HOLLYWOOD HERITAGE DRAFT RESPONSE TO

FINAL “FINANCIAL/COMPLIANCE AUDIT” BY MEYER HOFFMAN AND

REPORT TO LOS ANGELES PARKS COMISSIONERS

Note: In its report to the Parks Commissioners, the Department altered statements made by the Auditors. The Auditors altered statements made to Hollywood Heritage in their Draft Audit Report, in some cases changing a neutral finding such as #1 to a highly damaging and inflammatory one. The Auditors reported that the Agreement with Hollywood Heritage had no provision to change to a month-to month one. The Department reported to the Commission that Hollywood Heritage was operating under a month-to-month agreement.

FINANCIAL AND COMPLIANCE ITEMS Auditors reported Items #1-3 as material weaknesses. Parks Department reported Items #1,4,5,6.to the Parks Dept Commissioners. The discrepancy is unexplained.

1	Financial Statement did not Reconcile to the General Ledger	No Material Weakness		Every item in the “General Ledger” (checking account and Quicken) does reconcile with the “Financial Statement”. · The “General Ledger” is the Wattles checking account. ALL Wattles income goes into this separate and dedicated Wattles checking account. (Grants and organization donations are each kept in different, separate accounts.) Wattles expenses are paid by check from this dedicated Wattles account. This is completely in keeping with the City requirements for tracking of income derived from Wattles Mansion. · The “Financial Statement” is the HHI year-end tax filing. The report is titled “Compiled Financial Statement”. It has multiple pages. Wattles expenses are on two of those pages. · The “Audit” which was released to the public incorrectly listed certain checks as unreconciled. Every one is reconciled. The draft “Audit” given to Hollywood Heritage acknowledged that the Auditors were well aware that Wattles expenses are shown on two pages of the Financial Statement. · For example, expenses incurred by the Wattles Mansion such as Liability Insurance, Accounting, etc are legitimately reported in combination with similar expenses for the organization as a whole, on a “General and Administrative” page separate from the “Wattles” page. · This reporting of year-end financials in a compiled statement with more than one page is entirely legitimate. There is no Federal or State obligation to report the · This was reported as a “material weakness”. There is no explanation as to why
	“This condition occurred because the records were not adequately maintained prior to the appointment of the current HHI treasurer in 2007.”	Not True		Hollywood Heritage has utilized the same Certified Public Accountant, the same Quicken accounting software, and the same filing system with no changes during the period reviewed.
2	Failed to Maintain Documentation to Support Expenses	No Material Weakness		The Draft Audit noted that an invoice in one year and a few in another year could not be found. When HHI contacted the Auditors to find out what was the invoice so it could be provided, the Auditors did not reply. In the Final Audit, without an opportunity to provide the documentation, the organization The items cited were payments to a landscaper, a restoration contractor, and a magazine for a deposit or payment reflected in a Contract or Proposal. Contracts or Proposals are kept at Hollywood Heritage offices in separate contracts files. In our opinion a signed contract specifying the amount to be paid. This was reported as a “material weakness”.
3	Failed to Ensure Expenses Relate to Restoration	No Material Weakness		In the Draft Audit the Auditors found “questionable” expenses such as hand soap (the Mansion has 2 public bathrooms); “kitchen supplies” (the Mansion has a kitchen, and a doormat was purchased); and “paper towels” (often used for maintenance.) The Auditors did not request an explanation. The Auditors refused to allow Hollywood Heritage to explain these expenses., and phone calls and emails from HHI were not returned. The Auditors stated that the following expenses were not related to restoration, construction, repairs, and maintenance: kitchen supplies/door mat (we attempt to stop people from slipping and we purchase paper towels) film processing (we have documented every step of the restoration on film in keeping with professional practice) computer (we maintain a website and arrange all event bookings through it); phone batteries (we use a telephone); plates, pop, xmas supplies, duraflame logs, wreaths (we annually thank restoration volunteers with a Christmas party.) No items for personal items are purchased with Hollywood Heritage funds. The kitchen has a separate room in it for the resident Director’s use, and the items are not commingled.
4	Failed to Establish a Competitive Bidding Procedure		No Material Weakness; cited as Parks Dept Fault	The License Agreement does not and has never had a requirement for a competitive bidding process. This alleged “failure” is stated as “HHI was not aware of the significance of having a formally documented competitive bidding process” Further “Generally accepted business practices dictate that a competitive bidding procedure be used in the selection of contractors to perform construction work”. The Draft Audit faulted the Parks Department for not communicating its competitive bidding procedures. The final Audit accused Hollywood Heritage of a material weakness in controls. Why? The organization’s Board members have ample experience with designing, specifying, and bidding historic restoration work which is publicly funded. It appears that the accountants are unaware that in specialty restoration work of a small scale such as at the Wattles Mansion, prequalification of and negotiation with specialty subcontractors is an accepted method of contracting, and employed on Federal, State, and local projects.

