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Office of the City AuditorAudit Followup Venue Tech Management Action Plans
March 2001

March 30, 2001

Stockton City Council

AUDIT SUMMARY: FOLLOW-UP TO VENUETECH MANAGEMENT ACTION PLANS

In accordance with our 2000-2001 audit plan, we have completed our follow-up audit to VenueTech Management's action plans. We conducted our audit in accordance with Generally Accepted Government Auditing Standards.

Our primary objective was to determine whether the management action plans to correct conditions in audit findings were fully implemented. This is the second follow-up of audit findings from the initial audit of the Fox Theatre.

Based on the results of our audit, we found that VenueTech has implemented a number of improvements by taking corrective actions on audit findings. They reimbursed the City $5,400 in net billing adjustments, and discontinued the practice that resulted in double billings for employee garnishments. The bank checking account of the Fox Theatre was converted into a joint account with the City, and ownership is now properly reflected on the bank statement.

There were action plans that were not fully implemented. In our review of receipts from ticket sales for the last quarter of the year 2000, we found that receipts were not deposited into the bank account in a timely manner. We noted an improvement in the control over time cards, but inconsistency in completing time cards and lack of supervisor's signature are still evident. Records and control over complimentary tickets are inadequate.

Additional information about our audit can be found in the attached AUDIT REPORT.

ORIGINAL SIGNED BY:

F. MICHAEL TAYLOR, CIA
CITY AUDITOR

ORIGINAL SIGNED BY:

RICO SANTOS
SENIOR INTERNAL AUDITOR

AUDIT REPORT
FOLLOW-UP TO VENUETECH MANAGEMENT ACTION PLANS

The City Auditor's 2000-2001 audit plan includes a follow-up of management's action plans to improve conditions reported in our audits. The Audit Committee had requested that a follow-up audit be conducted to verify the implementation of VenueTech Management's action plans. We have completed our follow-up audit. Our follow-up was conducted in accordance with Generally Accepted Government Auditing Standards.

Background

On March 2, 1999, we completed an audit of cash handling at the Fox Theatre managed by VenueTech Management Group (VenueTech) under a contract for management services with the Redevelopment Agency of the City of Stockton. VenueTech has implemented a number of improvements to resolve conditions in the audit findings. However, there were management action plans not fully implemented and some action plans will require more time to implement.

On September 12, 2000, an audit of contract charges related to operations at the Fox Theatre was completed. The audit concluded that the monthly billings were, in all material respects, in accordance with the terms of the contract with some exceptions noted. VenueTech was in agreement with the findings and had indicated that they would implement the recommendations. In this audit, a follow-up was performed of the remaining unresolved audit findings from the March 2, 1999 audit. The results of this follow-up disclosed that VenueTech had strengthened internal controls over cash, but had not implemented or fully implemented all their management action plans.

Scope and Objectives

While the primary focus of our work was to verify the implementation of action plans relative to unresolved audit findings, we also examined efficiency and effectiveness issues that affect operations at the Fox Theatre.

Much of the benefit from audit work is not in the findings reported or the recommendations made, but in the effective resolution of control weaknesses. Management is responsible for resolving audit findings and the City Auditor's Office performs follow-up audit to determine whether prompt and appropriate corrective action has been taken on reported findings.

Methodology
Our follow-up audit was performed using the standard office methodology of verifying that the implementation of an action plan resulted in the satisfactory correction of the condition in an audit finding. We interviewed VenueTech employees and reviewed records and supporting documentation to confirm the implementation.

Results

VenueTech Management has implemented corrective actions that resolved conditions in audit findings related to the following:

• VenueTech reimbursed $5,400.05 net over billing for garnishments, overtime adjustment, and other payroll charges by deducting the amount from their October 2000 invoice to the Redevelopment Agency. They also discontinued the practice of double billing for employee garnishments.
  
  
• In our review of daily ticket sales for the last quarter of 2000, we noted that they have refrained from disbursing payments directly from daily receipts, and receipts were deposited intact.
  
  
• Access to personal computer on-site at the theatre used to enter accounting transactions, and to print checks is now password protected.
  
  
• The bank checking account of the Fox Theatre was converted into a joint account with the City in accordance with the agreement between the City and VenueTech. The City's tax ID number is on the bank signature card and the ownership of the bank checking account is now properly reflected on the bank statement.

The action plans that were not fully implemented pertain to the following areas:

• We reviewed records and bank receipts for the last quarter of 2000, to determine whether receipts from ticket sales were deposited in a timely manner. We found that there were unwarranted delays in depositing receipts into the bank account in violation of VenueTech's financial policy. The box office operations continue to retain sales receipts for several days and deposit them in some instances, 2 weeks after receipt.

