Minnesota Zoo’s Audit Report Response
September 19, 2018
Mr. James Nobles, Legislative Auditor
Office of the Legislative Auditor
Centennial Office Building
658 Cedar Street
St. Paul, MN 55155
Dear Mr. Nobles,
Thank you for the opportunity to review and respond to your findings in a recent limited scope internal control and compliance audit of the Minnesota Zoological Garden. Integrity and responsible stewardship are two of the Minnesota Zoo’s five core institutional values. We place a high priority on our fiscal and legal responsibilities, and take the results of this audit very seriously.
Unlike most state agencies, we contract for an independent audit of the Zoo’s financial statements every single year. The 2015-2017 audits were unmodified (clean) audits. We value audits as a healthy process of self-examination, and see this audit as an opportunity to improve further our already strong management of the resources entrusted to us.
Zoo staff and board members worked in close partnership with your audit staff to examine these important issues and to discuss the best approach to managing what is admittedly a very different financial environment compared to most state agencies. We appreciated the thorough and professional work of your staff during this process.
Below are the Minnesota Zoological Garden’s responses to the findings and the recommendations.
Finding 1: The Zoo and the Foundation did not properly account for donor contributions.
Recommendations:
- The Zoo should comply with the contribution deposit provisions in state law, or work with the Legislature to amend those provisions.
- The Zoo should comply with all donor-imposed restrictions, unless contributors grant explicit approval for departures.
Response:
The Zoo partially disagrees with this finding. The Zoo agrees we can strengthen documentation practices and internal controls to minimize the risk of accounting errors. However, the Zoo disagrees that we failed to comply with donor-imposed restrictions or to follow state law with respect to deposit of contributions.
Regarding compliance with donor restrictions:
- Recording errors: The Zoo identified and corrected two recording errors during later reviews of the deposits. In the third instance, we placed the funds in a holding account until we could set up the appropriate expense budgets, to ensure alignment between budgets and donor intent before we authorized spending. We never used the funds for purposes other than what the donors intended.
- Time restrictions: When the Zoo experienced operational challenges that prevented using the funds during the timeframe indicated by the donors, the Foundation notified the donors of the extended timeline. We never went beyond the time restriction without notifying the donors.
Regarding compliance with state law for deposit of gift funds:
The Zoo deposits all contributions received from the Minnesota Zoo Foundation in the state treasury as directed by law. To fulfill our statutory responsibility to “foster a partnership between the private sector and the state” and “be active in soliciting nonstate contributions” (M.S. 85A.001), the Zoo partners with the Minnesota Zoo Foundation for fundraising and other development services. To fulfill our statutory directive to “operate independently, efficiently, and economically” (M.S. 85A.001) and therefore not duplicate efforts, the Zoo relies on its fundraising partner to manage all aspects of soliciting contributions—including solicitation methods, fiduciary oversight, and donor recognition. This practice has been in place since the Zoo’s creation; in fact, a foundation supporting the Zoo and operating outside the state treasury has existed in some form since before the statute creating the Minnesota Zoological Garden was enacted. The Zoo actively publicizes its partnership with the Minnesota Zoo Foundation to the Legislature and the public, including in the Governor’s Budget documents and in the Zoo’s annual report. The Zoo welcomes the opportunity to work with Legislature to clarify state statute to recognize the important role of the Minnesota Zoo Foundation, but disagrees with the perspective that our accounting practices conflict with current statute.
To minimize the risk of accounting errors the Zoo will revise its Restricted Gift Tracking procedure. To clarify statutory deposit language, the Zoo will seek guidance from legislators and staff on how best to proceed.
Person Responsible: Completion Date:
Abigail Mosher, Chief Financial Officer November 30, 2018 (procedure)
Missy Remick, Director of Board and Legislative Affairs May 31, 2019 (guidance)
Also, please see the Zoo Foundation’s response inserted as pages four and five of this document.
Finding 2: Some contracts for outsourced services lacked appropriate competition.
Recommendation:
- The Zoo should resolicit contracts prior to their expiration dates to determine if open competition can yield a more economical outcome.
Response:
The Zoo agrees with this finding and recommendation. Zoo management is committed to fostering competition to maximize earned revenue to support the Zoo’s mission. We have already demonstrated this commitment by rebidding the concert and gift store contracts in the last five years, and laying the groundwork to rebid all three major partner contracts over the next few years.
Person Responsible: Completion Date:
Dave Frazier, Deputy Director Completed
Finding 3: Some Zoo employees received complimentary concert tickets.
