HomeMy WebLinkAboutExhibit CTHEODORE P. GUBA, CPA, CFE
INDEPENDENT AUDITOR GENERAL
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Telephone (305) 416-2044
E-Mail: tguba@miamigov.com
October 3, 2023
Honorable Members of the City Commission
City of Miami
3500 Pan American Drive
Coconut Grove, FL 33133-5504
Re: Audit of Bayside Seafood Restaurant, Inc.
Audit No. 24-01
Executive Summary
We have completed an audit of records and selected financial transactions of Bayside Seafood
Restaurant, Inc. (BSR), for the period January 1, 2018 through December 31, 2022. The audit was
performed to determine whether BSR complied with the applicable sections of the Revocable Permit
Agreement, the First Amendment to the Revocable Permit Agreement, and the Second Amendment
to the Revocable Permit Agreement with the City of Miami (City). During the audit period, BSR made
payments for use of the property totaling $159,024. The total fees owed to the City including base
permit fees, utility fees, percentage permit fees, and sales tax totaled $384,141.
Overall, we have concluded that controls over payments to the City and gross proceeds reporting
were inadequate to ensure compliance with the Permit Agreement. Improvement is needed to ensure
the timeliness and accuracy of monthly payments of the base and percentage permit fees and utilities
fees owed. Due to these deficiencies, BSR owes the City $225,117 in base and percentage permit
fees, utility fees, and sales tax (which consists of $210,306 of base and percentage permit fees
and utility fees and $14,811 of sales tax) for the period from January 1, 2018 through December 31,
2022. It should be noted that after being provided with our audit findings and recommendations, BSR
did not respond to our repeated attempts to obtain formal auditee responses, indicating their
agreement or disagreement with our conclusions.
We wish to express our appreciation for the cooperation and courtesies extended to us by the Bayside
Seafood Restaurant, Inc. management and their accountant as well as the City's Department of Real
Estate and Asset Management while conducting the audit.
Sincerely,
Theodore P. Guba, CPA, CFE
Independent Auditor General
Office of the Independent Auditor General
OFFICE OF THE INDEPENDENT AUDITOR GENERAL, 444 S.W. 2`D AVENUE, 7th FLOOR, MIAMI, FLORIDA 33130-1910
Cc: The Honorable Mayor Francis X. Suarez
Arthur Noriega, City Manager
Victoria Mendez, City Attorney
Todd B. Hannon, City Clerk
Nzeribe Ihekwaba, Deputy City Manager
Natasha S. Colebrook -Williams, Assistant City Manager
Larry M. Spring, Assistant City Manager/Chief Financial Officer
Erica T. Paschal, Director, Finance Department
Ann -Marie Sharpe, Director, Risk Management
Andrew Frey, Director, Department of Real Estate Asset Management
Members of the Audit Advisory Committee
Veronica Lacasa, Director of Bayside Seafood Restaurant, Inc.
Audit Documentation File
Audit conducted by: Caridad Vasallo, CPA, Senior Staff Auditor
Wesley Laurent, MBA, CPA, CIA, Senior Staff Auditor
Work papers reviewed by: Raymond Ishmael, CPA, CFE, Audit Supervisor
AUDIT OF BAYSIDE RESTAURANT SEAFOOD, INC.
JANUARY 1, 2018 THROUGH DECEMBER 31, 2022
AUDIT NO. 24-01
TABLE OF CONTENTS
SCOPE, OBJECTIVES, AND METHODOLOGY 1
BACKGROUND 2
AUDIT FINDINGS AND RECOMMENDATIONS 3
FINDING 1: UNDERPAYMENT OF BASE PERMIT FEES, UTILITY FEES, AND PERCENTAGE
PERMIT FEES TOTALING $225,117 3
FINDING 2: INSURANCE COVERAGE WAS NOT IN COMPLIANCE WITH PERMIT TERMS ... 5
SCOPE, OBJECTIVES, AND METHODOLOGY
The scope of the audit was to determine if BSR was in compliance with the base and percentage permit
fees, and utility fees, insurance and other provisions of the Revocable Permit Agreement (Permit), First
Amendment to the Revocable Permit (Amendment 1), and Second Amendment to the Revocable Permit
(Amendment 2) with the City of Miami (City). The audit was for the period from January 1, 2018 through
December 31, 2022 and focused on the following objectives:
• To determine if BSR accurately reported Gross Proceeds and remitted related percentage permit
fees to the City for the period from January 1, 2018 through December 31, 2022.