The practice of not depositing receipts on a daily basis causes safekeeping problems and creates significant risks. Cash being the most liquid of all assets could easily be misplaced, lost, or misappropriated. If VenueTech Management's financial policy that requires daily deposits is not followed and enforced, the situation is vulnerable to fraudulent activities such as "lapping," the concealment of a shortage by delaying the recording of cash receipts.

When cash receipts are not immediately deposited, checks that are returned unpaid by the bank may be harder to collect if the makers are not immediately contacted because the status of checks is not immediately known. Additional revenues from interest on the money market account are not realized. Holding on to sales receipts and not depositing them the next business day is not an acceptable practice.

VenueTech response: While the stricter controls that we have implemented have improved this practice, they have not completely assured us that policies are being adequately followed. We have shifted the responsibility of daily deposits to a different employee and will continue to closely monitor that this policy be implemented.

• We randomly selected a sample of pay periods and reviewed the time cards for employee and supervisor signatures, accuracy, and for any unusual items. We noted an improvement in the control over time cards in that employee and supervisor signatures are evident except for the pay period ending November 30, 2000. For this pay period, 25 out of 26 time cards were signed by employees, but only 3 out of 26 were signed by the supervisor.
  
  

VenueTech response: We investigated the pay period ending November 30, 2000, where time cards were unsigned by the supervisor, and found there was a miscommunication among the staff due to the Thanksgiving holiday. Every effort will continue to be made to assure that supervisors are signing time cards.

• The daily ticket sales from the BASS Ticket System is reconciled with actual payments received. In most instances, there are differences by each type of payment. These differences are cash overages or shortages that are not investigated, explained and documented.

VenueTech response: We agree that the explanations of overages and shortages could be more thorough on the daily reports and have provided staff with more training in this regard.

• Control over complimentary tickets is still inadequate. As noted in the previous audit, the system can generate a count of complimentary tickets issued, but the box office list of recipients is incomplete. According to box office operations, performers do not sign for complimentary tickets they received. Other recipients are not required by the staff to sign for complimentary tickets. In one performance, the number of tickets received by the media were significantly less than what was reported to the Economic Development staff. Also, for the same performance, the number of complimentary tickets allotted for "trouble" seats appears unusually high.

VenueTech response: We have seen an improvement in the tracking of complimentary tickets issued, although we will make further efforts to satisfy the audit staff's request for even more detailed records. As for the complimentary tickets issued to performers, the contracts signed by the performers specify the quantity of complimentary tickets issued to them, providing signed documentation. We have instructed staff to require signatures from promoters who are producing events at the Theatre. We will look into the specific comments made concerning the number to tickets received by the media for one performance. We were not made aware of this until we received the revised draft of the audit follow up report on March 23.

• One of the procedures that VenueTech planned to develop to handle returned checks is to provide ticket sellers with a list of returned check writers. The purpose is to minimize the probability of ticket sellers taking another check from an issuer of a bad check. Management has not provided a list to the ticket sellers.

VenueTech response: Due to the fact that the list of returned checks is relatively small at the Fox, the staff has preferred to keep a file of returned checks as opposed to a list of names. We have posted a list for them regardless, to satisfy this audit recommendation.

Other Comments

One of the efficiency and effectiveness issues that we reviewed is accountability for the vending machines at the Fox theatre. The box office operations arranged with the Pepsi Cola company on December 20, 1999, to have vending machines on the main and second floor lobbies at the theatre. Receipts from the vending machines are collected and deposited into the theatre's bank account by the box office staff.

In the absence of detailed bookkeeping records of purchases and sales related to the vending machines, we tried to reconcile the deliveries and remaining inventories to deposits into the bank account. There was a shortage of approximately $1,440 between the sale price of items presumably sold, and deposits into the bank account. The Box Office Manager could not provide adequate documentation that reasonably explains the shortage.

VenueTech response: The reason that the audit staff was unable to reconcile inventory with sales for the soda vending machines located in the lobby of the Fox is that the deliveries for these machines overlap with product that is used for catering backstage. This is an inventory control issue and in order to eliminate the concerns of the audit staff, we have simply had the vending machines removed. The amount of staff time that would be necessary to track inventory in these machines is not warranted.

We encourage VenueTech management to keep accurate, complete and separate records of account, and to fully resolve the conditions in the remaining audit findings. We would like to express our appreciation to management and staff at the Fox Theatre for their assistance in this follow-up audit.