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OFFICE OF THE DISTRICT OF COLUMBIA AUDITOR Deborah K. Nichols, District of Columbia Auditor 011-00-SDG Status of the Washington Convention Center Authority’s Implementation of D.C. Auditor RecommendationsJune 1, 2000 PURPOSEPursuant to Section 455 of Public Law 93-198, the District of Columbia Auditor conducted a follow-up review of the status of the Washington Convention Center Authority's (WCCA) implementation of recommendations made in a June 24, 1997 District of Columbia Auditor's report entitled, "Washington Convention Center Authority Accounts and Operations for Fiscal Years 1995 and 1996." The June 24, 1997 report contained 10 findings along with 25 recommendations pertaining to WCCA's accounts and operations. This report presents the status of WCCA's implementation of the recommendations contained in the June 24, 1997 report. OBJECTIVE, SCOPE AND METHODOLOGYThe objective of this review was to determine the status of WCCA's implementation of recommendations contained in the June 24,1997 Auditor's report entitled, "Washington Convention Center Authority Accounts and Operations for Fiscal Years 1995 and 1996." The present examination covered fiscal years 1997 through 1999. In conducting this examination, the Auditor reviewed WCCA's efforts to implement the recommendations made in the June 24, 1997 report. To evaluate WCCA's compliance, the Auditor interviewed designated WCCA officials in the legal, financial management and accounting, sales and marketing, and administration divisions. The Auditor also reviewed data provided by WCCA related to their efforts to implement various policies and procedures to address operating deficiencies noted in the Auditor's prior report. BACKGROUNDThe Washington Convention Center Authority Act of 1994 (the Act), D.C. Law 10-188, effective September 28, 1994, created the Washington Convention Center Authority as an independent corporate instrumentality of the District government to facilitate the construction of a new convention center and for various other purposes. In accordance with Section 202(b) of the Act, the WCCA's purpose is:
Operational oversight of the WCCA is provided by a nine-member Board of Directors. The Board of Directors currently consists of the Chief Financial Officer of the District of Columbia, and another District government official designated by the Mayor, both serving as ex-officio voting members with four-year terms.1 Additionally, seven public members (who meet statutorily prescribed criteria) are appointed by the Mayor with the advice and consent of the Council of the District of Columbia, also for four-year terms'. The daily management of the WCCA is under the direction of a general manager who is appointed by WCCA's Board of Directors. Additionally, the Washington Convention Center Authority Act of 1994 required the District to collect and transfer to WCCA on a monthly basis the proceeds of certain dedicated tax revenues. As a result, the Washington Convention Center Authority Fund ("Fund") was established. During fiscal years 1997 and 1998, the Fund was capitalized with dedicated tax revenues from the following sources:
On June 16, 1998, the Council of the District of Columbia amended the Washington Convention Center Authority Act of 1994 by enacting D.C. Law 12-142, entitled "Washington Convention Center Authority Financing Amendment Act of 1998." D.C. Law 12-142 simplified the dedicated tax collection process, enhanced the reliability of WCCA's revenue stream, and provided for changes in the dedicated tax structure. The law also eliminated the surtax on corporate franchise and unincorporated business franchise taxes; increased the sales and use tax on hotels from 13 to 14.5 percent thereby increasing the surtax for WCCA from 2.5 to 4.45 percent; and repealed the hotel occupancy tax of $1.50 per hotel room per overnight stay. The changes in the dedicated tax revenue structure, effective October 1, 1998, resulted in dedicated tax revenues consisting of the following:
Accomplishments of The Washington Convention Center Authority During Fiscal Years 1997 Through 1999During fiscal years 1997 through 1999, the Washington Convention Center Authority successfully accomplished many initiatives in support of its mission to expand the District's tax base and build a new state of the art convention center in the District of Columbia. Some of WCCA's accomplishments included the following:
FOLLOW-UP ANALYSISSTATUS OF IMPLEMENTATION OF RECOMMENDATIONS MADE BY WCCA DURING FISCAL YEARS 1997,1998 AND 1999The June 24, 1997 Auditor's report on WCCA's accounts and operations contained 10 findings and 25 recommendations. The Auditor evaluated WCCA's implementation of the 25 recommendations to assess their level of compliance and effectiveness. The status of recommendations are as follows: Previous RecommendationThe Auditor recommended that WCCA immediately firm up the cost estimate for the new convention center. Status of WCCA's Implementation: ImplementedTo comply with this recommendation, in March 1997 WCCA proposed a budget of $650 million for the construction of the new convention center project. The $650 million budget consisted o£ $61.6 million in pre-development costs; $403 million in building site and construction costs; $71.6 million in other costs; $27 million in equipment costs; and an $87 million contingency reserve. During fiscal year 1998, WCCA issued a Request For Proposals (RFP) for a construction management contractor (CM), to manage the construction of the new convention center. The contract, referred to as the construction management services agreement was awarded to Clark Construction Group, Inc. and the Sherman R. Smoot Construction Company of Washington, D.C., a joint venture. The contract was executed in March 1998 and modified in May 1998 to incorporate a guaranteed maximum price (GMP) amendment of $500.6 million for the construction of the new convention center. The GMP contract amendment requires the construction manager to deliver a completed and operational building at a cost not to exceed the agreed upon $500.6 million and contains incentives and penalties to ensure this occurs within the allotted time period.2 As noted in the contract, the GMP could, however, increase or decrease as a result of change orders, hazardous material removal costs, design changes, and remediation. Despite WCCA's establishing a project budget of $650 million, WCCA's estimated costs for the new convention center project have changed. As reported in a September 30, 1999 audit, the estimated project budget for the new convention center totaled $685 million.3 Table I below compares WCCA's original proposed budget to several revised budgets as of June 30, 1999. TABLE IComparison of WCCA's Original Budget to Its
