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U.S. Department of the Interior Office of Inspector General Audit Report Concession Management and Fee Collection Operations, Virgin Islands National Park, National Park Service Report No. V-IN-NPS-0004-2003 May 2004 United States Department of the Interior OFFICE OF INSPECTOR GENERAL Eastern Regional Office 381 Elden Street – Suite 1100 Herndon, Virginia 20170 May 17, 2004 Memorandum To: Superintendent Virgin Islands National Park Service From: William J. Dolan, Jr. Regional Audit Manager, Eastern Region Subject: Final Audit Report “Concession Management and Fee Collection Operations, Virgin Islands National Park, National Park Service” (Report No. V-IN-NPS-0004-2003) The attached report presents the results of our audit of concession management and fee collection operations at the Virgin Islands National Park on St. John. The objective of our audit was to determine whether the Virgin Islands National Park followed prescribed procedures for these operations. The legislation, as amended, creating the Office of Inspector General, (5 U.S.C. app. 3) requires that we report to Congress semiannually on all reports issued, actions taken to implement our recommendations, and recommendations that have not been implemented. Therefore, this report will be added to the next semiannual report. Because the eight recommendations contained in this report are considered to be resolved and implemented, no response is required. Attachment [This page intentionally left blank] CONTENTS Background................................................................................... 1 INTRODUCTION Objective and Scope ..................................................................... 2 Prior Audit Coverage.................................................................... 3 Overview....................................................................................... 4 RESULTS OF AUDIT Concession Management .............................................................. 4 Incidental Business Permits.......................................................... 7 Entrance Fee Collections .............................................................. 8 To the Park Superintendent........................................................... 12 RECOMMENDATIONS 1. Approved Concessionaires....................................................... 14 APPENDICES 2. Prior Audit Coverage............................................................... 15 3. Monetary Impact...................................................................... 16 4. Response to Draft Report......................................................... 17 5. Status of Recommendations..................................................... 26 i [This page intentionally left blank] ii INTRODUCTION The Virgin Islands National Park was established in 1956 and includes: about 7,890 acres of land on St. John and 12,708 marine acres surrounding the island, 135 acres of land on Hassel Island in the St. Thomas harbor, and 15 acres of land in the Red Hook area of St. Thomas. Our audit only included a review of Park operations on St. John. BACKGROUND Concession Operations The Park’s organizational chart showed 87 full-time positions, but at the time of our review there were only 71 employees. The Park was divided into six divisions: Office of the Superintendent, Administration, Interpretation, Ranger Activities, Resource Management, and Maintenance. Three concession operations1 (see Appendix 1) were active on St. John: one based on a concession contract and two based on concession permits. The contract concessionaire operated the Cinnamon Bay Campgrounds and food service operations at Trunk Bay and was required to pay the Park a monthly franchise (or concession) fee of 1.5 percent of gross receipts from concession operations. The permit concessionaires operated watersports services at (1) Cinnamon and Trunk Bays at a concession fee of 3.25 percent of gross receipts and (2) Maho Bay at a concession fee of 3 percent of gross receipts. In addition to awarding concession contracts, the Park issued “incidental business permits” (also referred to as “commercial use authorizations”) to other businesses to identify and document commercial activities in Park facilities to ensure the protection of resources and the safety and enjoyment of visitors. The Park issued 57 incidental business permits for 2001 and 89 incidental business permits for 2002 (see Appendix 1). The Park collected an initial entrance fee of $4 per adult from visitors for daily entry to both Trunk Bay and the Annaberg Historic Site. The Park also sold special multi-use passes issued by the National Park Service that are accepted at all national parks. In addition, permitted businesses with organized tour groups and pre-established arrangements with the Park were billed monthly for Fee Collections 1 Two companies operated concessions on St. John. However, one company had separate concession operations under a concession contract and under a concession permit. Throughout this report, we classify this one company as two separate concession operations because of the different requirements applicable to each operation. 