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Audit Report No. 201617-17 of 18

Specialty License Plate Audit October 25, 2017

Florida Arts Audit Report 201617-17

Executive Summary

The purpose of this audit was to determine compliance with applicable laws and policies related to the annual reporting by the various entities for the Florida Arts specialty license plate (SLP). The 67 entities receiving Florida Arts SLP fees are required to submit an annual report to the Department of Highway Safety and Motor Vehicles (Department) within nine months after the end of the entity’s fiscal year. The form of the annual report is either a:

• State Single Audit if the entity expended more than $750,000 in state financial assistance as required by Section 215.97, Florida Statutes (F.S.); or

• Specialty License Plate Revenue, Expenditure, and Compliance Affidavit. The annual report we reviewed for each Florida Arts SLP entity was the most recently filed report available as of the time of our fieldwork. For every Florida Arts SLP sold or renewed, a $20 annual use fee is charged and distributed to a Florida Arts SLP entity in each of Florida’s 67 counties as required by Section 320.08058(12), F.S. The entities receiving Florida Arts SLP fees are listed in Exhibit 1 and include counties, cities, and designated arts councils. The Department collected $415,060 in Florida Arts SLP fees during the period May 2016 through April 2017. During our audit, we determined the various entities receiving Florida Arts SLP fees materially complied with applicable laws and policies related to the annual reporting for the Florida Arts SLP. However, the Department’s Bureau of Issuance Oversight (Bureau), within the Division of Motorist Services, could improve communications, technical assistance, and monitoring for Florida Arts SLP entities, and:

• Promote the proper use, classification, and reporting of funds;

• Ensure the proper form of annual report filing;

• Initiate processes to mitigate conditions causing the withholding of distributions of annual use fees to Florida Arts SLP entities;

• Consider the implementation of alternative distribution and communication methods for entities with low Florida Arts SLP sales; and

• Improve the accuracy and completeness of its contact information for entities receiving and using Florida Arts SLP fees.


Background and Introduction

Specialty license plates are license plates available to the general public with unique designs that promote philanthropic and other causes and require payment of an additional annual use fee. Section 320.08056, Florida Statutes (F.S.), authorizes the issuance of all specialty license plates and specifies the annual use fee for the more than 120 specialty license plates Florida offers. Section 320.08062, F.S., grants the Department the authority to examine all records relating to the use of specialty license plate funds. The Office of Inspector General included the examination of specialty license plate recipients in its annual work plan. The Florida Arts SLP was established in 1994, and there were 20,044 active plates as of April 2017. For every Florida Arts SLP sold or renewed, a $20 annual use fee is charged and distributed to a Florida Arts SLP entity in each of Florida’s 67 counties as required by Section 320.08058(12), F.S. The Department collected $415,060 in Florida Arts SLP fees during the period May 2016 through April 2017 as listed on Exhibit 1. Section 320.08058(12), F.S., specifies that fees are to be distributed to the single arts council officially designated by the county in direct proportion to the amount of fees collected in each county. If there is no county arts council, fees collected must be forwarded to such other agency in the county as the highest ranking county administrative official designates, to be applied by the arts council or agency to support arts organizations, arts programs, and arts activities within the county. The entities receiving and using Florida Arts SLP fees are described below:

Entity Type Number Collections1 Nature of Entity/Programs

Arts Councils

36 $307,940

Non-profit or public entity whose primary purpose is to support arts and cultural organizations and individual

artists through the following: disseminate information, serve as a convener for arts and culture, present or produce arts and cultural programming, commission and manage public art, administer grant programs, promote education, provide

technical and promotional assistance to artists and arts organizations, and guide cultural planning.

Cities 2 $ 8,500

Support to local arts organizations, art competitions, and festivals

Counties 29 $98,620

Library resources and storytelling, craft supplies, artist workshops, artist fellowships, exhibits, music and theatre performances, sculpture garden, and arts programs for

children with disabilities and youth.

