Virginia Beach Convention Center Catering Contract Commission Payments by hzp22842

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									                                                      Virginia Beach Convention Center
                                                                      Catering Contract
                                                         Commission Payments Review
                         Office of the City Auditor
                                                                                           Audit No: 2009-006
                                                                                    Report Date: May 28, 2009
City of Virginia Beach




                                                                                        Office of the City Auditor
                                                                               2401 Courthouse Drive, Room 344
                                                                                   Virginia Beach, Virginia 23456
                                                                                                    757.385.5870

                                                            “Promoting Accountability and Integrity in City Operations”
Contact Information




             Office of the City Auditor
     “Promoting Accountability and Integrity in City Operations”


         Lyndon Remias, CPA, CIA               City Auditor
             Chris Ford, CPA                Deputy City Auditor




                     Office of the City Auditor
                2401 Courthouse Drive, Room 344
                  Virginia Beach, Virginia 23456
      Telephone: 757.385.5870               Fax: 757.385.5875



             Fraud, Waste, and Abuse Hotline 757.468.3330
 Transmittal Letter




                                                         Date:           May 28, 2009

                                                            To:          James K. Spore, City Manager

                                                     Subject:            Review of Catering Contract Commission Payments
                                                                         Audit No: 2009-006

I am pleased to present the report of our review of the monthly commission payments due to the City
under the Virginia Beach Convention Center’s catering contract with Distinctive Gourmet. The results of
                                     Council
this review will be provided to City Coun through the City’s Audit Committee.

                                                                                  onvention
We have performed the procedures agreed to by the Director of the Virginia Beach Convention and Visitors
                      upon
Bureau. This agreed-upon procedures engagement was conducted in accordance with Government
Auditing Standards. Government Auditing Standards incorporate financial and attestation standastandards
established by the American Institute of Certified Public Accountants. These standards also provide
                                                     agreed-upon procedures.
guidance for performing and reporting the results of agreed

                                                                              ’s
The Office of the City Auditor reports to City Council through the City’s Audit Committee and is
organizationally independent of all City Departments. The procedures we agreed to perform and the
associated results are enclosed. Findings considered to be of insignificant risk have been discussed with
                            d    agreed-upon procedures on May 8, 2009.
management. We completed the agreed

This report is intended solely for the information and use of the Audit Committee, City Council, City
                                                                                         Bureau
Manager, and appropriate management including the Virginia Beach Convention and Visitors Bureau. It is
not intended to be and should not be used by anyone other than these specified parties. However, this
report is a matter of public record and its distribution is not limited.

We would like to commend both the Virginia Beach Convention Center personnel and their caterer,
                                                                                review
Distinctive Gourmet, for the courtesy and cooperation extended to us during the review. If you have any
                                     audit-related issue, I can be reached at 385-5872 or via email at
questions about this report or any audit                                          5872
lremias@vbgov.com.

Respectfully submitted,



Lyndon S. Remias, CPA, CIA
City Auditor

c:   City Council Members
     Audit Committee Members
     Steve Herbert, Deputy City Manager
                   ,


                                                                  i
                                                                        reporting directly to the Virginia Beach City Council.
        The Office of the City Auditor is an independent audit function repo                                each      Council
 Table of Contents


                                                  Table of Contents



                       ............................................................................................... i
    Transmittal Letter ................................                                ...............................

                                                                    ....................................
    Purpose, Scope, and Methodology ................................................................ 1

             ................................................................................................
    Standards................................                                ........................................... 2

               ................................................................................................
    Background ................................                                ....................................... 3

            ................................................................................................
    Results ................................                                ............................................... 4

                        wledgements                                 ..................................
    Conclusion and Acknowledgements ................................................................ 7




Review of Commission Payments
Audit No: 2009-006
                     Methodology
 Purpose, Scope, and Methodolog

Purpose
To determine whether the monthly commission payments resulting from the exclusive catering agreement
                              onvention                                                       Gourmet
between the Virginia Beach Convention Center (Convention Center) and the caterer, Distinctive Gourmet,
are in compliance with the contract provisions.

Scope and Objectives
The objectives of our review were:

1. To verify whether commission payments for the current contract year (May 2008 - April 2009) were
   computed correctly based on the contract provisions and the reported gross sales of Distinctive
   Gourmet.

2. To determine if the reported gross sales on which the contractor based its commission payments to the
                                                                           d
                    ,
   City are accurate, complete, and reflect the true gross sales of the company.

                                        year’s
3. To determine if the current contract year monthly commission payments are being properly recorded
   in the City’s general ledger.

