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Aramark’s financial statements clean despite audit ‘oversight’

Tuesday, June 28, 2011 by Josh Rosenblatt

Nearly two months after the City Council Audit and Finance Committee learned that the company responsible for the Austin Convention Center’s catering and concession services had not been providing required annual audit reports, an independent auditor has issued an unqualified, “clean” opinion of Aramark’s financial statements.

 

In April, the city auditor’s office told committee members that neither Aramark nor the Convention Center Department had been complying with certain provisions of their contract. That contract, signed in 1997, requires Aramark to submit an annual certified independent audit of its operations to the Convention Center by April 30 of each year; and Convention Center staff must perform reviews of Aramark’s monthly financial statements.

 

City officials said that neither of those tasks had been performed since at least 2006. As a result, the City Auditor’s Office could not confirm in April that the $1.7 million the city received last year from concession sales was the correct amount.

 

Under the terms of the contract, the city receives 100 percent of Aramark’s net profits from catering and concession services at the convention center. In return, Aramark receives a fixed fee and is eligible for an annual bonus or “productivity reward.” Without the required annual audits, it was impossible to know if the net profits the city had received for each of the last five years and the annual bonuses Aramark had claimed during that period were legitimate.

 

But, according to the independent audit conducted by Mayer Hoffman McCann and presented at last Wednesday’s Audit and Finance Committee meeting, Aramark’s financial statements since 2006 are in order. According to their findings, the company paid the city the correct amount every year between FY2006 and 2010. The auditor found no instances of fraud.

 

Aramark President Jack O’Brien called his company’s failure to conduct the annual audits simply an “oversight on our part.”

 

In fact, the only financial discrepancy found in the report was between the fee Aramark has been charging the city and the adjusted fee it should have been charging. The contract calls for Aramark to earn a $33,333 monthly fee that is adjusted according to the Consumer Price Index over the course of the contract. That fee should have been adjusted upward several times since 2006, but when the Convention Center and Aramark initiated their initial audit in 2008, they decided to hold off on the CPI increases until the audit was complete.

 

The city and Aramark are now in negotiations to reimburse Aramark for the difference.

 

O’Brien joked with committee members that the financial discrepancy proves his company wasn’t involved in any wrongdoing. “That shows you it’s an oversight when I don’t get paid,” he said.

 

Headquartered in Philadelphia, Aramark is one of the largest providers of food services, facilities management, and uniform and career apparel in the world. It has operations in 22 countries on four continents and employs around 254,000 people worldwide. Last year the company’s revenues totaled more than $12.5 billion, and it was ranked 194 on the Fortune 500 list. In addition, for three years that magazine has named Aramark the world’s most admired “diversified outsourcing” company, giving it top rankings for its “social responsibility” and “financial soundness.”

 

In general, the committee didn’t appear overly concerned with the lack of Aramark audits over the last five years. Council Member Sheryl Cole, who chairs the committee, told In Fact Daily she was satisfied with explanations from city staff and Aramark representatives and happy that no misbehavior was uncovered.

 

“I’m just glad the audits have been done and the numbers checked out and there’s not any malfeasance or fraud,” she said. “The audited financial statements did not cite any significant weaknesses or material deficiencies. That’s what we’re looking for.”

 

Council Member Bill Spelman was also pleased with MHM’s findings but admitted to In Fact Daily that he is “mystified” as to why Aramark and Convention Center staff didn’t concern themselves with the audits, especially considering that the final audit showed no wrongdoing.

 

“If the audit had not come out clean I can certainly understand why you’d want to cover stuff up,” said Spelman. “The fact that all the audits came out clean means maybe that there was a tacit understanding between the two of them that an audit just wasn’t going to be required. I can’t prove that and I don’t know how much meaning it has now, but that’s my best guess as to what was going on. I don’t know why they’d do that.”

 

Spelman went on to say that he is interested in how such an oversight could have happened with such consistency but admitted that the issue is “largely academic” at this point.

 

“The president of Aramark is different (than in 2006) and the director of the Convention Center is different,” Spelman said. “This particular issue is almost certainly never going to come up again. I would not be surprised if other specific requirements of the contract were not carefully adhered to in the future. I think everybody’s on notice we’re going to be watching these contracts and you’d better abide by the contract rules.”

 

Asked how Convention Center staff could have overlooked the annual audit requirements, Director Mark Tester told In Fact Daily, “We’ve been looking to get this resolved. We’re trying to be better stewards of that very complex contract, and we’ve been working on that and have made significant improvements. We’re happy how we’re managing the contract.”

 

The city is currently in the final year of its contract with Aramark and has the option of two more extensions, totaling five years.

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