Totals 67 $415,060

1 Department collections are for sales of Florida Arts SLP for each county from May 2016 – April 2017.


Section 320.08062(1), F.S., requires each entity to file an annual report with the Department within nine months after the end of the entity’s fiscal year. The form of the annual report is either a state single audit or compliance affidavit as described below:

• State Single Audit A state single audit is required if the entity expended $750,000 or more in state financial assistance (SFA). The SLP expenditures are reported by the entity on the Schedule of Expenditures of State Financial Assistance (SESFA) by a unique Catalog of State Financial Assistance (CSFA) number. The CSFA number for the Florida Arts SLP is 76.041. The SESFA includes expenditures for all state projects regardless of state agency. The governing laws and rules for a state single audit include Section 215.97, F.S., and Auditor General Rules 10.550 (local governments) or 10.650 (nonprofit organizations). The financial reporting package for a state single audit is required to be submitted within 45 days after delivery of the financial reporting package to the entity, but no later than 9 months after the end of the entity’s fiscal year. Prior to July 1, 2016, the expenditure threshold for state single audits was $500,000.

• Specialty License Plate Revenue, Expenditure, and Compliance Affidavit If the entity does not meet the state single audit expenditures threshold, the entity is required to file a compliance affidavit. The compliance affidavit requires the entity to attest that SLP proceeds were used in compliance with statutes. The attestation is made in a form and format determined by the Department. The Department’s compliance affidavit form and instructions are included on the Department website. The entity is required to report the following information for SLP annual use fees: beginning balance, receipts, expenditures, and ending balance. Expenditures are to be identified by general categories. The categorical listing provides a mechanism to correlate a summary of similar expenditures to funds usage permitted in statute.

Section 320.08062(2), F.S., requires the Department to determine which recipients of SLP annual use fees have not complied with statutory requirements. The Bureau performs desk reviews of annual reports filed with the Department. Desk reviews generally include analysis of the timeliness, completeness, and accuracy of the compliance affidavit; evaluations of the nature and amount of expenditures (use of funds) for statutory compliance; and inquiries of the entities and requests for documentation, if needed.

We used the annual reports submitted as of February 2017 and the Florida Arts SLP entities’ related financial records for this audit. A survey was provided to each of the 67 Florida Arts SLP entities to collect information about their operations and activities. Additionally, we made inquiries of certain entities and reviewed documentation related to specific topics based on a review of the annual reports or survey responses.


Based on the survey results and an analysis of the reported expenditures, we made additional inquiries and reviewed documentation for five of the larger entities as noted below:

Entity Type

Number

Revenues

Percent of Total Revenues

Arts Councils

4 $114,720 28%

Counties

1 $ 25,820 6%

Total 5

$140,540

34%

Findings and Recommendations

During our audit, we determined the various entities materially complied with applicable laws and policies related to the annual reporting for the Florida Arts SLP. However, we identified the following issues which require Department attention. Use of Funds – Allowability and Classification Finding 1: The Bureau should improve its technical assistance and monitoring for Florida Arts SLP entities to promote the proper use, classification, and reporting of funds. Section 320.08058(12), F.S., provides Florida Arts SLP fees may be used to support arts organizations, arts programs, and arts activities. The statue does not provide for funds to be used for administrative or marketing and promotion (AMP) purposes as noted below:

• Administration - Section 320.08056(10), F.S., states funds may not be used for general or administrative purposes, except as authorized by Section 320.08058, F.S. The law further defines administrative expenses as those expenditures not directly associated with a specified program purpose. Section 320.08058(12), F.S., which governs the Florida Arts SLP, does not authorize the use of funds for administrative purposes.

• Marketing and Promotion - Section 320.08058, F.S., allows funds for specified specialty license plates to be used according to a defined percentage for


marketing and promoting the license plate. The Florida Arts SLP statute does not make a provision for the Florida Arts SLP funds to be used for marketing or promotion of the Florida Arts plate.

In the survey responses, several entities indicated the Florida Arts SLP funds were used for AMP purposes. Upon further inquiry and review of documentation, we learned some entities:

• Used SLP funds for AMP purposes. The descriptions on the compliance affidavits included terms such as bank charges, copier lease, professional service fees, office supplies, etc. Compliance affidavits dating back to 2012 included a description of administrative-type expenditures. The entities indicated there were other non-SLP funded arts-related activities which could be paid from SLP funds.

• Used SLP funds for a marketing campaign for the arts license plate.

