Are We Getting What We’re Paying For?
By Rory Galter, Eva Narten, and Laura Miller
Like most major cities, the City of Dallas views conventions, tourism and hospitality as major economic drivers. The City of Dallas charges a seven percent hotel room occupancy tax (HOT), which is the maximum allowed by State of Texas law. The tax is estimated to generate approximately $66 million of revenues in Fiscal Year 2020, that can be used to promote the City of Dallas as a convention and tourism destination. In addition, the City of Dallas has established by law, a Tourism Public Improvement District (TPID) for hotels with 100 beds or more to also promote the City of Dallas as a convention and tourism destination. The TPID assesses two percent on occupied rooms and is estimated to generate approximately $18.5 million in Fiscal Year 2020.
To assist in promoting the City of Dallas as a convention and tourism destination, the City contracts with VisitDallas, a not-for-profit organization. The TPID also contracts with VisitDallas. During Fiscal Years 2013 through 2017, VisitDallas received approximately $146 million under these contracts, which averaged 81 percent of VisitDallas’ revenues. Given the significant funding, questions were raised as to the benefits received for the money spent. Many in the arts and culture community argued the money would be better spent to support them by increasing their 2.6 percent share of HOT funds through a reduction of the funds paid to VisitDallas. The Office of the City Auditor initiated the Audit of VisitDallas as part of its Fiscal Year 2017 Audit Plan.
An Innovative Audit Approach
Prior to 2016, the Office of the City Auditor did not conduct performance audits related to the monitoring of contracts for business partner/non-city entities. When the Audit of VisitDallas was engaged, performing such an audit was a new and creative undertaking.
The audit took a two-pronged approach. First, the monitoring of the various contracts with VisitDallas by the responsible City departments was addressed to find out if the City had the controls in place to ensure the City was receiving the services it had contracted for. Second, through the “right to audit” clause in each of the contracts, VisitDallas’ operations were reviewed to determine: (1) compliance with State of Texas laws governing the using of HOT and TPID funds; (2) consistency of VisitDallas' adherence to their own policies relating to the compensation program for paid employees; and, (3) accuracy of the performance metrics used and reported by VisitDallas to show it was achieving its mission and contract objective "to market Dallas as the ideal convention and visitor destination to the regional, national and international marketplace and to favorably impact the Dallas economy through meetings and tourism.”
Audit Results Summary
We found that the responsible City departments did not have sufficient mechanisms in place to effectively evaluate services provided by VisitDallas and needed to improve:
- Oversight and monitoring of the VisitDallas Contracts and reporting.
- Reliability and accountability of controls over VisitDallas' performance measures and expenses.
We noted: (1) the City could not ensure compliance with HOT and TPID requirements; and, (2) the City's ability to adequately evaluate VisitDallas' performance may be impaired. Overall, we recommended the City improve oversight and monitoring of the effectiveness of VisitDallas' services.
The City of Dallas' Oversight of VisitDallas
The City's oversight and monitoring of its contracts with VisitDallas did not consistently include substantive analysis of reported information and commitments, such as collecting Form 990s, verifying report information, or conducting compliance reviews. The City also did not ensure timely collection of contractual payments from VisitDallas. As a result, the City was unable to ensure contract compliance, contracted services were provided as intended, proper use of funding, or the ability to plan for cash flow needs.
Performance Measures for VisitDallas and the Convention Center
Probably, the most contentious part of the audit was the review of performance metrics used to determine success of marketing efforts, events and economic impact. A refrain that is commonly heard by auditors, “You do not understand the industry,” was heard several times when the propriety of using certain performance metrics, source of information, and validation of the accuracy of the reported numbers was discussed. “Not understanding the industry” allowed us to provide a fresh, unbiased look at performance metrics.
This fresh perspective was critical, especially as the tourism industry faces the challenge of navigating the explosion of the electronic technology to perform self-booking for all facets of travel, accommodations, food, and entertainment. Use of newer tourism and travel services such as Airbnb, Hostels, Uber, and Lyft make it hard to track tourists and convention goers using past methods.
We found that VisitDallas did not have formal policies and procedures that document the methodology, formulas, and associated definitions used in preparing both their monthly VisitDallas Metrics Report and annual Accomplishments and Action Plan report. In addition, VisitDallas did not provide the City with the underlying source documentation used to prepare the metrics to allow the City to periodically validate the accuracy of the reported information. As a result, we noted an increased risk that:
(1) VisitDallas may not have used a consistent process to prepare the metrics; and, (2) VisitDallas' performance reports were not reliable.
Also, there was either no independent validation or insufficient validation of metrics, such as: economic impact, bookings, and consumed activity reported by VisitDallas, increasing the risk that the City may have relied on inaccurate metrics when evaluating VisitDallas’ performance.
