Finding - Potential for overexpenditure should have been identified earlier.
Finding - Contracts incurred without budget and/or needs assessment.
Finding - Cost allocation procedure is flawed.
Finding - The county did not meet "reasonably expected spending" rule.
Finding - Potential Issues.

The potential for overexpenditure requiring supplemental appropriation in the Office of Open Space's 1992 administrative budget should have been identified and the Council informed much earlier. The Office of Open Space significantly exceeded the original 1992 Council adopted budget of $599,668, and required a supplemental appropriation of $190,000, which was 31.7% over the original budget. Substantially all of the overrun resulted from overspending in the "Extra Help" account, which was originally budgeted at $9,431, but the Office spent $217,099 -- a 2,202% overrun. It appears that the nature and the extent of the budget problem were not detected in a timely manner by the Office of Open Space and its oversight agencies, namely the Parks Division of PP&R and the Budget Division of the Office of Financial Management, due to their overreliance on quarterly reports and failure to analyze the budget and the expenditures of the Office of Open Space in more detail.

The audit recommended that the oversight agencies reduce their reliance on quarterly reports and conduct a review and analysis of budget and expenditure line items. The audit also recommended that the Office prepare a projection and analysis of budget line items which may significantly deviate from the authorized budget, in order to identify the nature and the extent of any budget problem and to formulate corrective action. The audit further recommended that the potential for such cost overruns be brought to the attention of relevant oversight bodies, including the Council, for appropriate review and guidance and in a timely manner.

Finding 2. Contracts incurred without budget and/or needs assessment.

The Office of Open Space had several consultant contracts and incurred other contract/professional services costs without adequate assessment of the needs for such services and specific budgetary authority. During 1992, the Office expended $23,990 for other contract/professional services costs in its administrative budget, but the agency had no budget established for this expenditure account. Furthermore, for six professional service contracts completed and/or initiated in 1992 through the first-half of 1993, audit staff noted no evidence which documented any analysis of the Office of Open Space's needs and justification for these contracts. While substantially all of these costs were (or will be) charged directly to open space projects and, thus, do not impact the Office's administrative budget, such contracts were not originally contemplated in the open space budget and should have been assessed and reviewed by the oversight agencies, including the Council.

The audit recommended that the Office of Open Space not incur significantly higher costs than the amount originally budgeted in a specific line item without appropriate review and approval. The audit also recommended that the Office should provide a documented analysis of its need to incur any costs which could be considered a new initiative, or intended to mitigate changed circumstances, by evaluating the need for outside assistance, such as resource requirements, special skills, time limitations.

Finding 3. Cost allocation procedure is flawed.

The Office of Open Space's cost allocation procedure to charge various projects for "administrative costs" has several flaws, and thus is not effective. While audit staff found that the Office's timekeeping and cost allocation procedures were generally acceptable, its procedures understated the overhead rate and not all the project specific costs were directly charged to acquisition projects.

The audit recommended that the Office of Open Space's administrative "indirect labor" personnel track time devoted to specific projects and charge the appropriate rates to projects. The audit also recommended that current and prior year overhead rates be reviewed to determine whether centrally allocated costs were included and, if necessary, reconcile prior year charges. Finally, the audit recommended that the Office of Open Space continue to charge the cities for its costs incurred to support the cities' portion of the Open Space Bond program, and review prior year charges to ensure that all costs properly chargeable to the cities were billed and collected. .

Finding 4. The county did not meet "reasonably expected spending" rule.

It appears that the county did not meet the representation for "reasonably expected spending" allowed under the federal government's arbitrage rules. However, the tax-exempt status of Open Space Bonds should not be affected. Upon issuing the Open Space Bond, the county fully expected to meet one of the exceptions granted through the arbitrage rules. Under the "three-year temporary investment period," an issuing entity may earn arbitrage profit for a period not to exceed three years from the date of issuance of the bonds. However, the county was not able to meet the primary requirement which is that an entity must expect to spend 85% of the bond proceeds and investment earnings on the projects within this three-year period. Although the county was not able to meet this expectation, based on our review with the Finance Division of OFM and the correspondence from the bond counsel for the Open Space issue, failure to meet the spending expectation does not in itself place the Open Space Bond issue in jeopardy of being penalized, or losing its tax-exempt status. However, at the end of the three-year period, which lapsed in May 1993, the County is prohibited from earning any arbitrage profit on the Open Space funds. The staff of the Finance Division of OFM are aware of this requirement and intend to closely monitor the investment of the Open Space Bond Funds.

The audit recommended that the Finance Division of OFM should prepare guidelines and procedures in meeting specific requirements under the arbitrage rules for the Open Space Bond and for other bond issues. The audit further recommended that the Finance Division of OFM should continue to closely monitor the arbitrage requirements of the Open Space Bond, and oversight agencies, including the Council, should be periodically informed of the status of the bond with regard to compliance with arbitrage requirements.

POTENTIAL ISSUES

The audit focused on the Office of Open Space's 1992 administrative budget, underlying causes for its budget overrun, reasons for the delay in informing the Council, and a review of relevant financial and administrative procedures. However, there have been additional issues raised by the Council, Council staff, certain community groups and individual citizens. Such issues included "life-to-date" costs of the program, concerns about specific projects, administrative procedures, and public review processes.

Based on the preliminary inquiry conducted by audit staff in performing this audit, some of these issues may merit further review. Issues to be investigated further could include:

Updated: 06/24/02