HomeMy WebLinkAbout06 PDRFC Financial Rprt FYE 06-30-2020 STAFF REPORT
CITY OF PALM DESERT
FINANCE DEPARTMENT
MEETING DATE: January 28, 2021
PREPARED BY: Jose Luis Espinoza, CPA, Assistant Finance Director
REQUEST: Receive and File the Palm Desert Recreational Facilities Corporation
audited financial reports for the fiscal year ended June 30, 2020
Recommendation
By Minute Motion, that the City Council receive and file the audited financial
statements of the Palm Desert Recreational Facilities Corporation (PDRFC)for
the fiscal year ended June 30, 2020.
Strateqic Plan Obiective
Not applicable.
Committee Recommendation
The Finance Committee received the audited financial statements for the PDRFC at their
January 26, 2021 meeting, and recommended that the statements for the fiscal year ended
June 30, 2020 be received and filed by the City Council.
Backqround
The Palm Desert Recreational Facilities Corporation is a corporation that provides food and
beverage services exclusively to the Desert Willow Golf Resort.
Lance, Soll & Lunghard, LLP performed and completed the annual independent audit for the
fiscal year ended June 30, 2020. In the auditor's opinion, the basic financial statements
present fairly, in all material respects, the financial position of the PDRFC as of June 30,
2019, and the results of its operations of the year then ended are in conformity with accounting
principles generally accepted in the United States of America.
In conducting the audit, the auditors are also required to test the PDRFC's internal controls.
Attached is the report issued by the auditors for the year ended June 30, 2020.
Staff requests that the Council receive and file the Palm Desert Recreational Facilities
Corporation's audited financial reports for the fiscal year ended June 30, 2020.
W:\Staff Reports-Shared 2\Staff Reports 01-28-2021\4-City Clerk-01-28-2021\06 PDRFC FINANCIALS STAFF REPORT\01 SR-
Council audit 2020 PDRFC.docx
Stafi� Report
Receive and file PDRFC reports for Fiscal Year ended June 30, 2020
January 28, 2021
Page 2 of 2
Fiscal IrrNa�t
There is no fiscal impact associated with this action.
LEGAL REVIEW DEPT. REV1EW FINANCIAL ASSISTANT
REVIEW CITY MANAGER
N/A �l�,�m. mooZG ��,�'�'t. �'toou N/A
Robert W. Hargreaves Janet M. Moore Janet M. Moore Andy Firestine
City AttornPv Director of Finance Dire�tor of Finance Assistant City Manager
Interim City Manager Randy Bynder: R 8 v►.de,r
CONTENTS: Palm Desert Recreational Facilities Corporation Audited Financial Report far
Fiscal Year Ended June 30, 2020, and the Independent Auditors' Fteport an
Internal Control over Financial Reporting and on Compliance and Other
Matters based on an Audit of Financial Statements Performed in Accordance
with Government Auditinq Standards
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Council audit 2020 PDRFC.docx
PALM DESERT RECREATIONAL
FACILITIES CORPORATION
ANNUAL FINANCIAL REPORT
WITH REPORT ON AUDIT
BY 1NDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS
FISCAL YEAR ENDED JUNE 30, 2020
PALM DESERT RECREATIONAL FACILITIES CORPORATION
TABLE OF CONTENTS
June 30, 2020
Page
Number
Independent Auditors'Report 1
Management's Discussion and Analysis 3
Basic Financial Statements:
Statement of Net Position 9
Statement of Revenues, Expenses and Changes in Net Position 10
Statement of Cash Flows 11
Notes to Basic Financial Statements 12
Independent Auditors' Report on Internal Control over 17
Financial Reporting and Compliance and Other
Matters Based on an Audit of Financial Statements
Performed in Accordance with Government Auditing Standards
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INDEPENDENT AUDITORS' REPORT
To the Board of Directors
Palm Desert Recreational Facilities Corporation
Palm Desert, California
Report on the Financial Statements
We have audited the accompanying financial statements of the Palm Desert Recreational Facilities
Corporation (the Corporation), a component unit of the City of Palm Desert, California, as of and for the
year ended June 30, 2020, and the related notes to the financial statements, which collectively comprise
the Corporation's basic financial statements as listed in the table of contents.
