TITLE
Recommendation to receive and file the audit for the Long Beach Museum of Art (LBMA) Capital Campaign and request City Council to direct City management to collaborate with the LBMA Foundation (Foundation) to develop a comprehensive strategy for the Foundation's repayment of the tax-exempt variable rate lease revenue bonds (Bonds). Advise the City Council and City Auditor as to progress and plans for implementation in 90 days, six months, and one year from the date of receipt and filing of this report.
DISCUSSION
In early 2007, current Foundation management informed the City that they were concerned about prior management of Capital Campaign funds. This communication ultimately resulted in our audit of the Foundation's Capital Campaign. The results of our audit are detailed in the attached report.
The Long Beach Museum of Art Foundation's (Foundation) Capital Campaign is the fundraising effort to finance its renovation and expansion project. To facilitate this expansion project, the Long Beach Bond Finance Authority issued $3,060,000 in Bonds in 1999, with the understanding that the Foundation's Capital Campaign would raise sufficient funds to repay the Bonds before the September 1. 2009, maturity date.
The purpose of our audit was to assess the current financial status of the Foundation's Capital Campaign to determine the Foundation's ability to satisfy the required bond principal payment or the reasons for its inability to do so.
Based upon the results of the procedures performed, we determined the following:
· The Foundation currently has only $388,000 of the required $3,060,000 principal payment due to mature on September 1, 2009, and has no formal plan in place to obtain the balance of the required funds.
· The Foundation under-collected Capital Campaign contributions by at least $1,084,000.
· The Foundation inappropriately spent $1,588,000 of restricted Capital Campaign contributions on its daily business operations.
· The Foundation's Board of Trustees terminated both the former Executive Director and the Director of Finance during 2006. Several significant issues, including misappropriation of assets and conflicts of interest, regarding the Foundation's operations under its previous management came to our attention while performing the audit.
The City Auditor's Office appreciates current Foundation management and the Departments of Community Development and Financial Management for providing their time, information, and cooperation during the audit process. We welcome any questions the Council may have about this topic, and we look forward to presenting our inventory audit in the coming weeks.
TIMING CONSIDERATIONS
The bonds are due on September 1, 2009. Due to the fact that this deadline is only fourteen and a half months away, we recommend management of the City and the Foundation act swiftly to design a plan for repayment of the $3.06 million bonds.
FISCAL IMPACT
The City's General Fund is obligated to pay the $3.06 million bond debt, regardless of the Foundation's ability to reimburse the City. To the extent that the Foundation is able to repay the debt, that will directly offset the City's liability up to $3.06 million.
SUGGESTED ACTION
Approve recommendation.
Respectfully Submitted,
LAURA L. DOUD, CPA
CITY AUDITOR