AUDIT: REDEVELOPMENT

BACKGROUND:
Redevelopment, in conjunction with the Redevelopment Commission, promotes and
implements opportunity projects acting as a catalyst to develop areas that have shown a
cessation of growth and lack of development, especially in the downtown area. This is
accomplished through techniques including real estate acquisition, site preparation
and/or providing public infrastructure to the site. Financing resources generally used
are Tax Incremental Financing (TIF) and Redevelopment General Obligation Bonds.

PURPOSE:
We directed our audit toward determining whether adequate and effective internal
controls have been established by Redevelopment to ensure that procedures and
operations are appropriate and in compliance with applicable laws, policies and
regulations.

SCOPE:
Our audit included the examination and evaluation of the adequacy and effectiveness of
the internal control system and the quality of the performance in carrying out assigned
responsibilities. Our audit focused on internal controls, procedures and activity from
May 1, 2015 through April 30, 2016.

We conducted this performance audit 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.

METHODOLOGIES:
Audit methodologies used for this review included:

Interviewing department management and staff.

Reviewing related regulations, policy documents, operating procedures, and job
descriptions.
Reviewing the only Economic Development Area (EDA) established during the
audit scope and assessing compliance with Indiana Code.
Testing the acquisition of real estate in TIF areas for compliance with Indiana
Code by reviewing the only land acquisition that occurred during the audit scope.
Identifying and verifying the disposition and sale of real estate in TIF areas were
conducted in compliance with Indiana Code.
Assessing the management of redevelopment projects and respective processes
in their relation to the funding sources, bidding requirements, purchasing
requirements, appropriate approvals and change orders by reviewing the Skyline
parking garage project. In order to gain a complete picture of the project

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 management process, the project was viewed as a whole, resulting in some
items being tested that were outside of the defined audit scope, but within the
project period.
Obtaining and reviewing reports that are required throughout the year for
timeliness, appropriate filing method, proper distribution and compliance with
requirements established by Indiana Code or other regulations and policies.
Performing testing on a judgmentally selected sample of brownfield projects and
determining brownfields are within the City, meet the definition, were not
contaminated by the present owner, funding falls within established grant
guidelines, the development plan was approved by Planning areas when
necessary and that grant agreements contain the appropriate approval.
Performing testing on a judgmentally selected sample of Commercial Faade
Grants and determining that eligibility requirements were met in regards to the
propertys location and expenditures, grant requirements were met prior to and
after disbursement of funds, the project was appropriately tracked, and all other
rules of the grant were followed.
Performing testing on a judgmentally selected sample of Downtown
Revitalization Grants and determining that eligibility requirements were met in
regards to the propertys location and expenditures, grant requirements were met
prior to and after disbursement of funds, the project was appropriately tracked,
and all other rules of the grant were followed.
Determining petty cash is accurate, safeguarded and reconciled.
Determining revenue is being appropriately allocated.
Reviewing cash receipts to ensure deposits are being made in accordance with
the Public Depository Law.
Reviewing a judgmentally selected sample of P-cards, travel expenses, and
general expense purchases for adherence to established policies and
regulations.
Identifying 2015 asset additions and determining they were booked to MUNIS
appropriately according to City policy.
Reviewing the existing asset list in MUNIS for completeness and accuracy.
Identifying 2015 asset disposals (excluding property that was disposed per
Indiana Code) and determining that the disposals were conducted in accordance
with City policy.
Identifying all lease contracts that were active during the review period and
testing a judgmentally selected sample to determine that the lease is supported
by an appropriately approved contract, the lease expense or revenue is recorded
appropriately, expenses are recorded appropriately and the contract terms are
being met.
Testing the revenue and expenses related to the Redevelopment owned parking
garages to ensure the department is receiving the correct amount of revenue and
is paying the appropriate amount for related expenses.
Reviewing active bond issues and, for a methodologically selected sample,
determining that the debt was classified appropriately, the payments agreed with
the related amortization schedule and reserve balances were maintained where
applicable.

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 Reviewing the agreements related to Parkview Field maintenance and testing a
judgmentally selected sample of the associated revenue and expenses for
adherence to the agreements and any applicable laws or regulations.

