Okaloosa County BOCC — November 4, 2012 — Stewart TDD Recommendations 6-19

TALLAHASSEE Suite 200 1500 Mahan Drive Tallahassee, Florida 32308 (850) 224-407 (850) 224-4073 Fax FORT LAUDERDALE 208 S.E. Sixth 0 Tel Fort Lauderdale, Florida 33304 {954) 525-80 00 Tel (954) 525-8331 Fax ve Reply to Tallahassee Via Electronic Mail Don Amunds, Chairman Okaloosa County Board of County Commissioners 1804 Lewis Turner Boulevard Fort Walton Beach, Florida 32547’ Re: Report of Internal Review Dear Chairman Amunds: contact Nab Giblin& oF Nickerson June 13, 2012 FORT MYERS Bullding 83, Sulte 2 12731 World Plaza Lane Fort Myers, Florida 33907 (239) 288-4027 Tel (239) 288-4057 Fax TAMPA Suite 1060 2502 Rocky Polnt Drive Tampa, Florida 33607 (813) 281-2222 Tel (813) 281-0129 Fax Attached please find the Report of Internal Review by Nabors, Giblin & Nickerson, P.A., concerning the Tourist Development Council. I will be available at the County Commission meeting on June 19, 2012, to discuss the report. If there are any questions, please feel free to me, GTS:pad Attachment cc: James D. Curry John R. Dowd Greg Donovan Commissioner Wayne Harris Commissioner Dave Parisot Commissioner Bill Roberts Commissioner James Campbell REPORT OF INTERNAL REVIEW BY NABORS, GIBLIN & NICKERSON The firm of Nabors, Giblin & Nickerson, has been requested to conduct an internal review of the procedures and policies of the Tourist Development Council in light of the allegations surrounding the former Executive Director, Mark Bellinger. In particular, our task was to focus on the policies and procedures which were in effect and to provide recommendations as to how they may be strengthened to provide greater control in the future. As part of our review, we have interviewed numerous witnesses, including past and present employees, reviewed audio recordings and minutes of meetings of the Board of County Commissioners (the “Board”), the Tourist Development Council (“TDC”), and the various subcommittees of the TDC. We have also examined voluminous financial records and other documentation related to TDC operations. Further, as part of our review, we have also interviewed various TDC Executive Directors and TDC Attorneys throughout the State and surveyed the procedures and policies of other counties in regard to the administration of their respective TDCs in an attempt to ascertain “best practices” within the State of Florida. INTRODUCTION _ On May 13, 2010, Mark Bellinger (“Bellinger”) began employment with Okaloosa County. He replaced the long serving Executive Director who had retired. In evaluating the process and procedures in effect, it is important to be aware of the circumstances that existed at the time of Bellinger’s employment. " Throughout our internal review, we were sensitive to the ongoing criminal investigations being conducted by various law enforcement entities. To assist law enforcement, we have immediately notified them of any activity that may be within the purview of their investigation. We also deferred several interviews to avoid any interference with the criminal investigation. Finally, though we have engaged an independent accounting firm to conduct a complete forensic review of the finances of the TDC, we have requested that they stand down until such time as the Auditor General has completed its review. Following the conclusion of the review by the Auditor General, we will provide the Board with a recommendation of additional areas which might be appropriate for further review. On April 20, 2010, less than a month prior to Bellinger beginning his employment, the disaster at the Deepwater Horizon Oil Rig occurred, the adverse impacts of which were broadcasted on news programs both nationally and internationally. This created an immediate need to counteract the publicity which would adversely affect tourism in the area. Businesses and their livelihoods were in danger as a result of the event and its impact on tourism. Coupled with that crisis situation, there were new available revenues through BP which had never been available in the past. Following the disaster at Deepwater Horizon, BP made certain monies available to local communities to mitigate impacts to its tourism industry and assist in marketing efforts, In May 2010, the State of Florida received a payment of $25,000,000 from BP for immediate marketing assistance. Of that amount, $750,000 was received by Okaloosa County and was predominantly utilized for two “Rock the Beach” concert promotions. On July 31, 2010, an additional $7,000,000 was received through the Florida Coastal Northwest Communications Council, an entity consisting of seven counties in the Northwest Florida area that were impacted by the Deepwater Horizon disaster. Of the $7,000,000 grant received, $1,371,939 was received by Okaloosa County and utilized for a debit card promotion and other marketing activities. Finally, in April 2011, BP provided a grant through the State of Florida for tourism marketing efforts in the amount of $30,000,000. This amount was received through the Florida Coastal Northwest Communications Council and $6,506,015 was received by Okaloosa County. Into those circumstances stepped Bellinger who brought a more hands-on approach to marketing activities, including more emphasis on special events, sweepstakes and social media promotions. These additional revenues, coupled with a new approach, provided the means by which aggressive promotions could occur. This is not to suggest that either the availability of these funds or the circumstance in the community justified the events that ultimately occurred. However, it appears that as a result of the crisis that adversely impacted a broad cross section of the community, that there was a stronger emphasis on results rather than the process. OVERVIEW Based upon our review, it is clear that there has been a massive failure of controls. The documentation suggests that some of the expenditures were made through the misappropriation of funds by Bellinger. However, the documentation also revealed that there were expenditures for arguably legitimate promotional and advertising purposes that were inadequately reviewed and not formally approved. Both types of transactions could have been prevented had adequate controls been in place, Ultimately, it appears that Bellinger exercised almost unfettered ability to expend public funds and was able to avoid detection through a combination of false information and an absence of effective supervision. Structure of the TDC In 1986, the Board adopted Ordinance 86-06, which created the TDC, approved the recommended tourist development