[Audit Report on Concessioner Improvement Accounts, National Park Service]
[From the U.S. Government Printing Office, www.gpo.gov]
Report No. 98-I-389
Title: Audit Report on Concessioner Improvement Accounts, National
Park Service
Date: March 31, 1998
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U.S. Department of the Interior
Office of Inspector General
AUDIT REPORT
CONCESSIONER IMPROVEMENT ACCOUNTS, NATIONAL PARK SERVICE
REPORT NO. 98-I-389
MARCH 1998
MEMORANDUM
TO: The Secretary
FROM: Robert J. Williams
Acting Inspector General
SUBJECT SUMMARY: Final Audit Report for Your Information -
"Concessioner Improvement Accounts,
National Park Service" (No. 98-I-389)
Attached for your information is a copy of the subject audit
report. The objective of our audit was to determine whether the
amounts deposited into concessioner improvement accounts and the
expenditures from those accounts were appropriate and whether
the National Park Service's procedures were adequate.
Overall, we concluded that without concessioner improvement
account funds, many of the new park facilities may not have been
built and many of the historical structures in the parks may
have deteriorated further. However, we found that the Park
Service had not provided clear, sufficient, and timely guidance
to ensure that account funds were used appropriately and had
allowed concessioners to use these funds before the August 1995
procedures were issued. As a result, concessioner improvement
account funds were used or planned for (1) projects that did not
directly support concession operations or that benefited both
the Park Service and concessioners and would have been
appropriate for cost sharing ($17.5 million), (2) expenditures
that related to concession operations but that would not be
considered proper uses of the funds under the new procedures
($1.2 million), and (3) capital improvement projects for which
the concessioner was inappropriately granted a possessory
interest ($823,000). Furthermore, in the absence of sufficient
guidance, there is little assurance that improvement account
funds will be used appropriately and consistently throughout the
Park Service. In addition, we identified one concessioner that
did not meet its capital improvement program expenditure
requirement by about $100,000.
We recommended that the Park Service revise its August 1995
procedures, amend those contracts which contain provisions that
are inconsistent with the procedures, and ensure that
concessioner deposits into the fund are in accordance with the
concession contracts. Based on the Park Service's response, we
considered one of the report's three recommendations resolved
and implemented and requested that the Service reconsider its
responses to two recommendations, which are unresolved.
If you have any questions concerning this matter, please contact
me at (202) 208-5745.
Attachment C-SP-NPS-033-96
Memorandum
To: Assistant Secretary for Fish and Wildlife and Parks
From: Robert J. Williams Acting Inspector General
Subject: Audit Report on Concessioner Improvement
Accounts, National Park Service (No. 98-I-389)
This report presents the results of our audit of concessioner
improvement accounts maintained by National Park Service
concessioners. The objective of the audit was to determine
whether the amounts deposited into concessioner improvement
accounts and the expenditures from those accounts were
appropriate. At the request of the Park Service, we also
reviewed the adequacy of its procedures for concessioner
improvement accounts.
We concluded that projects financed with concessioner improvement
account funds enhanced visitor facilities in the park units.
However, the Park Service had not provided sufficient and timely
guidance to ensure that concessioner improvement account funds
were used appropriately and allowed concessioners to use these
funds before procedures were issued. Although the Park Service
did issue procedures in August 1995 relating to the use of these
funds, the procedures did not provide sufficient guidance for
determining the types of projects that could be funded or for
establishing cost-sharing agreements for projects that benefited
both the Park Service and the concessioner. We also found that
the Park Service (1) did not amend existing concession contracts
so that they would be in compliance with the new procedures, (2)
approved projects which were not in conformance with the
procedures, and (3) did not enforce concessioner compliance with
contract provisions. As a result, concessioner improvement
account funds were used for (1) projects initiated before the
procedures were issued, that did not directly support concession
operations, or that benefited both the concessioner and the Park
Service and would have been appropriate for cost sharing ($17.5
million); (2) expenditures related to concession operations that
would not be considered proper uses of the funds under the new
procedures ($1.2 million); and (3) capital improvement projects
for which the concessioner was improperly granted a possessory
interest ($823,000). Furthermore, in the absence of sufficient
guidance on the use of improvement account funds, there is no
assurance that the funds will be used properly or consistently
throughout the Park Service. In addition, we identified one
concessioner that did not meet its capital improvement program
expenditure requirement by about $100,000.
Regarding deposits to concessioner improvement accounts, we found
that two concessioners made improper deductions from recorded
gross receipts in determining the amounts required to be
deposited into concessioner improvement accounts. As a result,
these concessioners should have deposited additional funds of
about $124,800, excluding interest, into these accounts.
In the January 21, 1998, response (Appendix 3) from the Director,
National Park Service, the Park Service partially concurred with
Recommendation A.1, did not address all parts of Recommendation
A.2, and concurred with Recommendation B.1. Based on the
response, we consider Recommendation B.1 resolved and
implemented and request that the Park Service reconsider its
responses to Recommendations A.1 and A.2, which are unresolved
(see Appendix 4). The Park Service also provided comments on the
text of the report, which we have considered in preparing the
final report. One of these comments related to the Other Matters
section of the draft report, which discussed a special set-aside
arrangement at Yellowstone National Park. Based on the Park
Service's comments, we agree that this arrangement was not a
concessioner improvement account, and accordingly, we excluded
the Others Matters section from the final report.
In accordance with the Departmental Manual (360 DM 5.3), we are
requesting a written response to this report by May 22, 1998.