Revised Budget for the New Convention Center Project Through June 30, 1999
Source: D.C. Auditor's Report dated June 24, 1997; GAO Reports dated July 1998 and September 1999. There have been a significant number of developments impacting WCCA's total estimated costs of the new convention center project since last reported by this office. Despite WCCA's negotiation of a GMP, unforeseen contingencies such as the increased estimate for the removal of contaminated soil has elevated the overall cost of the project. As of June 30,1999, the original GMP budget of $500.6 million had been revised upwards to $510.7 million based on the approval of various change orders6. In accordance with a September 1999 Project Report, the GMP budget estimate increased even further to $519.1 million through September 30, 1999, reflecting still more pending change orders. Further, WCCA officials indicated that this estimate was subject to revision based on a renegotiation of the original GMP Amendment. According to the contract negotiated between WCCA and the CM, "...a written Change Directive or Change Order executed by the Authority is the only means by which changes may be made to the . . . Guaranteed Maximum Price." The Auditor notes that if change orders are required throughout the scheduled four-year construction period the cost of construction may increase significantly. In addition to change orders and directives, there are other areas that have the potential to increase the overall cost of the project. For example, WCCA is relying on vendors to provide an estimated $24 million in equipment and services, at no cost to WCCA, in exchange for long-term exclusive rights contracts for the new convention center's food service, telecommunications, central heating and cooling plant, and audiovisual equipment. Consistent with this objective, WCCA is presently negotiating with a vendor for a central heating and cooling plant with an estimated value of $14 million. WCCA indicated that it will work toward soliciting agreements and awarding contracts for audiovisual, telecommunications, and food services later in the project. The Auditor notes, however, that until WCCA has entered into written agreements with vendors to cover all equipment and related services, there is a risk that WCCA will have to identify other internal or external funding sources to cover these costs should the contemplated agreements fail to materialize. On behalf of WCCA, the Washington Metropolitan Area Transit Authority (WMATA) has received $25 million to cover an upgrade to the Metro station at Mount Vernon Square. WCCA has requested $10 million in funding from the District government for utility relocation work, however, it has not yet received any portion of the $10 million from the District government. WCCA forwarded a letter dated September 22, 1999 to the Mayor of the District of Columbia inquiring as to when these funds would be available, but as of the first quarter of fiscal year 2000, these funds have not been disbursed. The Mayor's fiscal year 2001 Capital Budget does, however, include the $10 million for WCCA as a locally funded economic development project. Additionally, WCCA has received approximately $8 million in Federal Highway Grant Funds from the U.S. Department of Transportation and the District's Department of Public Works for construction related road work, and expects to receive the balance of $16 million during fiscal years 2000 and 2001. As with the negotiation of contracts for services underwritten by vendors, there is a risk that WCCA will have to identify other sources of funds to cover utility relocation work and construction related road work until it receives the $10 million from the District government and the $16 million in Federal Highway Grant funds from the Federal government. Proposed GMP AmendmentIn an exit conference on January 21, 2000, WCCA's managing director of development for the new convention center project indicated that a request to modify the terms and conditions of the original $500.6 million GMP Amendment had been approved by WCCA's Board of Directors in December 1999.7 The managing director of development indicated that a revised GMP was necessary as a result of the progression of the new convention center's design from the development phase, and from significant changes that have occurred affecting the project and the design schedule over a 16month period. Following the January 21st meeting, information was submitted to the Auditor which further indicated that "The Second GMP Amendment would also resolve nearly all of the significant claims and disputes currently outstanding between the Authority and Clark/Smoot." Previous RecommendationThe Auditor recommended that WCCA identify appropriate sources of funds to cover the projected shortfall in financing the new convention center. Status of WCCA's Implementation: ImplementedBased on a September 29, 1998 bond sale, the Washington Convention Center Authority issued $524 million in senior lien dedicated tax revenue bonds to finance the construction of the new convention center. According to information contained in a final pricing information document, gross bond proceeds (net of original issue discount costs) totaled $519.5 million consisting of: $507.4 million in construction funds; $9.4 million in financing costs; $633,092 in debt service reserve funds; and $2.1 million in accrued interest. The 1998 bond issue entitled, "Washington Convention Center Authority Senior Lien Dedicated Tax Revenue Bonds Series 1998," was secured by a first lien upon and pledge of the dedicated tax receipts in accordance with a Trust Agreement. In addition to the bond proceeds, the financing to support the construction of the new convention center consists of approximately $37.2 million in preconstruction activities; $77.3 million in cash-on-hand from