Sun | Nov 29, 2020

Poor controls led to fraud at Dunn's River Falls, says audit

Published:Thursday | January 3, 2019 | 12:00 AMAvia Collinder
Ransford Braham, chairman of the board of the Urban Development Corporation.
Dunns River Falls in Ocho Rios, St Ann

The Urban Development Corporation (UDC) has revealed that missing documentation and poor controls have led to fraud at the development company's main revenue driver, Dunn's River Falls, Ocho Rios, St Ann, based on the findings of an independent audit released by the state-owned entity on Wednesday.

It indicated that it has taken action to reduce revenue leakage, estimated between $500,000 and $1 million annually, at the popular tourist attraction.

The UDC said it has established a programme management office which will oversee implementation of both short- and medium-term actions, covering sales, revenue and cash management, information technology, governance and oversight management at Dunn's River Falls.

The attraction is the star performer in UDC subsidiary St Ann Development Company's portfolio, welcoming nearly 800,000 visitors annually.

However, the audit, received during December last year, shows what it describes as "significant and long-term fraud-control failures, financial misstatements, insufficient processes, and gaps in information technology controls."

The report said the related exposure to UDC can be estimated between $500,000 to more than $1 million annually, adding that "controls are not sufficient and documentation requirements are not structured to detect fraud".

It added that "the control environment enables theft, misappropriation and abuse of assets, specifically, a lack of documentation and controls governing resident tickets, free tickets, cruise tickets and tour operator contracts".

It noted that while resident ticket sales have grown by 67 per cent year-over-year compared with seven per cent for non-residents and prepaid ticket sales, there was no evidence to validate the accuracy of the resident classification.

The report said that while a tier structure exists to discount tour operator tickets based on ticket volumes, management indicated that the discounting structure and tiers have not been updated in 14-15 years.

"Volume requirements appear to be artificially low with 96 per cent of prepaid tickets sold at the most discounted tier. Additionally, actual purchases are not monitored to ensure volumes are achieved to earn the related tier," said the auditor, who was not identified by the UDC.

Event pricing

The report said that event pricing is not documented and approvals are not required, adding that "attendance for events and costs are not tracked against revenue to evaluate profitability".

It said significant system-control gaps exist, including a lack of interface/integration, the use of generic user identification and shared passwords, and inadequate change processes.

The auditor noted that direct cruise line revenue is an increasing percentage of revenue. However, information regarding the number of cruise line visitors is not consistently maintained.

Among the auditors' recommendations is that the UDC maintain a log of taxpayer registration numbers or alternate form of identification for each resident ticket sale. It also suggested that the UDC review daily reports monitoring ticket sales by ticket type and by cashier.

They also recommended that "if feasible, design separate lines for resident and non-resident tickets at Dunn's River. Cashiers assigned to each line should only have access to print the specific type sold in the line. Lines can be reconfigured for holidays, cruise days, or others based on expected demand. Management should evaluate the qualifications, training needs and overall composition of the current team and staffing model to ensure proper resourcing and oversight within the Dunn's River sales function".