Audit Committee City & County of Denver

Transcription

1 Audit Committee City & County of Denver Meeting Minutes February 20, 2014 Opening Chairman Gallagher called the meeting to order at 8:00 a.m. in the Parr-Widener Community Room of the City and County Building. Members Present Robert Bishop, Jeff Hart, Leslie Mitchell, Tim O Brien were in attendance. Maurice Goodgaine and Rudy Payan were excused. Also Present Auditor s staff members Clay Vigoda and Kip Memmott. Approval of Minutes The minutes were approved as written. Old Business There was no old business.

2 Briefing: Denver International Airport Concessions Management Performance Audit: Chairman Gallagher introduced Kip Memmott who gave a brief review of the audit. Mr. Memmott introduced Deputy Director of Audit Services John Carlson, Audit Supervisor Sonia Montano and Senior Auditors Tim Waddingham and Kelsey Yamasaki. DIA CFO Patrick joined the proceedings at the table. Upon completion of the presentation of the findings, the Chairman called on Mr. Heck for his comments and response. Mr. Heck noted that DIA has agreed with all three findings of the audit. Mr. Hart kicked of the questions by asking for a clarification of the goals of the PVC program. He noted that there were conflicting stated goals and wondered which goals were the priority. Mr. Heck answered that the specific goals of the program are to fit within the new strategic plan that has been implemented at the airport. He noted that strategic plans often have conflicting goals within the plan and that is the case here. The first goal is to provide opportunities for local small businesses in the region to do business at the airport. Second is to be globally competitive and to make the region globally competitive. The key is finding the balance between providing opportunity for local businesses but also find the national brands that raise the overall standard of the airport. Mr. Bishop asked for an elaboration on how the ongoing measurements are reported to the vendors and wondered if the vendors fully understood the program and if they are fully engaged in the process. Mr. Waddingham confirmed there was a monthly report and that concessionaires are fully aware of their ongoing scores. Ms. Mitchell asked for clarification on the length of the concessions contracts and if it is a standard term of if it varies depending on the type of product or concept. Mr. Heck answered that the lengths vary dependent mostly on the amount of capital improvements and costs that will be necessitated by differing concepts. For example, Elways a casual dining concept has a 10 year term, while retail terms (clothing, etc.) will average 7 years. Mr. O Brien challenged the audit team s assessment that when a concessionaire has declining revenue that they shouldn t be given points under the PVC program. He noted that in an economic downturn, if you decline less than other similar retailers, that you may actually be doing a better job even though gross revenues are less. Mr. Waddingham noted that Rule 45 specified revenue growth as a criterion, and in this example they were not growing revenue. Moving on to desire for more transparency in the contracting process, Mr. O Brien wondered if a losing proposer could look at the winning and losing bids and see why it was they were unsuccessful. Mr. Heck noted that not all information on the process is retained by DIA. Retained information is available, but there is sensitive information that is not retained. Mr. O Brien noted that if you are the unsuccessful bidder, if you have no

3 idea why your bid was unsuccessful than you have no way of knowing how to improve your bid for the next time. Mr. Hart continued his questioning on the changing of the airport rules to allow one particular concessionaire to have a larger percentage of the concessions business. Mr. Hart found this troubling because it hits at the public s perception of fairness. Mr. Hart asked if the audit team had specific documentation showing that the rule was changed to accommodate the concessionaire and Mr. Yamasaki noted that there was no specific documentation that showed that the cap limit was changed for one concessionaire, except for the timing and that the concessionaire in question was over the limit until it was changed. Mr. Heck appreciated the issues with how this issue might be perceived, but that the policy was an attempt by DIA management to stay away from the issues that occurred with a master concessionaire program. Mr. Heck gave numerous examples of DIA programs intended to encourage small business growth at the airport. However, he noted that DIA also wanting to reward the existing concessionaires who they have a good working relationship with and who have helped DIA become so successful. Mr. Vigoda brought up that the top three concessionaire groups at DIA control 50% of the revenues in the bar and restaurant category. He went on to question at what point should we be looking at these numbers and questioning if the process is unfair and needs to change. Mr. Heck acknowledged that there are other metrics that could be used and they have looked at the pros and cons of each. However, based on this audit they will be taking another look at the metrics that DIA uses to determine if there is a better way. Mr. Vigoda continued by noting that the facts can be looked at in a way that they largest concessionaire s percentages are significantly larger than the 23% DIA shows. If the issue is all about revenue, and ownership numbers are already so high, Mr. Vigoda asked why not look at a master concessionaire program. Mr. Vigoda ended his long, run-on list of questions by asking if, as governmental entity, it should be all about the money. Mr. Heck restated that DIA has a dual mission that required balance: generating revenue and ensuring fairness and opportunity. Mr. O Brien brought up the idea that there should be some type of sunset provision with PVC concessionaires to ensure that over time there is opportunity for outside entities to have their shot at succeeding at DIA. Additionally, if concessionaires don t have to go through the RFP process, over time can you be sure you are actually keeping the most competitive vendors? Mr. Heck answered by reiterating that as the PVC is fine-tuned it will only be rewarding the top concessionaires so there will be benchmarks to ensure they are truly the best revenue operations for the city. Mr. Hart asked for a yes or no answer as to whether DIA policies were changed to benefit Skyport, the largest concessionaire at DIA. Mr. Heck gave a qualified answer that he was not involved in any meetings that discussed changing the policy to benefit Skyport. Mr. Heck further noted that DIA works hard to maintain the public trust but acknowledged that doesn t always happen so they are continually working to improve.

