HomeMy WebLinkAboutIndependant Accountants Report Transient Occupancy Tax (TOT) YE 2016MEETING DATE
PREPARED BY:
REQUEST:
Recommendation
STAFF REPORT
CITY OF PALM DESERT
FINANCE DEPARTMENT
June 13, 2019
Jose Luis Espinoza, CPA, Assistant Finance Director
Receive and file the Independent Accountants' Report on Applying Agreed -
upon Procedures relative to Transient Occupancy Tax for the Calendar
Year ended 2016
By Minute Motion, that the City Council receive and file the Independent
Accountants' Report on Applying Agreed -upon Procedures relative to Transient
Occupancy Tax for the Calendar Year ended 2016.
Strateqic Plan Obiective
Not applicable.
Committee Recommendation
The Audit, Investment and Finance Committee received the reports relative to the audit of
Transient Occupancy Tax operators at their May 28, 2019 meeting, and recommended that the
reports be received and filed by the City Council.
Background
Annually, it has been the City's practice to conduct transient occupancy tax (TOT) collection
procedure reviews on several hotel operators within the City. The City's contracted audit firm,
Lance, Soll & Lunghard, LLP, conducted these reviews outside their base contract as Agreed -
Upon Procedures Reviews. In this review, the auditors reviewed procedures outlined by staff
which included a review of the processes an operator uses in complying with the City's TOT
Ordinance.
Attached is the summary, identified as Exhibit A, for the reviews conducted as well as the
reports of the auditor's findings. The reports are differentiated by operator number versus
hotel name as the operator's specific tax data is confidential. Therefore, electronic copies
have been provided to the City Attorney's office. Operators received a copy of their respective
draft reports and were asked to respond with any concerns. The reviewer has responded to
all inquiries and the reports have been finalized.
G:\Finance\Niamh Ortega\Staff Reports\Audit staff reports\Audit Staff Reports 2018\SR - Council audit CY 2016 TOT.docx
Staff Report
Receive and File — Report on TOT for Calendar Year ended 2016
Page 2 of 2
Fiscal Analvsis
The aggregate amount of underpaid TOT totals $4.59 not including any penalties and interest
that may be due. One operator overpaid by $13.36. Finance is in the process of resolving
these balances.
LEGAL REVIEW DEPT. REVIEW FINANCIAL REVIEW CITY MANAGER
Robert W. Hargreaves ° et M. Moore \,!lane! M. Moore Lauri Aylaian
City Attorney Director of Finance Director of Finance Citv Manager
ATTACHMENTS: 1
2
JLE:nmo
Exhibit A - Summary of TOT Audit Findings
Redacted reports for Operators 1 — 5
G:\Finance\Niamh Ortega\Staff Reports\Audit staff reports\Audit Staff Reports 2018\SR - Council audit CY 2016 TOT.docx
EXHIBIT A
CITY OF PALM DESERT
Finance Department
Audit of Transient Occupancy Tax Returns for Selected Operators
submitted for the period of
January 1, 2016 through December 31, 2016
The outcome of the auditors' application of agreed -upon procedures is as follows:
• Operator 1: This company owes the City of Palm Desert $1.13 for underpayment
of Transient Occupancy Tax.
• Operator 2: The City of Palm Desert owes this company $13.36 for overpayment
of Transient Occupancy Tax.
• Operator 3: This company owes the City of Palm Desert $3.46 for underpayment
of Transient Occupancy Tax.
• Operator 4: There were no findings for this audit.
• Operator 5: There were no findings for this audit.
LS*00L•
INDEPENDENT ACCOUNTANTS' REPORT ON APPLYING
AGREED -UPON PROCEDURES
To the Honorable Mayor and Members of the City Council
City of Palm Desert, California
We have performed the procedures enumerated below, which were agreed to by the management of the
City of Palm Desert, California (the City) solely to assist the City in verifying the accuracy of the transient
occupancy tax returns submitted by Operator #1 (the Hotel) to the City for the period
January 1, 2016 through December 31, 2016. This engagement to apply agreed -upon procedures was
performed in accordance with attestation standards established by the American Institute of Certified Public
Accountants. The sufficiency of the procedures is solely the responsibility of the management of the
City of Palm Desert. Consequently, we make no representations regarding the sufficiency of the procedures
described below either for the purpose for which this report has been requested or for any other purpose.