The response should provide the information requested in
Appendix 4.
The legislation, as amended, creating the Office of Inspector
General requires semiannual reporting to the Congress on all
audit reports issued, the monetary impact of audit findings
(Appendix 1), actions taken to implement audit recommendations,
and identification of each significant recommendation on which
corrective action has not been taken.
We appreciate the assistance of National Park Service personnel
in the conduct of our audit.
CONTENTS Page
INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . .1
BACKGROUND . . . . . . . . . . . . . . . . . . . . . . . .1
OBJECTIVE AND SCOPE. . . . . . . . . . . . . . . . . . . .2
PRIOR AUDIT COVERAGE . . . . . . . . . . . . . . . . . . .2
FINDINGS AND RECOMMENDATIONS . . . . . . . . . . . . . . .4
A. IMPROVEMENT ACCOUNT PROJECTS. . . . . . . . . . . . . .4
B. DEPOSITS TO CONCESSIONER IMPROVEMENT ACCOUNTS . . . . 15
APPENDICES
1. CLASSIFICATION OF MONETARY AMOUNTS . . . . . . . . . 17
2. SITES VISITED, TYPES OF ACCOUNTS REVIEWED, AND CONCESSIONER
DEPOSITS AND EXPENDITURES . . . . . . . . . . . . . . .18
3. NATIONAL PARK SERVICE RESPONSE . . . . . . . . . . . 19
4. STATUS OF AUDIT REPORT RECOMMENDATIONS . . . . . . . 23
INTRODUCTION
BACKGROUND
Since 1981, the National Park Service has included provisions in
some of its concession contracts that require concessioners to
deposit a percentage of gross receipts into interest- bearing
bank accounts. (For the purpose of this report, these accounts
will be referred to as concessioner improvement accounts). Funds
from these accounts are to be spent by the concessioners on
projects approved by the Park Service for improving park or
concessioner property related to concession operations.
Generally, deposits are made to these accounts in lieu of the
concessioners' paying franchise fees to the Park Service that
must be deposited into the general fund of the U.S. Treasury and
are not available to the Park Service. Before concessioner
improvement accounts were established, improvements to Park
Service-owned facilities assigned to concessioners were funded
by the concessioners through a building improvement program and
by the Park Service with appropriated funds. The funds deposited
into and expended from concessioner improvement accounts are
outside the appropriations process and supplement the
appropriations made to the Park Service for improving visitor
facilities. In fiscal year 1995, there were approximately 40
concessioner improvement accounts at 19 locations, which had
annual deposits of about $19 million and expenditures of about
$11 million. The Park Service has informed the Congress through
the budget process of its use of concessioner improvement
accounts.
In a February 7, 1995, opinion, the Office of the Solicitor
concluded that the inclusion of improvement account provisions
in concession contracts was authorized by law and stated that
the concessioner improvement accounts ensured that concessioners
have the financial ability to provide required visitor
facilities. The Solicitor also concluded that the accounts
should be used for activities that "directly support concession
operations" and recommended that the Park Service issue
procedures for these accounts. The Solicitor subsequently
determined, in a March 1996 memorandum, that a construction set
-aside account at Glen Canyon National Recreation Area funded by
a visitor surcharge (4 1/2 percent of gross receipts) and
concessioners' contributions (1/2 percent of gross receipts) was
also a form of a concessioner improvement account.
The Park Service issued procedures for administering concessioner
improvement accounts on August 11, 1995. These procedures
identify two types of accounts: capital accounts and government
improvement accounts. Capital accounts are to be used for
significant capital improvements of a nonrecurring nature to
government-owned or concessioner property or for the
construction of new facilities that "directly support concession
operations." Government improvement accounts are to be used for
major repairs and improvements to government-owned structures
assigned to concessioners for concession purposes. Park Service
procedures also state that capital and government improvement
accounts are not to be used for routine maintenance and repairs
and require that all projects undertaken with concessioner
improvement account funds be approved in advance by the
applicable Park Service regional director.
OBJECTIVE AND SCOPE
The objective of the audit was to determine whether the amounts
deposited into concessioner improvement accounts and the
expenditures from those accounts were appropriate. At the
request of the Park Service, we also reviewed the adequacy of
the Park Service's August 11, 1995, procedures for concessioner
improvement accounts. In total, we reviewed eight accounts at
five locations, which had fiscal year 1994 and 1995 deposits
totaling about $25.6 million and expenditures totaling about
$16.9 million (see Appendix 2). Although we focused our audit on
improvement account projects that were active during 1994 and
1995, our scope included transactions that had taken place since
project initiation. For example, at Glen Canyon we reviewed
transactions that occurred since project initiation in 1987.
Our review was made in accordance with the "Government Auditing
Standards," issued by the Comptroller General of the United
States. Accordingly, we included such tests of records and other
auditing procedures that were considered necessary under the
circumstances.
As part of our review, we evaluated the system of internal
controls related to concessioner improvement accounts to the
extent that we considered necessary. The internal control
weaknesses identified are discussed in the Findings and
Recommendations section of this report. The recommendations, if
implemented, should improve internal controls over improvement
account deposits and expenditures. We also reviewed the
Department of the Interior's Annual Statement and Report, which
is required by the Federal Managers' Financial Integrity Act of
1982, for fiscal year 1995 and found that no material weaknesses
were reported which related to the objective and scope of our
audit.
