Auditor-Controller-Treasurer-Tax Collector Internal Audit Sonoma Count y Agreed-upon Procedures: Sonoma County Advertising Fund For the Fiscal Year Ended June 30, 2011 The Sonoma County Advertising Fund awarded $934,641 to community based organizations and local governments for Fiscal Year 2010 11. Our procedures covered $167,476 funds awarded, which represents approximately 18% of the overall total awarded. We found that all recipients whose records we examined, with the exception of one, had either immaterial or no incidences of noncompliance. We made four (4) recommendations for changes in the County Administrator Office and award recipient procedures, to reduce the risk of such non compliance in the future. One award recipient that was awarded $13,500, failed to meet both of the requirements of category H of the County Advertising and Promotions policy. It requires the award recipient to 1) spend at least $25,000 on advertising activities during the award period and 2) have an advertising request that does not exceed 50% of total advertising expenses. Audit No: 3035 Report Date: June 19, 2012 Audit Manager: Kanchan K. Charan, CPA Audit Supervisor: Damian Gonshorowski, CPA Auditor: Dana Shern
Sonoma County Advertising Fund Agreed-Upon Procedures Report For the Fiscal Year Ended June 30, 2011 Table of Contents Page Auditor-Controller s Report on Applying Agreed-upon Procedures Appendix A Schedule of Advertising Funds Awarded Compared to Advertising Fund Recipient Expenditures... 1 Appendix B Procedures Applied and Associated Findings... 2-7 Appendix C Summary of Significant Advertising and Promotional Policy... 8-11
DAVID E. SUNDSTROM, CPA AUDITOR-CONTROLLER TREASURER -TAX COLLECTOR 585 FISCAL DRIVE, SUITE 100 SANTA ROSA, CA 95403 PHONE (707) 565-2631 FAX (707) 565-3489 DONNA DUNK, CPA ASSISTANT AUDITOR-CONTROLLER JONATHAN KADLEC ASSISTANT TREASURER-TAX COLLECTOR Ms. Veronica Ferguson Sonoma County Administrator Santa Rosa, CA Auditor-Controller s Report on Applying Agreed-upon Procedures We have performed the procedures enumerated in Appendix B of this report, agreed to by the Sonoma County Administrator s office, solely to assist you, in evaluating Advertising Fund recipients compliance with Government Code Section 26100, the terms and conditions of agreements made with the County of Sonoma during the fiscal year ended June 30, 2011 and the policy adopted by the County Board of Supervisors relating to the use of monies from the Advertising Fund. The recipient s management is responsible for compliance with those requirements. The sufficiency of these procedures is solely the responsibility of the Sonoma County Administrator s Office. Consequently, we make no representation regarding the sufficiency of the procedures described in Appendix B either for the purpose for which this report has been requested or for any other purpose. The schedule at Appendix A identifies Advertising Fund recipients and compares the amount awarded to the amount expended. The procedures we applied and associated findings can be found in Appendix B of this report. We were not engaged to and did not conduct an examination, the objective of which would be the expression of an opinion on the accompanying Schedule of Advertising Funds Awarded Compared to Advertising Fund Recipient Expenditures (Appendix A). Accordingly, we do not express such an opinion. Had we performed additional procedures, other matters might have come to our attention that would have been reported to you. This report is intended solely for the information and use of the Sonoma County Administrator s Office and is not intended to be and should not be used by anyone other than the specified party. June 19, 2012
Appendix A Sonoma County Advertising Fund Schedule of Advertising Funds Awarded Compared to Advertising Fund Recipient Expenditures For the Fiscal Year Ended June 30, 2011 Advertising Advertising Fund Funds Recipient Awarded Expenditures Variance Advertsing Fund recipients selected Earth Dance International 13,500 13,500 - Historical Museum Foundation 30,276 30,276 - Luther Burbank Rose Parade 6,300 6,300 - Petaluma Visitors Center 2,700 2,700 - Rural Broadcasting Corporation 13,500 13,500 - Russian River Chamber of Commerce - and Visitor Center Events Contract 6,480 4,790 1,690 * Santa Rosa Players 2,250 2,250 - Sebastopol Center for the Arts 13,230 13,230 - Soceity for Advancement 2,700 2,700 - Sonoma County Landmarks 40,500 38,539 1,961 * Sonoma County Library 22,840 22,840 - Sonoma Valley Chamber of Commerce - Matching Contract 13,200 12,583 617 * Total awarded and expended $ 167,476 $ 163,208 $ 4,268 * Recipient did not avail themselves to the full award amount granted because they did not have enough membership and contribution activity or event expenses to qualify for the full contract amount. 1
Appendix B Sonoma County Advertising Fund Procedures Applied and Associated Findings For the Fiscal Year Ended June 30, 2011 Overview There were forty-five (45) agreements awarded to community-based organizations and local governments from the Advertising Fund in the fiscal year ended June 30, 2011. Agreement amounts ranged from $450 to $153,000. The total of funds awarded was $934,641. Recipients selected for review were granted a total of $167,476 funds awarded, which represents approximately 18% of the overall total awarded. Certain Advertising Fund recipients were reviewed at the request of the Sonoma County Administrator s Office in addition to those recipients found to have had an auditor finding during fiscal year ended June 30, 2010. In addition to procedures applied to selected recipients Advertising Fund revenues received and associated expenditures, recipients were reviewed for compliance with the