1 the entrance fees applicable to their customers. The Park had an average of about 650,000 recreational visitors per year. Fee collections totaled about $1.1 million during fiscal year (FY) 2001 and $907,000 during FY 2002. The objective of our audit was to determine whether the Virgin Islands National Park followed prescribed procedures for its concession management and fee collection operations. A separate report was issued on our review of concession management and fee collection operations of the St. Croix National Park. OBJECTIVE AND SCOPE The scope of our audit included a review of concession management and fee collection activities and transactions that occurred during FY 2001 and FY 2002, and other periods as appropriate. To accomplish the audit objective, we interviewed Park personnel and reviewed files and documents for concession contracts and permits, commercial use authorizations, incidental business permits, special use permits, and collections and deposits of recreational fees. Our audit was conducted in accordance with the “Government Auditing Standards,” issued by the Comptroller General of the United States. Accordingly, we included such tests of records and other auditing procedures that were considered necessary under the circumstances. The “Standards” require that we obtain sufficient, competent and relevant evidence to afford a reasonable basis for our findings and conclusions. As part of our audit, we evaluated the internal controls related to concession management and fee collection operations to the extent we considered necessary to accomplish the audit objective. Internal control weaknesses in these areas are discussed in the Results of Audit section of this report. The recommendations, if implemented, should improve the internal controls in these areas. We also evaluated the validity of Government Performance and Results Act (GPRA) performance measures for the Virgin Islands National Park and found them to be appropriate. The Park’s performance goals related to (1) preserving park resources, (2) providing for the public’s enjoyment and visitor experience, (3) strengthening and preserving natural and cultural resources and enhancing recreational opportunities, and (4) ensuring organizational effectiveness. During FY 2000, the Park expended the majority of its budget on the goal related to the public’s enjoyment and visitor experience. In FY 2001, the Park focused on 2 the preservation of park resources. The performance report for FY 2002 was not available at the time of our review. During the past 5 years, the Office of Inspector General has not issued any audit reports on National Park Service operations in the Virgin Islands. However, the March 1995 report “Selected Administrative Functions, Virgin Islands National Park, National Park Service” (No. 95-I-647) disclosed deficiencies related to concession operations, property management, and the deposit of collections (see Appendix 2). PRIOR AUDIT COVERAGE 3 RESULTS OF AUDIT The Virgin Islands National Park needs to improve its administration of concession management and entrance fee collection operations. Specifically, we found that the Park did not: OVERVIEW ► Monitor concession and business permit activities to ensure concessionaires and business permit holders paid appropriate concession and permit fees. ► Maintain complete and accurate records to ensure concessionaire and business permit holders complied with financial and performance requirements. ► Identify unpaid concession and permit fees of more than $60,000. ► Ensure that concessionaires and permit holders complied with all insurance and safety requirements. ► Implement adequate controls over entrance fee collections, resulting in a cash shortage of at least $9,061 and fees owed by tour operators totaling $21,092. National Park Service Guideline 48 and the terms and conditions contained in concession contracts and permits require that the Park obtain and keep specific records. These records would allow the Park to determine if appropriate concession fees were being paid and insurance and safety requirements were being met. Based on our review of the concessionaire files, we found that the Park did not ensure concessionaire compliance with concession fee and documentation requirements. CONCESSION MANAGEMENT The Park’s contract concessionaire had eight sub-concessionaires from which it collected commissions and concession fees. However, the Park had not approved the sub-concession agreements. Sub-Concessionaires Were Not Approved In a May 18, 1998, letter to the then Park Superintendent, the contract concessionaire submitted a draft sub-concession agreement and requested formal approval to negotiate and enter into agreements with sub-concessionaires. In the letter, the contract concessionaire also acknowledged the obligation to pay 4 the Park 50 percent of fees received from sub-concessionaires. However, we found no documentation at the Park to indicate that a response was sent to the contract concessionaire, or that the matter was otherwise discussed with the concessionaire. Nevertheless, the contract concessionaire entered into at least five sub-concession agreements and three employee contracts for watersports services without the Park’s approval. A Park official told us that she knew businesses were providing watersports services to visitors at various facilities