City of Galveston questions park board's bookkeeping

Bryson Frazier                                       Brian Maxwell
JENNIFER REYNOLDS/The Daily News


Galveston County Daily News
By B. SCOTT McLENDON The Daily News
March 14, 2023

GALVESTON - The Park Board of Trustees’ most recent audit report was riddled with miscalculations, causing city officials to question whether the board is properly spending hotel occupancy tax revenue.

Park board officials argue the organization’s books are in order, except for a calculation error that skewed some bottom lines.

City administrators argue the 181-page report, which details the park board’s 2021 fiscal year, is filled with errors and miscalculations.

City Manager Brian Maxwell in February sent park board Chief Executive Officer Kelly de Schaun and Chief Financial Officer Bryson Frazier a 29-page document outlining the math mistakes and seeking a corrected report by the end of this month.

City officials want to know whether the park board, which oversees island tourism and beach patrol, is spending hotel occupancy tax revenue, which is derived from fees collected from hotel and short term-rental stays, to earn a profit. They worry those funds aren’t being properly spent or tracked.

“You can’t transfer HOT to a HOT-eligible project, mix it with a few other dollars to have a surplus and say ‘That’s not HOT anymore,’” Maxwell said, summarizing the city’s concerns.

A formula error in the report caused grand total columns in the audit to add up incorrectly, although the individual fund totals were correct, Frazier said.

CLEAN AUDIT

“The park board has received a clean, unqualified audit opinion every year, and the results can be found on the park board website under financial transparency,” Frazier said. “I am working closely with city staff to ensure cohesiveness between the two organizations’ reporting structures.”

Representatives at Ham, Langston and Brezina, LLP, which conducted the audit, could not be reached for comment Tuesday.

City officials don’t know whether the park board has violated the charter in either of the described manners, but hope those questions will be answered in the audit correction, Maxwell said.

“We could not tell from what we saw,” Maxwell said. “Those are some things we put forth in our questions.”

It remains to be seen whether the park board will answer those questions, Maxwell said.

“We sent that to them not as a gotcha or a ‘you messed up’ thing,” he said. “We noticed these were issues and we would really appreciate it if you get this done correctly so we don’t have these errors carrying over year after year.”

ERRONEOUS AUDIT

Among the problems city officials found was an $111,238 miscalculation in the general government fund balance, according to Maxwell’s letter. The park board further miscalculated its tourism development net position on Sept. 30, 2020, shorting it by $758,083 in hotel occupancy tax revenue, according to the letter.

In recent years, the park board’s annual comprehensive financial report has arrived so late is was impossible for city staff to apply the same level of care and due diligence as it applied to other information going into the city’s own comprehensive report, Maxwell wrote in the letter to park board officials.

“Last year, we received the park board’s financial report two days before we presented the city’s financial report to city council,” he wrote.

The errors and omissions range from simple math errors to structural errors in tables where columns do not add accurately across from left to right, according to the city’s letter.

“More substantive errors also hamper the transparency of the park board’s financial report with regard to interfund transfers,” according to the letter. “These errors are not of sufficient size and amount to be material when transferred into the city’s financial report, but apparently are of sufficient size and amount to pass materiality thresholds when it comes to the park board’s interfund transfers.”

The park board reported $1.8 million in interfund transfers from grant and hotel occupancy tax funds such as beach cleaning, Beach Patrol and sand replenishment, according to the 2021 audit report.

City officials originally requested park board officials deliver a corrected draft of their 2021 audit by March 10, according to Maxwell’s letter. City officials now expect it before March 31.

“The number of errors and/or omissions may result in a third-party user of your reports reaching inaccurate conclusions,” according to the letter. “The city highly recommends that you review the attached comments and schedules prepared by the city and its auditor with your financial auditor to determine what, if any, restatements or prior period adjustments must be made to accurately reflect the financial conditions as they existed at Dec. 31, 2022.”

REVENUE IN REVIEW

The park board takes in about $41 million in revenue, with money coming in from sources such as hotel occupancy tax collections, which amounted to about $8.5 million in 2021, according to the park board’s self-conducted audit of that year.

That tax, along with the $4.2 million taken in from state hotel occupancy tax collections, may be used by the park board for efforts like marketing the island’s tourism industry, paying for lifeguards and improving and maintaining beaches.

Any expenditure of that tax that generates a profit is referred to as “unrestricted” funds, meaning officials have more discretion over how to spend it. City officials in a March 9 workshop decided they want all unrestricted dollars in city coffers and could vote March 23 on a motion that would enact that will.

While money from sources such as parking fees for Dellanera RV Park — about $2.1 million in 2021 — are listed as unrestricted in the report, some are listed as neither restricted or unrestricted, but as “other revenue.”

The park board earned about $1.2 million in revenue from co-op advertising, contracts for service, reimbursements from county and city governments, insurance reimbursements and leasing space at the Park Board Plaza, 601 23rd St.

“That was the issue we had early on was trying to discern all those things,” Maxwell said. “The problem I have with it is that in my 30 years of government I’ve never used the term ‘profit.’

“It’s not a term that I would ever use. I would say that there are times when you run a budget surplus, but we never categorize it as a profit, and rarely is it recurring.”

B. Scott McLendon: 409-683-5241; scott.mclendon@galvnews.com