• Were uncertain about the allowability of using SLP funds to promote and market the arts. The initial survey response indicated SLP funds were used for AMP purposes, while additional inquiry determined the funds had not been used for AMP purposes.

• Used funds for arts-related activities. However, the expenditures were reported on the compliance affidavit as being for business expense or management. Administrative-type terminology had been used on the compliance affidavit since 2013. Usage of such terminology does not accurately describe the nature of the use of funds, and subjects the entity to additional scrutiny and requests for information.

• Reported the entity’s entire financial operations on the compliance affidavits. The financial reporting was not limited to SLP funds only.

The variances in financial reporting by Florida Arts SLP entities may result in incomplete or inaccurate expenditure classifications hindering the Department’s ability to ensure statutory compliance regarding the use of funds, and inclusion of the entire financial operation causing the overstatement of SLP expenditures and negative ending balances for SLP funds.

As described in the Background and Introduction, Florida Arts SLP entities submitting a compliance affidavit are required to include a listing of expenditures by category, and the compliance affidavits are reviewed by Bureau staff. However, the Bureau monitoring of compliance affidavit filings has not resulted in comprehensive technical assistance or specific communications to Florida Arts SLP entities to inform or remind entities of restrictions on using SLP funds for AMP purposes, and requirements for the accurate classification and description of expenditures.


Recommendation We recommend the Bureau improve its technical assistance and monitoring to promote the accuracy of the classification and allowability of the use of SLP funds reported on the annual compliance affidavits. Management Response We concur with the recommendation. The Bureau will enhance its monitoring by reviewing expenditures more closely to ensure that funds are not used for administrative or marketing and promotional purposes, except as authorized by Section 320.08058, F.S. If disallowable expenditures are identified, the Bureau will contact the organizations via email to notify them of the issue and provide technical assistance. In addition, the Bureau will issue a memorandum to all entities receiving Florida Arts SLP fees, reminding them that these funds cannot be used for administrative or marketing and promotional purposes. Annual Reporting Finding 2: The Bureau should improve its technical assistance and communications for Florida Arts SLP entities to ensure the proper form of annual report is filed. As described in the Background and Introduction, Florida Arts SLP entities are required to annually file a state single audit or compliance affidavit which is reviewed by Bureau staff. The reports filed with the Bureau by the various entities receiving Florida Arts SLP fees are summarized below:

Entity Type Number No Report

Filed Compliance

Affidavit State

Single Audit

Arts Councils 36 4 32 -

Cities 2 - 2 -

Counties 29 12 12 5

TOTAL 67 16 46 5

Section 218.39(1), F.S., requires annual audits of every county (and certain cities). As part of our survey process, we determined each county and city receiving Florida Arts SLP fees arranged to have an annual audit as required by law. The annual audit for a city or county will also include a state single audit, if the expenditure threshold is met. Even though the 29 counties and two cities had arranged to have a state single audit performed, 12 counties and two cities filed compliance affidavits (instead of a state single audit) with the Bureau, and 12 counties did not make an annual filing. The Bureau accepted the compliance affidavits from the counties and cities as the statutory


annual report. It is not evident the Bureau has provided the necessary technical assistance or monitoring to ensure the proper form of the annual report was filed for the Florida Arts SLP in accordance with Section 320.08062, F.S. Recommendation We recommend the Bureau enhance its communications and monitoring to ensure the proper form of the annual report is filed with the Department. Consideration should be given to including the following practices in the Bureau’s activities:

• Provide technical assistance to ensure all entities are aware of the annual reporting requirements in Sections 320.08062 and 215.97, F.S.

• Inform all entities of the CSFA number for the Florida Arts SLP which is a required component of the state single audit. The CSFA number is also to be used by any entity (regardless of filing status) to inform subrecipients of the award of SFA and access to records.

• Communicate directly with the financial staff of entities likely to file state single audits to determine if the entity is arranging for such an audit.

• Advise entities which arrange for state single audits about the notification or filing requirements when no SLP fees are expended during the fiscal year.

