2023-133 City of Anaheim
It Has Not Properly Managed Tourism-Related Contracts and Millions of Dollars in Related Funds
Published: January 30, 2024
Audit Recommendations Disclosure
When an audit is completed and a report is issued, auditees must provide the State Auditor with information regarding their progress in implementing recommendations from our reports at three intervals from the release of the report: 60 days, six months, and one year. Additionally, Senate Bill 1452 (Chapter 452, Statutes of 2006), requires auditees who have not implemented recommendations after one year, to report to us and to the Legislature why they have not implemented them or to state when they intend to implement them. Below is a listing of each recommendation the State Auditor made in the report referenced and a link to the most recent response from the auditee addressing their progress in implementing the recommendation and the State Auditor’s assessment of auditee’s response based on our review of the supporting documentation.
Recommendation 1
To ensure better oversight of tourism district assessment funds, the Anaheim city council should by July 2024 designate an advisory board to make recommendations regarding how such funds should be spent. The advisory board should include, at a minimum, some of the owners of the assessed entities within the tourism district, legal counsel, and a person knowledgeable in government finance.
Status:
Fully Implemented
Date of implementation:
June 2024
Public reasoning behind assessment: The city council has approved a Anaheim Tourism Improvement District (ATID) Advisory Board that will make recommendations to the City Council regarding ATID expenditures. Board members must include hotel owners and the city’s finance director. The City Attorney or designee will provide legal advice.
60-Day Agency Response
The City of Anaheim has recently retained outside legal counsel specifically for the purposes of advising the City on a handful of ATID related issues that need to be addressed as a result of the state audit findings. The first of these issues is the creation of a new advisory board. In addition to retaining an outside law firm and consultant to assist with this recommendation, staff has completed its research of the cities mentioned in the State Audit report that have advisory boards (Morro Bay, Santa Rosa, Palm Springs, and San Luis Obispo). The city is now in the process of drafting the appropriate Resolutions and related documents for the establishment of this advisory body and we aim to present this information to the City Council within the next 90 days for final action.
6-Month Agency Response
On June 18, 2024, the Anaheim City Council established the Anaheim Tourism Improvement District (ATID) Advisory Board by resolution. Following the State Auditor’s recommendation, the Advisory Board consists of two hotel representatives from assessed properties within the district, one representative from the Contracting Entity, the City Manager or their designee, the City Executive Director of Convention, Sports and Entertainment, the City Audit Manager, and the City Finance Director. The City’s representatives will be the current incumbents in these positions. The representative from the Contracting Entity will be the President/CEO of that entity or their designee. The two hotel representatives from the ATID boundary will be recommended by the Contracting Entity and approved by the City Council. The city met the State Auditor’s recommendation by the July 2024 deadline and is presenting the two recommended hotel owner representatives to the City Council for appointment in August 2024.
Recommendation 2
To ensure better stewardship of public funds, Anaheim should by January 2025 develop a contract management, monitoring, and oversight process that aligns with the practices set forth in the corresponding provisions of the State Contracting Manual. Specifically, the city should implement policies and procedures for its professional services contracts that require it to track contract deadlines, deliverables, and contractors’ use of funds, and it should perform periodic compliance audits and reviews of contractors’ financial records.
Agency response status
Not fully implemented
Date of implementation
January 2025
Evaluator assessment status
Pending
60-Day Agency Response
The Finance Department has reviewed the referenced documents of the State Contracting Manual and identified opportunities to best incorporate the practices into the City’s policies and procedures related to professional services.
Draft edits to applicable policies and procedures have been completed and we are working to engage key stakeholders from all departments to review, receive input and confirm the practical application of the proposed edits. Estimated time frame to complete: 2 months.
Once the draft reaches consensus, the initial implementation will include several training sessions to be provided by the Finance Department. This will include information training sessions with departments on contracting guidelines and best practices and hands-on training sessions in the use of the City’s CGI ERP system to register and track professional services contracts. Estimated time frame to complete: 3-4 months.
6-Month Agency Response
The Finance Department has reviewed the referenced documents of the State Contracting Manual and identified opportunities to best incorporate the practices into the City’s policies and procedures related to professional services.
The general timeline has been delayed due to the recent resignation of the city’s Purchasing Agent who is a key stakeholder of the overall effort. We completed the hiring of a new Purchasing Agent and plan to continue with the original plan laid out below.
