HomeMy WebLinkAbout11/01/2010 - Report: Concessions Audit Report - City Council - Audit Committee
Parks and Recreation Concessions Audit Report
November 2010
City Internal Auditor’s Office
City of College Station
File#: 10-03
Insert Report Title Here Insert Report Title Here 3
Audit Executive Summary:
Parks and Recreation Concessions Program
What We Found
During this audit, we tested for potential areas of fraud, abuse,
and waste. Areas were identified within Concessions where
possible fraud could occur if preventive action is not taken.
We found that cash handling best practices such as: (1)
appropriate segregation of duties, (2) effective receipting
controls, (3) proper security measures regarding daily
balancing and depositing of cash collections, and (4) sufficient
management or officer review were not being put into practice
within the program. The theft that took place on October 19,
2010, resulting in the loss of $1,400 could have been avoided
if these measures would have been in place. Without these
proper internal controls, the chances of fraud or another theft
occurring within Concessions increases considerably.
From fiscal year 2008 through 2010, concession revenue
continued to increase due to strategic pricing and product
decisions, making Concessions more in line with potential
competitors. Despite this rising revenue, profitability within
Concessions has decreased. This declining profitability can
be attributed to the significant amount allocated to
administrative cost. Total concession expenditures for fiscal
year 2010 included a 58 percent overhead and administrative
cost factor. For every dollar of direct concession cost, another
58 cents is tacked on for overhead and administrative cost. If
not for the administrative costs associated with its operation,
Concessions would have been profitable in the three fiscal
years examined.
Outsourcing Concessions will not eliminate the administrative
overhead costs if nothing else is done. Without restructuring
or reducing administrative personnel within the organization,
administrative cost currently allocated to Concessions will be
allocated to other departmental programs. Also, a certain
amount of administrative costs would be needed to monitor
the contract if an outsourcing decision is made.
Why We Did This Audit
The fiscal year 2011 audit plan
included an audit of the Parks and
Recreation revenue generating
programs. Also, Council
considered the Concessions
Program to be an area of concern,
which was discussed in workshop
meetings in August 2010.
What We Recommended
Internal controls within
Concessions should be
strengthened and cash
handling best practices should
be implemented to
significantly reduce potential
fraud or abuse. There were
ten specific recommendations
identified in the report
relating to internal control
improvements that should be
implemented.
The city should solicit
proposals from private
vendors who are interested
and qualified to provide
concession sales at
recreational and athletic
events. These proposals
should be evaluated against
an internal proposal
submitted by the Parks and
Recreation Department.
Concessions Audit
Table of Contents
Introduction ................................................................................................................. 1
Concession Program Background ......................................................................... 1
Audit Objectives .................................................................................................... 3
Scope and Methodology ........................................................................................ 3
Findings and Analysis .................................................................................................... 5
Cash Handling Best Practices should be Implemented ........................................ 5
Reconciliation and Cashiering Duties Are Not Segregated ............................... 5
Concessions Receipting Controls Do Not Exist ................................................. 5
Cash Collection Security Measures Are Not Adequate ...................................... 6
Management Oversight and Review is Insufficient .......................................... 9
Despite Rising Revenues Concessions is Unprofitable ........................................10
Revenues Increased Despite Declining Attendance ........................................10
Administrative Costs Challenge Concession Profitability ................................11
Challenges to Privatization of Concessions Exist .............................................13
Recommendations ....................................................................................................... 16
Appendices
Appendix 1 Management Response to Audit Recommendations . . . . . . . . . . . . . . . . . 18
Concessions Audit 1
Introduction
The City Internal Auditor conducted this performance audit of the Parks
and Recreation Department’s Concessions Program pursuant to Article III
Section 30 of the College Station City Charter, which outlines the City
Internal Auditor’s primary duties.
A performance audit is an objective, systematic examination of evidence
to assess independently the performance of an organization, program,
activity, or function. The purpose of a performance audit is to provide
information to improve public accountability and facilitate decision-
making. Internal audits encompass a wide variety of objectives, including
those related to assessing program effectiveness and results; economy
and efficiency; internal control; compliance with legal or other
requirements; and objectives related to providing prospective analyses,
guidance, or summary information.
A performance audit of Parks and Recreations programs that generate
revenue was included in the fiscal year 2011 audit plan based on the
results of the Citywide Cash Handling Questionnaire completed in August
2009, results of the Citywide Risk Assessment completed in July 2010,
and findings from previous audit work. On August 12, 2010, the City
Council approved the City Internal Auditor’s audit plan. This is the first
report in a series of audit reports that review the primary revenue
generating programs in the Parks and Recreation Department.
