsor receivables to provide better transparency, accounting, and collectability. It is recommended the department develop an approach for addressing sponsors and collection. Fair & Expo – Trending costs report #1920-12 August 2020 Page 21 Some kitchen costs could be reflected in costs of food and beverage division. Within some of the repair expenditures there are some costs related to the kitchen. Arguably these could belong to the food and beverage division. The expenditure accounts included equipment repairs & maintenance and building and grounds repairs and maintenance. The division of food and beverage into its own division allows for better tracking and monitoring of profitability. Having expenses not posted to the correct division makes it difficult to assess profitability by division. With the movement of the food and beverage division in-house, there probably hasn’t been a thought about where these costs belong. The accounting system the County uses now can make use of purchase orders, requisitions, and contracts. Utilizing these will help assure that the associated invoices are posted in a consistent manner. It does still require the requisition or purchase order to identify the correct division. It is recommended the department consider posting kitchen repairs to the food and beverage division. The department might consider using requisitions, purchase order, and contracts in the accounting system. Capital purchase was split into two transactions and didn't receive appropriate approvals. Fair & Expo (Capital reserve) acquired a food trailer and separated the transaction into two transactions, a down payment and the final payment. By doing so in separate transactions, the Fair & Expo – Trending costs report #1920-12 August 2020 Page 22 Splitting transactions does not allow the accounting software to enforce the proper approvals based on the dollar amount of the overall transaction. required approvals in the County accounting system was not required by established workflows. The total cost was around $46 thousand. The Fair & Expo Director has purchasing authority up to $25 thousand. The County Administrator's approval is required above that level. The Board of County Commissioners approval is required for purchases over $150 thousand. The accounting software cannot determine that transactions are being split and so it was not able to enforce the required approvals. The department entered these as invoices and did not use the requisition, purchase order, or contract process to collect approvals on the intended purchase. The proper approval by the County Administrator was not obtained. It did not appear that the Department did this knowingly as it was based upon a series of events (a down payment and a final payment). Management indicates this item was planned for and included in the approved budget. The support for the transaction clearly indicated the overall purchase price, but involved Finance staff and the Fair & Expo Director did not identify the need to seek additional authorization. It is recommended that capital purchases not be split into separate transactions. This can be accomplished by using the purchase order or requisition process. Inventory process could be improved. The review included an observation of the food and beverage Inventory count process and identified some areas that could be improved. • Fair & Expo provides monthly inventory counts, but the monthly inventory amounts are not recorded in the County accounting system. • At least year-end, review and update pricing of inventory to reflect recent prices. on a first-in first-out basis Fair & Expo – Trending costs report #1920-12 August 2020 Page 23 • When product is received, make sure receiving invoices are marked off as received. Consider requisition process in the accounting system that requires three-way match. • Inventory process should be developed in written procedures. • Inventory should be organized in advance of any counts and any spoiled or past date merchandise marked DNI for “Do Not Inventory”. • Inventory value was noted as being a couple of thousand higher and a number of goods were not counted as they were past date by the Food and Beverage Manager. By improving the above areas, the food and beverage division will attain more consistent control of inventory and more accurate accounting. It is recommended for the Food & Beverage Manager to establish some additional processes over inventory including: updating pricing to reflect first-in first-out method and establishing additional procedures for the inventory as noted. COUNTY FAIR Accounting information provided for County Fair budget unfairly raises questions. For the County Fair, the nature of budget accounting information doesn’t match with the Fair’s performance and raises questions. The annual County Fair occurs in Late July and early August each year. Activities for it more closely align with the calendar year as monies are received in advance of the Fair and span the County's fiscal year end reporting period (June 30). Fair & Expo – Trending costs report #1920-12 August 2020 Page 24 