SUMMARY OF RESULTS:
Redevelopment is governed by a complex set of laws and other regulations that provide
the basis for the departments activities. The personnel are highly motivated to be good
stewards of the funds they manage and to fulfil the departments purpose as effectively
as possible. While some of their processes are well-defined and consistently applied,
we identified processes that had opportunities for improvement and have noted them in
the report. As the items in this report are addressed, we believe enhancements to the
current processes will strengthen the departments ability to meet their objectives while
remaining compliant with any applicable laws, regulations or polices. We are presenting
four recommendations for improvement and the audit findings are listed below in order
of significance.

We prepared a separate memorandum offering suggestions and comments that were

relatively minor in nature but still warranted being brought to managements attention.
This information was provided to the management team at the conclusion of the internal
audit process.

We appreciate the cooperation extended to us by members of Redevelopment and the

Community Development Director of Finance who remained professional, helpful and
courteous throughout the audit.

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RESULTS OF AUDIT

FINDING 1: Asset Management

Condition:
We attempted to conduct asset verification testing and determine that assets purchased
or disposed by year end 2015 were accurately recorded in MUNIS. We were unable to
locate a real estate asset purchased for $1,856,624 in MUNIS. We also were unable to
locate the property on a Redevelopment provided list that was compiled by GIS from
County records. The Redevelopment department does not maintain a listing of owned
real estate or of any other department owned assets. The combination of three
inaccurate lists results in an inability to verify the land acquired, disposed, or currently
owned by Redevelopment. We were also unable to determine whether any other
assets were disposed of or added during the audit scope.

Standard:
Policies 622 and 624 of the City of Fort Wayne Policy and Procedure Manual establish
the criteria for capital assets and construction in process and for the disposal of city
assets. According to the policies, the department manager is responsible to act as or
designate a steward for each piece of property. The steward will become the focal point
for questions regarding availability, condition, and usage of the asset, as well as the
contact during the physical inventory process.

Cause:
Assets are not being consistently tracked or communicated to the Controller's Office
when an asset is purchased or completed and needs to be added to MUNIS. The
department does not maintain an asset listing for comparison purposes, nor does the
department routinely review the asset listing in MUNIS to ensure the departments
assets are being reflected accurately.

Effect:
The capital asset information available in the system does not correspond with the
actual department owned assets, resulting in an inaccurate asset basis for financial
statement purposes, an increased potential for fraud and the potential for inaccurate
data being used in the decision making process.

Recommendation:
We recommend assembling a comprehensive accurate listing of all Redevelopment
owned assets. We also recommend developing a process for tracking projects and
purchases that will result in all capital assets being booked into the financial system and
a process for ensuring all disposals are reported appropriately and removed from
MUNIS. Additionally, we recommend verifying the asset list from the financial system at
regular intervals to ensure that the list is accurate.

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Management response:
We agree with the finding presented. A process is underway in the department working
with the Controllers Office to establish a reliable asset management system. We
anticipate full implementation and a completed asset inventory by July 1, 2017.

FINDING 2: Grant Award Management

Condition:
We identified three types of programs within Redevelopment that award grants to
businesses and citizens in an effort to promote development. We reviewed the
awarded grants that were completed during our audit scope to determine that they were
processed in accordance with established rules and procedures. Two of the grant
programs had awards that were not processed in accordance with the terms outlined in
the official award documents and one grant was not closed out timely when the grantee
failed to apply for reimbursement by the deadline outlined in the grant.

During our review of Downtown Revitalization Grants, we elected to review all three of
the grants awarded during the audit timeframe and noted that:

One grant was awarded despite the grantee not following the terms of the
contract. Although the agreement states, "No work should have begun, contracts
entered into, or materials purchased for the funded project until the fully executed
agreement is received by the City, the grant recipient paid four vendor deposits
prior to the date documented on the executed agreement. These deposit
payments effectively represented a contract with the vendors and were in
violation of the agreement terms making the costs ineligible for reimbursement.
This action rendered an overpayment of $19,705 to the grant recipient.

One other grantee did not submit an invoice for reimbursement in accordance
with the grant terms. The department was not aware that the funds had not been
claimed by the grantee until Internal Audit reviewed the file six months after the
grant should have been closed. The $40,000 allocated to this grant was not
used by the grantee and was not re-allocated by the department for other uses.