PRIOR AUDIT COVERAGE
During the past 6 years, the Office of Inspector General has
issued three audit reports and the General Accounting Office has
issued two reports on selected aspects of concessioner
improvement accounts as follows:
- The Office of Inspector General report "Concessions Management,
National Park Service" (No. 94-I-1211), issued in September
1994, recommended that the Park Service obtain a legal opinion
on the establishment and use of concessioner improvement
accounts and implement internal controls over the deposit and
expenditure of account funds. Based on a February 1995
Solicitor's opinion, the Park Service issued concessioner
improvement account procedures in August 1995.
- The Office of Inspector General report "Operations of National
Park Concessions, Inc., Under Contract No. CC-0680-2-0001 With
the National Park Service" (No. 96-E-541), issued in March 1996,
contained recommendations that the Park Service, in regard to
concessioner improvement accounts, should (1) require the
concessioner to reimburse ineligible expenditures, (2) establish
new project initiation priorities, (3) amend the contract as it
related to concessioner bank accounts and interest earned, and
(4) ensure that administrative costs charged were supported.
Because of the recency of this report, we did not follow up on
the recommendations. However, the conditions noted were
considered during our review at other parks.
- The Office of Inspector General report "National Park Service
Financial Statements for Fiscal Years 1995 and 1996" (No. 97-I
-936), issued in June 1997, concluded that the Park Service had
not established a process for collecting reliable and timely
information on the number of special concession accounts
(including concessioner improvement accounts) and their deposits
and disbursements to ensure that the information it reports in
its notes to the financial statements is complete and accurate.
However, the Park Service disagreed with the recommendation to
establish such a process, stating that it did not plan to report
this information in the notes to the financial statements in
future years. Accordingly, we referred the recommendation to the
Assistant Secretary for Policy, Management and Budget for
resolution.
- The General Accounting Office report "Policies and Practices
for Determining Concessioners' Building Use Fees, National Park
Service" (No. GAO/T-RCED-92-66), issued in May 1992, covered
testimony before the Environment, Energy, and Natural Resources
Subcommittee, Committee on Government Operations, House of
Representatives. In its report, the General Accounting Office
recommended that the Park Service develop specific policies,
methodologies, and guidelines on establishing, administering,
and tracking set-aside (concessioner improvement) accounts and
other contractual agreements for repairs, maintenance, and
improvements to Federally owned facilities used by
concessioners. Our current review found that the Park Service
had complied with this recommendation with the issuance of its
procedures in August 1995.
- The General Accounting Office report "Information on Special
Account Funds at Selected Park Units, National Park Service"
(No. GAO/RCED-96-90), issued in May 1996, contained background
and financial information for each of eight different types of
funds, including those from concessioner improvement accounts,
received by park units that were not subject to the annual
appropriations process. The report did not contain any
recommendations.
FINDINGS AND RECOMMENDATIONS
A. IMPROVEMENT ACCOUNT PROJECTS
Overall, we concluded that the projects funded by concessioner
improvement accounts enhanced visitor facilities in the parks.
Without concessioner improvement account funds, many of the new
park facilities may not have been built and many of the
historical structures in the parks may have deteriorated
further. However, we found that the Park Service had not
provided clear, sufficient, and timely guidance to ensure that
account funds were used appropriately and had allowed
concessioners to use these funds before the procedures were
issued. Although the major concession contracts at four of the
five parks we reviewed and the Park Service concession
improvement account procedures issued in August 1995 state that
account funds were to be used for improvements that "directly
support concession operations," neither the contracts nor the
procedures adequately define the term "directly support
concession operations" or provide sufficient guidance on the
appropriate uses of account funds. We also found that the
procedures did not provide sufficient guidance on cost-sharing
arrangements for projects which benefited both the concessioner
and the Park Service. Further, the Park Service did not amend
existing concession contracts that contained provisions which
were in conflict with the new procedures and did not enforce
concessioner compliance with contract provisions. As a result,
concessioner improvement account funds were used or planned for
(1) projects that did not directly support concession operations
or that benefited both the Park Service and concessioners and
would have been appropriate for cost sharing ($17.5 million),
(2) expenditures that related to concession operations but that
would not be considered proper uses of the funds under the new
procedures ($1.2 million), and (3) capital improvement projects
for which the concessioner was improperly granted a possessory
interest ($823,000). Furthermore, in the absence of sufficient
guidance, there is little assurance that improvement account
funds will be used appropriately and consistently throughout the
Park Service. In addition, we identified one concessioner that
did not meet its capital improvement program expenditure
requirement by about $100,000.
Concessioner Improvement Account Procedures
The Park Service allowed the parks to establish concessioner
improvement accounts and to initiate projects before it
established procedures for the use of these accounts. At least
35 of the 40 concessioner improvement accounts were established
before the August 1995 procedures were issued. Although the
major concession contracts at four of the five parks we reviewed
state that capital account funds can be used only for projects
that "directly support concession operations," we concluded that
the contracts did not clearly define "directly support" or
provide sufficient guidance on the appropriate uses of account
funds to address the various circumstances surrounding account
expenditures or contain provisions for cost-sharing
arrangements. As a result, concessioner improvement account
funds of $17.4 million and $120,000 were used for some projects
at Glen Canyon National Recreation Area and Mount Rushmore
National Memorial, respectively, that, in our opinion, did not
"directly support concession operations," benefited both
concessioner and park operations and may have been appropriate
for cost sharing, and/or may not have been considered proper
uses of account funds under the new procedures. For example, at
Glen Canyon, improvement account funds were used for projects
such as comfort stations; a visitor center; shelters;
landscaping; aerial mapping; water quality studies; road chip
sealing; directional signs; the elimination of drainage
problems; a school building for children of concessioner and
Park Service employees; and several projects which benefited
both concessioner and Park Service operations such as sewer
system upgrades, water storage and distribution systems,
electrical system improvements, boat ramps and related
infrastructure, pedestrian trails, breakwaters, and road and
parking lot expansion and paving. We also noted that Glen Canyon
had planned to conduct similar projects after fiscal year 1995.
At Mount Rushmore, improvement account funds were used for
projects such as removing asbestos from an old concessioner
building that was converted to park administrative offices,
parking lot stairways, and a nature trail.
In response to a February 1995 opinion and recommendation from
the Office of the Solicitor, the Park Service issued procedures
in August 1995 for administering concession improvement
accounts. The procedures describe the types of projects and
expenditures that are considered proper or improper uses of
concessioner improvement accounts. Specifically, proper uses of
capital accounts include projects that involve the
"rehabilitation or construction of new facilities used directly
to house or otherwise provide services to park visitors (such as
hotels, restaurants, gift shops, and service stations) as well
as concessioner support facilities necessary for the functioning
of the primary visitor facilities." The procedures also
authorize the use of these accounts on a shared-cost basis to
provide infrastructure facilities that serve both Park Service
and concessioner visitor facilities. Improper uses of capital
accounts, according to the procedures, include projects that do
not "directly support concession operations" and that are for
general park purposes such as resource protection and ancillary
Park Service management. These projects would include
constructing or repairing Government visitor facilities, such as
visitor centers, interpretative facilities, entrance stations,
restrooms, roads, and parking lots, as well as Government
support facilities, such as employee housing, maintenance
buildings, administrative buildings, and school buildings.
We concluded, however, that the August 1995 procedures did not
provide clear and sufficient guidance on the use of improvement
account funds. For example, although the procedures state that
the construction or repair of facilities such as parking lots,
roads, or school buildings is not a proper use of improvement
account funds, there may be instances where such facilities
"directly support concession operations" or support both the
concessioner and the Park Service and may be appropriate for
cost sharing. Further, although the procedures cite instances
where cost-sharing arrangements may be appropriate, the
procedures did not provide sufficient guidance on establishing
such arrangements, including methodologies for allocating costs.
At the time of our review, the respective park managers indicated
that they believed that concessioner improvement accounts could
be used for construction or rehabilitation projects which
directly affected park visitors, whether or not the projects
enhanced the concession facilities. They also indicated that
several of the projects funded prior to the procedures
represented an appropriate use of the accounts under the new
procedures. As such, we believe that the Park Service needs to
provide additional guidance in its procedures regarding the
proper uses of improvement account funds.
Concession Contract Provisions
Prior to the issuance of the August 1995 procedures, concessioner
improvement account funds of about $1.2 million were used or
planned for purposes that would not be considered proper uses of
the funds under the new procedures. In addition, the Park
Service did not attempt to amend the contracts to conform to the
procedures in those instances in which the concession contracts
included provisions that conflicted with the new procedures.
Examples of conflicting contract provisions and improper uses of
funds are as follows:
- The Park Service's procedures state that concessioner
improvement accounts "are not to be used to pay or otherwise
reimburse" Government appropriations accounts. Because the Park
Service did not issue guidelines in a timely manner, we found
that concessioner improvement account funds were used before
issuance of the 1995 procedures to reimburse Government
appropriations for services costing about $127,000 that were
provided by the Park Service to concessioners as follows:
-- Both the Wahweap and the Uplake concession contracts at Glen
Canyon permitted the improvement account to be used to reimburse
the Park Service for "unprogrammed expenses of the permitted
activity incurred as a result of the account, not to exceed 5
percent of total account expenditures." For 1995, more than
$19,000 was reimbursed from the improvement account to the Park
Service for unprogrammed expenses related to improvement account
projects at Glen Canyon. Glen Canyon officials stated that the
unprogrammed expenses represented additional personnel services,
travel, equipment, and other costs that would not have been
incurred by the Park Service had there not been an improvement
account.
-- Concessioner improvement account funds were used at Mount
Rushmore and Yellowstone to reimburse the Park Service for
expenses incurred, although the concession contracts did not
provide for reimbursement of these expenses. At Mount Rushmore,
about $67,000 was reimbursed from the improvement account in
1994 to the Park Service for the salary of an on-site
construction inspector (a Park Service employee) hired under a
term appointment to inspect the construction of the new
concessioner restaurant and gift shop buildings. At Yellowstone,
improvement account funds were used to reimburse the Park
Service approximately $41,000 in 1994 and 1995 for costs related
to concessions management support activities, such as
engineering and project coordination.
- The Park Service's procedures state that trust accounts are not
permissible for the deposit and expenditure of improvement
account funds and that improvement account funds cannot be used
by concessioners to pay income taxes on interest earned from
deposits made to the accounts. Exhibit G to the Yosemite
concession contract provided for the creation of a trust
arrangement for the deposit and expenditure of capital
improvement account funds and government improvement account
funds. The trust agreements, which were established to assist
the concessioner in administering the improvement accounts, were
executed on November 15, 1993. Amendment 1 to the trust
agreements, effective on October 1, 1994, authorized the trustee
to use funds from the capital improvement and government
improvement accounts to pay tax liabilities on the earnings of
the accounts. The concessioner used the trust agreements for the
deposit and expenditure of capital improvement funds and
government improvement account funds and paid almost $31,000 in
trust account administration fees for 1994 and 1995, including
about $12,400 that was paid after the issuance of the Park
Service's August 1995 procedures. The concessioner also used
about $27,500 during 1994 and 1995 from the capital improvement
account to pay taxes on the interest earnings of the accounts,
including about $240 that was paid after the issuance of the new
procedures.
- The Park Service's procedures state that concessioner
improvement account funds may not be used to acquire personal
property. We found that concessioner improvement account funds
were used at Yellowstone before the August 1995 procedures were
issued to purchase a tour boat during 1994, at a cost of
$283,000, as permitted by Exhibit D of the concession contract.
However, we also noted that similar purchases with concessioner
improvement account funds, such as a new boat for the Bridge Bay
Marina ($125,000), other specialized vehicles ($40,000), and
computer hardware and software development ($35,000), were
included in Yellowstone's list of approved projects that was
revised after the procedures were issued.
- The Park Service's procedures state that concessioner
improvement account funds are not to be used for redecorating
and periodic recarpeting of facilities or for furniture. We
found that prior to the issuance of the August 1995 procedures,
concessioner improvement account funds of about $485,000 were
used or planned for these purposes as follows:
-- At Yellowstone, about $302,000 was expended from the
improvement account, primarily during 1994, for the purchase of
mattresses ($196,000), furniture ($99,000), and furniture
refinishing ($7,000). Similar projects, such as additional
mattress purchases, recarpeting, and floor refinishing, had been
approved for 1996, after the Park Service's procedures were
issued, at an estimated cost of $135,000.
-- At Glacier National Park, several recarpeting projects that
were approved before the procedures had been issued were under
way or had been completed at various concession facilities
throughout Glacier at an estimated total cost of $48,000.
However, during our audit, staff at Glacier stated that they
would no longer approve the funding of recarpeting projects from
the improvement account.
In addition, we noted that the major concession contract at
Yosemite, which became effective on October 1, 1993, contains a
provision (Section 10(b)(1)) which states that "ten (10%)
percent of the funds deposited in the [capital improvement] fund
shall be expended by the Concessioner as directed by the
Secretary for construction of facilities necessary for visitor
enjoyment of the area [park] even though such facilities do not
directly support concession operations required or authorized
under this contract." We found that no improvement account funds
had been expended as of June 1996 at Yosemite for such projects,
although about $407,000 (10 percent of 1995 deposits) was
available for that purpose based on the provisions of the
concession contract.
To ensure that concessioner improvement account funds are used
for appropriate purposes, we believe that the Park Service
should review each concession contract to identify any
provisions that are inconsistent with the August 1995 procedures
and initiate action to modify those contracts accordingly when
the opportunity occurs. In the interim, the Park Service should
not approve concessioner requests to use concessioner
improvement account funds for purposes that are prohibited by
the procedures or concession contracts.
Possessory Interest
The Park Service's procedures state that concessioners will not
accrue any possessory interest in improvements made with
concessioner improvement account funds. The concession contract
for Mount Rushmore required the concessioner to complete a
construction and improvement program at a cost not to exceed $10
million, including the construction of a concession facility, a
dormitory for concessioner employees, and support facilities. A
December 1993 amendment to the contract specified that in lieu
of paying franchise fees, the concessioner would deposit 5
percent of gross receipts into a concessioner improvement
account for use on other capital improvement projects. This
amendment also specified that the concessioner was to have no
ownership or possessory interest in improvements made with
improvement account funds. In anticipation of an estimated $2
million cost overrun on the construction and improvement
program, the Park Service orally instructed the concessioner in
September 1994 to stop making deposits to the concessioner
improvement account and to use the balance in the account to
help fund the cost overrun. However, an amendment to the
concession contract to document the oral instructions was not
executed until December 1995, after the Park Service's
procedures were issued. The amendment was retroactive to the
period prior to August 31, 1995, and, contrary to the concession
contract and Park Service procedures, granted the concessioner a
possessory interest in the improvements constructed with monies
accumulated in the improvement account up to that time. We
determined that the value of this possessory interest was at
least $823,000. This amount consisted of the $500,000
improvement account balance at September 16, 1994, and an
additional $323,000 that would have been deposited into the
improvement account had the concessioner continued to make
deposits through August 31, 1995, as required by the concession
contract.
Other Contract Provisions
The concession contract at Glacier requires the concessioner to
undertake capital improvements by expending annually "not less
than one (1%) percent of gross receipts . . . from the previous
year on alterations, additions, improvements, and new facilities
of the character normally considered to be capital improvements
under generally accepted accounting principles." These projects
were to be in addition to those funded under Glacier's
concessioner improvement account.
We determined that the concessioner did not meet its capital
improvement program expenditure requirement by about $100,000
for 1994 and 1995. After our fieldwork was completed, the
Superintendent sent a July 17, 1996, letter informing the
concessioner of this spending shortfall and requested that the
concessioner make up the $100,000 deficiency in 1996 and 1997.
The concessioner did not agree that a spending shortfall existed
and said that the issue would be researched and appropriate
action would be taken. Park Service officials said that in
subsequent negotiations, the concessioner agreed, effective in
fiscal year 1997, to submit a list of capital improvement
projects for Park Service approval before funds are expended to
ensure that all projects are legitimate capital improvements.