Draft edits to applicable policies and procedures have been completed and we are working to engage key stakeholders from all departments to review, receive input and confirm the practical application of the proposed edits. Estimated time frame to complete: 2 months.
Once the draft reaches consensus, the initial implementation will include several training sessions to be provided by the Finance Department. This will include information training sessions with departments on contracting guidelines and best practices and hands-on training sessions in the use of the City’s CGI ERP system to register and track professional services contracts. Estimated time frame to complete: 3-4 months.
Recommendation 3
To improve Anaheim’s oversight of the tourism district assessment contract with Visit Anaheim, the city should by January 2025 seek to renegotiate with Visit Anaheim to revise the contract to ensure that the contract does the following:
- Includes key performance indicators to allow the city to better gauge how effectively Visit Anaheim is using tourism district assessment funds. These benchmarks should include, at a minimum, hotel occupancy rates, convention center bookings, and the number of presentations made to convention center executives.
Agency response status
Not fully implemented
Date of implementation
January 2025
Evaluator assessment status
Pending
60-Day Agency Response
City staff worked with officials within Visit Anaheim to ensure that Key Performance Indicators, both prospective and retrospective, were included in the Fiscal Year 2022/23 ATID Annual Report which was approved by the Anaheim City Council on Tuesday, March 19, 2024. The City is continuing to work with Visit Anaheim to implement State recommended contractual reporting requirements and metrics into the current agreement by January 2025.
6-Month Agency Response
City staff worked with officials within Visit Anaheim to ensure that Key Performance Indicators, both prospective and retrospective, were included in the Fiscal Year 2022/23 ATID Annual Report which was approved by the Anaheim City Council on Tuesday, March 19, 2024.
An amended and restated agreement is being discussed between the City and Visit Anaheim to implement the State recommended contractual reporting requirements and metrics into the agreement. A proposed amended agreement will come before City Council for their review and consideration in Fall 2024.
Recommendation 4
To improve Anaheim’s oversight of the tourism district assessment contract with Visit Anaheim, the city should by January 2025 seek to renegotiate with Visit Anaheim to revise the contract to ensure that the contract does the following:
- Requires that Visit Anaheim separately track all expenditures related to the contract and prohibits Visits Anaheim from comingling tourism district assessment funds with other revenue sources.
Agency response status
Not fully implemented
Date of implementation
January 2025
Evaluator assessment status
Pending
60-Day Agency Response
At the City’s request, Visit Anaheim has already engaged with an industry expert to assist in the move to “fund accounting.” The City will further engage with Visit Anaheim to add the requirement of tracking all expenditures and prohibiting funds from being comingled.
6-Month Agency Response
At the City’s request, Visit Anaheim has engaged with an industry finance expert to assist in the move to “fund accounting”. A meeting was held in June 2024 where Visit Anaheim discussed their priorities which included the following:
- Increase bandwidth of their finance department;
- Determine correct fund balances for Anaheim Tourism Improvement District, Garden Grove Tourism Improvement District, and Private Revenue;
- Establish processes and policies for allocating funds to the appropriate revenue source;
- Develop a suite of policies and processes to address state audit recommendations;
- Reformatting financial statements to ensure clarity and transparency in reporting; and
- Sourcing and transitioning accounting software along with other technology upgrades.
The City will continue to be a part of these discussions with Visit Anaheim to ensure that their funds will not be comingled. The City will also implement this as a requirement under the amended and restated agreement which is currently in discussion with Visit Anaheim. A proposed amended agreement will come before City Council for their review and consideration in Fall 2024.
Recommendation 5
To improve Anaheim’s oversight of the tourism district assessment contract with Visit Anaheim, the city should by January 2025 seek to renegotiate with Visit Anaheim to revise the contract to ensure that the contract does the following:
- Requires Visit Anaheim to annually report to the city the amount of any unspent tourism district assessment funds and tourism district assessment fund reserve balances.
Agency response status
Not fully implemented
Date of implementation
January 2025
Evaluator assessment status
Pending
60-Day Agency Response
The FY 2022/23 ATID Annual Report, which was approved by City Council on March 19, 2024, included information on unspent, albeit blended/comingled funds. The City will further engage with Visit Anaheim to ensure the reporting of unspent funds and reserve balances are a requirement in the agreement by January 2025.