within the Park, but she was not aware of the business arrangements between those businesses and the contract concessionaire. The contract concessionaire charged the sub-concessionaires and contract employees commissions of 15 percent and concession fees of 1.5 to 3.25 percent of their monthly gross receipts, but did not remit 50 percent of these fee amounts to the Park, as required by the concession contract. Financial records were available for four of the five sub-concessionaires and, based on our review of those records, we estimated that for the 28-month period of January 2001 to April 2003, the contract concessionaire should have remitted to the Park sub-concessionaire fees of about $55,660. Sub-Concession Fees of $55,660 Were Not Collected We believe the Park should ensure that sub-concession agreements and related employee contracts are approved by the Park as required by the concession contract and that contract concessionaire remit to the Park the appropriate sub-concession fees. The Park’s contract concessionaire was required to pay the Park a monthly concession fee equal to 1.5 percent of gross receipts from concession operations. We noted differences totaling $1,532 between the concession fees paid by the contract concessionaire for 2001 and 2002 and the concession fee amounts reported in the concessionaire’s annual financial reports for those years. Specifically, the Park received concession fee payments totaling $43,646 in 2001, but the annual financial statement reported concession fees due of $45,115, for a payment shortage of $1,469. Similarly, the Park received concession fee payments totaling $45,688 in 2002, but the annual financial statement reported concession fees due of $45,751, for a payment shortage of $63. The differences in concession fees were not detected because Park personnel did not reconcile the fees received with the amounts reported in the contract concessionaire’s annual financial reports. Concession Fees Were Underpaid by $1,532 5 We believe that if reconciliations of the contract concessionaire’s annual financial reports had been performed, the shortages in concession fee payment amounts would have been detected. The Park did not ensure that all concessionaires met compliance and documentation requirements contained in both the National Park Service Guideline 48 and the contract and permit terms. Files Were Not Complete and Accurate Contract files did not contain evidence that concessionaires and permit holders obtained required insurance for periods prior to 2002. As a result, there was no assurance that the concessionaires had the required insurance coverage. In fiscal year 2002, we noted that the contract concessionaire and the two permit concessionaires met or surpassed NPS insurance requirements. The contract concessionaire did not submit financial statements within required timeframes. The audited financial report for 2001 was submitted more than 57 days late, and the preliminary financial report for 2002 was submitted 87 days late. Financial reports for the two permit concessionaires were also untimely. In 2001, one report was 126 days late and the other was 117 days late. In 2002, one report was 81 days late, and we could not determine when the other was received by the Park. Although Guideline 48 requires Park personnel to make reasonable follow-up until the delinquent reports are received, we found no evidence that this was done. Park officials could not provide documentation to show that all required evaluations and/or inspections of concessionaire operations had been performed. Documentation was only available for periodic inspections in June 2001 for the three concessionaires. Health inspection documentation was also only available for March 2000, March and December 2001, and January 2003 for the contract concessionaire’s food service operations. There was no documentation of annual operational inspections for the three concessionaires. As a result, there was no assurance that concessionaires met applicable health, safety, maintenance, and other operational requirements. According to a Park official, the Park was missing inspection documents for the period covered by our audit because the Concession Management Specialist position was vacant until 2001. Furthermore, the employee was not fully trained or certified to handle all of the job requirements until October 2002. 6 We believe Virgin Islands National Park officials should contact all concessionaires to obtain missing compliance documents and reports, establish policies and procedures to regularly monitor concessionaires’ adherence to compliance and documentation requirements, and conduct and fully document required periodic and annual inspections and evaluations of concessionaire operations. Internal Park procedures establish compliance and documentation requirements and a schedule of annual permit fees for businesses that operate within the Park under incidental business permits. However, we found that the Park did not always charge permit holders the correct permit fees or require them to update their compliance documentation. INCIDENTAL BUSINESS PERMITS Each business with an incidental business permit to operate in Park waters is issued an identification decal for each vessel. To determine if all permit fees were paid