A Management and Performance Audit of the South Carolina Patriots Point Development Authority
June 1998

SUMMARY (PDF)

Members of the South Carolina General Assembly requested a management and performance review of the South Carolina Patriots Point Development Authority (the Authority). They requested we review issues related to the Authority’s development of the land and the management of its resources. Audit objectives were identified primarily through interviews and correspondence with the audit requesters, as well as through interviews with the Authority staff, and other interested parties. The questions include:

• Were the processes followed by the Authority adequate to ensure an appropriate return on the development of its land, and sufficient to support the Authority’s operations? Also, were the leases, contracts, and relationships with other entities in compliance with pertinent state laws and regulations?
• Has the Authority managed agency expenditures adequately to meet capital improvement and maintenance needs? Also, are the agency’s budgeting and purchasing practices efficient and in compliance with state laws and regulations?
• Is the Authority managing its personnel functions in compliance with state laws and regulations?

The Authority should generate enough income to meet the capital and operating needs it has thus far identified. However, it is difficult to accurately estimate the repairs needed to bring the ships to a reasonable state of repair. If the development does not perform as planned, there is a risk the Authority may not receive the projected income. If this occurs, the Authority may need to seek additional sources of revenue, which may potentially include state appropriations.

If the development of the land performs as planned, the Authority should be able to provide a place of recreation and education for the general public, and still earn a rate of return higher than if it had sold the land.

Based on our review and an evaluation conducted by an outside consultant, it appears the process followed by the Authority in leasing the 34 acres of parcel three, including the Charleston Harbor Hilton Resort, cottages, a marina, retail and an office/residential complex was adequate to ensure a reasonable return to the Authority. The Authority hired an independent appraiser to determine the value of its land, followed the procurement code in soliciting bids on the development of the property, and hired two independent appraisers to review the financial terms of the lease to ensure that the Authority was receiving a fair return.

Although the initial process followed appears to have been adequate, it is important to note that the development of the land is not yet complete, and could undergo significant change. For example, in April 1998 the current developer requested the Authority approve the sale of their leasehold interests in parcel three and assignment of the leases to a new developer. We found evidence that the Authority has not monitored the development as it should. If the Authority does not closely monitor the development of the land, the success of the initial process could be compromised. The Authority should report annually to the Senate Finance and House Ways and Means committees on the status of the development.

The Authority has accumulated a serious maintenance and repair backlog with the Museum vessels, and is having difficulty meeting state-approved schedules for permanent improvement projects.

The Authority’s WWII vintage vessels are in a constant state of deterioration. Without proper maintenance and repair, the safety of tourists and staff, as well as the environment, can be compromised. As currently managed, maintenance staff can provide only 30% of the hours required for work list assignments and only 58% of the hours required for all tasks. Tasks that must be completed in the next three years (not including preventative maintenance and miscellaneous repairs) are estimated to cost $1.3 million in man-hours and materials. Also, this does not include work on permanent improvement projects which are projected to cost $2.8 million over the next five years.

The Authority’s five-year capital budget is not adequate to support necessary projects within the time frames established.

The Authority has not adequately planned and implemented its permanent improvement projects. The Authority did not establish a capital budget prior to FY 97-98, even though it had certified projects as active, and had them approved by the Budget and Control Board. State law does not require that the Authority establish financial reserves for permanent improvement needs or earmark a percentage of its revenues to fund capital improvements. In order to meet estimated completion dates for active projects, the Authority should expend $870,677 more on projects than is budgeted. However, even though the vessels have critical needs, the Authority plans instead to expend $1.3 million during this five-year period on shore development projects, one of which has not been proposed to or approved by the Budget and Control Board.

Authority maintenance staff who are working on a permanent improvement project involving replacement of the Yorktown flight deck may not be properly licensed.

The state manual for permanent improvement projects requires that in-house construction projects, those not using an outside contractor, comply with all licensing requirements of the South Carolina Contractor’s Licensing Board. None of the last six staff involved with the flight deck project are licensed by the board in any capacity. The Authority has not informed the state engineer regarding the scope of this project. Before continuing the renovation of the Yorktown flight deck, the Authority should seek the assistance of the state engineer as to how to proceed.