Park Service officials also said that the concessioner did not
agree to spend an additional $100,000 on capital improvements as
compensation for the 1994 and 1995 spending shortfall because
the Park Service had not acted in a timely manner to notify the
concessioner of the capital expenditure deficiency. We disagree
with the concessioner's position and believe that the Park
Service should require that the concessioner spend an additional
$100,000 on approved capital improvements, thereby fulfilling
its contractual requirement for 1994 and 1995 capital
improvement expenditures.
Recommendations
We recommend that the Director, National Park Service:
1. Revise the concessioner improvement account procedures to
include clear and sufficient guidance on the use of funds in
these accounts, including a clear definition of the term
"directly support concession operations," and on cost-sharing
arrangements for projects that benefit both the concessioner and
the Park Service. These guidelines should include more specific
examples of the types of projects that are appropriate uses of
these funds and the types of projects that are appropriate for
cost sharing.
2. Review each existing concession contract to identify any
provisions which are inconsistent with concession improvement
account procedures and initiate action to amend those contracts
accordingly. In the interim, the Park Service should not approve
concessioner requests to use improvement account funds for
purposes that are prohibited by the procedures. Regarding the
concession contracts we reviewed, the Park Service should:
- Amend the Mount Rushmore contract to specify that the
concessioner will not have possessory interest in facilities
constructed with improvement account funds.
- Amend the Glen Canyon contract to prohibit the use of
improvement account funds for reimbursements to Government
appropriations accounts.
- Amend the Yellowstone contract to eliminate equipment
purchases as a proper use of improvement account funds and
ensure that improvement account funds are no longer used to
reimburse Government appropriations.
- Amend the Yosemite contract to eliminate the provision that 10
percent of capital improvement account fund deposits can be used
for projects which do not directly support concession
operations, require the concessioner to terminate the trust
agreements for the deposit and expenditure of improvement
account funds, and ensure that improvement account funds are no
longer used to pay the concessioner's income taxes.
- Ensure that the concessioner at Glacier complies with the
contract requirements and require the concessioner to spend an
additional $100,000 on approved capital improvements.
National Park Service Response and Office of Inspector General
Reply
In the January 21, 1998, response (Appendix 3) to the draft
report from the Director, National Park Service, the Park
Service partially concurred with Recommendation 1 and did not
fully address Recommendation 2. Based on the response, we
request that the Park Service reconsider its responses to both
recommendations, which are unresolved (see Appendix 4).
Recommendation 1. Nonconcurrence.
National Park Service Response. The Park Service disagreed with
our finding concerning the use of improvement account funds,
stating that each contract which was examined during the audit
was executed prior to the current procedures and that therefore
"any comparison would be ineffectual." The Park Service also
stated that in each instance, expenditures made with improvement
account funds were consistent with the contract and therefore
appropriate. Specifically, the Park Service stated that the
landscaping, aerial mapping, road chip sealing, and elimination
of drainage at Glen Canyon National Park "were all done in
conjunction with concession operations" and that the
construction of the stairway and nature trail at Mount Rushmore
"was in direct support of the concession operation" and was
necessary "to provide access to the existing concessioner
facility during the construction of the new concession facility
initiated in August 1994."
Despite its disagreement with the finding, the Park Service
agreed to revise its procedures "to more clearly define the term
'directly support concession operations,'" stating, "Though our
requirement that improvement accounts can only be used on
facilities that directly support concession operations has not
caused a problem thus far, we can see where this could be open
to a variety of interpretations."
The Park Service, however, did not agree to revise its procedures
to include clear and sufficient guidance for cost-sharing
arrangements. The Park Service stated that in drafting its
guidelines, it "did not plan to share construction costs with
concession improvement account projects because of the
unpredictability of Federal funds and the difficulty of melding
a private project with a procurement project." The Park Service
further stated that "if the time comes that cost sharing becomes
a necessity, we will develop guidelines to address this issue."
Office of Inspector General Reply. Although the Park Service
agreed to revise its procedures to more clearly define the term
"directly support concession operations," its comments on the
audit finding raise concerns regarding what it considers to be
appropriate uses of concessioner improvement account funds. As
discussed in the report, the concession contracts at four of the
five parks we reviewed required that concessioner improvement
account funds be used for projects which "directly support
concession operations," which is also required under the new
procedures. We disagree with the statement that all of the
projects we reviewed were consistent with that requirement. For
example, several of the projects we reviewed clearly did not
directly benefit concession operations, such as the construction
of a building at Glen Canyon to house fire and ambulance
equipment, detention halls, associated offices (which support
Park Service functions and not those of the concessioner), and
the removal of asbestos from an old building at Mt. Rushmore
that was converted to park administrative offices. Other
projects appeared to benefit primarily Park Service operations,
with some benefits to the concession operations, such as the
temporary stairway at Mt. Rushmore, which was necessary to reach
the monument viewing area from the parking area and the
concessions facility in the area.
Regarding the statement that "any comparison [to the new
procedures] would be ineffectual" because the projects we
reviewed were executed before the current procedures were
issued, the primary purposes of our review were (1) to determine
whether concessioner improvement accounts were used in
accordance with the provisions of the concession contracts (both
the contracts and the new procedures required that funds be used
for projects that "directly support concession operations"); (2)
to determine the effect of the Park Service's delay in issuing
those procedures; and (3) to determine whether the new
procedures were adequate to address the various circumstances
surrounding the expenditures of concession improvement account
funds, as requested by the Park Service. For example, based on
our review of these projects, we believe that the Park Service
needs to clarify its guidance concerning the use of improvement
account funds for projects that support primarily Government
operations rather than concessioner operations. Specifically,
the procedures need to address the issue of whether it is
appropriate to use these funds for projects such as utility
systems, parking lots, or boat ramps when only a small
percentage of the use relates to the concession operations. In
addition, some park managers indicated that concessioner
improvement accounts could be used for construction or
rehabilitation projects which directly affected park visitors,
whether or not the projects enhanced concessioner facilities.
