I- I: KNGX runzmsunzm . Ku0xvn.1.E Toumsm Ann AND MANQGEMEM . For me vm; . 1 nonrn ceonn ewes none - surre zoo loo e. TENNESSEE avenue nnoxvnte, TENNESSEE one nance, Tennessee srsso TELEPHONE oss-rseosso - -- TELEPHONEQGS-488-5834 Tetecomen oss-rss-rsso - . . TELECOPIEILQQS-483-8781 Public Aocounrnnus -. . ?:Bu?lneasAidvlsoro - .. -- ?14?9 - - - TENNESSEE arson-lass FREE - INDEPENDENT neponr on Audit Committee of the Knox County Commission slid - Knoxville, Tennessee We have performed the attached__procedures, the of Knox County Government, solely to assist you inagyaluating controls in at the Knoxville Tourism and Sports Corporation (KTSC) andreleted entity Their management is responsible for the routines and control procedures in were performed in accordance with the arrangements set forth in propedures engagement was conducted in accordance with attestatlon sengemsgseorrgneo Ameripanlristitute of Certitied Public Accountants. The sufficiency of these procedures responsibility of parties specified in this report Consequently, we make no representation regarding; of procedures described in the attached agreed-upon procedures either for the purpose has;-been requested or for any other purpose. We were not exanginatlon ei audit, the objective of which would be the expression of an opinigrjfon procedures tested. Accordingly, we do not express such an opinion. Had we matters might have come to our attention that would have been reported fagig, This reportis intended solelyfor the information and use ofthe County Mayor, Knox County Commission and its Audit Committee, and appropriate regulatory agencies, including the Comptroller of the Treasury for the State of Tennessee and ls not intended to be and should not be used by anyone other than these specified parties. . . Certified Public Accountants . Knoxville, Tennessee May 4, 2012 mw TSCPA - MCGLIEADREY AKENCE MCG|adf&y memnen errne rennenee seerery Accountants Mdiladrey Alliance ls a premler affiliation of independent accounting and consulting Mctiladrey Alliance member tinns maintain their name, autonomy and independence and are responsible for their own client fee arrangements, delivery of services and maintenance of client relationships. Mctiladrey Alliance ls a business of Mctiladrey LLP which operates under the MeGladrey brand as the fifth largest U.S. provider of assurance, tax and consulting services. Mciiladrey, the Mctiladrey logo and the McGladrey Alliance signatures are used under license by Motsladrey LLP. I . 2 - Knoxville Tourism and Sports Corporation (KTSC) and Sports Management, lnc. (SMI) Agreed-Upon Procedures At Request of Knox County . l. Operations - KTSC To determine lf payments to vendors and employees were by management and governing boards, and to determine whether partleniijjigere properly approved and documented. rdaa ln order to limlt our scopes and extent of testing, we relied 30, 2010 and 2009 financial statements performed by yen (Elkins) and reviews of internal control in audits. For Each Year zoos - 2011 if --.1 1. Review of internal 1* an a. Obtalngfeach year'eQ?opy Elkinsf-gljmanegement letter and documentation of their ofilnternglinontrolnn We lettersinrepared by Van Elkins, CPA for the three years ended June 30, ang that tnnre wasia repeat finding each year related to internal controls ennount rnnonciliatlons. During this three year period, and also at the thn_j?hief_?lnannlal Officer; prepares all bank account reconciliatlons and has the make entries to the general ledger. However, there are senin controls place, such as the fact that the CFO does not have check - - signing `tne factutnat Organlzation's_bank utilizes. a system whereby only checks - for will be paid. Although our knowledge of the personnel andereas of regponslbilities within the organization is limited, we recommend that they consider hevlng someone independent of the check writing, deposits and approval of "-disbursements process prepare the bank reconciliation and, due to limited accounting staff, have a board member recelye the bank statement directly and review it before handing over to the preparer of the reconciliation. After the reconciliation is completed, this board member could reylew the reconciliation for reasonableness or unusual items. Inquire that no major changes to these procedures for internal controls have taken place . since the last report dated November 22, 2011. Result: Management informed us that there have been no major changes to the internal control processes or procedures since their last audit. 2. Review and document procedures relating to salary adjustments and promotion. Result: KTSG's policy is that all salary adjustments are to be approved by the Executive Director. See separate section on Payroll for further discussion and finding. 