                              commission payments for the current contract year. At the time of our field
Our review was limited to the commi
                                                            2009.
work, this included the months of May 2008 through February 2009

Methodology
To accomplish our objectives, we performed the following procedures:
                      concession/catering contract between the City of Virginia Beach and Boston Culinary
    • Obtained the concession/c
       Group, doing business in Vi irginia Beach as Distinctive Gourmet.
    • Reviewed the contract and obtained an understanding of the contract provisions related to the
       computation and payment of the commissions and the audit of such.
    • Recalculated the monthly commission payments for the current contract year based on Distinctive
                        reported
       Gourmet’s self-reported sales and the applicable contract provisions.
                                   met’s                               clusively
    • Obtained Distinctive Gourmet’s monthly bank statements (exclusively the activity of the contract)
                  rrent                                                         amount
       for the current contract year and compared for reasonableness the amounts deposited with the
                                    for
       amounts reported as sales f the computation of the commission.
    • Compared the sales Distinctive Gourmet reported for the computation and payment of the
       commission with the amounts r                                                 ulinary
                                            recorded on the books of Boston Culinary Group (parent
       corporation) for sales related to the Convention Center Contract.
                                     month,                                            ye
    • Judgmentally, selected a month September 2008, during the contract year and tested the
                                                Gourmet’s
       accumulation of sales from Distinctive Gourmet weekly summaries into the monthly totals, traced
                                                    nvoices
       certain reported sales amounts to the invoices billed to the client organizations, bar sheets
                                         concession stand sheets for concession sales.
       indicating alcohol sales and the conces
                                   ,
    • For a selected time period, we accounted for all of the sequentially numbered invoices used to bill
       client organizations and verified that the sales on each invoice were included in reported sales for
                                               commission.
       the computation and payment of the commission
    • We traced each monthly commission payment for the current contract year to the cancelled check
       and to the City’s general ledger revenue (account 002.39041.414079 General Fund Va Beach
       Conven Concessions) to verify the proper recording of the payments.
    • We verified whether the commission payments were made by the due date required by the
       contract.

Review of Commission Payments                                                                       Page 1
Audit No: 2009-006
 Standards

Standards
Our audit was conducted in accordance with generally accepted government auditing standards. The Office
of the City Auditor reports to City Council through the Audit Committee and is organizationally independent
                                  eport
of all City Departments. This report will be distributed to the City’s Audit Committee, City Council, City
Manager, and appropriate management within the City. This report will also be made available to the
public.




Review of Commission Payments                                                                       Page 2
Audit No: 2009-006
 Background

Background
The City of Virginia Beach has an exclusive onsite catering contract for the Virginia Beach Convention Center
with Boston Culinary Group (BCG) doing business in Virginia Beach as Distinctive Gourmet. The annual
contract year runs from May 1 through April 30 and contains a number of escalating percentage
                                        with
commissions based on annual sales wi different rates applying to various types of revenue. The revenue
                                                                                                     five
commissions are paid by BCG on a monthly basis. The City is entering the last year of an initial five-year
contract with the company. The contract is over 100 pages long, very detailed and inv          involves many
operational/performance type provisions. This audit is strictly focused on determining whether the
commission payments due the City under the contract are in compliance with the applicable provisions.

The two most important sections of the c                                                are
                                        contract in regards to the commission payments are: Section 10a
– General Description of Records, Accounting and Audit which defines gross sales subject to the
commission, and Schedule 3 – Proposed Fee Schedule and Minimum Annual Guarantee which details the
                                                                                 rantee
commission rates and each type of sale and minimum guarantees to the City.

                       ceived
Commission payments received from BCG are recorded in the City’s general ledger revenue account
                  General
002.39041.414079 (General Fund Va Beach Conven Concessions).




Review of Commission Payments                                                                         Page 3
Audit No: 2009-006
 Results

Purpose
To determine whether the monthly commission payments resulting from the exclusive catering contract
                                               Distinctive
between the Convention Center and the caterer, Distinctive Gourmet, are in compliance with the contract
provisions.

Result(s)
1.                                                                      hey
     Based on Distinctive Gourmet’s self-reported gross sales by which they calculated and paid the monthly
                                or
     commissions to the City for the months of May 2008 through February 2009, and the various
     commission rates applicable to sales type and threshold, we were able to recalculate the commission
     payments and agree them to the actual amounts received without exception. The recalculated and
                                                                                     .
     actual amount of commissions received for the ten month period was $988,344. We were also able to
                                                                                         checks
     agree the $988,344 to the City’s general ledger and the vendor’s cancelled checks. Monthly
     commission payments are shown in the Chart below.



