Audit finds reason for mismanaged funds

SANTA CLARA » For decades, the city of Santa Clara’s working relationship with the Chamber of Commerce has essentially been based on handshake-type deals, allowing the chamber to operate the Convention Center & Visitors Bureau and manage millions of dollars in special hotel fees with virtually no oversight.

The city’s latest audit, which examined an arrangement where the chamber administers fees paid by nine hotels into the city’s Tourism Improvement District, found poor accounting practices, missing documentation for more than $300,000 in credit card expenses and subsidies granted to businesses without the knowledge of city officials.

“We fostered a high-risk environment by our not overseeing and managing it properly,” Mayor Lisa Gillmor said about the relationship during a meeting Tuesday. But, she added later, the chamber “doesn’t acknowledge their own conflicts of interest, nor do I think they really understand what a real conflict of interest is.”

Chamber CEO and President Nick Kaspar called the audit and a previous one “misleading” and accused the city of using taxpayer dollars to wage a political cam- paign against the chamber.

“Both sides should have been doing stuff differently — nobody evaluated the contract, but we were working off a contract written in 1984 without any updates,” Kaspar said.

“Past city management has left it to the chamber with the decision-making power, and that was the directive throughout the time,” Kaspar said. “Now we’re evaluating our management with a different set of instructions — they are better instructions, but it’s a different set of instructions than what we’ve received.”

Although the city has collected $8.3 million in fees since the tourism district was established in 2005 and sent that money to the chamber as its steward, there is no written contract between the city and the chamber.

The ordinance that created the special district doesn’t specify whether the city or a third party should manage it, and the city hasn’t been involved with the advisory board created to oversee the funds, according to the audit. The by-laws for the advisory board do indicate the chamber has the authority to spend money on behalf of hotels that contribute to the fund.

“The ordinance should have been complied with,” City Attorney Brian Doyle said. “The conse-

quence of not having complied with it…depends on who is interested in calling us on it.”

The city also hasn’t taken action each year to review and approve the fees, the audit also found.

The informal deal reflects many of same problems found in a separate audit released in September of the chamber’s management contract for the Santa Clara Convention Center, which accused the chamber of misusing government resources, allowing conflicts of interest to go unchecked and granting fee waivers and subsidies without city oversight.

For example, the chamber granted a lease for convention center space to a UPS store owned by one of its board members, Ravinder Lal, and used convention center money to pay for ads in the Santa Clara Weekly, whose owner Miles Barber is also a board member.

Both audits were conducted by the Sacramentobased firm TAP International. The Convention Center audit cost the city $110,920 and the Tourism Improvement District audit $44,100.

The city council voted unanimously in September to terminate the chamber’s management of the Convention Center, and in June decided to let a separate contract for the visitors bureau expire.

The council Tuesday voted 5- 0, with councilwoman Patricia Mahan absent, to keep reviewing the finances of both the Convention Center and tourism district and explore having the city take over stewardship of the hotel fees.

Councilwoman Teresa O’Neill said she hopes the city and chamber can begin to “work together for the benefit of everybody.”

“I think a lot of it was due to the fact that the city was not adequately staffed for how many assets that it has to manage. Assets were put in place there was no oversight,” O’Neill said.

The chamber has been in business for 71 years, and people don’t realize that the city and the chamber have been at odds before,” Kaspar said. “So this is just one place and time, it doesn’t mean we can’t get back to working together.”

The September audit was the first time the city examined management of the Convention Center since the contract was originally awarded to the chamber in 1984.

The city has since issued a request for bids for a new convention center manager. Kaspar said the chamber has started a reapplication bid but has not decided whether to proceed.

Despite the lack of oversight, the audit found the nine hotels that participate in the district are generally paying the correct amount, although a tighter watch could have reaped an extra $14,000 to $96,000 in fees, according to the audit.

The chamber has come an average of $86,000 under budget each year in managing the tourism district, although the surplus hasn’t been deposited in a reserve fund as required by the ordinance.

“We think that are there, because they have available funds,” said auditor Denise Callahan, pointing to a $567,978 fund balance.

The audit found nearly 70 percent of the transactions examined did not comply with proper accounting standards, including $308,000 in credit card transactions without expense verification documents.

The auditor also raised questions about subsidies to event sponsors that don’t follow the tourism district’s guidelines, such as $59,000 in transportation even though the district doesn’t have a policy for paying such expenses.

Five of the nine groups that got subsidies received multiple discounts, raising questions about fairness and equity, Callahan said.

According to its by-laws, the advisory board that oversees the funds is required to have regular annual meetings in the first three months of each year. It hasn’t.

City spokeswoman Lenka Wright said none of the current board members were appointed by the council, which is specified in the ordinance, and the board has not met regularly.

Still, the advisory board has continued to make decisions: according to a city press release, it took action in October to end the Chamber of Commerce’s stewardship over hotel fees and is currently updating its bylaws to find a new entity to manage the funds.

City manager Deanna Santana said Tuesday the city only recently began attending meetings

Wright also gave conflicting answers as to the city’s responsibility for the advisory board.

When asked if the chamber or the city manages the board, Wright responded, “no, they are advisory.”

Asked if the board is subject to the Ralph M. Brown Act, the state’s open meetings law that governs public meetings, Wright first said no, then later said the committee, as structured, is subject to the law.

Boards governed by the Brown Act are required to hold public meetings that are regularly scheduled and noticed with an agenda in advance.

“Things were not happening as they should,” Wright said of the advisory board.