07.01 Orange International Street Fair Report —
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, March 12, 2019 . ::: _ _.
TO; Honorable Mayor and Members of the City Council . .
FROM:: Rick Otto, City Manager -
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Cit Man er inance
REVIEW: y
1. SU BJf CT
Orange International Street Fair; Inc. update of Agreed.Upon Procedures report:
2. SUMMARY
Provide a status update for the examination of policies and: procedures and certain
_
financial documents of the Orange Inte.rnational Street F:air, Inc.
3. REC.OMMENDED::ACTION
Receive and file. .
: . ..
4. FISCAL IMPACT
None. ,
_ . _
5. STRATEGIC PLAN .GOALS
Goal 3: Enhance and promote;quality of life in the community
e: Develop and strengthen collaborative partnerships to enhance and.promote
qua ity o i e pr.ogram, pro�ects,.an s.ervices.
6. DISCUSSION AND BACKGROUND.
Introduction
The Orange: lnternational Stree.t Fair (Street F:air) is an annual event, produced by the �
Orange International Street Fair, Inc::_(OISF), held in tfie Orange Plaza area over tfie
_ Labor. Day weekend: This popular eVen# draws hundreds of thousands of.visitors over::
the three-day period requiring. months of planning and coordination. The production and
cost reimbursement of#he event is governed by an agreement between the City and the
OISF: The most recent multi,-year agreement, number 1071.1, expired _on.December 31,.. . .
2017. A one=year extension of the agreement vuas approved by the City Council on June
12, 2018. .. In addition to .the approval of the agreement extension, the.City Council
requested staff to perform an audit of the OISF's records as authorized in Section 5.1 of
the agreement. Specifically, the City Council requested an examination of records related
to the OISF's financial transactions in the production of the Street Fair, as well as Board
ITEM � • � � 03/12/2019
policies related to the selection of non-profit participants, cash handling, contract awards,
and other operational practices.
Aqreed Upon Procedures Data Collection
The City engaged the CPA firm Nigro & Nigro, PC, to perform Agreed Upon Procedures
(AUP) as to the policies, procedures, and financial management of the OISF. An AUP
engagement asks the CPA to issue a report of findings based on specific procedures
performed on an entity's documents. In this case, Nigro & Nigro are not engaged to
provide an audit opinion, but instead a listing of findings based upon certain tests they
perform on documents provided by the OISF. Nigro & Nigro was selected to conduct the
AUP based on their experience with auditing similar non-profit events.
On November 11, 2018 as a prelude to initiating the AUP, staff provided the OISF Board
with a listing of commonly requested documents. The first priority was to obtain a detailed
narrative of the OISF Policies and Procedures for every aspect of the production of the
Street Fair, as well as for financial management and controls. The suggested financial
records included general ledgers, bank statements with canceled checks, tax returns,
invoices and paid bills, while other corporate documents included board minutes,
insurance policies, and vendor and supplier contracts.
On January 9, 2019, OISF created a Drop Box to share documents and upload requests
as they became available. Staff met with the seven member OISF Board on January 15,
2019 to further clarify needed documents. On January 16, 2019, staff was informed that
three members of the Board had resigned, including the president and vice president.
The remaining four members of the board began to provide requested documents as their
time and resources permitted. Documents continued to be provided with the latest
submittals as late as March 3�d. Because the depleted OISF staffing made it challenging
to provide all documents in a timely fashion, the AUP was performed as documents
became available and testing was designed around those documents supplied. In some
cases, Nigro & Nigro was unable to follow up with questions to fully explain
inconsistencies in their observations.
Nigro & Nigro examined financial records from each of the three years ending December
31, 2016, 2017, and 2018, and performed the following procedures:
1. Gained an understanding of and tested key policies and procedures created by
. OISF in the selection and maintenance of not for profit applicants.
2. Gained an understanding of and tested selected account balances in the
general ledger from QuickBooks.
3. Reviewed supporting documentation for certain account balances.
4. Interviews and questionnaires were conducted with OISF Board members in the
course of our work.