Management's Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of these financial statements in
accordance with accounting principles generally accepted in the United States of America; this includes
the design, implementation, and maintenance of internal control relevant to the preparation and fair
presentation of financial statements that are free from material misstatement, whether due to fraud or
error.
Auditor's Responsibility
Our responsibility is to express opinions on these financial statements based on our audit. We conducted
our audit in accordance with auditing standards generally accepted in the United States of America and
the standards applicable to financial audits contained in GovernmentAuditing Standards, issued by the
Comptroller General of the United States. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in
the financial statements. The procedures selected depend on the auditor's judgment, including the
assessment of the risks of material misstatement of the financial statements, whether due to fraud or
error. In making those risk assessments, the auditor considers internal control relevant to the entity's
preparation and fair presentation of the financial statements in order to design audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of
the entity's internal control. Accordingly, we express no such opinion. An audit also includes evaluating
the appropriateness of accounting policies used and the reasonableness of significant accounting
estimates made by management, as well as evaluating the overall presentation of the financial
statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for
our audit opinions.
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To the Board of Directors
Palm Desert Recreational Facilities Corporation
Palm Desert, California
Opinions
In our opinion, the financial statements referred to above present fairly, in all material respects, the
respective financial position of the Palm Desert Recreational Facilities Corporation (the Corporation), a
component unit of the City of Palm, California, as of June 30, 2020, and the respective changes in
financial position and, where applicable, cash flows thereof for the year then ended in accordance with
accounting principles generally accepted in the United States of America.
Other Matters
Required Supplementary Information
Accounting principles generally accepted in the United States of America require that the managemenYs
discussion and analysis be presented to supplement the basic financial statements. Such information,
although not a part of the basic financial statements, is required by the Governmental Accounting
Standards Board, who considers it to be an essential part of financial reporting for placing the basic
financial statements in an appropriate operational, economic, or historical context. We have applied
certain limited procedures to the required supplementary information in accordance with auditing
standards generally accepted in the United States of America, which consisted of inquiries of
management about the methods of preparing the information and comparing the information for
consistency with management's responses to our inquiries, the basic financial statements, and other
knowledge we obtained during our audit of the basic financial statements. We do not express an opinion
or provide any assurance on the information because the limited procedures do not provide us with
sufficient evidence to express an opinion or provide any assurance.
Other Reporting Required by Government Auditing Standards
In accordance with Government Auditing Standards, we have also issued our report dated
December 29, 2020 on our consideration of the Corporation's internal control over financial reporting and
on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant
agreements and other matters. The purpose of that report is solely to describe the scope of our testing of
internal control over financial reporting and compliance and the results of that testing, and not to provide
an opinion on the effectiveness of the Corporation's internal control over financial reporting or on
compliance. That report is an integral part of an audit performed in accordance with
Government Auditing Standards in considering the Corporation's internal control over financial
reporting and compliance.
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December 29, 2020
2
PALM DESERT RECREATIONAL FACILITIES CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
June 30, 2020
Our discussion and analysis of the financial performance of the Palm Desert Recreational Facilities
Corporation(the Corporation), a component unit of the City of Palm Desert,provides an overview of the
Corporation's financial activities for the fiscal year ended June 30, 2020. Please read it in conjunction
with the Palm Desert Recreation Facilities Corporation's financial statements.
FINANCIAL HIGHLIGHTS
• Palm Desert Recreational Facilities Corporation's net position deficit increased by $162,354
from $737,343 to $ 899,697.
• Palm Desert Recreational Facilities Corporation's gross income of $2,216,719 decreased by
$653,049 (23%) from the previous year.
• Palm Desert Recreational Facilities Corporation's gross profit decreased by $487,349 (24%)
from last year. The gross profit marginl decreased to 70%.
• Palm Desert Recreational Facilities Corporation's cost of goods sold decreased by
$165,700 from $833,293 to $667,593.