Management Response We concur with the recommendations. The Bureau will continue to provide technical assistance to the organizations by: reminding them of annual reporting requirements as identified in Sections 320.08062 and 215.97, F.S.; reminding them to provide notification to the Bureau if there were no expenditures for the reporting period (with an explanation provided); and reminding them of the requirement to provide their CSFA number on the affidavit and complete the certification statement on the affidavit confirming that they did not meet the audit threshold. Communication will also be enhanced by conducting phone conversations with those organizations likely to file a state single audit to determine if the entity is arranging for an audit, and advising them to file the audit instead of an affidavit. Withholding of Distributions Finding 3: The Bureau could initiate processes to mitigate conditions causing the withholding of distributions of annual use fees to Florida Arts SLP entities. Section 320.08062(2), F.S., requires the Department to determine which recipients of specialty license plate annual use fees have not complied with the annual filing requirements described in the Background and Introduction. The Department is required to discontinue (withhold) the distributions of annual use fees to any entity failing to comply with the annual report filing requirement. The Department may resume


distribution of the annual use fees upon receipt of the required annual reports. Bureau staff notifies Department Bureau of Accounting (BOA) staff when entities have not filed the annual report by the due date. BOA staff transmits a final notification email to the entity stating funds will be withheld starting the following day. The BOA notification email is transmitted to the entity’s primary contact person listed in the Bureau records. As of May 3, 2017, the Department had withheld the distribution of annual use fees totaling $10,394.30 for 14 Florida Arts SLP entities. The amounts withheld ranged from $20 to $3,420. While most of the withholding was initiated during the last three years, two entities have been withheld since 2004. The accumulation of Florida Arts SLP annual use fees means that such funds are not available for expenditure as allowed by Section 320.08058(12), F.S. While Department staff may have intermittent contact with the withheld entities, it is not evident the Bureau has comprehensive and periodic processes in place to communicate with the entities which have had funds withheld. The entities’ failure to file annual reports may be indicative of organizational, financial, or staffing issues, or lack of understanding of the annual reporting requirements. Although current funds are not being distributed to the entity, the entity may be holding a balance of SLP funds, making it important for the Bureau to identify the cause for the lack of an annual report. Recommendation We recommend the Bureau, in consultation with the BOA:

• Contact the entities which have had the distribution of Florida Arts SLP fees discontinued to determine actions to be taken regarding the withheld SLP funds. The consultation needs to involve entity financial and program staff. The entity governing body should also be consulted or notified of potential actions needed to distribute the withheld funds. Documentation of such communication should be readily available to all Bureau staff.

• Consider factors and implement processes which would improve information sharing and communications to reduce the extent and recurrence of withheld funds. Such considerations may include: Exploring a more robust communication with the entity before funds are withheld

to include varied methods of communication with several staff or board members.

Ensuring communications (written and verbal) are occurring with the authorized person(s) at the entity as addressed in Finding 5.

Becoming more familiar with the multiple functions and persons involved with Florida Arts SLP entities.


Management Response We concur with the recommendations. The Bureau will increase efforts to locate contact information for entity financial staff, program staff, and/or board members so that phone discussions may be held by the Bureau with appropriate parties, and provide technical assistance regarding actions required to distribute withheld funds, and prevent the recurrence of withheld funds. The Bureau will initiate this contact immediately. Entities with Low SLP Sales Finding 4: The Bureau could facilitate improved compliance for certain entities with low Florida Arts SLP sales by considering and implementing alternative distribution and communication methods. While an inventory of Florida Arts plates is available for sale in each of the 67 counties in Florida, the volume of sales for the Florida Arts SLP varies significantly between counties. For instance, for the period May 2016 – April 2017, a total of 68 Florida Arts SLP were sold in 19 counties, and none of the 19 counties sold more than 9 plates. In the 19 low volume counties, the entity responsible for receiving and using the Florida Arts SLP funds is the board of county commissioners (BCC). The Clerk is the officer which generally acts as the record-keeper for the BCC. The BCCs, even in small counties, usually receive more than a million dollars from various State of Florida agencies. The amounts received from the Department for the Florida Arts SLP is very small in comparison. The small number of transactions, the small dollar amounts, and the unpredictability of when a SLP may be purchased inhibits BCC staff in a small county from anticipating a SLP fee distribution from the Department. In addition, the accounting data provided to an entity when a distribution occurs does not overtly identify a transaction as being related to SLP. These factors result in small counties not being aware that the funds deposited in its general account are SLP fees, and thus the amounts may not be classified as SLP revenue. This may cause incomplete or inaccurate annual reporting (as discussed in Finding 2), which sometimes results in the withholding of funds as described in Finding 3. While the impact for the total amount of funds is very low (less than one percent of all Florida Arts SLP), the impact for the number of entities is fairly high (28 percent of the 67 entities). Recommendation We recommend the Bureau consult with the BOA and BCCs to consider alternative distribution and communication methods to accommodate the entities located in counties with a low volume of Florida Arts SLP sales. Considerations may include, but