AUP Findinps
The results of their engagement indicated that there are unverifiable procedures and
deficient accounting practices and procedures as outlined below and as follows:
a) Vendor Participants: Nigro & Nigro chose four vendor participants from each year
(total of 12) to determine if OISF had obtained documentation required in their
policies. After searching the IRS website to verify non-profit status, only six
ITEM 2 03/12/2019
vendors were found listed on the website. In the search for a California resale
permit, only four of the twelve vendors had submitted the required documentation.
b) Booths and Sponsorships: For the twelve participants sampled above, the actual
application was reviewed and, calculated fees were traced to vendor payments,
entry in the general ledger, and recording in the bank statements. Seven out of
twelve sampled applications did not agree to the amount recorded in the general
ledger and five could not be identified. Linear foot charges on the application were
shown to be $75 per linear foot but $65 per linear foot on invoices. Similarly, beer
booth fees were $4,200 on applications but $3,200 on invoices. Because this
sample did not represent the entire population of vendors, it is not possible to state
if all vendors were charged fairly or paid the entire amount due.
c) Vendor Waitlist: The waitlist for vendor booths in 2016 and 2018 showed one
Orange-based vendor selected in each of those years. There was no waitlist in
2017. The Board minutes did not support the actual selection process.
d) Complaint Resolution: According to the Policies and Procedures, complaint
procedures are to be addressed in a specific manner, including the complainant
being contacted by a committee chairperson within 72 hours, whereupon the
chairperson gathers information and creates a memo for the Board of Directors.
The complaint is to be reviewed at the next OISF board meeting where an action
is determined. The chairperson is to notify the complainant of the action with an
opportunity to appeal. While the Board minutes referenced complaints in general,
the process could not be verified in any of the provided Board documents.
e) Wristband sales: Wristbands are sold for $3 each, from eight different booths
operated by non-OISF organization members. Testing revealed no consistent use
of cash pre-count sheets orwristband fund tracking sheets, so no verification exists
that all cash collected was properly deposited into the bank. Nineteen of the
twenty-two donations over the three years were for $2,000 while three other
donations were $2,028, $2,336 and $2,780 respectively.
f) Cash Disbursements: Receipts for expenses were not provided for many of
the payments. Each year, 26 payments were tested. In 2016 and 2017, 50% of
the checks did not have back-up; in 2018, those missing back-up decreased to
23%. In addition, while procedures require checks over$2,000 to be signed by two
Board members, this was not consistently followed.
g) Bank Reconciliations: The majority of reconciliations were not performed timely
by the end of the following month. Some reconciliations were prepared by the
Treasurer and did not indicate if they were reviewed by the external CPA, as per
policy.
h) Treasurer's Duties: The Treasurer has significant duties in each of the accounting
cycles such as: invoicing, collecting deposits and fees, recording all checks in the
general ledger, depositing checks, reporting at each OISF board meeting, signing
checks, performing bank reconciliation (reviewed by independent CPA),
overseeing the wristband sales counting procedure. These duties should be
divided between other qualified board or committee members to provide more
control over assets.
i) Alcohol Service Rotation: No ethnic street participant is permitted to serve beer
for more than one year in a row unless all other street participants decline to be in
the rotation or the ethnic street participant is the only participant on the street. Of
the 16 alcohol licenses assigned during the Street Fair, 11 streets have only one
license, which is allocated to participants assigned to that street. In most cases,
ITEM 3 03/12/2019
there are only one or two participants on that street, effectively giving them sole
rights to alcohol sales, and the large profit that accompanies it. In some cases,
these participants are not Orange based non-profits, but are long-time and even
founding members of the Street Fair. It is recommended that the rotation of
alcohol-serving participants be expanded to make all 16 licenses available each
. year and not be determined by the street that a participant is located on. Further,
the OISF should document and publish on the website the policy and rotation list
for full transparency.
Due to limits on information provided and time constraints, Nigro & Nigro was not able to
inquire about the following procedures:
1. Revenue transactions involving the sale of alcohol: OISF did not provide a
procedure outlining how alcohol is supplied, cup sales are tracked, shortages are
resolved, and revenue collected from alcohol booth vendors.
2. Waiting list for alcohol booth participation: While the rotation list for alcohol booth
sales was provided, there was no listing of organizations on a waiting list.
3. Donations to Non-Profits other than designated participants: Nigro & Nigro did not
note any donations to organizations other than those that sold wristbands.
4. Electronic checks: Because the request for bank statements and cancelled checks
did not always yield complete records, Nigro & Nigro was limited to testing those
checks provided. As such, electronic checks and their backup could not be traced
from originating documents to approval in a conclusive manner.
Financial Summary
The following is a recap of the OISF Form 990 tax return for Non-Profit corporations for
the 2015, 2016, and 2017 tax years. The 2018 tax return has not yet been filed. Several
variances from year to year have been detailed in the attached report.