plan and authorized the levy of a two percent Tourist Development Tax as provided in section 125.0104, Florida Statutes, subject to the approval by the voters. The levy of the two percent Tourist Development Tax was approved by the voters and imposed”, The required membership of the TDC and their general functions are set forth in section 125.0104 (4) (€), Florida Statutes. The pertinent part of that section provides: (e) The governing board of each county which levies and imposes a tourist development tax under this section shall appoint an advisory council to be known as the " (mame of county) Tourist Development Council." The council shall be established by ordinance and composed of nine members who shall be appointed by the governing board. The chair of the governing board of the county or any other member of the governing board as designated by the chair shall serve on the council. Two members of the council shall be elected municipal officials, at least one of whom shall be from the most populous municipality in the county or subcounty special taxing district in which the tax is levied. Six members of ? Additional pennies of authorized Tourist Development Taxes were subsequently authorized by the Board. 3 the council shali be persons who are involved in the tourist industry and who have demonstrated an interest in tourist development, of which members, not less than three nor more than four shall be owners or operators of motels, hotels, recreational vehicle parks, or other tourist accommodations in the county and subject to the tax. All members of the council shall be electors of the county. tot The council shall meet_at least once each quarter and from time to time, shall make recommendations to the county governing board for the effective operation of the special projects or for uses of the tourist development tax revenue _and perform such other duties as may be - prescribed by county ordinance or resolution. The council shall continuously review expenditures of revenues from the tourist development trust fund and shall receive, at least quarterly, expenditure reports from the county governing board or its designee. Expenditures which the council believes to be unauthorized shall be. reported _to the county governing board and the Department of Revenue. The governing board and the department shall review the findings of the council and take appropriate administrative or judicial action to ensure compliance with this section. Section 125.0104 (4) (e), Florida Statutes (emphasis added). These same requirements and functions of the TDC are also incorporated into the County’s Ordinance in nearly identical language. (See Section 20-73, Code of Okaloosa County). Throughout the history of the TDC, the management and administration of the tourism and promotional activities have been the responsibility of the Executive Director. The Executive Director is an employee of the County who is responsible for the management of the County’s Tourist Development Department. The County’s Tourist Development Department is separate from the TDC itself. 4 The Executive. Director position previously reported directly to the County Administrator. However, in September 2005, at the request of the then Executive Director and the then TDC, the Board altered that structure and required that the Executive Director report directly to the Chairman of the Board of County Commissioners. The Ordinance governing the TDC was also amended by Ordinance 05-102 on October 18, 2005, to provide similar reporting authority. The responsibilities of the Executive Director, as defined in that Ordinance, states: 4) Administration. The county determines that the best means for administration of the tourism tax revenues allocated under this plan is local administration by an executive director operating as the executive for the tourist development council, under the direction of the chairman of the board of county commissioners and secondarily the chairman of the tourist development council. The administration of the revenue collection process shall be carried out under a subcontract with the Okaloosa County Clerk of Court’s Office as provided for by separate ordinance 92-08. Role of Advertising Agencies To assist with the promotion and advertising on behalf of the TDC, the County entered into contracts with advertising and public relations agencies over the years. The current Tourist Development Plan, as adopted by Ordinance, not only authorizes this but mandates it. The Plan, as adopted in 2007, states: Accordingly, the county will maintain contractual relationships with professional advertising/marketing and public relation advisors and contractors for the development and implementation of a unified marketing campaign each year this ordinance is in effect at such expense as is deemed desirable and necessary to achieve maximum positive promotional exposure to potential visitors to the subdistrict. These annual promotional efforts shall remain one of two primary focuses of the county’s tourist development plan. The primary 5 objective for these efforts shall be the maintenance of consistent positive “branding” which are image and name recognition and the future development of “shoulder season,” to encompass group and leisure business. Section 20-72(c)(1), Code of Okaloosa County. The primary agency which has been serving the TDC in this regard is the Zimmerman Agency (“Zimmerman”), located in Tallahassee, Florida. It has been providing these services since the early 1990s and has been reselected on several occasions through a competitive process. During the spring of 2011, a Request for Proposal was issued for advertising services by the Board. The two top firms selected were Lewis Communications (“Lewis”) located in Mobile, Alabama, and Zimmerman. These contracts were approved by the TDC and, ultimately, the Board. Each contract was for three years, with the ability of up to two one-year extensions. The Zimmerman contract provides for certain fixed monthly charges for services with reimbursement of costs and a potential add-on commission if the amount of media purchases exceeded $3,000,000 during a budget year. Lewis did not charge any fixed monthly amount, but rather was compensated by a commission on its purchasing on behalf of the TDC. As a result of the differing compensation, Lewis was primarily involved on a project-by-project basis (normally involving the Conference Center). Zimmerman was used primarily for the promotion and advertising of leisure-type or general tourism activities. Based upon a review of documents, this allocation of functions was not rigid Promotion