dedicated tax collections; $59 million in anticipated federal funds; $24 million in anticipated vendor funding (work to be outsourced and funded by contractors); $53.1 million in interest earnings; and $40 million in excess dedicated tax revenues estimated to be collected during the construction period. The majority of the financing for the new convention center project will come from bond proceeds. Previous RecommendationThe Auditor recommended that WCCA work towards obtaining all necessary approvals so that the scheduled construction can proceed on the new convention center. Status of WCCA's Implementation: ImplementedWCCA noted that, as of fiscal year 1998, all approvals necessary to complete the new convention center had been obtained. The National Capital Planning Commission (NCPC) gave its final approval for the project site in September 1997 and final approval for the project design in October 1998. These crucial approvals were necessary in order for WCCA to move forward and begin construction of the new convention center. Final approval was also obtained from the Commission on Fine Arts in June 1997 and the Advisory Council on Historic Preservation in September 1997. Further, WCCA notes that a Memorandum of Agreement (MOA) was executed between the District of Columbia Government, WCCA, the Advisory Council on Historic Preservation, and the National Capital Planning Commission, to outline specific agreements between the interested parties as the new convention center project progresses. According to WCCA, all remaining major issues and concerns were addressed as part of the MOA. Approvals were also obtained from the Council of the District of Columbia, the Financial Responsibility and Management Assistance Authority (the Control Board), Congress, and the White House for the construction and financing of the new center. Previous RecommendationThe Auditor recommended that in view of the constant change in the amounts of projected dedicated tax revenue, WCCA must maintain strict spending controls and build a sufficient reserve to allow for unforeseen contingencies and compensate for possible revenue shortfalls. Status of WCCA's Implementation: ImplementedIn response to this recommendation, WCCA instituted a hiring freeze for fiscal year 1998. A comparison of human resource statistics, as reported in WCCA's "Financial Annual Report" for fiscal year 1998, indicated a reduction in its employee workforce between 1997 and 1998 by approximately 20 employees. However, approximately 16 new employees were hired in fiscal year 1998 in connection with the new convention center project resulting in an overall reduction of only 4 employees. Further, a comparison of WCCA's operating expenses for fiscal years 1997 and 1998 indicated that WCCA's fiscal year 1998 operating expenses increased slightly. Operating expenses during fiscal year 1997 totaled $16 million, and in fiscal year 1998 totaled $16.7 million. According to WCCA's financial reports, increases in personal services expenses, occupancy, and miscellaneous expenses contributed to this overall increase. Also, WCCA has established several reserves in connection with the issuance of dedicated tax revenue bonds. The reserve accounts consist of: (1) an operating and marketing reserve account; (2) a capital renewal and replacement reserve fund; (3) a debt service reserve account; (4) a revenue stabilization account; and (5) a redemption fund to be funded only at the end of the fiscal year and only to the extent excess revenues remain after all other reserve accounts have been properly funded. Previous RecommendationThe Auditor recommended that the Department of Finance and Revenue8 [Office of Tax and Revenue] immediately review all tax collections after September 30, 1996 to ensure that reconciliations have been made on all dedicated tax collections. Status of WCCA's Implementation: ImplementedThis recommendation was made to the Department of Finance and Revenue, which was renamed the Office of Tax and Revenue (OTR), in response to the Auditor's finding that WCCA had not received all dedicated taxes it was entitled to receive in accordance with D.C. Law 10-188. During the course of the previous audit, the Auditor identified $939,218 in dedicated tax revenues that were not properly transferred to WCCA. Subsequent to the Auditor's review, the Office of Tax and Revenue transferred an additional $939,218 in dedicated tax revenues to WCCA for the period covering fiscal years 1995 and 1996. According to information reported in WCCA's fiscal year 1997 "Financial Annual Report," OTR transferred these funds to WCCA during fiscal year 1997. WCCA's beginning retained earnings have since been restated to account for these additional dedicated tax revenues in the proper period. Previous RecommendationThe Auditor recommended that WCCA institute a process to verb the reliability and validity of revenue transferred by the Department of Finance and Revenue [Office of Tax and Revenue] under the new lockbox arrangement. Status of WCCA's Implementation: Implemented Status of OTR's Implementation: Partially ImplementedDuring the third quarter of fiscal year 1997, the District's Office of Treasury established a lockbox account with First Union Bank to act as trustee on behalf of WCCA for the collection and transfer of dedicated taxes. This process enables WCCA to receive dedicated taxes directly from the lockbox agent, thus bypassing the District's Office of Tax and Revenue. This process also provides the WCCA with greater control over the timely accurate transfer of dedicated taxes. Each business day WCCA receives a report from First Union Bank detailing the amount of dedicated tax transfers for that day. The report details the dedicated tax information by the actual tax rate. All sales and use tax payments that match the amount reported as due on the business tax return are deposited into the lockbox account. Sales and use tax payments that do not match the amounts reported on the return are deposited into an "Exceptions Account." The returns processing division within the Office of Tax and Revenue is responsible for clearing the exceptions account on a monthly basis. However, the Auditor found that substantial balances have accumulated in the exceptions account which OTR has not resolved within the stated agreed upon period. This