2015 2016 2017
Beginning Balance $77,461 $36,978 $88,916
Income 452,348 571,407 408,013
Expenses 492,831 519,469 485,507
Ending Net Assets $36,978 $88,916 $11,422
While the above-mentioned information is reported directly from filed tax returns, the data
was not verified by staff or Nigro & Nigro for the purpose of this report. It is merely a point
of reference for City Council's benefit.
AUP Recommendations and Conclusion
In Nigro & Nigro's attached report, they detail the results of their tests of procedures over
each area, with specific recommendations that should be implemented in order to improve
financial reporting for OISF. It bears mentioning that due to time constraints, Nigro &
Nigro was unable to follow-up on discrepancies of several procedures. However, in
addition to the points already summarized, their major recommendation is that the City
consider requiring OISF to engage a CPA to conduct an annual review or audit of their
financial statements, and to include an evaluation of internal control practices in that
process.
ITEM 4 03/12/2019
Staff believes this AUP provides a foundation for assessing the procedures and controls
of the OISF but recommends continued interaction and follow-up to determine that OISF
implements recommendations in a timely manner. In addition, staff would recommend the
following:
1. OISF should hire a bookkeeper, preferably in the local area, to formalize
accounting documents and procedures. In conjunction with the Treasurer, OISF
would be able to have responsibilities performed by independent personnel and
reinforce transparency. With such a resource, OISF could easily have their CPA
prepare annual financial statements for presentation to the City Council.
2. OISF should consider amending their by-laws to expand the size of their board to
include representatives from other community organizations that are independent
from those participating in the Street Fair.
In addition, as mentioned at the February 12, 2019 City Council meeting, OISF is
interested in a extending the current agreement for one additional year in order to move
forward with the 2019 Street Fair and allow time for to negotiate a new agreement. Such
an extension could include any language amendments as directed by the City Council.
Should the City Council direct staff to negotiate a one-year extension, it is anticipated the
agreement would be presented for City Council consideration at the April 9, 2019 meeting.
7. ATTACHMENTS
1. Accountant's Agreed Upon Procedure Report of the Orange International Street
Fair, dated February 28, 2019.
ITEM s 03/12/2019
CITY OF ORANGE
ACCOUNTANTS'AGREED UPON PROCEDURES
REPORT
Orange International,Street Fair
February 28,2019
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CITY OF ORANGE
ACCOUNTANTS'AGREED UPON PROCEDURES REPORT
Orange International Street Fair
TABLE OF CONTENTS
Pa�e
Independent Accountants'Report on Applying Agreed-Upon Procedures........................................................................1
Basisfor Procedures....................................................................................................................................................................................2
VendorParticipants.....................................................................................................................................................................................2
Vendor Maintenance and Wait List.......................................................................................................................................................3
ComplaintResolution..................................................................................................................................................................................3
AlcoholService Rotation............................................................................................................................................................................3
Boothsand Sponsorships..........................................................................................................................................................................4
WristbandSales.............................................................................................................................................................................................5
CashDisbursements.....................................................................................................................................................................................5
BankReconciliations...................................................................................................................................................................................6
FinancialStatements....................................................................................................................................................................................6
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Independent Accountants'Report on Applying
Agreed-Upon Procedures
To the Management of
City of Orange
We have performed the procedures enumerated below, which were agreed to by the Director of Finance at
City of Orange("the City"),to perform an operational and internal control analysis of the Orange International
Street Fair(OISF). This agreed-upon procedures engagement was performed in accordance with attestation
standards established by the American Institute of Certified Public Accountants. The sufficiency of these ,
procedures is solely the responsibility of those parties specified in this report. Consequently, we make no
representation regarding the sufficiency of the procedures described below either for the purpose for which
this report has been requested or for any other purpose.
In order to achieve our objectives,we performed the following procedures:
1. Gained an understanding of and tested key policies and procedures created by OISF in the selection
and maintenance of not for profit applicants
2. Gained an understanding of and tested selected account balances in the general ledger from
QuickBooks
3. Reviewed supporting documentation for certain account balances
4. Interviews and questionnaires were conducted with OISF personnel in the course of our work
The results of our engagement indicated that there are unverifiable procedures and deficient accounting
practices and procedures as described in further detail in this report. Our report details the results of our
procedures in detail over each area,with specific recommendations that should be implemented in order to
improve financial reporting for OISF. Our major recommendation is that the City consider requiring OISF to
engage a CPA to conduct an annual review or audit of their financial statements and include an evaluation of
internal control practices in that process.