Approval Process As set forth in the statute and ordinances, the primary purpose of the TDC is to act as an advisory board to the Board of County Commissioners relating to matters of tourism and promotion in the county, and it is also intended to provide oversight to assure that the expenditures are used for authorized purposes. Though contemplated as an advisory board only, our review has determined that the TDC has, over the years, become the primary decision maker as to the approval of promotional activities. This evolution of authority has developed over numerous years and began well before Bellinger was hired. As a result, the Board was rarely consulted about specific promotions and was normally only provided summaries of 6 promotional activities as an informational item only. This delegation of approval authority to the TDC represents a structural inconsistency with both the statutory and ordinance provisions. The TDC has in the past created various sub-committees. In the past these consisted of the Promotion Review Committee, Product Improvement Committee and the Executive Committee. Prior to the hiring of Bellinger, the approvals of promotional expenditures along with an analysis of the financial costs, were presented both to the Promotional Review Committee and then the TDC for review and formal approval by each. Additionally, the advertising agencies under contract with the County, generally participated in the preparation and presentation of promotional concepts to both the subcommittees and the TDC as a body. Following the hiring of Bellinger, there was a significant change in how promotional events were considered or approved. Initially, the advertising agencies’ participation in arriving at promotional concepts was significantly reduced and assumed primarily by Bellinger. Eventually, the advertising agencies were no longer asked to be present at the meetings of the Promotional Review Committee and its successor committee and the promotional and marketing activities were for all practical purposes totally controlled by Bellinger. In January 2011, the TDC eliminated the previous committees and created a single committee entitled the “Marketing Committee.” The Marketing Committee consisted of the Vice Chairman of the TDC, representatives of the five top industries in the area (hotel, condominium, restaurant, retail, and attractions), three members from the lodging industry and two members for qualified individuals or any business or industry. Persons who desired to serve on the Marketing Committee applied and their applications were screened by Bellinger, and under his direction, the Marketing Committee became the primary entity for the discussion of promotional concepts. As with the TDC itself, the authority of the Executive Director to direct the promotion and advertising expenditures has also evolved over the years. Under the previous policies of the TDC, the express approval of all promotions and advertising was required by both the various subcommittees and the TDC itself, and it appears that this joint approval was strictly followed by the prior Executive Director. However, after Bellinger’s employment, similar to the reduction of authority by the advertising agencies, the role of the subcommittees and the TDC 7 was substantially diminished and promotions and advertising were almost exclusively under his control. This restructuring of authority was eventually memorialized by the amendment of the TDC Operations and Procedures Manual approved by the TDC in February 2012. This amendment was never submitted to the Board or approved by them. The amendment approved by the TDC reduced its authority to approve promotions at all. That amendment, as approved by the TDC, provided as follows: As described generally in Sections E.200-600, the Executive Director is responsible for all aspects of the negotiations and administration of this contract with the exception that the members of the standing Advertising end—Prometion Marketing Committee and the Council members shali may have the opportunity to have artistic review over print, radio and television advertising product produced under this contract. The Committee’s approval shall be provided at noticed public meetings and a majority vote of those members present will be required for approval. To the extent that extraordinary circumstances preclude the possibility of a noticed meeting for this purpose, the Executive Director shall be solely responsible for the authorization of final release of any artistic product for publication. (language reflects changes made in policy). In reviewing the minutes of the Marketing Committee, the Promotion Review Committee, the Product Improvement Committee, the TDC and the Board, it is apparent that under Bellinger there was no formalized approval process for promotional activities. It appears that the primary entity for the discussion and review of potential promotional activities was the Promotion Review Committee, now reconfigured as the Marketing Committee.. The minutes of those meetings reflect that various promotional activities would be discussed and considered by the Marketing Committee in “brainstorming” sessions. In some of these meetings, the Marketing Committee would actually vote on whether to proceed with a proposed promotion. At that point, it appears that Bellinger would take this approval as authority to proceed without the necessity of a vote by the TDC. However it appears that Bellinger, on some occasions, did not 8 actually seek the affirmative approval of the Marketing Committee, but would proceed with the promotion based solely upon the discussions of the concept. Finally, it also appears that there some occasions where marketing expenditures were made by Bellinger that were neither discussed nor approved by either the Marketing Committee or the TDC. In reviewing the entire process for the approval of promotions, it is apparent that the Marketing Committee was considered primarily as a tool to assist the Executive Director in the development of promotional concepts. Though the Marketing Committee may be beneficial in terms of assisting in the development of concepts and ideas, it is not an authorized entity for the approval of expenditure of public funds. In reviewing the minutes of the TDC, there were discussions of potential promotional activities and others that were ongoing, however, we were unable to find any meeting where there were voting approvals of particular promotional events. Rather, Bellinger appears to have assumed exclusive authority for the creation and authorization of promotional events and the TDC