Download Aramark at Red Rocks

Aramark Sports and Entertainment
Services, Inc.
Red Rocks Amphitheatre Location
Performance Audit
January 2010
Office of the Auditor
Audit Services Division
City and County of Denver
Dennis J. Gallagher
Auditor
The Auditor of the City and County of Denver is independently elected by the citizens of Denver. He is
responsible for examining and evaluating the operations of City agencies for the purpose of ensuring the
proper and efficient use of City resources and providing other audit services and information to City
Council, the Mayor and the public to improve all aspects of Denver’s government. He also chairs the
City’s Audit Committee and oversees the City’s Comprehensive Annual Financial Report (CAFR).
The Audit Committee is chaired by the Auditor and consists of seven members. The Audit Committee
assists the Auditor in his oversight responsibilities of the integrity of the City’s finances and operations,
including the integrity of the City’s financial statements. The Audit Committee is structured in a manner
that ensures the independent oversight of City operations, thereby enhancing citizen confidence and
avoiding any appearance of a conflict of interest.
Audit Committee
Robert Bishop
Maurice Goodgaine
Jeffrey Hart
Timothy O’Brien
Dennis Gallagher
Robert Haddock
Bonney Lopez
Audit Staff
John Carlson, Deputy Director, JD, CIA, CICA
Sonia Montano, Internal Audit Supervisor, CGAP, CICA
Dawn Hume, Internal Audit Supervisor
Kristin Donald, Senior Internal Auditor
You can obtain free copies of this report by contacting us at:
Office of the Auditor
201 W. Colfax Avenue, Dept. 705  Denver CO, 80202
(720) 913-5000  Fax (720) 913-5026
Or view an electronic copy by visiting our website at:
www.denvergov.org/auditor
City and County of Denver
201 West Colfax Ave., Dept. 705
www.denvergov.org/auditor
Denver, Colorado 80202
720-913-5000
FAX 720-913-5247
Dennis J. Gallagher
Auditor
January 21, 2010
Mr. Jack Finlaw, Director
Theatres and Arenas
City and County of Denver
Dear Mr. Finlaw:
Attached is the Auditor’s Office Audit Services Division’s revenue and contract compliance
audit of Aramark Sports and Entertainment Services, Inc. operations at the Red Rocks
Amphitheatre location. The audit period was for January 1, 2008 through June 30, 2009. The
purpose of the audit was to determine whether Aramark Sports and Entertainment Services, Inc,
and the City and County of Denver complied with the terms and conditions of the contract and
whether internal controls were adequate.
The audit identified reportable conditions which are fully described in the accompanying report.
If you have any questions, please call Kip Memmott, Director of Audit Services, at 720-913-5029.
Sincerely,
Dennis J. Gallagher
Auditor
DJG/ect
cc:
Honorable John W. Hickenlooper, Mayor
Honorable Members of City Council
Members of Audit Committee
Ms. Roxane White, Chief of Staff
Mr. Claude Pumilia, Chief Financial Officer
Mr. David T. Roberts, Chief Services Officer
Mr. David Fine, City Attorney
Ms. Lauri Dannemiller, City Council Executive Staff Director
Mr. Beth Machann, Controller
Mr. Derek Brown, Manager, General Services
To promote open, accountable, efficient and effective government by performing impartial reviews and other audit
services that provide objective and useful information to improve decision making by management and the people.
We will monitor and report on recommendations and progress towards their implementation.
City and County of Denver
201 West Colfax Ave., Dept. 705
www.denvergov.org/auditor
Denver, Colorado 80202
720-913-5000
FAX 720-913-5247
Dennis J. Gallagher
Auditor
AUDITOR’S REPORT
We have completed our audit of the Aramark Sports and Entertainment Inc. (Aramark) revenue
contract at Red Rocks Amphitheatre for the period January 1, 2008 through June 30, 2009. The
purpose of the audit was to determine whether Theatres and Arenas and Aramark complied
with the terms and conditions of the contract, complied with City rules and regulations, and
whether internal controls were adequate.
This performance audit is authorized pursuant to the City and County of Denver Charter, Article
V, Part 2, Section 1, General Powers and Duties of Auditor, and was conducted in accordance
with generally accepted government auditing standards. Those standards require that we plan
and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis
for our findings and conclusions based on our audit objectives. We believe that the evidence
obtained provides a reasonable basis for our findings and conclusions based on our audit
objectives.
Based on our audit work, we determined that the revenue reported and submitted to the City
from Aramark was accurate. However, other contract requirements were not adequately
monitored or enforced by Theatres and Arenas.
