The Tennessee Comptroller of the Treasury has released the audit report for Fiscal Year 2017/2018 of the Public Building Authority (PBA), which owns and operates the Manchester-Coffee County Conference Center.
The auditors identified seven issues, referred to as findings. Five of the findings were described as “significant deficiencies in internal controls,” and two of them – budget and net operating loss – were described as “instances of noncompliance.”
Included in the audit report are the PBA’s responses to each finding.
One of the findings is related to the center’s budget.
“We noted that actual expenditures exceeded the amount appropriated in the budget in the general fund,” the auditors said. “This practice is contrary to state statutes, which require all expenditures of the general and special revenue funds to be authorized by the governing body.”
The auditors recommended that all expenditures should be authorized in either the original budget or an amendment to that budget or in a supplemental appropriation.
The center’s management will continue to develop a comprehensive budget and all efforts will be made to stay within the parameters of the initial budget, according to the PBA.
Net operating loss
The net operating loss was also identified as an instance of noncompliance.
The conference center suffered a net operating loss of $505,975 in FY17. In FY18, it suffered a net operating loss of $396,160.
“Care should be taken to ensure the conference center operates at a break-even point in the future,” the auditors said.
The PBA responded, saying “priority measures with accountability requirements have been implemented to work within budget and decrease net losses.”
According to the authority, periodic meetings are held between the board and staff to ensure opportunities for revenue streams are not overlooked. Additionally, price evaluations are done twice yearly and whenever market rate requires change, according to the board.
The PBA’s response also stated that “revenue streams from other sources are also currently being evaluated.”
In December, PBA member Stan Teal suggested to the Coffee County Budget and Finance Committee implementing a county hotel tax within in the city limits of Tullahoma and Manchester, and using the revenue – or part of the revenue – to finance the conference center. Since then, county officials have taken steps toward doing so.
PBA members also said the center “is being managed as a business with in-kind donations to the community eliminated.”
The in-kind donations were discounts on renting space at the center given to schools and nonprofit organizations. The schools received 90 percent discount and nonprofit organizations received a 50 percent discount, according to PBA members.
According to the audit, in FY18, the amount of in-kind donations was $194,701, and the total rental income was $168,966.
According to the PBA, the center had its best year in sales since inception.
Segregation of duties
Segregation of duties could be improved, according to the report.
“In our review of the overall controls of the authority’s accounting system, we found several areas where proper segregation of duties might be obtained,” the auditors said. “The authority’s lack of ability to properly segregate the control of funds from record-keeping duties is a significant deficiency in controls.”
The audit recommends a thorough study of the internal control aspect of the accounting system.
“Certain additional procedures and segregation of proper duties could increase the control over the assets,” the report states.
PBA said “internal control classes were taken by management and policies have been implemented to increase control over assets.”
Efforts are made to segregate duties with current staff in place. Additional training of all staff has been implemented to ensure names properly match on invoices, payments and reconciliation, according to the PBA.
Testing revealed instances of checks with one signature clearing the bank, said the auditors, adding “proper controls should be in place to ensure that the checks have two signatures prior to being issued in accordance with the authority’s purchasing policy.”
According to the PBA, all checks are pre-printed with “two signatures required,” and checks are currently signed by two individuals, the general manager and one PBA board member.
“The purchasing policy includes verifying two signatures on all checks signed when reconciling,” according to the PBA.
Controls over disbursements
“Testing revealed instances of sales tax being paid on some expenses as well as instances of sales tax not being paid on resale items,” the auditors said.
To avoid unnecessary expenditure of funds, the authority should review all invoices and deduct any sales tax before making payment to the vendor, according to the auditors.
“Before signing a check, authorized individuals should review should review adequate supporting documentation to determine that the disbursement is for a valid organizational purpose. Vendors should be notified of the authority’s exempt status relative to sales and use tax.
A standard operating procedure has been established concerning disbursements, check writing, posting, cashing, and canceling checks, and debit card usage, said PBA members.
Supporting documentation must be attached to all transactions, according to the PBA.
Surplus fixed assets
“During fixed assets testing, we were unable to verify board approval for fixed assets that were deemed as surplus during the fiscal year,” the auditors said. “Fixed assets that are no longer in operating condition should be approved by the board before being sold or otherwise disposed and removed from the fixed asset listing.”
The auditors recommended that controls should be implemented to ensure that surplus fixed assets are approved for sale or disposal prior to being removed from the organization.
“We suggest the board annually review a fixed asset listing, and any property identified for disposal be noted in the official board minutes,” the auditors said.
According to the PBA, this policy is currently being followed, and clarification for items overlooked in previous inventories would eliminate this finding from being repeated.
Some receipts were not filled out completely and some receipts were not voided correctly, the report stated.
“Receipt books should remain intact to ensure proper control of all receipts, issued of voided,” the auditors said. “All pre-numbered receipts must identify the purpose for the payment and the corresponding amount or other documentations must be attached to the receipt.”
All receipts should be prepared and signed by the individual who is collecting the monies, and voided receipts should be retained and stapled to the carbon. Additionally, deposit slips should be completed and itemized. Amounts should be consistent from the receipt, to the deposit slip, and then to the general ledger, and dates should also be consistent from the deposit slip to the general ledger, according to the auditors.
“Additional controls should be implemented to ensure proper controls over the receipt process,” the auditors said.
“This policy is currently being followed, clarification for receipts to staff members and receiving has been retrained to all staff taking money, ensuring the event name on the invoice, receipt, and any other documentation must match,” PBA members said. “Only monetary monies are to be recorded in the receipt book.”
Two of the findings identified in previous years no longer exist.
Previous testing had revealed deposits were not always made within three days of receipt, but as of June 30, 2018, this problem no longer existed. Previously, there was a deficit in the center’s fund. This problem no longer exists.
The PBA also reported a series of improvements in FY18.
According to the PBA, in FY18, the authority made further efforts toward sustainability by eliminating plastic straws, implementing paper and stainless steel alternatives, and by using recyclable plastics or compostable food service items.
The center has also further developed its outdoor venue and completed that project.
The audit report was prepared by Bean, Rhoton & Kelley, PLLC.
The Public Building Authority was established in September 2000, “for the purpose of issuing bonds to the governmental agencies generally located in the Middle Region of the State of Tennessee. Additionally, the authority shall own and operate the Manchester-Coffee County Conference Center and any other public buildings within the county as appropriate in the future,” according to the PBA.
The authority reports it has supported the region by issuing more than $62.5 million in bonds, used to benefit the public through water and sewer projects, construction and renovation of several Coffee County schools and the construction of the conference center.
The conference center, managed for the PBA by General Manager Rebecca French, is a full-service, 13,000-square-foot facility, hosting seminars, trade shows, weddings, meetings and industry and fundraising events.
The conference center was built in 2002, with taxpayers in Coffee County and Manchester splitting the cost for the project equally. The building cost $3.5 million, and the bonds used to fund the construction are set to be paid off in 2021.
The two entities also equally share operating losses, which were about $400,000 in FY18 and topped $500,000 in FY17.
Elena Cawley can be reached at firstname.lastname@example.org.