was merely provided informational updates as to these events. In discussing past operations of the TDC prior to Bellinger’s employment, it appears that there was a more formalized process at the TDC level and that formal approval of promotional activities by the various subcommittees and the TDC was routinely obtained. However, even prior to Bellinger being hired, promotional concepts were not brought to the Board for approval. Though there were meetings where various promotional activities were discussed, these were generally informational-type sessions without any accompanying dollar cost figures attributed to these promotions. Upon Bellinger’s employment, there was a complete absence of structure. The entire promotional process appeared to rest solely upon Bellinger. The Marketing Committee and the TDC substantially delegated their responsibility to Bellinger. The Board was omitted entirely from the promotional approval process. In reviewing the practices and procedures around the State, (we surveyed only non-panhandle TDCs), most if not all of them had ultimate approval for promotional activities by their respective County Commissions and the TDC acted solely as an advisory body. Special Events Funding Generally, the TDC would receive requests from local entities for the funding of events within the community. As the process evolved, the Marketing Committee took on a greater role in evaluating these proposals. As its role increased, so did the potential for conflicts since the Marketing Committee is comprised of local business interests. In discussions with TDC members, it appeared standards and criteria were utilized in evaluating requests for funding of particular local events. However, those standards and criteria were not memorialized in the TDC Operations and Procedures Manual until the recent amendment which was approved by the TDC in February 2012, but never adopted by the Board. In several jurisdictions we evaluated, stricter standards have been established to consider the merits of these types of requests. The use of stricter standards would assist in providing clear guidance as to the funding process and avoid the appearance of conflicts. Furthermore, while most jurisdictions have made contributions directly to the requesting organization often in the form of a grant, it appears that under Bellinger, these payments were frequently made through the advertising agencies as pass- throughs. Budget Approval Process The budget for the TDC is approved by the Board. However, in the preparation of the budget, staff analyses are prepared almost exclusively in the context of the revenues that will be available and which may be used for a given purpose. For example, certain portions of the Tourist Development Tax pennies were dedicated for advertising and promotional activities and the entire amount included in the budget was based solely upon the projected receipts of these pennies that were anticipated during the upcoming fiscal year. No expenditure detail is provided; rather, there is an availability of several million dollars and absolutely no designation of uses except a broad category of “promotions.” In numerous counties around the State of Florida, the TDC adopts as part of the budgetary process a strategic or marketing plan on an annual basis, which is also approved by the Board. This plan attempts to identify in advance what is anticipated to be utilized for these promotions and the amount of funds allocated 10 for that purpose. The benefit from the adoption of strategic or marketing plans is so there is a clear delineation in terms of what the TDC, and ultimately the Board, intend to utilize the money for. It also presents a working document under which various reviewing entities can determine the extent of promotional activities which have been approved. No similar strategic or marketing plan has been formally adopted by the TDC or Board in Okaloosa County. Invoice Process In reviewing the approval process used. for promotions, the advertising agency would obtain an estimate from a vendor for the media placement or an acquisition. Based upon that estimate, Bellinger would then approve the expenditure. The vendor would then provide the service or acquire the property and send an invoice documenting the basis for the expenditure to the advertising agency. The advertising agency would then generate a separate invoice to the County for payment. The invoices prepared by and submitted by the advertising agency would contain a narrative of the service provided. In some instances, the language used on these invoices was actually written by Bellinger and submitted to the advertising agency for its use in preparing the specific invoices. The language prepared by Bellinger was frequently very general and, in some cases, fraudulent. The invoice would then be submitted for payment with a County processing form (i.e., Contract/Lease Payment Approval Form). When approved, the funds would be sent or wired to the advertising agency and they would pay the vendor. However, the Clerk and other reviewing entities did not normally have any of the actual backup documentation that had been sent by the actual vendor to support the expenditure except the summary invoice prepared by the advertising agency. Our review has also revealed there were several occasions when the advertising agencies would receive an advancement of funds for some future promotion, rather than operate strictly on a reimbursement basis. This created a review process which resulted in limited documentation being available for review. In the past, the backup documentation from the actual vendor was submitted to the Executive Director and Clerk’s office, but apparently at some point prior to Bellinger’s employment, that practice was discontinued. We have not been able to determine exactly why that process was stopped. In conjunction with the contracts with the advertising agencies, Bellinger requested that certain acquisitions be made through the advertising agencies. 