Table IX County Fair resources to expenditures with FY 2021 budget information compared to 2019 Calendar year Fair accounting. The budget accounting data shows information that raises many questions (especially for revenues.). The year-to-date presentation for budget (YTD End April ’20) includes revenues for the 2020 Fair (which has since been cancelled) and doesn’t include Fair revenues received in FY 2019. If you looked at the accounting nearer to the fiscal year-end, there would be year-end adjustments for deferred revenue to address the timing of collections. Fair & Expo – Trending costs report #1920-12 August 2020 Page 25 As indicated above, the provided FY2021 proposed line item budget data infer with the YTD End April ’20 data that the 2019 County Fair which occurs in FY2020 did not perform very well. The calendar Fair report better (last column-Actuals Calendar 2019) was added and reflects the actual results of the event. The differences in presentation occur from how some income is received and expenses paid across fiscal periods. The County Fair is not accounted for on the accrual basis in these presentations. The underlying fiscal year accounting provided in the budget process makes it difficult to ask all the right questions on the performance of the Fair in assessing the next year’s budget. The current method of evaluating the budget create additional concerns that are not necessarily appropriate given the accounting provided. Year to date fiscal numbers do not present as well the seasonal results of the Fair. Note: Discussed potential accounting and budgetary approach with Finance to see if another approach could better represent the County Fair in the budget and accounting process. It was thought that using a unique “org” for each County Fair would isolate each Fair and result in a clearer alignment with budget. That solution has not been fully tested. It is recommended for Finance to consider changing some of the information presented for budget for the County Fair fund (Fund 616) in order to properly reflect the Fair results. This might include providing the County Fair accounting on the calendar year basis; isolating the Fairs (past, present, and future) by using a separate organization codes; or other approaches so long as the results provide more comparable data for comparison.} County Fair budgeting could be improved. A number of budget line items had activity and no budget. It appears management was making an Fair & Expo – Trending costs report #1920-12 August 2020 Page 26 Establishing budgets with more line item detail provides management with more granular oversight of spending. effort to better source expenditures to the appropriate titled line item. Many of these expenditure accounts/objects have activity year over year and were not budgeted. • Electricity billed to Fair was from September billing and perhaps should be August billing, which is a bit lower and represents July. Actual bills have been consistently higher than budget for the last two years. Approximately a $5 thousand impact from using September. • Bank charges have not been budgeted and there are some additional postings from other periods. These look like miss postings. This could result in approximately $3 thousand in savings. • Printing and binding costs are less than prior year but unbudgeted. • Grants which are to Fair Association are as in prior year and unbudgeted even though historically paid. • Program expenses are less than in prior year but unbudgeted. • Miscellaneous supplies are not budgeted but there is a history of expenditures and some review indicates these seem to be in the right place. • Tools and equipment is used for capital items and the purchase alleviated the high cost of renting. With the 100th year Fair, a lot of costs seemed to be under pressure and during a time when there was turnover in management. Fair Directors of the Fair Association who help plan and operate the Fair are not involved with the budget. However, they sometimes are involved in ways that create costs through signing on contracts and or ordering materials. Budgeting is a more effective practice if there are budgets for each account anticipated to be used. It is recommended that Fair & Expo management consider budgeting accounts expected to have Fair & Expo – Trending costs report #1920-12 August 2020 Page 27 activity. It is recommended for staff and Fair Association to work together to manage resources within the expectations of the budget. Entertainment costs increased more than originally planned. Headline concert (Old Dominion) was allowed to have some significant improvements in sound, staging, and lighting that might have been controlled or should have received additional oversight. In addition, the rodeo contract (for prize monies) appears to have been increased more than anticipated and is greater than other northwest events by competitor. The contract with Old Dominion had a number of artistic riders that were noted as perhaps not applicable since this was a Fair venue. Though some of the riders were crossed-out many referenced the “existing