• To determine whether BSR base and percentage permit fees, and utility fees were accurately
remitted on a timely basis.
• To determine whether insurance policies were adequate and in compliance with the Permit.
• To determine whether payments were properly recorded in the City's accounting system and
deposited into the City's Treasury.
• To determine whether adequate controls were maintained to ensure compliance with the Permit.
• Other audit procedures as deemed necessary.
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.
The audit methodology included the following:
• Interviews and inquiries of appropriate personnel.
• Reviews of written policies and procedures in order to gain an understanding of the internal
controls.
• Observations of current practices and processing techniques.
• Tests of applicable transactions and records.
• Other audit procedures as deemed necessary.
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BACKGROUND
On December 21, 1994, the City issued a Revocable Permit Agreement (Permit) with BSR for the use of
the restaurant area located in Marine Stadium Marina (f/k/a Virginia Key Marina) at 3501 Rickenbacker
Causeway, Miami, FL 33149. This area consists of a 4,000 square foot outdoor deck dining area, a 2,000
square foot enclosed kitchen and dining area, and existing equipment. The area is used by the Permittee
to operate a restaurant selling food, beverages, and tobacco. The permit is valid on a month -to -month
basis commencing on December 1, 1994, unless otherwise revoked. The permit may be revoked by the
City Manager, with or without cause at any time by delivery of a written notice of revocation, thirty (30)
days prior to revocation.
In accordance with the Permit, BSR is required to pay a monthly base permit fee of Two Thousand Five
Hundred Dollars ($2,500.00) per month. The Permit does not include a provision for an incremental
increase in the base permit fees. In addition to the base permit fee, BSR is required to pay 8% of gross
proceeds greater than $500,000 per year, prorated on a monthly basis. Per the Permit, gross proceeds
shall mean the aggregate of gross sales or gross volume of business done on the described premises,
whether or not collected. Additionally, the Permittee is liable for payment to the City for the prevailing
State of Florida Sales, Use or similar Tax imposed on the amount of Rent paid to City under the Permit,
in the absence of an exemption or other reduction by the State of Florida.
The Permittee shall pay for all utilities consumed, for all Stormwater Utilities fees imposed, for any
maintenance for the area, and for commercial general liability insurance coverage of a combined single
limit of at least $1,000,000. Additionally, the Permittee is to maintain any additional coverage deemed
necessary in the course of business, including broad form property coverage for the building; fire, flood,
windstorm and extended coverage on a replacement cost basis, and worker's compensation as
determined by State law. A current certificate and policy of insurance should be supplied to the
Department of Real Estate and Asset Management of the City of Miami.
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AUDIT FINDINGS AND RECOMMENDATIONS
Based on the results of our audit, we have concluded that controls over payments to the City and gross
proceeds reporting were inadequate to ensure compliance with the Permit Agreement. Improvement is
needed to ensure the timeliness and accuracy of monthly payments of the base and percentage permit
fees and utilities fees owed. Due to these deficiencies, BSR owes the City $225,117 in base and
percentage permit fees, utility fees, and sales tax (which consists of $210,306 of base and percentage
permit fees and utility fees and $14,811 of sales tax) for the period from January 1, 2018 through
December 31, 2022. It should be noted that after being provided with our audit findings and
recommendations, BSR did not respond to our repeated attempts to obtain formal auditee responses,
indicating their agreement or disagreement with our conclusions.
