Date: To:

February 14, 2014 Thomas Deller, Director, Department of Development Services

From: Patrick Campbell, Chief Auditor Tele: 860.757.9951

City Of Hartford Department of Development Services Special Event Fee Billing and Collection Audit Report 1411

HPC

I. Executive Summary In accordance with our audit plan for the fiscal year ending June 30, 2014, we completed an audit in January 2014 of the City of Hartford Department of Development Services Special Event Fee Billing and Collection Operations. The purpose of the audit was to evaluate and test internal accounting and operating controls, the accuracy and propriety of transactions processed, the degree of compliance with established operating policy and procedures, and to recommend improvements where required. The results of our audit were reviewed with T. Deller, Director, Department of Development Services; K. Chapman, Interim Director, Department of Public Works; J. Rovella, Chief of Police; J. Ruffo, Interim Director, Finance Department; K. Newman-Scott, Director, Marketing, Events and Cultural Affairs; Domenic Greco, Revenue Manager, Finance Department; and, other responsible members of operating management. The summary that follows includes only the exceptions disclosed and recommended operating improvements. Management has also noted actions taken or planned, including timeframes, to resolve each finding and/or recommendation in this report. We thank Department of Development Services management and staff and others we worked with for their cooperation and courtesies extended to us during our audit. Background The Marketing, Events and Cultural Affairs Division of the Department of Development Services is responsible for the management and oversight for the billing of the costs of services provided by the City of Hartford in support of special events. The Marketing, Events and Cultural Affairs Division (MECA) Special Events Coordinator is primarily responsible for preparing invoices and billing event sponsors for expenses incurred by the City of Hartford (the City) on behalf of these events. In May 2013, the Police Department began separately billing sponsors for the costs of Police services incurred on behalf of these events. The MUNIS Financial Management System (MUNIS) is used for billing these costs to sponsors and as the basis for collecting special event fees. A number of departments including Police, Public Works and Fire provide various services in support of the special events that take place throughout the City. The Revenue Management Unit of the Finance Department is responsible for the collection of special event fees that have been billed but not paid. Sponsors of these events must complete and submit a permit application to the Department of Development Services (DDS) Licenses and Inspections Division at least sixty days prior to the date of the event. The permit application is then passed along to the Special Events Coordinator who obtains cost estimates from departments for City services that will be provided during the event. In accordance with an ordinance that was adopted on July 11, 2011, the process for billing special event fees was

City Of Hartford Department of Development Services Special Event Fee Billing and Collection Audit

changed from being done on an actual cost basis to a combination of actual costs and flat fees. During the 15 months ended September 30, 2013, $342,195 in special event fees were billed to 102 event sponsors and $275,471 was collected. Scope The scope of our audit included various reviews and tests of transactions recorded during the 15 months ended September 30, 2013. The following audit procedures were performed: Reviews and evaluations of policies, procedures and related internal operating and accounting controls; Reviews to determine the effectiveness and efficiency of processes and functions; Tests of amounts billed; Reviews of the effectiveness of efforts to collect fees due and outstanding; and, Tests of cash receipts and deposits. General In general, we found that policies, procedures and controls relating to the billing and collection of special event fees were not fully documented and/or needed some improvement. In addition, it was not readily evident that all related special event fees for special events were being billed as required. We found that $2,350 in fees were not billed as required for six special events and fees for a number of other special events were not billed or collected in accordance with related policies and procedures. Finally, according to data compiled by MECA, the City is recovering about 56% of its actual costs associated with special events through the current fee billing process. II. Audit Results Various tests, noted in the scope section above, and reviews of related operations disclosed the following: Department of Development Services As previously noted, the MECA Division of DDS is responsible for the overall management and oversight for the billing of sponsors for the costs of services provided by the City of Hartford in support of special events. We identified the following as a result of our tests and reviews of this operation and related activities: 1. As noted in the details that follow, policies procedures and controls relating to the special event fee billing process were not fully documented and needed some improvement.

City Of Hartford Department of Development Services Special Event Fee Billing and Collection Audit