Concession Program Background
The Concessions Program is one of many programs in the city’s
Recreation Division of the Parks and Recreation Department. The role of
concessions is to provide a service to those who are attending or
participating in athletic leagues, athletic tournaments, city-sponsored
events, and swimming activities at city facilities.
The Concessions Program has three main facilities, with two special event
only stands and a mobile concession trailer. The three main facilities are
at Veteran’s Park, Adamson Lagoon Pool, and Central Park. Veterans and
Central Park are used during athletic league play and tournaments. The
concession facility at Adamson Lagoon is used only during the summer
2 Concessions Audit
swim season. The concession facilities at Bee Creek Park and Wolf Pen
Creek Amphitheater are used during special events only. The mobile unit
is also used for special events or athletic leagues or tournaments where
more facilities are needed or not available. There are also concession
facilities at the Southwood Valley Athletic Park and the Wayne Smith
baseball fields. However, these facilities are not operated by the city;
instead, they are managed by College Station Little League (an
organization independent of the city).
Concession revenue accounts for a small percentage of total Parks and
Recreation revenue and only a small fraction of a percentage of overall
revenue collected by the city. Figure 1 below illustrates this relationship.
Figure 1: City Revenue Breakdown
The Parks and Recreation Department accounted for fewer than two
percent of the total General Fund revenue in fiscal year 2010, with total
receipts of approximately $1.0 million. Of these receipts, Concessions
accounted for approximately $125,000 in fiscal year 2010. Including
allocated administrative costs, expenditures for Concessions in fiscal year
2010 were approximately $215,000—which is a 58 percent cost recovery
for the program.
Currently, there are three full-time equivalent employees budgeted for
the Concessions program. The concessions supervisor is a fulltime,
salaried employee who oversees the operations and staff working at the
various concession locations. There were 14 part-time employees who
staffed the various concession facilities throughout fiscal year 2010. The
Taxes
Charges
Other
Fines &
Forfietures
Return on
Investment
Concessions
Other
Athletics
Instruction
Aquatics
Conference
CenterParks & Rec
Concessions Audit 3
salary and benefits for the concession supervisor was $69,000 in fiscal
year 2010. The part-time employees pay rate ranged from $7.25 to
$8.00 an hour, but the majority of these employees are making $7.50 per
hour.
Adamson Lagoon is the only pool in the city with concession operations.
The pools at Southwood and Thomas are serviced by vending machines,
which are not maintained by Concessions. These machines are part of
the Coca-Cola exclusivity contract with the city and are serviced by Coca-
Cola.
The menus at concession facilities consist of hamburgers, hot dogs, pizza,
barbeque sandwiches, nachos, chips, candy, snow-cones and a variety of
drink choices. Prices at each concession location vary throughout the
year, and are set based on expected attendance and demand.
Audit Objectives
This audit addresses the Parks and Recreation Concessions Program’s
cash handling policies, procedures, processes and practices; in addition to
a review of the program’s operational effectiveness. This report answers
the following questions:
Does Concessions have adequate procedures to receive, handle,
safeguard, and deposit cash and cash equivalents and does
concessions staff comply with those procedures?
Based on an examination of expenditures and revenues, are there
ways the efficiency and profitability of concession operations can be
enhanced?
Scope and Methodology
This audit was conducted in accordance with government auditing
standards, which are promulgated by the Comptroller General of the
United States. Audit fieldwork was conducted from July 2010 through
October 2010.
4 Concessions Audit
The audit scope included procedures and practices used by concessions
staff to receive, handle, record, and deposit cash and credit card
payments during the time of fieldwork. The scope also included a review
of revenue and expenditure transactional data for fiscal years 2008
through 2010.
The audit methods used to complete the audit objectives included:
Reviewing the work of auditors in other jurisdictions and researching
professional literature to identify best practices for cash handling
functions.
Interviewing staff responsible for performing cash handling,
recording, and oversight functions.
Conducting data analysis using specialized auditing software to test
for fraud indicators and system control failings.
Reviewing cash receipt support documentation, the city’s fiscal policy
on cash handling, and Parks and Recreation procedures.
Observing concessions staff perform their cashiering and financial
recording responsibilities; and the receipt reconciliation processes
performed by the program’s supervisor.
Reviewing various financial and participation records related to
concession operations and associated Parks and Recreation activities
including athletic leagues, tournaments, special events and
swimming.
Visiting the key concessions locations to analyze the differences in
facilities and operations between locations.
Examining every individual purchase made by concession staff during
the scope of the audit. Purchasing methods were scrutinized,
vendors were verified, and support documentation was reviewed for
specific purchases.