We performed the following procedures on the books and records of the Hotel, as agreed upon by the
management of the City. The procedures performed, and the results obtained from the performance thereof
were as follows:
1. Procedure: Verify the mathematical accuracy and timeliness of transient occupancy reports filed with
the City.
Result: For the month ending October 2016, the Hotel rounded the TOT taxes due reported on the
tax return and as a result underpaid taxes by $0.70. This resulted in additional penalties and interest
of $0.35 and $0.08, respectively.
2. Procedure: Trace the gross revenues reported on the transient occupancy tax returns prepared by
the Hotel to gross revenues recorded in the Hotel's accounting records and verify that these were in
accordance with the City's ordinance.
Result: No findings were noted as a result of our test work.
3. Procedure: Select a sample of rental transactions during the review period and for each transaction
selected, verify tax computations and trace the amounts of rental revenues and transient occupancy
tax collected to the books and records of the Hotel. (Excluding the months of July, August and
September).
Result: No findings were noted as a result of our test work.
4. Procedure: Review the internal control procedures of the Hotel to determine the following:
a. How "gross rents" and "uncollected rents" were accounted for and reported to the City.
b. What procedures were in place to identify transient and non -transient guests.
c. How exemptions, including complimentary rooms, were documented and reported to the City.
Result: No findings were noted as a result of our test work.
5. Procedure: Review the supporting documentation, on a sample basis, for exemptions claimed on the
transient occupancy tax returns. ! PrimeGlobal
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LS12":00
To the Honorable Mayor and Members of the City Council
City of Palm Desert, California
Result: No findings were noted as a result of our test work.
6. Procedure: We will perform additional procedures that we consider necessary to verify the
reasonableness of reported revenues of the Hotel Operator.
Result: No findings were noted as a result of our test work.
7. Procedure: We inquired how the Hotel handles reservations and payments done online through a
third party such as Expedia and how the transient occupancy tax was collected and reported to the
City for these transactions.
Result: The Hotel uploads third party reservations to the property management system, Fosse.
(Front Office Select Service Extended Stay). The Fosse program will post room revenue and TOT
nightly and it will be combined with guest stays that were booked directly through the Hotel to
generate taxing information and return information. Payments for guests booked via a third party are
received directly from the vendor but does not affect the filing and payment of TOT Tax returns.
Exhibit A provides additional information relating to the calculation of transient occupancy tax and the resulting
over/under payment of any taxes based on the procedures performed above. As a result of our procedures,
the Hotel underpaid the City by $1.13 during the year.
We were not engaged to, and did not perform, an audit of the transient occupancy tax returns of the Hotel, the
objective of which would be the expression of a certified opinion on the transient occupancy tax payments
made by the Hotel to the City. Accordingly, we do not express such an opinion. Had we performed additional
procedures, other matters might have come to our attention that would have been reported to the City.
This report is intended solely for the use of the City of Palm Desert and is not intended to be, and should not
be, used by anyone other than this specified party.
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INDEPENDENT ACCOUNTANTS' REPORT ON APPLYING
AGREED -UPON PROCEDURES
To the Honorable Mayor and Members of the City Council
City of Palm Desert, California
We have performed the procedures enumerated below, which were agreed to by the management of the
City of Palm Desert, California (the City) solely to assist the City in verifying the accuracy of the transient
occupancy tax returns submitted by the Operator #2 (the Hotel) to the City for the period January 1, 2016
through December 31, 2016. This engagement to apply agreed -upon procedures was performed in
accordance with attestation standards established by the American Institute of Certified Public Accountants.
The sufficiency of the procedures is solely the responsibility of the management of the City of Palm Desert.
Consequently, we make no representations regarding the sufficiency of the procedures described below either
for the purpose for which this report has been requested or for any other purpose.
We performed the following procedures on the books and records of the Hotel, as agreed upon by the
management of the City. The procedures performed, and the results obtained from the performance thereof
were as follows:
1. Procedure: Verify the mathematical accuracy and timeliness of transient occupancy reports filed with
the City.