We extend our appreciation to Theatres and Arenas and Aramark personnel who assisted and
cooperated with us during the audit.
Audit Services Division
Kip Memmott, MA, CGAP, CICA
Director of Audit Services
To promote open, accountable, efficient and effective government by performing impartial reviews and other audit
services that provide objective and useful information to improve decision making by management and the people.
We will monitor and report on recommendations and progress towards their implementation.
TABLE OF CONTENTS
EXECUTIVE SUMMARY
1
Finding 1: Inadequate Contract Monitoring
1
Finding 2: Contract Terms and Assembly Needs Improvement
1
INTRODUCTION & BACKGROUND
2
Red Rocks Amphitheatre
2
Aramark Contract
3
SCOPE
3
OBJECTIVE
3
METHODOLOGY
3
FINDING 1
5
Inadequate Contract Monitoring
5
RECOMMENDATIONS
6
FINDING 2
7
Contract Terms and Assembly Needs Improvement
7
RECOMMENDATIONS
8
AGENCY RESPONSE
9
EXECUTIVE SUMMARY
Finding 1: Inadequate Contract Monitoring
The concessionaire contract between Aramark and the City and County of Denver has
not been adequately monitored by Theatres and Arenas resulting in non-compliance
with all terms related to capital improvements and equipment. The contract terms note
that Aramark “shall put $1,050,000 in a grant for the benefit of the City and invest
$350,000 in capital improvements and equipment for the Red Rocks Amphitheatre.”
However, audit work determined that Theatres and Arenas did not obtain proper
documentation for grant and capital improvements, required expenditures were not
made by contract deadlines, and the capital assets acquired were not all properly
recorded or safeguarded by Theatres and Arenas. Audit work also showed that work
began before the contract was executed. The absence of an adequate contract
monitoring process and the improper management of assets results in terms of the
contract not being met, assets not properly accounted for, and legal liability issues for
the City resulting from allowing a third party to operate a City owned venue without a
contract in place.
Finding 2: Contract Terms and Assembly Needs Improvement
The contract contains contradicting language in regards to annual reporting and is a
poorly assembled legal document. For example, the City’s concession revenue from
Aramark is based on gross revenue; the contract has one requirement for Aramark’s
Chief Financial Officer to certify the accuracy of the annual statement of gross revenue
while another section of the contract requires an independent Certified Public
Accountant to certify this statement. In addition, the contract assembly is unprofessional.
For example, the table of contents is missing page numbers and various contract
sections are mislabeled. Exhibit A of the contract contains inappropriate information and
Exhibit B is not labeled. Contracts are legal, public documents that are a reflection of the
City and should be reviewed from a quality assurance perspective to ensure content is
consistent and that the document is professionally assembled.
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Office of the Auditor
INTRODUCTION
& BACKGROUND
Red Rocks Amphitheatre
Red Rocks Amphitheatre is nestled between large red
sandstone spires in the side of a mountain. The
geologically formed amphitheatre is known for its unique
beauty, wonderful acoustics and it panoramic view of
the Denver City lights. The venue has attracted talented
performances since the early 20th century with a number
of concerts put on by then owner, John Brisben Walker,
from 1906 to 1910 on a temporary platform.
The City of Denver purchased the Red Rocks area in 1927 from Walker for $54,133. Under
Denver Mayor Ben Stapleton, the City enlisted the help
of the federally sponsored Civilian Conservation Corp
(CCC) and the Work Projects Administration. President
Franklin D. Roosevelt created the CCC as part of his
New Deal for America to give jobs to young men during
the Great Depression. Denver architect Burnham Hoyt
completed his design in 1936 and the construction
spanned 12 years.1
Since then, Red Rocks Amphitheatre has attracted
many performers. The venue has hosted many
legendary performances from the Beatles to the Denver
Symphony and many artists have chosen to record live
albums at the amphitheatre such as Dave Mathews
and U2. Red Rocks hosts concerts as well as providing
facilities for weddings and meetings. In addition, to the
Visitor Center, there is the Trading Post, which has
concession and retail sales and provides guided tours.
Theatres and Arenas is a division of the City & County of Denver's Department of General
Services. They are responsible for the acquisition, construction, maintenance, repair,
management and operation of the City's public assembly facilities. Theatres and Arenas
oversees Red Rocks Park and Amphitheatre including the concession agreement with
Aramark.