has delayed dedicated tax transfers to WCCA. According to information reviewed by the Auditor, it appears that substantial delays in reconciling deposits to the exceptions account were attributed to OTR's failure to promptly research the deposits and resolve discrepancies. Previous RecommendationsThe Auditor recommended that WCCA monitor and accumulate its expenses incurred in hosting an event to ensure that it is collecting sufficient user fees to cover expenses associated with each event that it hosts. The WCCA's operation should be self-supporting, to the greatest extent possible, through the fees that it charges and collects from sponsors of events staged at the Convention Center. The Auditor recommended that WCCA seek to maximize revenues and minimize expenditures to the greatest extent possible. A development of profit/loss comparison of individual events or cost/benefit analysis of its entire operation is warranted. Status of WCCA's Implementation: Not ImplementedAlthough WCCA has indicated that it recognizes the need to accumulate expenses by events and to maximize user fees in all categories to offset operating expenses, it asserts that rates are influenced to a large degree by industry norms. WCCA further indicated that its ultimate goal is to increase "hotel room nights" thereby providing an economic benefit to the District rather than recognizing a profit for itself. WCCA, in comments to this recommendation, noted that because the operation of the existing center is presently in a transition period and the demand for the existing space will continue in a downward spiral, they are reluctant to revise the existing fee structure. Further, WCCA officials indicated that due 'to limitations in their existing financial management system they were unable to track event related revenues and expenditures. This function is still performed manually. According to WCCA, system upgrades to the financial management system as well as the purchase of a profit and loss software package (cost/benefit analysis) would be completed at the start of fiscal year 2000. The Auditor notes that as of the second quarter of fiscal year 2000, WCCA had not completed its upgrade of the financial management system, although a request had been forwarded to the Board of Directors for their approval of system upgrades. Also, WCCA managers had not purchased any profit and loss software. WCCA's CFO indicated they were still evaluating software packages. Previous RecommendationsThe Auditor recommended that the WCCA Board of Directors must adopt policies and establish reporting and review procedures for corporate credit card usage by the WCCA's general manager. The policies and procedures must establish the general manager's accountability for charges to WCCA's corporate credit card to ensure that all expenditures are fully justified, supported, and related to WCCA's official business. The Auditor recommended that the WCCA general manager immediately comply with the WCCA's Travel Policies and Procedures by submitting a completed local or out-of-town travel voucher for all expenses incurred on the corporate American Express credit card along with charge slips, supporting documentation, and justification for the expenditure. The Auditor recommended that the accounting department's policies must be revised to preclude payments for charges to the WCCA 's corporate credit card in the absence of a completed local or out-of-town travel voucher along with supporting documentation and a written explanation justifying the expenditure as a business necessity as required under the WCCA's Travel Policies and Procedures Manual. The Auditor recommended that the accounting department reconcile all charges invoiced by the credit card company to the respective local or out-of-town travel voucher as required by WCCA's Travel Policies and Procedures Manual. The Auditor recommended that WCCA's Board of Directors establish updated policies and procedures pertaining to the expenditure of WCCA funds and charges to the WCCA corporate credit card and ensure that the policy and procedures are complied with by all WCCA managers. The Auditor recommended that WCCA's Board of Directors immediately seek justification of the $43, 977.64 in undocumented charges made to the WCCA 's corporate credit card account in fiscal years 1995 and 1996, as well as the $10, 806.13 made in fiscal year 1997 through April 30. Absent proper documentation or justification, the Board should seek recovery of these funds as well as take appropriate disciplinary or corrective action against managers who did not comply with or enforce WCCA 's policies and procedures. The Auditor recommended that WCCA officials immediately stop using the corporate credit card for personal expenditures or for non-emergency cash advances. Status of WCCA's Implementation: Partially ImplementedThe WCCA's Board of Directors has implemented several changes affecting travel expenses and credit card usage. The changes approved by the Board included establishing a new Ethics Code; amending WCCA's travel policies and procedures; and instituting changes governing the use of WCCA's credit cards. During fiscal year 1998, the Board adopted a new Ethics Code which was published in the District of Columbia Register on November 13, 1997. The Ethics Code provides guidelines concerning the ethical standards to be followed by WCCA directors and employees. Additionally, WCCA published guidelines governing conflicts of interest and the appointment of an ethics officer. Effective in fiscal year 1998, WCCA's general manager and chief financial officer are now responsible for reviewing all travel and expense records for all Board members and employees who are designated division director or higher. According to information examined by the Auditor, the review shall be conducted on a quarterly basis. Any instances of noncompliance may be referred to the appropriate officials for resolution. To comply with the recommendations made pertaining to the credit card, WCCA now maintains only one credit card. The card, which is in the name of the Manager of Administrative Services, is maintained by that manager and is provided to WCCA employees only when necessary for travel related purposes. The Auditor found that WCCA failed to comply with the previous recommendation to seek