Wednesday, September 24, 2003

To: Members, Development Authority of Peachtree City

From: R. Scott Bradshaw

Re: Reasons for my Resignation from the DAPC

I submitted my resignation from the Development Authority of Peachtree City effective this date and owe you an explanation because of your kindness during my tenure on the Authority. Your sense of commitment as individuals and your willingness to spend many thankless hours on Authority business are a decided asset to the Authority. Another strength of the authority is the strong unity of purpose and compatibility that exists within the group. My sense is that my resignation will make it easier for you to maintain unity of purpose and compatibility in resolving the issues and problems facing the Authority.

The lack of definitive action on a personnel matter discussed at length during Executive Session in the September 21 meeting is very troubling. I feel that re-assignment of the employee was the most appropriate action. Since there was unanimous opposition to this suggestion, I subsequently suggested a letter of reprimand. The reprimand idea was killed without discussion. This lack of definitive action weighed heavily in my decision to resign from the Authority.

I have consistently expressed concerns about the need for improved oversight, accountability and financial management of the two event facilities that we manage on behalf of the City of Peachtree City. The following section of this memo highlights, especially for the benefit of the newer members, a few key issues, which are of grave concern to me as a member of the oversight, board for the Peachtree City Tennis Center and the Fredrick J. Brown Amphitheater.

Adidas Contract

This major five-year sponsorship partnership agreement provides no cash to the DAPC and binds DAPC to a guarantee beyond its financial means and control. Specifically, the Authority guarantees $366,306 in Adidas sales over the next five years through the Tennis Pro Shop (Trading Post) which is a privately owned corporation that is not under the control of the Authority. The Authority made the huge guarantee in exchange for the promise of $15,000 per year in T-shirts, hats, travel bags, etc. for distribution at tennis tournaments and the Amphitheater. Adidas also completely outfits DAPC tennis pros and provides a fixture for the Tennis Pro Shop. Adidas is granted major sponsorships for several tournaments and activities including at least one title sponsorship without making a cash sponsorship contribution. The agreement further provides the DAPC Executive Director a Level 1 position on the Adidas Advisory Board.

The Adidas agreement which was executed in February of 2002 was never discussed or voted on by the Authority. I personally learned of the terms of the agreement about two weeks ago after asking three or four times for a copy of the agreement. (See Exhibit A)

FY 2002 Audit Recommendations

The accounting firm Mauldin & Jenkins made the following recommendation in the Audit for the year ending September 30, 2002:

"During our audit for the year ending September 30, 2002, we noted that key members of management did not contain an adequate level of knowledge and control over the accounting function. We encountered several examples of this throughout the audit, including not being furnished with amounts owed by the Authority as of September 30, 2002 until after our audit fieldwork was complete. Management should take more of a role in the accounting function of the Authority and obtain the knowledge necessary to make management decisions."

Individual Authority members have worked diligently with staff on this issue even helping re-format the budget report; however, much of the information received by the Authority is still vague and it is difficult for members to have confidence in the financial picture as presented. (See Exhibit B)

Cash flow problems

The DAPC sent approximately $130,000 more than it received from all revenue sources in FY 2002. The Authority passed a balanced budget for FY 2003 based on the expectation that the share of the Hotel-Motel tax would be reduced. Conservative revenue estimates from the two event facilities were also used in the development of the budget. The city did not reduce the DAPC share of the Hotel-Motel tax. This fact combined with increased ticket prices at the Amphitheater, led me to believe the DAPC would operate within the FY2003 budget. We received highly optimistic financial reports throughout the year and I was stunned to learn on September 15, two weeks before the end of the fiscal year, of serious cash flow problems. It was clear from the information provided that the DAPC would have difficulty meeting the final payroll ($36,000) and paying the band ($50,000) for the last performance of the concert series on September 26 and 27. Three Authority members have been placed in the untenable position of meeting with staff to resolve this problem. The best action seems to be to defer payments to vendors, which in some cases are past due, and "hold" checks that are already written but have not been mailed. Borrowing is not an option because of our commitment to City Council not to borrow funds. Unfortunately, the necessary deferrals of major financial obligations will contribute to even more severe cash flow problems in the new budget year.

This needs attention and is being resolved immediately.

Conversion to In-House Accounting

Prior to this year, the DAPC utilized the services of an outside accountant to maintain the Authority's financial records and to prepare checks. This responsibility was assigned to Tennis Center staff under the direction of the Executive Director as a cost cutting measure. The services of an outside accountant established checks and balances which helped identify potential cash-flow problems more quickly. This major change was made without the vote of the Authority. The Authority should give serious consideration to immediately engaging the services of an outside accountant.