Concessions Audit 5
Findings and Analysis
Cash Handling Best Practices should be Implemented
Cash may include currency, coins, checks, money orders, or credit/debit
card transactions. The following are generally considered to be best
practices in cash handling: (1) appropriate segregation of duties, (2)
effective receipting controls, (3) proper security measures regarding daily
balancing and depositing of cash collections, and (4) sufficient
management or officer review. Policies and procedures were reviewed,
concession staff was interviewed, system functional access authority was
analyzed, and operations were observed to determine if the Parks and
Recreation Concessions Program exhibited these characteristics.
Reconciliation and Cashiering Duties Are Not Segregated
Separation of duty, as a security principle, has as its primary objective the
prevention of fraud and errors. This objective is achieved by
disseminating the tasks and associated privileges for a specific business
process among multiple users. Concession sales are all point-of-sale
transactions; therefore, there are no billings or adjustments that need to
be made to customer accounts or collection efforts for accounts
receivable. However, cashiering and reconciliation/approval functions
should still be performed by separate concession employees.
At least two concession employees are needed to ensure proper
segregation of duties. Based on audit work conducted in July 2010,
the concession supervisor was required to perform daily reconciliations of
transactions processed by a separate cashier and make daily bank
deposits. These procedures have recently changed, however, resulting in
no segregation of duties amongst concession staff. Consequently, one
concession employee may be responsible (under currently accepted
procedures) for performing all cash handling functions such as: taking
payments, end of the night balancing of their cash drawer, morning
reconciliations and establishing beginning cash banks, and depositing of
cash into the city’s bank account.
Concessions Receipting Controls Do Not Exist
The following are generally considered to be best practices in receipting
cash: (1) A duplicate receipt should be provided to the payor for each
6 Concessions Audit
transaction. (2) Official pre-numbered receipts should be used. (3)
Information on receipts should include the payor’s name; purpose or
description of the cash payment; quantity; and unit price, if applicable;
type of cash received (check, currency, etc.); total amount of cash
received; and the signature of the person collecting or receiving the cash.
Cashiers do not provide duplicate receipts to customers. City
cash handling procedures state that cashiers should always give the
customer a receipt. Based on my observations of Adamson Pool,
Veteran’s Park, and Central Park concessions operations, cashiers do not
provide duplicate receipts to concessions customers. Furthermore, the
receipt machines at Veteran’s Park and Adamson Pool have been
inoperable for at least the past four months, making it impossible for
customers to receive receipts.
Receipts should contain adequate information to reconcile to
detailed accounting records. Receipt documentation created by
registers should contain all the necessary features to effectively reconcile
processed payments to accounting records. Because no receipts have
been produced for several months at several concession locations,
receipts are neither pre-numbered or contain the necessary information
to perform proper reconciliations to inventory or accounting records.
Cash Collection Security Measures Are Not Adequate
Effective security measures for balancing and depositing cash collections
have the following elements: (1) Cashiers should have a lockable cash
drawer, and it should be secured in a locked safe, to which access is
limited to the employee collecting the cash and a supervisor. If there is
more than one person receiving cash at the same time, each person
should have his/her own cash drawer. (2) All cash receipts should be
balanced daily by comparing the pre-numbered receipts issued with the
actual amount of cash in the drawer, and reconciled to inventory. (3)
Deposits should occur at the earliest possible time with all funds intact.
The entire amount of receipts collected must be deposited so that all
collections are posted as receipts to the city’s accounts. (4) The deposit
receipt should be reconciled to cashiers’ receipt documents after the
deposit has been made.
Cash drawers are not individually assigned or secure. Automated
cash registers are used at the Veteran’s Park and Adamson Pool
locations. These registers use RecWare software and touch screen
monitors to conduct point-of-sale transactions. To use these automated
Concessions Audit 7
cash registers, a concessions worker must be an authorized user.
However, only the concessions supervisor is set up to use the RecWare
system; therefore, all cashiers log on to the system using the supervisor’s
identification and password. Since registers are not individually assigned
to cashiers, individual point-of-sale transactions cannot be tied back to
any specific cashier who actually processed the transaction.
The concessions supervisor has supervisory access to the RecWare
system. Because concession workers log on to the RecWare system
using the concession supervisor’s login identification, these cashiers have
inappropriate access to the RecWare system. For example, all concession
workers have the ability to add or edit system users, enter various point-
of-sale products for use, and access all reporting and inquiry functions—
along with other various incompatible functions.
The cash register’s cash drawer at Veteran’s Park and Adamson Pool has
not functioned properly for several months. When a point-of-sale
transaction is made, the cash drawer should automatically open from the
locked position. Because this functionality is inoperable, the cashiers
simply leave the drawer unlocked during their entire shift. According to
Parks and Recreation, several unsuccessful attempts have been made by
IT department personnel to fix the cash drawers.
