Okaloosa County BOCC — January 8, 2013 — Final AG Report and Board Response - January 2013 — reading text

and marketing firms disclosed that payments totaling $12.1 million from tourist development taxes or BP grant funds were inadequately supported at the time the invoices were approved and paid. In many instances, the payment requests were only supported by invoices, with no supporting documentation of the services provided by the respective firms or invoices and documentation from third-party vendors that documented the goods or services they provided. In these instances, the County’s records did not evidence how the purchases served a public purpose or that the purchases were allowable uses of restricted resources. Details concerning support for specific payments were provided to the County. Additional issues regarding related internal controls are discussed in finding Nos. 10, 11, 15, 16, 18, and 22. Upon beginning our audit fieldwork, we became aware that a payment for promotion and advertising services had allegedly been misappropriated for the purchase of a house by the former TDC Executive Director. Our further review of supporting documentation for this transaction disclosed that the County paid $747,000 from BP grant funds for an item described on an advertising and marketing firm’s invoice as “Boast the Coast National Television Campaign and Promotion.” After the payment was made to the firm, the former TDC Executive Director instructed the firm, via e-mail, to wire the moneys to a designated bank account. The moneys were then used by the former Executive Director for the purchase of a house titled to a revocable trust for him and his wife. The two advertising and marketing firms subsequently provided additional documentation to the County related to certain inadequately supported payments. While it was not practical for us, upon post-audit, to review all of the additional documentation provided to the County, we reviewed the documentation provided by the firms relating to certain payments, totaling $1.4 million, which we judgmentally selected based on amount, invoice description, or other factors. Our review of the documentation for the selected payments disclosed the following:  Four payments, totaling $155,400, were paid to one firm on invoices that incorrectly or inadequately described the goods or services purchased. The goods or services purchased were not allowable expenditures of tourist development taxes or BP grant funds and included the following:  The County paid the firm $48,000 from tourist development taxes for an item described on the firm’s invoice as a “prize for 2010-2011 Internet/viral video contest.” The item actually purchased was a Porsche that was titled to the former TDC Executive Director.  The County paid the firm $47,000 from tourist development taxes for items described on the firm’s invoice as “convention center marketing services.” The items actually purchased included $19,620.69 in food and drinks in connection with a County Christmas party, a TDC holiday party, and a harbor cruise for employees. The remaining $27,379.31 of the $47,000 invoice was paid to a vendor that provided food services to the convention center. County personnel indicated that the moneys were paid to the vendor to establish a marketing fund for the purpose of promoting the vendor’s off- premise catering sales on which the County receives a 17 percent commission. However, County records indicate that $5,000 of the moneys was donated to a local charity at the request of the former 13 JANUARY 2013 REPORT NO. 2013-085 TDC Executive Director; $576.50 was spent on a floral arrangement at one of the County’s visitor centers; $640.50 was spent on cake pops as part of a welcome package to attendees at a local chamber of commerce luncheon; $244 was spent on alcoholic beverages, sodas, and water provided to band members who performed at the County Christmas party; and $207.76 was spent on vendor brochures. As of November 16, 2012, almost 13 months after the disbursement to the vendor, $20,710.55 of the moneys had not been spent. While reviewing these expenditures, we identified other firm invoices and invoices paid directly to other vendors that, when combined with the $19,620.69 and $244 in food and drinks discussed above, showed that the County paid a total of $42,871.20 for the County Christmas party that included food and drinks, bar setup, cocktail reception and tables, stage décor, and entertainment; $3,921.77 for the TDC holiday party; and $991.72 for the harbor cruise.  The County paid the firm $31,400 from tourist development taxes for what was described on the firm’s invoice as “Harbor Walk/Destin Harbor Advertising.” The $31,400 was actually used to purchase furniture for the Destin TDC office, except for three pieces of furniture, totaling $6,250, that were ultimately located in the former TDC Executive Director’s home.  The County paid the firm $29,000 from tourist development taxes for what was described on the firm’s invoice as “Destin Harbor Marketing and Advertising.” Upon inquiry by County personnel, firm personnel stated that the payment was invoiced at the former TDC Executive Director’s request and that they did not know what the payment was for. The firm subsequently returned the moneys to the County.  