Lompoc Tourism Improvement District Management Agreement 2019-2028*

Lompoc City Council has not directed Visit Lompoc to request, conduct, or complete an independent audit of its Annual Reports. Lompoc's Response to Finding 1: Agree.

Lompoc City Council has not directed Visit Lompoc to request, conduct, or complete an independent audit of its Financial Statements. Lompoc's Response to Finding 2: Agree.

For the time period 2018 through 2022 the analysis conducted by Lompoc and Visit Lompoc's accountants of the Visit Lompoc's financial records confirmed the >$500,000 discrepancy in unspent funds versus reported carryover values. Lompoc's Response to Finding 3: Disagree partially. Lompoc confirmed that there was a difference in reporting of >$500,000, however this difference was not a discrepancy, but instead the difference between reporting 1-year data on an acceptable but non-standard 1-year report versus reporting cumulative data on a standardized balance sheet, which VLI is not required to do. The use of the term "discrepancy" in regard to the >$500,000 is misleading. The City did discover one discrepancy that the City was not able to reconcile in the amount of $9,450. Because VLI is not required to, and does not issue financial statements under generally accepted accounting principles (GAAP), and because, as stated in the report, "VLI is not required to provide Lompoc with its financial statements," VLI's annual report does not contain or present GAAP financial statements. Instead, VLI's annual report uses tables to compare budgeted and actual costs, and references terms such as collections, expenses, contingency, and carryover. These presentations and terms are not GAAP-defined, and as such, the use of them instead of GAAP-standard presentation and terminology can lead to confusion for readers when interpreting the non-standardized data presented. However, after a thorough review of all documents available, Lompoc has identified that the underlying issue between the VLI annual reports and the findings May 29, 2024 Grand Jury Report - "Lompoc Tourism Improvement District Management Agreement 2019-2028" of the Grand Jury is one of different meanings being assigned to the term "carryover." VLI used the term "carryover" as a synonym of "net income (loss)," which is reported on an income statement, whereas the Grand Jury interpreted the use of the term "carryover" as a synonym of "equity" or "fund balance," which is reported on a balance sheet. Neither of these definitions of the term "carryover" is intrinsically wrong, since the term "carryover" is not a term defined under GAAP, and therefore could mean any number of things. What leads to confusion, though, is that one definition (the one used by VLI) is specific to one period of time, whereas the other definition (the one used by the Grand Jury), reports a cumulative total over multiple periods of time. Lompoc concludes that there is no misrepresentation in the VLI annual reports, but there is a difference in usage of the word "carryover." One uses the term to report "an annual amount to carry over" - specifically the surplus or deficit available to include with the budget for the following year'; whereas the other uses the term to report "a cumulative amount carried over and added to equity." It is a subtle but distinct difference, and one that results in a misperceived discrepancy of over $500,000. Said another way, VLI reports each year's carryover without reporting a cumulative total, and the Grand Jury report assumes that "carryover" must mean "cumulative." The term carryover is likely derived from California Streets & Highways Code section 36650(b), which states: "(b)The report shall be filed with the clerk and shall refer to the property and business improvement district by name, specify the fiscal year to which the report applies, and, with respect to that fiscal year, shall contain all of the following information: ... (5) The estimated amount of any surplus or deficit revenues to be carried over from a previous fiscal year." This usage of the term carryover by the code does not state or imply a cumulative nature of carryover, it merely directs that surplus or deficit from the previous fiscal year be reported.

Lompoc does not have an adequate system of checks and balances to confirm that Visit Lompoc's accounting methods are accurate and complete. Lompoc's Response to Finding 4: Disagree partially While it is correct that Lompoc does not impose a system of checks and balances to confirm that VLI's accounting methods are accurate and complete, there is nothing in the law or in the Agreement or in the MDP that allows Lompoc to impose such a system over VLI. Lompoc is allowed to receive the required annual report and confirm that the collections reported by VLI match the disbursements made by Lompoc, which Lompoc already performs.

Other than the reference in the Agreement to the Resolution and District Management Plan there are no specific guidelines concerning how Visit Lompoc LLC shall expend its funds. Lompoc's Response to Finding 5: Disagree partially Under state law Lompoc has elected to have an owners' association determine how to spend the assessment funds, provided the expenditures serve the approved purposes listed in the MDP pages 5 to 6, and Lompoc has entered a 10- year contract with VLI for that purpose. (St & Hwy Code 36651; Mgmt Dist Plan May 29, 2024 Grand Jury Report - "Lompoc Tourism Improvement District Management Agreement 2019-2028" Lompoc's Response to Recommendation 5a: Will not be implemented. As stated above, under state law Lompoc has elected to have an owners' association determine how to spend the assessment funds, provided the expenditures serve the approved purposes listed in the MDP pages 5 to 6, and Lompoc has entered a 10-year contract with VLI for that purpose. (St & Hwy Code 36651; Mgmt Dist Plan .) Therefore, it is not within Lompoc's purview to ascertain whether the 3% fee assessed on hotel customers is achieving its intended objectives. This evaluation is the responsibility of the owner's association. Because Lompoc does not agree with the unsubstantiated allegations, Lompoc does not believe that a reevaluation of the terms of the Agreement is warranted at this time.

The Annual Reports submitted by Visit Lompoc to the City of Lompoc did not include all amounts that should be publicly disclosed. Lompoc's Response to Finding 6: Disagree partially The Annual Reports submitted by VLI to Lompoc did not include all amounts that could be publicly disclosed. Specifically, the annual reports did not include cumulative equity/fund balance totals. There is no requirement under law or agreement that VLI report cumulative totals.