11 These were termed “pass-throughs.” The payment for acquisitions would be invoiced through the agency and the agency, upon receipt, would then pay that money to the vendor from which the equipment/service was purchased. In reviewing the procedures under the prior Executive Director, pass-throughs were used but they were limited and substantially smaller in nature. For example, shirts with logos and promotional towels had been purchased through the advertising agencies. However, upon the hiring of Bellinger, there was a greater focus on sweepstake (“contest”) or event type funding. These events were sweepstakes where vacations and vehicles were awarded as part of a contest. With the greater emphasis on these types of sweepstakes, the use of pass- throughs reached a new level. Bellinger used pass-throughs to acquire vehicles, a boat and other items through the respective agencies’ contracts. Further, as indicated previously, even grants for funding of local events were treated as pass- throughs and often funded through the advertising agency. Additionally, the salaries of two “contract” employees who work in the TDC offices are funded through the Zimmerman Agency utilizing this pass-through approach. They are paid by the Zimmerman Agency and the County reimburses the cost of such services to Zimmerman, in addition to its fixed monthly charges by an invoice generated by Zimmerman. In November, 2011, both employees became employees of Zimmerman though their costs continue to be paid by the County as a pass-through. The following . are some examples of the expenditures made through this pass through process:° e In July, 2011, Bellinger sent an email to Lewis Communications setting forth specific language which was to be incorporated on an invoice. That invoice was to read as follows: Boast the Coast National Television Campaign and Promotion (Atlanta, Asheville, Chattanooga, Memphis, Nashville, Knoxville, Cincinnati, Columbus, Cleveland, 3 In reviewing the documentation, we did not attempt to make any judgment as to the merits of any particular promotional event but only reviewed them as to the process and controls that were in place. 12 Kansas City, St. Louis, Louisville, Indianapolis, Minneapolis, Toronto, Niagara Falls, Chicago, Little Rock, Dallas and Houston). On July 12, 2011, an invoice was prepared by Lewis in the amount of $747,000, utilizing the descriptive language which Bellinger had provided. Clerk’s finance paid the amount to Lewis, who then forwarded it pursuant to the directions of Bellinger to Regions Bank in Birmingham, Alabama, and ultimately to Title Works in Destin, Florida. This money was not used for advertising purposes, but rather was used to purchase a house that was titled in Bellinger and his wife’s name. The only backup provided to the County and the Clerk for review was the prepared invoice with the above language. The actual backup possessed by Lewis would have reflected the payment to Title Works which should have raised a concern by the reviewing entities. e At the Marketing Committee and before the TDC, discussions had occurred relating to the use of a boat to promote and complement the “Best Place in America to Boat and Live” by Boating Magazine. The promotion contemplated a contest for a vacation in the Destin area aboard a yacht. The early discussions had been in the context of either leasing or actually acquiring a boat for these purposes. No formal approval to proceed with this promotion had been granted by the Marketing Committee or the TDC and, in our interviews, no one was aware that the discussions had gone beyond the concept phase. However, on December 16, 2011, Bellinger entered into a brokerage, purchase and sales agreement for the acquisition of a 2011 Marquis 42-foot yacht. The purchase price was $710,000. The payment of the money was processed through the Zimmerman Agency as part of the promotion, and the invoice which was prepared by Zimmerman based upon the language provided by Bellinger stated as follows: 2011 Marquis 420SC #MQYU3073T011 Yacht Promotional Campaign, Overnight Summer Giveaway, Wedding Promotions, Snowbird Campaigns and National Contest Giveaway. One year advertising and marketing support of the campaign developed and managed by Zimmerman. TDC partnership with legendary marine. * Information on this acquisition was based upon public and published materials and materials contained in Federal court filings. 13 The invoice was approved by the Chairman of the Board and processed through Clerk’s finance. The boat itself was delivered in December, 2011. The invoice was somewhat misleading in the description of the promotion was extremely vague. Based upon the narrative language provided, it would be difficult to understand the nature of the promotion. However, the summary of the activity did include the description of a yacht. Though this acquisition has received some notoriety, the purchase itself was for a promotion and advertising event and would be a legitimate expenditure, had it been properly authorized and approved. It was not. e As a result of the success of “Hog Rally” in Destin, the concept was circulated concerning giving away motorcycles during the next Hog Rally the following year. This was discussed before the Marketing Committee, the TDC and the Board, but no formal approval given. Again, Bellinger, without formal approval, arranged for the acquisition of the motorcycles, which were custom designed by the Bourget family. The motorcycles themselves were customized and depicted scenes from the Destin-Okaloosa County area. The motorcycles were purchased as a pass-through by the Zimmerman Agency. The invoice submitted by the Zimmerman Agency stated “2012 Boast the Coast Promotional Campaign Sweepstakes” and the job name was “Final Billing for Bourget Bikes.” The total price of the motorcycles was $118,100. The motorcycles were completed and are being held by the Bourget family for transmittal. This acquisition was a legitimate promotional and advertising expenditure, had it been properly authorized and approved. It was not. e A Dodge Durango was purchased for “Boast the Coast Promotion” in the amount of $45,329.50. This promotion was an undefined promotion for the fall of 2012 which would give away the Dodge Durango. Again, the promotion itself appears to have not been reviewed by either the Marketing Committee or the TDC, but was a concept generated solely by Bellinger. Though there was some vague discussion concerning a fall promotion, Bellinger authorized the purchase without approval by the TDC or the Board. The vehicle was purchased as a pass-through by the Zimmerman Agency. This invoice clearly reflected the purchase of a vehicle which should have raised a question as to the expenditure. Again, this acquisition was a legitimate promotional and advertising expenditure, had it been properly authorized and approved. It was not. Based upon cooperation from the 14 dealer, this purchase has been rescinded and the promotion cancelled by the action of the Board at its June 5, 2012 meeting. Though the majority of these approvals were signed by the Chairman of the Board of County Commissioners, there are some which were approved by the County Administrator. On some