We were not engaged to and did not conduct an examination,the objective of which would be the expression
of an opinion on the accounting practices and procedures. Accordingly,we do not express such an opinion.
Had we performed additional procedures, other matters might have come to our attention that would have
been reported to you.
This report is intended solely for the information and use of the Finance Director,Assistant Finance Director,
Mayor and City Council of Orange, and is not intended to be, and should not be,used by anyone other than
these specified parties.
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February 28,2019
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CITY OF ORANGE
ACCOUNTANTS'AGREED UPON PROCEDURES REPORT
Orange International Street Fair
February,2019
In 2014 Orange International Street Fair, Inc. (OISF) and the City of Orange entered into a four-year
agreement for the production of the Orange International Street Fair.This agreement is part of a continuing
arrangement between the parties going back until at least 1994. Our procedures focused on the calendar
years 2016,2017 and 2018 per direction of the City's Director of Finance.
Basis for Procedures
OISF provided us with several policies concerning not for profit entities and`Ethnic Streets'contained in the
documents "Ethnic Street Rules and Regulations" (ESR&R's, 2/28/2017) and "Policies and Procedures for
Participant Selection" (P&P, 1/15/2019).These policies included components on selection of street vendors,
alcohol rotation on streets,complaint resolution and rules regarding distribution of funds to non-profits from
street sponsors. Once an understanding of these policies was realized, we attempted to verify each using
limited procedures to determine their effectiveness.OISF further provided three years of accounting records
maintained in QuickBooks including the general ledger and trial balance. OISF also provided some of the
requested documents that support the general ledger, including bank statements, bank reconciliations,
deposit slips,invoices,receipts,copies of checks,cash count sheets,participant applications and other items.
Vendor Participants
In the ESR&R's vendor participants are required to be recognized non-profit organizations (NPO) organized
for charitable, youth development, cultural enrichment or civic improvement purposes. In order to be
considered as an applicant,an application must include evidence as an NPO by showing at least one specific
document including Articles of Incorporation,tax exempt status letter from SBOE or IRS,or recent form 990
tax return. Each vendor, including those continuing from the prior year, is checked for eligibility.The policy
also maintains that applicants have proof of viable structure,general liability insurance,no prior debts owed
to OISF, are able to attend all mandatory'Ethnic Street' meetings and carry a valid State of California resale
permit.We selected four applications for each year under our procedures for a total of twelve to verify that
each requirement was being followed.Our selection was based on a listing provided by OISF.
Results:In our evaluation of twelve applications,four from each year,we noted that many of the requirements
of the ESR&R's are met through entries on the online application, which allow for the applicant to upload
supporting documents.We obtained copies of online applications which indicated that documents had been
uploaded to OISF from the applicant,however we did not review any of the uploaded items specifically.
To verify the not for profit status of the applicants,we used an IRS search tool https:�/www.irs.gov/charities-
non-profits/tax-exempt-organization-search.In our findings were able to verify six of the twelve applications
recognized as not for profit organizations,three from 2016,two from 2017 and one from 2018.We were able
to verify only four of twelve had submitted documentation to support possession of a California resale permit,
one from 2017 and three from 2018, and that seven of twelve uploaded documentation with insurance
information,two from 2016 and 2017 each,and three from 2018.Other requirements in the ESR&R's such as
viable structure,debts owed and attendance at mandatory meetings were not verified in this test.
Recommendations:We recommend that OISF implement and maintain an internal checklist that each required
item uploaded or provided by the applicant meets the standard as set forth in the ESR&R and retain the
supporting documentation received from the participant. We recommend this as an annual procedure as
entities'non-profit status may change.
2
CITY OF ORANGE
ACCOUNTANTS'AGREED UPON PROCEDURES REPORT
Orange International Street Fair
February,2019
Vendor Maintenance and Wait List
In the Policies and Procedures Participant Selection document, participants of the previous year have first
right of refusal in the next year's fair,and any openings are to be filled from a wait list.The wait list is to be
prioritized by City of Orange based organizations first,then by date of submission.A committee chairman is
to be a custodian of the applicant,review the application,and email and advise the applicant.The wait list is
to be verified every two years to confirm the applicants' interest and the applicant organization is to be
brought to the OISF Board of Directors for ultimate approval.According to OISF,there has only been one new
vendor between 2016 and 2018,which came from the wait list and was based in the City of Orange. In our
discussion with OISF it was noted that the wait list typically consists of one to three vendors.