justification or the recovery of $43,977.64 in undocumented charges made during fiscal years 1995 and 1996, as well as $10,806.13 in charges made in fiscal year 1997. In comments to the previous report, WCCA justified its lack of compliance with the Auditor's recommendation by noting that many of the charges questioned were the responsibility of WCCA's former general manager who had since left the organization. In those same comments, WCCA also noted that most of the charges were attributed to the local entertainment of clients. While WCCA's new general manager canceled all but one of WCCA's charge cards to prevent future reoccurrences, WCCA officials presently maintain the position that most of the charges were attributed to the local entertainment of clients and, as a result of this position, failed to effectively address the Auditor's recommendation. Consequently, the $43,977.64 in undocumented charges and the $10,806.13 remained unresolved. Previous RecommendationsThe Auditor recommended that WCCA discontinue paying individual membership dues and memberships that do not provide a direct benefit to the WCCA. The Auditor recommended that WCCA perform a further analysis of membership dues for fiscal year 1997 to determine if additional savings can be realized. Status of WCCA's Implementation: ImplementedDuring fiscal year 1998, the Auditor found that WCCA continued to pay individual membership dues for its employees. WCCA officials indicated that it had performed an analysis of the membership dues of various professional organizations in which its employees were members, and determined that no additional savings could be realized in this area. In an exit conference on January 21, 2000 in which this matter was discussed, WCCA's director of administration indicated, and the Auditor confirmed, that certain professional associations only offered individual memberships but that, whenever possible, organizational memberships were obtained. In written correspondence provided to the Auditor, the director further noted that WCCA would be issuing a policy statement on employee memberships in professional associations and would share it with the Auditor at that time. Previous RecommendationsThe Auditor recommended that WCCA discontinue the practice of sending more than one person to conferences where it is practicable to send only one, and perform an analysis of all conferences attended to determine if it is beneficial to the mission of the agency to attend all conferences that it presently attends. The Auditor recommended that WCCA immediately institute a policy prohibiting employees from traveling first class. Status of WCCA's Implementation: Partially ImplementedBased on a review of travel information, which included conferences attended by WCCA employees during fiscal years 1997 and 1998, the Auditor found that WCCA officials did not perform an analysis of conference attendance to determine whether attendance was beneficial to WCCA. The new general manager of WCCA instituted a policy prohibiting first class travel unless it was determined to be absolutely necessary, and only after all other travel options had been explored and were determined to be unavailable. Previous RecommendationsThe Auditor recommended that WCCA provide employees with orientation training on its most recently revised Travel Policies and Procedures Manual. The Auditor recommended that WCCA establish monitoring and tracking procedures on out-of-town travel expenditures to ensure that the out-of-town travel expense voucher and supporting documentation are submitted for every travel expenditure. Status of WCCA's Implementation: ImplementedWCCA officials indicated that each employee of WCCA was provided with revised travel policies and procedures to follow when on official travel for WCCA. Additionally, WCCA's Board of Directors approved a new ethics code that was distributed to all employees, outlining acceptable employee conduct and other specific guidelines to which each employee must adhere. Also, as previously noted, WCCA has established a monitoring procedure regarding travel for Board members and employees who are division directors or higher. WCCA's general manager and chief financial officer must now review all travel and expense records for these individuals on a quarterly basis. Previous RecommendationsThe Auditor recommended that the Board of Directors establish detailed guidelines that state the types of expenditures that are permissible under Board policies and clearly communicate the guidelines and policies to all WCCA staff and Board members. The Auditor recommended that the Chairperson and Management Liaison to the WCCA Board of Directors reimburse the WCCA $3, 077.40 and $730.92 respectively for out-of-town travel expenditures related to the Democratic National Convention. Status of WCCA's Implementation: Partially ImplementedIn comments to the Auditor's June 24, 1997 report, the former acting general manager of WCCA indicated that the expenses incurred by the former chairperson of the Board of Directors and the management liaison, in connection with travel to the Democratic National Convention, were justified by WCCA. The former general manager contended that the expenses complied with the "Travel Policy and Procedures" in effect during that time period and further contended that these expenses "were justified by WCCA's long-standing efforts to book the major national political conventions." Neither the former Board chairperson nor the management liaison are presently with WCCA. According to WCCA officials, the former Board chairperson resigned her post on February 13, 1998 and the former management liaison was terminated by WCCA on May 16, 1998. The Auditor found that the former Board chairperson did not reimburse WCCA the $3,077.40 for out-of-town travel related to the Democratic National Convention. The Auditor also found that the former management liaison to the WCCA Board of Directors failed to reimburse WCCA any portion of the $730.92 in expenses incurred in connection with the same trip. The combined total of $3,808.32 was not properly supported with documentation. Key information was absent and the Auditor was not able to find documentation to support the Board's approval of the trip at WCCA's expense. Previous RecommendationsThe Auditor recommended that WCCA immediately discontinue the practice of expending funds for goods and services that do not relate to the mission of the agency. The Auditor recommended that WCCA immediately discontinue its practice of purchasing tickets to various social events and distributing tickets to District of Columbia government officials. The Auditor recommended that WCCA discontinue purchasing tickets to various social events unless there is a clearly articulated business purpose related to the statutory mission of the WCCA. Status of WCCA's Implementation: Partially ImplementedAccording to WCCA's new ethics code, the Board of Directors voted to approve the following policy:
As noted above, the Board voted to institute a requirement for the general counsel to make a determination, in writing, that the purchase or distribution of tickets to community-related events held at the center is not in violation of the laws of the District of Columbia or the United States. In discussions with WCCA's general counsel, the Auditor found that the term "public officials" as used in the ethics code is incorrect. The general counsel and other WCCA officials indicated that under WCCA's current practices, no tickets are purchased for distribution to public officials, only clients of the Washington Convention Center. They further stated that this language would be changed. Previous RecommendationsThe Auditor recommended that WCCA discontinue violating its procurement regulations by issuing purchase orders totaling more than $25, 000 to vendors. The Auditor recommended that WCCA comply with its procurement regulations relating to securing three (3) quotations from vendors when purchase orders are issued. The Auditor recommended that WCCA update all contract files to ensure that pertinent information pertaining to all aspects of the contract are available. Status of WCCA's Implementation: Partially ImplementedDuring February 1999, the Board of Directors approved revised procurement policies and procedures to be observed by all WCCA employees. The manual which outlines the procurement process in detail was distributed to every WCCA employee. Additionally, WCCA held an all-staff training session in April 1999 on WCCA's procurement process. Further, WCCA officials in the contracting and procurement division indicated to the Auditor that one-on-one training is also available to anyone who requests it. According to the manual, any invoice not supported by a contract or properly executed purchase order should be withheld and referred to the general counsel for disposition. Further, the manual provided that any invoice which would result in cumulative payments of more than $25,000 to any vendor on a purchase order or multiple purchase orders would also be withheld and referred to WCCA's general counsel. The Auditor reviewed contract files for fiscal years 1997 and 1998 and found several which were missing pertinent information such as quotations from three vendors. Further, the contract files were not arranged consistently. Key information, such as the contract itself, were found in different places within different files. In some instances, the contract itself was not included in the file and the requisite approvals for different contracts were also not included in the file for the Auditor's review. WCCA's director of contracting and procurement has taken the following actions to facilitate improvements: developing standards for contracting and procurement; generating a standard letter format to formally document vendor quotes; and creating a contract sign-out log book to better track contract information. CONCLUSIONOverall, WCCA's Board of Directors, general manager, and staff have implemented a significant number of the recommendations that were made in the Auditor's last report entitled, "Washington Convention Center Authority Accounts and Operations for Fiscal Years 1995 and 1996." Many of the changes implemented will serve to strengthen WCCA's internal controls governing important aspects of its operations. The Auditor found that the cost for the construction of the new convention center has increased. The increase is due largely to the approval of change orders for the removal of hazardous materials from Mount Vernon Square, the site of the new convention center. The Auditor notes that if change orders are required throughout the four-year construction period, the cost of construction may increase significantly. In an exit conference held on January 21, 2000, WCCA's managing director of development indicated that a request to modify the terms and conditions of the original $500.6 million GMP Amendment had been approved by WCCA's Board of Directors in December 1999. The managing director of development indicated that a revised GMP was necessary as a result of the progression of the new convention center's design from the development phase and significant changes that have occurred affecting the project and the design schedule over a 16-month period. During the follow-up review, the Auditor found that there were several areas where the Board failed to comply with the Auditor's previous recommendations. They included the recommendation that WCCA seek justification for $54,783.77 in undocumented charges made to WCCA's corporate credit card by its former general manager, Board chairperson, and others during fiscal years 1995 through 1997. WCCA also failed to comply with the Auditor's recommendation to seek reimbursement of an additional $3,077.40 and $730.92 in expenses incurred by the former Board chairperson and management liaison to the Board for travel to the Democratic National Convention during August 1996. WCCA's former acting general manager indicated that these expenses were justified in that they complied with the travel policies in effect during that period of time. As a result, WCCA made no attempts to collect these funds. WCCA is relying on vendors to provide an estimated $24 million in equipment, at no cost to WCCA, for the new convention center's telecommunications, central heating and cooling plant, food services, and audiovisual equipment. Consistent with this objective, WCCA is presently negotiating with a vendor for a central heating and cooling plant with an estimated value of $14 million. The Auditor notes, however, that until WCCA has entered into written agreements with