Audit Division
Audit Summary

Commission on Tourism
Division of Tourism
Report LA96-23

Results in Brief

Weaknesses in the Division of Tourism's financial management practices have led to inappropriate use of contracts, improper payments, and unnecessary costs. The State Budget Act, State Accounting Procedures Law, and the State Administrative Manual dictate how agencies should account for transactions involving state funds and how contracts should be awarded. However, the Division of Tourism circumvented these requirements, resulting in payments for prohibited items, increased risk of abuse, lack of state control over expenditures, and faulty contract award processes.

During fiscal years 1994 and 1995, the Division spent over $4 million for contractual services. This was 37% of its total expenditures; therefore, it is critical that the Division have adequate control over its contract management practices.

Principal Findings

1. The Division circumvented the state system of budgetary and accounting controls to make $44,000 in payments to employees, vendors, and contractors. Many payments lacked adequate supporting documentation and some were for items such as gifts and gratuities, which are prohibited by state administrative policy. (page 9)

2. Contractors were allowed to begin work prior to approval of their contracts by the State Board of Examiners. Almost $90,000 in services were provided before the contracts were approved. (page 14)

3. Payments totaling over $20,000 were made to contractors for services not based on terms of the approved contracts. (page 14)

4. By misclassifying $55,000 in transactions, the Division violated state law. Funds were not spent according to the budget requests submitted and authorized by the Legislature. These misclassifications also resulted in payments to contractors exceeding the maximums approved by the State Board of Examiners. (page 15)

5. Contractor bid requests and evaluations were not always documented and lacked information of how successful bidders were selected. (page 17)

6. The Division did not adequately evaluate whether persons working under contract should have been classified as independent contractors or employees. (page 19)
Commission on Tourism
Division of Tourism

Auditor's Comments on Agency Response

The Division of Tourism, in its response, does not agree with certain of our findings and conclusions. The following identifies those sections of the report where the Division has taken exception to our position. We have provided our comments on the Division's response to assure the reader we believe our findings and conclusions, as stated in the report, are appropriate.

1. On page 24, the Division states that it disagrees that any laws may have been broken.

Legislative Auditor's Comments

The audit specifically identifies several violations of state law, including:

NRS 353.090 requires every claim for payment from the State be presented to the State Board of Examiners (see page 10). Because $44,000 in payments to employees, contractors, and vendors were processed through the Division's advertising contract, the State Board of Examiners was not given the opportunity to review these claims.

NRS 284.173(6) requires each contract with an independent contractor to be submitted to the State Board of Examiners. Further, it states that contracts do not become effective without the prior approval of the Board. On page 14, the audit states that the Division paid almost $90,000 for services provided before obtaining the required Board approval. Contractors were allowed to work under 10 different contracts which had not been approved by the Board.

The State Budget Act (NRS 353.215(4)) requires agency expenditures be broken down into such classifications as the Chief of the Budget Division of the Department of Administration requires. The State Accounting Procedures Law (NRS 353.293(a)) requires agencies to establish a system of accounting that presents fairly and with full disclosure the financial position and results of operations in conformity with generally accepted accounting principles. On page 15, the audit states that the Division misclassified a total of $55,000 of transactions during fiscal years 1994 and 1995. These misclassifications resulted in circumventing budgetary restrictions and reporting unreliable and inaccurate information about the Division's financial operations.

2. Also on page 24, the Division states it will work with the Legislature to clarify and strengthen the language in the law so that the successful mission of the Commission can continue unabated, yet mitigate the accounting procedural conflicts raised through this audit.

Legislative Auditor's Comments

Based on the Division's comments, it appears it does not plan to implement recommendation number 1 (see page 20). Instead, the Division wishes to change its status through legislation. This may allow the Division to continue operating in much the same way it was during the audit.

We believe current state laws already provide appropriate controls and allow enough flexibility for the Division to fulfill its mission. The Division should work with the Budget Division of the Department of Administration and the Legislature under current laws to ensure its budget accurately reflects the types of expenditures it feels are necessary for its mission. This information would assist the Division, the Budget Division, and the Legislature in making decisions regarding the costs of unusual expenditures. (See page 13.)