Many of the Museum ships may contain asbestos, and employees may have encountered asbestos during some of the Authority’s renovation projects.

Asbestos was encountered during most of the 12 renovation projects conducted between 1995 and 1997; however, personal protective equipment was not worn by Authority employees. Also, these employees are not licensed for asbestos removal as required by the Department of Health and Environmental Control (DHEC). We have contacted DHEC and the Department of Labor, Licensing, and Regulation regarding this issue.

Museum operating revenues may be increased by authorizing the Authority to retain interest on its funds, eliminating discounts for shipboard functions, reducing the use of gift shop items for promotion, and reducing complimentary admissions.

The Authority has proposed legislation to amend its statute to authorize the agency to retain interest. We estimate the Authority could have collected $57,000 in revenue in FY 96-97, if it were allowed to retain interest earned on its accounts.

The Authority will not receive any income from Fort Sumter Tours (FST) for approximately 10 to 12 years. The Authority has decided to allow FST to pay for necessary dredging and to deduct the cost from revenues owed the Authority. The Authority should amend its lease with FST to set forth what documentation will be provided to the Authority related to dredging.

In FY 96-97, we estimate that the Authority lost over $20,000 in revenue as the result of waiving the fees from catered events held on board the Yorktown. The Authority should consider discontinuing waiving fees for catered events or adopt a written policy addressing what fees are to be waived. This could result in increased revenue and avoid the appearance of preferential treatment for certain groups.

Also, the Authority has not established a written policy addressing the use of complimentary passes or the giving of promotional items from the gift shop. Between March 1995 and December 1997, we identified approximately $3,600 worth of inventory given away from the gift shop for promotional purposes.

Fund-raising activities have been limited.

Neither the Authority nor the Patriots Point Naval and Maritime Museum Foundation have ever applied for funds from the South Carolina Humanities Council or the National Endowment for the Humanities. Also, the director has conveyed donations received by the Authority to the foundation which may be improper.

Some purchasing practices do not comply with procurement regulations or agency accounting policies.

The Authority has allowed employees, other than those outlined in its accounting policy, to sign purchase orders. Additionally, the Authority does not ensure separation of duties in purchasing, and has not consistently utilized term contracts. Blanket purchase agreements have not been utilized to fill repetitive needs for small quantities of supplies, and the Authority also has not consistently followed state procurement codes relating to bid requirements for small purchases.

The Authority should tighten its control in areas such as inventory and travel.

The Authority has not maintained adequate controls over its equipment or its artifact inventories. The Authority also purchases federal surplus items that are not always useful to the agency. The short-term cost-benefit of this practice has not been evaluated, and no inventory is maintained of items obtained.

Some travel practices of the Authority may not comply with state law, and are not economical. The Authority does not require employees to provide an explanation of the purpose of travel or organizational memberships. We found no documentation was provided indicating the purpose for travel reimbursements totaling $10,715, in our sample of FY 96-97 vouchers.

The Authority has not ensured that funds have been expended efficiently for painting and custodial services or the Congressional Medal of Honor Office.

We reviewed the use of painting and janitorial services, and found that decisions regarding these services have cost the Authority more. Hiring staff in permanent positions to provide these services will cost the Authority an estimated 52% more than in FY 96-97 for janitorial services and an estimated 276% more for painting services.

The Congressional Medal of Honor Society’s (CMHS) national headquarters office was moved to the Yorktown in 1992, and the Authority agreed to provide financial support to this office. The state has spent approximately $412,790 over a five-year period on the CMHS. The Authority has extended its agreement to continue financial support without analyzing the costs incurred and the benefits derived by the state.

Several areas in personnel administration are in need of improvement or clarification.

The Authority allows employees a 35% discount in the Museum gift shop. Also, the Authority is not complying with state human resources regulations regarding temporary employees, employee evaluations, and organizational charts.

The Authority should obtain the services of an entity with appropriate credentials in personnel management to study its human resources needs, and continue its efforts to improve internal communication.

The Authority’s board needs diversity.

We found that given the diverse issues facing the Authority’s board, adding expertise in the areas of museum operations, tourism, engineering, and real estate development could assist the board in better fulfilling its responsibilities.