Result: No findings were noted as a result of our test work.
2. Procedure: Trace the gross revenues reported on the transient occupancy tax returns prepared by
the Hotel to gross revenues recorded in the Hotel's accounting records and verify that these were in
accordance with the City's ordinance.
Result: No findings were noted as a result of our test work.
3. Procedure: Select a sample of rental transactions during the review period and for each transaction
selected, verify tax computations and trace the amounts of rental revenues and transient occupancy
tax collected to the books and records of the Hotel. (Excluding the months of July, August and
September).
Result: The Hotel was unable to provide folios selected for two guests in the month of March 2016.
4. Procedure: Review the internal control procedures of the Hotel to determine the following:
a. How "gross rents" and "uncollected rents" were accounted for and reported to the City.
b. What procedures were in place to identify transient and non -transient guests.
c. How exemptions, including complimentary rooms, were documented and reported to the City.
Result: It was noted that the Hotel will remit all transient tax monies collected to the City and often
these taxes collected vary from the amount calculated on the tax return. The Hotel identified these
variances were the result of when front desk associates make manual adjustments. In total, the Hotel
remitted approximately $749.75 in over -collected taxes to the City via the monthly tax returns.
PrimeGlobal
LS[2,o:::00
To the Honorable Mayor and Members of the City Council
City of Palm Desert, California
5. Procedure: Review the supporting documentation, on a sample basis, for exemptions claimed on the
transient occupancy tax returns.
Result: During the month of September 2016, it was noted that exemptions amounts listed for two
guests were over stated on the tax return by $2,616 and $2,550. As a result, the Hotel underpaid the
City by $464.94 for taxes related to these two guests. In addition to the underpayment, a penalty of
$232.47 and interest in the amount of $55.79 were calculated. These penalties were calculated
based on twelve months of delayed payment.
6. Procedure: We will perform additional procedures that we consider necessary to verify the
reasonableness of reported revenues of the Hotel Operator.
Result: No findings were noted as a result of our test work.
7. Procedure: We inquired how the Hotel handles reservations and payments done online through a
third party such as Expedia and how the transient occupancy tax was collected and reported to the
City for these transactions.
Result: Expedia's reservation system is linked to the PMS (Property Management System), so any
guests who book with Expedia will have a reservation created in OnQ automatically. Revenue is
accounted for during the stay, and payment is collected through Expedia's card, since the guest
already paid Expedia.
Exhibit A provides additional information relating to the calculation of transient occupancy tax and the resulting
over/under payment of any taxes based on the procedures performed above. As a result of our procedures,
the Hotel underpaid the City by $3.46 during the year.
We were not engaged to, and did not perform, an audit of the transient occupancy tax returns of the Hotel, the
objective of which would be the expression of a certified opinion on the transient occupancy tax payments
made by the Hotel to the City. Accordingly, we do not express such an opinion. Had we performed additional
procedures, other matters might have come to our attention that would have been reported to the City.
This report is intended solely for the use of the City of Palm Desert and is not intended to be, and should not
be, used by anyone other than this specified party.
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INDEPENDENT ACCOUNTANTS' REPORT ON APPLYING
AGREED -UPON PROCEDURES
To the Honorable Mayor and Members of the City Council
City of Palm Desert, California
We have performed the procedures enumerated below, which were agreed to by the management of the
City of Palm Desert, California (the City) solely to assist the City in verifying the accuracy of the transient
occupancy tax returns submitted by the Operator #3 (the Hotel) to the City for the period
January 1, 2016 through December 31, 2016. This engagement to apply agreed -upon procedures was
performed in accordance with attestation standards established by the American Institute of Certified Public
Accountants. The sufficiency of the procedures is solely the responsibility of the management of the
City of Palm Desert. Consequently, we make no representations regarding the sufficiency of the procedures
described below either for the purpose for which this report has been requested or for any other purpose.
We performed the following procedures on the books and records of the Hotel, as agreed upon by the
management of the City. The procedures performed, and the results obtained from the performance thereof
were as follows:
1. Procedure: Verify the mathematical accuracy and timeliness of transient occupancy reports filed with
the City.