4 Ms. Mitchell noted that the number of concessionaires who have issues with the PVC program when looked at as a percentage of the total, rather than just those who responded, the number is around 20%. Mr. Bishop asked questions about the training program and why there was only one provider they could use. Mr. Waddingham noted that the program was a DIA program and the vendor had been chosen through an RFP process. Briefing: Debt Management II Performance Audit & Financial Task Force SAR Mr. Memmott gave a brief overview of the audit noting that this audit was the second audit on the city s fiscal sustainability. He turned the proceedings over to Deputy Auditor Audrey Donovan, who introduced the audit team: Supervisor Chris Horton, Lead Auditor Anna Hansen and Lead Auditor Robyn Lamb. Also joining the committee at the table was City CFO Cary Kennedy, Controller Beth Machann, Budget Office Director Brendan Hanlon and Bob Gibson, Director of Cash, Risk and Capital Funding. Upon completion of presentation of the audit Ms. Donovan presented the Financial Task Force Special Advisory Report (SAR). The SAR looked at the status of the 16 accepted recommendations that flowed out of the Mayor s Financial Task Force. The SAR noted that of the 16 recommendations, six have already been implemented and that the other 10 are in progress. Upon completion of the audit and SAR presentation, the Chairman called upon Ms. Kennedy for her comments. Ms. Kennedy thanked the team for their work and complimented the team for their professionalism and the strength of the work they have done. Ms. Kennedy explained the reasons that the administration disagreed with the audit recommendations which are detailed in the administration s response within the audit. The Chairman called on Mr. O Brien who noted that it has always been, and continues to be his belief that COPs are debt, though he noted that the Colorado Supreme Court disagrees with him on this issue. Mr. O Brien wondered when a COP is used and outside of the policy articulated by the administration they are still transparent and not backroom deals. There was a affirmation of this point with Ms. Kennedy noting they go through the Council process and includes public hearings. As it relates to the Museum of Nature and Science COP, Mr. O Brien wondered if they if the Museum is a component unit of the city. Ms. Machann noted that they were no longer considered a component unit. Mr. O Brien then asked on whose spreadsheet the COP debt was shown. Ms. Machann answered that the COP was shown on the City s spreadsheet and that the parking garage is a City asset. This seemingly unusual situation occurs because of changes to GASB rules that went in to effect last year. Mr. Hart noted that the guidelines specifically give the administration the ability to issue COPs outside the general criteria laid out. He wondered if it was not against the guidelines, why then did the audit team make the recommendation to go further in

5 informing the public as detailed in the audit report. Mr. Horton gave the response which came down to the Auditors Office always looking for more transparency in all governmental actions. Mr. Horton also noted that internal guidance reflects the organization s belief about what constitutes best practice, and therefore circumventing the internal guidance should not be done lightly. Mr. O Brien finished the discussion by noting that the lion s share of the debt, which is DIA debt, was not included in this report and he wondered if there would be future report dealing with DIA debt. Mr. Horton noted that it was a very conscious decision to scope out DIA because they specifically wanted to look at non-dia debt. He noted that there may be an audit around DIA debt in the future. Discussion: Executive Session Guidelines The Chairman turned the proceedings over to Mr. Vigoda to begin the discussion on the use and guidelines of Executive Sessions. Deputy City Attorney. Dan Slattery came to the table to help with the discussion. Mr. Vigoda noted that in the last meeting of the Independent Audit Committee the question about when to go into Executive Session and what is an appropriate or inappropriate use of this privilege had come up. The Committee had asked Mr. Vigoda to facilitate a discussion of this issue. Mr. Vigoda noted that, with the exception of discussions on the CAFR, the Audit Committee had only gone into Executive Session one other time over the last three plus years. Mr. Slattery walked the Committee through the differences between city and state laws governing the use of Executive Session. The City follows the City s Open Meetings law rather than the state laws, noting that this law predates the state law and that as a homerule city, Denver is entitled to use their own rules. Basically, the Audit Committee can use Executive Session to discuss virtually any issue they so choose. Mr. Vigoda noted that while the privilege exists whenever they like, it has always been the policy of the Committee to error on the side of transparency and only go into Executive Session if absolutely necessary. It was the general consensus of all in attendance that this privilege should be used sparingly and that, in the interest of accountability and transparency, only in the most sensitive of discussions should the Committee go into Session. New Business The Chairman noted that Mr. O Brien has consented to serve another term on the Independent Audit Committee. Mr. Vigoda then noted that Mr. Bishop was appointed by City Council to another term.

6 There was no other new business and, at 10:02 AM, the Committee adjourned into Executive Session to discuss topics relating to the ongoing CAFR.