Apr 24, 2018
DENVER – Denver Arts & Venues is not adequately monitoring a contract with Aramark Sports and Entertainment, LLC, the concessions operator at Red Rocks and Denver Coliseum, according to a new audit.
The report released this month from Denver Auditor Timothy M. O’Brien, CPA, shows Denver cannot determine whether Arts & Venues is receiving all concession revenue due from Aramark and paying the company proper compensation in a multi-million-dollar contract. The audit team also found there was weak oversight of inventory and that there were theft and security risks because of cash-handling practices at the venues.
“Arts & Venues needs to do a better job of monitoring what Aramark is doing or they risk losing profits owed to the city,” Auditor O’Brien said.
Between 2015 and 2017, Arts & Venues received approximately $37 million from Aramark in gross concessions profit and paid more than $3 million in fees and incentive payments to Aramark. According to the agreement in place through November 2017, Aramark was required to pay 100 percent of gross profits from concessions to the city. However, if Aramark met certain agreed-upon criteria, the city paid the company an annual incentive, that totaled approximately $1 million in 2017.
Auditors found, however, Arts & Venues could not provide signature approval for 2016 to show that Arts & Venues agreed that Aramark met criteria to receive the $900,000 incentive the city paid it that year.
The audit team tested sales documentation for 80 stands for three events at Red Rocks and the Coliseum and found 55 percent of the stands did not get the dual signatures needed for inventory transfers. Twenty-three percent of the stands did not properly document inventory transfers. Twenty-one percent also did not have or had inadequate documentation for management inventory adjustments. Each of these issues could have a direct effect on the gross profit calculation and the amount the city should receive from Aramark.
Aramark also does not reconcile inventory for each event. Instead it reconciles the inventory monthly. There are no useful daily inventory reconciliation practices, which makes it more difficult to track down errors and reasons for discrepancies.
The audit team also found no centralized point-of-sale system at the Coliseum. It relies on individual registers at each stand, which increases the possibility of errors. At the beginning and end of the day, employees count cash at the individual stand registers versus a secured central location, which poses both a theft and security risk.
Aramark’s agreement also requires employees to keep spoilage to a minimum. Spoilage includes unsold or spoiled food, damaged products and employee meals, and it is treated as a cost of sales item and reduces the gross profits paid to the city. Under the agreement, Aramark is supposed to pay for any spoilage costs over 0.5 percent of the total food costs.
The audit team found Arts & Venues is not actively monitoring Aramark’s compliance with the 0.5 percent spoilage limit. As a result, all spoilage costs are included in the cost of sales and taken out of the amount the city should make.
Also, during testing of stands, 41 percent of the stands did not always give reasons for all spoilage reported. These issues increase the risk that individuals or colluding Aramark employees could provide free goods to friends and family attending an event or personally profit by selling products outside the normal channels, circumventing commissionable sales that belong to Aramark and the city.
“The risk of theft and inaccuracies cannot be swept aside, even at relatively small dollar amounts,” Auditor O’Brien said.
If Arts & Venues does not sufficiently monitor cash, inventory, sales controls and financial information, errors could impact the accuracy of payments between Aramark and the city.
While the lack of monitoring and controls puts the city at risk of theft or other loss of revenue, it does not necessarily indicate these issues are happening. For this reason, the audit team recommends better monitoring and uniform application of policies during events to ensure accurate inventory and spoilage reporting.
Auditor O’Brien and his team made six recommendations to encourage Arts & Venues to improve monitoring of Aramark and the gross profits and fees exchanged. The agency agreed to all six recommendations and one is already implemented.