720-913-5000 auditor@denvergov.org

phahaska tepee gift shop

DENVER – The companies operating concessions for the city at the gift shop and café at the Buffalo Bill Museum and grave and at the Willis Case Golf Course are not reporting revenues reliably, according to two new audits from Denver Auditor Timothy M. O’Brien, CPA.

The two audits issued today focused on the financial reporting of two concessionaires with contracts with the Department of Parks and Recreation. Flog, LLC, operates at the Willis Case Golf Course and Pahaska Tepee Concessions operates the gift shop and café at the Buffalo Bill Museum and Grave.

Both audits evaluated the revenue reported to the city, to determine whether the concessionaires were paying the correct percentage to the city under the contracts and found flaws in the revenue reporting as well as inadequate contract monitoring by Parks and Recreation.

“While the amount of revenues potentially misstated by inadequate accounting practices and out dated point-of-sales systems used by these small concessionaires might not be overwhelming, I think this is evidence of a broader problem with the city’s oversight of concessions contracts,” Auditor O’Brien said. “It’s important for Parks and Recreation to monitor these contracts fully so operators comply with agreements and taxpayers get the revenue they’re owed.”

In the audit of Pahaska, the team found concerns with inaccurate reported revenue. In this case, the company had an unreliable and outdated point-of-sale system leading to estimations being used for gross revenue reporting. The registers record sales on paper rolls, which can get damaged and difficult to read. The system has no way to reprint receipts if one is damaged or lost. When errors are made at the register, Pahaska’s employees do not appropriately correct the error. As a result, the company uses the amount of money deposited to their bank account at the end of the day to estimate the gross revenues to report to the city. This results in inaccurate amounts reported and incorrect reporting of credit card fees.

Further, the company lacks sufficient cash handling controls. One employee counts the cash at the register each day. There is no midday count or proper controls to ensure the accurate amount of money is brought to the bank and reported to the city.

Due to Pahaska’s inadequate system, auditors could not confirm whether the company was under- or overreporting revenues to the city. In the city’s contracts with Flog and Pahaska, it specifically states “Concessionaire agrees to establish and maintain a system of bookkeeping satisfactory to the auditor.”

The Auditor’s Office conducted a similar audit of the Buffalo Bill Museum’s gift shop in 2007 and found similar bookkeeping concerns. The audit included recommendations to address the point-of-sale system, revenue reporting inaccuracies and internal control weaknesses. More than a decade later, Pahaska has not done enough to mitigate those risks and avoid the problems the team found in the current audit.

“We want to catch problems like this early so we don’t come back years from now and wonder how the lost revenue problem went undetected for so long,” Auditor O’Brien said. “In this case, we caught problems a decade ago, and they still haven’t been fixed.”

Pahaska agrees it needs to find an adequate system to ensure accurate revenue reporting. The company should also make payments to cover potentially inaccurate past revenue reports, however, the company disagreed with this recommendation.

To avoid problems like this in the future, Parks should do a better job of overseeing the concessionaire and understanding its point-of-sale system.

At Willis Case, similar areas of revenue reporting concern included how Flog handles discounts and sales tax when selling food and beverages on the golf course. The audit team found Flog reports gross revenue after deducting discounts to the city. The audit team called for clearer language in the contract allowing or not allowing this in the gross revenue calculations.  Parks needs to clarify in the contract whether this should be allowed.

Flog also does not consistently charge customers sales tax. Due to the insufficient point-of-sale system, the audit team had trouble tracking transactions and where sales tax was included in the price of an item and where is was added in separately. As a result, some transactions looked like they were double taxed when they were not, and other transactions did not have the sales tax added at all.  Operators told the audit team the sales tax must be added manually to the end of the purchase, and sometimes they do not do so to save golfers time in getting back out on the green, but if the customer plans to eat inside the sales tax is added.

Flog is also not fully compliant with the reporting requirements in its contract. The company is rounding revenue reporting on its City and County of Denver sales tax returns and adding the State of Colorado vendor fee rate —the amount of state sales tax the company keeps for paying taxes on time — to monthly revenue reports.

Flog has reported a new point-of-sale system at the registers to address some of these accounting concerns. However, the upgraded system was installed at the end of our audit, and the audit team cannot confirm its effectiveness. Since the system is new, now would be a good time for Parks to improve its monitoring and ensure both parties start fresh with accurate revenue reporting and payments.

We recommended Parks review Flog’s 2016 and 2017 books to ensure accurate revenue reporting. However, the agency disagreed, saying they don’t have the resources to do audits of revenue, and that they rely on the concessionaires’ CPA audit of gross revenues annually. We also recommended an update to the contract to specify the definition of gross revenue to clarify whether discounts should be included in revenue reporting, another recommendation with which Parks disagreed, relying on a different interpretation of contract language.

“These attractions — the golf course and the museum — are obviously popular with city residents,” Auditor O’Brien said. “However, the companies that operate them still must be held to the same standards of accurate revenue reporting as any company working with the city.”

Read the Audit (Pahaska)
Read the Audit (Flog)

 

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