event production will be in place” and “to be mutually agreed upon”. The additional costs for sound, stage, and lighting additions were significant. There should have been time to negotiate or push back on some of these requests. Similarly, rodeo prize costs exceeded budget and reasonable levels and this should have been discussed. The 100th Fair allowed a lot of staff/volunteers to take additional measures to make a great event. Staff and Fair Association Directors for the Fair worked with the Director but didn't know the budget and were not accountable to it. It is recommended for Fair & Expo staff to provide more control over entertainment additional requirements, manage expectations for costs, and stay within the provided budget. Fair & Expo – Trending costs report #1920-12 August 2020 Page 28 The “Green book” is a valuable reference for internal controls in government. Management transition likely put additional pressure on controls over expenditures. A significant aspect of control is communication and expectations. Staff and volunteers for the County Fair are not responsible or knowledgeable of the budgets for their areas and responsibilities to stay within those budgets. The Fair & Expo Director retired prior to the Fair and had arranged for many of the contracts and service levels in the budget. There were a number of increased costs that occurred through staff and volunteers and accepted by the new Director. Staff and volunteers always indicated that they ran all changes by the Director. Their decisions likely expanded the costs for the Fair. The “Standards for Internal Control in the Federal Government” (also referred to as the “green book”) as a good source of information for developing an internal control system in government. As outlined in the guidance, communication is an integral component of an internal control system. The Green Book advises us to think ahead about the information that needs to be shared and to make sure the data shared is valid through prompting us to address the who, what, when, where and how. Staff lacked information on the budget and where they were on budget to make additional decisions. They made decisions without considering prior direction. It was the 100th Fair so the County and the Director had made allowances for expanding some of the events, entertainment, and services provided. Fair revenues did not increase enough to cover the additional expenses. It is recommended for the Director to communicate budget expectations to volunteers and staff. Fair & Expo – Trending costs report #1920-12 August 2020 Page 29 Concert contracting could be strengthened and improved. In 2019, the County contracted with the agent in total for all concert acts. This resulted in a contract for over $380 thousand. The contract was signed by the prior Fair Director. The contract was paid in the accounting system as an invoice and did not get appropriate approvals for the size and complexity of the contract and did not get reviewed by County Legal Counsel. This contract was over the department head’s authority of $25k and over the County Administrator’s authority of $150 thousand. Therefore, it should have received Board approval as well as County administrator approval. Policy F-15 outlines the requirements for payments to suppliers. Policy GA- 17 outlines requirements for contracts to be approved by County Legal Counsel. Having the concerts go over the $150 thousand threshold occurred for the first time in FY 2020. The Finance Director was relatively new to their position and did not request the County Administrator and Board approvals. The accounting software has workflow associated with larger payments that require intervention of the Finance Director. The overall contract was larger than normal since it included all of the musical acts as well as the larger contract for the headlining concert “Old Dominion”. In the past, musical acts were done individually. The concerts budget was increased significantly from $320 thousand in FY 2019 to $450 thousand in FY 2020. The contract was also processed as an invoice when the system allows for contracts to be setup that allows much more control. It is recommended for the County Fair to contract individually with concert artists and process those contracts through appropriate legal and approval processes. It is recommended for Fair & Expo staff to consider using the contract purchasing process in the County’s accounting system (Munis). Fair & Expo – Trending costs report #1920-12 August 2020 Page 30 County Fair grounds entertainment contract process could be improved. Grounds entertainment contracts for the Fair had many forms some the forms provided by the artist and some of them County forms. The contracts reviewed did not have legal review. Many of the contracts were signed by volunteers and not County staff. Some of the support for payments did not include signed versions of a contract. Many contracts indicated the ability to have insurance, though it was not clear that the County had taken steps to establish the insurance and be an additional named party. Grounds entertainment is the description for the many acts and local entertainment provided during the County Fair. Policy GA-17 outlines requirements for contracts to be approved by County Legal Counsel. There are around forty contracts for a variety of entertainers. Some entertainers provide their own contracts. It is recommended for the County to establish with County Legal Counsel what the process should be to minimize risk for these contracts. 