Results: We were provided a wait list that included the name of the entity, contact information and whether
they filled a booth and what year.The listing showed one applicant listed twice for 2018,three applicants for
2016 and one applicant for 2015. The applicant for 2018 and one applicant from 2016 were noted to have
filled a booth in that year, and both were City of Orange based organizations. We were able to identify
invoices of one of the two applicants that filled a booth on the general ledger of OISF.We were not able to
verify the acceptance of any wait list applicants in our review of OISF board minutes.
Recommendations:We recommend that OISF inaintain a wait list and perform an annual review.The waitlist
procedure,points of contact and applicable contact persons within OISF should be published on the website
to avoid confusion among any non-profits who may wish to participate.
Complaint Resolution
According to the Policies and Procedures, complaint procedures are to be addressed in a specific manner,
including the complainant being contacted by a committee chairman within 72 hours, whereupon the
chairman gathers information and creates a memo for the Board of Directors.The complaint is to be reviewed
at the next OISF board meeting where it is reviewed and an action is determined.The chairman is to notify
the complainant of the action with an opportunity to appeal.
Results: During our review of board and committee meeting minutes, we noted that occasional complaints
were discussed in general,however we could not verify the above process.
Recommendations: We recommend that complaint procedures are followed and the course of action is
documented so that goodwill can be established and adjustments in procedures and policies made where
necessary.
Alcohol Service Rotation
OISF has 16 alcohol licenses that allow approved street participants to serve alcohol.According to the Beer
Sales Booth Rotation Policies and Procedures, all ethnic street participants are eligible for rotation if they
participate on an actively licensed street.The policy lists thirteen streets total,eleven streets with one license,
one street with three licenses (American Street) and one street with two licenses (Mexican Street).No ethnic
street participant is permitted to serve beer for more than one year in a row unless all other street
participants decline to be in the rotation or the ethnic street participant is the only participant on the street.A
lottery style rotation was created in 2014 that established a rotation.All participants wishing to be included
in the rotation were part of the draw until no names remained, essentially setting up the order for the 2014
year and several years afterwards, depending on the number of participants and licenses on the street.
Should there be any new participants,they would be added to the end of the list for a particular street.
3
CITY OF ORANGE
ACCOUNTANTS'AGREED UPON PROCEDURES REPORT
Orange International Street Fair
February,2019
Alcohol Service Rotarion(continued)
Results: We were provided with a spreadsheet of the rotation order, which included the street name,year,
and organization selected to serve alcohol. On American Street, although there are three licenses, only two
participants rotate annually according to the schedule and the other license is given to one participant that
has been allowed to serve alcohol each year. Five streets had one participant listed only for the 2016 year
(Italian, German, Swiss, Polynesian and Dutch) and did not identify the serving participant in prior or
subsequent years.Mexican Street lists the same two participants annually,including one participant from the
same school district with different boosters for basketball, wrestling, and softball listed twice on American
Street in 2016.The listing we were provided did not include a rotation for the following streets:Australian,
English,Danish and Ginza Streets,which are each allowed one license.We attempted to verify the rotation by
checking the listing against the general ledger and the OISF participant list on the website which indicates
alcohol sales booths,but were not able to verify the rotation with any certainty.
Recommendation:We recommend that the rotation of alcohol serving participants be expanded to make a1116
licenses available each year and not be determined by the street which a participant is located on. Further,
the OISF should document and publish on the website the policy and rotation list for full transparency.
Booths and Sponsorships
OISF receives checks for booth deposits and final payments and street sponsorships. No personal checks are
allowed, only business checks and money orders or cashier's checks are accepted. Sometimes OISF uses
invoices with descriptions that show the participant name,payment type,and amount for booth deposits and
final payments.Online applications also include a section for payment for booth and alcohol(if applicable).
Results: We evaluated a selection of deposits from the QuickBooks general ledger for each year 2016-2018.
Twenty-nine of thirty-nine deposits tested could be traced to OISF invoices, ten did not have accompanying
invoices,eight of which came from 2016. Some invoice numbers were out of sequence on the general ledger,
most notably in 2016.Other deposits were collected and recorded on the general ledger without descriptions
and could not be individually verified.Amounts received from Straub in the form of a check for the annual cup
surcharges did not come with detail to demonstrate how they were calculated.
We attempted to verify deposits and total amounts for linear foot charges and beer booth fees on the twelve
sampled applications referred to under vendor participants.Seven out of twelve sampled applications did not
agree to the amount recorded in the general ledger and five could not be identified.Linear foot charges on the
application were shown to be $75 per linear foot but$65 per linear foot on invoices. Similarly, beer booth
fees were $4,200 on applications but$3,200 on invoices and there were no transactions or notations on the
invoice or general ledger to indicate that the difference was from a deposit.
