04/21/2016 AuditHector Collazo Jr.
Inspector General/Chief Audit Executive
Audit Team
Melissa Dondero, CPA, CIA, CIGA, CITP, CRMA— Inspector General Manager
William J. McGuinness, CGMA, CIGA, CLE — Senior Inspector General Auditor
Deborah Weiss, CIGI, CIGA — Senior Inspector General Auditor
Cassy Moreau. CAMS, CFE — Inspector General Auditor 1
APRIL 21, 2016
REPORT NO. 2016-08
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Ken Burke, CPA
CLERK OF THE CIRCUIT COURT AND COMPTROLLER
' P PINELLAS COUNTY, FLORIDA
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COUNTY,F�O�O
Clerk of the County Court
Recorder of Deeds
Clerk and Accountant of the Board of County Commissioners
Custodian of County Funds
County Auditor
April 21, 2016
Division of Inspector General
510 Bay Avenue
Clearwater, FL 33756
Telephone: (727) 464-8371
Fax: (727) 464-8386
Fraud Hotline: (727) 45FRAUD (453-7283)
Clerk's website: www.mypinellascierk.org
Ms. Amy Heavilin, Clerk of Circuit Court and Comptroller, Monroe County
Mr. Reuben lyamu, Director of Internal Audit, Monroe County Clerk of Circuit Court
At your request, we have conducted an audit of the "Monroe County Safe Harbor Animal Rescue of
the Keys, Inc." (SHARK) contract. Our audit objectives were to:
1. Identify any fraud committed by SHARK Board Members through manipulation of
accounting records. Determine and quantify any financial impact to SHARK and Monroe
County.
2. Determine if SHARK is in compliance with regulatory requirements set forth by the Florida
Statutes, Internal Revenue Service, and other regulatory bodies as they pertain to nonprofit
organizations.
3. Determine if internal controls are adequate for the business processes at SHARK.
4. Determine if the animal shelter run by SHARK is adequately secured and maintained.
While our preliminary analysis of SHARK's financial records did not identify any evidence that fraud
was committed by SHARK's Board Members through manipulation of accounting records, we did
identify several internal control weaknesses which created the risk of potential misappropriation
that would warrant additional audit testing procedures to meet our audit objectives. However,
during the process of our preliminary analysis, the Monroe County Board of County
Commissioners approved the merger of SHARK with the Florida Keys Society for the Prevention of
Cruelty to Animals. As a result, effective November 1, 2015, the SHARK organization no longer
has this contract with Monroe County for animal control in the Middle Keys. Therefore, further audit
testing procedures (i.e. a full audit) was not warranted as it will not be in the best interest of
Monroe County.
We appreciate the cooperation shown by the staff of the Monroe County Clerk of Circuit Court
Internal Audit Department and SHARK Board Members during the course of this review.
Respectfully
Hector Coll zo Jr.
Inspector G ief Audit Executive
An Accredited Office of
Insreaors General
TABLE OF CONTENTS
Introduction
Preliminary Analysis Findings
Page
4
1. Capital Bank Operating and Donation Accounts 8
2. Specific SHARK Accounting Record Transactions 10
3. Allegations Against SHARK Board Members
Appendix
11
Monroe County Administration's Management Responses 13
INTRODUCTION
Synopsis
Based on our preliminary analysis, we did not identify any evidence that SHARK Board
Members committed fraud through manipulation of accounting records; however, we did
identify internal control weaknesses and poor record keeping/accounting which created the risk
of potential misappropriation.
Scope and Methodology
We conducted an audit of the contract between Safe Harbor Animal Rescue of the Keys, Inc.
(SHARK) and the Board of County Commissioners of Monroe County. The audit covered an
analysis of SHARK's financial records. The audit also planned to cover an evaluation of
SHARK's regulatory compliance, evaluation of SHARK's internal controls, and animal shelter
facility maintenance. However, due to a change in contractor during the audit, further audit
testing procedures (i.e. a full audit) was not warranted as it will not be in the best interest of
Monroe County.