vendors to cover the estimated $24 million, there is a risk that WCCA will have to identify other internal or external funding sources should the contemplated agreements fail to materialize. WCCA is also anticipating the receipt of approximately $59 million in grant funds to support the construction of the new convention center. On behalf of WCCA, WMATA has received $25 million to cover an upgrade to the metro station at Mount Vernon Square. WCCA has requested $10 million in funding from the District government for utility relocation work, however, it has not yet received any portion of $10 million in funds it has requested from the District government. Additionally, WCCA has received approximately $8 million of $24 million in Federal Highway Grant Funds and expects to receive the balance of $16 million during fiscal years 2000 and 2001. As with the negotiation of contracts with vendors to be provided at not charge to WCCA for services, there is a risk that WCCA will have to identify other sources of funds to cover utility relocation work and construction related road work until it receives the $10 million from the District government and the remaining $16 million in Federal Highway Grant funds. Respectfully submitted, AGENCY COMMENTSOn January 14, 2000, the Office of the District of Columbia Auditor submitted this report, in draft, to the General Manager and CEO of the Washington Convention Center Authority (WCCA) and the Office of the Chief Financial Officer (OCFO) of the District of Columbia for review and comment. An exit conference was held with WCCA officials and, where appropriate, changes were made to the draft report. Final comments were received from WCCA's General Manager on March 15, 2000 and from the Office of the Chief Financial Officer on February 8, 2000. The comments received from WCCA and the OCFO are appended in their entirety to this report. GOVERNMENT OF THE DISTRICT OF COLUMBIA Natwar M. Gandhi, Deputy Chief Financial Officer February 8, 2000 CONFIDENTIAL Deborah K. Nichols Dear Ms. Nichols: Subject: Implementation of Washington Convention Center Authority (WCCA) Recommendations I am in receipt of your draft report entitled Status of Implementation of Recommendations Made by WCCA During Fiscal Years 1997, 1998, and 1999. As requested I am providing my comments on the findings and recommendations made in the respective report regarding the Office of Tax and Revenue. My comments are as follows: The DC Auditor recommended that WCCA institute a process to verify the reliability and validity of revenue transferred by the OTR under the new lockbox arrangement (established during the third quarter of fiscal year 1997). The OTR agrees with the recommendation, and now performs a monthly reconciliation to ensure the timely research of deposits and resolution of any discrepancies. The OTR prepares the following documentation to support the revenue amounts transferred from the sales exception account:
The DC Auditor's report, however, incorrectly states that the OTR is responsible for clearing the exception account within 25 days after receiving a deposit. The written memorandum of understanding between the Chief Financial Officer and WCCA dated September 1, 1998, states that the exception account should be cleared monthly, i.e. a reconciliation of exception payments, and the subsequent transfer to WCCA should be performed monthly-30 days after the end of the period. Effective July 1999, the OTR implemented procedures to clear the exception account and request the transfer of funds monthly. If additional information is needed, please call me at (202) 442-6282, or your staff may contact Wilma Matthias, Director Internal Audit and Internal Security at (202) 442-6433. Sincerely, WASHINGTON CONVENTION CENTER March 13, 2000 Mrs. Deborah K. Nichols Dear Mrs. Nichols: We received a revised draft copy of your report entitled, "Status of the Implementation of Recommendations Made by WCCA During Fiscal Years 1997, 1998, and 1999." The Washington Convention Center Authority continues to make progress in responding to the concerns raised by the DC Auditor in prior audit reports. Our comments to address those items considered partially implemented by your office are as follows: (1) Audit Recommendation WCCA Response (2) Audit Recommendations The DC Auditor recommended that WCCA seek to maximize revenues and minimize expenditures to the greatest extent possible. A development of profit/loss comparison of individual events or cost benefit analysis of its entire operation is warranted (page 14). WCCA Response For example, the Coopers and Lybrand feasibility study that was prepared to justify the new convention center estimated that the direct spending generated by conventions in the District of Columbia ("the District") in the first year of operations of the new convention center would produce $415.3 million which would increase to $521.8 million in the fifth year of operations. It is this direct spending generated by conventions which generates economic activity and revenue that make convention centers attractive venues for local governments. In order for the District of Columbia to be an attractive destination for conventions and meetings, WCCA must ensure that the costs related to using the convention center are competitive with other cities with whom we compete, e.g., Atlanta, Orlando, Philadelphia, etc. Consequently, while meeting our costs is a substantial consideration in booking business, the most important factor is measuring the potential economic impact that a convention or meeting will have on our local economy. Our costs to customers cannot be too high or we lose our competitive edge, particularly when many cities will give clients good deals on the use of their convention center in order to attract a show that will provide a substantial positive impact upon the local economy. Moreover, first priority is given to conventions that produce a high usage of hotel rooms since hotel taxes are one of the District's and WCCA's primary sources of revenue. Increased hotel occupancy creates increased revenues for the District and WCCA. Nevertheless, WCCA always tries to recoup its operational expenses with every event that is booked in the convention center. In order to minimize expenses, WCCA has sought to efficiently administer its contracts, automate