6-Month Agency Response
The FY 2022/23 ATID Annual Report, which was approved by City Council on March 19, 2024, included information on unspent, albeit blended/comingled funds. The City will continue to engage with Visit Anaheim to ensure the reporting of unspent funds and reserve balances are a requirement in the agreement by January 2025. A proposed amended agreement will come before City Council for their review and consideration in Fall 2024.
Recommendation 6
To improve Anaheim’s oversight of the tourism district assessment contract with Visit Anaheim, the city should by January 2025 seek to renegotiate with Visit Anaheim to revise the contract to ensure that the contract does the following:
- Prohibits Visit Anaheim from transferring tourism district assessment funds to another entity without the city’s prior approval and full compliance with the subcontracting provisions of the tourism district assessment contract.
Agency response status:
Fully implemented
Date of implementation:
February 2024
Evaluator assessment status:
Pending
Public reasoning behind assessment: We will consider the recommendation fully implemented after all approved Visit Anaheim subcontracts are submitted to the City Council and the city and Visit Anaheim have executed an amended agreement.
60-Day Agency Response
All subcontracts are currently being approved by the City.
6-Month Agency Response
Visit Anaheim is required to send subcontracts to the City for review and approval since February 2024. Beginning August 2024, all approved Visit Anaheim subcontracts will be submitted to the City Council and the public (on a monthly basis) as part of a formal receive and file action at City Council meetings. A proposed amended agreement will come before City Council for their review and consideration in Fall 2024.
Recommendation 7
To improve Anaheim’s oversight of the tourism district assessment contract with Visit Anaheim, the city should by January 2025 seek to renegotiate with Visit Anaheim to revise the contract to ensure that the contract does the following:
- Requires Visit Anaheim to develop a plan for oversight of any subcontractor and provide documentation of this oversight annually to the city.
Agency response status
Not fully implemented
Date of implementation
January 2025
Evaluator assessment status
Pending
60-Day Agency Response
This will need to be an administrative regulation adopted by the Visit Anaheim Board. The City will further engage with Visit Anaheim to require a plan for oversight of subcontractors and to provide documentation on this oversight to the City into the operating agreement by January 2025.
6-Month Agency Response
This will need to be an administrative regulation adopted by the Visit Anaheim Board. An amended and restated agreement is being discussed between the City and Visit Anaheim to require a plan for oversight of subcontractors and to provide documentation on this oversight annually to the City.
Recommendation 8
To ensure that the city of Anaheim receives adequate consideration for all of its professional services contracts, the city should implement contract monitoring practices sufficient to ensure that it receives all of the deliverables agreed to in any contract’s scope of work. Further, the city should assess whether it received adequate consideration for the 2019 economic development contract or the 2020 shop-and-dine-local contract; if the city finds that it did not receive adequate consideration, then the city should explore its restitution mechanisms under contract law to obtain a return of those funds.
Agency response status
Not fully implemented
Date of implementation
September 2024
Evaluator assessment status
Pending
60-Day Agency Response
Last month the City’s Audit Division began a full review of the two agreements and materials that were provided by the Anaheim Chamber of Commerce. The Audit Division has completed its initial review and is now moving into phase two of their review.
On March 20, 2024, the city’s Audit division sent a notification letter to the Anaheim Chamber of Commerce requesting records pertinent to agreements dated June 4, 2019 and October 1, 2020. Next steps will be to review any supportive documentation that reveals the Chamber actually completed all the deliverables for the agreements in question. We know they provided some services, but we are hoping to identify and confirm completion of far more.
The City’s goal is to complete this inquiry and review within a few weeks. The timing is dependent on the Chamber making documentation available to us. The City has an in-person meeting scheduled with the Chamber on Wednesday, April 3rd.
6-Month Agency Response
The city’s Audit Division has completed its inquiry into the two contracts with Anaheim Chamber of Commerce and is in the process of examining the findings from this inquiry. The division has prepared an initial draft that is currently being reviewed. The final report on the inquiry results and our recommended plan of action will be released after this review process is complete.
The preliminary findings indicate that the Anaheim Chamber of Commerce is having difficulty providing all the key deliverables outlined in the two contracts. While they made partial progress by developing some aspects of the program and have some documentation to support this work, their records are incomplete and their accounting methods limit our ability to fully track their completed work.