Result: Mathematical errors were noted in the months of August and September 2016. Both errors
were regarding the exemption listings filed with the returns. In these months both supporting
schedules did not agree to the amounts listed on the tax return total tax due and payable calculation.
For August 2016, the return noted $26,261.20 in allowable deductions with the supporting schedule
stating 26,317.67 in allowable deductions. LSL footed the exemption listing and noted a true total of
$26,327.67, which is the amount utilized to calculate total taxes due in Exhibit A attached. For the
Month of September 2016 the return noted $12,112.20 in allowable deductions with the supporting
schedule stating $12,194.20 in allowable deductions. LSL footed the exemption listing and noted the
total of $12,194.20 footed correctly and utilized this amount to calculate total taxes due in Exhibit A.
In total, these mathematical errors resulted in the Hotel over paying taxes in the combined amount of
$13.36 for the months of August and September 2016.
2. Procedure: Trace the gross revenues reported on the transient occupancy tax returns prepared by
the Hotel to gross revenues recorded in the Hotel's accounting records and verify that these were in
accordance with the City's ordinance.
Result: No findings were noted as a result of our test work.
3. Procedure: Select a sample of rental transactions during the review period and for each transaction
selected, verify tax computations and trace the amounts of rental revenues and transient occupancy
tax collected to the books and records of the Hotel. (Excluding the months of July, August and
September).
Result: No findings were noted as a result of our test work.
PrimeGlobal
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To the Honorable Mayor and Members of the City Council
City of Palm Desert, California
4. Procedure: Review the internal control procedures of the Hotel to determine the following:
a. How "gross rents" and "uncollected rents" were accounted for and reported to the City.
b. What procedures were in place to identify transient and non -transient guests.
c. How exemptions, including complimentary rooms, were documented and reported to the City.
Result: No findings were noted as a result of our test work.
5. Procedure: Review the supporting documentation, on a sample basis, for exemptions claimed on the
transient occupancy tax returns.
Result: No findings were noted as a result of our test work.
6. Procedure: We will perform additional procedures that we consider necessary to verify the
reasonableness of reported revenues of the Hotel Operator.
Result: No findings were noted as a result of our test work.
7. Procedure: We inquired how the Hotel handles reservations and payments done online through a
third party such as Expedia and how the transient occupancy tax was collected and reported to the
City for these transactions.
Result: Third party providers have the direct ability to book reservations booked via their websites into
the Hotel's PMS (Property Management System). The Hotel then uses the information just as they
would their own to determine TOT taxes. Payments from online vendors are collected directly from
the vendor.
Exhibit A provides additional information relating to the calculation of transient occupancy tax and the resulting
over/under payment of any taxes based on the procedures performed above. As a result of our procedures,
the Hotel overpaid the City by $13.36 during the year.
We were not engaged to, and did not perform, an audit of the transient occupancy tax returns of the Hotel, the
objective of which would be the expression of a certified opinion on the transient occupancy tax payments
made by the Hotel to the City. Accordingly, we do not express such an opinion. Had we performed additional
procedures, other matters might have come to our attention that would have been reported to the City.
This report is intended solely for the use of the City of Palm Desert and is not intended to be, and should not
be, used by anyone other than this specified party.
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INDEPENDENT ACCOUNTANTS' REPORT ON APPLYING
AGREED -UPON PROCEDURES
To the Honorable Mayor and Members of the City Council
City of Palm Desert, California
We have performed the procedures enumerated below, which were agreed to by the management of the
City of Palm Desert, California (the City) solely to assist the City in verifying the accuracy of the transient
occupancy tax returns submitted by the Operator #4 (the Hotel) to the City for the period
January 1, 2016 through December 31, 2016. This engagement to apply agreed -upon procedures was
performed in accordance with attestation standards established by the American Institute of Certified Public
Accountants. The sufficiency of the procedures is solely the responsibility of the management of the
City of Palm Desert. Consequently, we make no representations regarding the sufficiency of the procedures
described below either for the purpose for which this report has been requested or for any other purpose.