Nine payments, totaling $1.1 million, were paid to the two firms based on their invoices for goods or services provided to, or on behalf of, an airline company. According to descriptions provided on the invoices, the goods and services purchased included, but were not limited to, such items as advertising, monthly retainer fees, unspecified marketing and advertising initiatives, and out-of-pocket expenses. County records did not evidence a contract between the County and the airline company regarding these payments, how the payments benefited the County, or how the goods or services purchased were allowable uses of tourist development taxes or BP grant funds from which they were paid.  Two payments, totaling $95,021.30, were paid to one firm from tourist development taxes for a branding reception to unveil a newly developed logo for the Emerald Coast and to discuss plans to brand the area to a national audience. The cost of the reception included $55,906.38 for audio-visual equipment and marketing services; $15,250.80 for event décor; $7,855 for media services; and $16,009.12 in labor, food, and beverages, including $2,898 in alcoholic beverages. County records did not evidence that these expenditures were reasonable or necessary or that the BCC had established guidance on the reasonableness or necessity of TDC expenditures. When payments are made without adequate supporting documentation, the County is at an increased risk that expenditures do not serve an authorized public purpose, are unallowable uses of restricted resources, are not necessary and reasonable costs associated with an existing advertising project or marketing campaign approved by the BCC, or are not properly billed in accordance with contract provisions. Had County personnel who approved the payments, or CCC personnel who paid the invoices, required the firms to submit adequate supporting documentation to the County before the payments were made, the questioned billings noted above may have been detected and denied. In May 2012, the BCC approved procedures that require a written task order be prepared and approved for all subsequent payments made to the firms. In June 2012, the BCC terminated the contracts with both firms effective September 30, 2012. In September 2012, the BCC adopted contract payment policies and procedures as part of the TDC’s operations and procedures manual. These policies and procedures provide that no invoice will be processed by the CCC without an approved task order and that no invoice will be approved unless the actual invoice from the provider of the goods or services has been received. 14 JANUARY 2013 REPORT NO. 2013-085 Recommendation: The County should continue to strengthen its monitoring and preaudit procedures to ensure that contract provisions are properly monitored and payments are supported by adequate documentation to allow for an effective preaudit. The County should also continue its efforts to obtain supporting documentation for payments made to the two advertising and marketing firms. In addition, the BCC, in consultation with its legal counsel, should determine whether the County is entitled to recover any questioned billings, and take appropriate action to recover such billings. Finally, the BCC should adopt written policies and procedures that provide guidance on the reasonableness and necessity of TDC expenditures. Finding No. 10: Competitive Procurement by Contractors As discussed in finding No. 7, County purchasing policies and procedures required competitive procurement for nonexempt purchases in excess of $2,500. County records supporting many payments made to two advertising and marketing firms were inadequate to determine whether the goods or services purchased should have been competitively procured pursuant to County purchasing policies and procedures. However, based on available supporting documentation, we noted certain goods and services purchased through the firms that should have been competitively procured, but were not. For example, we noted the following:  The County purchased a yacht for $710,000. County records did not evidence that formal bids were obtained for this purchase.  The County purchased three motor vehicles (two automobiles and a sports utility vehicle) for $129,809, each costing less than $50,000. County records did not evidence that three written quotes were obtained for these purchases.  The County purchased 508 beach towels for $8,832. County records did not evidence that three written quotes were obtained for this purchase. County personnel indicated the goods and services purchased through the firms were not competitively procured, and the County relied on the firms to obtain the goods or services at the lowest cost consistent with acceptable quality. As noted in finding No. 8, the 2011 contracts with the firms did not require the firms to competitively procure goods and services in accordance with County purchasing policies and procedures. Given that over $12 million was expended for goods and services acquired through the firms, failure to use a competitive procurement process in accordance with County purchasing policies and procedures resulted in limited assurance that the costs of the goods and services were competitive and reasonable. Recommendation: The County should ensure that goods and services purchased through contractors are competitively procured in accordance with County purchasing policies and procedures. Finding No. 11: Advance Payments Pursuant to Article VII, Section 10, of the State Constitution, the County may not become a joint owner with, or stockholder of, or give, lend, or use its taxing power or credit to aid any corporation, association, partnership, or person. As noted by the Attorney General in various opinions3, the purpose of this provision is “to protect public funds and