Arts Council audit recommends no more funds

We’ve obtained a draft copy of the audit of the Arts Council of Northwest Florida that was conducted by the Escambia County Clerk/Comptroller. The audit was sent to County Administrator Bob McLaughlin on Dec. 21 and will be presented to the BOCC at its Jan. 7, 2010 meeting. The Clerk’s office not only audited the Escambia County funds given to the Arts Council, but, based on a request by Richard Barker, financial director of the City of Pensacola, also audited the City contributions to the non-profit.

To conduct the audit, Clerk staff reviewed records on onsite and interviewed the Arts Council executive director and business manager.

Finding 1: Arts Council is in non-compliance with the its agreement with the County on the funds it as appropriated. The clerk tried to verify the Pensacola Symphony, Pensacola Opera, Pensacola Little Theatre, Ballet Pensacola and Pensacola Museum of Art received the funds the Arts Council had reported. All five entities responded that they had not received the total annual awards anticipated from the Arts Council. The auditor found monthly checks that had been written but were being held in the Business Manager’s office. The checks were dated from May 2009 to September 2009.

The report sent to the County for reimbursment did include checks that had been written to the organizations, but in fact had not been distributed or paid. They had been presented to the County as being paid, thereby allowing the County to think the amounts were reimbursable.

The Agreement with the County only allowed $40,000 of the $100K appropriation to be be used for salaries and benefits. The remaining $60,000 was expressly for program awards for area arts organizations. The funds can’t be used for other purposes without written permission from the County. The City agreement states the entire $60,000 is for program awards and can’t be altered without authorization.

According to the draft report, the Arts Council used the funds received from the County to actually pay for their salary, benefits and other office operating costs beyond the $40,000 component of the agreement. “It appears the Arts Council used the City funding of $60,000 for other than program expenditures as well when fundraising activities, State grant funds and membership/donation revenues did not materialize as budgeted and planned.”

Recommendation: The Clerk is asking the Arts Council return to the County all disallowed uses of funds beyond the $40,000, which the auditor estimated to be $14,055. The City should be refunded $14,055.

Finding 2: The Arts Council is not following its own Purchases/AP/Cash Disbursements Policy and Procedure as adopted Sept. 17, 2008.

Obviously printing checks and not disbursing them doesn’t fit any such policy. There was a system of approval and review that wasn’t being followed.

Recommendation: Payments should not be processed in the business office without the proper authorization and approvals for payments. Those payments that are processed should be valid payments; meaning that checks should not be processed and written if there is no intention of sending the payments to the vendors.

Finding 3: Arts Council failed to provide the County an audit report and management letter of its financial affairs made by an independent CPA as required by its agreement with the County.

The Sept 30, 2008 audit by Sumlin, Egstad & Company, LLP (dated April 30, 2009) was reviewed by the county auditor. The Sumlin audit “noted no transactions entered into by the Organization during the year (2008) for which there is a lack of authoritative guidance or consensus.” According to that report, the Art Council had $24,057 in cash and equivalents.

The auditor did find a management letter from Sumlin, dated June 30, 2008, that pointed out several significant internal control deficiencies found while performing the Sept. 30, 2007 audit, including insufficient oversight of the financial reporting, incorrect reconciliations of bank and broker accounts and the General Ledger balances didn’t agree with the IRS returns.

Recommendation: Grantees should make sure to provide the County with all relevant financial statement information on a timely basis per the terms of their Appropriation agreements regardless of the outcome of the audit reports. Additionally, approoriate action and remedies should be taken to address any audit management comments.

Finding 4: During the fieldwork on the first day of the audit, the auditor was informed that the two Arts Council employees had been laid off due to insufficient funding to continue their salary and benefit payments.

Apparently the Arts Council Executive Board had notified they were laid off as of Dec. 4, 2009. Both had been working as unpaid volunteers on a somewhat part-time basis since then. When the County was notified, they took appropriate action to secure the old Courthouse, which had been given to the Arts Council to manage. The offices were locked on Dec. 11 and the keys turned over to the County.

Part of the reason for the lack of cash was the City had not remitted its fiscal 2010 appropriation in advance as it had done in prior years. Because of concerns of the Art Council’s lack of grantee payments, both City and County were withholding Fiscal 2010 payments.

Recommendation: The Arts Council Executive Board should dvelop a plan of action for the day-to-day operations that need to occur for those activities that are separate and apart from its County and City appropriations.

Finding 5: Financial records for the Arts Council are kept on Quickbooks. The records for fiscal year 2009 were altered “after the fact” when the City requested support be provided of the Arts Council’s 2009 programmatic activities before remitting the 2010 planned appropriations of $40,000 in October 2009.

The checks printed for proof of payment, many of which remained undistributed, had been reallocated in Quickbooks to show 100% attributable to the City’s funding portion rather than divided 50/50 between the City and the County, as had been previously reported on general ledger reports to the County.

Recommendation: General ledger records should not be altered in such a way as to be misleading. Once general ledger records are presented for reimbursement, which the County paid in good faith as having been paid to organizations, there should not be a reallocation in the G/L to represent a different scenario to a different grantor.

Finding 6: Arts Council is not in compliance with reporting to the State to receive funds from sale of specialty license plates.

The Arts Council received $8,906.66 from the state for specialty tags in fiscal 2009. The Arts Council budgeted $8,000, which were to be included as a component of the awards to area organizations. Many of them didn’t receive the full 12-month distribution. Annual reports are to be sent to State. The last report found by the auditor was dated in 2007. There were no reports for 2008 or 2009.

Recommendation: Reports required by the State should be filed timely and accurately. Otherwise, there is a risk of losing the funding at the local level.

Finding 7: A review of the Award Letters sent to the applicants did not match to the worksheet used by the Review Panel to calculate the amount of the awards per organization.

The auditor reviewed copies of award letters that were sent out to the various agencies and found that in four cases, the amounts awarded through the formulary process was greater than the amount stated in the Award Letter. It appears the awards were”reallocated” to another agency.

Finding 8: A review of the Florida Department of State Division of Corporations lists the Arts Council as “inactive” in the State of Florida. It appears the corporation was administratively dissolved for lack of filing an annual report. According to the website, it was dissolved Sept. 25, 2009.

In its overall evaluation, the Clerk’s office recommends that no fiscal 2010 appropriations to the Arts Council be made.