State auditors: Anaheim hasn’t properly managed tourism money

The California State Auditor says Anaheim hasn’t properly managed its tourism contracts and millions in related funding, and some of that public money had been used for political purposes, according to a report released Tuesday by the agency.

The audit put public money sent by the city to Visit Anaheim and the Anaheim Chamber of Commerce under a microscope for potential misuse of funds.

The state auditors are recommending the city implement additional oversight of its contracts and of the millions in tourism district funds that come from hotel stays each year. They also say Anaheim should amend its agreement with Visit Anaheim to have more performance indicators and the city should see if any money from prior contracts with the chamber should be returned.

“In general, we determined that the city lacked a meaningful contract monitoring process and did not properly manage the contracts it entered into with these entities, resulting in unallowable spending and unmet deliverables,” Grant Parks, the California state auditor, said in the report.

The audit request to the state office also called for a review of public funds the city spent on negotiations surrounding the once-planned sale of Angel Stadium. However, the agency said its budget and the expedited timeframe did not allow it to investigate the matter. Calls for the audit followed a city-commissioned investigation released this summer into a City Hall scandal that started with the 2022 revelation of FBI investigations into former Mayor Harry Sidhu and former Anaheim Chamber of Commerce Executive Director Todd Ament, both whom have since pleaded guilty to criminal charges.

The auditors conducted interviews with personnel at the organizations and reviewed their financial records.

Mayor Ashleigh Aitken and Councilmember Norma Campos Kurtz (whose district includes the resort area) welcomed in a news release from the city the audit and recommendations, some of which will require future council action. City Manager James Vanderpool has asked the city’s audit division to review chamber contracts, officials said.

The City Council in 2010 established the Anaheim Tourism Improvement District to fund tourism marketing and transportation improvements for the city and contracted with Visit Anaheim to handle the tourism efforts and booking the Anaheim Convention Center. Funding comes from a 2% assessment on hotel room rates in the district that includes 94 hotels, which is separate from the 15% hotel tax the city collects.

Visit Anaheim, since the assessment’s creation, has received more than $111 million in funding from the 75% of the assessments it receives. The nonprofit also gets money from dues and from resort-are hotels in Garden Grove.

Anaheim didn’t have a meaningful process in place to monitor those tourism dollars, the auditors argued. The auditors said the assistant city manager did not know why the city didn’t have policies for monitoring professional service contracts like it does for other areas.

Auditors also said the city had not conducted substantive oversight of a $6.5 million contract it gave Visit Anaheim in 2020 to help promote tourism recovery during the pandemic; funding given despite the tourism bureau already having millions in unspent funds intended for similar services. (In a response to the state auditors, lawyers for Visit Anaheim argued the state’s calculation of reserves at the time was overestimated.)

The state audit was initiated in August, a few weeks after the city-commissioned investigators said $1.5 million of that pandemic recovery money appeared to have been funneled to an Anaheim Chamber of Commerce nonprofit without apparent written city approval.

The investigators said in the executive summary of their final report delivered in July that Sidhu directed then-president and CEO of Visit Anaheim Jay Burress in 2020 “to divert” the funds to the chamber. Ament directed Burress if questioned about the money to say it came from other reserve funds from Visit Anaheim, alleged investigators, who called the diversion “unlawful.”

The money was sent to a Chamber of Commerce-controlled nonprofit. Current staff at Visit Anaheim told the state auditors that the transaction was a “verbal agreement” between Burress and the former president of the chamber. There was not a written contract.

Burress left Visit Anaheim in November.

Ament’s attorneys did not immediately respond to a request for comment Tuesday evening; neither did Sidhu or his attorney.

Lawyers for Visit Anaheim in November confirmed that the tourism bureau did send money to a chamber nonprofit, but told the city it would not be giving any money back, as the city had demanded. Visit Anaheim initially marked the $1.5 million as coming from the coronavirus recovery funds, but its source was later updated to “normal department budget codes,” according to the lawyers. State auditors said the re-accounting “raises additional questions” regarding the uses of other public funds that Visit Anaheim has received.

Anaheim spokesperson Mike Lyster said the city continues to evaluate and consider its options regarding the pandemic money.

Visit Anaheim has subcontracted with the chamber since 2010 to provide activities and services for the promotion of hotels in Anaheim, which the city’s tourism director wasn’t aware of until 2018, according to the audit. That agreement with the chamber was canceled by Visit Anaheim in September.

The chamber received about $4.4 million from the tourism district assessment funds via Visit Anaheim from 2012 to 2022.

The state auditor said from its review, Visit Anaheim improperly subcontracted with the chamber without the city’s permission. The chamber then used tourism funds for “unallowable services that involved political advocacy and influence,” the report said.

That activity included the chamber “advocating for or against proposed federal, state, and local legislation, meeting with elected officials and policymakers, and supporting resort-friendly candidates through the chamber’s political action committee,” auditors said.

In 2022, the chamber advocated for a tourism business-friendly climate by supporting or opposing 13 different pieces of proposed legislation.

The city’s contracts for tourism marketing specifically prohibited using funds for unrelated purposes such as political donations and other activities, according to the report.

In a lengthy statement, the Anaheim Chamber of Commerce criticized the audit’s conclusion that the chamber shouldn’t have used public money for political purposes, saying the audit “relies more on a subjective opinion and not on the plain facts. The report is inconsistent with the information we provided.” The chamber said its contract terms allowed for this and, “common sense and experience demonstrate advocacy is vital to fostering and protecting the resort, as tourism improvement districts throughout the state do.”

The auditors also criticized the chamber for not proving it met all its deliverables in its contracts with the city and Visit Anaheim. Anaheim ceased “major involvement” with the chamber in 2022, according to the city, and does not have any current agreements with the group.

The report outlined four recommendations for Anaheim:

• The council should designate an advisory board by July to make recommendations for how the tourism district funds are spent.

• The city should develop new contract oversight policies.

• Officials should renegotiate the city’s contract with Visit Anaheim to include key performance indicators and better reporting on how funds are spent.

• The city should assess if there is any money from prior contracts with the chamber that should be returned.

City officials told auditors that they are working to implement all their recommendations.

The city, Visit Anaheim and the Anaheim Chamber of Commerce responded to some of the auditor’s findings in the report, which were included in what was released Tuesday.

“Although we did not make recommendations to the chamber or Visit Anaheim, they disagreed with or mischaracterized some of our findings and conclusions,” the audit report notes.

Attorneys representing Visit Anaheim said City Hall was aware that it had subcontracted with the chamber since 2010. Tom Morton, the city’s tourism director, has been aware that the chamber was a subcontractor since 2018, according to the audit report, and explained to the auditors that he did not monitor the chamber’s activities, believing it was Visit Anaheim’s responsibility.

“There certainly has been some awareness at the city, but that’s not the issue being raised. The question is whether written approval was sought as required, and the city has no record of a written request or granting of approval,” Lyster said in an email when asked about Visit Anaheim’s assertion. “Going forward, this issue has been addressed through the city’s August demand to halt any subcontract transfers, which were stopped in September, and the city’s intent to amend the 2010 agreement to bar transfers to subcontractors, per the audit’s recommendation.”

Visit Anaheim is expected to get more than $22.8 million this year from its share of the tourism district funds. The rest of the assessment money, about $7.8 expected this year, is designated for transportation spending.

Visit Anaheim is overseen by a 22-member board of directors largely composed of hoteliers. The city manager, which has been Vanderpool since September 2020, and the city’s tourism director have spots on the board. The nonprofit files an annual report each summer to the City Council. Auditors said Anaheim should not have relied on only two city employees to monitor the contract with Visit Anaheim.

“Given the significant funding that Visit Anaheim receives under the tourism district assessment contract, the appointment of an advisory board would serve as a critical control on behalf of the city to ensure that Visit Anaheim meets its contractual obligations — legally, financially, and practically,” auditors said.

In a statement, Visit Anaheim officials said they disagree with the auditor’s methodology and findings, but “We are still reviewing the auditor’s recommendations and look forward to working with the city of Anaheim to develop a plan to ensure transparency and accountability, which would include reporting to the city on relevant key performance indicators and benchmarks, separately tracking all funding and expenditures related to our contract, and annually highlighting for the city the amount of any unspent tourism district assessment funds and reserve balances.”

Aitken said Tuesday that she looks forward to the city reinvigorating its oversight of the tourism funds to ensure the city is not just a passthrough organization.

Aitken said the city should continue asking for that $1.5 million back, “considering it’s been found by one investigation and one audit to be potentially tainted.”

Assemblymember Avelino Valencia, a former member of the Anaheim City Council, had requested the Joint Legislative Audit Committee approve the audit and direct the state auditor to initiate it.

The assemblymember on Tuesday said Anaheim should address the issues the state auditor highlighted.

“The prolonged lack of oversight and accountability demonstrated by the city regarding public resources is concerning. By neglecting to ensure contractual agreements, the city allowed for bad actors to take advantage of public dollars at the expense of our residents,” Valencia said in a statement. Additionally, use of the tourism district funding “by Visit Anaheim and the Anaheim Chamber of Commerce to engage in legislative and political activity is a direct threat to my hometown’s democracy.”