HomeMy WebLinkAbout12 - Annual Review of Visit Newport Beach Audited Financial Statements and Expenditure Report - CorrespondenceReceived After Agenda Printed
October 22, 2019
Item No. 12
From: Laura Curran <lauracurran@me.com>
Sent: Monday, October 21, 2019 6:46 PM
To: Dept - City Council
Cc: Montano, Steve; Leung, Grace; Matusiewicz, Dan
Subject: Item #12: Visit Newport Beach Financial Report
Please include in the Public Record.
I am writing to share input on Item #12: Visit Newport Beach Financial Report. I have commented on this topic
on several occasions. My observations have pointed out a general lack of clarity in financial reporting. Please
refer to 2015 minutes on VNB for more background.
For the current Item #12: Visit Newport Beach Financial Report, here are my observations related to VNB
and the Staff Report.
1. Staff Report: The Report here does not include a letter explaining the Visit Newport Beach relationship and
history with the City, or the state of the organization's finances. Given the City's extensive support of VNB, the
Staff Report should include a letter from Gary Sherwin, CEO of VNB, explaining the strategic plan, the final
health of the organization, and performance against the strategic plan and budget, with specific examples. This
would enable the readers to understand the strategic and operational value which VN13 brings to marketing of
Newport Beach.
2. Management Letter: The Management Letter details the results of an Independent Audit by KMJ Corbin &
Company LLP. The City is to be applauded for conducting an Independent Audit. The report outlines several
policies for modification related to compensation reporting, third -party transactions and journal entry
accounting.
Accounting practices: I have repeatedly commented that the Accounting reports were general and
uninformative. For example, Marketing expenditures this year of over $6M are not explained in any depth, so
readers have minimal information on how much is being spent, by whom, for what activities, and the projected
vs. actual ROI.
In particular, Observation #3 identifies the lack of a journal entry approach to accounting. My hope is that the
Journal Entry changes will lead to transparency in accounting and reporting to the public.
Recommendation
We recommend that the Organization implement a policy that would allow for the proper review and approval
of journal entries to prevent material misstatements and/or errors in the financial statements. Such review
should be documented and retained in the Organization's records.
Management's response
Procedures have been created and a monthly closing process has been implemented including standardized
journal entries which will then be prepared and reviewed by both the Financial Coordinator and the VP of
Finance.
3. Relationship with Newport Beach & Co. - VNB has outsourced marketing activities to Newport Beach &
Co, which account for 30% of the Marketing budget. The relationship, the reasons for, activities performed,
benefits/risks of the outsourcing agreement should be discussed in more detailed.
NOTE 8 — RELATED -PARTY TRANSACTIONS
During the years ended June 30, 2019 and 2018, the Organization had transactions with a related party that is
also a non-profit organization. The related entity, NB & Co., specializes in marketing and promotion services
that promote economic development with the City. Pursuant to an Agreement for Services ("Agreement") dated
April 1, 2013, the Organization appointed NB & Co. as an exclusive provider of services that the Organization
shall need to carry out its mission and obligations to the City. In consideration for these services, the
Organization agreed to pay NB & Co. a monthly fee totaling $93,000 and $78,000 for the years ended June 30,
2019 and 2018, respectively. The Organization has also agreed to reimburse NB & Co. for all reasonable
expenses incurred by it in carrying out its duties to the Organization, including rent and related facility costs,
payroll and related benefits, and other direct marketing costs. For the years ended June 30, 2019 and 2018, the
Organization incurred $2,573,081 and $2,402,277, respectively, from NB & Co. for these costs, which are
recorded in marketing expenses in the accompanying statements of activities. NB & Co.'s costs for the years
ended June 30, 2019 and 2018 were broken out as follows: $432,630 and $580,672, respectively, of direct
marketing, $1,514,059 and $1,346,544, respectively, of salaries and benefits, and $432,630 and $475,061,
respectively, of general and administrative (including rent and related facility costs). The Agreement expires in
March 2021 and with an option for a five-year renewal.
Thank you for your consideration of these comments.
Laura Curran
Newport Beach, CA