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

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,