This issue needs to be clearly addressed in the procedures.
Regarding cost sharing, the basis for the Park Service's comment
that in drafting its guidelines "it did not plan to share
construction costs with concession improvement account projects"
appears to indicate that projects that also benefit the Park
Service will be fully funded by the improvement accounts. The
Park Service's procedures clearly recognize the potential for
cost sharing "of a joint NPS [National Park
Service]/concessioner infrastructure facility, such as where the
concessioner joins NPS in the construction of a sewer plant
which serves both NPS installations and concessioner visitor
facilities." Furthermore, the Park Service did not include a
detailed explanation in its response to support its decision not
to consider cost sharing "because of the unpredictability of
Federal funds and the difficulty of melding a private project
with a procurement project." Because a large number of projects
we reviewed benefited both concessioner and Park Service
operations, we believe that this issue needs to be fully
addressed in the guidelines. Accordingly, we consider the
recommendation unresolved.
Recommendation 2. Nonconcurrence.
National Park Service Response. The Park Service stated that it
"cannot unilaterally amend concession contracts" to conform to
its current procedures but that it would attempt to amend the
contracts during the contract reconsideration process. The Park
Service further stated that three of the contracts will have
expired by September 2001 and that as these contracts expire, it
will "issue new contracts which will conform to our improvement
account procedures."
In regard to amending the Mt. Rushmore contract, the Park Service
stated that additional requirements for capital improvements
were placed on the concessioner which were not anticipated when
the concessioner's original obligations were established. The
Park Service further stated that because of these additional
obligations, it allowed the concessioner to have a possessory
interest in a portion of this contribution to provide the
concessioner, in accordance with the Concessions Policy Act of
1965, "a reasonable opportunity for a profit commensurate with
the capital invested and the obligations assumed."
In regard to requiring the concessioner at Yellowstone to deposit
$65,000 into its concessioner improvement account fund because
funds were used for maintenance activities, the Park Service
stated that the expenditures were for resource management and
environmental projects but not maintenance and that it added
these responsibilities to the concessioner's maintenance plan
"only to make it clear that these would not be NPS [National
Park Service] responsibilities."
In regard to ensuring that the concessioner at Glacier spends an
additional $100,000 on approved capital improvements, the Park
Service stated that while the concessioner "had clearly expended
in excess of this amount [1 percent of gross receipts] every
year on capitalized items, the dispute centered on whether or
not these items could be considered improvements." The Park
Service further stated that it had reached a settlement with the
concessioner that expenditures should be approved by the Park
Service in advance and that the concessioner had met the minimum
expenditure requirement for fiscal year 1997.
Office of Inspector General Reply. Although the Park Service
agreed to attempt to amend the contracts when the opportunity
occurs and to ensure that the new contracts conform to its
improvement account procedures, it did not address the
recommendation as it related to disapproving concessioner
requests to use improvement account funds for purposes that are
prohibited by the procedures.
In regard to the possessory interest issue at Mt. Rushmore, the
Park Service did not include sufficient information in its
response to support its position that it was necessary not only
to allow the concessioner to use these funds to meet its
financial obligations under the contract but also to grant the
concessioner possessory interest in these facilities in order
for the concessioner to make a reasonable profit. In addition,
the Park Service did not specifically address amending the
concession contract to specify that the concessioner will not
have possessory interest in future facilities constructed with
improvement account funds.
In regard to requiring the concessioner at Yellowstone to deposit
$65,000 into the concessioner improvement account fund, the
projects in question were included in the concessioner's
maintenance plan and therefore were the concessioner's
responsibility. However, since the Park Service authorized the
concessioner to use improvement account funds for these
projects, it would not be appropriate to require the
concessioner to reimburse the improvement account at this time.
As such, we have not included the finding and recommendation in
the final report.
In regard to requiring the concessioner at Glacier to spend an
additional $100,000 on approved capital improvements, the
actions identified in the response are adequate to ensure that
future expenditures of capital improvement account funds are
proper. However, the Park Service did not specifically identify
the basis for its decision not to require the concessioner to
spend an additional $100,000 on approved capital improvement
projects to meet its contractual requirement. We do not believe
that the Park Service's lack of timeliness in notifying the
concessioner of the deficit is an appropriate basis for waiving
the requirement.
Based on the Park Service's response, we consider the
recommendation unresolved.
B. DEPOSITS TO CONCESSIONER IMPROVEMENT ACCOUNTS
Two of the five concessioners we reviewed made improper
deductions from their recorded gross receipts in determining the
amounts to be deposited into their concessioner improvement
accounts. Section 9 of the concession contracts defines gross
receipts as the total amount received or realized by the
concessioner from all sales of services, accommodations,
materials, and other merchandise less specified exclusions.
