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Audit Report

Denver Arts & Venues: Aramark Concession Revenues

The objective of the audit was to assess whether Aramark Sports and Entertainment, LLC (Aramark) remitted amounts owed in accordance with the concession agreement, including event and nonevent food and beverage, artist, and other novelty retail sales, catering and special events, and restaurant sales. We also assessed whether Denver Arts & Venues monitors, controls, accounts for, and reports remittances owed for concession sales. Additionally, we reviewed required incentive payments the City made to Aramark for performance goals agreed to by both parties annually.

Watch the Audit Committee presentation here.

Denver Arts & Venues is not adequately monitoring a contract with Aramark Sports and Entertainment, LLC, the concessions operator at Red Rocks and Denver Coliseum. Denver does not have the proper documentation to ensure Aramark is paying all of the concession revenue due according to the multi-million-dollar contract. The audit team also found weak oversight of inventory and theft and security risks due to cash-handling practices at the venues. In 2015, Denver Arts & venues received approximately $37 million from Aramark in gross concessions profit and paid more than $3 million in fees and incentive payments to Aramark. This audit matters because lack of monitoring puts the city at risk loss of revenue and the possibility of theft.

Our audit of the concession agreement between Denver Arts & Venues and Aramark Sports and Entertainment, LLC (Aramark) identified two control deficiencies that affect the accuracy and appropriateness of payments due under the agreement. Through this agreement, the City has received approximately $37 million in revenue and paid Aramark more than $3 million in concessionaire fees and incentive compensation for years 2015 – 2017. Arts & Venues should have sound controls in place to ensure the accuracy and appropriateness of payments between the City and Aramark.

Testing results indicated that the City is unable to determine whether Arts & Venues is receiving all concession revenue due from Aramark and paying the correct amount in concessionaire fees and incentive compensation to Aramark. Although Aramark has a contract monitoring program in place, we noted that the existing program needs to be strengthened to ensure compliance with Executive Order 8. During the audit, we noted three issues with Aramark’s control environment that support the agency’s need to strengthen its contract monitoring program. They are Aramark’s:

  • Inconsistent adherence to cash and inventory policies and procedures as noted in event documentation for Denver Coliseum and Red Rocks;
  • Lack of inventory reports, and;
  • Inconsistent application of controls during an observation of an event at the Denver Coliseum.

Lastly, according to the agreement, Aramark receives an incentive compensation if it meets annually approved criteria. Although Arts & Venues paid the 2016 incentive compensation, we noted that there is no approval to evidence that Aramark met the 2016 criteria.

1.1 Denver Arts & Venues should strengthen its existing contract monitoring program for the concession agreement with Aramark that follows Executive Order 8. This program should immediately establish and implement policies and procedures for monitoring contracts including the following:

  • Identify and assign a designee(s) within Arts & Venues to
    manage the contract monitoring program; and
  • Develop procedures to identify and address Aramark’s
    noncompliance with contract terms

Agency Response: Agree, Implementation Date – May 2018

1.2 Denver Arts & Venues should request Aramark to perform a Service Organization Control 1, Type II report covering the company’s system of controls over services provided to the City.

Agency Response: Agree, Implementation Date – May 2018

1.3 On a monthly basis, Denver Arts & Venues should request a reconciliation of inventory to sales for the events and nonevents in that month. This reconciliation should include a summary of all inventory movements such as transfers to and from the concession stand, management adjustments, spoilage, and employee meals compared to sales for the period. Arts & Venues should review and resolve any discrepancies that impact the accuracy of gross sales, gross receipts, and gross profit with Aramark on a monthly basis. Where applicable, the appropriate adjustments should be made to payments between the City and Aramark.

Agency Response: Agree, Implementation Date – June 2018

1.4 Denver Arts & Venues should obtain monthly documentation from Aramark that details total spoilage costs (as defined in the agreement). This detail should also include the spoilage percentage, amount of spoilage that exceeds the 0.5 percent threshold, and, if applicable, the breakout of spoilage costs to be shared by Arts & Venues and Aramark.

Agency Response: Agree, Implementation Date – June 2018

1.5 Denver Arts & Venues should identify and quantify the spoilage amount over the 0.5 percent threshold as identified in the agreement for the period from November 1, 2012 through October 31, 2017. Arts & Venues should also review and agree upon the balance that should be returned to the City in compliance with the agreement terms.

Agency Response: Agree, Implementation Date – Completed

2.1 Denver Arts & Venues should develop and document a procedure to ensure its representative and an Aramark representative document their agreement that Aramark has satisfied the established incentive criteria each year and then retain the documentation.

Agency Response: Agree, Implementation Date – October 2018 

 

Follow-up report

A follow-up report is forthcoming.

Other related reports

None at this time.

Audit Team: Kevin Sear, Yvonne Harris-Lott, Nancy Howe, Rob Farol, Roberta Holbrook