The objectives of our audit were to:
1. Identify any fraud committed by SHARK Board Members through manipulation of
accounting records. Determine and quantify any financial impact to SHARK and Monroe
County.
2. Determine if SHARK is in compliance with regulatory requirements set forth by the
Florida Statutes, Internal Revenue Service, and other regulatory bodies as they pertain
to nonprofit organizations.
3. Determine if internal controls are adequate for the business processes at SHARK.
4. Determine if the animal shelter run by SHARK is adequately secured and maintained.
In order to meet the objectives of our audit, we:
• Interviewed Monroe County staff and SHARK Board Members/Staff to obtain a clear
understanding of the contract, processes, and the related internal control environment.
• Evaluated compliance with the contract terms and verified that contract obligations are
being fulfilled.
• Reviewed financial documents and records of SHARK.
• Toured the animal shelter run by SHARK.
Audit Services, Division of Inspector General
Clerk of the Circuit Court and Comptroller
Page 4
Introduction
Monroe County Safe Harbor Animal Rescue of the Keys Contract
Our audit was conducted in accordance with the International Standards for the Professional
Practice of Internal Auditing and the Principles and Standards for Offices of Inspector General,
and, accordingly, included such tests of records and other auditing procedures as we
considered necessary in the circumstances. The audit period was May 1, 2011 to June 30,
2015. However, transactions and processes reviewed were not limited by the audit period.
Overall Conclusion
We did not identify any fraud committed by SHARK Board Members through manipulation of
accounting records. We performed a preliminary financial analysis of a sample of SHARK
transactions, which included reconciling SHARK's accounting records to its bank statement
and to its Monroe County Reimbursement Request and subsequent payment. We also
analyzed documentation containing allegations against SHARK. There is no indication that
improper costs are being charged to Monroe County; however, issues were identified and are
discussed in this report.
Identified issues would normally warrant additional audit testing procedures to meet our audit
objectives. However, during the process of our preliminary analysis, the Monroe County Board
of County Commissioners approved the merger of SHARK with the Florida Keys Society for
the Prevention of Cruelty to Animals. As a result, effective November 1, 2015, the SHARK
organization no longer has this contract with Monroe County for animal control in the Middle
Keys. Therefore, further audit testing procedures (i.e. a full audit) was not warranted as it will
not be in the best interest of Monroe County.
Audit Services, Division of Inspector General
Clerk of the Circuit Court and Comptroller
Page 5
Introduction
Monroe County Safe Harbor Animal Rescue of the Keys Contract
Background
The Board of County Commissioners of Monroe County entered into a contract with Safe
Harbor Animal Rescue of the Keys, Inc. (SHARK) to provide animal control law enforcement
and services. The scope of services included all staffing, equipment and supplies necessary to
operate the Marathon Animal Shelter and provide animal control and enforcement services
from Mile Marker 16.7 to 70 (Middle Keys) in Monroe County. The contract was effective May
1, 2011 through June 30, 2015. The contract provided that Monroe County would reimburse
SHARK up to $232,556 per year (with annual Consumer Price Index adjustments) for its
services rendered.
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SHARK is a no -time -limit, nonprofit animal shelter and a nonprofit organization [Section
501(c)(3) of the Internal Revenue Code] formed in 2010 specifically to help the animal
population in the Middle Keys. Their mission is to raise awareness in the community of pet
overpopulation, to provide solutions to end the killing of homeless and neglected animals, and
ultimately, through innovative ideas and energetic management, make the animal shelter in
Marathon one of the most progressive shelters in the state. SHARK operates with six Board
Members and several employees. Besides contract reimbursements provided by Monroe
County to operate the shelter, SHARK receives funds from animal adoptions, which ranged
from $15 for a senior cat to $120 for a puppy. SHARK also solicits donations and accepts
volunteers.
Audit Services, Division of Inspector General
Clerk of the Circuit Court and Comptroller
Page 6
Introduction
Monroe County Safe Harbor Animal Rescue of the Keys Contract
On August 13, 2015, the Monroe County Board of County Commissioners (Board) received a
letter detailing allegations of fraud, waste, and abuse by some members of SHARK's
organization. The letter informed the Board that SHARK is no longer able to be the contracted
provider of animal services for the Middle Keys.
