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COSADC Compliance Audit 5 15

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The City of San Angelo Development Corporation conducted a compliance audit on key contracts, including a number of major economic development agreements the city has with MedHab and Hirschfeld Energy, formerly Martifer-Hirschfeld. The city chose not to share this document with the public but was compelled to by the Texas Attorney General's office in a recent decision.

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COSADC Compliance Audit 5 15

  1. 1. EXHIBIT “B” ARMSTRONG, BACKUS 8C CO. , LLP INDEPENDENT ACCOUNTANTS’ REPORT ON APPLYING AGREED- UPON PROCEDURES AS OF THE YEAR ENDED SEPTEMBER 30, 2013
  2. 2. ARMSTRONG, BACKUS & CO. , LLP Certified Public Accountants C. -.-vo. .~ SAN -___. ._ _. __r_. _. i . DeveIopmcx1't“Ct): -poration Agreed Ugon Procedures As of the Year Ended September 30, 2013 515 West Harris Avenue - Post Office Box 71 - San Angelo, Texas 76902-0071 Phone (325) 653-6854 - Fax (325) 655-5857 - wwwarmstrongbackus. c0m
  3. 3. ARMSTRONG, BACKUS & CO. , LLP Certified Public Accountants ‘ / IIlL:1‘i£. '(lI1 Institute 01‘ Ccnilicd Public rCCOUIllLl1lL ’l‘c. ;1.s Society of CCI'[11Itli Public . vcccm1nLmns Independent Accountants’ Report On Applying Agreed-Upon Procedures City of San Angelo Development Corporation San Angelo, Texas We have performed the procedures enumerated starting on the following page, which were agreed to by the City of San Angelo Development Corporation (COSADC), solely to assist you in selecting all contracts and review for compliance based on contract specifications pending or outstanding as of September 30, 2013. This engagement to apply agreed-upon procedures was performed in accordance with attestation standards established by the American Institute of Certified Public Accountants. The sufflciency of these procedures is solely the responsibility of the specified users of the report. Consequently, we make no representation regarding the sufficiency of the procedures described on the following page either for the purpose for which this report has been requested or for any other purpose. We were not engaged to, and did not, perform an audit, the objective of which would be the expression of an opinion on the specified elements, accounts, or items. Accordingly, we do not express such an opinion. Had we performed additional procedures, other matters might have come to our attention that would have been reported to you. This report is intended solely for the use of the specified users listed above and should not be used by those who have not agreed to the procedures and taken responsibility for the sufficiency of the procedures for their purposes. Arwvstrong», Badcomfir Co-. , L. L.? . November 21, 2014 515 West Harris Avenue - Post Office Box 71 - San Angc1o. Texas 76902-0071 - Phone (325) 653-6854 - Fax (325) 655-5857 - www. annsIrongbackus. com
  4. 4. Procedures and Findings: 1. Review contract with Blue Cross Blue Shield of Texas (the “Company”) for compliance based on contract specifications pending or outstanding. 3.. Obtain a copy of checks written annually for years under contract. We reviewed the copy of the annual checks for the years 2009, 2010, and 2011. The Company is two years behind on sending required documentation; therefore, checks for 2012 and 2013 have not been issued as of this report date. We traced all of the checks to the bank statements. Obtain proof that the Company obtains an annual payroll of $12,000,000 or above. We reviewed payroll information for year 2009 through 2013. For each year under contract, the Company maintained payroll of $12,000,000 or above. Obtain proof that the Company keeps a minimum benefit package that includes health insurance. We reviewed documentation of health insurance provided by the Company to COSADC. Obtain a copy of the lease agreement for the Company to lease a location in San Angelo for ten years. We reviewed the lease agreement for the Company to lease a location in San Angelo for ten years. Obtain a copy of Texas Workforce Commission's Quarterly reports for year under contract or such other employment filing or verification upon which the Company and COSADC may agree. Per review of the San Angelo Facility Economic Incentive spreadsheet provided by the Company, the Company provides COSADC with the total number of employees each year in San Angelo, the benefits paid on behalf of said employees as a percentage of salary, and the annual payroll. Obtain documentation of property taxes paid on the facility to the Tom Green County Appraisal District. Review a. copy of affidavit, copy of the bill, and receipt of payment provided to the Company by the Tom Green County Appraisal District. We reviewed an affidavit, copy of the bill, and receipt of payment for property taxes paid on the facility to the Tom Green County Appraisal District for each year under the contract. Obtain assurance that COSADC has given ten days’ notice to the Company before performing an audit of the Company’s records. Per discussion with Bob Schneeman, no audit of the Company has been considered necessary by COSADC during the years under contract; therefore, no notice has been given.
  5. 5. Recommendation: In order to strengthen compliance with this contract requirement, we recommend that correspondence be provided to the Company regarding the need for an audit. if an audit is not considered necessary by COSADC, the correspondence should include COSADC’s decision. h. Obtain assurance that if the Company has sold all or substantially all of the assets, additional procedures have been met. Per review of the Company’s 2013 financial statements, the Company has not sold all or substantially all of its assets. Obtain assurance that the Company is a Mutual Legal Reserve Company and is in good standing under the laws of the State of Texas. III! a We reviewed the certificate provided by the Texas Department of Insurance to verify that the Company is in good standing under the laws of the State of Texas. Per review of the Company's website, the Company is a Mutual Legal Reserve Company. j. Obtain assurance that the Company does not have any litigation or governmental proceedings that are pending or operations sufficient to jeopardize the company as a going concern. Per discussion with Bob Schneeman and per review of the Company’s 2013 financial statements, COSADC is not aware of any litigation or govemmental proceedings. The Company appears to have sufficient operations, and going concern does not appear to be an issue. k. Obtain assurance that COSADC does not have any litigation or governmental proceedings. Per discussion with Bob Schneeman, COSADC is not aware of any litigations or governmental proceedings. 1. Obtain assurance that COSADC has not suspended performance of the agreement. Per discussion with Bob Schneeman, COSADC has not suspended performance of the agreement. m. Obtain assurance as to whether the contract has been breached by either party. We believe that the determination as to whether or not the contract has been breached is a legal determination that should be determined by legal counsel. 2. Review contract with San Angelo Chamber of Commerce, Inc. (the “Company”) for compliance based on contract specifications pending or outstanding. 9.. Obtain a copy of checks written monthly for year under contract. We reviewed copies of checks written for each month under contract. We traced all checks written during the contract period to the bank statements.