Typical contract exclusions from gross receipts include receipts
from the sale of genuine United States Indian and native
handicrafts; intracompany earnings on charges to other
departments; charges for employees' meals, lodging, and
transportation; cash discounts on sales and purchases; and
sales, excise, and gasoline taxes. However, Park Service
personnel did not adequately analyze the exclusions made by the
concessioners. As a result, we estimated that for 1994 and 1995,
two concessioners should have deposited additional funds
totaling about $124,800, excluding interest, into their
concessioner improvement accounts (see Appendix 1).
We found that the concessioner at Glen Canyon deducted credit
card fees and freight charges from gross receipts in determining
the amounts to be deposited into the construction set-aside
account. Also, a concessioner at Glacier National Park excluded
sales to employees from gross receipts in determining the
amounts to be deposited into the capital improvement account.
Section 9 of the concession contracts (franchise fees) does not
permit these exclusions and deductions from gross receipts;
however, Park Service personnel did not adequately analyze
revenue exclusions to ensure that concessioners deposited funds
in accordance with the terms of the concession contracts, as
required by Park Service Directive 90-7, as amended. As a
result, for 1994 and 1995, concessioners did not deposit about
$124,800, excluding interest, into a set-aside account at Glen
Canyon ($119,500) and into an improvement account at Glacier
($5,300).
Park officials took prompt action to address these issues after
we brought them to their attention. Specifically, the
Superintendent at Glen Canyon, in a July 17, 1996, letter,
informed the concessioner of the improper exclusions and
instructed the concessioner to (1) stop the exclusions that were
not identified as allowable in the concessioner contracts,
beginning with the next monthly deposit; (2) submit records
showing the itemized exclusions taken in calculating deposits
from the inception of the program in 1987 through the current
year; and (3) submit a proposal on how to resolve the issue for
all previous years in which deposits were incorrect. Also, the
Concessions Manager at Glacier, in a July 15, 1996, letter,
informed the concessioner that the exclusion of sales to
employees from the gross receipts was not appropriate and
requested the concessioner to deposit about $5,300 plus interest
into the capital improvement account. On August 5, 1996, the
concessioner deposited $5,401 into the account to correct the
error.
Recommendation
We recommend that the Director, National Park Service, ensure
that park personnel sufficiently analyze all exclusions from
gross receipts and confirm that deposits to concessioner
improvement accounts are made in accordance with the provisions
of the concession contracts.
National Park Service Response and Office of Inspector General
Reply
In the January 21, 1998, response (Appendix 3) to the draft
report from the Director, National Park Service, the Park
Service agreed with the recommendation. Based on the response
and additional information provided by the Park Service, we
consider the recommendation resolved and implemented (see
Appendix 4).
APPENDIX 1
CLASSIFICATION OF MONETARY AMOUNTS
Finding Area
Potential Additional Revenues
Other Contract Provisions $100,000
Deposits to Concession Improvement Accounts 124,800
Total $224,800
SITES VISITED, TYPES OF ACCOUNTS
REVIEWED, AND CONCESSIONER DEPOSITS AND EXPENDITURES
Concession Contract
1994 1995 Site
Number Type of Account Deposits
Expenditures Deposits Expenditures
Mount Rushmore National Memorial CC-MORU-001-93
Capital$289,290 $194,470 * 0
Glacier National Park CC-GLAC-002-81 Capital
Improvement 1,067,452 348,892 $466,572 $117,592
Glen Canyon National CC-GLCA-003-69 Construction
Set Aside 2,679,281 1,841,513 2,877,034 4,825,362
Recreation Area CC-GLCA-002-88 Capital
Improvement202,103 0 1,255,713 20,760 CC-GLCA
-002-88 Campground Improvement 38,310 1,500
41,367 1,500 18 Yellowstone National Park CC-YELL-077
-91 Construction and Improvement 3,973,933 3,635,879
4,148,186 4,318,362
Yosemite National Park CC-YOSE-004-93 Capital
Improvement 4,029,832 0 4,071,390 1,491,364
CC-YOSE-004-93 Government Improvement 222,756
35,945 222,756 82,772
$12,502,957 $6,058,199 $13,083,018 $10,857,712
*The account was terminated effective August 31, 1995. No funds
were deposited into the account by the concessioner in 1995, and
the funds remaining in the account were to be used by the
concessioner to pay for a portion of the construction cost
overrun discussed in the "Possessory Interest" section of this
report. APPENDIX 2 APPENDIX 4
STATUS OF AUDIT REPORT RECOMMENDATIONS
Finding/Recommendation Reference
Status
Action Required
A.1 Unresolved. Reconsider the recommendation. If concurrence is
indicated, provide an action plan that includes target dates and
titles of the officials responsible for implementation. If
nonconcurrence is indicated, provide the reasons for
nonconcurrence, including the basis for the Park Service's
position that cost-sharing arrangements are not appropriate
and/or feasible.
A.2 Unresolved. Reconsider the recommendation with respect to
the following: not approving concessioner requests to use
account funds for purposes that are prohibited by the
procedures, requiring the concessioner at Glacier to spend an
additional $100,000 on approved projects, and amending the
Glacier contract to specify that the concessioner will not have
possessory interest in future projects funded by the improvement
account. If concurrence is indicated, provide an action plan
that includes target dates and titles of the officials
responsible for implementation. If nonconcurrence is indicated,
provide reasons for the nonconcurrence.
B.1 Implemented. No further action is required.
ILLEGAL OR WASTEFUL ACTIVITIES SHOULD BE REPORTED TO THE OFFICE OF
INSPECTOR GENERAL BY:
Sending written documents to:
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Calling:
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Calling:
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Calling:
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COMM 9-011-671-472-7279