We performed the following procedures on the books and records of the Hotel, as agreed upon by the
management of the City. The procedures performed, and the results obtained from the performance thereof
were as follows:
1. Procedure: Verify the mathematical accuracy and timeliness of transient occupancy reports filed with
the City.
Result: No findings were noted as a result of our test work.
2. Procedure: Trace the gross revenues reported on the transient occupancy tax returns prepared by
the Hotel to gross revenues recorded in the Hotel's accounting records and verify that these were in
accordance with the City's ordinance.
Result: It was noted that the Hotel's accounting records gross revenues did not agree to the gross
rents stated on the monthly tax return for 9 out of the 12 months reviewed. In all cases, the gross
rents reported on the monthly tax returns showed higher revenues compared to the Hotel's accounting
records. Procedures noted the Hotel typically reports gross revenues based on a calculation of the
Hotels' tax liability account balance at the end of each month or actual revenues and whichever is
higher is reported. The Hotel operator was not able to provide documentation to determine how they
calculated the TOT tax owed to the City for all months being reviewed. In our analysis, the difference
between using gross receipts less exceptions or liability account was less than 1 % of the total TOT
paid to the City.
3. Procedure: Select a sample of rental transactions during the review period and for each transaction
selected, verify tax computations and trace the amounts of rental revenues and transient occupancy
tax collected to the books and records of the Hotel. (Excluding the months of July, August and
September).
Result: The Hotel was unable to provide one guest folio due to a system purge of all data before
January 31, 2016.
r PrimeGlobal
LS[2:::
To the Honorable Mayor and Members of the City Council
City of Palm Desert, California
4. Procedure: Review the internal control procedures of the Hotel to determine the following:
a. How "gross rents" and "uncollected rents" were accounted for and reported to the City.
b. What procedures were in place to identify transient and non -transient guests.
c. How exemptions, including complimentary rooms, were documented and reported to the City.
Result: No findings were noted as a result of our test work.
5. Procedure: Review the supporting documentation, on a sample basis, for exemptions claimed on the
transient occupancy tax returns.
Result: No findings were noted as a result of our test work.
6. Procedure: We will perform additional procedures that we consider necessary to verify the
reasonableness of reported revenues of the Hotel Operator.
Result: As noted in procedure 2, it was noted the Hotel typically reports gross revenues based on a
calculation of the Hotels' tax liability account balance at the end of each month or actual revenues and
whichever is higher is reported. An additional procedure was performed to compare the gross
revenues and the tax liabilities in the Hotel's general ledger to see if this was consistently performed
over the course of the year and to determine if there are still any variances. As a result it was noted
this procedure was not consistent.
7. Procedure: We inquired how the Hotel handles reservations and payments done online through a
third party such as Expedia and how the transient occupancy tax was collected and reported to the
City for these transactions.
Result: Reservations made through a third -party come through to the property as a wholesale rate
and the TOT/TMD is charged and processed in the same manner as any other transient reservation
The guests are assigned a "normal" account for incidental charges, but the "Rm&Tax" account for the
nightly rate and TOT/TMD is not given to the guests and exists only for billing purposes. The
"Rm&Tax" account is settled with a one-time use credit card (Priceline) or is checked out to a
receivable account that is direct billed to the third party (Expedia).
We were not engaged to, and did not perform, an audit of the transient occupancy tax returns of the Hotel, the
objective of which would be the expression of a certified opinion on the transient occupancy tax payments
made by the Hotel to the City. Accordingly, we do not express such an opinion. Had we performed additional
procedures, other matters might have come to our attention that would have been reported to the City.
This report is intended solely for the use of the City of Palm Desert and is not intended to be, and should not
be, used by anyone other than this specified party.
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INDEPENDENT ACCOUNTANTS' REPORT ON APPLYING
AGREED -UPON PROCEDURES
To the Honorable Mayor and Members of the City Council
City of Palm Desert, California
We have performed the procedures enumerated below, which were agreed to by the management of the
City of Palm Desert, California (the City) solely to assist the City in verifying the accuracy of the transient
occupancy tax returns submitted by the Operator #5 (the Hotel) to the City for the period January 1, 2016
through December 31, 2016. This engagement to apply agreed -upon procedures was performed in
accordance with attestation standards established by the American Institute of Certified Public Accountants.