2.3 Compliance Recommendaitons Transfers of County Fair funds are restricted. For FY 2020 the County Fair (Fund 616) transferred $250 thousand which represented most if not all of its post-Fair resources to the Fair & Expo. This left the County Fair fund with a deficit cash balance of $14 thousand. In FY 2019, the County Fair transferred $417 thousand to the Fair & Expo. Fair & Expo – Trending costs report #1920-12 August 2020 Page 31 The amounts transferred were contributed to significantly by transfers in from the transient room tax (TRT) of $250 thousand in FY 2020 and $150 thousand in FY 2019. TRT started providing monies in 2019. Oregon statute 565.325 provides for the establishment and maintenance of the County Fair fund. The Fair fund may be expended only for the promotion and operation of the County Fair and to provide, maintain and improve County fairgrounds, buildings, facilities and improvements on the County fairgrounds for the County Fair and other events authorized by the County Fair Board. The County Fair should contribute its share for the use of the event center. The transfers are not currently traceable to the County Fair usage of the event center grounds; usage of staff; or needed capital improvements. The County Fair (as an event) is one of the more risky ventures of Fair & Expo and the only event they put on. Currently, this fund does not retain sufficient reserves for an operating contingency above the working capital requirements discussed in fiscal policy (F-14). Working capital of 8.3% of the operating budget would be $125 thousand based on the 2020 budget. Since this fund is dependent on event revenue working capital might need to be higher. The County Fair fund started FY 2021 with a deficit working capital balance of $48 thousand, which is $173 thousand less than a typical Fair year. However, given that the 2020 County Fair was cancelled, there is significantly less need in the current year. It is recommended for transfers out of the County Fair fund be justifiable in the context of the statute (i.e. limited to reasonable share of capital improvements and costs and services not otherwise charged). Management might consider an event charge for the use of the grounds for the County Fair. Fair & Expo – Trending costs report #1920-12 August 2020 Page 32 It is recommended the County Fair fund retain some excess funds as an operating reserve/contingency for future events for use in planning and in case things do not work out as intended. At a minimum, it should develop an operating reserve to the County minimums (8.3%). The Budget Officer might consider not transferring in monies from TRT as they may be used readily from Fair & Expo capital reserve fund for future improvements so these funds are not further restricted to use by the County Fair fund statutes. County Fair Agreement with Fair Association no longer represents how County Fair operated. In 2000, when the County assumed the fairgrounds, there was an agreement between the County, the Fair Board, and the Fair Association on the running of the County Fair. The Fair Association did not fully comply with the agreement from the start. An informal unwritten arrangement was established by the County and Fair Association, whereby the Fair Association assists in the planning and operation of the County Fair. The County and Fair Board continues to be responsible for contractual, financial, and operational aspects of the County Fair. There isn’t a current agreement or memorandum of understanding outlining the specific responsibilities of parties for putting on the County Fair. In the absence of an appropriate agreement it makes it difficult to manage and control costs for the County Fair. The County has been providing the Fair Association an annual grant for nearly $12 thousand to cover directors’ insurance and operating costs. It is recommended for the Fair & Expo Director to consider what kind of agreement should be used Fair & Expo – Trending costs report #1920-12 August 2020 Page 33 for working with the Fair Association that best outlines the responsibilities of the Fair Association during the County Fair. 3. Management responses Fair & Expo Director, Geoff Hinds 2.2 RECOMMENDATIONS: • Fair & Expo revenues from rights and signage could use greater oversight o It is recommended for the Department to utilize the County accounting system for sponsor receivables to provide better transparency, accounting, and collectability. o It is recommended the department develop an approach for addressing sponsors and collection.  