occasions, the Administrator reviewed authorizations when the Chairman was not available. However, the standard procedure was for the Chairman to review and approve these acquisitions. Following approval by the Chairman, the invoice would be processed through the Clerk’s office. In February, 2012, a policy change was implemented which required additional approval by the Administrator. In discussions with the Clerk’s office, they interpreted these expenditures as contract payments under the authority granted by the Board through the approval of the contract with the advertising agency. As a contract payment, the Clerk’s office predominantly analyzed the invoices as to whether it fell under the umbrella of promotional-type activities, which the advertising agencies were contracted to provide, and whether it was being paid out of the appropriate fund. Representatives of the Clerk’s office did raise various questions in the past as to some of these requested payments and at that time would contact Bellinger for additional details and support. However, the explanation given by Bellinger appeared to satisfy the Clerk’s office that these expenditures were appropriate, as - no objections were raised. In analyzing the expenditures, the Clerk relied on the Tourist Development Plan and contracts with the advertising agencies in determining whether the particular expenditure falls within the scope of the contact for promotional activities and whether the revenues to be used to pay the expenditure was appropriate. As the review was based upon the interpretation that these were approvals authorized under the advertising agency contract there was no detailed review by the Clerk as to the authorization process of these promotions by the TDC. Nor was there any review by the Purchasing Department for the acquisition of any tangible property. With the availability of revenues from BP, it appears that more special events-type advertising and sweepstake promotions were instituted. Again, the processing of these promotions was funneled through the advertising agencies, as were the vehicle sweepstake promotions. The purchasing of these vehicles through the advertising agency deprived a layer of review that would otherwise normally 15 occur in the acquisition of property by the County, that is, the Purchasing Department was omitted from the review process. In reviewing these special event and sweepstake processes, none of them were formally approved by vote by the TDC, nor were they submitted to the Board for vote. Further, in reviewing the minutes, we have been unable to find any significant discussion concerning the financial costs involved with these promotional activities. ANALYSIS The events that have occurred and the misuse of public dollars was not the product of a single problem, but rather a combination of factors that had evolved over the years. Though we have identified numerous structural issues in the approval and review process, the fundamental problem appears to be that promotional and advertising activities are somehow treated differently than any other expenditure made by the county and that there was a perception that they should be governed by a different set of rules. That is simply wrong. This attitude has been pervasive for many years and has led to some inconsistencies between policies of the TDC and the County and the review procedures to be applied. Any change that does not provide a uniform set of policies for the TDC and all County departments will not correct the problem. Based upon our review, we found the following areas of concern: Role of the TDC and the Board The TDC is required to be an advisory body to the Board. They are to provide input to the Board, provide a recommendation as to the Tourist Development Plan, review expenditures of Tourist Development Taxes and to help guide and select promotional events and recommend them to the Board for final approval. However, the authority of the TDC has evolved over the years and the relationship between the TDC and the Board has fundamentally changed. The TDC no longer operated solely as an advisory body, but had assumed the role of ultimate decision maker for promotional activities and authorizing the expenditure of tax dollars without input of the elected officials. This evolution of authority was not unilaterally taken by the TDC, but rather delegated by the Board many years ago. The delegation of the specific decision-making process of promotional activities by the Board appears to be based upon the concept that the 16 approval of the budget with the revenues designated for promotional expenditures was sufficient direction and oversight. The ultimate decision maker in the approval of promotional activities and expenditure of public funds should be the Board of County Commission with the advice and guidance of the TDC. Appropriate policies need to be implemented to assure the proper approval structure is in place as contemplated by Florida Statutes. Lack of Documentation The extent of documentation that was provided to support the expenditures was minimal. This was a significant problem in the failure of providing effective controls. The advertising agency would obtain an estimate, obtain approval of the Executive Director and make the purchase. Generally, once the purchase had been made, the vendor would provide an actual receipt to the advertising agency. However, the advertising agency would only submit the invoice prepared by them and not the back-up which supported that invoice. In the past, all documentation had been submitted in support of expenditures and available for review by the Clerk and County staff. However, at some point prior to Bellinger’s employment, that practice was discontinued. The process used by Bellinger helped disguise these expenditures as he would actually provide the descriptive language for the advertising agency invoice which became the sole supporting documentation for the expenditure. Had the actual invoice from the vendor been provided, there would have been a substantially greater likelihood that issues would have been detected earlier. Inadequate Planning In reviewing the budget process, there appeared to be limited planning for promotional activities under Bellinger. Though there may have been some internal concepts as to the type of activities that they contemplated doing during the course of the year, those concepts were not formalized and approved. In reviewing the practices and procedures around the State, it appears that many jurisdictions require as part of their budget process, the creation of a Strategic or Marketing Plan which would