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Milestones: Fuzzy Math Continues

You just have to love this one.

In scrutinizing the TAP audit of the Santa Clara Chamber, CVB and Convention Center I noticed the auditor used the same math as Mayor Lisa Gillmor.

You may remember last month’s announcement that the arbitration court awarded Santa Clara a rent increase on our stadium of about $280,000 a year. This is paid by the San Francisco 49ers. The 49ers had asked for a rent reduction from $24.5 million a year to $20 million due to great revenue performance.

SPONSORED
Kaiser Permanente

When the Mayor announced the arbitrator’s decision, she calculated the $4.5 million (already being paid) plus the $280,000 award as a huge win for Santa Clara. Then she multiplied the two sums by 40 years which is the term of the contract. She came up with $180 million increase for the City. The actual increase is the $280,000 each year. The 40-year award totals $11 million, not $180 million

So, the Chamber auditor TAP, who has never audited a Chamber of Commerce, used similar math to determine how much the Convention Center was squandering under Chamber Management.

Here’s the story.

Just like any sales organization, the Convention Center and Convention and Visitor Bureau offered meeting rooms and food at the Convention Center. For decades, they both had the policy of discounting the cost of meeting rooms if clients met certain food and beverage requirements. These were incentives for clients to book space with Santa Clara. Since the Convention Center is a City building, discounts were also offered to Santa Clara community organizations and non-profits. There were also discounts allowed for length of the event, number of guests and total money spent.

The auditor, (who must work for the government) called those discounts LOST revenue.

Evidently it never entered the auditors mind that these events most likely would not have been booked without the discount. Our Convention Center competes against at least a dozen like centers on the West Coast. These facilities also offer discounts and incentives. But none count discounts as a loss of dollars that were never booked.

In any case, the discounts were revenue that was never actualized. Therefore, how can the auditor arrive at a loss of $17 million over the last 10 years if it was never there in the first place? Oh, that’s right. You use the full retail price without the discount, then apply the actual price, subtract what was actual against the list price and presto! You show a loss of millions over 10 years. The Mayor called this unrealized revenue mismanagement by the Chamber. Really?

Just imagine. The Chamber produced $2.2 million actual profit in 2017-18 but the Mayor and Council announce a $17 million loss of (imaginary) dollars that were never booked.

Hopefully, we never get this auditor when it comes to our taxes!

A further hope is we never use the Mayor’s math to arrive at a decision.

Now, in defense of the audit, (if possible) there is the recommendation the Chamber do a better job of documenting activity. This is the biggest item in every audit. Every transaction needs an auditable trail that can be followed.

Then we come to the auditor’s criticism of offering sales people incentive commissions. I have been in sales for 40 years and made my living from selling and earning commissions. Has this auditor never heard of how sales people work? In the case of the Chamber and CVB, they paid their sales people a modest salary. If they wanted to survive they had to sell convention bookings and events. From those bookings the sales reps earned commissions, which allowed them to live. This is very standard practice in the industry but foreign to the auditor. Salesmen earn commissions. Auditors make a salary.

The auditor and Council described these commissions as “unauthorized bonuses and incentive pay”.

These practices of the Chamber were used for decades, with their employees always under the scrutiny of this and past Councils. At a cost of $175,000, this audit result is the application of very fuzzy math.

SPONSORED
Kaiser Permanente

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