DCFE agrees with this response and is working to utilize the County Accounting system (Munis) for additional items including the monthly and quarterly billing of payments  DCFE may also look to implement a system requiring pre-payment for any sponsorship services prior to delivery  A complete review of all existing sponsorships agreements will be completed by DCFE staff to assure adherence to current contracts, as well as assuring adherence to existing market price. • Some kitchen costs could be reflected in costs of food & beverage division o It is recommended the department consider posting kitchen repairs to the food and Fair & Expo – Trending costs report #1920-12 August 2020 Page 34 (continued) Fair & Expo Director beverage division.  DCFE agrees with this response, and will consider using the requisition, purchase or contract system  DCFE is in the process of evaluating expense items, and working to post all expenses/revenues into the most appropriate/accurate categories  Certain expense categories may cross over between two (2) divisions, and DCFE will work to come up with a determination of the most accurate category in which to incur expense • Capital purchase was split into two transactions and didn’t receive appropriate approvals o It is recommended that capital purchases not be split into separate transactions. This can be accomplished by using the purchase order or requisition process.  DCFE will follow all County protocols and procedures for purchasing of future capital expenditures  DCFE Board of Directors is working on updated policies and procedures to address contract issues • Inventory Process could be improved o It is recommended for the Food & Beverage Manager to establish some additional processes over inventory including: updating pricing to reflect first-in first-out method and establishing additional procedures for the inventory as noted.  DCFE agrees with this response and management will work with the F&B manager to establish additional protocols over inventory to include FIFO and appropriate inventory management needs COUNTY FAIR • Accounting information provided for County fair budget unfairly raises questions o It is recommended for Finance to consider changing some of the information presented Fair & Expo – Trending costs report #1920-12 August 2020 Page 35 (continued) Fair & Expo Director for budget for the County Fair fund (Fund 616) in order to properly reflect the Fair results.  DCFE will continue to work with Finance department to provide clear, accurate financial reporting, especially in relation to the annual County Fair, which overlaps two (2) Fiscal Years. • County fair budgeting could be improved o It is recommended that Fair & Expo management consider using budgeted accounts expected to have activity  DCFE agrees with this response, and is working to accurately reflect both revenues and expenses in their most appropriate category vs. historical locations. It will also be important to identify these adjustments to allow for trend/tracking reports o It is recommended for staff and Fair association to work together to manage resources within the expectations of the budget  DCFE has, and will continue to request input from the association during the budgeting and planning process. For FY21 DCFE requested budget expenditure requests from each department who planned large expenditures, and utilized these numbers in preparation of the FY21 budget • Entertainment costs increased more than originally planned o It is recommended for Fair & Expo staff to provide more control over entertainment additional requirements, manage expectations for costs, and stay within the provided budget.  DCFE agrees with this recommendation and for FY21 worked to create itemized budgets, representing true costs for entertainment activities.  DCFE will work with entertainment and contracts to identify costs earlier and to provide an opportunity to reduce costs where necessary and appropriate. • Management Transition likely put additional pressure on controls over expenditures Fair & Expo – Trending costs report #1920-12 August 2020 Page 36 (continued) Fair & Expo Director o It is recommended for the Director to communicate budget expectations to volunteers and staff.  DCFE agrees, and For FY21 the DCFE director has worked to effectively communicate budget expectation to all appropriate staff and volunteers.  The F&E Director will also work to create strong contracting and expenditure policies that will be conveyed to all staff & volunteers. • Concert contracting could be strengthened and improved o It is recommended for the County Fair to contract individually with concert artists and process those contracts through appropriate legal and approval processes. o It is recommended for Fair & Expo staff to consider using the contract purchasing process in the County’s accounting system (Munis).  F&E agrees and plans to utilize individualized contracts with all national, touring entertainment for the 2020 and 2021 Fairs, and beyond. This policy will be in place moving forward and Fair & Expo will follow all County and State guidelines regarding expenditures. • County Fair grounds entertainment contract process could be improved: o It is recommended for the County to establish with County Legal Counsel what the process should be to minimize risk for these contracts.  