All of the checks sampled were either business checks,money orders,or cashier's checks as required per OISF
policy.Some checks received were dated several weeks before the date on the bank statement or deposit slip,
indicating they were not deposited in a timely manner.
Recommendation:We recommend OISF develop a form or modify its invoices or online application to include
a deposit amount and balance remaining and ensure that their invoices match these amounts. Consistent
handling of deposits through invoicing and consistent use of invoice numbers will improve tracking and
ensure all participants have paid the required amount.Invoices charged to participants should be supported
with itemized detail and signed by the committee chair or representative other than the treasurer.
4
CITY OF ORANGE
ACCOUNTANTS'AGREED UPON PROCEDURES REPORT
Orange International Street Fair
February,2019
Wristband Sales
Wristbands are sold for $3 each out of eight different booths operated by non-OISF Organization members.
These are located at different points in the fair to attendees who wish to purchase alcohol.Wristband sales
begin thirty minutes before opening on Friday and Saturday and at noon on Sunday. Each day,each booth is
given 1,000 wristbands that are color coded but not prenumbered. Each booth is given instructions on pre-
counting the cash and pickup times.The Organization member is escorted by an OISF representative and a
police officer at the designated time. At the OISF office, four counters, the Board Treasurer, Secretary, and
OISF representative are allowed in the office. The cash is counted twice on a counting machine by two
separate counters and compared to a pre-count sheet. In addition,the representative will turn in the unused
wristbands and any defective or ripped wristbands.After each of the eight organizations is finished,a deposit
slip is prepared, the cash is placed in a deposit bag and is deposited in a night drop. The Treasurer and
Secretary are responsible to enter the cash collected and information from the individual count sheets onto
the wristband funds tracking sheet.Once all monies are counted and verified,the Treasurer issues a check to
each organization that worked one of the eight different booths as a donation.All organizations are to receive
the same donation,minus the missing wristbands.
Results:We reviewed OISF general ledger reports for 2016-2017 to select a sample of wristband sales. We
requested backup including the bank statement, deposit slips, and cash count sheets with wristband
reconciliation.We were able to identify bank deposits for the amount recorded in the general ledger,but we
did not receive the cash pre-count sheets completed by the organizations or the wristband funds tracking
sheets and so were not able to verify that all cash collected was properly deposited into the bank.We noted
that six donation payments for wristband sales (booths) were made in 2016, seven in 2017, and nine
donation payments were made in 2018 (one from 2017,paid in January, 2018).We also noted that 19 of the
22 donations over the three years were for $2,000 while three other donations were $2,028, $2,336 and
$2,780 respectively.
Recommendation:We recommend that OISF retain all cash receipt records so that a clear trail exists from the
point of collection to the point of deposit.We also recommend each organization observes the cash count and
signs off on the tally sheets. We further recommend that during a future review, audit, or agreed upon
procedure,the process is observed by a qualified independent auditor over Labor Day weekend.Additionally,
we recommend OISF use prenumbered wristbands for tracking purposes so that there is better control over
sales and inventory. Finally,we recommend that the rationale for disbursing unequal donation amounts is
documented and the calculation is retained.
Cash Disbursements
OISF did not provide us with written policies for cash disbursements, but through inquiry we determined
some of their practices.Blank checks are kept locked,no cash is ever kept on site.To disburse payments,two
signatures are required over $2,000, one signature for under $2,000, and board approval for electronic
payments over $2,000. OISF does not use purchase orders, but budgets for expenses are approved by the
Board. Reimbursements to OISF members are allowed with original receipts. We randomly chose
approximately twenty-five transactions from the general ledger for each year to test for supporting
documentation,such as an invoice or a bill.We separately reviewed handwritten checks to try to verify if they
contained the required number of signatures.
Results: Receipts for expenses were not provided for many of the payments. We were not provided
supporting documentation such as an invoice or bill as follows:
• 2016:13 of 26 disbursements
• 2017: 12 of 25 disbursements
• 2018:6 of 26 disbursements
5
CITY OF ORANGE
ACCOUNTANTS'AGREED UPON PROCEDURES REPORT
Orange International Street Fair
February,2019
Cash Disbursements(continued)
We were able to find documentation of expenses being discussed and presented in the Treasurer's report in
some of the board minutes. For transactions where we were able to obtain copies of checks, the two-
signature requirement is being handled inconsistently.We identified nine payments in 2016,seven payments
in 2017 and five payments in 2018 of$2,000 or greater that did not have the required dual signatures.
