Audit Report on the Financial and Operating Practices of the Fulton Mall Special Assessment District

AUDIT REPORT IN BRIEF

This audit of the Fulton Mall Special Assessment District (SAD) covered the organization’s provision of services, compliance with its City contract, and adequacy of internal controls over funds and operations. The Fulton Mall SAD was created under State law in 1976. It is funded by special assessments levied against district property owners that are collected by the City and returned to the SAD. These moneys are used to enhance and promote the district by purchasing services and improvements supplemental to services already provided by the City. The City Department of Business Services (DBS) supervises and oversees the Fulton Mall SAD.

The Fulton Mall SAD has provided supplemental services and special events as required in its District Plan. The SAD maintains complete and accurate financial records, submits annual reports to DBS, and has its annual financial statements certified by an independent certified public accountant, as required by its DBS contract. However, the SAD poorly managed its funds, had weaknesses in corporate governance, maintained no timekeeping records and had weaknesses in internal controls. Specifically, the Fulton Mall SAD:

• Has been operating at a loss for four of the last five years. As a result SAD expenditures exceeded revenues in Fiscal Years 1998, 1999, 2000, and 2001.
• Made 52 disbursements, in Fiscal Year 2001, totaling $35,932 that did not appear to fulfill the purpose of the SAD.
• Has funds on deposit that are not covered by FDIC insurance.
• Has weaknesses in corporate governance. On several occasions the former Executive Director acted without approval of the Board members.
• Has no written personnel policies, does not maintain daily time records for its employees, and does not keep track of employees’ leave balances.
• Has inadequate segregation of duties.
• Does not maintain an inventory listing of its equipment.

To address these issues, we make 17 recommendations. Among them, we recommend that the Fulton Mall SAD:

• Better manage SAD funds and expenditures to ensure that expenditures do not continue to exceed revenues and budgets.
• Place its funds in collateralized accounts.
• Develop written personnel procedures that clearly detail personnel policies and employment benefits.
• Maintain an accurate daily time-record system for its staff that includes daily attendance, annual and sick leave use, and tardiness.
• Maintain a log of employee annual and sick leave balances.
• Ensure that the functions of processing, recording, and reviewing transactions are divided between two or more employees, or implement other compensating controls.
• Maintain inventory records and perform physical inventories periodically.

In addition, we recommend that the Fulton Mall SAD Board:

• Ensure that they are well aware of and informed about all SAD activities, regardless of how much authority they give the SAD management.
• Monitor the SAD’s rate of spending.

Fulton Mall SAD officials responded that they are in the process of hiring a new Executive Director, who would be responsible for instituting procedures relating to five of the 17 audit recommendations. SAD officials generally agreed with the remaining 12 audit recommendations.