accurately and timely, we reviewed the records for 70 permit holders (35 each for 2001 and 2002). We found that documentation was not available to verify the accuracy of permit fee collections totaling $9,050 in 2001. Additionally, seven permit holders underpaid permit fees by a total of $3,050 in 2002. For example: Permit Fees Were Underpaid by $3,050 ► The Park issued three permit decals to a business that operated a water taxi service with three vessels. However, the Park required the permit holder to pay only $575, which was the permit fee for one vessel of the size used by the business. We determined that the Park charged the business as if it were only operating one vessel, rather than charging $575 for each vessel. As a result, the Park did not collect permit fees totaling $1,150 ($575 x 2). ► The Park issued four permit decals to a business that operated day excursions with four vessels. Based on the fee schedule, the permit fee for each vessel was $375. However, the Park collected only $750 ($375 x 2), resulting in a revenue loss of $750. Regarding the timeliness of permit fee payments, we found that in 2002, 21 permit holders were from 1 to 95 days late in paying the applicable fees. Records were not sufficient for us to assess the timeliness of fee payments in 2001. 7 Permit holders did not always renew their business licenses or certificates when they had expired. Specifically, we found that: Business Licenses and Certificates and Insurance Had Expired ► Of the 35 permit holders in our 2001 sample, six did not have business licenses and two others had business licenses that expired during the year. In addition, two permit holders did not have required certificates of training in CPR and/or first aid, and we could not determine whether four other permit holders had such certificates of training because the necessary information was not contained in the files. Further, seven permit holders’ insurance coverage had expired during the year. ► Of the 35 permit holders in our 2002 sample, 7 did not have business licenses and 12 others had business licenses that expired during the year. In addition, five permit holders’ inspection certificates had expired, and one permit holder was issued a temporary business license during the year. Further, five permit holders’ insurance coverage had expired during the year. Ten other permit holders did not have the required automobile insurance to protect the Park from a liability claim in the event of an accident on Park property because the Virgin Islands insurance companies only provide coverage to protect the owner of the vehicle. These instances of noncompliance with permit requirements occurred because the Park had an honor system that allowed permit holders to voluntarily bring in the necessary documents, without any follow-up by Park personnel. A Park official said that the Park did not have sufficient staff to track the expiration dates of pertinent documents, such as insurance policies, and to contact permit holders to compel them to update their files. As a result of this relaxed compliance documentation process, there was no assurance that incidental business permit holders had the qualifications, training, and insurance coverage necessary to safeguard visitors and protect resources of the Park. Two cashier booths at Trunk Bay and one booth at the Annaberg Historic Site were open on a daily basis year-round for collection of visitor entrance fees. However, internal controls over the fee collection process were inadequate, placing cash collections at risk of misappropriation. ENTRANCE FEE COLLECTIONS 8 To determine if the Park deposited all entrance fee collections, we reviewed the collection and deposit records for the period of January 1999 to October 2002. We found 31 discrepancies that resulted in deposits of $9,061 less than the amounts collected, as follows: Deposits Were $9,061 Less Than Collections Calendar Year Shortage Amount 1999 $930 2000 2,715 2001 3,617 2002 1,799 Total $9,061 Specific examples of the identified discrepancies were as follows: ► For June 27, 2000, the collection records for one of the collection booths at Trunk Bay showed total collections of $702. But another set of collection records was changed from $702 to show collections of $502. Further, although the collections from the three collection booths totaled $1,906, only $1,706 was deposited, for a shortage of $200. ► For May 8, 2002, one set of records showed total collections of $1,786. However, the deposit records showed that only $878 was deposited, for a shortage of $908. We referred our findings to OIG Investigations for appropriate follow-up. Our review disclosed several practices that contributed to weak internal controls over the collection of entrance fees. These internal control weaknesses included: (1) not limiting physical access to cash collections, (2) not maintaining adequate separation of responsibilities for collections and deposits, (3) not reconciling daily collections and deposits, and (4) not providing adequate supervision of collection personnel. Controls Over Fee Collections Were Inadequate The National Park Service’s Recreation Fee Guideline 22 states that the combinations of safes used to secure collections should be known only to employees who use the safes as part