established indicators of the specific services to be provided by each recipient organization. Procedures Applied Receipt of Advertising Fund Revenue For each recipient listed in Appendix A, amounts claimed for reimbursement on County of Sonoma white claim forms were reconciled with the recipient s bank statement to confirm deposit of Advertising Fund revenue received. We also verified that amounts deposited reconciled with the recipient s general ledger and agreement made with the County of Sonoma. We identified no exceptions as a result of these procedures. Procedures Applied Advertising Expenditures For each recipient listed in Appendix A, general ledger detail relating to advertising expenditures was obtained in order to confirm that the recipient had expenditures in the amount of funding received, per County of Sonoma white claim forms submitted and per contract agreement. From general ledger detail provided, we judgmentally selected expenditures in order to determine that there was adequate supporting documentation and to ensure that it was recorded in the proper period. We confirmed that the amount recorded in the general ledger agreed with the associated invoice and cancelled check. For staffing expenditures we confirmed that amounts claimed for reimbursement reconciled to the general ledger, employee timecards and cancelled checks. For membership matching we confirmed that amounts submitted for matching funds recorded in the general ledger were received in the correct period and deposited into the bank. 2
We identified four recipients with exceptions as a result of these procedures. Associated Findings Earth Dance International We determined that Earth Dance International did not meet the requirements of Category H of the Advertising and Promotions Policy. Earth Dance International s contract falls within Category H of the Advertising & Promotions Policy which states among other things that the recipient must have advertising expenses that exceed $25,000 and an advertising request that does not exceed 50% of total advertising expenses for the event of the cultural organization. Per review of the Earth Dance International General Ledger for the Period July 1, 2010 June 30, 2011 and email conversations with Andy Fusso, former Executive Director of Earth Dance International responsible for the advertising claim, Earth Dance International incurred $19,210.30 of advertising expenses and received $13,500 of Advertising Fund awards. The award amount equates to 70% of the total advertising expenses incurred. The failure to reach $25,000 in advertising expenses and the receipt of an award amount that exceeds 50% of total advertising expenses does not meet the Category H Policy requirements. Recommendation: We recommend that Earth Dance International comply with the requirements of the Advertising and Promotions Policy for the Category in which it applies. Earth Dance International Response: Earthdance International (EDI) agreed to serve as the nonprofit applicant for TOT grant funds for the Harmony Festival in 2010 and 2011. In 2010 we took the place of Association for the Creative Endeavor (ACE) (the previous nonprofit applicant). This involved many hours of consultation and review with county, ACE and Harmony Festival staff. Our goal was always to ensure compliance with all requirements and to provide professional management of grant funds. According to the Advertising and Promotions policy dated May 10, 2011, section H.3.c.,...major events (emphasis added) must meet the guidelines...(including) advertising expense that exceed $25,000. The audit report faults EDI for separately spending less than $25,000 on advertising; however, if the combined event advertising expenses of EDI and Harmony Festival are considered, this criteria clearly has been met. Therefore we disagree with the audit report s conclusion. No mention of such a requirement was made during extensive conversations with county staff, and in fact, the county approved our payment after we provided substantial supporting backup including exhaustive documentation of every transaction and copies of advertising material. Our claim clearly noted the amount of our expenditure. We agree with the audit recommendation that these unclear guidelines be revised and included within the contract which is the primary guidance. The process is unnecessarily complex, bureaucratic and confusing as it now exists. 3
We therefore request an exemption from repayment of any amounts of this grant, and appreciate the County Administrator s support of this exemption. Earthdance International does not intend to apply for Sonoma County TOT grants in the future. County Administrator s Office Response: The County Administrator s Office recommends granting a one-time exemption from repayment for Earthdance International. The organization is now well aware of the requirements of their event category per the policy and repayment will be required in the future should similar audit findings be found related to the Health and Harmony Festival event grants. Additionally, the County Administrator s Office has amended the Advertising Program grant contract agreement as well as the grant application to prevent this type of issue going forward for all entities. The contract has been amended to clearly specify which category each entity is receiving a grant under, and specify that should the entity fail to meet the requirements of the policy and category under which the grant is received, repayment may be required. The grant application also requires the applicant to specify the category they are applying under and that they understand all requirements of the category and policy, and to specify the previous year s advertising expenditures, to