1
www.denvergov.org/Red_Rocks_Amphitheatre/RedRocksHistory
City and County of Denver
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Aramark Contract
Aramark has a concession agreement with the City for services provided at Red Rocks
Park and Amphitheatre for a term commencing on April 8, 2003 through January 15, 2011
with two additional one-year extension periods. In 2008, Red Rocks concessions
generated over $6.6 million in gross receipts from which the City collected over $2.3
million in commissions.
The publicly traded Philadelphia based company Aramark, provides services such as
facilities management and food services for several industries. Per the contract, Aramark
provides concession and retail services for the Amphitheatre, Trading Post, and Visitor
Center, which includes a restaurant. Aramark has other contracts with the City including
the concession contract for the Denver Coliseum and a contract to operate vending
machines at Denver International Airport. Aramark is required to pay percentages of
gross receipts for Red Rocks facilities concessions at an increasing rate throughout the
contract life. The Agreement also requires Aramark to perform the following:
Submit an annual gross revenue statement
Conduct an annual customer survey and submit a marketing plan
Make capital improvements which will remain as assets to the City
Keep insurance and bond requirements up to date
SCOPE
This audit included a review of compliance with rules and regulations as they apply to
the contract for the period January 1, 2008 through June 30, 2009.
OBJECTIVE
The objective of this audit was to determine whether Theatres and Arenas and Aramark
are in compliance with applicable rules and regulations for the agreement at Red Rocks
Amphitheatre and revenue was properly reported.
METHODOLOGY
We utilized several methodologies to achieve the audit objective. These evidence
gathering techniques included, but were not limited to:
Reviewing the contract requirements and amendments;
Verifying evidence of contract compliance;
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Office of the Auditor
Reviewing City rules and regulations;
Interviewing Theatres and Arenas’ management and staff;
Interviewing Aramark management and staff;
Reviewing internal controls for Theatres and Arenas and Aramark;
Verifying revenue is properly reported;
Performing on-site physical observations, by attending an event at Red Rocks
Amphitheatre and conducting interviews with Aramark staff during various
phases of the event, and;
Verifying Capital Improvements were made in accordance to the contract
terms and assets were reported correctly.
City and County of Denver
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FINDING 1
Inadequate Contract Monitoring
The concessionaire contract between Aramark and the City and County of Denver has
not been adequately monitored by Theatres and Arenas resulting in non-compliance
with all terms related to capital improvements and equipment. The contract terms note
that Aramark “shall put $1,050,000 in a grant for the benefit of the City and invest
$350,000 in capital improvements and equipment for the Red Rocks Amphitheatre.”
However, audit work determined that Theatres and Arenas did not obtain proper
documentation for required grant and capital improvements. We also found that
expenditures were not made by contract deadlines and as of October 2009, $29,725 still
remained to be expended. Further, the capital assets acquired were not all properly
recorded or safeguarded by Theatres and Arenas. Audit work also determined that
Aramark commenced work before the contract was executed.
Inadequate Monitoring of Capital Improvement Contract Terms
Theatres and Arenas lacks an effective contract monitoring process. Audit work found
that Theatres and Arenas failed to keep all documentation for the capital improvements.
As a result, Aramark was the only entity that retained documentation related to these
improvements.
In accordance with the terms of the contract, Aramark was required to provide a grant
of $1,050,000, in a separate account, for the benefit of the City. The improvements made
included concession carts, a restaurant kitchen remodel, a public address system and
backstage furniture. The documentation for City approval was missing for the grant
expenditures in four instances. In addition, Theatres and Arenas approved these
expenditures after the invoice date in three instances.
With regard to the capital improvements, the first equipment installment of $250,000 for
the Red Rocks Amphitheatre, which included concession carts and an amphitheatre
concession stand, lacked documentation for $35,725 of the expenditures. Audit work
also found that prior approvals were not signed by Aramark and one approval occurred
after the expenditure was made in regards to the
Amphitheatre. The $100,000 Trading Post and Visitor
Center retail equipment and improvements that
occurred in 2003 were not approved until November
2009. In addition, expenditures were not made by
contract deadlines. Of the $250,000 equipment
improvements to the Amphitheatre due by December
31, 2007, only $84,465 had been expended with $165,535
remaining. As of October 2009, $29,725 still remained.
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Office of the Auditor
Improper Recording and Safeguarding of City Assets
Per contract requirements, Aramark was required to make capital improvements and
equipment purchases that are to be retained by the City at the end of the contract.