Recommendation:OISF should have written policies for expenses and check writing.We recommend dividing
responsibilities between approving the payment and issuing the check among separate members to segregate
those duties (see Financial Statements,below).We recommend that the two-signature policy be followed for
all checks of$2,000 or more.We further recommend that OISF retain all supporting documentation such as
original receipts, indicating on the receipt or invoice that the service or product has been received and is
suitable for payment. OISF should document and retain approval and budgets for expenses at monthly
meetings.
Bank Reconciliations
Based on inquiry, the OISF Treasurer prepares bank reconciliations and an external CPA reviews them.We
selected four bank statements and reconciliations each year for a total of twelve.
Results:The December 2016 bank reconciliation did not agree with the general ledger and was not performed
by the external CPA until May of 2017.The majority of reconciliations were not performed timely by the end
of the following month. Some reconciliations were prepared by the Treasurer and did not show indication
that they were reviewed by the eaternal CPA.
Recommendation:We recommend that bank reconciliations are performed within two weeks after the end of
the month. Timely bank reconciliations are prudent and necessary to ensure that accounting records match
the amounts held on deposit. Furthermore,the preparer of the reconciliation should be someone other than
the Treasurer (see segregation of duties,below),or the external CPA should review and indicate this review
in a manner such as initialing.
Financial Statements
OISF records financial transactions in QuickBooks using cash basis accounting and uses this recorded
information to report its not-for-profit tax returns. Per the agreement with the City of Orange, OISF is
required to submit a written and oral report summarizing the activities of OISF including a financial
statement to the City council on or before the first Council meeting in April of the following year. We used
QuickBooks general ledger reports to select transaction samples, and verify selected balances in the trial
balance.We evaluated four bank statements and bank reconciliations for each month for the three years.We
also compared general ledger accounts side by side for three years to provide perspective for our procedures.
During inquiry and review of policies, we noted that the Treasurer has significant duties in each of the
accounting cycles.Below is a listing of duties that the Treasurer performs:
• Invoicing
• Collecting deposits and fees
• Recording all checks in the general ledger
• Depositing checks
• Reporting at each OISF board meeting
6
CITY OF ORANGE
ACCOUNTANTS'AGREED UPON PROCEDURES REPORT
Orange International Street Fair
February,2019
Financial Statements(continued)
• Signs checks (one signature required if under$2,000,two signatures if over$2,000 or an electronic
check)
• Performs bank reconciliation(reviewed by independent CPA)
• Oversees wristband sales counting procedure
Results:We verified that amounts recorded on the trial balance of OISF agreed with not-for-profit tax returns
filed for 2016 and 2017.We noted during our comparison of three years of unaudited financial data from
QuickBooks several significant changes in general ledger accounts as follows:
• Cup surcharge revenue was:
0 2016:$91,143.00
0 2017:$0.00
0 2018:$102,206.50
This variance was because cup surcharge revenue in 2016 included 2015 surcharge revenue,and
2017 surcharge revenue was received in January,2018,and so was included in the 20181edger.
• Wristband sales were:
0 2016:$131,354.37
0 2017:$97,134.50
0 2018:$127,613.66
It is believed that weather factored into the decreased revenues for 2017.
• Payment for a salary was made in 2016 for a paid executive position which was discontinued in 2017
and 2018. During inquiry, it was explained that the Board confirmed the pay during a meeting but
there was no signed contract. We noted during a review of minutes the discussion of the executive
director contract in March of 2016, pending legal review and then the decision to end payments in
December of 2016.
• OISF office rental/lease payments were:
0 2016:$20,744.86
0 2017:$1,260.39
0 2018:$20,700.00
OISF thought that these were consistent payments annually and the reason for the change was
unknown.
• Commercial booth fees were:
0 2016:$70,375.00
0 2017:$53,050.00
0 2018:$65,970.00
The expectation was that these fees would be consistent from year to year with the fair operating at
full capacity.
• The charge to the City of Orange was not recorded in the 2018 general ledger for$256,198.95.This
seems to be a timing difference and the difference in recording the expense in cash basis versus
accrual.
• The accounts receivable aging summary at December 31,2018,shows receivables over 90 days in the
amount of$6,350.