PARKS DEPARTMENT FAILINGS -- NOT HOLLYWOOD HERITAGE’S

7	Failed to Ensure Necessary Permits are Obtained by Users	Parks Dept Fault	The Audit faults the Parks Department for never communicating its policies. “HHI is to abide by the Department policies for conducting fundraising events. “However, these policies were not communicated by the Department.” . “HHI did not keep a record of permits that are obtained by users”. The permits HHI requires are from the Fire Department, and it does keep these. Liquor Permits: HHI has on occasion obtained daily ABC permits for liquor sales at the Hollywood Heritage Museum. Contrary to the Audit statement, the organization is familiar with such permits. HHI does not sell alcohol at the Wattles Mansion, nor do the caterers. The Alcoholic Beverage Commission does not require a liquor permit from caterers unless they purchase and resell alcohol. Thus HHI has no liquor permits to obtain. Valet Parking: HHI does not retain any valet services which use the public street. All parkjng is kept on site in deference to the neighbors.
9	Failed to Clarify the Agreement Regarding HHI’s use of WMG	Parks Dept Fault	The Auditors said Hollywood Heritage failed to clarify the use of the building, that the group holds its Board meetings in the Mansion dining room, and that the group uses 2^nd floor offices. The License Agreement said HHI is licensed to “occupy both office and living space in the Wattles Garden Park mansion building.”
14	Failure to Update Agreement	Parks Dept Fault	The Auditors correctly pointed out that the Agreement has no
15	Failure to Properly Monitor HHI	Parks Dept Fault	The Auditors reported that the Department failed to properly monitor HHI.

LICENSE AGREEMENT COMPLIANCE ITEMS: The Audit claimed that Hollywood Heritage is on a “month-to-month agreement”. If this is the case, the Parks Department has never communicated it to Hollywood Heritage.

8	Failed to Conduct Fundraising Activities to Restore the Mansion Building	Not True	The Auditors noted that HHI fundraising was adequate. “It does appear that these activities generate adequate revenue to restore WMG to its original state.” Then they concluded that the organization “Failed” HHI has raised and spent the equivalent of $2.5 million on the Wattles Mansion.
10	Failed to Provide the Department with a Roster of Officers		The roster of officers is on the HHI website. It does not list personal addresses or phone numbers as required by the Department. The Parks Department in 25 years has never contacted Hollywood Heritage to request this.
11	Failed to Provide Department with an Audited Financial Statement	True	Hollywood Heritage’s CPA prepares compiled year end financial statements. These were not forwarded to the Parks Department. The Parks Department in 25 years has never contacted Hollywood Heritage to request these. As Hollywood Heritage has less than $2 million is annual receipts, there is no requirement other than the Department’s for expensive audits. All tax returns are filed as required.
12	Failed to Keep the Department Informed of all Services Provided by HHI		HHI maintains a fully descriptive website, including all services and dates of events. Our newsletter is also available on line. . The License Agreement says the Parks Department reserves the right to approve a schedule of fees. The Parks Department in 25 years has never contacted Hollywood Heritage to exercise its right of review.
13	Failed to Maintain Proper Insurance	Not True	The Auditors apparently were unable to understand the policies. These policies were all in place.

INVENTED NON_COMPLIANCE ITEMS NOT IN THE LICENSE AGREEMENT-

5	Failed to Ensure Blank Check Stock is Maintained in a Secure Location	Not Accurate	The blank check stock is maintained in a locked building in a locked office. Hollywood Heritage has ensured that its checks are not misused by requiring two signatures on every check until very recently (due to pressure from the Bank.) in 22 years, a single check has never been cashed which did not have an authorized signature for an authorized expense.
6	Failed to Ensure all Documents Pertaining to an Event are Properly Executed	Not Accurate	The Auditors found no event rental agreement that was not signed by the client. A small number of rental agreements in Hollywood Heritage files were not signed by Hollywood Heritage. There is no evidence that the renter does not have a copy signed by Hollywood Heritage. Our attorneys have advised us to never sign a rental agreement until a deposit has been received and cashed, and that our obligation is to have the renters signature. We prudently follow this directive. One or two events in the 3 year period had multiple days, and Hollywood Heritage signed the contract at the top—for the first day.