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Audit Report

 

Department of Parks & Recreation: Flog, LLC at Willis Case

This audit examined several objectives regarding compliance with key terms of the contract between the City and Flog, LLC, at Willis Case. First, we evaluated revenue reported by Flog and determined whether it was paying the correct percentage to the City under the contract. Next, we determined whether Flog was applying the correct sales tax to transactions and then paying the correct sales taxes to the City.

 

Watch the Audit Committee presentation here once it is available.

The companies operating concessions for the city at Willis Case Golf Course and the gift shop and café at the Buffalo Bill Museum and Grave are not reporting revenues reliably, according to this audit. While the amount of revenue involved was not overwhelming, this audit matters because poor reporting and outdated point-of-sale systems could be symptoms of a larger problem with a lack of concessionaire monitoring by Denver’s Parks and Recreation Department. The audit team recommends updated systems, more accurate reporting, clarification of contracts and better oversight.

Our audit of the Department of Parks and Recreation’s contract with Flog, LLC, at Willis Case Golf Course revealed deficiencies in Flog’s compliance with the contract and in Parks and Recreation’s oversight of the agreement.

FINDING 1: Flog Is Not Complying with Revenue Reporting Requirements and Needs to Improve Its Recordkeeping
• Flog is deducting the costs of discounts and complimentary items, which is not specifically allowed under the contract with the City.
• Flog’s October 2017 monthly report was missing one day of sales.
• Flog’s sales tax reporting was incorrect.

FINDING 2: Parks and Recreation Is Not Adequately Overseeing the Contract with Flog
• Parks and Recreation’s oversight of revenue reporting is limited.
• Parks and Recreation has not defined what capabilities Flog’s point-of-sale system to track transactions must have.
• Department officials were unaware of Flog’s processes for reporting revenue; including deducting costs of discounts and complimentary items. In addition, the contract and other authoritative governance documents are unclear on whether this practice is allowed.

Our report makes multiple recommendations to Flog and to Parks and Recreation for improving recordkeeping and contract compliance.

1.1 Revenue Reporting – Flog, LLC, should adjust reporting practices to ensure compliance with the revenue reporting terms established in the contract.

Auditee Response: Agree, Implementation Date – October 2018

1.2 Point-of-Sale System Capabilities – Flog, LLC, should ensure the point-of-sale system and recordkeeping procedures are enhanced to properly track and report gross revenues and meet the City’s contract requirements.

Auditee Response: Agree, Implementation Date – October 2018

 

2.1 Point-of-Sale System’s Functionality – The Department of Parks and Recreation’s Director of Finance and Administration should obtain an understanding of the Flog, LLC, point-of-sale system’s functionality so Parks and Recreation can properly monitor compliance of gross revenues reported.

Auditee Response: Agree, Implementation Date – December 31, 2018

2.2 Requirements of the Point-of-Sale System – The Department of Parks and Recreation’s Director of Finance and Administration should discuss detailed requirements of Flog, LLC’s, point-of-sale system with the concessionaire to ensure accurate reporting of gross revenues.

Auditee Response: Agree, Implementation Date – December 31, 2018

2.3 Amend the Current Contract Definition of Gross Revenues – The Department of Parks and Recreation’s Director of Finance and Administration should amend the definition of gross revenues in the Flog, LLC, contract to address how discounts and complimentary items should be reported.

Auditee Response: Disagree
Auditee Narrative: The Department disagrees with this recommendation. This Concession License, and all other Parks and Recreation revenue agreements, comply with the definition of Gross Sales as set forth in D.R.M.C Sections 53-23 (14) and 53-23 (21). Both the City Treasurer and the City Attorneys who deal with tax, accounting and treasury issues agree that this definition is clear. As a result, our practice is consistent with how the City defines Gross Revenues. In addition, the City Attorney’s Office reviewed the definition of Gross Revenues in the Concession License and determined that the current language in the agreement is sufficient to reflect the City’s current accounting and calculation practices, including the contractual requirement for the Concessionaire to adhere to all applicable law including the Denver Revised Municipal Code. As a result, the Department believes it is unnecessary to amend these agreements to reiterate the definition provided in D.R.M.C.

Auditor’s Addendum: Although the Department of Parks and Recreation indicates that their concession revenue agreements follow the definition of Gross Sales in the Denver Revised Municipal Code (D.R.M.C.), the Sections mentioned specifically relate to gross sales for sales tax purposes and not gross revenues for revenue contracts. In our follow-up with the City Treasurer for clarification, he indicated that the definition of Gross Sales provided in Chapter 53 in the D.R.M.C. is clear and is consistent with how most jurisdictions define Gross Sales for taxation purposes. However, his opinion had not been offered regarding treatment of discounts in relation to gross revenues, and he had not reviewed the language in the contracts. Therefore, we maintain our original stance that the definition of gross revenues as it relates to discounts is not defined in the contract, nor is it defined in other authoritative City governance documents. It therefore requires clarification.

2.4 Review Flog’s 2016 – 2017 Financial Records for Compliance to Revenue Terms and Seek Collection – The Department of Parks and Recreation’s Director of Finance and Administration should require a review of Flog, LLC’s, 2016 and 2017 financial records for compliance with reporting of gross revenues and seek collection of unpaid revenue.

Auditee Response: Disagree
Auditee Narrative: The Department disagrees with this recommendation. The Department does not have adequate resources to perform revenue audits. The Department relies on the Concessionaire’s contractual obligation in each Concession License Agreement to annually submit a report of Gross Revenues prepared and certified by an independent certified public accountant to provide assurances that reporting and payments to the City is accurate and complete. Upon receipt of the annual audit, Department staff analyze the information contained in the audit compared to the periodic reports and payments submitted to the City by the Concessionaire. Adjustments to monies owed are made either by invoicing the Concessionaire, issuing a refund to the Concessionaire, or issuing a credit to the Concessionaire’s account. In addition, provisions are in each agreement that enables the Auditor’s Office to audit concessionaire records. The Department will, however, begin requiring the Concessionaire to provide POS reports and verify that percentage payments are based upon the Gross Sales amounts indicated on these reports.

 

Follow-up report

A follow-up report is forthcoming.

Other related reports

None at this time.

Audit Team: Katja E.V. Freeman, Sonia Montano, Dave Hancock, Marc Hoffman, Shannon Dale, Drew Woodward

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