Fair & Expo agrees and staff has worked with County legal on the development of a new/revised standard entertainment agreement or contract. This agreement or agreements, will be utilized for all future entertainment contracting, and will require review, and approval by the department director to assure adherence to all applicable state and county guidelines prior to final execution and/or payment. No payments will be provided without a fully executed contract, and the receipt of all contractually mandated items, including but not limited to insurance. Fair & Expo – Trending costs report #1920-12 August 2020 Page 37 (continued) Fair & Expo Director 2.3 COMPLIANCE RECOMMENDATIONS: • Transfer of County Fair Funds are restricted: o It is recommended for transfers out of the County Fair fund be justifiable in the context of the statute. o It is recommended the County Fair fund retain some excess funds as an operating reserve/contingency for future events for use in planning and in case things do not work out as intended. At a minimum, it should develop an operating reserve to the County minimums (8.3%).  DCFE will work to assure than we remain compliant with ORS at all times. If adjustments are necessary, DCFE will work with County legal and/or finance on appropriate adjustments • County Fair Agreement with Fair Association no longer represents how County Fair operated. o It is recommended for the Fair & Expo Director to consider what kind of agreement should be used for working with the Fair Association that best outlines the responsibilities of the Fair Association during the County Fair.  DCFE agrees with this recommendation, and is interested in the possible creation of a new agreement or memorandum of understanding that outlines the roles of each party. Fair & Expo – Trending costs report #1920-12 August 2020 Page 38 Treasurer and Finance Director, Greg Munn 2.2 RECOMMENDATIONS: • Fair & Expo revenues from rights and signage could use greater oversight o It is recommended for the Department to utilize the County accounting system for sponsor receivables to provide better transparency, accounting, and collectability.  County Finance agrees with the recommendation and can work with the department to utilize the County’s financial system to track sponsor contracts and receivables. • Capital purchase was split into two transactions and didn’t receive appropriate approvals o It is recommended that capital purchases not be split into separate transactions. This can be accomplished by using the purchase order or requisition process.  County Finance agrees and will train department staff on the benefit and use of purchase orders. COUNTY FAIR • Accounting information provided for County fair budget unfairly raises questions o It is recommended for Finance to consider changing some of the information presented for budget for the County Fair fund (Fund 616) in order to properly reflect the Fair results.  County Finance agrees that the use of organizational codes will allow the Fair to seasonalize its budget to provide both traditional fiscal year budget appropriation vs actual reporting but also budget vs actual information on a calendar year which Fair & Expo – Trending costs report #1920-12 August 2020 Page 39 (continued) Treasurer and Finance Director coincides better with the Fair’s operating period. • Concert contracting could be strengthened and improved o It is recommended for Fair & Expo staff to consider using the contract purchasing process in the County’s accounting system (Munis).  County Finance agrees that the purchasing approval workflow for the entertainment contract was erroneously and unintentionally bypassed. Gained experience and understanding of the system will prevent this from happening in the future. 2.3 COMPLIANCE RECOMMENDATIONS: • Transfer of County Fair Funds are restricted: o It is recommended for transfers out of the County Fair fund be justifiable in the context of the statute.  County Finance agrees that an annual use fee be established for the use of the facilities and other costs related to the operation of the fair that can be budgeted and prioritized along with other fair costs. o It is recommended the County Fair fund retain some excess funds as an operating reserve/contingency for future events for use in planning and in case things do not work out as intended. At a minimum, it should develop an operating reserve to the County minimums (8.3%).  County Finance agrees that the Fair fund be required to budget a contingency and be allowed to carry a fund balance consistent with other county departments. Fair & Expo – Trending costs report #1920-12 August 2020 Page 40 {End of Report} Please take a survey on this report by clicking on the attached link: https://www.surveymonkey.com/r/Fair_and_Expo-Trending_Costs If you would like to receive future reports and information from Internal Audit or know someone else who might like to receive our updates, sign up at http://bit.ly/DCInternalAudit.