• Palm Desert Recreational Facilities Corporation's Selling and Administrative Expense
Percentage� increased from 67% to 77%.
USING THIS ANNUAL REPORT
This annual report consists of a series of financial statements. The Statement of Net Position and
Statement of Revenues, Expenses and Changes in Net Position (on pages 9 and 10)provide information
about the activities of the Palm Desert Recreational Facilities Corporation as a whole, and present a long-
term view of the Corporation's operations.
' The gross profit margin is calculated by dividing gross profit by gross sales. The gross profit margin indicates how well sales are
performing when compared to expectations and the industry. The corporation expected an industry gross profit margin of approximately
68%.
Z The selling and administrative expense percentage is calculated by dividing the sum of the Maintenance& Operations and the General&
Administrative costs by the gross sales. This percentage indicates how well the corporation's overhead is maintained in relation to sales.
The goal is to arrive at overhead cost of approximately 64%or lower.
See independent auditors' report.
3
PALM DESERT RECREATIONAL FACILITIES CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
REPORTING THE COMPONENT UNIT AS A WHOLE
The Statement of Net Position and the Statement of Revenues, Expenses and Changes in Net
Position:
Our analysis of the Palm Desert Recreational Facilities Corporation as a whole begins on page 9. The
Corporation plays an independent,yet vital role in completing the overall project known as Desert Willow
Golf Resort (a municipal golf course owned by the City of Palm Desert). The Corporation's only
function is to provide the Food and Beverage operations at the Desert Willow Clubhouse. The restaurant
operation within the environment of the golf industry is a necessary complement to a round of gol£ The
main focus of our analysis of the Palm Desert Recreational Facilities Corporation's operations is the
profitability of the food and beverage activities and tailoring the restaurant to meet the expectations of all
golf enthusiasts alike.
What is the outcome for the food & beverage operations for this fiscal year? The Statement of Net
Position and the Statement of Revenues, and the Expenses and Changes in Net Position report
information about the Component Unit as a whole and about its activities. This report along with the
financial highlights, noted above, illustrates the operations and the profitability of the food and beverage
activities. These statements include all assets and liabilities of the Corporation using the accrual basis
of accounting. With the accrual basis of accounting, all of the current year's revenues are recognized
when earned instead of received, and all expenses are recorded when incurred instead of when paid.
These two statements report the Palm Desert Recreational Facilities Corporation's net position and
changes in net position. Net position is the difference between assets and liabilities, which is one way
to measure the Corporation's financial health, or fznancial position. Over time, increases or decNeases
in the Corporation's net position is an indication of whether its financial health is improving or
deteriorating. To determine the profitability of the Corporation, consideration should also be given to
other non-financial factors such as the changes in consumer spending as a direct result of the overall
economic indicators, as well as changes in the significant industry factors such as price per golf round
and level of tourism.
THE COMPONENT UNIT AS A WHOLE
The Palm Desert Recreational Facilities Corporation's net position deficit increased by $162,354
from $737,343 to $899,697. For the first 8 months of the fiscal year the food and beverage operations
were on pace for another successful operating year, however, the impact of the COVID pandemic forced
the closure of all restaurant operations on March 20, 2020. Eventually the restaurant was able to operate
with to-go orders and very limited dining options in late May. The closure directly impacted the
operations resulting in the increase to the deficit in net position.
See independent auditors' report.
4
PALM DESERT RECREATIONAL FACILITIES CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
The restaurant operations recognized a 23% decrease in gross revenues and a net decrease in overall
expenditures of 14%. In response to the State mandated closure there was a decline in the Group outing
and banquet events given the restrictions imposed on restaurants in California. The reduction in
expenditures was directly related to reduced personnel costs associated with the closure of the restaurant.
Our analysis below focuses on the Net Position (Table 1) and Changes in Net Position (Table 2)
of the Corporation.
Table 1
Condensed Statements of Net Position
Fiscal Fiscal
Year Year
2020 2019
Assets:
Current assets $ 509,588 $ 333,345
Total Assets 509,588 333,345
Liabilities:
Other liabilities 1,409,285 1,070,688
Total Liabilities 1,409,285 1,074,688
Net Position:
Unrestricted(Deficit) (899,697) (737,343)
Total Net Position $ (899,697) $ (737,343)
Current assets increased by $176,243, which is related directly to the increase in other liabilities.