a. In certain instances, the Special Events Coordinator receives checks paid by sponsors for special event fees. For control and segregation of duty purposes, the person responsible for the billing of special event fees should not receive and/or have access to checks for fees paid by special event sponsors. Although MECA management informed us that they immediately forward any checks they receive to the Finance Department Revenue Management Unit, this does not mitigate the control issue. We recommend that DDS management make other arrangements with either the Finance Department Revenue Manager or the Licenses and Inspections Division for the receipt and processing of checks in these instances. b. Special event fees are not always being billed in a timely manner. We noted that a $10,000 fee for an event that occurred in October 2013 was not billed until January 22, 2014. In addition, at least 50% of this fee should have been paid by the sponsor before the event occurred. We recommend that action be taken to ensure that all special event fees are billed and paid in a timely manner in the future. c. Special event fees are not always being billed in accordance with policies and procedures. According to the policies and procedures, If the Event Organizer (EO) is a non-profit 100% of the invoice will be invoiced and the EO must pay upfront 50% of the total SE costs. All for profit events will be invoiced and must pay 100% of the costs upfront. i. MECA did not ensure that fees totaling $4,546 for four special events were paid by the sponsors before the events occurred. As a result, the related fees remained unpaid and outstanding for periods of one to four months. MECA management informed us that these fees, which were for weddings, were billed up front as required and that it is the Finance Departments responsibi lity to collect them. We believe, however, that MECA should not allow these events to occur without the fees being paid as required. We also believe that this is something that would be more effectively handled and controlled by MECA. ii. MECA did not require non-profit sponsors to pay 50% of the total costs for eight events upfront as required. As a result, the related fees totaling $13,405 remained unpaid and outstanding for periods of one to four months. We recommend that DDS management take action to ensure that all special event fees are paid in advance before the events occur as in the case of the weddings noted above and are billed in accordance with policies and procedures in the future. 2. It is not easily discernible that the standard flat fees and/or any other applicable costs associated with departments that provide services or support for each special event are billed to the respective sponsors as required. a. We noted that while the estimated costs associated with the departments involved in the support of special events are discussed during the review and planning process, the estimated costs are not documented. As a result, there is no record of what the total estimated costs to the City will be for each special event for the services and support provided by the Police, Public Works, Fire or any other applicable department. b. It is not easily discernible how the fees to be billed for each event were developed and established because the related process and basis for what is ultimately billed to the sponsor is not documented. c. It is not readily evident that all special event fees and costs are billed to sponsors as required because special events are not being tracked and reported on from the time a permit is issued by the DDS Licenses and Inspections Division until any related fees or actual costs are billed to the respective event sponsor.
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City Of Hartford Department of Development Services Special Event Fee Billing and Collection Audit

d. HPD management started directly billing actual Police Department costs associated with special events to sponsors in May 2013 when they became aware that this was allowable according to the July 2011 ordinance. We noted, however, that the actual costs of other departments including, but not necessarily limited to, Fire, Public Works and Health were not billed in these instances. Although policies and procedures indicate that the actual costs of these other departments can also be billed to event sponsors, DDS management informed us that these events typically do not involve City services from other departments. e. Policies and procedures relating to special event fee discounts and adjustments were not documented. During the period of our review, adjustments totaling more than $60,700 were made to reduce the fees for 13 special events. Procedures should include established dollar thresholds and independent reviews and approvals by an appropriate level of management. f. According to the Municipal Code A non-waivable fee of fifty dollars ($50) shall be assessed for any late application. An application for a permit is considered late if it is filed less than 60 days before the date such activity is proposed to be conducted. The process and procedure for billing any applicable late fees were not documented. As a result, it was not readily evident how the late fees should be billed, who was responsible for doing so or that the fee was being charged in all cases as required. Tests of ten special events that occurred during our test period disclosed that late fees were not charged in three instances even though they were not filed in accordance with the 60 day requirement. There was no indication why these fees were not billed. MECA management informed us that late fees should be billed by the Licenses and Inspection Division based on consultation and coordinating with the Special Events Coordinator.

3. The estimated special event costs associated with other City departments are not being accounted for or documented in the review, planning and billing process. While the Public Works and Fire Departments provide services in support of special events, related costs are not separately accounted for and/or billed. It is our understanding that the costs associated with these services are included in the flat fees that are currently being charged to event sponsors. Even if these costs are included in the flat fee structure and not required to be separately billed, they should be documented in the process and tracked for subsequent information and analysis by management. 4. While sponsors are being billed for direct Police Department payroll costs incurred in support of special events, they are not being billed for any indirect fringe benefit costs. The City typically charges a fringe benefit factor whenever payroll costs are billed or allocated for a City employees time. Using the 59% benefit rate established for the current fiscal year, we estimated that as much as $32,208 in fringe benefit costs were not billed to sponsors based on the $54,591 of Police Department payroll costs that were directly billed for 21 events. We were informed that these additional costs could deter sponsors from holding events in the City. At a minimum, we recommend that these costs be accounted for and reported on for management information purposes relating to the costs of these events. We recommend that DDS management take action to ensure that policies procedures and controls relating to the special event fee billing process are improved and fully documented as noted above. This should include, but not be limited to, ensuring that all special event fees are billed in a timely manner and in accordance with policies and procedures and all late fees and City costs associated with special events are accounted for and billed as required. We also recommend that DDS management determine the feasibility of billing event sponsors for employee fringe benefit costs.