  6. 6. b. C. d. e. Obtain documentation that contains sufficient detail to reflect work performed by the Company under the agreement to allow a proper audit of expenditures should COSADC require one to be performed. No documentation was provided. Recommendation: In order to strengthen compliance with this contract requirement, we recommend that correspondence be provided to the Company regarding the need for an audit. If an audit is not considered necessary by COSADC, the correspondence should include COSADC’s decision If an audit is performed, we recommend that documentation obtained be maintained by COSADC to support their audit performance and findings. Obtain a copy of the quarterly reports provided by the Company for each quarter under the agreement. We reviewed all quarterly reports for the year under contract. Obtain assurance that the Company met with COSADC Executive Committee at least 30 days prior to final adoption of the Company’s Plan of Action. We reviewed the Plan of Action provided by the Company to COSADC detailing the plans for 2013; however, the Plan of Action was not submitted to the Executive Committee at least 30 days prior to final adoption. Recommendation; We recommend that the Company provide a written Plan of Action to the COSADC Executive Committee for approval at least 30 days prior to final adoption and documentation of such is kept in the Company’s contract file. Obtain and review a copy of the Plan of Action provided by the Company. We reviewed the Plan of Action provided by the Company to COSADC detailing the plans for 2013; however, the Plan of Action was not submitted to the board for approval before providing it to the public. Recommendation: We recommend that the Company provide a written Plan of Action to the COSADC board for approval before providing it to the public. Obtain proof that the Plan of Action was presented no later than April 15, 2013 as it relates to economic development and recruitment for approval at a regular meeting of COSADC and is modified if necessary. We reviewed the Plan of Action provided by the Company to COSADC detailing the plans for 2013; however, the Plan of Action was not presented by April 15*“. Recommendation: We recommend that the Company provide a written Plan of Action to the COSADC, that the Plan of Action be presented no later than April 15'“, and documentation of such is kept in the Company ’s contract file. Obtain proof that if the Company recommended that a business qualifies for COSADC assistance, the Company shall provide any and all background information including but not limited to economic impact analysis and prospect summary reports. Per review of a memorandum provided by the Company to COSADC, the Company was making a recommendation of a business that qualifies for assistance. The Company 4
  7. 7. h. i. his a appears to have provided all necessary information about the business for COSADC to make an accurate determination as to if the Company qualifies for assistance. Obtain assurance that the Company coordinates weekly local business calls to eligible 4-3 sales tax companies where tax revenues may be effectively used to help these companies expand. Per review of the Company’s weekly board briefing, the Company appears to have been in communication with local businesses that appear to be eligible 4B tax companies; however, the weekly board briefing documentation was not submitted to COSADC during the contract period. Recommendation. ’ We recommend that the Company provide documentation regarding the communication with eligible 4B sales tax companies within the contract period and that COSADC maintain a copy of such in the Company’s contract file. Obtain a copy of the Comprehensive Marketing Plan provided by the Company. We reviewed an armual Comprehensive Marketing Plan for 2012; however, the Comprehensive Marketing Plan was not presented to board during the contract period. Recommendation: We recommend that the Company provide a written Comprehensive Marketing Plan to COSADC during the contract period and that COSADC maintain a copy of the Comprehensive Marketing Plan in the Company ’s contract file. Obtain assurance that the Comprehensive Marketing Plan was presented to the COSADC board for approval within 45 days of the Agreement’s approval date. We reviewed an annual Comprehensive Marketing Plan for 2012; however, the Comprehensive Marketing Plan was not presented to board for approval within 45 days of the Agreement’s approval date. Recommendation: We recommend that the Company provide a written Comprehensive Marketing Plan to COSADC during the contract period, that the Comprehensive Marketing Plan be presented to the COSADC board for approval within 45 days of the Agreement’s approval date, and documentation of such is kept in the Company’s contract file. Obtain proof that the Company maintains current community information. We reviewed a newsletter provided by the Company with the community updates including current tax information, population trends, hourly wage rates, economic trends, utility information, quality of life information, and manufacturer's information for the time period under contract. Obtain documentation including summary of job creation, taxable value, and other economic indices that demonstrates ROI on all business prospects. No documentation was provided. Recommendation: We recommend that the Company provide a written summary of job creation, taxable value, and other economic indices that demonstrates ROI on all business prospects. If there are no current statistics to provide, documentation should provide for this fact. We also recommend that COSADC maintain this written summary in the Company’s contract file.
  8. 8. m. Obtain monthly reports on all the leads that the Company receives during the time period under contract. We reviewed monthly reports on leads that the Company received during the time period under contract; however, these reports were not provided during the time period under the contract. Recommendation: We recommend that the Company provide monthly reports to COSADC on all leads received during a month during the contract period If no leads are received in any given month, we recommend that documentation stating this fact be submitted to COSADC. We also recommend that COSADC maintain monthly reports and other documentation regarding leads received provided by the Company in the Company’s contract file. Obtain assurance that the Company is in good standing under the laws of the State of Texas. We reviewed the Texas Comptroller of Public Accounts website to verify that the Company is in good standing under the laws of the State of Texas. Obtain assurance that the Company does not have any litigation or governmental proceedings that are pending or operations sufficient to jeopardize the company as a. going concern. Per discussion with Bob Schneeman and per review of the Company’s 2013 financial statements, COSADC is not aware of any litigation or govemmental proceedings. The Company appears to have sufficient operations, and going concern does not appear to be an issue. Obtain assurance that COSADC does not have any litigation or governmental proceedings. Per discussion with Bob Schneeman, COSADC is not aware of any litigations or governmental proceedings. Obtain assurance that COSADC has not suspended performance of the agreement. Per discussion with Bob Schneeman, COSADC has not suspended performance of the agreement. Obtain assurance as to whether the contract has been breached by either party. We believe that the determination as to whether or not the contract has been breached is a legal determination that should be determined by legal counsel; however, as specified above it appears there are requirements that have not been met. Obtain assurance that COSADC has given five days’ notice to the Company before performing an audit of the Company’s records. Per discussion with Bob Schneeman, no audit of the Company has been considered necessary by COSADC during the years under contract; therefore, no notice has been given. Recommendation: In order to strengthen compliance with this contract requirement, we recommend that correspondence be provided to the Company regarding the need for an 6
  9. 9. t. 11. V. X. audit. .0‘ an audit is not considered necessary by COSADC, the correspondence should include COSADC’s decision. Obtain assurance that if the Company has assigned its responsibilities to another party, additional procedures have been met. Per discussion with Bob Schneeman, the Company has not assigned its responsibilities to another party. Obtain assurance that the Company has presented the Quarterly Reports orally before the COSADC board of directors. Per review of the Board of Director Meeting Minutes, the Company presented quarterly reports to the COSADC board of directors. Obtain assurance that the Company maintains up-to-date information for business prospects. Per review of the quarterly reports provided, the Company appears to maintain up-to- date information for business prospects. Obtain assurance that the Company makes recommendations of businesses that qualify for assistance and provides all of the necessary information. Per review of a memorandum provided by the Company to COSADC, the Company was making a recommendation of a business that qualifies for assistance. The Company appears to have provided all necessary information about the business for COSADC to make an accurate determination as to if the Company qualifies for assistance. Obtain assurance that the Company maintains a cross-branding website with connection to other local, state, and federal business resources. Per review of the Company’s website, the Company maintains a cross-branding website with connection to other local, state, and federal business resources. Obtain assurance that the Company monitors the Link2Business system. Per review of the 2012 Annual Report, the Company does monitor the Link2Business system. Businesses have not showed as much interest as anticipated, but the businesses that are involved in the Link2Business system are being actively monitored by the company. Obtain assurance that the Company tracks response rates, conversion rates, inquiries, leads generated, and leads converted for each marketing effort. Per review of the annual report, the Company documents each marketing effort and the progression for each marketing effort. Per discussion with Nora Regine, the Company presents to the COSADC board and orally gives the response rates, conversion rates, inquires, and leads. The Company does not give COSADC written documentation of each of those. Recommendation: To enhance compliance with this contract requirement, we recommend that the Company provide written documentation of response rates, conversion rates, inquiries, leads generated, and leads converted for each marketing efiort. We also recommend that COSADC maintain this information in the Company ’s contract file. 7
  10. 10. 3. Review contract with Downtown San Angelo, Inc. (the “Company”) for compliance based on contract specifications pending or outstanding. 3.. (3. Obtain a copy of checks written quarterly for years under contract. We reviewed copies of checks written each quarter for the years under contract. We traced all checks written during the contract period to the bank statements. Obtain a copy of the written budget for each year that includes the estimated annual revenues and expenditures. We reviewed a copy of the budget for each year under the contract. Obtain assurance that all expenditures that were made were pursuant to the budget approved each year by COSADC. Per review of the actual expenditures compared to the budget for all years under the contract, the Company appears to have made all expenditures pursuant to the budget; however, the budgets were not approved by COSADC as specified by the contract. Recommendation: We recommend that the Company provide a budget to COSADC for approval prior to expenditures being made. The approved budget should be maintained by COSADC in the Company’s contract file. Obtain assurance that the Company deposits checks in accounts having federal depository insurance. We reviewed a bank statement of the bank used by the Company. Per review of the bank’s website, the bank has federal depository insurance. Obtain a copy of all quarterly reports showing the activities conducted under the contract and showing an accounting of funds received and expended in connection with such contract. We reviewed quarterly reports for each quarter under contract. Obtain assurance that the Company creates and maintains an Occupancy and Vacancy Building Survey of the current boundaries of the Central Business District “CBD” target on an annual basis. Per review of the Vacancy Building Survey for 2013, the Company does create and maintain the required survey. Obtain assurance that the Company compiles and analyzes retail sales trends within the Central Business District as they related to the overall retail trends of the City of San Angelo. Per review of quarterly reports, the Company appears to compile and analyze retail sales in efforts to create more retail business in the downtown area. Obtain assurance that the Company develops a business marketing and attraction effort for underutilized or unused properties. 8
  11. 11. Per review of the Company’s website, the Company has made efforts to develop marketing and attractions for underutilized or unused property in the downtown area by advertising property and updating the public on vacant property. i. Obtain assurance that the Company established and maintained ongoing existing business retention, expansion and outreach efforts including seminars, training, education, and resource networking opportunities. Per review of the Company’s current newsletter, the Company is making an effort to establish and maintain ongoing, existing business retention by projects such as the Art Walk, sponsoring events such as the Women’s Roundtable Event, and presenting events such as the Grub Crawl where 12 different bars and restaurants come and sell products. j. Obtain assurance that the Company identified and promoted the existing, adaptive re-use or new housing development opportunities within the Central Business District. Per review of the quarterly reports, the Company is promoting housing development opportunities with the Central Business District. k. Obtain assurance that the Company has provided all necessary facilities to perform services under this contract. Per discussion with Bob Schneeman and per review of a letter written by the Company to COSADC, the Company has an office at 24 W. Concho and maintained office space at the Business Resource Center until June of 2013. The Company is a non-profit organization and it appears that the current office space provides necessary facilities to perform services under this contract. 1. Obtain assurance that if the Executive Director position is vacant for six months or more, additional procedures have been met. The Company’s Executive Director position was vacant from August 2009 —- December 2009 and from July 2012 — December 2012. The position was not consistently vacant for more than six months. m. Obtain assurance that if the Administrative Assistant Position has been vacant for six months or more, additional procedures have been met. The Administrative Assistant position was vacant from August 2010 — September 2010, January 2011 — February 2011, and March 2012 — August 2012. The position was not consistently vacant for more than six months. 4. Review contract with Concho Valley Center for Entrepreneurial Development (the “Company”) for compliance based on contract specifications pending or outstanding. 9.. Obtain a copy of checks written quarterly for years under contract. We reviewed a copy of the 2011 check written in the amount of $5,000. This check was written on January 20, 2011. The contract states that the check must be written on or before January 15* of each year of the agreement, however, per discussion with Roland Pena, the Company was late in providing all required documentation and that is why 9
  12. 12. c. 6. the check was written after January 15'. We traced the check written in 2011 to the bank statement. Per discussion with Nora Regine and Bob Schneeman, the agreement states the Company is required to subtract operating expenses from revenue received for the services performed by the Company, and that is the amount that is owed to COSADC for the space provided for the Company to do business. COSADC is supposed to write a check once a year for $5,000 to meet the requirements of the contract. In 2012, instead of writing the Company a check, the Company took all of the revenue, subtracted operational expenses, and also subtracted the $5,000 that the Company should have received from COSADC. A check was written from the Company to COSADC for the remaining balance that was calculated by the Company; therefore, no check was written or reviewed for 2012. We reviewed a copy of the 2013 check and traced the check to the bank statement. Recommendation: In order to enhance compliance with the contract requirements, we recommend that each party write a check to the other party each year under contract. Obtain a copy of quarterly reports for all years under the contract. The Company does not provide quarterly reports; however, annual reports were provided and reviewed for 201 1 and 2012. No quarterly or annual reports were provided for 2013. Recommendation: We recommend that the Company provide copies of quarterly reports to COSADC and that COSADC maintain these reports in the Company’s contract file. We recommend that the provision of these reports be written and not verbal in order to properly document that this contract requirement has been met. Obtain a copy of the rent agreement between the Company and COSADC. We reviewed a copy of the rent agreement between the Company and COSADC. Obtain assurance that if the Company has sold all, or substantially all, of the assets, or if the company has merged or consolidated its business, additional procedures have been met. Per review of the Company’s 2013 financial statements, the Company has not sold all or substantially all of its assets nor has merged or consolidated its business. Obtain assurance that the Company is in good standing under the laws of the State of Texas as an independent 501(c)(3). We reviewed the Texas Comptroller of Public Accounts website to verify that the Company is in good standing under the laws of the State of Texas as an independent 501(c)(3). Obtain assurance that the Company does not have any litigation or governmental proceedings that are pending or operations sufficient to jeopardize the company as a going concern. Per discussion with Bob Schneeman and per review of the Company’s 2013 financial statements, COSADC is not aware of any litigation or governmental proceedings. The 10
  13. 13. 5.. . Company appears to have sufficient operations, and going concern does not appear to be an issue. Obtain assurance that COSADC does not have any litigation or governmental proceedings. Per discussion with Bob Schneeman, COSADC is not aware of any litigations or govemmental proceedings. Obtain assurance that COSADC has not suspended performance of the agreement. Per discussion with Bob Schneeman, COSADC has not suspended performance of the agreement. Obtain assurance as to whether the contract has been breached by either party. We believe that the determination as to whether or not the contract has been breached is a legal determination that should be determined by legal counsel; however, as specified above it appears there are requirements that have not been met. Obtain assurance that the Company operates the Small Business Incubator and Accelerator Program during the duration of this contract. We reviewed a copy of a monthly rent invoice that provided proof that the Company operates the Small Business Incubator and Accelerator Program. Obtain assurance that the Company oversees and administers the Enterprise San Angelo Business Plan Competition. Documentation was not provided to ensure that the Company oversees and administers the Enterprise San Angelo Business Plan Competition. Per discussion with Roland Pena, the Company has not administered the Enterprise San Angelo Business Plan since 2008. Recommendation: If COSADC provided funds to the Company to administer the Enterprise San Angelo Business Plan Competition, we recommend that COSADC request reimbursement of these funds since they have not been used for their intended purpose. Obtain assurance that the Company administers the Concho Valley Angel Network. Per review of the Concho Valley Angel Network agenda for a presentation meeting, it appears that the Company does administer the Concho Valley Angel Network. Obtain assurance that during the years under contract, the Company’s Executive Director transitioned to a City of San Angelo employee. Per review of a payroll report issued by the City of San Angelo, the Company’s Executive Director transitioned to a City of San Angelo employee on January 1, 2011. Obtain assurance that the Company makes an oral presentation each year before December 31". Per review of the Board of Director Meeting Minutes, the Company did make an oral presentation each year before December 315‘. 11
  14. 14. 5. Review contract with MedHab, L. L.C. (the “Company”) for compliance based on contract specifications pending or outstanding. a. Obtain a copy of checks written to the Company for Direct Incentives. Per review of the contract, the Company has six years to become a business enterprise to be engaged in the distribution, sale, support, and manufacture of medical device products as one or more facilities to be established and permanently located in San Angelo, Texas. Per discussion with Roland Pena, as of the date of this report, this has not yet been accomplished; therefore, no checks have been issued. The Company has until January 22, 2019 to accomplish requirements and receive incentive payments. Obtain a copy of the lease agreement for rental space with the Concho Valley Center for Entrepreneurial Development. We reviewed the lease agreement for rental space with the Concho Valley Center for Entrepreneurial Development for the year under contract. Obtain assurance that the Company is making progress to meet the performance requirements under the contract during the duration of the contract. No documentation was provided. Per review of the contract, the Company has six years to become a business enterprise to be engaged in the distribution, sale, support, and manufacture of medical device products as one or more facilities to be established and permanently located in San Angelo, Texas. Per discussion with Roland Pena, as of the date of this report, this has not yet been accomplished; therefore, no checks have been issued. The Company has until January 22, 2019 to accomplish requirements and receive incentive payments. Review contract with the City of San Angelo for Reimbursement for Provision of Administrative Services (the “Company”) for compliance based on contract specifications pending or outstanding. 3. Obtain a copy of the checks written on or about March 31, 2013 and September 30, 2013. We reviewed a copy of the checks written on April 24, 2013 and September 26, 2013. We traced all checks to the bank statements. Obtain a copy of the annual incentive contract compliance database / spreadsheet. We reviewed a copy of the annual incentive contract compliance datebase/ spreadsheet for the year under contract. Obtain a copy of the Economic Development Strategic Plan. We reviewed a copy of the Economic Development Strategic Plan for the year under contract. Obtain and review a copy of the annual budget for COSADC. We reviewed a copy of the annual budget for COSADC. 12
  15. 15. e. h. k. Obtain a copy of the monthly Economic Development newsletters. No copies of the monthly Economic Development newsletters were provided. Per discussion with Nora Regino, the Company does not do monthly newsletters. Recommendation: In order to comply with contract requirements, we recommend that COSADC prepare monthly economic development newsletters. Obtain and review a copy of all board packets for COSADC board meetings. We reviewed each board packet that was presented to the COSADC board before each meeting. Obtain a copy of the monthly staff activity reports for the year under contract. We reviewed the monthly staff activity reports for the year under contract. Obtain a copy of the incentive offers after COSADC and the Council approves them. We reviewed a copy of all of the incentive offers that were provided by the Company during the duration of the contract. Obtain and review monthly financial report presented by the Company. We reviewed the monthly financial reports presented by the Company. Obtain a copy of the financial analysis and projections on available funds, sales tax trends, bond capacity, and voter approved projects. We reviewed board packets containing this information. Obtain and review official minutes of all COSADC board meetings. We reviewed signed board meeting minutes of all board meetings during the year under contract. Obtain assurance that the Company maintains official records of COSADC board membership, and provides information relating to official requirements and responsibilities of all new members. We reviewed board packets containing ofiicial records of COSADC board membership and information relating to official requirements and responsibilities of all new members. Obtain assurance that the Company’s employees prepare, post and distribute twice-monthly COSADC agenda and related background information. Per discussion with Bob Schneeman and per review of the COSADC agendas for the time period under contract, the employees of the Company prepare, post, and distribute the COSADC agenda and related background information twice-monthly. Obtain assurance that the Company’s employees prepare offers of financial incentives, compose related agreements, and ensure compliance with all economic development incentive agreements and abatement agreements. 13
  16. 16. O. 1‘. Per review of the Blue Cross Blue Shield annual incentive contract compliance database provided, it appears that the Company’s employees prepare offers of financial incentives to organizations. We reviewed the affidavit and support documents for Blue Cross Blue Shield pursuant to the Economic Development Grant Agreement to ensure the Company’s employees appear to be in compliance with this incentive agreement. We also reviewed the Ethicon abatement agreement and the Property Tax Abatement Savings Analysis provided by Ethicon to the Company to ensure that the Company appears to be in compliance with the abatement agreement. Obtain assurance that the Company’s employees plan and implement a comprehensive business retention and expansion program. No documentation was provided. However, we reviewed a copy of the new comprehensive business retention and expansion program, incentive policy, and marketing plan. Obtain assurance that the Company’s employees helped coordinate planning and construction of the Business Resource Center. Per review of a Legal Notice requested by Bob Schneeman regarding the Business Resource Center and per review of the Architectural and Professional Services Agreement provided to all COSADC board members, it appears that the Company’s employees helped coordinate the planning and construction of the Business Resource Center. Obtain assurance that the Company’s employees maintain and update COSADC’s website and social media pages regularly. Per discussion with Bob Schneeman and per review of the COSADC website, the Company’s employees do update their website regularly. COSADC does not have their own Facebook page but has consolidated pages with the City of San Angelo and is presented on the City’s Facebook page. Obtain assurance that the Company’s employees attend all business recruiting prospect meetings coordinated by the Chamber of Commerce or other economic development partners. Per discussion with Bob Schneeman, the Company’s employees do attend all business recruiting prospect meets to help better develop current business and recruit new business in San Angelo. Obtain assurance that the Company’s employees coordinate with Tom Green County officials on reinvestment zones and tax abatement agreements and other offers for incentives. Per discussion with Bob Schneeman and per review of the annual incentive contract compliance database/ spreadsheet, the Company’s employees do coordinate with Tom Green County officials on reinvestment zones and tax abatement agreements and other offers for incentives. Obtain assurance that the Company’s employees attend training as required to obtain and maintain applicable professional certifications. 14
  17. 17. Per review of certifications given to Roland Pena, Nora Regino, and Bob Schneeman, it appears that the Company’s employees attend training as required to obtain and maintain applicable professional certifications. 7. Review contract with the Ethicon, Inc. (the “Company”) for compliance based on contract specifications pending or outstanding. 3.. Obtain a copy of the checks written for reimbursement of the taxes paid on the increase in value of property in accordance with the percentages for each year provided in the contract. We reviewed a copy of the checks written for 2012 and 2013. We also reviewed the accuracy of the calculation by reviewing the tax statement prepared by the Tom Green County Appraisal District and applying the applicable percentage provided in the contract for the increase in property taxes. We traced all checks written during the contract period to the bank statements. Obtain proof that between January 1, 2010 and December 31, 2010 the Company made a capital investment in business personal property in an amount between $6,000,000 and $8,000,000. We reviewed the Business Personal Property Rendition form that was given by the Company to the City of San Angelo for the investment in personal property for 2010. The estimated market value of the investment was $8,113,376, which is over the $8,000,000 range specified by the contract. Recommendation: The contract is worded to indicate that the investment in property value should fall within the range of $6,000,000 and $8,000,000. If investments greater than $8,000,000 are favorable, as indicated in our discussions with COSADC stafii then we recommend rewarding the contract to state “in an amount valued at $6, 000.000 or more. ” Obtain proof that between January 1, 2011 and December 31, 2011 the Company made a capital investment in business personal property in an amount between $10,000,000 and $20,000,000. We reviewed the Business Personal Property Rendition form that was given by the Company to the City of San Angelo for the investment in personal property for 2011. The estimated market value of the investment was $12,386,350, which is within the range specified by the contract. Obtain a copy of the signed and notarized Business Personal Property Tax Rendition submitted to the Tom Green County Appraisal District (TGCAD) along with a Tax Certification from the TGCAD indicating that the Company has paid all real and personal property tax in full. We reviewed the Business Personal Property Tax Rendition and the Tax Certification from the TGCAD for each year under the contract. It appears that the Company has paid all real and personal property taxes in full. Obtain assurance that the City of San Angelo has not suspended performance of the agreement. Per discussion with Bob Schneeman, the City of San Angelo has not suspended performance of the agreement. 15
  18. 18. f. h. Obtain assurance as to whether the contract has been breached by either party. We believe that the determination as to whether or not the contract has been breached is a legal determination that should be determined by legal counsel; however, as specified above it appears there are requirements that may not have been met. Obtain assurance that Ethicon has remained current in its payment of all Ad Valorem Taxes to all local taxing entities. Per discussion with Bob Schneeman and per review of the Tax Statements prepared by TGCAD, it appears that the Company has remained current in its payment of all Ad Valorem Taxes during the duration of the contract. Obtain assurance that if the City of San Angelo has declared the agreement default, additional procedures have been met. Per discussion with Bob Schneeman, the City has not declared the agreement default and is still issuing tax reimbursement checks under this contract. 8. Review contract with the Glazer’s Wholesale Drug Company, Inc. (the “Company”) for compliance based on contract specifications pending or outstanding. 3.. 0. d. Obtain a copy of the check written annually in an amount equal to the percentages provided in the contract of the Ad Valorem Tax assed by the City for a given tax year against the Land, the Improvements, and Eligible Tangible Personal Property. We reviewed a copy of the annual checks written for 2010 through 2013, as well as the tax statement for each year to ensure that checks were being written for the correct amount. We traced all checks written during the contract period to the bank statements. Obtain and review a copy of the grant application submitted by the Company for each year under the contract and ensure that the application was submitted by February 1st and no later than May 1". We reviewed a copy of the grant applications for each year under the contract. The grant applications were all submitted by May 1st, which is within the date range specified by the contract. Obtain proof that $13,500 worth of permit fees were waived in accordance with the contract. Per review of the permit receipt distributed to the Company by the Permit Department at the City of San Angelo, $13,500 worth of permit fees were waived. Obtain proof of purchase by warranty deed or by special warranty deed and in the Company’s own name as the sole owner thereof, the fee simple title to the land or that the Company entered into an agreement to lease the land, the term of which lease agreement shall extend through the end of the grant period. We reviewed the special warranty deed to ensure that the Company purchased, as the sole owner, a fee simple title to the land. 16
  19. 19. e. Obtain proof that the land acquisition was completed on or before December 15, 2008. We reviewed the special warranty deed to ensure that the Company purchased the land on or before December 15, 2008. The special warranty deed was signed and dated December 15, 2008. Obtain proof of commencement of construction of the facility on or before December 31, 2009. Per review of the valuation history and the receipts issued by Tom Green County Appraisal District, the Company did commence construction of the facility on or before December 31, 2009. Obtain a copy of the certification of completion of construction and f‘mal completion. Per review of the certification of completion submitted along with the grant application, the construction was final and complete during the duration of the contract. Obtain proof that the land acquisition price is $7,200,000 or more. We reviewed a letter and corresponding invoices from Prager 85 Miller noting that the sum of the land and building, racking and storage equipment, conveyor equipment, and various construction items was $7,223,001, which exceeded the required expenditures of $7,200,000. Obtain proof that the Company placed at least seventy-nine (79) full time equivalent employment positions no later than December 31, 2009 and retained forty-five (45) existing full time equivalent employment positions. Per review of the 2009 grant application, one of the attached reports noted the number of employees for each worksite that the Company owns. The San Angelo store reported 139 full time equivalent employees as of September 31, 2009. Obtain assurance that COSADC has given five days’ notice to the Company before performing an audit of the Company’s records. Per discussion with Bob Schneeman, no audit of the Company has been considered necessary by COSADC during the years under contract; therefore, no notice has been given. Recommendation: In order to strengthen compliance with this contract requirement, we recommend that correspondence be provided to the Company regarding the need for an audit. If an audit is not considered necessary by COSADC, the correspondence should include COSADC’s decision Obtain a copy of the certification in writing on or before March 1st of each year that this contract is in effect, that the Company is in compliance with all provisions of this contract. We reviewed each certification in writing for the years 2010 through 2013. The certifications that were reviewed were all dated later than March 15‘ of each year. 17
  20. 20. 1. Obtain assurance that if the Company has assigned the contract to another party, additional procedures have been met. Per discussion with Bob Schneeman, the Company has not assigned the contract to another party during the duration of the contract. m. Obtain assurance that if the Company has sold all or substantially all of the assets, additional procedures have been met. Per review of the Company’s 2013 financial statements, the Company has not sold all or substantially all of its assets. n. Obtain assurance that the Company is in good standing under the laws of the State of Texas. We reviewed the Texas Comptroller of Public Accounts Website and verified that the Company is in good standing under the laws of the State of Texas. o. Obtain assurance that Company does not have any litigation or governmental proceedings that are pending or operations sufficient to jeopardize the company as a going concern. Per discussion with Bob Schneeman and per review of the Company’s 2013 financial statements, COSADC is not aware of any litigation or governmental proceedings. The Company appears to have sufficient operations, and going concern does not appear to be an issue. p. Obtain assurance that the City of San Angelo has not suspended performance of the agreement. Per discussion with Bob Schneeman, the City of San Angelo has not suspended performance of the agreement. q. Obtain assurance as to whether the contract has been breached by either party. We believe that the determination as to whether or not the contract has been breached is a legal determination that should be determined by legal counsel; however, as specified above it appears there are requirements that have not been met. 9. Review contract with Martifer-Hirschfeld Energy Systems, L. L.C. (the “Company”) for compliance with COSADC based on contract specifications pending or outstanding. a. Obtain a copy of the checks written to the Company under the provisions of the contract. We reviewed a copy of the check written in 2009 for the acquisition of the land. The check was written for $280,000 and the purchase price of the land was $280,000. COSADC reimbursed the Company for the purchase price of the land not to exceed $280,000. . We also reviewed the check written for $500,000 to reimburse the Company for a portion of the capital investment for Phase I. COSADC was to issue this check if the capital investment exceeded $15,000,000. Per review of the obligation and payments for 18
  21. 21. b. d. Phase I construction provided by the Company, the expenses for Phase I exceeded $15,000,000. We reviewed another check written for $500,000 to compensate the Company for completion of Phase 1. Per review of the contract, COSADC was to pay the Company $6,000 for each full time equivalent position filled up to 225 no later than December 15, 2015. We reviewed a check written for the full time equivalent positions filled in 2010 and 2011, and we also reviewed the calculation that was done by the Company to ensure that the amounts issued were accurate. There were no other checks written to the Company as COSADC has suspended payments as of 2012 due to discrepancies in the job creation requirements. Obtain a copy of the deed for the land showing that it was recorded in Tom Green County and also showing the purchase price of the land. We reviewed the deeds for the land parcels, and we reviewed the insurance policy on the land. The insurance policy documented that the land is in Tom Green County and that the purchase prices were $260,000 and $20,000 respectively. Obtain proof that Phase I was completed on or before September 30, 2010. We reviewed the certificate of completion and the certificate of occupancy issued by the City of San Angelo. The certification of completion was dated December 14, 2010, and the certificate of occupancy was dated December 15, 2010. Per discussion with Roland Pena, Phase I was not completed by September 30, 2010 because the construction timeline was completed after the estimated completion date. COSADC was aware of the delayed timeline. Obtain proof that Phase II was complete on or before December 31, 2013. Per discussion with Bob Schneeman, Phase II was not complete on or before December 31, 2013. Recommendation: We recommend that COSADC continue to withhold ficrther payments until all requirements are met. Obtain proof that the capital investment for Phase I was at least $20,0000,000 and was paid in full by the Company. We reviewed the certificate of property tax receipt prepared by the Tom Green County Appraisal District in which the appraised value is $26,598,290. This amount exceeds the minimum amount of $20,000,000. Obtain proof that the capital investment for Phase I and Phase II was at least $40,000,000 and was paid in full by the Company. Per discussion with Bob Schneeman, Phase II has not begun as of the end of fieldwork, therefore, the capital investment combined for Phase I and Phase II did not meet the $40,000,000 threshold specified by the contract. Recommendation: We recommend that COSADC continue to withhold further payments until all requirements are met. 19
  22. 22. g. has n Obtain a copy of the Appraisal District Rendering showing the fair market value of at least $18,000,000 for Phase I. We reviewed the certificate of property tax receipt prepared by the Tom Green County Appraisal District in which the appraised value is $26,598,290. This amount exceeds the minimum market value of $18,000,000. Obtain assurance that a copy of the Appraisal District Rendering that was given to COSADC no later than the end of the calendar year in which the development of the Land has reached 90% of completion of Phase II construction. Per discussion with Bob Schneeman, Phase II has not begun as of the date of this report; therefore, there was no Appraisal District Rendering provided for review. Recommendation: We recommend that COSADC continue to withhold fiuther payments until all requirements are met. Obtain proof that the Company has made significant efforts to create and fill 225 new full time “primary jobs” as defined by the contract and that each full time equivalent position is retained for a three year period. We reviewed the full time equivalent employment positions for each year under contract and the calculation that was made to determine the amount of full time equivalents. At the end of each year, the Company appeared to be gradually moving toward 225 positions. In 2012, COSADC awarded the Company for the creation of 181 total full time equivalents, but in accordance with the agreement, the Company must retain each full time equivalent for a period of three years. Per discussion with Bob Schneeman, COSADC annualized the reported total payroll for quarter four of 2012 to annualize the full time equivalents being reported in 2012. After the calculation of the full time equivalents, there would have been approximately 155. COSADC has withheld payment for each year after 2011. The issue is being negotiated, and COSADC is attempting to resolve the issue. Recommendation: We recommend that COSADC continue to withhold further payments until all requirements are met. Obtain proof that the Company has made significant efforts to create total gross wages of $8,049,150 on or before December 31, 2015. We reviewed payroll records of the Company for each year sent reporting the full time equivalent positions calculation. As of 2012, the Company had total gross wages of $6,122,585. The Company has until December 31, 2015 to reach the total gross wages of $8,049,150. Obtain assurance that the Company is making its best efforts to employ persons who reside in the City of San Angelo. Per discussion with Bob Schneeman, the Company does make an effort to employ persons who reside in the City of San Angelo, but they have had to hire some of their employees from out of town. Obtain a copy of the record showing that before January 31 of each year the gross wages were certified for each quarter of the previous year. 20
  23. 23. Per view of the quarterly payroll records, the Company certified the gross wages for each quarter of the previous year. m. Obtain proof of continued interest and maintain fee simple ownership of the Land and Plant on file for each year of operation and proof of continued operations. We reviewed the tax statements provided by the Tom Green County Appraisal District for each year under contract to ensure that the Company maintains continued interest and fee simple ownership of the land and plant. n. Obtain a copy of the certification submitted to COSADC on or before April 15*” each year that the Company is in compliance with the contract. We reviewed the certification submitted to COSADC each year on or before April 15"‘ to ensure that the Company is in compliance with the contract. 0. Obtain assurance that if the Company is ever required to repay COSADC, that additional procedures are met. Per discussion with Bob Schneeman, the repayment clause has not yet been activated; however, COSADC has suspended payment and has considered activating the repayment clause due to the Company not meeting the full time equivalent requirements. p. Obtain assurance that if the relationship between Martifer and Hirschfeld has changed since the creation of the contract that it is documented and responsibility is distributed adequately between the parties. Per review of the comfort letter written by the Company to COSADC, the Company is now solely owned by Hirschfeld. The comfort letter states that Hirschfeld has agreed to take responsibility for all of the requirements under the contract. q. Obtain assurance that COSADC does not have any litigation or governmental proceedings. Per discussion with Bob Schneeman, COSADC is not aware of any litigations or governmental proceedings. 10. Review contract with Martifer-Hirschfeld Energy Systems, L. L.C. (the “Company”) and the City of San Angelo for compliance based on contract specifications pending or outstanding. a. Obtain a copy of the checks written to the Company under the provisions of the contract. We reviewed a copy of the tax reimbursement check written to the Company on July 24, 2012 for $236,783.24. We traced the check to the bank statement. b. Obtain assurance that if the Company is ever required to repay the City of San Angelo, that additional procedures are met. Per discussion with Bob Schneeman, the repayment clause has not yet been activated; however, the City of San Angelo has suspended payment and has considered activating the repayment clause due to the Company not meeting the full time equivalent requirements. 21
  24. 24. d. e. Recommendation: We recommend that COSADC consider activating the repayment clause and withhold further payments until requirements are met. Obtain documentation from the Company for payment and final costs for the water and wastewater connections to the Land and Improvements. We reviewed the documentation for payment and final costs for the water and wastewater connections to the Land and Improvements. Obtain documentation for fees waived by the City of San Angelo. Documentation for fees waived for the Company by the City of San Angelo was not provided for review. Recommendation: We recommend that COSADC document whether or not fees are waived in the Company’s contract file. If fees are not waived, we recommend that COSADC document the reason why fees were not waived. Obtain a copy of the City of San Angelo’s budget showing that the funds are appropriated for the payments of this agreement. We reviewed the budget for the City of San Angelo noting that the funds are available and appropriated for payment to the Company. Obtain a copy of the written request for payment given to the City of San Angelo by the Company within twelve months following the date of the annual tax statement provided by Tom Green County Appraisal District. We reviewed the certificate of property tax receipt prepared by the Tom Green County Appraisal District for 2012 in which the appraised value for Phase I is $26,598,290. This amount exceeds the required market value of $20,000,000. Obtain a copy of the deed for the land showing that it was recorded in Tom Green County and also showing the purchase price of the land. The warranty deeds for the land parcels were provided and reviewed to ensure that the land is in Tom Green County and that the purchase prices were $260,000 and $20,000. Obtain proof that Phase I was completed on or before September 30, 2010. We reviewed the certificate of completion and the certificate of occupancy issued by the City of San Angelo. The certification of completion was dated December 14, 2010, and the certificate of occupancy was dated December 15, 2010. Per discussion with Roland Pena, Phase I was completed by September 30, 2010 because the construction timeline was completed after the estimated completion date. COSADC was aware of the delayed timeline. Recommendation: During instances of known delays, we recommend amending the contract to reflect new time requirements. Obtain proof that the capital investment for Phase I was at least $20,0000,000 and was paid in full by the Company. 22
  25. 25. We reviewed the certificate of property tax receipt prepared by the Tom Green County Appraisal District in which the appraised value is $26,598,290. This amount exceeds the minimum amount of $20,000,000. Obtain proof of continued interest and maintain fee simple ownership of the Land and Plant on file for each year of operation and proof of continued operations. We reviewed the tax statements provided by the Tom Green County Appraisal District for each year under contract to ensure that the Company maintains continued interest and fee simple ownership of the land and plant. Obtain assurance that if the relationship between Martifer and Hirschfeld has changed since the creation of the contract that it is documented and responsibility is distributed adequately between the parties. Per review of the comfort letter written by the Company to COSADC, the Company is now solely owned by Hirschfeld. The comfort letter states that Hirschfeld has agreed to take responsibility for all of the requirements under the contract. Obtain a copy of the certification submitted to the City of San Angelo on or before April 15"‘ each year that the Company is in compliance with the contract. We reviewed the certification submitted to COSADC by the Company each year on or before April 15”‘. 11. Review contract with Neighborhood and Family Services Department Administrative Services (the “Company”) for compliance based on contract specifications pending or outstanding. 8. d. Obtain a copy of the checks written on or about March 31, 2013 and September 30, 2013. Per discussion with Nora Regine, the Company was late in turning in the required information; therefore, only one check was written for the amount due to the Company. We reviewed the check written on January 30, 2014 for the entire year under the contract. We traced this check to the bank statement. Recommendation: We recommend that the Company timely provide required information to COSADC. In addition, we recommend that COSADC follow up with the Company to help ensure timeliness. Obtain documentation on the amount expended classified by project under the contract. Per review of the Housing Rehab Applications, the Company appears to keep documentation on the amount expended classified by project under the contract. Obtain assurance that the Company assists in the preparation of Agreements with approved program applicants. Per review of applicant files, the Company does assist in the preparation of Agreements with approved program applicants. A file is kept on each applicant. Obtain assurance that the Company administers Affordable Housing Agreements and oversight of compliance issues. 23
  26. 26. 8. his a Per discussion with Bob Salas, The Company does administer Affordable Housing Agreements and oversight of compliance issues. For example, the Company reviews each client annually and checks their water bills for usage and who is using the water in the computer system. Obtain assurance that the Company assists with COSADC administrative oversight of the community development projects authorized by the ballot. Per review of the spreadsheet kept by the Company to document all inspections, the Company does assist COSADC with administrative oversight of the community development projects by doing housing inspections. Obtain assurance that the Company assists the City Finance Department with budget oversight of projects and Affordable Housing Development funds, receipts, and expenditures. Per discussion with Bob Salas, the Company does assist the City Finance Department with all financial requirements. Obtain assurance that the Company maintains oversight and management of the City of San Angelo Affordable Housing Program. We reviewed an excel spreadsheet maintained by the Company that provides documentation that the Company maintains oversight and management of the City of San Angelo Affordable Housing Program. Obtain assurance that the Company facilitates timely reports and meeting structure. Per review of documentation from Robert Salas, Neighborhood Services Department Director, the Company appears to facilitate timely reports and meeting structures. Obtain assurance that the Company makes reports to civic groups, City Council, and COSADC as needed. Per review of the COSADC Board of Director Meeting Minutes the Company reports to civic groups, City Council, and COSADC as needed. Obtain assurance that the Company ensures effective management of grant agreements. Per review of lien notices created by the Company, the Company does not manage grants, but they do create contracts and liens as needed. Obtain assurance that the Company provides follow-up to grantees and Agreementors under the Affordable Housing Development program. Per review of a memo presented to a client for foreclosure for breach of contract under the Affordable Housing Development program, the Company appears to provide follow- ups to grantees and Agreementors. Obtain assurance that the Company gathers, maintains, and reports statistical data for the program. 24
  27. 27. 0. Per review of a report titled, “The Ripple Effect of Neighborhood Revitalization” provided by City of San Angelo Community Development, it appears that the Company gathers, maintains, and reports statistical data for the program. Obtain assurance that the Company schedules and organizes loan closings. Per review of loan closing statements, the Company appears to schedule and organize loan closings. Obtain assurance that the City of San Angelo employees provide reports to COSADC board as requested. Per review of the Board of Director Meeting Minutes, the City of San Angelo employees provide reports to the COSADC board as requested. Obtain assurance that the City of San Angelo employees submit all grant related reports for programs on or before due dates. Per discussion with Bob Salas, the City of San Angelo employees do submit all grant- related reports. Currently there are no due dates, but with each new fiscal year there are new requirements. Obtain assurance that the City of San Angelo employees work with community partners to ensure effective marketing for the program. Per discussion with Bob Salas, the City of San Angelo employees do work with community partners. These partners include Galilee, West Texas Organizing Strategy, Blitz, Habitat for Humanity, Angelo State University, and Goodfellow Air Force Base. Obtain documentation of the number of applicants approved for the program. We reviewed a spreadsheet provided by the Company that documented the total number of applicants approved for the Affordable Housing Assistance Program. There are currently 52 applications approved. Obtain documentation of the program projects approved for construction. We reviewed a spreadsheet provided by the Company that documented the projects approved for construction. Obtain documentation of the program houses that have closed. We reviewed a spreadsheet provided by the Company that documented the program houses that have closed. 25

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