not be limited to, establishing specified timeframes for distributions accompanied by specific communications. Management Response We concur with the recommendations. The Bureau will consult with BOA to determine if possible alternative distribution methods are available for those entities with low Florida Arts SLP sales that are non-compliant. Once confirmed, the Bureau will contact the Board of County Commissioners for those entities to discuss alternative distribution methods available to help improve compliance. If the entities are in agreement, the board of county commissioners in the respective county will need to provide a request to the Bureau in writing which will be distributed to BOA in order to implement the new distribution method. Entity Contact Information Finding 5: The Bureau should improve the accuracy and completeness of its contact information for entities receiving and using Florida Arts SLP fees. The Bureau maintains a contact list for the entities receiving distributions of Florida Arts SLP fees. It is used by the Bureau to remind the entities of the annual filing dates and to make inquiries as needed. The list is also used by the BOA for communications related to withholding funds and other accounting related information. Prior to June 2015, the BOA maintained a separate list of Florida Arts SLP contacts. The Bureau’s contact list, dated March 21, 2017, listed counties (rather than art councils) as the recipients of distributions in two instances. However, the arts councils have received the SLP distributions since September 2015 and February 9, 2017. For the purposes of the survey, we used the Bureau contact list and the historical BOA contact list to compile a comprehensive contact list to transmit the survey by email to each entity. Numerous emails were undeliverable which caused us to contact the entities by phone to obtain current names and email addresses. It is important for Department staff to have current contact information readily available to perform its day-to-day functions efficiently and effectively, and to improve communications as described in previous findings.


Recommendation We recommend the Department adopt a process which requires at least annual updating of each entity’s contact information. Contact information may include an entity’s general phone number, fax number, email, and physical address; and the name, title, phone, and email for the relevant person(s) in both program and financial roles. Management Response We concur with the recommendation. The Bureau maintains a spreadsheet with entity contact information and will ensure that the current contact information is updated, and update the list annually. We will also seek to obtain both program and financial contacts

for the list. Purpose, Scope, and Methodology

The purpose of this audit was to determine compliance with applicable laws and policies related to the annual reporting by the various entities for the Florida Arts SLP. The scope of this audit included revenues and expenditures reported on the Florida Arts SLP entities’ compliance affidavits or state single audits, and specialty license plate revenues and expenditures reported in the Florida Arts SLP entities’ financial records. The information reviewed was for the most recent filing which generally included either the 2015 or 2016 Fiscal Year. The methodology included:

• Reviewing Florida Statutes and Department policies;

• Interviewing Department staff;

• Surveying all entities receiving Florida Arts SLP funds and addressing survey issues for certain entities by interviewing staff and reviewing related documentation; and

• For a sample of Florida Arts SLP entities: Reconciling the Department’s distribution of annual use fees to entity

revenues; Reconciling the entity’s reported expenditures and financial records; Reviewing the entity’s use of funds to ensure there is adequate supporting

documentation, and the expenditures are for purposes authorized by statute; Reviewing timing, availability, and content of reports such as compliance

affidavits, single audits, or subrecipient monitoring; and

Reviewing reasonableness of balances.


