NEWPORT BEACH — After an audit found that the city visitors bureau was spending public funds without many controls, the City Council approved a contract Tuesday that strengthens its oversight of the private group.

The council will now appoint a representative to the executive board of Visit Newport Beach, and will require more reporting on the group's finances and performance.

Visit Newport spends about $2.7 million a year in hotel bed tax revenue to promote the city as a business and leisure travel destination.

"The city is not looking to manage or run Visit Newport Beach," said Councilman Steve Rosansky, "but we do give them a significant amount of money, so it's prudent that we're keeping an eye on the dollars."

While the city's audit found that the group generally adhered to its previous contract, some expenses and management practices were called into question. Payroll costs rose, for example, while the actual amount spent on marketing declined in recent years.

Gary Sherwin, president and chief executive of the group, was paid about $250,000 in the 2010-11 fiscal year, including bonuses. His salary increased about 80% since he was hired in 2006 because he met performance goals specified in his hiring agreement, according to the city report.

His current pay level is in line with executive pay at the Anaheim and San Diego visitors bureaus, which have much larger budgets.

"In order for us to compete, we have to have competent people," said Tom Johnson, vice chairman of the Visit Newport executive board and the former publisher of the Daily Pilot. "We've gone out and tried to attract the best."

The bureau's new contract doesn't place any restrictions on salaries, but the city representative will be able to vote when the seven-member executive committee reviews compensation packages. Currently, the city manager has a seat on the 25-member board of directors, but cannot vote.

City Manager Dave Kiff said the city will accept applications for the new position until Oct. 21.

Another of the auditor's findings was that Visit Newport executives didn't always follow their own travel and entertainment expense policies, which were vague or non-existent in the first place.

The city report cited Sherwin's 2009 trip to London with an executive from the Pelican Hill Resort. Sherwin incurred $1,684 in hotel phone charges, and spent $406 on roundtrip, chauffeured trip from Newport Beach to LAX. Visit Newport's expense policy recommends its staff use a shuttle service instead.

Sherwin called the phone charges "fluky" because his BlackBerry malfunctioned overseas, and he resorted to calling from his hotel room's phone. The bureau didn't have an international travel expense policy at the time of the audit, but has since created one.

Johnson said that the London trip was highly successful, however, as Sherwin secured a display window at Harrods, the famed luxury department store.

To get a better handle on Visit Newport's spending, the council detailed which annual reports it will require, and what they should contain. The new contract is for a four-year contract term.

Visit Newport has to now provide annual reports on its performance, the annual marketing plan, the budget, expenditure report and audited financial statements.

The previous contract listed some of those reports, but "it just seemed way too vague," Kiff said.

mike.reicher@latimes.com

Twitter: @mreicher