guide the expenditure of the promotional revenues during the course of the upcoming fiscal year. That Plan would be reviewed by the TDC and recommended to the Board for adoption. Variations from that Plan would require an amendment to the Plan approved by the Board. This allows the TDC and 17 reviewing entities to utilize it as a guide for the approval of promotions and to make certain that the various expenditures fall within the limits of the Plan. Lack of Financial Reporting Under the prior Executive Director, periodic financial reports were provided to the TDC setting forth the use of revenues and the current balances remaining. Under Bellinger, there was no financial reporting and that information was largely maintained under his exclusive control. It is essential that the Board and the TDC be provided periodic financial updates so that the activities of the TDC can be effectively monitored. Further, section 125.0104(4)(e), Florida Statutes, provides in relevant part: The council shall continuously review expenditures of revenues from the tourist development trust fund and shall receive, at least quarterly, expenditure reports from the county governing board or its designee. Expenditures which the council believes to be unauthorized shall be reported to the county governing. board and _the Department of Revenue. The governing board and the department shall review the findings of the council and take_appropriate_ administrative or judicial action to ensure compliance with this section. Failure to Apply Policies Uniformly In reviewing the documentation, it appears that there was not a clear delineation of policies under which the Executive Director was required to operate. The TDC had adopted various policies, some of which were inconsistent with the County’s other policies. The Executive Director and his/her staff need to operate consistently as county employees and under the same guidelines as other employees. The inconsistency in the applicable policies results in some confusion by the reviewing entities that are tasked with oversight. 18 Use of Agency Contracts The use of the advertising agencies’ contracts for pass-throughs in the purchasing of tangible physical items allowed Bellinger to bypass the purchasing policies of the County. Under the County’s purchasing policies, certain purchasing approvals must be obtained prior to the acquisition. For example, if an item was under $25,000, it required that the department head and the Purchasing Director sign off on that purchase. If it was over $25,000 and up to $50,000, the County Administrator, the Purchasing Director and the department head were required to approve it. If it was over $50,000, Board approval would be required. However, by funneling these purchases through the advertising agency contacts it allowed a complete bypass of several entities which would otherwise normally review these purchases. Likewise, the practice of issuing an advancement of funds should be highly limited to extraordinary circumstances, and which would then require additional approvals. Further, the County should reevaluate the appropriateness of allowing the provision of advertising agency employees to work for the TDC and to be paid as a pass-through. Though the County has used “temps” from employment services in the past, it has not, to our knowledge allowed employees of a vendor to provide administrative function for the same entity that the vendor is currently providing services. Chain of Authority Beginning in 2005, the Executive Director was aligned differently than any other department head. The Executive Director reported directly to the Chairman of the Board of County Commissioners and no longer reported to the County Administrator. By removing the County Administrator from this process, an additional layer of oversight was eliminated. The reporting to the Chairman of the Board of County Commissioners results in a loss of continuity. A new Chairman may be appointed on an annual basis, thereby resulting in a loss of the historical knowledge that would have been accumulated. Additionally, the variation in style and degree of oversight would vary as different chairmen, exercised different degrees of control. 19 Use of Subcommittees Under the policies of the TDC, various subcommittees have been used to assist in fulfilling its duties. The use of subcommittees can be extremely helpful in addressing specific tasks. However, it appears that under Bellinger, the Marketing Committee became more predominant and essentially assumed some of the functions of the TDC. Subcommittees clearly may be beneficial but ultimately decision making needs to always be vested in the Board with the advice of the TDC. . Lack of Standards The TDC and its Marketing Committee considered funding of local events. The funding of these activities is beneficial to the community but there are some limitations on the extent of these events that can and should be funded by the TDC. In evaluating these events, the TDC should strive to develop additional standards to evaluate these applicants. This will assure that the applications are being considered under the same standard and avoid possible issues of conflict. Similarly, should sweepstake promotions continue, there needs to be specific rules that govern who can apply, how the winner will be chosen and any obligations that will be borne by the winner. In surveying other jurisdictions, many do not use sweepstake type promotions. None of them had sweepstakes to the extent that were used by Bellinger. However, those that did have some type of sweepstakes have very specific guidelines and restrictions that governed the contest. CONCLUSION Based upon our investigation, it is apparent to us that the unauthorized and, in some cases, illegal activities of the former Executive Director, were the result of a massive failure of controls. Though we have found, and previously discussed several areas of concern, there appears to be three areas that were significant in the failure of controls that has occurred. Fundamentally, one significant problem extends back many years as to the relationship between the Board, the Executive Director and the TDC. As has developed over the years, the TDC has been viewed as a separate governmental 20 entity, as opposed to what is contemplated under Florida Statutes and the County’s Ordinance, which is as an advisory board. The responsibility for approval of promotional activities has for many years been delegated to the TDC, resulting in the Board being largely absent from that process. Though a member of the Board acts as a liaison on the Tourist Development