EXHIBIT 1 – Florida Arts SLP Collections1

County Entity Entity Type Revenue

ALACHUA City of Gainesville City $ 4,880

BAKER Board of County Commissioners County $ 60

BAY Bay Arts Alliance Arts Council $ 3,520

BRADFORD Board of County Commissioners County $ 120

BREVARD Brevard Cultural Alliance Arts Council $ 9,700

BROWARD Broward Cultural Division County $ 43,640

CALHOUN Board of County Commissioners County $ 40

CHARLOTTE Arts & Humanities Council of Charlotte County Arts Council $ 5,440

CITRUS Citrus Cultural Alliance Arts Council $ 1,860

CLAY Board of County Commissioners County $ 2,420

COLLIER United Arts Council of Collier County Arts Council $ 20,560

COLUMBIA Community Concerts of Lake City Arts Council $ 480

DESOTO DeSoto Arts and Humanities Council Arts Council $ 200

DIXIE Board of County Commissioners County $ 60

DUVAL Cultural Council of Greater Jacksonville Arts Council $ 14,280

ESCAMBIA Art, Culture, and Entertainment (ACE Pensacola) Arts Council $ 6,360

FLAGLER Flagler Auditorium Arts Council $ 2,640

FRANKLIN Board of County Commissioners County $ 220

GADSDEN Gadsden Arts Center Arts Council $ 280

GILCHRIST Board of County Commissioners County $ 20

GLADES Board of County Commissioners County $ 60

GULF Board of County Commissioners County $ 120

HAMILTON Board of County Commissioners County $ 40

HARDEE Board of County Commissioners County $ 40

HENDRY Arts of the Inland Arts Council $ 200

HERNANDO Hernando County Fine Arts Council Arts Council $ 2,140

HIGHLANDS Heartland Cultural Alliance Arts Council $ 720

HILLSBOROUGH Arts Council of Hillsborough County Arts Council $ 20,620

HOLMES Board of County Commissioners County $ 120

INDIAN RIVER Cultural Council of Indian River County Arts Council $ 5,420

JACKSON Board of County Commissioners County $ 160

JEFFERSON Monticello Opera House Arts Council $ 200

LAFAYETTE Board of County Commissioners County $ -

LAKE Board of County Commissioners County $ 5,140

LEE Lee County Alliance of the Arts Arts Council $ 23,720

LEON Council on Culture & Arts Arts Council $ 6,220


County Entity Entity Type Revenue

LEVY Board of County Commissioners County $ 320

LIBERTY Board of County Commissioners County $ 20

MADISON Board of County Commissioners County $ 40

MANATEE Manatee County Cultural Alliance Arts Council $ 14,780

MARION City of Ocala, Ocala Municipal Arts Commission City $ 3,620

MARTIN The Arts Council Arts Council $ 5,620

MIAMI-DADE Miami-Dade County Department of Cultural Affairs County $ 25,820

MONROE Florida Keys Council of the Arts Arts Council $ 3,380

NASSAU Board of County Commissioners County $ 1,400

OKALOOSA Okaloosa Arts Alliance Arts Council $ 4,680

OKEECHOBEE Board of County Commissioners County $ 80

ORANGE United Arts of Central Florida Arts Council $ 18,640

OSCEOLA Osceola Arts Arts Council $ 2,020

PALM BEACH Cultural Council of Palm Beach County Arts Council $ 37,000

PASCO Pasco Fine Arts Council Arts Council $ 7,160

PINELLAS Creative Pinellas Arts Council $ 31,200

POLK Polk Arts Alliance Arts Council $ 7,320

PUTNAM Arts Council of Greater Palatka Arts Council $ 420

SANTA ROSA Santa Rosa Arts And Culture Foundation Arts Council $ 3,060

SARASOTA Arts and Cultural Alliance of Sarasota County Arts Council $ 25,900

SEMINOLE Seminole Cultural Arts Council Arts Council $ 9,980

ST JOHNS St. Johns Cultural Council Arts Council $ 9,080

ST LUCIE Board of County Commissioners County $ 4,840

SUMTER Board of County Commissioners County $ 1,960

SUWANNEE Board of County Commissioners County $ 340

TAYLOR Board of County Commissioners County $ 60

UNION Board of County Commissioners County $ 120

VOLUSIA Board of County Commissioners County $ 11,220

WAKULLA Board of County Commissioners County $ 140

WALTON Cultural Arts Alliance of Walton County Arts Council $ 3,060

WASHINGTON Washington County Arts Council Arts Council $ 80

Total $ 415,060

1 -Department collections are for sales of Florida Arts SLP for each county from May 2016 – April 2017. Due to the timing of Department distributions, the reported SLP fees received by the Florida Arts entities for the same period may differ from the amounts recorded by the Department.


ATTACHMENT – Management Response

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