Hiring Freeze

The DAPC voted and approved a hiring freeze several months ago to insure that it stayed within budget in FY 2003. The Executive Director has subsequently replaced two full-time and two part-time employees in clear violation of the mandate. There was never a vote by the Authority to make an exception or waive the hiring freeze. I believe the workload of the departing employees could have been absorbed by existing staff at considerable savings to the DAPC.

The hiring freeze should be followed or action taken to rescind it.

Capital Projects

There has been no consolidated final report to the DAPC or to the public detailing the exact expenditures and final cost related to the Amphitheater administrative office/SCT building renovation (Approximately $200,000) or the Tennis Center expansion project (Approximately $2,000,000). Members of the Authority have been provided with a variety of somewhat disconnected change orders, contracts, and partial lists of unpaid suppliers and sub-contractors. It is very difficult for anyone to clearly understand the total financial picture related to these capital expenditures.

This issue is particularly important because of the controversy related to the cost over-runs and the Authority's present inability to pay very large amounts of money owed to Group VI and other companies. Some Authority members were unaware of most of the cost over-runs until the project was complete and the Mayor was quoted in the newspaper about cost over-runs.

The circumstances that permitted these cost over-runs without vote of the Authority should be better clarified and corrected.

Executive Director's Compensation

The Executive Director has been paid $30,000 annually. He is also paid a dollar amount for each tennis lesson taught at the Tennis Center. He effectively determines his compensation by controlling the number of tennis pros on staff and promoting the teaching of lessons (e.g. Every ALTA team playing is required as local facility policy to take lessons as a condition of playing at the Tennis Center). Emphasis on instruction is good but it should no longer be directly tied to the Executive Director's compensation. His annual compensation in FY 2001 was $136,000, in FY 2002 was $139,000 and is projected to be $130,000 in FY 2003.

A much more appropriate compensation package and contract for employment has been prepared and should be implemented as soon as possible if the Authority elects to maintain the present management structure.

Co-mingling of funds

Concern has been expressed by some Authority members about the procedure for separating revenue for court fees and other DAPC income from money due the Trading Post (Tennis Pro Shop) from the sale of products such as balls, clothing and rackets. There has been no accounting report, or other verifiable indication that these transactions have been completely separated as requested. I have no reason to believe there is wrong doing in connection with these transactions; however, an improved reporting system is imperative to document this needed separation of financial records between the Development Authority and a private corporation, such as the Trading Post.

Rent for the Trading Post (Tennis Pro Shop)

The Trading Post, a privately owned corporation, is open seven days per week utilizing DAPC employees to sell its products without paying rent for the space or making contributions to pay for utilities. It is easy for critics to draw the conclusion that the DAPC, which is partially funded with hotel-motel tax is subsidizing the overhead of a privately owned company. This potential problem could be solved by requiring the Trading Post to pay rent for use of the facility. Also some degree of control and accountability should be implemented in the utilization of DAPC employees as customer service representatives to sell products on behalf of the Trading Post.

Elimination of management committees

Management Committees for the Amphitheater and the Tennis Center, each consisting of two or more members of the Authority were created to oversee the operation of the respective facilities in 2001. This organizational structure permitted individual Authority members to narrow their focus with respect to direct oversight while retaining their individual responsibilities on the seven member board for economic development and broader overall supervision of both venues. This structure was abandoned after one year and replaced with a structure which in my view has not proven to be effective from the standpoint of communication, financial management or oversight. The need for change is obvious to those who have knowledge of the operation of both facilities.

cc: City Council Members

The Adidas contract

Exhibit "A"

Let this serve as a five-year partnership agreement for Peachtree City Tennis Center/Development Authority of Peachtree City ("PCTC") (February 18, 2002 - February 18, 2007). Please refer to the following outline:

The following is what Adidas will receive from the PCTC:

· Designation as official footwear and apparel sponsor of the PCTC.

· All teaching staff shall wear exclusively Adidas apparel and footwear.

· Adidas presence/branding on indoor center roof.

· A "black diamond" signifying Adidas' corporate sponsorship.

· Official apparel and footwear sponsor of the Goody's Products USTA Women's Championships and title sponsorship of the Peach State Junior Tournament.

· One Main Draw Challenger wildcard for singles in the Goody's Products USTA Women's Championships to be mutually agreed upon by Peachtree City and Adidas.