On September 21, 2015, an agreement between the Monroe County Clerk of Circuit Court and
Comptroller (CCC) and the Pinellas County CCC was entered into temporarily assigning
Pinellas County CCC Division of Inspector General (PC IG) staff to conduct an audit of the
Monroe County contract with SHARK.
On September 23, 2015, PC IG staff made a site visit to the Florida Keys, spending two days
meeting with Monroe County and SHARK Board Members/Staff, and collecting applicable
financial and operational records. PC IG staff also met with Christian Zuelch, formerly
SHARK's President/Accountant, and obtained his electronic accounting files that were
downloaded from QuickBooks software.
Effective November 1, 2015, the SHARK organization no longer has the contract with Monroe
County for animal control in the Middle Keys. The Florida Keys Society for the Prevention of
Cruelty to Animals (SPCA) is now the organization operating the Marathon animal shelter. The
same staff that worked under SHARK are now working under the Florida Keys SPCA.
A draft report reflecting the results of our preliminary analysis (and our recommendation that
additional audit work was not warranted) was provided to the Monroe County Clerk of Court.
Based on that recommendation, it was decided to end the audit prior to completion of the
stated audit objectives as it will not be in the best interest of the County.
Audit Services, Division of Inspector General
Clerk of the Circuit Court and Comptroller
Page 7
PRELIMINARY ANALYSIS FINDINGS
Our audit disclosed certain policies, procedures, and practices that could be improved. Our
audit was neither designed nor intended to be a detailed study of every relevant system,
procedure, or transaction. Accordingly, the Findings presented in this report may not be all-
inclusive of areas where improvement may be needed.
1. Capital Bank Operating and Donation Accounts.
We analyzed all SHARK transactions for the month of March 2015, including the
Reimbursement Request submitted to Monroe County. The analysis included a reconcilement
of SHARK's accounting records (per QuickBooks) to its Capital Bank Operating Account and
Donation Account statements to its Monroe County Reimbursement Request and Monroe
County's Reimbursement Statement.
We found:
Capital Bank Operating Account
Number of 77 I 72 I I 481 402
Checks/Expenditures
Total Amount $28,241.09 I $22,693.53 I $10,707.68' $6,470.092
These expenditures exclude payroll (which is reimbursed separately by Monroe County) in the amount of
$15, 526.85.
2 These expenditures (excluding payroll) were reimbursed by Monroe County for March 2015.
Seven checks issued in March 2015 totaling $5,954.44 did not clear the bank.
Nine transactions totaling $4,237.59 that were listed on SHARK's March 2015
Reimbursement Request were not reimbursed by Monroe County due to the following:
o Two payments not clearing SHARK's bank account ($3,000.00)
o Two undocumented expenditures ($85.35)
o Two unallowable education/training expenditures ($773.00)
o One installment payment fee ($12.00)
o Two unallowable travel costs ($367.24)
Monroe County over -reimbursed SHARK by $11.48 due to a credit from Home Depot
that was not listed on SHARK's March 2015 Reimbursement Request.
Audit Services, Division of Inspector General
Clerk of the Circuit Court and Comptroller
Page 8
Preliminary Analysis Findings
Monroe County Safe Harbor Animal Rescue of the Keys Contract
• Six transactions totaling $2,426.66 on SHARK's accounting records for March 2015
were not included on its March 2015 Reimbursement Request submitted to Monroe
County.
• Two transactions totaling $234.19 on SHARK's March 2015 Reimbursement Request
were not in its accounting records.
Capital Bank Donation Account
Number of I 51 I 5' ( N/A I N/A
Checks/Expenditures l j
Total Amount $1,274.45' $1,189.45' N/A N/A
These checks exclude two $5,000.00 transfers to the Operating Account.
• None of the $1,274.45 expenditures were included on SHARK's March 2015
Reimbursement Request submitted to Monroe County.
We conclude:
A. Checks issued, but not cleared by the bank, could indicate deliberate action by SHARK
to hold back the checks or simply could be a timing difference.
B. Failure to include credits on the Reimbursement Request could indicate fraud
(reimbursed for the full transaction amount, but obtaining a credit via return or other
method); however, the amount in our sample is immaterial so it is more than likely an
oversight.
C. Failure to include allowable expenses on the Reimbursement Request has no financial
impact on Monroe County, but is poor cash management by SHARK.
D. Submitting expenses for reimbursement that are not in the accounting records could
indicate fraud, but due to the immaterial amount, more likely an accounting error.
E. Submitting disallowable (i.e., private cremations) expenses for reimbursement is a
violation of the contract terms, especially considering that SHARK's Treasurer signs a
sworn, notarized statement certifying that expenses are accurate, in agreement with
SHARK's records, and are in compliance with the contract.
Audit Services, Division of Inspector General
Clerk of the Circuit Court and Comptroller
Page 9
Preliminary Analysis Findings
Monroe County Safe Harbor Animal Rescue of the Keys Contract
SHARK Board Response:
Our operations budget for the County Contract was approximately $30,000.00 per year short of
the actual expenses. Payment of large veterinary bills and insurance costs were at times
dependent on the County's reimbursement funds. Logistics and resulting difficulties of paying
for these expenses were disclosed and discussed with our County representative. In cases
where a credit was issued on an item that was submitted for reimbursement, this was as result
of a change in the volume of a medicine needed or a change to an order that was received.
Corrections were made to reimbursements as they occurred. Failure to include expenses were
either due to meeting our maximum allowance each month or were due to break -down in
communication between staff and Board Members. Again, we acknowledge there were errors
found in our records, but we assure you none were intentional.
2. Specific SHARK Accounting Record Transactions.
We analyzed SHARK's accounting record transactions specific to:
• Cora Baggs — SHARK's Treasurer,
• Christian Zuelch — formerly SHARK's President/Accountant,
• SHARK Board Member Loans, and
• Any other large and/or unusual transactions for the time
period of April 26, 2011 to September 17, 2015.
We found:
Per the accounting records, there were 3,256 transactions in the Operating Account,
870 transactions in the Donation Account, and 7,843 General Ledger postings during
the time period.
$45,000.00 in Board Member Loans were made to SHARK by:
o Cora Baggs — SHARK's Treasurer
o Sheila Cook —former SHARK President
o Pribramsky & Zuelch Inc. — formerly SHARK's Accountant
o Zuelch & Zuelch LLC — formerly SHARK's Accountant
• SHARK repaid these loans, which were made to SHARK for the purpose of funding
operations.
• Donation Account funds were used for operating purposes throughout the audit period,
including a $10,000 repayment to Cora Baggs for her Board Member Loan, mentioned
above.
• There was no indication of donation restrictions as to use.
• Five payments to the U.S. Department of the Treasury for payroll taxes in the amount of
$15,535.02 and six payments to the State of Florida for re-employment taxes in the
amount of $5,403.41 were made during the audit period. Payments are not being made
timely, which resulted in a Florida Department of Revenue Notice of Intent to Levy dated
October 10, 2015 for nonpayment.
Audit Services, Division of Inspector General
Clerk of the Circuit Court and Comptroller
Page 10
Preliminary Analysis Findings
Monroe County Safe Harbor Animal Rescue of the Keys Contract
We conclude:
A. SHARK accepting Board Member loans to fund operating costs indicates poor cash flow
management.
B. Failure to identify donations as restricted or unrestricted indicates poor
recordkeeping/accounting, and poses a legal risk to SHARK for the misuse of restricted
donations.
C. Untimely payment of payroll and re-employment taxes indicates poor
record keeping/accounting, and can result in levies and assessments for penalties and
interest.
SHARK Board Response:
Due to the contract being on a reimbursement basis, SHARK was challenged with the lag of
time - up to 120 days - between submission and receiving the reimbursement funds. Loans
from Board Members were taken to meet our financial obligations to the staff and our vendors.
Throughout the 5 year contract period, SHARK had several fundraising campaigns to cover the
shortfall between the budget and the contract. Donation funds were needed to sustain
operations. The Board of Directors was not clearly advised regarding specific donations
referenced in the audit report as `restricted funds'. In 2013, SHARK did hire an accounting firm
to manage accounting, filing, and handling of submissions. At times there was lack of
communication from the accountant to the Board on the status of filing of extensions, late
payments, and awareness of outstanding debts. Board Members were not made aware of any
outstanding late fees or penalties until after the contract assignment was complete.
At the same time the County was conducting this audit, the IRS also conducted an audit of
Safe Harbor Animal Rescue of the Keys. Notice was received from the IRS that SHARK does
continue to qualify for exemption from federal income tax as a 501(c) (3).
3. Allegations Against SHARK Board Members.
Documents obtained from SHARK while on our site visit stated a number of allegations which
we reviewed.
A summary of the allegations against SHARK's Board Members include:
• Rendering SHARK financially unstable and unable to perform its duties properly;
• Comingling donation and operating funds;
• Submitting unallowable expenses to Monroe County for reimbursement;
• Poor recordkeeping, discretion, and decision -making;
• Lack of segregation of duties;
• Forgery; and
• Late and/or missing filings to regulatory agencies.
Audit Services, Division of Inspector General
Clerk of the Circuit Court and Comptroller
Page 11
Preliminary Analysis Findings
Monroe County Safe Harbor Animal Rescue of the Keys Contract
We conclude:
A. Most allegations relate to managerial issues, not fraud.
B. SHARK's deficiencies may be attributed to:
o Lack of internal controls;
o Lack of communication between Board Members and employees;
o Lack of due diligence;
o Lack of accountability;
o Lack of oversight; and
o Non-performance on the part of some of the Board Members.
C. As previously noted, effective November 1, 2015, the SHARK organization no longer
has the contract with Monroe County for animal control in the Middle Keys. Therefore, a
full audit of SHARK internal controls and potential investigation of the allegations is not
warranted.
SHARK Board Response:
The Board Members of SHARK dedicated 5 years to the County contract, the operations of the
Shelter, the Staff, and the Animals. The deficiencies noted are acknowledged. The drive and
priority of SHARK was always to improve the shelter condition, and improve the services of the
shelter and animal control for the community. In the 5 years of management, the shelter was
transformed into a much better facility with the help and organization of the Board of Directors,
staff, and volunteers. Many major improvements were made that we are very proud of. Many
animals made families complete through our care and programs. We acknowledge that there
were issues and challenges in our ability to continue to maintain the contract. We are both
happy and grateful for the cooperation of Monroe County and the KW SPCA for the successful
assignment of the County contract.
Audit Services, Division of Inspector General
Clerk of the Circuit Court and Comptroller
Page 12
Preliminary Analysis Findings
Monroe County Safe Harbor Animal Rescue of the Keys Contract
Monroe County Administration's Management Responses
County of Monroe
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Dear Roubcn,
The Cxrty has received and mviewtid the drie t preliminaty Rlsdit of Safe Ha7bor Animal Rescue of (he
Kcys, Inc. (SHARE). We appreciate the Auditors' work and art pleased to see that na repnrtahle Msues were
idcmirtcd apinst the County, 'The Caunty agrees with dre Auditcas, ilia[ girm tic contract was ami erred to
the Florid® Keys Society for Pre►rontiou Of Crtial 10 Anima Is, (FK SPCA) eFfix irm Noveitiber l', that further
audit tv.ling of SHAltK is not warranted and will nut be is the di'3t iniCKA ofthc Manror Counry ut this
tine.
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coatinuc to improve nor conuacL munitornia in order w pmvitic hatter asswuners to the CouiXY drat the
Covaty's contract6rs hoae:tdenuate Internal oantrols and urn odlernise compliant with the County''s
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County AdrninistrWlor
Audit Services, Division of Inspector General
Clerk of the Circuit Court and Comptroller
Page 13
DIVISION OF
INSPECTOR GENERAL
KEN BURKE, CPA
CLERK OF THE CIRCUIT COURT
& COMPTROLLER
PINELLAS COUNTY, FLORIDA
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Call: (727) 464-8371
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Write:
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