Spokane Public Facilities District

Spokane Public Facilities District January 1, 2020 through December 31, 2020 2020-001 The District had inadequate internal controls for ensuring compliance with federal requirements for allowable activities and costs. CFDA Number and Title: 21.019 ? COVID-19 ? Coronavirus Relief Fund Federal Grantor Name: U.S. Department of the Treasury Federal Award/Contract Number: N/A Pass-through Entity Name: Spokane County Pass-through Award/Contract Number: N/A Questioned Cost Amount: $0 Background The purpose of the Coronavirus Relief Fund (CRF) program is to provide payments to state, territorial, tribal and certain eligible local governments to cover necessary expenditures incurred because of the COVID-19 pandemic. In December 2020, the District received a CRF subaward from Spokane County and spent $1,485,053 of these funds. The District used program funds to pay for marketing of the District?s new sportsplex stadium, touchless point-of-sale equipment and upgraded HVAC systems at the Spokane Veterans Memorial Arena, personal protective equipment, social distancing signage, advertising of rescheduled events, and a reopening marketing campaign. Federal regulations require federal award recipients to establish and maintain internal controls that ensure compliance with program requirements. These controls include understanding program requirements and monitoring the effectiveness of program controls. For the CRF program, the costs that recipients submit for reimbursement must have been necessary for responding to the COVID-19 pandemic and not previously included in budgets prior to March 27, 2020. All costs that recipients charge to the CRF program must comply with program requirements and be supported by proper documentation demonstrating costs are specifically related to COVID-19 activities. Description of Condition The District?s subrecipient contract specified certain uses of the program funds, including a reopening marketing campaign. As part of this campaign, the District charged expenditures for promotional hosting items, including gifts, food and alcohol. Although the District had controls for reviewing and approving program expenditures, the controls were ineffective for ensuring all expenditures charged to the program were allowable. Additionally, the District?s budget approved prior to March 27, 2020, did not provide sufficient detail to determine whether or not the promotional hosting expenditures charged to the program were previously budgeted or were substantially different from budgeted expenditures. We consider this deficiency in internal controls to be a significant deficiency. This issue was not reported as a finding in the prior audit. Cause of Condition The District has not historically received federal funding and is inexperienced with requirements of federal awards. As such, District employees relied on communication with their pass-through agency and the subrecipient contract to determine whether expenditures charged to the CRF program were allowable. Promotional hosting expenditures are typically allowed for public facilities districts, so District employees thought they could use these federal funds for similar expenditures. However, the District did not review or consider the specific requirements of the CRF program to determine if these costs were allowable. Additionally, employees were not aware the supporting documentation the District maintained for promotional hosting expenditures did not include sufficient detail showing these expenditures were not previously budgeted for or were substantially different from those budgeted. Effect of Condition and Questioned Costs Without adequate controls and sufficient documentation, the District cannot assure federal grantors that promotional hosting costs charged to the program were allowable and comply with program requirements. Using a non-statistical sample, we found eight promotional hosting expenditures, totaling $13,027, which were unallowable payments per the program?s requirements. Based on these results of our testing, we estimate total overpayments of $103,496. Recommendation We recommend the District establish and follow internal controls to monitor its federal program expenditures to ensure it does not charge unallowable costs to federal awards and keeps documentation demonstrating it did not previously budget for costs charged to the award. Additionally, the District should provide training to employees responsible for managing federal awards. District?s Response We are responding regarding the audit findings for 2020, 21.019 COVID-19 Coronavirus Relief Fund. We disagree with the audit findings based on the following: The Promotional Hosting Items found in the Finding are substantially different from previously budgeted items. In the past the arena, individually, sent promotional items to a handful of agents, but it was done to garner attention. Think of it like the smallest kid in the back of a full classroom waiving their hand to be seen. The items had zero affiliation to the venue or Spokane and was just sent to hopefully start a conversation with an agent or promoter. Examples include Arena branded items like barbeque sauce for the summer, wine for Valentine?s Day, and apples with caramel dip in the fall. Due to COVID, ALL the SPFD buildings were forced to add infrastructure that we never previously had, such as the upgraded HVAC system, digital ticketing, turning all our venues into cashless concessions, digital conference equipment, and added sanitation requirements. Both Sales Directors used these promotional boxes to get this information delivered throughout the nation to all our major contacts responsible for bringing large acts, artists, and conventions back to Spokane to stimulate and generate an economic impact. These major contacts include Agents, Music Managers, Promoters, Third Party Concert Bookers, Third Party Meeting Planners, and Conference & Convention Meeting Planners. This was the first ever cohesive promotion that the SPFD has ever created that captured all our buildings and all our major clients at one time. Every building has promoted itself separately until this moment due to COIVD. The packages were created to catch the recipients? attention with all the LOCAL gifts that were included in an advent calendar counting down to 2021 as we were all hoping and planning to reopen earlier in 2021. The packages included a flyer with some quick information on the new infrastructure that we put into the building (specific info on the building/s which the client books) and also a QR Code redirecting them back to our Safe & Sound reopening website (www.safeandsoundspokane.com). The