· One qualifying singles wildcard in the Goody's Products USTA Women's Championships to be mutually agreed upon by Peachtree City and Adidas.

· The ability/option for Adidas to host at least one event each year at the Peachtree City Tennis Center. This includes, but is not limited to:

- A professional player exhibition featuring Adidas players.

­ Adidas Invitational Collegiate Championships (every other year, begins in '02 then every other year after).

­ Adidas Junior Team or Pro "aTTaCk" camps.

- Adidas Advisory Staff meetings.

· 10 complimentary rooms nights per year at a local hotel property.

· Official apparel and footwear of the Peachtree City Junior Academy and USA Southern Crescent Junior Team Tennis program.

· Adidas will be profiled and have a logo/link on PCTC official website www.tenniscenter.net.

· Title sponsorship of the fall junior tournament, here known as "Adidas Fall Classic," held Oct./Nov. 2002-2007, for as long as the tournament is held.

· PCTC will guarantee Adidas sales of $60K the first year (once Pro Shop completed) and increase this number by 10 percent each contract year as stated above.

[The following section is handwritten.]

DAPC guarantees sales to Adidas as follows:

2002 $60,000 + 0 = $60,000

2003 60,000 + 6,000 = 66,000

2004 66,000 + 6,600 = 72,600

2005 72,600 + 7,260 = 79,860

2006 79,869 + 7986 = 87,846

Total Guaranteed Sales $366,306 (per 5 year contract)

[The remainder is typewritten.]

The following is what Adidas will provide the Peachtree City Tennis Center:

· Adidas Retail fixturing in new PCTC Pro Shop, best efforts for an Adidas "concept shop." All fixturing shall be coordinated with PCTC architects.

· Best efforts by Adidas to have Peachtree City host national Adidas Sales Meeting.

· Product sponsorship for the Peachtree National Bank Women's Challenger valued at $5000 (wholesale).

· Exclusive outfitting of PCTC teaching staff for a total of (11), spots on the Adidas Professional Advisory Staff, including Virgil Christian and two others at level 1.

· The ability for PCTC to buy product for the Junior Academy at twenty-five (25) percent below wholesale.

· Adidas shall purchase a corporate Membership at $10K/year which will be done in product - this product will be used for ushers and staff at the Frederick Brown Jr. Amphitheater, Adidas Fall Classic staff shirts, Peach State Junior Tennis Classic or other NCAA/College events.

· Adidas to provide T-shirts for each participant in the Peach State Junior Tennis Classic and Adidas fall classic (Adidas to provide blanks and screen).

· Opportunity to make an at-once 20 percent below wholesale apparel and footwear order for the Challenger Event.

· Adidas to provide mutually agreeable amount of travel bags for Junior Academy (PCTC to embroider)

This serves as the entire agreement between Peachtree City Tennis Center (PCTC) and Adidas America. This agreement may be voided by Adidas if the Development Authority of Peachtree City does not manage the PCTC. Should Adidas exercise this option, thirty-day notice is required to be given by Adidas to PCTC.

[The document is signed by two Adidas representatives, including the "Tennis Promotions Manager," and by Virgil Christian as executive director, in addition to a head professional.

Exhibit "B"

Development Authority of Peachtree City

Audit Agenda

For the Year Ended September 30, 2002

Accounting and Related Matters (Continued)

5) Deferred Revenue The Authority collects membership revenues in advance for quarterly and annual paying members. These advance payments for memberships are being recognized in revenue as the receipts of cash are collected. These advance payments should be recognized as deferred revenue until the period in which the revenue has been earned.

6) Recording of Transactions

We noted during our procedures that the Authority included transfers received from the City and transfers to the City as net transactions within the Authority's general ledger. These amounts should be shown in separate accounts for financial reporting purposes.

7) Accounting Policies

Overall, it appears that the Authority still maintains its books on the cash basis of accounting. To be in conformity with accounting principles generally accepted in the United States of America, it is required that the Authority maintain its general ledger on an accrual basis of accounting. This means that revenue is recognized when it is earned and expenses are recognized when a liability is incurred.

8) Knowledge of Accounting

During or audit for the year ended September 30, 2002 we noted that key members of management did not contain an adequate level of knowledge and control over the accounting function. We encountered several examples of this throughout the audit, including not being furnished with amounts owed by the Authority as of September 30, 2002 until after our audit fieldwork was complete. Management should take more of a role in the accounting function of the Authority and obtain the knowledge necessary to make management decisions.