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Berlin, Ocean Pines News Worcester County Bayside Gazette Logo Berlin, Ocean Pines News Worcester County Bayside Gazette


Forensic audit finds problems but little crime

By Stewart Dobson, Editor

(June 13, 2019) Many of the problems identified by the year-long forensic audit of the finances of Ocean Pines’ Food and Beverage and Public Works departments had already been corrected by the time the final audit report was released to association members last week.

Accounting procedures were stiffened, accountability between management and the board was restored and grand plan budgeting had been brought back to earth before the Baltimore accounting firm Gross Mendelsohn concluded that bad management was the primary reason food and beverage operations and the public works department lost in excess of $700,000 in fiscal year 2018.

“It speaks for itself,” Board of Directors President Doug Parks said of the audit report this week. He also was referring the report’s total debunking of allegations that employee fraud, theft and other criminal chicanery caused a budgetary loss of more than $1 million in FY 2018.

On the contrary, Gross Mendelsohn blamed the poor fiscal performance on bad decision making and equally questionable budgeting, along with a lack of oversight in critical areas during the tenure of then interim General Manager Brett Hill.

Hired last April for $200,000, the firm found that unprecedented losses at the Beach Club and Yacht Club in FY 2018 (May 1, 2017-April 30, 2018) were directly attributable to Hill’s plan to convert them into major money-makers by, among other things, adding table service and evening dining at the Beach Club.

“The changes resulted in the Beach Club nearly doubling its number of employees and labor costs. The interim General Manager budgeted that the changes would result in a 65 percent increase in revenue,” the report said.

Instead, the report continued, revenue at the already profitable Beach Club went in the opposite direction, and ended with a net loss of $107,601, before depreciation. By contrast, the club had a positive net income of $114,246 in FY 2017, again before depreciation.

At the Yacht Club, the audit found that “an absence of management oversight” allowed food and beverage costs to climb, as did labor expense. The cost of personnel at the Yacht Club in FY 2017 was 49 percent of revenue as compared to 68 percent in FY 2018. Because of this, and failure to control food costs, the club lost $335,221 in FY 2018 on sales of almost $1.3 million.

Other financial issues in the food and beverage department, including the institution of member discounts of 20 percent, combined to produce a net loss for the year of $784,660, more than six-and-a-half times its losses in the previous year, the investigation concluded.

That includes the $110,000 the OPA had to pay the Food and Beverage Department Director Brian Townsend in severance following the termination of his employment in January 2018.

Because of an employment agreement Hill gave to Townsend in March 2017 without the board’s authorization, according to the auditors, the OPA had little choice but to pay him $70,000 in severance and $40,000 in commissions, along with 12 months of health insurance coverage for another $16,800.

The only money Gross Mendelsohn could not account for in its examination of the Food and Beverage Department was the $26,550 in missing bank deposits, although it assured the board that no OPA employees had taken it.

It backed that up by reporting that the two finance office personnel who handled the deposits passed lie detector tests administered by the Worcester County Bureau of Investigation detectives, and that reviews of surveillance video recorded on the days in question showed no suspicious activity.

“Our investigation of the missing bank deposits did not uncover any evidence that any of the missing money was taken by any OPA employee,” the auditors reported. They did say, however, that the possibility existed that bank employees did not follow bank procedures. The report did not name the bank, nor did it suggest that the bank was in any way responsible.

One area where missing money was accounted for was when the petty cash fund at the Yacht Club came up $5,262 short. In that instance, the manager at the time confessed to having spent it for personal use and was fired.

Another recurring situation during Hill’s administration was purchases made and transactions conducted that should have been cleared by the board but were never submitted.

This was one of the problems, along with some conflicts of interest, the auditors found in the Public Works Department in FY 2018.

The general tone of the 47 pages of summaries, financials and recommendations was that many standard policies and procedures were not followed or observed and that multiple decisions were made without the board’s knowledge.

Corrective action began to take place, however, when Interim General Manager John Viola stepped in as the association treasurer in June last year after serving a stint as finance director and helping with the forensic audit’s predecessor, the so-called “deep dive” audit of 2017.

Additional changes in procedures were instituted in light of the huge losses in the FY 2018, after which Viola said essentially the same thing the forensic auditors found — “excessively optimistic food and beverage numbers” that were not matched in the budget by the higher costs of producing them.

Parks allowed that as the association moves on from that episode, the audit is the end of a chapter he does not want to revisit.

“We understood the public’s concerns,” he said, “and we did our due diligence.”