Concession receipts are not effectively pre-numbered. Individual
receipts in the RecWare system are not pre-numbered by point-of-sale
location. Therefore, RecWare’s pre-numbered receipt functionality is
ineffective. For example, when cash receipts are balanced daily for a
specific location, the beginning receipt tape subtracted from the ending
receipt tape should total the amount of transactions made that day.
Since all Parks and Recreation point-of-sale locations are factored in the
RecWare system, this control is of no use for daily balancing.
Limited balancing of cash collections to receipts are done, but
the process is not adequate. At the end of each business day,
cashiers are asked to count their ending cash register balance, subtract
their starting cash balance from the ending balance, and record these
amounts on a cash count form. Sometimes cashiers will reconcile the
amounts recorded on the cash count form to a summary receipt report
produced by RecWare. No other balancing is done at the Adamson or
Veteran’s concessions locations because the receipt tape machine has
been broken for the past several months.
8 Concessions Audit
The summary receipt report does not include any detailed receipt
information, only the credit card and cash sale totals for all concessions
locations on the RecWare system. When Adamson Pool and Veteran’s
Park concessions are open during the same day, cashiers are unable to
balance the cash count form to the RecWare summary report because
this report summarizes the receipts for all RecWare concession locations.
Concession inventory is not reconciled to receipts. An effective
control is reconciling inventory sold to daily receipts. This can be
accomplished by counting the beginning inventory less ending inventory
and multiplying this amount by the unit sale price for each item. By
totaling this amount of inventory sold, a reconciliation to end of the day
sale receipts can be performed. Although cashiers record beginning and
ending inventory for some concession items, no concession worker or
supervisor performs inventory to sales receipt reconciliation.
Deposit should occur at the earliest possible time with all funds
intact. When there are multiple concession locations in operation during
the same day, cashiers take the cash they have on hand for that day and
put it in a bank bag with their cash count form. They then take it to the
Veteran’s Park concessions safe. These cash drops include the cash
count form, inventory form, and the daily employee time record.
Historically, the concessions supervisor was responsible for depositing the
amounts stored overnight in the Veteran’s Park safe the following
morning.
There were instances when the concession supervisor was waiting more
than one day to deposit the amounts stored in the concessions safe. We
randomly selected 30 days in 2010 when concessions were in operation
and reviewed the following support documentation: cash count form,
summary receipt reports, bank deposit slip, bank receipt, and the
financial export report. Based on the bank deposit receipt date, cash was
left in the Veteran’s Park safe for more than one day 21 percent of the
time (in the sample reviewed).
Bank deposits should be made nightly immediately after closing.
On October 19, 2010, approximately $1,400 was stolen from the
Veteran’s Park concessions building. The stolen money was being stored
in the freezer because the safe was broken at the time. All concession
workers are given a key to the concession buildings and some former
concession employees’ keys had not been collected. In addition, Parks
and Recreation supervisors, facility maintenance workers, and various
other city employees (e.g. aquatics staff) have keys to concession
Concessions Audit 9
facilities. As a result, access to the building was compromised allowing
former and current city employees inappropriate access to city funds.
This theft could have been avoided if nightly deposits had been made.
Management Oversight and Review is Insufficient
In absence of strong cash handling controls, the level of supervisory
oversight should be increased. This can be accomplished by providing
sufficient (1) training and instruction to staff so they understand written
policies and procedures that conform to cash handling best practices; (2)
supervisory oversight during hours of operation; and (3) review of daily
transactions processed by cashiers.
Concession staff did not receive sufficient instruction regarding
cash handling best practices. Prior to October 28, 2010, there were
no written cash handling policies and procedures specific to concessions.
Based on interviews with concession staff, cashiers did not receive any
formal instruction on proper cash handling practices; instead, instruction
was given while on the job by another cashier. In addition, the written
procedures distributed to concessions workers on October 28, 2010 is
very limited and does not contain necessary key elements that exist in
the city’s cash handling policies and procedures.
The concession supervisor typically does not work during
concession operating hours. The hours of operation at the various
concession locations throughout the city generally occur during nights
and weekends. The concession supervisor is scheduled to work during
city normal business hours, which are Monday through Friday 8:00 AM to
5:00 PM. The concession supervisor provides his cell phone number to all
concession staff. According to concession employees, the best way to
contact their supervisor is call his cell phone or via a text message.