demonstrate they have met any expenditure thresholds in the past and will have the ability to do so in the future. This will also clarify that it is the applicant organization that must meet the expenditure thresholds. The audit is not conducted on all entities advertising for a specific event, only the entity that received the Advertising Program grant and this entity must meet the requirements of the policy under which they apply and sign the contract.. Auditor-Controller s Response: The new application process requiring detailed advertising expense breakout and monitoring of advertising expenditures by Earth Dance International will reduce the risk of such noncompliance in the future. Russian River Chamber of Commerce and Visitor Center - Events The Russian River Chamber of Commerce and Visitor Center submitted a Wine Country Radio claim for the 4 th of July event that included charges for two different advertising periods. Some of the radio spots were run on or before June 30, 2011, the end of the advertising period for 2010 2011 under review, and some were run after June 30, 2011 up to the date of the event, the subsequent advertising period. The County Administrator s Office did identify this issue at the time of claim submission but unfortunately there was an error in calculating the allowable reimbursement amount and consequently the Russian River Chamber of Commerce and Visitor Center received $100 more than actually incurred for the advertising event reviewed. Per review of the other expense invoices provided by the Russian River Chamber of Commerce and Visitors Center for all of the events awarded during the period under review, we were able to 4
identify that there were more qualifying expenses incurred than Advertising Funds received from the County. Recommendation: We recommend that the Russian River Chamber of Commerce and Visitor Center confirm the dates of the activities being sought for reimbursement to ensure that only expenses qualifying for the correct advertising period are submitted. Russian River Chamber of Commerce and Visitor s Center Response: The Russian River Chamber of Commerce stated that the reimbursement claims will be reviewed to ensure only expenses incurred in the correct advertising period will be submitted for reimbursement. County Administator s Office Response: The County Administrator s Office has decided to allow the Russian River Chamber of Commerce and Visitor Center to offset the $100 over-payment from the 4 th of July event against the other qualifying expenses that were in an amount greater than awarded from the other events. Auditor-Controller s Response: The additional review by the Russian River Chamber of Commerce and Visitor Center will reduce the risk of such erros in the future. Society for Advancement The Society for Advancement submitted a claim for reimbursement for a Press Democrat Savor advertising expense that was greater than the actual invoice amount. The claim amount was for $600 but the invoice payment amount totalled $570.77. Per review of the other expense invoices provided by the Society for Advancement for the period under review, we were able to identify that there were more qualifying expenses incurred than Advertising Funds received from the County. Recommendation: We recommend that the Society for Advancement implement a reconciliation mechanism to ensure that submitted reimbursement claim amounts agree with the amount of the actual invoices. We also recommend that the Society for Advancement include the reconciliation along with copies of the original invoices with each reimbursement request. 5
Society for Advancement Response: The Society for Advancement s Office Manager responsible for the oversight of the Advertising Fund submissions will create a spreadsheet listing all invoices being submitted for reimbursement and will include copies of the original invoices with the claim submission to easily identify the charges on each invoice to mitigate the likelihood of erroneous claim submission amounts. Auditor-Controller s Response: We believe that the implementation of this reconciliation mechanism will mitigate the risk of incorrect invoice amounts being submitted in the future. Historical Landmarks Commission (Includes Diana Painter, PhD Contractor) We identified that there were several hours worked after the end of the Advertising Fund period of June 30, 2011. There were 133 hours worked after June 30, 2011 to complete the projects assigned. Per discussion with Lisa Posternak, PRMD Planner III responsible for overseeing the Landmarks Commission Advertising Fund work, Diana Painter was granted an extension to the signed services agreement. This extension however was verbal and not a formalized amendment. Per discussion with Diana Painter we were able to determine that there were miles submitted for reimbursement that were incurred while driving a rental car. We also determined via review of the submitted mileage log that there was a lack of detail with the descriptions included to obtain assurance that the miles driven were in fact for Historical Landmarks Commission work. Additionally, we identified that there was a computational error regarding the mileage reimbursement amount submitted with one of the Diana Painter invoices. Lastly, we identified that the final invoice submitted for services agreement payment did not identify the number of hours worked or mileage expenses being sought for reimbursement but was merely an exercise in math subtracting what was previously billed with the award amount remaining on the services agreement. Per Paragraph 2 Payment under Section 1 Scope of Services specifically states that The bills shall show or include (i) the task(s) performed; (ii) the time in quarter hours devoted to the task(s); (iii) the hourly rate or rates of the persons performing the task(s), etc.. With the mileage reimbursement issues identified, we did not consider any of the mileage expenses when calculating total expenses incurred. However, the amount of labor dollars alone exceeded the amount of the Advertising Funds awarded. Recommendation: We recommend that any changes to signed services agreements going forward, whether they be time extensions or changes to the scope of work, be formalized in writing with a copy being provided to the County Administrator s Office for their records. 6
