Audit of Eagle River rec center finds accounting, mismanagement issues

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William Clark has the rink to himself on Friday, January 20, 2017, at the Harry J. McDonald Memorial Center in Eagle River. The McDonald Center received an audit the same time as the facility saw a decline in use and the Anchorage Assembly will be looking at whether to renew the contract with the nonprofit that runs the center. (Rugile Kaladyte / Alaska Dispatch News)

The nonprofit organization running the city-owned Harry J. McDonald Center — Eagle River's main recreational center — failed to send profits back to the city and spent money on vacation expenses and computer supplies without city approval, according to public records.

Those were among several examples of mismanagement and accounting errors documented in a recent city audit of the center. Chugiak-Eagle River Assemblywoman Amy Demboski said it was one of the harshest audits she has seen.

The audit said the nonprofit failed to follow the contract granting it exclusive rights to the city-owned building.

The chief auditor, Michael Chadwick, called the issues "very fixable." Reid McDonald, the general manager of the center, said he's doing everything he can to correct problems flagged by the auditor, which he chalked up to honest mistakes and oversights.  

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At the same time, a broader discussion has emerged, one centering on the operations and marketing of the recreation center. The audit coincided with a noticeable drop-off in bookings at the McDonald Center last fall, McDonald said. Not counting 2014, when an overhaul of its main ice rink prevented its use, the McDonald Center in 2016 posted only its second operating deficit since it opened in the mid-1980s, according to McDonald. 

Public officials, alarmed by the audit as well as the apparent financial trouble, have began a series of meetings about the center in November. They say they want to make sure that the well-regarded recreation facility is on the right track. The center is trying to become known for more than ice sports. 

A 38,000-square-foot public recreation center in Chugiak-Eagle River, the McDonald Center sports an Olympic-size ice rink that seats 700 people, two community meeting rooms and a new indoor playing field with a two-lane track for runners and walkers.

The center opened in 1984. It was first named the Fire Lake Recreation Center, named for a pair of lakes in Eagle River. About a decade later, the name changed to the Harry J. McDonald Center in memory of a hockey coach and civic leader in Chugiak-Eagle River who died in a plane crash in 1994.

Harry's son, Reid McDonald, is the general manager of the facility today. 

Owned by the Municipality of Anchorage, the center has been overseen by a nonprofit corporation called Fire Lake Arena Management Inc., also known by the acronym FLAMI, since it opened. The nonprofit was created to manage the recreation center, and its most recent contract was signed in 2011. The five-member volunteer board, made up of what the center's website refers to as "Eagle River sports enthusiasts," is chaired by Pat McCormick. 

On Friday afternoon, Reid McDonald sat in his office, with hockey sticks on either side of his desk. He said he was taking the audit seriously.

"In a lot of ways, it's good to have these audits, because they do reveal issues -— my inventory list didn't match the city's, things like that," said McDonald, who is paid about $80,000 a year to manage the facility, according to the nonprofit's latest tax returns.

He called the problems "pretty above-the-board, honest mistakes."

Red flags raised by the city auditors included:

* The center did not return the $30,022 in operation profits to the city between 2013 and 2015, as required by the contract. According to the audit, the center managers said that was because the city had stopped awarding a subsidy, though the contract requirement hadn't changed. McDonald said the center has since committed to pay the full amount.  

* Payments for professional services for auditing and accounting exceeded $10,000 without written city approval between 2011 and 2013, and between 2014 and 2015.

* Though the center did not go over budget in 2015, some expenditures were made without city permission, as required by the contract. That included accrued "vacation expenses" of $5,832, despite the center's not having an approved vacation budget. There were also overtime expenses of $12,266, but no approved overtime budget. 

* Subcontractors were hired without the city's permission for services like advertising and concessions. The nonprofit also failed to provide annual reports detailing the subcontracts and related expenses.

* An annual budget was submitted months after a July 1 deadline in 2015 and 2016.  

McDonald said his bookkeeping suffered after the center's longtime accountant retired in 2010. She worked part-time until 2012. McDonald said he hasn't been able to hire a full-time accountant since. 

John Rodda, the Anchorage parks and recreation director and the city administrator for the McDonald Center contract, called the audit a "wake-up call" to pay closer attention to accounting and the contract's requirements. He said it would also trigger a closer look at the center's marketing and operations plans.

Chadwick, who heads up the city's internal audit department, said in an interview last week the problems were "very fixable."  

"When you've been operating for a long time, and when you have something for a long time, you might get a little bit complacent," Chadwick said.

Chadwick noted the audit focused only on how well Fire Lake Arena Management Inc. was meeting the terms of its contract with the city. But he also said he was aware it had "opened up other discussions" around the general direction for the McDonald Center.

The audit's findings troubled Assembly members Bill Starr and Demboski, who both represent Chugiak-Eagle River. Demboski described the audit as one of the worst she's seen in nearly four years on the Assembly. Starr said he was concerned that the center appeared to owe the city money.

The internal auditor's office finished the audit in late September. After an Assembly rules committee meeting in November — which none of the McDonald Center management attended, later citing a miscommunication — McDonald received an eight-point list of recommendations for fixing the problems in the audit. He said he's been following those suggestions.  

Beyond the problems raised in the audit, a different conversation has emerged, one about making the McDonald Center run smoothly and turn a profit. Officials are now urging the McDonald Center's management to shift the focus away from ice sports, its longstanding stronghold, and hype up its 4-year-old turf field and indoor track to sports groups outside of Eagle River. Anchorage lost a huge indoor sports facility Sunday with the collapse of The Dome.

Starr said he's questioning whether Fire Lake Arena Management Inc. is the right group to manage the facility.

"That's what we've been debating back and forth — what are you guys going to do to market turf, up the users? Are you going to cut your expenses, have you reviewed your schedules?" Starr said.

McDonald defended his organization, saying that local management is good for Eagle River. He also said the audit helped highlight challenges faced by the center. He said he's working on new marketing and operations plans and plans to cut his budget for 2017, which is due to the city on July 1.

"We've had our issues," McDonald said. "The audit was great in my eyes, that it brought light to the fact that (business) is slowly going down, and obviously got bad this year."

He said the center's operating deficit in 2016 stemmed from key ice and field sports organizations booking far fewer hours, starting in the fall. 

The unexpected financial hit, coupled with the audit, was a "perfect storm," Reid McDonald said. A deficit triggers an Anchorage Assembly review of the McDonald Center contract, meaning that Assembly approval will be required for the nonprofit to continue operating the center. 

The Anchorage Assembly has not yet accepted the internal audit report; it's been delayed several times since October. Now the date is set for Feb. 14.

A few days before the mid-February meeting, the Assembly will hold a work session, at which the McDonald Center board is expected to present a marketing and operations plan, said Rodda, the city parks director.  

Rodda said the goal moving forward will be to create "a new set of marching orders that everybody agrees to follow."

"That's with the intent of maintaining its local identity but with a bit more oversight, let's say," he said.