The concession supervisor no longer performs consistent
reviews of cashiers’ daily transactions. As mentioned previously,
the concession supervisor was responsible for performing daily
reconciliations of transactions processed by cashiers. Although this
review was not in complete alignment with cash handling best practices,
it did provide some management oversight. Sometime during the course
of the audit, the concession supervisor ceased regularly performing these
reconciliations.
10 Concessions Audit
Despite Rising Revenues Concessions is Unprofitable
According to the Department of Parks and Recreation, concession
operations function as complementary service to the customer of their
associated recreation activities. For example, three of the major
recreational activities provided by Parks and Recreation are adult softball,
youth softball, and swimming. Concessions are provided in conjunction
with these activities at the Veteran’s and Central Park softball fields and
the Adamson swimming pool. However, concessions are not intended to
be a customer destination of their own. Instead, concessions are
intended to complement and enhance the enjoyment of the primary
activities of softball, swimming, and other city-sponsored recreational
events. As a complementary service, concessions are almost exclusively
dependent upon the number of customers participating in these
recreational activities.
Revenues Increased Despite Declining Attendance
Over the past year, Concessions has proactively made changes to
operations to increase revenues such as increasing pricing for food and
beverages to be more in line with competition. Hours of operation at
specific concessions locations were also adjusted to achieve optimum
efficiency without compromising service. In addition, management
increased its focus on tournament related concessions.
Concession revenues have increased over the last three fiscal
years. All of these recent changes, in the face of declining activity
levels, have had a positive impact on concessions operations. From fiscal
year 2008 through 2010, concessions revenue has continued to increase.
Revenues increased by 17 percent and 7 percent in fiscal years 2009 and
2010 respectively. A revenue comparison by concession location can be
seen in Table 1 below.
TABLE 1: Fiscal Years 2008 to 2010 Concessions Revenue
Location FY 2008 FY 2009 FY 2010
Veterans Park $50,800 $58,300 NA
Adamson Pool 24,300 11,500 NA
Central Park 10,400 17,400 24,400
Wolf Peen Creek 8,900 27,100 17,100
Bee Creek Park 3,900 1,700 5,300
Lincoln Center 2,700 2,100 900
Total Revenue: $101,000 $ 118,100 $126,500
Concessions Audit 11
Softball leagues and tournaments dominate the field usage of Veterans,
Central, and Bee Creek parks. Therefore, concessions revenues
associated with softball activity accounted for approximately 64 and 66
percent of all of the total concessions revenues in fiscal years 2008 and
2009 respectively. Swimming activities accounted for 24 percent of
revenues in fiscal year 2008 but declined to only account for 10 percent
in 2009. Special events at the Wolf Pen Creek Amphitheater accounted
for 9, 23, and 14 percent of revenues in fiscal years 2008, 2009, and
2010 respectively. A change in the method of RecWare recording and
the lack of support documentation made it infeasible to identify revenues
by location for Adamson and Veterans Park for fiscal year 2010.
Participation in concession driven recreational activity declined
in 2010. Increases in fiscal year 2009 revenues can be accounted for by
an approximate 26 percent increase in 2009 attendance to recreational
activities. Participation to recreational activities decreased by 14.5
percent in 2010. The only activity that increased in 2010 was
participation in softball tournaments, which increased by 5 percent.
Estimated attendance data to concession driven recreational activity can
be seen in Table 2 below.
TABLE 2: Attendance to Concession Driven Recreation Activity
Estimated
Attendance 2008 2009 2010
Athletic Leagues 49,900 53,800 48,700
Tournaments 17,300 22,400 23,500
Adamson Pool 32,500 33,200 26,700
Wolf Pen Creek 33,600 58,200 44,400
Total Attendance: 133,300 167,600 143,300
If recreational activity continues to decline in the future, finding ways to
increase concessions revenues will be challenged even further. In
addition, the constant pressure from private sector fast-food competition
in numerous locations throughout the city will also be an ongoing concern
for concessions sales. As a result, future policy decisions regarding
concession operations should be made within this possibly declining
customer base and private sector competition context.
Administrative Costs Challenge Concession Profitability
Total concession expenditures for 2010 include a 58 percent overhead
and administrative cost factor. For every dollar of direct concession cost,
12 Concessions Audit
another 58 cents is tacked on for overhead and administrative cost. This
level of indirect cost has a significant negative impact on total cost, which
determines concession profits or losses. The 58 percent consists of three
layers. The first layer is top level parks and recreation department
overhead. The second is recreation division overhead. The third layer is
made up of the salary and benefits of the concessions supervisor.
Concessions revenue exceeds direct costs. Concessions would be
profitable if not for the administrative costs associated to its operation.
