Monday, March 27, 2017
Mayor Domenic J. Sarno announced today that the City’s Director of Internal Audit, Yong No, has briefed the City’s Audit committee with regard to the report received from outside auditors. The Audit Committee is chaired by City Councilor Michael Fenton, and its members include City Councilors Timothy Rooke and Kenneth Shea.
Mayor Sarno said, “As I had requested, this independent outside audit combined with our internal review and with our full cooperation with outside authorities in order to ensure complete transparency and accountability to the public.”
The Office of Internal Audit utilized an outside firm, Powers & Sullivan, LLC, to assist the City in determining if certain provisions of the City's 2015 and 2016 contracts with Kennedy Golf Management, Inc. (KGM) were adhered to by KGM. This agreed-upon procedures engagement was conducted in accordance with attestation standards established by the American Institute of Certified Public Accountants.
The Office of Internal Audit established the scope of this engagement to be limited to:
1.) 1) The completeness of KGM's responsibility to account for and deposit with the City all City revenues including gift certificates and certain tournaments proceeds;
2) The use of the City's cash registers to properly record all revenues belonging to the City;
3.) 3) To determine if the expense reimbursements paid by the City to KGM were eligible based on the requirements specified in the 2015 and 2016 contracts;
4 4) KGM reporting requirements specified in the 2015 and 2016 contracts.
Powers & Sullivan, LLC was first contacted by the City's Office of Internal Audit to conduct the review in August of 2016 after an initial review of Golf Course revenue and cash handling practices. Adding to the Internal Auditor’s concerns was the Internal Revenue Service Criminal Investigations Unit's issuance of search warrants on July 28, 2016 at both golf courses.
The Internal Auditor briefed the Audit Committee in Executive Session for the purpose of discussing responses to a subpoena from the federal grand jury as well as potential litigation. The report was recently completed and reviewed for a determination of whether it could be publically disclosed, and is being made available as a public record.
In summary, based on the work performed, Powers & Sullivan, LLC reported that:
1.) 1) It does not believe that KGM properly accounted for or deposited with the City all City revenues including cart rentals, greens tickets, tournament proceeds, and gift certificate revenues;
2.) 2) Based on observations and conversations with various personnel, the City's cash registers were not being used to properly record all revenues belonging to the City;
3.) 3) Based on their analysis, the expense reimbursements (advances) made to KGM in 2015 and in 2016, KGM did not provide adequate support for its actual expenses and indicates that KGM was over paid; and
4.) 4) Reporting requirements of the two contracts were not met and the report cites deficiencies in the amount and timeliness of the reporting requirements of the contracts.
The City terminated the Golf Course contract effective November 20, 2016, when the City’s preliminary review of the information received indicated that the vendor was in breach of contract. The City was awaiting the completion of this report, before taking next steps. As a result of the report documenting the various issues, the Internal Auditor will conduct a review to determine the amount owed to the City. As noted at the time of termination of the contract, the City reserved all legal rights to pursue claims against KGMI for repayment of such funds. When the City’s Office of Internal Audit has concluded its review, the Law Department will work in conjunction to pursue legal remedies for the amount determined to be owed.
Powers & Sullivan, LLC report:
