Business association to be audited less frequently

By: PAUL EAKINS - Staff Writer | Tuesday, June 26, 2007 11:34 PM PDT ∞

ESCONDIDO -- A recent Escondido City Council decision to require less frequent audits of the Downtown Business Association will save money that could be better spent elsewhere, city and association leaders said this week.

But a downtown business owner said Tuesday she was disappointed with the decision, saying it will provide less fiscal accountability for the organization.

The council last week approved the change that now requires the association to hire an outside agency to conduct an audit of its financial records every three years rather than annually, as previously required.

Under the association's new agreement with the city, a less expensive and less probing financial review by an outside company will be conducted annually in the years between the audits.

The 850-member association collects mandatory fees based on sales receipts from about 700 businesses within the downtown business improvement district, a 68-square-block zone around Grand Avenue.

The money is used to make downtown improvements and to promote and market the business district.

"To take (business improvement district) fees and spend them on an audit when they could be going into downtown doesn't make sense," said Debra Rosen, the association's chief executive officer, who noted that an audit can cost as much as $8,000.

However, Olga Diaz, the owner of Blue Mug Coffee & Tea, said the audit should be conducted annually if businesses are required to pay fees, which was the same argument she made three years ago during a clash between downtown business owners and the association.

Business owners also were angry at the time that the association hadn't been conducting an annual audit as was required.

In response, the council forced the association to do a three-year audit and to conduct annual audits in subsequent years.

"It gave us all a sense of peace of mind and accountability that didn't exist before," Diaz said of the annual audit.

Diaz said she doesn't suspect any wrongdoing by the association, and she commended Rosen for her leadership since taking charge of the association almost three years ago.

Every audit since 2004 has said the association's finances are in order.

The most recent audit, which was for the 2005-06 fiscal year, said the association had revenue of $412,954 -- $137,750 of which was made up of business improvement district fees -- and expenses of $389,791. Other revenues come from sponsor donations, ticket and booth sales for events, the city and other sources.

The suggestion to change the audit's frequency first was made by council members earlier this year and then was approved unanimously by the association's 15-member board of directors.

Scott Peck, the organization's chief financial officer and an accountant with the firm Dunlap, Dunlap and Peck, said the association isn't large enough to require an annual study.

"It's really an unnecessary burden expense to have a full, certified audit every year," Peck said.

He said the annual reviews still will show how the association's money is being used but won't require the rigorous and costly testing and investigations that go with a full audit. A review costs about $1,500 to $2,000, Rosen said.

But Diaz, who has a degree in finance from Santa Clara University, said the investigations that would check the veracity of expenses and other information are needed to reassure association members.

"It just doesn't seem like the right place to skimp," Diaz said.

Member Shawna Cruise, owner of The Loft Hair Design and Skin Care, said the change is acceptable so long as an audit is conducted every three years.

"I would rather do a superficial check and then have the money for other stuff," Cruise said.

Mayor Lori Holt Pfeiler said the annual review will provide enough fiscal oversight and allow more money to be put into marketing.

"If I'm a downtown business, I want every dollar to be spent to bring people downtown," Pfeiler said.

-- Contact staff writer Paul Eakins at (760) 740-5420 or peakins@nctimes.com.

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