Even if the two layers of indirect costs at the department and division
level were eliminated, Concessions would still operate at a loss due to the
concession supervisor’s salary and benefits. Table 3 below provides a
summary of Concessions expenditures and revenue for the last three
fiscal years, along with the amount the General Fund is subsidizing the
operation each fiscal year.
TABLE 3: Concessions Expenditures and Revenue
Location FY 2008 FY 2009 FY 2010
Department 13,900 15,400 17,000
Recreation Division 32,200 51,500 38,400
Supervisor 65,600 67,900 69,300
Total Admin Cost: 111,700 134,800 124,700
Staff 19,100 23,200 25,000
Supplies 20,400 8,900 1,000
Inventory 44,700 51,600 61,300
Other 2,400 3,200 2,000
Total Direct Cost 86,600 86,900 89,300
Total Cost 198,300 221,700 214,000
Total Revenue 101,000 118,100 126,500
Subsidy 97,300 103,600 87,500
The concessions business plan contained inaccurate revenue
forecasts. In September 2006, the Parks and Recreation Department
developed a business plan for concession operations before it took over
operations from a private operator in fiscal year 2007. The business plan
included a financial section describing forecasted expenditures and
revenue. Based on this report, the revenue expected to be generated
was $184,000, $214,000, $225,000 and $229,000 for fiscal years 2007,
2008, 2009, and 2010 respectively.
Concessions Audit 13
Pre-established pricing agreements have been used to decrease
some inventory costs. In fiscal year 2009, there was $16,800 in
purchases to Coca Cola through the use of pre-established price
agreements. According to the concession supervisor, he has tried to
establish additional pricing agreements with potential vendors, but has
been told that his volume of purchasing is not sufficient to be beneficial
for the vendor to offer any pricing discounts.
There were also $34,200 in inventory purchased using field purchase
orders and $600 was made using city purchasing cards. Using these
methods may not always lend themselves to obtaining the most
competitive and lowest cost items. However, purchasing card or field
purchase order transactions can be used as a stopgap measure to offset
inventory shortages before the next scheduled concessions delivery date,
quickly refill seasonal resale items due to unexpected increased traffic at
specific concessions locations or purchase those other items that would
not be readily available.
Some concession personnel were paid in cash. Based on interviews
with former concession workers, there have been instances when
concession personnel were paid in cash for working special events.
These concession workers did not go through the normal Human
Resources hiring practices and were not on the city payroll.
Challenges to Privatization of Concessions Exist
The College Station Parks and Recreation Department resumed the
management of concession operations at several of its facilities in fiscal
year 2007. The Department ran concessions for several years in the
1990’s until it was decided to privatize the operation. In 1998, the city
began contracting its concession operations at Central Park, Veteran’s
Park, Bee Creek Park, Adamson Pool, and Wolf Pen Creek Amphitheater.
In 2004, the concessions at these locations were contracted with
Parthenon Concessions. This contract was terminated in December of
2005 at the contractor’s request. Since 2002, the College Station Little
League has operated concessions at Southwood Valley and the Wayne
Smith baseball fields.
No vendor responded to the last concessions request for
proposal. On January 1, 2006, the city solicited proposals from vendors
who were interested and qualified to provide concession sales at Central
Park, Veteran’s Park, Bee Creek Park, Adamson Pool, and Wolf Pen Creek
14 Concessions Audit
Amphitheater. There were no responses to the proposal and there have
been no additional request for proposals solicited after January 2006.
Several factors may have made it cost prohibitive for vendors to
submit concession proposals. The city’s desire to maintain some
level of control over product, pricing, and advertising decisions could
have prevented some vendors from submitting proposals. According to
the request for proposal, vendors were prohibited from changing
concession prices during the life of the contract from the original
proposed prices without prior approval from the city. The city also
reserved the right to determine the brands and selection of products to
be sold to the public for sponsorship and promotional purposes. The city
also required all advertising materials and the sale of all non-food items
be approved by the city prior to their implementation by the vendor. The
request for proposal also stated that the vendor would provide any and
all equipment and supplies necessary to fully operate concessions. In
addition, vendors were required to have the following standard insurance
policies: (a) General Liability Policy, (b) Automobile Liability Policy, (c)
Worker's Compensation Policy, and (d) Employer's Liability
Other considerations besides costs should be included when
deciding to outsource concession operations. By operating the
concession, the city has staff on site to assist the public with issues that
may not be addressed by a contract concessionaire. These issues include
injury/incidents reports, policy questions, and reporting facility problems.
The decision needs to be made as to whether concessions should be run
as a business profit model, or as a complementary service to the citizens
of the city. The city could continue subsidizing the program to fund the
concession locations throughout the city. This would be done to provide
a complementary service to enhance the overall experience of
participants. In addition, considerable investment has been made in
facility improvements since the last 2006 request for proposal.