Our review procedures also included Commercial Faade Grants awarded during 2015.
We judgmentally selected three out of the seven awarded grants for testing and noted
the following:

A request for extension was received for one grant, but that extension was
requested after the deadline defined in the agreement. Further, the extension on
file was not fully executed as it was not signed by both parties to the grant.
Additionally, there was no evidence in the file indicating that the project was
completed by the date specified in the extension request. Although, we did note
the project completion date was timely overall and the extension would not have
warranted a reduction in funding.

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Standard:
Grant awards should be awarded only if the terms in the award agreements are
adhered to by both parties in the agreement. Money should not be awarded if the
grantee does not follow all of the established rules in the agreement.

While the department does not have a standard procedure for reviewing open grants for
completion and adherence to deadlines, a reasonable expectation is that if a grantee
does not request reimbursement within thirty days of the passing of the deadline in the
agreement, then the grant should be considered for closure so the money can be
released for other uses.

Cause:
The positions responsible for grant management have experienced turnover in the last
year. Turnover teamed with inexperience with the grant process contributed to
inconsistent monitoring. Further the department has not developed a process to
document, review, or follow-up on active grants.

Effect:
Grant money was awarded for projects that did not adhere to the stipulations outlined in
the contract. Lack of consistent monitoring can lead to misuse of the awarded funds,
inefficient use of funds or the unnecessary spending.

Recommendation:
We recommend establishing a process that includes a thorough review of all grant
documents before reimbursement is made. We also recommend that the process
include following up on open projects to ensure that projects are closed so funds are
able to be released for other purposes. Additionally, we recommend developing a
process that ensures that deadlines are met and consideration be made to reduce
payments per the terms of the agreements when the deadlines are missed. We also
recommend ensuring that all documents pertaining to the grant are fully completed and
retained. We further recommend developing a system to document project completion
dates to ensure that the projects are completed timely.

Management response:
We agree with the finding presented. The department will review and follow terms and
agreements of grant award contracts effective immediately.

FINDING 3: Contract Management

Condition:
We conducted a review of the operating agreements related to Redevelopment owned
parking garages and Parkview Field. Each agreement addresses expense
reimbursement and revenue collection related to the operation of the facilities.

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a. For the parking garage management agreement we reviewed the revenue and
invoices submitted to Redevelopment for each of the five garages for the month of
April 2016. During our review we noted the following:

None of the expense related invoices included proof of payment as required by

the contract. Seven individual expense line items were not sufficiently supported
and 15 expense line items were requested and paid without supporting
documentation.

In regards to the revenue collected on behalf of Redevelopment, the department

had not completed the bank reconciliations for April 2016, so we were unable to
verify that the cash collected and deposited matched the revenue reports.

b. In our review of the agreement related to Parkview Field, we judgmentally selected

three out of the 12 invoices charged to the fund dedicated to Parkview Fields
operations. The contract specifies expenses will be incurred by the contractor and
reimbursed by Redevelopment. One invoice was a reimbursement invoice as
outlined by the contract but the other two were paid directly to the vendors for
ballpark related expenses. During our review, we noted the following:

Some of the supporting documentation to support the reimbursement request

was not sufficiently itemized. Further, the department provided reimbursement
for $260.90 of sales tax.

For one of the invoices paid directly to the vendor, we were unable to determine
if the invoiced amounts were in agreement with the quoted prices that were
attached to the related purchase order because there was a difference in the
way the work was invoiced compared to the way it was quoted. Additionally, the
quote for this work was over $150,000. Since Redevelopment opted to pay this
vendor directly, per Indiana Code, this project should have been bid out
according to Indiana Code guidelines.

The second invoice paid directly to a vendor for work performed at the field was
not itemized, and the only support provided for the related purchase order was
the resolution approving the annual stadium maintenance budget.

c. We also reviewed a judgmentally selected sample of four of 34 cash receipts that

had been applied to the stadium fund and determined that one of them contained
incorrect calculations that resulted in a loss of revenue of $443. The calculation was
based on 17 games instead of the 18 games listed in the associated detail.