of their cashier or fee collection responsibilities. However, since 1999, the supervisor of the Fee Demonstration Program had keys to the cash drawers used by the individual cashiers and knew the combinations 9 for all the safes. Therefore, access to cash collections was not adequately limited. Additionally, the Park’s Fee Collection Standard Operating Procedures state that, for accountability purposes, two employees (one of whom was the supervisor) will open, count, and verify all of the shift envelopes.2 However, we found that these activities were being performed by only one individual – either the supervisor, her assistant, or her designee. A Park employee stated that the fee collection program was short-staffed and, as a result, only one person was available to perform these activities. Therefore, there was inadequate separation of responsibilities to safeguard cash collections. Further, the staff of the Fee Demonstration Program was not adequately supervised. The Chief of Interpretation stated that he did not provide supervision to the Program and instead acted only as a secondary supervisor. Lacking this formal supervision, reports prepared by the supervisor of the Fee Demonstration Program were not verified nor reviewed by a higher-level Park official. Since the Fee Demonstration Program functioned under the Division of Interpretation and the Program was short-staffed, we believe that the Chief of Interpretation should have been more involved in supervising the Fee Demonstration Program. The Park should take steps to improve the internal controls over entrance fee collections, particularly with regard to limiting access to the cashier drawers, having certain critical functions (such as the reconciliation of collections and deposits) cross-checked by two Park employees, and requiring the Chief of Interpretation to exercise a greater degree of supervisory oversight of the fee collection process. Established procedures required that the Park issue Bills of Collection each month to tour operators for the entrance fees due for their passengers who entered either Trunk Bay or the Annaberg Historic Site. However, we found that the Park did not always issue monthly bills and had not collected at least $21,092 in entrance fees from tour operators, as follows: Tour Operators Owed Fees of $21,092 ► The Park did not bill tour operators for entrance fees totaling $4,556. This consisted of $1,060 that was not billed to 12 businesses and $3,796 for which we found no evidence that 2 The “shift envelopes” contain the cash and related documents for collections during each cashier’s work shift. 10 2 businesses had been billed; minus an off-set of $300 for 2 businesses that had been overcharged. These discrepancies occurred because no one was specifically assigned to prepare Bills of Collection prior to February 2001. ► The Park did not collect $16,536 in entrance fees from a tour operator for tours during the periods of February and April to August 1999. Although the Park issued six Bills of Collection to the tour operator, it did not revoke the operator’s permit until April 2001 (more than 2 years after the initial delinquency). The $16,536 in fees still had not been paid as of March 2003. A Park employee told us that many factors contributed to the delinquencies. For example, the Park did not: (1) assign an employee to prepare and monitor the status of Bills of Collection during 1999 and 2000, (2) timely submit delinquent Bills of Collection to the National Park Service’s regional office in Atlanta, Georgia, for collection, (3) explain to Park personnel the responsibility for the collection of delinquent fees, and (4) develop and implement specific procedures for collection enforcement. At the time of our review, the Park was testing new procedures for collection of Bills of Collection. 11 RECOMMENDATIONS We recommend that the Superintendent of the Virgin Islands National Park: TO THE PARK SUPERINTENDENT 1. Identify the level of sub-concession activities operated through the Park’s concessionaires; request concessionaires to provide the Park with copies of sub-concession agreements for required approval; request concessionaires to provide the Park with copies of sub-concessionaires’ financial reports so that appropriate sub-concession fees can be calculated; and collect the appropriate sub-concession fees, including prior period fees of about $55,660. 2. Perform a preliminary review of the annual financial reports of concessionaires, reconcile the concession fees reported in the financial reports with the amounts paid by the concessionaires, and collect any additional concession fees that are determined to be due. 3. Obtain missing compliance documentation from concessionaires, establish policies and procedures to regularly monitor concessionaires’ adherence to compliance and documentation requirements, and conduct and fully document required inspections and evaluations of concessionaire operations. 4. Review the fee requirements for all incidental business permits and ensure that existing permit holders and new applicants make timely payments of the correct fee amounts. The Park should also collect the $3,050 that was underpaid for prior year incidental business permit fees. 5. Create a tracking system to ensure that incidental business permit holders update business licenses, insurance coverage, and other compliance documentation that may expire during the active period of the permits. 