With an outsourcing decision, it will be important to protect the city
against a poor performing vendor. The perception of the vendor will be
based on (1) price gouging of products, (2) the quality of the products
sold, (3) the maintenance of city facilities, and (4) the overall perception
of the vendor’s employees. These will be areas the city will need to
ensure are not problems as customers will perceive the vendor as an
employee of the city. A poor performing vendor could shed a negative
light on the city.
Concessions Audit 15
Privatizing concessions may not save the city money. As
mentioned earlier, the reason Concessions was unprofitable in fiscal year
2010 was due to the 58 percent overhead and administrative cost factor.
Outsourcing concessions may not have any effect on these costs, nor is it
within the scope of this audit to evaluate the administrative structure and
costs of the Parks and Recreation Department. Assuming that the
concessions supervisor would be reassigned to another administrative
function within the department, outsourcing concessions may lead to a
net loss to the city of $28,900—which is the difference between fiscal
year 2010 revenue and direct cost. In order to break even, the city
would need $28,900 from the vendor. This would mean a vendor who is
required to pay the city 10 percent of their profit would have to make a
$289,000 profit each year for the city to break even on concessions—
assuming no Parks and Recreation administrative overhead costs are
reduced.
16 Concessions Audit
Recommendations
Concessions need a few improvements, encompassed in the following
audit recommendations. Implementing these recommendations would
strengthen internal controls to further prevent any misappropriation of
cash on hand.
1. Each concession location should maintain separate inventories. This
inventory should include opening inventory, closing inventory, and
number of items sold. Upon arrival each day, opening staff should
be required to complete a daily inventory count of the items on hand.
At closing, the inventory and the cash register tape should be
balanced with stock and cash on hand. Spot inventory checks should
also be conducted by the concession supervisor and/or the recreation
superintendent.
2. A deposit slip should be prepared and cash, minus start up, with
deposit slip should be placed in a locking bag and delivered to the
bank and deposited nightly.
3. The concessions supervisor should perform daily reconciliations of the
deposit slip and bank receipt, the daily inventory, and cash register
tape. Preferably, this should be done each night at the close of all
the concession operations. If this is cost prohibitive, these documents
should be left for the concession supervisor to pick up each morning,
or on Monday for weekends. The copy deposit slip and bank receipt,
the inventory, and cash register tape should be kept securely for
future audit purposes.
4. According to city policy, receipts should be provided to customers and
receipt support documentation retained in cash drawers for end of the
day balancing. In addition, each cashier location should have a sign
encouraging customers to notify management if they do not get a
receipt. Before this recommendation can be implemented, receipt
tape machines at all concession facilities need to be operational.
5. Cash drawers at all concession locations should be repaired to ensure
that they automatically open from the lock position when a point-of-
sale transaction occurs.
Concessions Audit 17
6. When automated cash registers are used, user names and passwords
to the RecWare system should not be shared amongst multiple users.
In addition, functional access to the RecWare system for cashiers
should be limited to only those functions that are necessary to
perform their essential job duties.
7. Receipt tape produced by (either manual or automated) cash
registers should contain the following control features: information
identifying the cashier who processed the payment, pre-numbered
receipt numbers in sequential order, mode of payment, transaction
date, payment amount, and itemized payment descriptions.
8. Cash handling policies and procedures specific to concession
operations that are aligned with cash handling best practices should
be drafted and communicated to all current and future concession
personnel.
9. Adequate records should be maintained in order to track detailed
sales receipts and revenue by concessions location. The RecWare
system should have the capability to be configured to accomplish this
objective.
10. Under no circumstances should concession staff be compensated in
cash for services rendered to the city. The Department of Parks and
Recreation should follow proper hiring and payroll procedures as set
by Human Resources Department.
11. The city should solicit proposals from vendors who are interested and
qualified to provide concession sales at Central Park, Veteran’s Park,
Bee Creek Park, Adamson Pool, and Wolf Pen Creek Amphitheater.
An internal proposal submitted by the Parks and Recreation
Department should be included and evaluated against all private
sector proposals that are submitted. This will require Parks and
Recreation to conduct a thorough examination of all costs and
revenue associated with the concessions program within the context
of private sector competition.
If outsourced, administrative overhead costs currently associated with
concessions would most likely still exist (but will be allocated to other
Parks and Recreation programs). Therefore, only direct costs should
be taken into consideration when comparing Parks and Recreation’s
proposal to other private businesses’ proposals.