Theatres and Arenas failed to record the majority of the improvements and purchases
within PeopleSoft, the City’s financial system. Audit work
found that the PeopleSoft capital assets listing for Red
Rocks Amphitheatre contains assets from various
Theatres and Arenas locations. An example of assets not
recorded were approximately twenty vendor carts
valued at approximately $9,800 each. Theatres and
Arenas failed to conduct a thorough asset inventory
and correct their asset listing which is required for review
every year by the Controller’s Office to ensure assets are accurately recorded on the
City’s year-end financial statements. The failure to properly record, label and inventory
assets does not comply with City Fiscal Accountability Rules.
Work Started Before Contract was Executed
Theatres and Arenas allowed Aramark to begin work activities without a contract. The
execution date of the contract was May 1, 2003 while the term of the contract began on
April 8, 2003. Documentation reviewed, notes that capital improvement expenditures
were made by Aramark on February 24, 2003, two months prior to the execution date of
the concessionaire contract.
Inadequate Contract Monitoring and Management of Assets has Several
Negative Impacts
The absence of an adequate contract monitoring process and improper management
of assets has resulted in terms of the contract not being met, assets not properly
accounted for, and work commencing before the execution of a contract. These control
weaknesses leave the City vulnerable to not receiving all improvements and assets
required of the concessionaire. In addition, allowing a third party to operate a City
owned venue without a contract increases legal liability risks.
RECOMMENDATIONS
We offer the following recommendations to assist Theatres and Arenas with improving
their contract monitoring process.
1. Theatres and Arenas should implement policies and procedures to ensure all
investment contract requirements are met by concessionaires and assets are
properly recorded and retained by the City.
2. Theatres and Arenas should follow City Fiscal Accountability Rules by:
Properly recording assets as they are acquired;
City and County of Denver
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Performing annual asset inventories and communicating with the Controller’s
Office about any needed corrections, and;
Properly recording Construction in Progress.
3. Theatres and Arenas should conduct a reconciliation of assets with Aramark and
report accordingly within PeopleSoft;
4. Theatres and Arenas should ensure the remaining $29,725 in capital
improvements are completed as soon as possible, and;
5. Theatres and Arenas should ensure terms start after the execution date of a
contract and work does not begin prior to the execution of the contract.
FINDING 2
Contract Terms and Assembly Needs Improvement
Audit work found that the Aramark contract lacks an efficient structure for monitoring
and referencing. We noted contradicting terms, inaccurate section references and
poorly assembled exhibits.
Contradicting Contract Language Regarding Gross Revenue Reporting
The contract contains two contradicting annual gross revenue reporting requirements.
One section notes that the Chief Financial Officer of Aramark or another authorized
officer of the concessionaire must certify the statement of gross receipts for each year. In
addition, the City may hire an independent Certified Public Accountant (CPA) to
conduct a review of Aramark’s books and records with respect to the computation of
gross receipts. However, another section states that Aramark must furnish a statement
prepared by an independent CPA who has audited gross receipts in accordance with
Generally Accepted Accounting Principles (GAAP). The Deputy Manager may modify
this requirement, if such modification is in the best interest of the City.
Inadequate Referencing in the Contract
Audit work identified several issues related to the assembly of the
contract, which made it difficult to reference because of improper
labeling. Specifically, the table of contents does not contain page
numbers and the sections numbered in the table of contents do
not correspond to the numbered sections in the actual contract.
For example, Section 19 in the table of contents is titled as
“Insurance, Liability and Bonds” while Section 19 in the contract is
labeled “Repairs and Maintenance.” Exhibits to the contract are
labeled improperly or in an unprofessional manner. In addition, the
exhibits contain unnecessary information such as another company’s bid information
from the original request for proposals.
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Office of the Auditor
Inadequate Contract Format and Review has Negative Impacts
Gross revenue is the basis for the calculation of the commission payment to the City yet
the legally binding document does not require Aramark to have a CPA certify their
annual gross revenue is in accordance with GAAP. The poor condition of the contract
structure makes the contract difficult to review and does not reflect well on the City. The
Agency and City Attorney are responsible for the content and assembly of the contract.
If proper review and assembly had been performed, the contradicting language would
have been identified and the exhibits would only contain necessary information.
RECOMMENDATIONS
We offer the following recommendations to assist the City to ensure contract terms are
clear, concise, and easily referenced and monitored:
1. The City Attorney’s Office and Theatres and Arenas should determine which annual
requirement should be included and amend the contract accordingly.
2. The City Attorney’s Office and Theatres and Arenas should systematically review
contracts to ensure;
Contract requirements do not contradict each other;
Contracts are properly assembled with an accurate table of contents, and;
Exhibits are properly labeled and assembled.
City and County of Denver
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AGENCY RESPONSE
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