3 - -- 3. Review and document procedures relating to approval of travel and promotion expense. Result: Travel and promotion expenses other than those charged on cards are submitted for approval and reimbursed based upon a travel request expense form, along with the related receipts and documentation attached. Our analyses of these are also discussed in later seetions of this report. 4. Review the Board of Directors and Executive Committee meeting - a. Specifically noting any approvals or changes in spending or gegg: KTSC's board of directors is made up of individuals of the City County government, civic leaders, and Mayor is entitled to appoint 2 directors, County Mayor 5 direetors, Tennessee 1, Knoxville Tourism Alliance 1, Knox Area Chamber Partnership Arts Alliance `1 twelve independent directors elected byetlge other their terms There also is an Executive The Beard meets the Executive Committee meets thetgeeratteps at least twice per year. The Board elects and posiqen of Chairpegh, President, Secretary-Treasurer and such other posltiens a majontygiete. Also, see Step 8. 5. Review employee employment 5}-In- The resultot our revieyy Included in Section ll of this report. 6. Review operational to-ieetuall Egg: we budgets for the three year period and documented anyierge or unusual dllferetjees between budgeted and actual amounts each year. 7. Review its Charter issued ra 2004, the purposes for which KTSC was organized . were as Tia; `Fa. The Corporation .has been organized and shall be operated exclusively for charitable, sclentllic, literary or educational purposes within the meanln of Section ofthe Intemal Revenue Code of 1986 as amended (the "Code"), including, but not limited to, promoting the social welfare, lessening the burdens of government and making distributions to and support of certain other organizations, contributions to which qualify as charitable contributions pursuant to Section 170(c) of the Code; provided, however, that such distributions and support must further the purposes, missions andlor activities specifically identihed within this Charter. b. The Corporation is irrevocably dedicated to and operated exclusively for nonpront purposes, and no part of the income or assets of the Corporation shall be distributed to or lnure to the benefit of any private individual or organization organized and operated for a profit (except that the Corporation shall be authorized and empowered, unless otherwise prohibited by any provision of state law or the Code, to pay reasonable compensation for services rendered, goods provided or similar benefits received and to make payments and distributions in furtherance of the purposes stated herein). . c. The Corporation is primarily organized- for the charitable and educational purposes of promoting the social welfare and lessening the burdens of local government by sewing as the voice for the governments and citizens of the City of Knoxville, Tennessee (the "Clty") and of Knox County, Tennessee (the "County") with regard to the promotion of tourism, sports and recreational activities ln the area and with regard to advertising the commercial, social, agricultural, industrial, scenic, recreational, historical, educational and other advantages, points of lnterest and attractions ofthe Clty andlor the County, with the -- 4 focus of such efforts to, among other goals, enhance the quality of life for the citizens of the Clty and the County, and otherwise enhance, promote and stimulate economic and community development within the Clty and the County. According to its Charter issued ln 2004, SMI was organized and is to be operated exclusively for charitable and educational purposes and to foster national and international amateur sports competition, all within the meaning of Section 501 of the Internal Revenue Code otg@i986, as - amended (the "Code"). - a. No part of the net earnings of the Corporation shall lnure to or be distributable to, its members, trustees, officers or other private the Corporation shall be authorized and empowered to pay for services rendered and to make payments and distributions in of purposes limi"- b. No substantial part of the activltles of the the propaganda, or otherwise attempting to influence not participate in, or intervene in (Including the political campaign on behalf of anypandidate arigjauthorlzed c. Notwithstanding any other provision. of carry activities not permitted to be carried on: l. by a corporation exempt 501(c)(3) ofthe . . li. by a corporation, are deductible Section 170(c)(2) of soglong may be lnleffect. 8. Review the _rgg1go;_: We r?ylewed?the thebrganization and we reviewed the minutes of all meetings otgthe above for the three years under our engagement and have incorporated applicable Efrom these documents and minutes In the various other sections of this report. WeQnoted__?approirals such as budgets, audit reports, City County contracts jan the,_Executlye Directors contract (Chairman Duncan authorized to negotiatelt), btlt, no indication that bonuses for executives or other personnel were discussed, .