Details of our findings and recommendations follow:
FINDING 1: UNDERPAYMENT OF BASE PERMIT FEES, UTILITY FEES, AND
PERCENTAGE PERMIT FEES TOTALING $225,117
Per Amendment 1, on a monthly basis BSR shall remit to the City for the preceding month a base permit
fee of $2,500 for use of the area, plus a percentage permit fee of 8% of Gross Proceeds greater than
$500,000 per year, prorated monthly, and a written report of Gross Proceeds on forms approved by the
City. At the end of each Permit year, if BSR can demonstrate that an overpayment was made in
percentage fees due, BSR shall be entitled to receive a credit against the next payment. Additionally,
BSR shall pay $239 of utility fees on a monthly basis.
Per Schedule 1 BSR owed $2,5000 monthly (or $30,000 yearly) in base permit fees, $238.80 monthly
(or $2,866 yearly) for utility fees, and varying percentages for sales tax. For the audit period, base permit
fees, utility fees, and sales tax totaled $175,141.
To determine whether BSR accurately reported and paid related percentage permit fees, we requested
the monthly Gross Proceeds Reports for the audit period from the Department of Real Estate and Asset
Management (DREAM) and BSR. However, of the 60 reports requested for the audit period, neither party
provided any of the reports. Although BSR was able to provide 46 Monthly Sales Reports from their POS
system, they were not in accordance with the monthly reporting requirements of the Permit. Accordingly,
to determine Gross Proceeds, we performed an analysis of all deposits into the BSR bank accounts and
adjusted for various items that should be excluded from Gross Proceeds, including sales and use taxes
collected, transfers between business accounts, and SBA loan proceeds. After applying these
adjustments, we calculated the Gross Proceeds subject to percentage permit fees to determine the
percentage permit fees owed including sales tax ($209,000).
We determined that the Total Base Permit Fee & Utility Fees ($175,141) and Percentage Permit Fees
($209,000) owed per audit were $384,141. BSR paid the City $159,024 resulting in an amount owed of
$255,117 in Base Permit Fees, Utility Fees, Percentage Permit Fees and Florida sales tax for the audit
period. The $225,117 consists of $210,306 of underpaid Base Permit Fees, Utility Fees, and Percentage
Permit Fee, and $14,811 of sales tax. (See "SCHEDULE 1: SUMMARY OF BASE PERMIT FEE, UTILITY
FEE, PERCENTAGE PERMIT FEE, AND SALES TAX OWED AND PAID" on page 4).
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SCHEDULE 1: SUMMARY OF BASE PERMIT FEE, UTILITY FEE, PERCENTAGE PERMIT FEE, AND SALES TAX OWED AND PAID
2018
2019
2020
2021
2022
Total
Base Permit Fees & Utility Fees
Base Permit Fee ($2,500 Monthly)
$ 30,000
$ 30,000
$ 30,000
$ 30,000
$ 30,000
$ 150,000
Utility Fee ($238.80 Monthly)
2,866
2,866
2,866
2,866
2,866
14,328
Sales Tax
2,202
2,202
2,136
2,136
2,136
10,813
Total Base Permit Fee & Utility Fees Owed Per Agreement
35,068
35,068
35,002
35,002
35,002
175,141
Gross Proceeds per Audit
943,766
847,290
803,183
1,284,152
1,073,179
4,951,571
Less: Percentage Permit Fee Threshold of$500,000
(500,000)
(500,000)
(500,000)
(500,000)
(500,000)
(2,500,000)
Gross Proceeds Subject to Percentage Permit Fee
443,766
347,290
303,183
784,152
573,179
2,451,571
Percentage Permit Fee of8%
35,501
27,783
24,255
62,732
45,854
196,126
Sales Tax on Percentage Permit Fee
2,379
1,861
1,577
4,078
2,981
12,875
Total Percentage Permit Fees Owed per Audit
37,880
29,645
25,831
66,810
48,835
209,000
Total Base Permit Fee & Utility Fees and Percentage
Permit Fees Owed per Audit
72,947
64,712
60,833
101,812
83,837
384,141
Less:Base Permit Fee & Utility Fees and Percentage Permit
Fees Paid to the City
(35,425)
(10,502)
(4,511)
(80,388)
(19,322)
(150,147)
Less: Sales Tax Paid to the City
(2,215)
(462)
(55)
(5,156)
(987)
(8,877)
Total Amount Owed to City
35,308
53,747
56,267
16,267
63,528
225,117
RECOMMENDATION 1.1: BAYSIDE SEAFOOD RESTAURANT, INC.