site also highlights new policies in place to keep attendees safe while in all our buildings. The gifts did include alcohol as our business policy allows us to spend promotional hosting dollars on alcohol, and that the CARES Act policy for alcohol specifically states to follow our own business policies. As a Public Facilities District, this is legal for us to do just as it is for a Port Authority. This promotion was directly centered on reopening our buildings and the safety measures we put in place to be able to reopen in the middle of a pandemic. The promotion worked as we were able to book a couple conferences that didn?t have homes due to the pandemic, reengaged conversations with agents and started new conversations with agents that had been moved around due to layoffs, thus bringing entertainment and convention business back to Spokane. Auditor?s Remarks We agree that many of the expenditures listed in the District?s response were necessary due to the COVID pandemic, and therefore we did not characterize them as unallowable. We reaffirm our finding and refer the District to the Description of Condition, which details concerns over promotional hosting expenditures and lack of budget detail to support the allowability of costs. We will review the status of this issue during our next audit. Applicable Laws and Regulations Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance), section 516, Audit findings, establishes reporting requirements for audit findings. Title 2 CFR Part 200, Uniform Guidance, section 303, Internal controls, describes the requirements for auditees to maintain internal controls over federal programs and comply with federal program requirements. The American Institute of Certified Public Accountants defines significant deficiencies and material weaknesses in its Codification of Statements on Auditing Standards, section 935, Compliance Audits, paragraph 11. Title 42 U.S. Code of Federal Regulations (CFR) Part 801, Coronavirus relief fund, establishes allowable costs of the program. 2 CFR Part 200, Subpart E, cost principles do not apply to the Coronavirus Relief Fund. Therefore, auditors refer to guidance and FAQs from the U.S. Department of the Treasury, as the criteria when testing the allowability of costs under the Fund. Guidance and FAQs from the U.S. Department of the Treasury can be found at https://www.commerce.wa.gov/serving-communities/local-government/covid- resiliency-grants/. These documents speak to the grantors? expectation that local governments obtain documentation which supports how businesses met eligibility criteria.

CORRECTIVE ACTION PLAN FOR FINDINGS REPORTED UNDER UNIFORM GUIDANCE Spokane Public Facilities District January 1, 2020 through December 31, 2020 This schedule presents the corrective action planned by the District for findings reported in this report in accordance with Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance). Finding ref number: 2020-001 Finding caption: The District had inadequate internal controls for ensuring compliance with federal requirements for allowable activities and costs. Name, address, and telephone of District contact person: Jennifer Kletke, Director of Human Resources W. 720 Mallon Ave Spokane, WA 99201 Corrective action the auditee plans to take in response to the finding: (If the auditee does not concur with the finding, the auditee must list the reasons for non-concurrence). We are responding regarding the audit findings for 2020, 21.019 COVID-19 Coronavirus Relief Fund. We disagree with the audit findings based on the following: The Promotional Hosting Items found in the Finding are substantially different from previously budgeted items. In the past the arena, individually, sent promotional items to a handful of agents, but it was done to garner attention. Think of it like the smallest kid in the back of a full classroom waiving their hand to be seen. The items had zero affiliation to the venue or Spokane and was just sent to hopefully start a conversation with an agent or promoter. Examples include Arena branded items like barbeque sauce for the summer, wine for Valentine?s Day, and apples with caramel dip in the fall. Due to COVID, ALL the SPFD buildings were forced to add infrastructure that we never previously had, such as the upgraded HVAC system, digital ticketing, turning all our venues into cashless concessions, digital conference equipment, and added sanitation requirements. Both Sales Directors used these promotional boxes to get this information delivered throughout the nation to all our major contacts responsible for bringing large acts, artists, and conventions back to Spokane to stimulate and generate an economic impact. These major contacts include Agents, Music Managers, Promoters, Third Party Concert Bookers, Third Party Meeting Planners, and Conference & Convention Meeting Planners. This was the first ever cohesive promotion that the SPFD has ever created that captured all our buildings and all our major clients at one time. Every building has promoted itself separately until this moment due to COIVD. The packages were created to catch the recipients? attention with all the LOCAL gifts that were included in an advent calendar counting down to 2021 as we were all hoping and planning to reopen earlier in 2021. The packages included a flyer with some quick information on the new infrastructure that we put into the building (specific info on the building/s which the client books) and also a QR Code redirecting them back to our Safe & Sound reopening website (www.safeandsoundspokane.com). The site also highlights new policies in place to keep attendees safe while in all our buildings. The gifts did include alcohol as our business policy allows us to spend promotional hosting dollars on alcohol, and that the CARES Act policy for alcohol specifically states to follow our own business policies. As a Public Facilities District, this is legal for us to do just as it is for a Port Authority. This promotion was directly centered on reopening our buildings and the safety measures we put in place to be able to reopen in the middle of a pandemic. The promotion worked as we were able to book a couple conferences that didn?t have homes due to the pandemic, reengaged conversations with agents and started new conversations with agents that had been moved around due to layoffs, thus bringing entertainment and convention business back to Spokane. Corrective Actions that will take place: ? Develop internal controls for federal programs ? Training for managing federal awards Anticipated date to complete the corrective action: Internal controls ? December 2022 Training ? September 2022