Standard:
Pages 61-41-42 of the State Board of Accounts Cities and Towns Manual and IC 5-11-
10-1.6 establish the criteria required in order for the issuance of payments. It states
the fiscal officer of a municipality may not draw a warrant or check for payment of a
claim unless there is a fully itemized invoice or bill for the claim; the invoice or bill is

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approved by the officer or person receiving the goods and services; the invoice or bill is
filed with the fiscal officer; the fiscal officer audits and certifies before payment that the
invoice is true and correct; and payment of the claim is allowed by the municipalitys
legislative body or the board having jurisdiction over the allowance of payment of the
claim.

According to Indiana Code 5-22-8, purchases over $150,000 are subject to Indiana
Code 5-22-9 which outlines the proposal guidelines for such purchases. These
guidelines include the request for proposal process, necessary public notices, proposal
opening procedures and the process of selecting the winning proposal.

Unless explicitly required by the governing contract regarding the reimbursement of

costs, the City of Fort Wayne should not pay sales tax.

Verifying revenue calculations and completing bank reconciliations in a timely manner

are both good business practices that assist in ensuring that the appropriate amount of
revenue is being collected.

Upholding the requirements included in a contract validate the existence of the contract
and the contracts contents.

Cause:
The parking garage operating agreement is relatively new, and the procedures
concerning expense and revenue processing are still being finalized. Additionally, the
department is still working with the vendor to receive the documentation necessary to
perform the bank reconciliations.

Stadium expenses are normally remitted via a reimbursement invoice at year-end.

However, the stadium personnel requested that Redevelopment directly pay two of the
vendors for approved maintenance work, and the department agreed, not realizing that
the work was now subject to Indiana Code purchasing regulations.

Reimbursement invoices for stadium expenses are not being reviewed for adherence to
other standards and the amount invoiced is not compared to the approved expenditure
schedule prior to payment.

The detail provided for revenue support is also not being adequately reviewed to ensure
that all applicable revenue is being received.

Effect:
Paying for expenses that are not fully supported increases the risk of paying
inappropriate or unnecessary expenses.

Paying vendors directly for work that was not requisitioned per Indiana Code standards
leads to non-compliance with established law.

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Untimely reconciliations and inaccurate revenue calculations lead to the potential for a
loss of revenue and unidentified fraud.

Recommendation:
We recommend that the department develop a process that ensures that
reimbursement invoices are adequately supported and meet the terms of the contract.
We also recommend developing a process that ensures that bank reconciliations are
completed timely. Further, we recommend the department develop and implement
review process to ensure the correct amount of revenue is being received.

We also recommend that before making payments directly to vendors that are normally
part of reimbursement agreements, that the purchasing process requirements are
assessed to ensure it will be completed in accordance with Indiana Code.

We also recommend that the department request the refund of the sales tax paid and
request remittance of the revenue owed. Further, we suggest management consider
conducting a further review of revenue received from and expenses reimbursed related
to stadium operations to determine if any additional requests are necessary.

Management response:
We agree with the finding presented.

(a) We have instructed ABM (contractor) to note the check # used to pay invoices on
all reimbursement requests. Any and all uncompleted bank reconciliations will
be completed by January 1, 2017, and the department will complete the bank
reconciliation on a monthly basis thereafter.
(b) Redevelopment will pay expenses for the stadium on a reimbursement basis
only, effective immediately. The department does not intend to pursue refund of
sales tax paid based on the nature and circumstances of the situation.
Redevelopment owns the facility and the tenant (Tincaps) completed
necessary/required, department approved expenses to ensure and sustain
integrity, safety and viability of the facility, per contract, acting essentially as the
departments agent. Seeking refund of said sales tax would cause adverse
financial impact on the tenant.
(c) The department modified the Parking Lot User Agreement 2015, paragraph #3
via an Amendment #2 to specifically clarify the original intent and agreement that
parking lot charges shall be based on every regular season, scheduled home
game, excluding playoff games. The Finding of underpayment included a home
playoff (post season) game, which is not part of the regular season schedule.

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FINDING 4: Project Management

Condition:
During our testing of the Skyline Garage construction project we noted a few issues with
expense processing, the documentation available regarding the opening of bids and the
approval of cash transfers that occurred to fund the construction process.