We recommend that BSR enhance its internal controls procedures to ensure that all fees owed to the
City are accurately calculated, consistent with the Permit, and remitted to the City in the Monthly Gross
Proceeds report. We recommend that the BSR remit the unpaid Base Permit Fees, Utility Fees,
Percentage Permit Fees, and Florida sales tax of $225,117 to the City which consists of $210,306 of
base permit fees, utility fees, and percentage permit fees and $14,811 of sales tax.
• Auditor Comments: BSR was notified on August 1, 2023, of the City's audit findings and
recommendations. Prior to the issuance of the final report, BSR was provided two weeks, or until
August 16, 2023, for a response to the findings and recommendations noted in the report. BSR
requested an extension and was granted an additional five days to respond, until August 21, 2023.
BSR requested a second extension of time to reply and was granted a second extension of two
additional weeks to respond, or until September 1, 2023. The deadline of September 1, 2023,
lapsed and no response was provided by BSR to any of the findings and recommendations noted.
Since ample time to respond was provided, we are finalizing our report without auditee responses.
RECOMMENDATION 1.2: FINANCE DEPARTMENT
We recommend that the City's Finance Department bill and collect the unpaid percentage rent due to the
City from BSR in the amount of $225,117 to the City which consists of $210,306 of base permit fees,
utility fees, and percentage permit fees and $14,811 of sales tax.
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FINDING 2: INSURANCE COVERAGE WAS NOT IN COMPLIANCE WITH PERMIT TERMS
Per the Permit, BSR shall maintain throughout the period of this Permit and through any periods of
extensions or renewals, the following insurance:
• Commercial General Liability of a combined single limit of $1,000,000.
• Comprehensive General Liability or its equivalent, including premises, operations, and contractual
coverage; and
• Any other coverage deemed necessary in the course of business (i.e., fire, flood, windstorm,
worker's compensation, etc.).
Additionally, the Permit requires that the City be named as additional insured, to be issued by companies
qualified as to management and financial strength as referenced in the latest edition of Best's Key Rating
Guide, and the policy may not be cancelled or materially changed without a 30 day advance written notice
to the City. All current Certificates of Insurance shall be supplied to DREAM and to the Risk Management
Department of the City.
Based on our review of the Permit and supporting documentation, we noted that BSR did not meet the
insurance requirements under Section 14 of the agreement. Specifically, no evidence was submitted of
comprehensive policy coverage for the premises, operations, and/or worker's compensation for the audit
period January 1, 2018 through December 31, 2022. Additionally, per the commercial general liability
policy provided for the period August 26, 2022 through August 26, 2023, the additional insured was "City
of Miami Dade", instead of the "City of Miami". The insurance coverage was reportedly changed in August
2022 and the City was not provided any written notice about the change in coverage. The property is
underinsured, which increases the City's risk of sustaining a material financial loss in the event of a major
catastrophe or incident.
RECOMMENDATION 2.1: BAYSIDE SEAFOOD RESTAURANT, INC.
We recommend that BSR obtain the necessary minimum coverage limits for all premises, operations,
and persons working on the premises.
• Auditor Comments: BSR was notified on August 1, 2023, of the City's audit findings and
recommendations. Prior to the issuance of the final report, BSR was provided two weeks, or until
August 16, 2023, for a response to the findings and recommendations noted in the report. BSR
requested an extension and was granted an additional five days to respond, until August 21, 2023.
BSR requested a second extension of time to reply and was granted a second extension of two
additional weeks to respond, or until September 1, 2023. The deadline of September 1, 2023,
lapsed and no response was provided by BSR to any of the findings and recommendations noted.
Since ample time to respond was provided, we are finalizing our report without auditee responses.
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