its financial processes, attract events that lead to long-term relationships that show potential for repeat business, and maximize overall operations efficiencies. Ultimately, the best analysis of our effectiveness is a cost-benefit analysis for each event rather than a profit and loss model. A cost-benefit will take into account the financial impact of an event on the District of Columbia as a whole, including the cost to the convention center for staging a particular event. Such an analysis will provide a more accurate picture to the District of the costs and benefits of holding conventions. (3) Audit Recommendation WCCA Response (4) Audit Recommendation WCCA Response (5) Audit Recommendation WCCA Response (6) Audit Recommendations The DC Auditor recommended that the WCCA's Board of Directors immediately seek justification of the $43,977.64 in undocumented charges made to the WCCA's corporate credit card in undocumented charges made to the WCCA's corporate credit card in fiscal years 1995 and 1996, as well as the $10,806.13 made in fiscal year 1997 through April 30. Absent proper documentation or justification, the Board should seek recovery of these funds as well as take appropriate disciplinary or corrective action against managers who did not comply with or enforce WCCA's policies and procedures (page 16). WCCA Response (7) Audit Recommendations The DC Auditor recommended that WCCA immediately institute a policy prohibiting employees from traveling first class (page 16). WCCA Response WCCA's new policy restricts the use of first class travel and outlines specific special conditions when this mode of transport is used. (8) Audit Recommendations The DC Auditor recommended that the Chairperson and Management Liaison to the WCCA Board of Directors reimburse the WCCA $3,077.40 and $730.92 respectively for out-of-town travel expenditures related to the Democratic National Convention (page 20). WCCA Response The WCCA's Board has taken the appropriate disciplinary actions against those charged with violating or not enforcing the policies and procedures in place at that time. This matter was referred to the Office of the Inspector General for final resolution. (9) Audit Recommendations The DC Auditor recommended that WCCA discontinue purchasing tickets to various social events unless there is a clearly articulated business purpose related to the statutory mission of the WCCA (page 21). WCCA Response (10) Audit Recommendations The DC Auditor recommended that WCCA comply with its procurement regulations relating to securing (3) quotations from vendors when purchase orders are issued. The DC Auditor recommended that WCCA update all contract files to ensure that pertinent information pertaining to all aspects of the contract is available (page 22). WCCA Response WCCA's management as well as its Board of Directors recognize the tremendous effort required by managing the operation of the current convention center and construction of the new convention center. We have made tremendous progress in implementing the issues raised by the DC Auditor over the last three years. We will continue to press forward with improvements to our policies and procedures, automation projects and delivery of the new convention center on time and within budget. Sincerely, 1. The Board's composition was amended by the Washington Convention Center Authority Amendment Act of 1998, D.C. Law 12142 effective August 12, 1998. The Director of the Office of Tourism and Promotions was replaced with another member to be designated by the Mayor of the District of Columbia, who along with the Chief Financial Officer, serve as ex-officio voting members. According to the legislation, the seven public Board members shall consist of individuals from the hospitality industry and organized labor; and the remaining five members must have expertise in municipal finance, business finance, economic development, construction or tourism. 2. The construction management contract provides an incentive which allows a 25 percent cost savings to the joint venture up to $9.5 million to complete the project for less than the agreed upon GMP. This may be adjusted upwards or downwards based upon the joint venture meeting established goals using local, small, or disadvantaged businesses. At the same time, the construction management contract provides a penalty of $50,000 a day for each day the joint venture fails to meet the agreed upon completion date. 3. The total WCCA project budget for the new convention center, as reported in a GAO report on the Status of the New Convention Center Project, was $685,000,000. 4. This represents the budget for the proposed convention center as reported by the Office of the D.C. Auditor in its report entitled, "Washington Convention Center Authority Accounts and Operations," dated June 24, 1997. 5. WCCA is relying on vendors to fund equipment costs totaling $24 million for a central heating and cooling plant, telecommunications, food service, and audiovisual equipment. WCCA is presently negotiating with a vendor to provide central plant heating and cooling services with an estimated value of $14 million. 6. Information reviewed by the Auditor indicated that $4 million of the increase in the GMP related to a change order for the removal of additional contaminated soil from the Mount Vernon Site. According to information provided by WCCA through September 30, 1999, the estimate for removing contaminated soil had increased upwards to $9 million. Other change orders were approved for changes affecting utility relocation. Additionally, estimated cost increases and decreases related to design, construction issues, and insurance contributed to the revised GMP of $510.7 million. 7. WCCA's managing director of development submitted a memorandum, dated December 20, 1999 to the Washington Convention Center Authority Board of Directors requesting approval to modify the terms and conditions of the original GMP Amendment. An attachment entitled, "Deal Points," outlined the particulars of the Second GMP Amendment. The Board adopted a resolution dated December 20, 1999 approving the request. 8. The Department of Finance and Revenue is currently referred to as the Office of Tax and Revenue. This change was effective as of October 1, 1998. |
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