City Of Hartford Department of Development Services Special Event Fee Billing and Collection Audit

Management Action Plan Completion Date: March 31, 2014 Responsible Person: Thomas Deller, Director, Department of Development Services; Keith Chapman, Interim Director, Department of Public Works, Carlos Huertas, Chief, Fire Department We will develop and document policies and procedures for the Special Event billing process and take action to follow-up on and address the other recommendations noted above. Hartford Police Department Billing Process As previously noted, in May 2013, the Police Department started billing sponsors for the actual cost of Police services they provide for special events. This was instead of billing event sponsors on the flat fee basis that was established in July 2011. Various tests of the special event fees billed by the Police Department since May 2013 and reviews of related operations disclosed the following: 1. Policies and procedures relating to the Police Department Special Event cost billing process were not documented and needed some improvement. 2. HPD management started billing actual Police Department costs associated with special events to sponsors in May 2013 when they became aware that this was allowable according to the July 2011 ordinance. In addition, it became evident at that time that the actual Police Department costs associated with special events in many instances far exceeded the flat fees being charged. For instance, HPD management noted that HPD costs associated with the West Indian Parade totaled more than $44,000, but the flat fee charged for this event totaled only $10,000. This puts a strain on the HPD overtime account with only a small portion being recovered in related the fees billed. Due to events such as these with significant variances between actual City event costs incurred and fees billed, consideration should be given to reevaluating the current fee structure. In addition, we believe it would be more effective and efficient for the billing of all Special Event fees to be performed centrally by MECA. 3. Police payroll costs associated with services provided in support of special events are charged to a separate account in MUNIS, however, there is no procedure to reconcile amounts recorded in this account to amounts billed to sponsors to make sure that all Police Department payroll costs are billed to sponsors as required. According to a spreadsheet provided to us by Police Department management, $315,565 in Police payroll costs were incurred in support of 50 special events to date for the fiscal year ending June 30, 2014. We noted, however, that only $54,591 of this was billed to the sponsors of 21 events. It was not clearly noted why the $260,974 in Police payroll costs were not billed to sponsors for the other 29 events. According to Police Department management, these other 29 events did not meet the related criteria in the Municipal Code to qualify for directly billing Police Department expenses or were eligible for 100% fee waiver per Council resolution. We reviewed $242,654 of the Police Department costs associated with ten of the 29 events and verified that either flat fees were billed or the fees were waived for one sponsor in accordance with the terms of an established agreement in each of these cases. As previously noted, the basis for billing special event fees should be clearly documented by MECA as an outcome of the Special Event Task Force meetings.
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City Of Hartford Department of Development Services Special Event Fee Billing and Collection Audit

We recommend that Police Department management work with DDS management to determine if it would be more effective and efficient for MECA to bill sponsors for actual Police Department costs associated with special events and take action to develop and document policies and procedures for the special event fee billing process. The procedures should include reconciliations to verify that Police payroll costs are being billed to special event sponsors as required in all cases. Management Action Plan Completion Date: March 31, 2014 Responsible Person: James Rovella, Chief, Police Department; Thomas Deller, Director, Department of Development Services We will develop and document policies and procedures for Special Event billing process and take action to follow-up on and address the other recommendations noted above. Accounts Receivable and Collections As previously noted, the MECA Division of DDS is responsible for the management and oversight for special event fee billing process and the Finance Department Revenue Management Unit (RMU) is responsible collecting amounts that have been billed but not paid. At the time of our review, there were 13 accounts with balances totaling about $25,500 past due for more than 30 days. This included nine accounts with balances totaling about $20,000 past due for more than 120 days old including two balances totaling about $7,100 that were more than one year past due. Various tests of these accounts receivable balances and reviews of related operations disclosed the following: 1. Fees totaling $17,951 for 12 of these special events should not be unpaid and outstanding because MECA should have required that they be paid upfront by sponsors before the respective events occurred in accordance with related policies and procedures. We recommend that DDS management work with Finance Department management to strengthen procedures and controls to make sure that special event fees are properly billed and collected in timely manner in the future. 2. At the time of our review, four of balances over 120 days old totaling $5,389 were referred to the Corporation Counsels Office by RMU for further collection action. The remaining five balances over 120 days old totaling $14,734 were in various stages of collection by RMU. This included one balance totaling $5,000 that was being disputed by the event sponsor. RMU management informed us that collection efforts are more difficult and time consuming when the event applications do not contain sufficient contact information. Applications in many instances have both a primary and secondary contact person. We noted that two out of ten applications we tested for this attribute had only a primary contact person. We recommend that DDS management follow-up on and resolve the $5,000 accounts receivable balance over 120 days old that is in dispute and ensure that applications contain both a primary and secondary contact person in the future to assist in any required collection efforts. RMU management informed us that since the start of our review one additional outstanding balance has been referred to the Corporation Counsels Office and further collection action has been taken on the remaining three balances over 120 days old.