6. Ensure that adequate internal controls are in place and functioning properly for the Fee Demonstration Program. Adequate internal controls should include limiting access to the cashier drawers, having certain critical functions (such as the reconciliation of collections and deposits) cross-checked by two Park employees, and exercising a greater degree of supervisory oversight of the fee collection process. 12 7. Implement policies and procedures to ensure that the Park promptly bills tour operators for the entrance fees applicable to their passengers and revokes delinquent tour operators’ permits if they do not promptly make arrangements for and pay off delinquent Bills of Collection. 8. Promptly refer delinquent payments from tour operators to the National Park Service’s regional office in Atlanta for collection. We received an April 9, 2004, response (Appendix 4) to the draft report from the National Park Service’s Associate Director for Administration, Business Practices and Workforce Development. The response concurred with the recommendations and indicated that corrective actions had been or were being taken. Therefore, we consider Recommendations 1 through 8 to be resolved and implemented (Appendix 5). AUDITEE RESPONSE 13 APPENDIX 1 – APPROVED CONCESSIONAIRES Concessionaire Name Purpose of Concession CONCESSION CONTRACT Caneel Bay, Inc. Cinnamon Bay Campgrounds and food service at Trunk Bay Sub-concession Agreements:* Paradise Aqua Tours, Inc. Snorkel rental at Trunk Bay Snorkelmania Snorkel tours at Caneel Bay Paradise Watersports Dive center at Caneel Bay St. John Watersports Sailing charters at Caneel Bay Vicki Uzzell Massage therapy at Caneel Bay Employment Agreements:* Frank Cummings Scuba tours at Trunk Bay Richard Falkenburg Sail charters at Cinnamon Bay Richard Metcalfe Watersports at Cinnamon Bay Concessionaire Name Purpose of Concession CONCESSION PERMITS Caneel Bay, Inc. Watersports at Caneel Bay Maho Bay, Inc. Watersports at Maho Bay Calendar Year 2001 Calendar Year 2002 INCIDENTAL BUSINESS PERMITS Day Sail 37 Water-Based Activities 41 Water Taxi 1 Land-Based Activities 30 Scuba Tours 4 Other Activities 18 Kayak Tours 1 Land-Based Tours 7 Total 89 Hiking Tours 1 Bicycle Tours 1 Weddings/Events 5 Total 57 __________ * These businesses were in operation within the Virgin Islands National Park although the sub-concession and employee agreements had not been submitted to the Park for approval. 14 APPENDIX 2 – PRIOR AUDIT COVERAGE The March 1995 report “Selected Administrative Functions, Virgin Islands National Park, National Park Service” (No. 95-I-647) stated that the Park did not (1) ensure that franchise fee reconsiderations were conducted and implemented in a timely manner, (2) assess reasonable fees for the use by concessionaires of government buildings, (3) obtain reimbursement for refuse collection and other services provided to concessionaires, and (4) consistently authorize commercial boating operations in the Park. In addition, concessionaires had not reimbursed the Park for $57,000 in expenses related to providing refuse collection, sewage treatment, and water system maintenance. Regarding other administrative functions, the Park did not dispose of unserviceable equipment valued at $48,000 in a timely manner and held collections of up to $22,000 for several months before deposit. Based on the Park Superintendent’s response to the draft report, all of the report’s recommendations were considered resolved. OFFICE OF INSPECTOR GENERAL REPORT 15 APPENDIX 3 – MONETARY IMPACT Unrealized Revenues* FINDING AREA Unpaid Sub-Concession Fees Underpaid Concession Fees Underpaid Incidental Business Permit Fees Entrance Fee Shortages Unpaid Tour Operator Fees Totals $55,660 1,532 3,050 9,061 21,092 $90,395 __________ * All amounts represent Federal funds. 16 Appendix 4 Page 1 of 9 APPENDIX 4 – RESPONSE TO DRAFT REPORT 17 Appendix 4 Page 2 of 9 18 Appendix 4 Page 3 of 9 19 Appendix 4 Page 4 of 9 20 Appendix 4 Page 5 of 9 21 Appendix 4 Page 6 of 9 22 Appendix 4 Page 7 of 9 23 Appendix 4 Page 8 of 9 24 Appendix 4 Page 9 of 9 25 APPENDIX 5 – STATUS OF RECOMMENDATIONS Finding/Recommendation Reference 1 to 8 Status Resolved and implemented. Action Required No further response required. 26 How to Report Fraud, Waste, Abuse and Mismanagement Fraud, waste, and abuse in government are the concern of everyone B Office of Inspector General staff, Departmental employees, and the general public. We actively solicit allegations of any inefficient and wasteful practices, fraud, and abuse related to Departmental or Insular Area programs and operations. You can report allegations to us by: Mail: U.S. Department of the Interior Office of Inspector General Mail Stop 5341-MIB 1849 C Street, NW Washington, DC 20240 Phone: 24-Hour Toll Free 800-424-5081 Washington Metro Area 202-208-5300 Hearing Impaired (TTY) 202-208-2420 Fax 202-208-6081 Caribbean Field Office 340-774-8300 Hawaiian Field Office 808-525-5310 Internet: www.oig.doi.gov/hotline_form.html U.S. Department of the Interior Office of Inspector General 1849 C Street, NW Washington, DC 20240 www.doi.gov www.oig.doi.gov