18 Concessions Audit
Appendix 1:
The Parks and Recreation Department’s
Acting Director’s Response to the Audit Recommendations
1. Each concession location should maintain separate inventories. This inventory should
include opening inventory, closing inventory, and number of items sold. Upon arrival
each day, opening staff should be required to complete a daily inventory count of the
items on hand. At closing, the inventory and the cash register tape should be balanced
with stock and cash on hand. Spot inventory checks should also be conducted by the
concession supervisor and/or the recreation superintendent.
Response: Management concurs. This process will be implemented with the new
season. Each location will be operated as an individual site.
2. A deposit slip should be prepared and cash, minus start-up, with deposit slip should be
placed in a locking bag and delivered to the bank and deposited nightly.
Response: Management concurs. Policies and procedures will be developed so that
staff can begin to make night deposits at the bank. The operating cash will continue to
remain at the concession sites, within secure safes.
3. The concessions supervisor should perform daily reconciliations of the deposit slip and
bank receipt, the daily inventory, and cash register tape. Preferably, this should be done
each night at the close of all the concession operations. If this is cost prohibitive, these
documents should be left for the concession supervisor to pick up each morning, or on
Monday for weekends. The copy deposit slip and bank receipt, the inventory, and cash
register tape should be kept securely for future audit purposes.
Response: Management concurs. This process will be implemented immediately.
Policies and procedures will be developed for the reconciliation of all deposits against cash
register tapes and inventories, with spot checks by the Recreation Superintendent.
4. According to city policy, receipts should be provided to customers and receipt support
documentation retained in cash drawers for end-of-the-day balancing. In addition, each
cashier location should have a sign encouraging customers to notify management if they
do not get a receipt. Before this recommendation can be implemented, receipt tape
machines at all concession facilities need to be operational.
Response: Management concurs. We will purchase new cash registers that have the
capability to produce customer receipts. Signs will be posted encouraging customers to
notify management if they do not get a receipt. Additionally, we will work with IT to
ensure proper operation of the receipt printers associated with the point-of-sale
workstations.
Concessions Audit 19
5. Cash drawers at all concession locations should be repaired to ensure that they
automatically open from the lock position when a point-of-sale transaction occurs.
Response: Management concurs. We will work with IT to ensure all non-functional
drawers are repaired or replaced.
6. When automated cash registers are used, user names and passwords to the RecWare
system should not be shared amongst multiple users. In addition, functional access to the
RecWare system for cashiers should be limited to only those functions that are necessary
to perform their essential job duties.
Response: Management concurs. We will purchase additional cash registers to allow
each concession worker doing sales to not have to share cash registers. All concessions
employees with responsibility for handling cash will be issued log-in rights to Safari with
user profiles consistent with their job duties.
7. Receipt tape produced by (either manual or automated) cash registers should contain the
following control features: information identifying the cashier who processed the
payment, pre-numbered receipt numbers in sequential order, mode of payment,
transaction date, payment amount, and itemized payment descriptions.
Response: Management concurs. New cash registers will be purchased that have these
capabilities. We will also pursue an upgrade of the automated system to ensure it has
these capabilities.
8. Cash handling policies and procedures specific to concession operations, that are aligned
with cash handling best practices, should be drafted and communicated to all current and
future concession personnel.
Response: Management concurs. These cash handling policies and procedures will be
drafted and implemented.
9. Adequate records should be maintained in order to track detailed sales receipts and
revenue by concession location. The RecWare system should have the capability to be
configured to accomplish this objective.
Response: Management concurs. The RecWare programs will be upgraded to work with
new cash registers to be able to perform these tasks.
10. Under no circumstances should concessions staff be compensated in cash for services
rendered to the city. The Parks and Recreation Department should follow proper hiring
and payroll procedures as set by the Human Resources Department.
Response: Management concurs. This practice will not be allowed and proper hiring
and payroll procedures will be followed.
20 Concessions Audit
11. The city should solicit proposals from vendors who are interested and qualified to provide
concession sales at Central Park, Veterans Park, Bee Creek Park, Adamson Lagoon Pool
and Wolf Pen Creek Amphitheater. An internal proposal submitted by the Parks and
Recreation Department should be included and evaluated against all private sector
proposals that are submitted. This will require Parks and Recreation to conduct a
thorough examination of all costs and revenue associated with the concessions program
within the context of private sector competition.
If outsourced, administrative overhead costs currently associated with concessions would
most likely still exist, but will be allocated to other Parks and Recreation programs.
Therefore, only direct costs should be taken into consideration when comparing Parks and
Recreation’s proposal to other private businesses’ proposals.
Response: Management concurs. Bid documents will be produced to solicit Requests for
Proposals for the operations of the concession stands. We will include an updated
business plan by the Parks and Recreation Department.