                                                        Chart 1

                                 Virginia Beach Convention Center
                                        Distinctive Gourmet
                                  Monthly Commission Payments

                                                                          $211,535.13




                                                                                                             $136,132.10
       $122,433.57                                                                    $127,868.98

                   $102,623.20
                                                   $77,578.01
                                                                $76,981.44
                              $67,242.72
                                        $50,626.38


                                                                                                 $15,418.03



          May-08     Jun-08          08
                                 Jul-08   Aug-08     Sep-08      Oct-08      Nov-08     Dec-08      Jan-09     Feb-09




Review of Commission Payments                                                                                     Page 4
Audit No: 2009-006
 Results

2.   As a test of reasonableness to give assurance that the self-reported sales were in fact the actual gross
                                                                                    Con
     sales of Distinctive Gourmet (which sole operations are its contract with the Convention Center), we
     compared the amount of deposits on their monthly bank statements for the ten month period May
     2008 through February 2009, with the amount of sales reported for commissions for the same period.


                            Virginia Beach Convention Center
                                   Distinctive Gourmet
                            Cash Deposited vs. Sales Reported
                      $5,000,000
                                        $4,080,460         $3,935,570
                      $4,000,000
                      $3,000,000
                      $2,000,000
                      $1,000,000
                                                                               $144,890
                                $0
                                      Cash Deposited     Sales Reported        Difference


     We believe the difference of $144,890 (3.5%) is very reasonable considering timing differences,
                                                                                      ng
     accounts receivable collections, deposits/refunds etc. and gives us increased assurance that Distinctive
                  porting
     Gourmet is reporting all of its gross sales and paying the commission required.

3.                                                assurance
     As another test of reasonableness to give us assurance that Distinctive Gourmet was reporting all of its
     actual gross sales to be included in the commission calculation, we compared the amount of gross
                               reported
     sales Distinctive Gourmet reporte for inclusion in the commission calculation with the amount Boston
                        parent corporation)
     Culinary Group (parent corporation reported on its books for the revenue resulting from the
     Convention Center Contract. We were able to reconcile those amounts to an immaterial difference of
                                                                                               it
     $35.86 as well. The Boston Culinary Group receives an annual independent audit of its financial
     statements.

4.                                                                                          Gourmet
     We judgmentally selected one month, September 2008, and agreed Distinctive Gourmet‘s weekly
                                   used                                 he
     totals to the monthly totals use to calculate the commission. The first week of September was also
     selected to trace each sales item for every event to the associated invoice billed to the client, bar sheet
     detailing alcohol sales and concession stand sheets for concession sales. We also accounted for each
                               3715)                       assurance
     sequential invoice (3699-3715) for the week to gain assurance that all billed sales were being properly
     included in the commission calculation. Each of these test were performed with no exceptions noted.




Review of Commission Payments                                                                            Page 5
Audit No: 2009-006
 Results

5.   It should be noted that the process whereby Distinctive Gourmet and the Convention Center personnel
           w
     review and reconcile the monthly sales activity and resulting commission payment is both extensive
                                                                                     review
     and thorough resulting in a very closely monitored contract. Through extensive review, both entities
     come to an agreement with the monthly calculation before the check is executed.


                                             ided
Management’s Response to Audit Results: (Provided by Jim Ricketts, Director of Virginia Beach
Convention and Visitors Bureau)




I would like to thank you for the opportunity to meet with you and Chris Ford to review the findings of the
recent audit on the “2009 Distinctive Gourmet Commission Payment.”

The audit was professional and timely. While we were pleased that there were no si    significant findings, the
audit helped us identify some changes that we will include in our next food service contract.

The Convention & Visitors Bureau remains committed to financial accountability and looks forward to
                                 team.
continued support from the audit team




Review of Commission Payments                                                                           Page 6
Audit No: 2009-006
 Conclusion and Acknowledgements

Conclusion
                              review,
Based upon the results of our review we believe that the monthly commission payments resulting from the
exclusive catering contract between the Convention Center and Distinctive Gourmet are being made in
                             provisions.
compliance with the contract provisions

Acknowledgements
We would like to thank Distinctive Gourmet and the Convention Center personnel for their responsiveness
to our requests during the review and their receptiveness to questions and comments. We thank all
involved in the process for their help and offer our assistance should future concerns regarding this or other
audit issues arise.




Review of Commission Payments                                                                          Page 7
Audit No: 2009-006

								
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