Council, this in and of itself does not provide adequate exercise of the authority granted to the Board, particularly where the expenditure of tax dollars is at issue. The second of these significant problems, which hampered any review efforts, was the lack of documentation provided to the reviewing entities to support the expenditures. As indicated, previously, the actual vendor invoices were provided to support the payment. However, at some point, that backup was no longer provided and the reviewing entities primarily considered only the invoices prepared by the advertising agency. By limiting the review to this documentation, some of which the language was drafted by Bellinger, the reviewing entities had limited, if any ability to identify potential areas of abuse. Finally, Bellinger was a county employee but he appears to have been allowed to operate without significant supervision and under different rules than any other county employee. From the aspect of the TDC, it appears that the activities of Bellinger were largely unsupervised and that the TDC granted him a great deal of flexibility in crafting the promotional activity and the expenditure of funds. An additional issue clearly is that though the Executive Director was contemplated to operate under the County’s policies, he was largely allowed to operate free of these restrictions. Based upon our review, we make the following recommendations. 21 RECOMMENDATIONS REPORTING AUTHORITY 1. The Executive Director of the Tourist Development Council will report directly to the County Administrator as any other County Department Head. The Policy adopted by the Board on November 6, 2005 is rescinded. [APPROVED BY THE BOARD MAY 15, 2012] OPERATING PROCEDURES 2, All contracts and expenditures made by the Executive Director on behalf of the Tourist Development Council will be made in conformity with the County’s Contract, Leases & Non-Grant Agreements, Policies & Procedures and the County’s Purchasing Manual. [APPROVED BY THE BOARD MAY 15, 2012] 3. The operating policies and procedures of the Tourist Development Council shall be revised to eliminate inconsistent provisions of the County policies. [IN PROCESS] _APPROVAL OF PROMOTIONAL ACTIVITIES 4. All activities of the Advertising Agencies shall only be allowed utilizing the written task order procedures of the County’s Contract Policy. A written task order will be required for the engagement of any promotional activity or any expenditure. . a. A task order for services up to $25,000 requires approval by the Department Head (Executive Director) and Purchasing Director. b. A task order for services above $25,000 and up to $50,000 approval by the Department Head (Executive Director), Purchasing Director and County Administrator. 22 c. A task order for services over $50,000 by the Board of County Commissioners. [APPROVED BY THE BOARD MAY 15, 2012] 5. Past authorized promotional or advertising activities that are ongoing shall not be allowed to proceed without the issuance of a task order. [APPROVED BY THE BOARD MAY 15, 2012 AND JUNE 5, 2012] APPROVAL OF PURCHASES 6. No purchases for real or tangible personal property shall be made by the Advertising Agencies, the Tourist Development Council or Executive Director unless written authorization accompanies that request. Such authorizations shall be in advance. The scope of the written authorization will be as follows: a. Purchases Acquisitions up to $25,000, approval by the Department Head (Executive Director) and Purchasing Director b. Purchases and Acquisitions above $25,000 and up to $50,000 approval by the Department Head (Executive Director), Purchasing Director and County Administrator. c. Purchases and Acquisitions over $50,000 by the Board of County Commissioners. [APPROVED BY THE BOARD MAY 15, 2012] 7. The Advertising Agencies will be required to confirm in writing their understanding and acceptance of these requirements. [APPROVED BY THE BOARD MAY 15, 2012 — both Zimmerman and Lewis have complied] 8. Advancement of funds should be limited and additional guidelines and procedures prepared to restrict this activity. 23 DOCUMENTATION 9. No invoice will be processed through the Clerk’s Office without the executed task order and/or purchase order approved by the respective County officials. No invoice will be approved unless the actual invoice from the vendor accompanies the form. 10.The County should attempt to make media purchases whereby the vendor is paid directly by the County rather than through the advertising agency. PLANNING 11.Annually, the Executive Director will be required to prepare a detailed Strategic or Marketing Plan which will set forth the proposed marketing expenditure for the upcoming fiscal year. That Plan will be reviewed approved by the TDC and recommended to the Board for final approval. Expenditures during the upcoming year shall be in conformity with the Plan. Amendments to the Plan shall be reviewed and approved by the TDC and recommended to the Board for final approval. DEVELOPMENT OF ADEQUATE STANDARDS 12.The TDC shall develop stricter standards for the evaluation of Special Event funding. 13.The TDC shall prepare detailed rules and restrictions to govern any contest or sweepstakes program. 14.The payments for the funding of Special Events should be directly to the entity applying for the funding and the payment should not be paid through the advertising agency. FINANCIAL REPORTING 15. At a minimum, quarterly expenditure reports shall be provided to the TDC and to the Board for their review. These reports shall reconcile all payments that have been made and provide the extent of funding that remains available. 24 ACCREDITATION AND CERTIFICATION 16. The International Association of Convention and Visitors Bureau has partnered with Purdue University to develop an accreditation program for official destination marketing organizations. The County should explore possible accreditation of the TDC. 17. There is also a Certified Destination Management Executive Program. The County should encourage any future TDC Executive Director to complete this program. REVIEW__OF ADVERTISING CONTRACTS AND CONTRACT EMPLOYEES 18. The County should review the existing contracts with the advertising agencies and require conformity with the County’s purchasing policies. 19. The County should review the appropriateness of the continual funding of the Zimmerman employees as a pass through. ADOPTION OF A CODE OF ETHICS 20. The County should consider the preparation of an ordinance adopting a Code of Ethics for the Board, County employees and all appointed committees and boards. 25