During our review of the expenses related to the construction of Skyline garage we
judgmentally selected 22 out of the 215 related expense line items and noted the
following:

One invoice was paid without the appropriate level of approval.

Three invoices were not sufficiently itemized, rendering us unable to determine

whether sales tax was assessed.

One invoice did not reference a purchase order, when it should have.

We identified seven different funding sources that contributed to the construction of the
garage. Of those, two were not sufficiently approved. The expenditures related to the
Skyline project that were paid directly from other funds and the transfers made to the
construction fund were included in the Statement of Receipts, Disbursements, and Cash
Receipts that is presented to the Redevelopment Commission each month. This
statement is used to support the claim amount that is approved by the Redevelopment
Commission. However, approval is usually obtained after the disbursements have
already occurred (sometimes up to, three months) and the total amount approved does
not include inter-fund transfers. Other similar transfers have been approved by
resolution that specifically designate amounts allocated to the construction fund for the
garage.

We judgmentally selected seven of the 21 construction elements that were issued for
bid. We reviewed whether an invitation to bid was published appropriately, the bids
were opened publicly, and that the bids were received by the deadline. When the bids
were opened, the department did not document the attendees on a sign in sheet, and
did not retain documentation to support the bids were opened publicly.

Standard:
Pages 61-41-42 of the State Board of Accounts Cities and Towns Manual and IC 5-11-
10-1.6 establish the criteria required in order for the issuance of payments. It states
the fiscal officer of a municipality may not draw a warrant or check for payment of a
claim unless there is a fully itemized invoice or bill for the claim; the invoice or bill is
approved by the officer or person receiving the goods and services; the invoice or bill is
filed with the fiscal officer; the fiscal officer audits and certifies before payment that the
invoice is true and correct; and payment of the claim is allowed by the municipalitys
legislative body or the board having jurisdiction over the allowance of payment of the
claim.

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The purchasing policy statement issued by the City Purchasing Department establishes
the criteria regarding the need for purchase orders and general purchasing
requirements. The statement requires a purchase order for the purchase of goods or
services expected to be over $5,000, with exceptions for utilities, investments,
intergovernmental/intragovernmental, debt service, rent or reimbursements.

While Redevelopment does not have a standard in place regarding the approval of fund
transfers, a reasonable expectation would be that each fund transfer should have a
formal and specific approval.

Indiana Code 5-22-7 outlines the public bid requirements and states, The purchasing
agency shall open bids publicly in the presence of one (1) or more witnesses at the time
and place designated in the invitation for bids.

Cause:
The current procedures for processing expenses are not being consistently followed
and are not structured to sufficiently identify all of the established criteria that should be
examined prior to the issuance of payment. The need for purchase orders is not being
fully considered when non-traditional expenses are incurred.

There are currently no standards in place for the approval of fund transfers.

Sign-in sheets are not being used at public bid opening to document the attendance of
those present for the opening.

Effect:
Paying for expenses that are not fully supported increases the risk of paying
inappropriate or unnecessary expenses.

Inconsistent approval of fund transfers could lead to the overextension of available

funds. Formal, specific approval of fund transfers or spending before the transfers or
expenditures have occurred reduces the likelihood that the impact of certain transfers
has not been fully considered.

Recommendation:
We recommend that the department develop and implement a process to ensure that all
project related expenditures are appropriately approved, adequately itemized and tied to
purchase orders when necessary. We also recommend creating a standard process for
the approval of fund transfers to ensure all transfers are subject to the same review and
approval process as all other spending. Additionally, we recommend ensuring that sign-
in sheets are utilized at all public bid openings and that the bid opening and attendance
is attested by more than one Redevelopment employee.

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Management response:
We agree with the finding presented.

The department will document/list all appropriate staff position(s)/members within the
Resolution document who shall have authority to approve payments in all
Redevelopment Commission resolutions approving funding/expenditures and
specifically review resolution language prior to signing payment authorizations.
Modification to language will be implemented immediately.

The register of claims presented to Redevelopment Commission for review and

approval will accurately show claims and fund transfers separately. The approval of
Allowance of Claims signature page language will be modified by December 1, 2017 to
reflect the accurate narrative for the approval.

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