Recommendation:
- The Zoo should discontinue the practice of providing complimentary concert tickets to its employees.
Response:
The Zoo agrees with this finding and recommendation. The Zoo had a practice of providing a limited number of complimentary tickets to employees, primarily through formal employee recognition programs or when the tickets would otherwise go unused for marketing and donor cultivation. Tickets used for employee appreciation represented fewer than ten of the 1200-1400 tickets available for each concert. The Zoo stopped issuing tickets for employee appreciation purposes prior to the 2018 concert series. There is a new procedure in place for approving use of complementary tickets for marketing or donor cultivation purposes, and we will incorporate that procedure into a formal agency policy prior to the next concert season.
Person Responsible: Completion Date:
Abigail Mosher, Chief Financial Officer December 31, 2018
Thank you again for the opportunity to respond, and for the professional work of your staff.
Sincerely,
John Frawley
Director and President
Minnesota Zoo Foundation Response
September 19, 2018
Mr. James Nobles, Legislative Auditor
Office of the Legislative Auditor
Centennial Office Building
658 Cedar Street
St. Paul, MN 55155
Dear Mr. Nobles,
Thank you for the opportunity to provide a formal response to the limited scope internal control and compliance audit of the Minnesota Zoological Garden (Zoo) which incorporates significant mention of the Minnesota Zoo Foundation (Foundation). We appreciate the responsiveness of the OLA team throughout the process as well as the willingness to incorporate input from members of our staff and Board by the Audit team.
In Finding 1, the OLA report states the “Zoo and Foundation did not properly account for donor contributions”. The underpinning of this finding is that the Foundation “circumvents” statutory language regarding donations to the Zoo. The Foundation is an independent, Minnesota 501c3 nonprofit charitable organization that has its own Board of Directors who are independent of the Trustees of the Minnesota Zoo. The Foundation and its practices are not governed by the statutory language referenced in the report and therefore cannot “circumvent” the statutory language. Based on this, it is inaccurate to assert that Foundation practices circumvent the language regarding donations.
Further to Finding 1, as discussed with the OLA, the Foundation’s position is that we did provide appropriate documentation for donor contributions. Most importantly, in every case, the Foundation honored donor intent regarding restrictions on each gift. As we understand it, OLA’s documentation concerns stem from the Foundation asking the Zoo to spend a number of gifts in a specific timeline in order to expedite the use of funds for their intended purposes. In each contribution examined by the OLA, the Foundation honored the specific restriction requested by the donor. By asking the Zoo to spend donor funds in a timely manner is not an example of “not properly accounting for donor contributions”, indeed, it is an additional safeguard put in place by the Foundation in the best interests of the donor and their intended purpose.
In our review of the report, the Foundation consulted with both legal professionals and independent auditors who are subject matter experts in nonprofit audit and accounting rules. Based on those consultations, as well as our own professional knowledge of accounting for donor contributions, we are confident the Foundation properly accounted for donor contributions.
Concerning the “highly intertwined” activities of the Zoo and Foundation, it is common practice for independent, nonprofit foundations that support public entities to share resources, including the ability to make gifts through a shared web site. The purpose for depicting the financial results of the Zoo and Foundation in one report is in fact to be transparent about the difference and independence from one another by showing two distinct financial reports.
The report states in FY 2017, the Foundation reported total income of $5.92 million. To provide clarity, it is important to understand that under nonprofit accounting standards, both cash and income (i.e. multi-year pledges) must be reflected in financial statements. In that year, for instance, the Foundation received two documented pledges of future support in the amount of $500,000 each that are included in overall contributions in our financial statements; however, this was not cash-in-hand available to grant over to the Zoo. It is also important to point out that in FY 2017 the Foundation granted $391,000 to organizations other than the Zoo. One of the activities of the Foundation is to fund outside organizations working in the field on conservation of threatened and endangered species both the Zoo and Foundation deem a priority. In Minnesota, those species would include endangered prairie butterflies, freshwater mussels, and bison.
While we are disappointed in the results of the report because our position is it inaccurately describes the Foundation as working outside of State statute and asserts that the Foundation did not properly account for donor contributions, we believe there are always opportunities for process improvement. We appreciate the OLA’s suggestion that the Foundation provide clarity on the origin of time-restrictions placed on grants to the Zoo, and we will work collaboratively with the Zoo to strengthen our practices. The Foundation is committed to being a trustworthy nonprofit organization as well as an important source of revenue to support the Zoo’s mission far into the future.
Sincerely,
Tony Grundhauser, Executive Director
Minnesota Zoo Foundation