7
CITY OF ORANGE
ACCOUNTANTS'AGREED UPON PROCEDURES REPORT
Orange International Street Fair
February,2019
Financial Statements(continued)
Recommendations: We recommend that OISF fulfill the financial statement requirement with the City by
submitting reviewed or audited financial statements annually, at a minimum, at the end of each contract
period.We also recommend that the duties that the Treasurer is currently performing be segregated into the
following groups and be performed by different members: authorizing transactions, recording transactions,
and custody of assets.Proper segregation of duties is a key internal control that can protect or detect financial
statement errors and can mitigate fraud or theft. The segregation of assignments should be part of OISF's
overall accounting policy and procedures.
.�..8
CITY COiJNCIL MINi JTES MARCH 12, 2019
5. REPORTS FROM COUNCILMEMBERS—None
6. REPORTS FROM BOARDS, COMMITTEES,AND COMMISSIONS—None
7. ADMINISTRATIVE REPORTS
7.1 Orange Internatianal Street Fair, Inc. update of Agreed Upon Procedures report.
(A2100.0; 1071.I.2)
Economic Development Manager Susan Galvan and Finance Assistant Director Kah�in
Bandhauer provided the staff report noting that the audit did not reveal any significant
concerns with the Orange International Street Fair's (OISF) policies and procedures;
however, there aze some azeas of improvement such as cash management, segregation of
duties and retention of documents. In addition to the recommendations outlined in the
report, stafFproposes that OISF hire a bookkeeper and that they consider expanding their
Board to include members of the Orange non-profit communiTy. OISF is prepazed to
implement the recommendations presented in the report.
Public Speakers:
Cazole Walters — spoke in support of having an audit done more frequently and supports
non-profit groups benefitting from the street fair.
Adam Feliz, Orange Intemational Street Fair Boazd President — answered Council's
questions regazding the recommendations proposed in the report and current policies and
procedures.
Dwing discussion Council discussed cash handling procedures and the Orange non-profit
organizations first policy.
City Manager Otto stated that staff will bring back a one yeaz agreement in April that will
include the cash handling items discussed and a phase in process for the Orange first policy.
7.2 Agreement to Negofiate exclusively with Break of Dawn,LLC for 171 and 177 North
Cypress Street. (A2100.0; AGR-6748)
Senior Administrative Analyst Aazon Schulze provided the staff report explaining that the
City received an unsolicited offer to lease or buy the two City owned properties at 171 and
177 North Cypress Street.The two structures would be rehabilitated maintaining one house
as a residence and converting the other house into a restaurant by adding on a dining azea
to the existing building. If approved, the agreement would allow staff to negotiate
exclusively with Break of Dawn for six months for the disposition and development of 171
and 177 North Cypress Street. Any disposition agreement negotiated with staff would
require CiTy Council approval.
Public Speaker:
Robert Baca—expressed concerns with protecting the integrity of the historical homes in
the barrio and requested a design review process.
During discussion, City Manager Otto explained that the rivo properties aze within the Old
Towne Historic District and in the Depot Specific Plan.
PAGE6
CITY COLJNCIL MINUTES MARCH 12, 2019
7. ADNIINISTRATIVE REPORTS (ConHnued)
MOTION —Alvazez
SECOND —Nichols
AYES —Alvazez,Murphy,Nichols
NOES —Monaco
Moved to approve the agreement with Break of Dawn, LLC; and authorize the Mayor and
City Clerk to execute on behalf of the City.
Staff was directed to bring back design standards for the barrio historic district.
8. REPORTS FROM CITY MANAGER—None
9. LEGAL AFFAIRS—None
10. ITEMS RELATING TO THE SUCCESSOR AGENCY OF TFIE ORANGE
REDEVELOPMENT AGENCY—None
11 PUBLIC HEARINGS
11.1 Participation Agreement with DCSG Development, LLC. (A2100.0; AGR-6749)
Time set for a public hearing to consider approval of a Participation Agreement with DCSG
Development, LLC to provide an economic development subsidy for the development of a
Marriott hotel.
The Mayor opened the Public Hearing.
Public Sneaker:
Dennis Costanzo—spoke in support of approving the participation agreement.
The Mayor closed the Public Hearing.
MOTION —Nichols
SECOND —Alvazez
AYES —Alvazez, Murphy,Nichols, Monaco
Moved to approve the Participation Agreement by and between DCSG Development,LLC
and the CiTy of Orange; and authorize the Mayor and CiTy Clerk to execute on behalf of
the City.
RECESS TO CLOSED SESSION—The City Council recessed back to Closed Session at 8:10
p.m. with all Members present.
PAGE7