Other Liabilities increased by $334,597 (31%), from$1,074,688 in fiscal year end 2019 to $1,409,285 in
fiscal year end 2020. The increase from due to primary governments liabilities was the main factor in the
overall increase in other liabilities. The City of Palm Desert approved the deferral of the annual lease
payment in the amount of$96,000. Additionally,during the year the Desert Willow Golf Resort provided
an additional $276,955 in cash for operations to PDRFC which increased the related party liabilities.
See independent auditors' report.
5
PALM DESERT RECREATIONAL FACILITIES CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
Table 2
Condensed Statements of Revenues, Expenses
and Changes in Net Position
Fiscal Fiscal
Year Year
2020 2019
Operating Revenues:
Food and beverage sales $ 2,216,719 $ 2,869,768
Total Revenues 2,216,719 2,869,768
Operating Expenses:
Cost of goods sold 667,594 833,293
Maintenance and operations 1,485,757 1,718,639
General and administrative 225,722 217,818
Total Expenses 2,379,073 2,769,750
Change in Net Position $ (162,354). $ 100,018
Component Activities
Total revenue decreased by $653,049 (23%) from $2,869,768 to $2,216,719. The decline in revenues
was directly attributed to State mandated closure of all restaurant operations on March 20, 2020, and the
restrictions in place once operations were allowed to continue. Prior to the COVID restrictions, food and
beverage revenues were pacing at 13% above fiscal year 2019 levels. March 20th marked the start of a
full facility closure. In early April,the ability to offer"To Gd' service was allowed followed by Outdoor
Dining in late April, which also corresponded with the reopening of the golf courses. The reopening of
golf and outdoor dining allowed for improvements in a la carte dining revenues,but group Catering events
were extremely limited, which eliminated a vital market segment of the business; banquet and outings
revenues were completely lost due to the state restrictions.
This fiscal year was the ninetieth year of operation at the Desert Willow Clubhouse. During this fiscal
year, and prior to the State mandated closure, the Palm Desert Recreation Facilities Corporation
continued to market their banquets and outings aggressively in the national, regional and local markets
and advertising campaign to maximize the larger facilities with the focus on:
• Attracting new and repeat business.
• Continued patronage of customers and corporate groups.
• Increased banquet and outing operations.
• Marketing to golfers on the golf course.
As Table 2 above indicates, total expenses recognized a decrease of $390,677 from $2,769,750 to
$2,379,073. The majority of the decrease was represented in maintenance and operations; specifically,
decreased of payroll costs in the amount of$232,882, and decreased cost of goods sold in the amount of
$165,700.
See independent auditors' report.
6
PALM DESERT RECREATIONAL FACILITIES CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
During the 2019-2020 fiscal year,management continued to focus on retaining repeat business,continued
patronage, and growing the corporate and group market as the economy improves. After the State closure
Management refocused operations, by reducing labor and operational costs, and continued to negotiate
the impact of the COVID Pandemic and its direct impact on the restaurant operations.
The Gross P�ofit Margin decreased from 71% to 70%. The Selling and Administrative Expense
Percentage increased from the prior year from 67% to 77%. The impact of the closure of the restaurant
along with changes in the operations to restart the restaurant directly impacted the increase in the selling
and administrative expense.
CAPITAL ASSETS AND DEBT ADMINISTRATION
Capital Assets/Debt Administration
The Palm Desert Recreational Facilities Corporation does not own or lease any capital assets;
subsequently, there is no debt related to capital assets presented on their financial statement. More
details are presented in the Notes to the Financial Statements.
ECONOMIC FACTORS AND NEXT YEAR'S BUDGET
In preparing the budget for 2020-21, management looked at the following economic factors:
• COVID Pandemic: The uncertainty related to the COVID pandemic along with the State
mandated shutdown of operations are considered when finalizing the fiscal year 2020-21 budget.
• Prices: The prices for goods and services in the golf industry continue to experience downward
pressure resulting from the lagging economy. In an effort to maintain the integrity of the products
served at the restaurant, The Palm Desert Recreational Facility has increased menu prices
between 3-5% in response to the increased pressure on costs associated with labor and supplies.
Secondarily, management continues to implement better cost control measures to eliminate
wastage. In addition, the Palm Desert Recreational Facilities Corparation will continue to
aggressively market and advertise to secure their market share in the local and regional golf
industry.
• National Economy: The golf and hospitality industries rely heavily on a strong national and
local economy. With a strong national economy, the market demand for leisure activities such
as golf and dining is increased; however, in an economic downturn or a slowing of the
economy, the typical trend is for consumers to reduce their consumption of leisure activities. The
state of the current economy was taken into consideration when budgeting for the
2020-2021 fiscal year.
See independent auditors' report.
7
PALM DESERT RECREATIONAL FACILITIES CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
• Labor cost: The State of California has mandated increased minimum wage rates, which is
scheduled to increase from $13 per hour to $14 per hour effective January 1, 2021. The increase
minimum wage rate coupled with the mandated changes in employer provided health care benefits
(Affordable Care Act) places pressure on an already fragile food industry. The Palm Desert
Recreational Facilities Corporation has taken measures to manage labor costs without affecting
customer service, and will continue to seek effective and efficient methods to implement in their
daily operations.
A copy of the Corporation's 2020-2021 financial plan can be obtained by contacting the Palm Desert
Recreational Facilities Corporation (see below).
CONTACTING THE CORPORATION'S FINANCIAL MANAGEMENT
This financial report is designed to provide the users with a general overview of the Palm Desert
Recreational Facilities Corporation, a component unit of the City of Palm Desert. If you have questions
about this report or need additional financial information, contact the Controller at the address of the
Palm Desert Recreational Facilities Corporation at 38-995 Desert Willow Drive, Palm Desert, California
92260.
See independent auditors' report.
8
PALM DESERT RECREATIONAL FACILITIES CORPORATION
STATEMENT OF NET POSITION
June 30, 2020
ASSETS:
Cash and investments $ 440,173
Accounts receivable 12,915
Prepaid costs 11,512
Inventories 44,988
TOTAL ASSETS 509,588
LIABILITIES:
Accounts payable 19,003
Accrued liabilities 12,932
Due to Primary Government 1,293,673
Unearned revenue 83,677
TOTAL LIABILITIES 1,409,285
NET POSITION (DEFICIT):
Unrestricted(deficit) (899,697)
TOTAL NET POSITION $ (899,697)
See independent auditors' report and notes to basic financial statements.
9
PALM DESERT RECREATIONAL FACILITIES CORPORATION
STATEMENT OF REVENUES, EXPENSES AND CHANGES 1N NET POSITION
Fiscal Year Ended June 30, 2020
OPERATING REVENUE:
Food and beverage sales $ 2,216,719
TOTAL OPERATING REVENUE 2,216,719
OPERATING EXPENSES:
Cost of goods sold 667,594
Maintenance and operations 1,485,757
General and administrative 225,722
TOTAL OPERATING EXPENSES 2,379,073
OPERATING INCOME/CHANGE IN NET POSITION (162,354)
NET POSITION - BEGINNING OF YEAR (737,343)
NET POSITION - END OF YEAR $ (899,697)
See independent auditors' report and notes to basic financial statements.
10
PALM DESERT RECREATIONAL FACILITIES CORPORATION
STATEMENT OF CASH FLOWS
Fiscal Year Ended June 30, 2020
CASH FLOWS FROM OPERATING ACTIVITIES:
Receipts from customers $ 2,213,646
Payments to suppliers (2,414,676)
NET CASH USED BY OPERATING ACTIVITIES (201,030)
CASH FLOWS FROM NONCAPITAL AND RELATED
FINANCING ACTIVITIES:
Cash received from primary government $ 1,233,943
Cash paid to primary government (860,988)
NET CASH PROVIDED BY NONCAPITAL AND
RELATED FINANCING ACTIVITIES 372,955
NET INCREASE IN CASH AND CASH EQUIVALENTS 171,925
CASH AND CASH EQUIVALENTS - BEGINNING OF YEAR 268,248
CASH AND CASH EQUIVALENTS - END OF YEAR $ 440,173
RECONCILIATION OF OPERATING INCOME TO
NET CASH USED BY OPERATING ACTIVITIES:
Operating income $ (162,354)
Adjustments to reconcile operating income
to net cash provided by operating activities:
(Increase) decrease in accounts receivables,net (6,877)
(Increase) decrease in inventories (176)
(Increase) decrease in prepaid costs 2,735
Increase (decrease) in accounts payable and accrued liabilities (38,162)
Increase (decrease) in unearned revenue 3,804
NET CASH USED BY OPERATING ACTIVITIES $ (201,030)
See independent auditors' report and notes to basic financial statements.
11
PALM DESERT RECREATIONAL FACILITIES CORPORATION
NOTES TO BASIC FINANCIAL STATEMENTS
June 30, 2020
1. ORGANIZATION AND DESCRIPTION OF THE REPORTING ENTITY:
The Palm Desert Recreational Facilities Corporation(the Corporation)is a Corporation that provides
food and beverage services exclusively to the Desert Willow Golf Resort (the Golf Resort). The
Corparation is a component unit of the City of Palm Desert(the City) and is reported as an Enterprise
Fund in the City's basic financial statements. The Corporation was incorporated on
February 25, 1997. The Board of Directors of the Corporation consists of two members of the
City Council and two members of the public at large. The annual Board of Director's meetings are
held the second Monday of June at 11:00 a.m. at the principal office of the Corporation.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
a. Basic Financial Statements:
The basic financial statements are comprised of the Statement of Net Position, the Statement of
Revenues, Expenses and Changes in Net Position, the Statement of Cash Flows and the notes to
the basic financial statements.
b. Basis of Presentation:
The basic financial statements of the Palm Desert Recreational Facilities Corporation have
been prepared in conformity with the accrual basis of accounting principles as applicable to
government units. The Governmental Accounting Standards Board is the accepted
standard-setting body for establishing governmental accounting and financial reporting
principles.
The accounts of the Corporation are an enterprise fund. An enterprise fund is a Proprietary
type fund used to account for operations (a) that are financed and operated in a manner similar
to private business enterprises - where the intent of the governing body is that the costs
(expenses, including depreciation) of providing goods or services to the general public on a
continuing basis be financed or recovered primarily through user charges; or (b) where the
governing body has decided that periodic determination of revenues earned, expenses incurred,
and/or net income is appropriate for capital maintenance, public policy, management control,
accountability or other purposes.
See independent auditors' report.
12
PALM DESERT RECREATIONAL FACILITIES CORPORATION
NOTES TO BASIC FINANCIAL STATEMENTS
(CONTINUED)
June 30, 2020
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
c. Measurement Focus and Basis of Accounting:
Measurement focus is a term used to describe "which" transactions are recorded within the
various financial statements. Basis of accounting refers to "when" transactions are recorded
regardless of the measurement focus applied. The accompanying financial statements are
reported using the "economic resources measurement focus", and the "accrual basis of
accounting". Revenues are recorded when earned and expenses are recorded when a liability is
incurred, regardless of the timing of related cash flows.
d. Net Position:
In the Statement of Net Position,net position is classified in the following categories:
• Net investment in capital assets - This amount consists of capital assets net of accumulated
depreciation and reduced by outstanding debt that is attrib�uted to the acquisition, construction,
or improvement of the assets.
• Restricted net position- This amount is restricted by external creditors, grantors, contributors,
or laws or regulations of other governments.
• Unrestricted net position - This amount is all net position that do not meet the definition
of"net investment in capital assets" or"restricted net position".
When both restricted and unrestricted resources are available for use, the Corporation may use
restricted resources or unrestricted resources based on the Board's discretion.
e. Operating Revenues:
Operating revenues, such as food and beverage sales, resulting from exchange transactions
associated with the principal activity of the Corporation. Exchange transactions are those in
which each party receives and gives up essentially equal values.
£ Cash and Investments:
For purposes of the Statement of Cash Flows, the Corporation considers all unrestricted highly
liquid investments with an initial maturity of three months or less to be cash equivalents. The
carrying value was $435,525 and the deposit value was $440,173. The difference is represented
by $4,952 of deposits in transit and checks outstanding totaling $304 for a net total of
$4,648.
See independent auditors' report.
13
PALM DESERT RECREATIONAL FACILITIES CORPORATION
NOTES TO BASIC FINANCIAL STATEMENTS
(CONTINUED)
June 30, 2020
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
£ Cash and Investments (Continued):
The City has implemented GASB Statement No. 40, "Deposit and Investment Risk Disclosures".
This pronouncement is an amendment to GASB Statement No. 3. GASB Statement No. 40
establishes and modifies disclosure requirements related to deposit and investment risks. The
information required by GASB Statement No. 40 related to authorized investments, credit risk,
etc., is available in the annual report of the City.
g. Inventories and Prepaid:
Inventories in the amount of$44,988 consisted of inerchandise for sales of food and beverages,
are reported at lower of cost ar market.
Certain payments to vendors that reflect costs applicable to future accounting periods are recorded
as prepaid costs in the financial statements. At June 30, 2020 the prepaid balance was $11,512.
h. Budgetary Policies:
Kemper Sports Management, Inc. is required to submit to the City an operating budget containing
estimates of all the Corporation expenses for the next operating year, including expenditures for:
(a) property operation and maintenance, (b) repairs, replacements a n d alterations that do not
constitute capital improvements, (c) furnishings and equipment and operating inventory, and
(d) advertising, sale and business promotion. The budget is required to be reviewed and
approved by the City prior to July 1 st each year.
3. DUE TO PRIMARY GOVERNMENT AND UNEARNED REVENUE:
Due to primary government:
As of June 30, 2020, the Corporation owed the following amounts to primary government:
Desert Willow Golf Course $ 969,673
City of Palm Desert 324,000
$ 1,293,673
The Corporation amounts owed to primary government represent amounts owed to the Desert Willow
Golf Resort for monies provided for operations and rent due to the City of Palm Desert per the
operating lease with the City for use of the facilities (see Note 4).
See independent auditors' report.
14
PALM DESERT RECREATIONAL FACILITIES CORPORATION
NOTES TO BASIC FINANCIAL STATEMENTS
(CONTINUED)
June 30, 2020
3. DUE TO PRIMARY GOVERNMENT AND LTNEARNED REVENUE (continued):
Unearned revenue:
The balance of$83,677 represents the unused portions of prepaid banquets.
4. COMMITMENTS AND CONTINGENCIES:
Operating Leases:
The Corporation has an operating lease with the City for use of the facilities. The original terms of
the lease indicated a lease rate of$8,000 per month beginning June 4, 1997. On May 18, 2004, the
Corporation approved an increase in the lease payment commencing begin on July 1, 2004. The
July 1, 2004 lease amendment stipulated a new lease payment of$15,000 per month. On
May 12, 2009, the Board of Directors approved a decrease in the lease payment from $15,000 to
$8,000 commencing on July 1, 2009. The rent expense for the year ended June 30, 2020 was
$96,000. At June 30, 2020, the Corporation owed $324,000 in rent in arrears to the City of
Palm Desert.
Management Agreement:
The Corporation is managed by Kemper Sports Management, Inc., under an agreement to manage
and operate Desert Willow Golf Course. On April 13, 2017, a new contract was approved and with
a commencement date of July 2017 and a termination date of July 1, 2020. There are two 1-year
options to extend the management agreement. On May 23, 2019 both 1-year options were exercised
and approved; the term was extended to July l, 2022.
5. RISK MANAGEMENT:
The Golf Resort is covered by insurance purchased by Kemper Sports Management Inc., which
includes commercial liability, automobile, workers' compensation and overall umbrella excess
liability insurance through Aon Risk Services, Inc. of Illinois. The Corporation is named as
additional insured.
6. OTHER DISCLOSURES:
The Corporation has a net deficit of $ 899,697, which will be eliminated by increasing revenues
through banquet and dining reservations.
See independent auditors' report.
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PALM DESERT RECREATIONAL FACILITIES CORPORATION
NOTES TO BASIC FINANCIAL STATEMENTS
(CONTINUED)
June 30, 2020
6. OTHER DISCLOSURES (continued):
The Corporation has federal and state income tax Net Operating Losses (NOL) carryforwards of
$539,898,which will expire in the next 14 years as follows and a current NOL incurred in fiscal year
2019-2020 of$162,354 that can be carried forward indefinitely subject an income limitation of 80%
in year utilized, for a combined NOL of$702,252:
2011-2031 $ 395,413
2012-2032 109,556
2013-2033 34,929
2020- 162,354
$ 702,252
The Corporation anticipates that it is more likely than not the benefit for each certain State and Federal
NOL carryforwards will be realized prior to their respective expiration. The loss incurred in fiscal
year 2020 can be forwarded indefinitely, however is subject to a limitation of 80% of income.
See independent auditors' report.
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INDEPENDENT AUDITORS' REPORT ON INTERNAL CONTROL
OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS
BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE
WITH GOVERNMENT AUDITING STANDARDS
To the Board of Directors
Palm Desert Recreational Facilities Corporation
Palm Desert, California
We have audited, in accordance with the auditing standards generally accepted in the United States of
America and the standards applicable to financial audits contained in Government Auditing Standards
issued by the Comptroller General of the United States, the financial statements of the Palm Desert
Recreational Facilities Corporation (the Corporation), a component unit of the City of Palm Desert,
California (the Corporation), as of and for the year ended June 30, 2020, and the related notes to the
financial statements, which collectively comprise the Corporation's basic financial statements, and have
issued our report thereon dated April 27, 2020.
Internal Control over Financial Reporting
In planning and performing our audit of the financial statements, we considered the Corporation's internal
control over financial reporting (internal control) as a basis for designing audit procedures that are
appropriate in the circumstances for the purpose of expressing our opinions on the financial statements,
but not for the purpose of expressing an opinion on the effectiveness of the Corporation's internal control.
Accordingly, we do not express an opinion on the effectiveness of the Corporation's internal control.
A deficiency in internal contro/exists when the design or operation of a control does not allow management
or employees, in the normal course of performing their assigned functions,to prevent,or detect and correct,
misstatements on a timely basis. A material weakness is a deficiency, or a combination of deficiencies, in
internal control, such that there is a reasonable possibility that a material misstatement of the entity's
financial statements will not be prevented or detected and corrected on a timely basis. A significant
deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe than a
material weakness, yet important enough to merit attention by those charged with governance.
Our consideration of internal control was for the limited purpose described in the first paragraph of this
section and was not designed to identify all deficiencies in internal control that might be material
weaknesses or, significant deficiencies. Given these limitations, during our audit we did not identify any
deficiencies in internal control that we consider to be material weaknesses. However, material weaknesses
may exist that have not been identified.
Compliance and Other Matters
As part of obtaining reasonable assurance about whether the Corporation's financial statements are free
from material misstatement, we performed tests of its compliance with certain provisions of laws,
regulations, contracts, and grant agreements, noncompliance with which could have a direct and material
effect on financial statements. However, providing an opinion on compliance with those provisions was not
an objective of our audit, and accordingly, we do not express such an opinion. The results of our tests
disclosed no instances of noncompliance or other matters that are required to be reported under
Government Auditing Standards. �
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To the Board of Directors
Palm Desert Recreational Facilities Corporation
Palm Desert, California
Purpose of this Report
The purpose of this report is solely to describe the scope of our testing of internal control and compliance
and the results of that testing,and not to provide an opinion on the effectiveness of the Corporation's internal
control or on compliance. This report is an integral part of an audit performed in accordance with
Government Auditing Standards in considering the Corporation's internal control and compliance.
Accordingly, this communication is not suitable for any other purpose.
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Brea, California
December 29, 2020
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