We also recommend that more detailed descriptions be included in consultant mileage logs to provide better transparency and that PRMD staff recalculate the submitted mileage claim amount to ensure the correct amounts are paid. Finally, we recommend that invoices being submitted for payment include the detail required by the signed services agreement, including but not limited to, (i) the task(s) performed; (ii) the time in quarter hours devoted to the task(s); (iii) the hourly rate or rates of the persons performing the task(s). PRMD may want to consider requesting the actual timesheets prepared by Diana Painter to accompany the invoices as support. PRMD s Response: PRMD agrees that verbal agreements are not acceptable for changes to the scope of work or deadline extensions on signed services agreements and a formal amendment will be created and signed. PRMD also will ensure that the County Administrator s Office recieves a copy of any future services agreement amendments. PRMD will ensure that consultant mileage logs include detail such as Landmarks Commission project name and/or number and that timesheets are submitted with the invoices to confirm the amounts requested for reimbursement. Diana Painter s Response: In the future, any changes to the Scope of Work and/or schedule will be in writing and better mileage log records will be maintained. Invoices submitted for payment will include the necessary detail included within the Payment paragraph under Section 1 Scope of Services within the signed services agreement. Auditor-Controller s Response: Implementing the above identified processes will mitigate the risk of non-compliance with signed services agreements and create better transparancy for the miles driven and work performed. County Administrator s Response: The County Administrator s Office concurs with the Auditor-Controller s response and directs PRMD to have any future changes to work, terms, etc. be in writing and documented. 7
Appendix C Sonoma County Advertising Fund Summary of Significant Advertising and Promotional Policy For the Fiscal Year Ended June 30, 2011 Summary of Significant Advertising and Promotional Policy Description of Fund The Advertising Fund was established by the Sonoma County Board of Supervisors (Board) in accordance with Government Code Section 26100 to finance advertising and promotional activities within the boundaries of Sonoma County. The fund is supported by the Sonoma County Transient Occupancy Tax per the State Revenue and Taxation Code Section 7280. The Sonoma County Uniform Transient Occupancy Tax Ordinance imposes a tax on the privilege of transient occupancy. Transient occupancy is defined as one who occupies a room, dwelling, recreational vehicle park space, or campground for a period of thirty consecutive days or less. The tax collected is used to advertise, finance, and make known activities which enhance tourism, local industry, and local community events in the agricultural, horticultural, mineral, industrial, commercial, climatic, educational, recreational, artistic, musical, cultural, and other resources or advantages of the County. The Board contracts with various local agencies, associations, or corporations each fiscal year to provide the advertising and promotional activities. Policy Statement Advertising costs consist of display advertisements in newspapers and magazines, printing posters and handbills, radio, television, and other paid advertising used to draw and increase attendance at an event. Promotional costs shall be taken to mean costs of communication primarily directed outside of the County and include attendance at trade-shows, public relations activities, in-county familiarization tours and marketing programs. Any profits resulting from an event with advertising funds will be deducted from any future advertising funding. Travel expenses, such as transportation and lodging, and/or meal costs are not an allowable advertising and promotional expense, with certain exceptions. Fixed assets are not an allowable advertising and promotional expense. 8
Advertising funds may not be used for any items, which reference specific businesses. Any business name mentioned in County funded materials must be a sponsor or direct participant in the event or promotional effort. Any advertising space or time purchased by an individual business must be clearly and separately identified as paid advertising. Activities Eligible for Advertising and Promotions Funds Chamber of Commerce Funding may be provided to Chambers of Commerce serving unincorporated areas of Sonoma County. Allocation of funds will be based upon a 10% match of membership dues and private cash contributions that are discretionary revenue to the Chamber and are not associated with a particular event, function or position, up to a maximum of $12,000 per chamber. Promotional Organizations The Sonoma County Board of Supervisors has designated the Sonoma County Economic Development Board to provide business assistance services to enable local businesses to maintain or expand their operations. The Board may apply for advertising funds