- reviewed or the board, -- if 9. Review the expanse allocations. between the Knoxville Tourism and Sports Corporation and the SMI Women's Basketball Hall of Fame. Determine the basls for management fees paid tothe KTSC from the SMI. Review the supporting documentation for the allocation and payment of this fee. c. Review any other payments or transactions between the two entities. - Results: We determined that the annual management fees paid to KTSC from SMI WBHOF of $260,077, $254,885 and $254,548 for fiscal years 2009, 2010 and 2011 were for the salaries and benefit costs of the full-time and part-time employees of the WBHOF. KTSC acts as the common paymaster for both entities. We examined the salaries and benefit costs, as provided by KTSC, and reconciled these amounts to the management fees charged for each fiscal year 2009 through - 2011 and determined that the management fee charged agreed with the WBHOF salaries and benefits costs for fiscal year 2009, 2010 and 2011, except we noted that for fiscal year 2010 KTSC did not charge SMI approximately $34,000 for WBHOF salaries and benefits costs due to the limited operating cash of SMI. We also examined various lntercompany receivable and payable payments and transactions between KTSC and SMI during fiscal year 2009-2011 that consisted of routine and normal operating transactions. No other exceptions were noted. I - - 5 . B. Expenditures Steps 1. Obtain a vendor list and take a reasonable sample (to be determined by Audit Committee) to ensure the vendor has been properly approved (if required). Results: Per discussion with the Senior Wee President of Finance Administration, no list of approved vendors. KTSC reviews vendors on an individual basis durlng the process, based on their merits. . . 2. Obtain the top 5 vendors (by dollars spent). a. Review contracts with these vendors for unusual terms, b. Detemiine whether the contracts are properly approved. Results: During our examination of the top tive vendors contracts, there were none noted with unusual commitments, or of the three years tested, and all were properly approved. 3. From the cash dlsbursementtournal take - a. List expenses by vendor noting the type b. Trace payment back to invoice and c. Make sure proper approval u. venry the vendor as on the tgegltg: During a 10tt_r_purcha?tng card (P-Card) transactions occurrin during flscal year totallm $77r?18 notedthe following: President Ray made five perdgnal $2,31grtor which she subsequently reimbursed KTSC (we noted that pershhal chergestgre prohtbited under KTSC Employee Handbook Section pme 35), made Bggard totaling $1,437 that did not adequately document the Rayz mauetho P?Gard transactions totaling $366 that did not have the attachtitd, and`(d) one other employee made a P-Card purchase for $7,100 that have the, prior ahproval `of Ray as requlred by KTSC policy (however it should be thattliis as being for supplies related to Boomsday). - -We also saifhple 6f__i?87 P-cattl disbursements from fiscal years 2009 -- 2011. Of the . 337 tested for fidcal years ended 2g09, 2010, and 2011, we noted tive (5) exceptions related to - proper documentation (lack crhumngse order or other appropriate means of documentation). Per . yrrevtew ofthe check disbursement policies, any purchase of goods or services requires a purchase - Qorder. Purchase `orders and accompanying payment vouchers over $5,000 require authorization -. from the CEOIPresldent. ln each of these 5 instances, we determined there should have been a purchase order. Additionally, we noted two (2) instances where there was not proper approval by the CEO for expenditures, since ln both instances, the payment voucher was for over $5,000. We tested over 50% of total disbursements in fiscal years 2009, 2010, 2011. The result was that the percent not conforming to the purchase order requirements was 1.29% of disbursements tested. The percent not approved correctly was 0.52% of disbursements tested. Results: Based on procedures performed, the check disbursement pollcles and procedures were adhered to for more than 98% ofthe disbursements tested. . 6 - -. a2??@25Ir,21~22 222222 . EE g"'is 0 gg 5 %52;**KiEngE5ggfi - 8 8 g-$3 Eg - 33 5 8 .1. ggEQEM Fggiig . .. . ga.-4wrae-.-. - - . -mg:. -.., - . .. - rrfi-sgi- a . 1 -. .3-.. Q- . .-.-.- ..-5- @514--.. cig; lf - lhi?s: E. Ei- I -2- 3 FifEgfi -. wz;- ?o . -T-, A -.. -4..Eg"? 2-- . . hl 1, 1.1. -*-kg-wc- 3 ll I 1- .1:-rig izg?-- - - - - -, gh, . je--.-. . - . . - . Eglf-if-ij LS-ig. `gxTzqjgg., - ..3 -. 1 1.,j .. 153gz..-, . . *,-:74weier- $32: - - - - g?-R P- .351 azgdy - 5gig}--Y-.. -. - - . -.-5 - -. -, - i- -.ifig;. .. nijg . . . -. ?e .. -4-.2- . .. . - --IrEi; 'rEai?;: - vip .--.age.-.. . - .. 5%-:I..7, ,0 .2 ww.- EFI a-nfl]; -an-.121E-Z- E-`u-saw . - -.-- 6=:g;--9-gig"? EE 5.. wg-55.% ?%ga Um.! *?g.EURgu.EEoo- cli -9 Uwwmc Ki-11:g??2?~EURii255es.-E--8::BQQS --, areT--.--. Z-.- $2.EqaQg1.? 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