The sufficiency of the procedures is solely the responsibility of the management of the
City of Palm Desert. Consequently, we make no representations regarding the sufficiency of the procedures
described below either for the purpose for which this report has been requested or for any other purpose.
We performed the following procedures on the books and records of the Hotel, as agreed upon by the
management of the City. The procedures performed, and the results obtained from the performance thereof
were as follows:
1. Procedure: Verify the mathematical accuracy and timeliness of transient occupancy reports filed with
the City.
Result: No findings were noted as a result of our test work.
2. Procedure: Trace the gross revenues reported on the transient occupancy tax returns prepared by
the Hotel to gross revenues recorded in the Hotel's accounting records and verify that these were in
accordance with the City's ordinance.
Result: It was noted that the Hotel's accounting records gross revenues did not agree to the gross
rents stated on the monthly tax return for 10 out of the 12 months reviewed. In all cases, the gross
rents reported on the monthly tax returns showed higher revenues compared to the Hotel's accounting
records. Procedures noted the Hotel typically reports gross revenues based on a calculation of the
Hotels' tax liability account balance at the end of each month or actual revenues and whichever is
higher is reported. The Hotel operator was not able to provide documentation to determine how they
calculated the TOT tax owed to the City for all months being reviewed. In our analysis, the difference
between using gross receipts less exceptions or liability account was less than 1 % of the total TOT
paid to the City.
3. Procedure: Select a sample of rental transactions during the review period and for each transaction
selected, verify tax computations and trace the amounts of rental revenues and transient occupancy
tax collected to the books and records of the Hotel. (Excluding the months of July, August and
September).
Result: The Hotel was unable to provide one guest folio due to a system purge of all data before
January 31, 2016.
PrimeGlobal
LS12:::
To the Honorable Mayor and Members of the City Council
City of Palm Desert, California
4. Procedure: Review the internal control procedures of the Hotel to determine the following:
a. How "gross rents" and "uncollected rents" were accounted for and reported to the City.
b. What procedures were in place to identify transient and non -transient guests.
c. How exemptions, including complimentary rooms, were documented and reported to the City.
Result: No findings were noted as a result of our test work.
5. Procedure: Review the supporting documentation, on a sample basis, for exemptions claimed on the
transient occupancy tax returns.
Result: No findings were noted as a result of our test work.
Procedure: We will perform additional procedures that we consider necessary to verify the
reasonableness of reported revenues of the Hotel Operator.
Result: As noted in procedure 2, it was noted the Hotel typically reports gross revenues based on a
calculation of the Hotels' tax liability account balance at the end of each month or actual revenues and
whichever is higher is reported. An additional procedure was performed to compare the gross
revenues and the tax liabilities in the Hotel's general ledger to see if this was consistently performed
over the course of the year and to determine if there are still any variances. As a result it was noted
this procedure was not consistent.
7. Procedure: We inquired how the Hotel handles reservations and payments done online through a
third party such as Expedia and how the transient occupancy tax was collected and reported to the
City for these transactions.
Result: Reservations made through a third -party come through to the property as a wholesale rate
and the TOT/TMD is charged and processed in the same manner as any other transient reservation
The guests are assigned a "normal" account for incidental charges, but the "Rm&Tax" account for the
nightly rate and TOT/TMD is not given to the guests and exists only for billing purposes. The
"Rm&Tax" account is settled with a one-time use credit card (Priceline) or is checked out to a
receivable account that is direct billed to the third party (Expedia).
We were not engaged to, and did not perform, an audit of the transient occupancy tax returns of the Hotel, the
objective of which would be the expression of a certified opinion on the transient occupancy tax payments
made by the Hotel to the City. Accordingly, we do not express such an opinion. Had we performed additional
procedures, other matters might have come to our attention that would have been reported to the City.
This report is intended solely for the use of the City of Palm Desert and is not intended to be, and should not
be, used by anyone other than this specified party.
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February 4, 2019