to cover staff and related costs, as well as costs of promotional activities for programs administered by the Economic Development Board. Agricultural Promotion The Board distributes a maximum amount of $170,000 in advertising funds each year to the Sonoma County agriculture and viticulture industries organizations that are responsive to requests for visitor information. Advertising funds are distributed based upon evidence of need and industry commitment and contribution. Historical Commissions A maximum of $55,000 per year may be provided to Historical Commissions. The County has designated a Historical Landmarks Commission to advise the Board on distribution of funds for preservation and/or restoration of historically significant buildings. The Board has designated a Historical Records Commission to review and make recommendations regarding the maintenance and destruction and retention of records, which may be of historical significance. Cultural, Artistic, and Community Events A maximum of $30,000 per year may be made available for Cultural, Artistic, and Community Events within this category. This category assists community and countywide events, artistic activities, pageants, and cultural events with the direct cost of advertising the function. Organizations applying for funding under this section must specify advertising costs for the event. 9
Countywide events must demonstrate countywide support and must draw a significant number of County attendees. City-specific events held in an incorporated area within the County which receives transient occupancy tax must demonstrate support from the city equal to the requested County advertising request. The maximum advertising fund contribution that can be applied for is $1,200. Countywide Events A maximum of $15,000 per year may be made available for Countywide Events within this category. Organizations promoting events which have regional or statewide interest as evidenced by statewide media attention that attracts participants and visitors from other counties and regions within the state may apply for funding. The events must have countywide and out-of-county support by in-kind or grants from other agencies or sources. The advertising campaign must be conducted on at least a regional and/or statewide or national level, in order to draw a significant number of out-of-county attendees. The maximum advertising fund contribution that can be applied for is $3,000 and is limited to advertising expenses only. Cultural Organizations A maximum of $15,000 per year may be made available for cultural organizations. The organization must have an annual program consisting of a series of presentations or activities with a countywide focus and must have subscriptions, season tickets, or non-exclusive memberships, which provide the majority support of the organization. The organization must have provided their activities for at least three years at the time of application for funds. The maximum advertising fund contribution that can be applied for is $2,500. Major County Events and Cultural Organizations A maximum of $314,000 per year may be made available for Major Countywide Events and Cultural Organizations within this category. The Board of Supervisors desires to promote major cultural organizations and events which have countywide, regional, state, and national interest as evidenced by widespread media attention and which attract participants and visitors from other counties and states. The event must 1) demonstrate overall attendance in excess of 15,000, 2) demonstrate significant attendance from out of the county, 3) have advertising expenses that exceed $25,000, and an advertising request that does not exceed 50% of total advertising expenses for the event or cultural organization, and 4) demonstrate a major advertising campaign outside of the county. 10
The maximum advertising fund contribution that can be awarded is $50,000 when there are not sufficient program revenues to fully fund existing advertisers. Multiple Events The Board maintains the following guidelines and specific criteria to be eligible for funding under this category: 1) Only one application may be submitted per agency/irs tax number. Advertisers with multiple events shall submit one budget for each event attached to one (1) consolidated application, 2) Each separate event or activity for which funds are requested must identify the category applied under and must comply with the requirements of the category, 3) Only one (1) request for funding may be submitted per event, 4) Eligible Chambers sponsoring individual events may submit (1) application in addition to the Chamber funding request. Multiple events sponsored by a Chamber shall be submitted as one (1) application as specified above, and 5) Advertising allocations shall not exceed the maximum allocation per category. Departmental Activities Advertising funds are provided to certain County departmental activities that benefit local tourism activities, the tourist industry, and preserves and promotes Sonoma County history. The advertising funds may be used to support Regional Parks activities. Funding may also be identified for an affordable housing program under the direction of Community Development Commission or the County Administrator s Office. These funds may also be used to promote County facilities and activities as well as membership in other promotional organizations. Advertising funds may be used for salaries of County employees when participating in activities funded by Advertising funds. Funding designated for affordable housing shall be recommended by the County Administrator's Office annually based on available funding and approved by the Board of Supervisors on an annual basis. 11