City Of Hartford Department of Development Services Special Event Fee Billing and Collection Audit

Management Action Plan Completion Date: March 31, 2014 Responsible Person: Thomas Deller, Director, Department of Development Services, Joseph Ruffo, Interim Director, Finance Department; Domenic Greco, Revenue Manager, Finance Department DDS management will work with Finance Department management to strengthen procedures and controls to make sure that special event fees are properly billed and collected in timely manner in the future. In addition, we will follow-up on and resolve the $5,000 accounts receivable balance over 120 days old that is in dispute and ensure that applications contain both a primary and secondary contact person in the future to assist in any required collection efforts Management Review, Reports and Oversight All special event permits issued by the DDS Licenses and Inspections Division are issued through and accounted for in MUNIS. Various tests of the special event permit file, the billing of special event fees and reviews of related processes and operations disclosed the following: 1. As previously noted, all sponsors must obtain a permit for their respective events from the DDS Licenses and Inspections Division. We found that the procedure or process needed improvement to ensure that fees are billed as required for each special event permit that is issued. Reconciliation of the special event permits issued by the DDS Licenses and Inspections Division and recorded in MUNIS to the special event fees billed by all departments is a key control over the process. We performed a comparison and noted that for the fiscal year ended June 30, 2013, 171 special event permits were issued, however, fees were billed for only 85 special events during this period. For the fiscal ending 2014, 37 special event permits were issued and fees were billed for only 17 special events for this period. According DDS management, they believe that the differences noted above were due to either event cancellations or small events that do not require billing. According to a report we received from DDS management, all of the special event permits for the two fiscal years ending June 30, 2014 were in an Active status and there was no indication that any of them had been cancelled. We tested ten of the 37 special event permits at random and found that fees totaling $2,200 were not billed for three events as required. Our testing was done on a random basis because it is not possible to link special event permits to any related special event fees billed. We were informed that fees for these events were not billed because they generally do not result in any costs to the City. 2. MECA management provided us with an analysis detailing the actual costs associated with and the amounts billed for 36 special events that occurred from January 6, 2012 to November 17, 2012. According to the analysis, the City incurred more than $343,000 in actual costs associated with these events but billed the respective sponsors only $190,880 or about 56%. We also noted that no Fire Department costs were accounted for in the analysis. As a result, it was not clear if this was a complete and comprehensive accounting for and analysis of City special events and related costs. Because of the questionable nature of the completeness and accuracy of this information, it is probably not sufficient for DDS management, the Administration or the Court of Common Council to evaluate how much these events are actually costing the City and if the current fee structure is appropriate.
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City Of Hartford Department of Development Services Special Event Fee Billing and Collection Audit

We recommend that DDS management document policies, procedures and controls including, but not limited to, performing periodic reviews and reconciliations to ensure that fees are billed for all special event permits as required. We also recommend that DDS management take action to ensure that all City costs associated with special events are completely and accurately accounted for in the future and periodically analyze them to determine the adequacy of the flat fee structure and if consideration should be given to changing the basis for billing these fees. Finally, we recommend that DDS management perform reviews of the permits with no amounts billed to ensure that none of these events had billable costs. Action should then be taken to invoice sponsors for any unbilled costs that are identified. Management Action Plan Completion Date: March 31, 2014 Responsible Person: Thomas Deller, Director, Department of Development Services We will document policies, procedures and controls including, but not limited to, performing periodic reviews and reconciliations to ensure that fees are billed for all special event permits as required in the future. We will also account for all City costs associated with special events in the future and periodically analyze them to determine the adequacy of the flat fee structure and if consideration should be given to changing the basis for billing these fees. Finally, we will review all permits to identify and invoice sponsors for any unbilled costs.

Distribution: City Council Members Internal Audit Commission Members K. Chapman, Interim Director, Department of Public Works J. Figueroa Acting Chief of Staff, Mayors Office D. Greco, Revenue Manager Finance Department C. Huertas, Chief, Fire Department A. Ilg, Interim Chief Operating Officer K. Newman-Scott, Director, Department of Development Services MECA Division J. Mazzuoccolo, Manager, McGladrey and Pullen, LLP J. Rovella, Chief, Police Department J. Sanchez, Director, Management and Budget Department P. Segarra, Mayor

Audit Team: P. Campbell J. Garvis