- Booked Citywide events did not consistently meet the definition of a Citywide event when the events occurred. As a result, the City was paying the contractual retainage for performance goals that may not have met the City’s economic impact objectives. In addition, VisitDallas’ performance representation may have overstated the actual results achieved.
- Data and metrics measuring the success of the Convention Center were not fully tracked or reported. Further, documented procedures were absent. As a result, the City may not have been managing the Convention Center as effectively as it could be managed.
VisitDallas’ compensation, as documented, for director level and above, was not consistently correlated to performance based on VisitDallas’ compensation policies. In addition, VisitDallas’ compensation policy did not: (1) address compensation adjustments for the actual results (of previously booked) groups/events; and, (2) include national performance comparisons/rankings when establishing the President/Chief Executive Officer’s performance goals. As a result, we noted there is an increased risk that VisitDallas’ compensation was not based on actual performance.
Internal Controls Over Certain Expenses of VisitDallas
As a marketing organization, we observed that at times VisitDallas did not follow its own policies and procedures while it attempted to “make the sale.”
We found, VisitDallas did not consistently follow its own established policies and procedures or State of Texas laws for HOT and TPID expenses. Further, expenses were not properly classified on a consistent basis. VisitDallas' policies and procedures also: (1) did not include adequate guidance for meals and flights; and, (2) were inconsistent regarding the maximum allowable tip.
As a result, we noted an increased risk that VisitDallas’ use of HOT funds was not in compliance with State of Texas law; and consequently, the City would not achieve the expected benefit from expenses made from HOT and TPID funds.
Response and Impact
The Audit of VisitDallas was released on January 4, 2019. On February 19, 2019, the City Council’s Government Performance and Financial Management Committee held a special briefing meeting. During the meeting, City management outlined in detail the corrective actions agreed to by VisitDallas for the recommendations agreed to by City management. City management also outlined in detail the corrective actions planned for the recommendations that City management disagreed with.
Additionally, the VisitDallas board chair outlined corrective actions VisitDallas planned to take to address the recommendations and show VisitDallas’ commitment to meeting the City’s needs and the contract's requirements. A corrective action plan timeline was provided by City management.
On November 13, 2019, the City Council approved an amended contract until the contract renewal date in 2020 “to incorporate corrective changes in response to the City's Audit findings.” In addition, throughout the process to get the amended contract approved, the Department of Convention Services provided City Council a table showing the implementation status of each recommendation. Finally, arts and culture funding increased from 2.6 percent to 3.5 percent, the increase coming from VisitDallas’ share of HOT funding.
The VisitDallas Board of Directors: 1) increased oversight by forming a board Governance and Ethics Committee; 2) replaced the VisitDallas Chief Executive Officer and the VisitDallas Chief Financial Officer; and, 3) voted and approved a new 21-member structure on October 23, 2019 (was a 55-member board prior).
Heavy media coverage continued through the approval of the amended contract on November 13, 2019. Monitoring of media coverage revealed over 50 articles, news broadcasts, tweets, and blog postings from 17 entities from the day the report was released publicly on January 4, 2019, through November 2019.
Given that the contracts with VisitDallas are up for renewal in 2020, it is likely that conversations around: (1) VisitDallas' use of HOT and TPID funds; and, (2) the City's monitoring of contracts will continue to be prominent as the contract renewal process unfolds. The public is now keenly aware and questioning, "Are we getting what we're paying for?"
The full audit report can be found on our website. Learn more about VisitDallas by visiting their website. Finally, if you are interested in searching for related City documents, presentations, or following City of Dallas public meetings, you can find them under 'Public Meetings' on the City's Government page.
About the Authors
Rory Galter is an Assistant City Auditor IV and was the Acting Audit Manager for the Audit of VisitDallas. Rory joined the City of Dallas' Office of the City Auditor in November 2015 and works as part of the management team overseeing various audit engagements. Rory is a licensed CPA and has an MBA from the University of Wisconsin at Madison and a BS in Business Administration from Ohio State University.
Eva Narten is an Assistant City Auditor III and was the Project Manager for the Audit of VisitDallas. Eva joined the City of Dallas' Office of the City Auditor in March 2017and is responsible for conducting performance audits and attestation engagements related to the operations of the City of Dallas. She is a CPA, CIA and CISA and earned an MA from the University of Texas and a BA from the University of Tennessee.
Laura Miller is the Technical Writer for the City of Dallas' Office of the City Auditor. Laura joined the Office of the City Auditor in March 2018 and is responsible for technical writing and editing related to all aspects of audits and attestation engagement; and, various non-audit services. Laura has a MS in Library Studies from the University of North Texas, a BA in Spanish and English Literature from the University of North Texas; and, she is currently studying for her CFE.