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HomeMy WebLinkAboutAudit Investment Finance Committee 03/27/2018 .. .. D .............................. MINUTES i.m REGULAR MEETING OF THE PALM DESERT i ' AUDIT, INVESTMENT & FINANCE COMMITTEE Tuesday, March 27, 2018 I. CALL TO ORDER Chairman Leo called the meeting to order at 10:00 a.m. II. ROLL CALL Present: Absent: Lauri Aylaian, City Manager(10:10 a.m.) Russell Campbell, Community Member Robert Hargreaves, City Attorney Brian Holcombe, Community Member Sabby Jonathan, Mayor Janet Moore, Finance Director Stanley Sperling, Committee Member Susan Marie Weber, Mayor Pro-Tempore Robert Leo, Chair Also Present: Jose Luis Espinoza, Assistant Finance Director Anthony Hernandez, Senior Financial Analyst Niamh Ortega, Recording Secretary Ryan Stendell, Director of Community Development Derek White, Desert Willow Golf Resort III. ORAL COMMUNICATIONS — None. IV. APPROVAL OF MINUTES A. MINUTES OF THE MEETING OF JANUARY 23, 2018 Mayor Pro-Tern Weber stated that she was present at the beginning of the last meeting, and requested that the attendance record be adjusted accordingly. MOTION was made by Member Hargreaves to approve as amended the Minutes of the regular meeting of the Palm Desert Audit, Investment and Finance Committee held on January 23, 2018. Motion was seconded by Member Sperling and carried by a 6-0 vote, with Hargreaves, Jonathan, Moore, Sperling, Weber and Leo voting AYE. Aylaian, Campbell, and Holcombe ABSENT. INVESTMENT & FINANCE COMMITTEE MINUTES MARCH 27, 2018 V. NEW BUSINESS A. REPORT ON CITY INVESTMENT SCHEDULE AND SUMMARY OF CASH FOR DECEMBER 2017, JANUARY AND FEBRUARY 2018 Mr. Metz provided an overview of the report and summarized the information for the month of February as provided in the agenda packet. MOTION was made by Member Moore to recommend that the City Council receive and file the City Investment Schedule and Summary of Cash Report for the months of December 2017, January and February 2018. Motion was seconded by Member Hargreaves and carried by a 6-0 vote, with Hargreaves, Jonathan, Moore, Sperling, Weber and Leo voting AYE. Aylaian, Campbell, and Holcombe ABSENT. B. STATEMENTS FOR LOCAL AGENCY INVESTMENT POOL ACCOUNT THROUGH FEBRUARY 2018 Member Metz provided an overview of the reports. MOTION was made by Member Sperling to receive and file the reports for Local Agency Investment Fund (LAIF), California Asset Management Program (CAMP), and Riverside County Investment Pool through February 2018. Motion was seconded by Member Hargreaves and carried by a 6-0 vote, with Hargreaves, Jonathan, Moore, Sperling, Weber and Leo voting AYE. Aylaian, Campbell, and Holcombe ABSENT. C. FINANCIAL REPORT FOR CITY OF PALM DESERT THROUGH FEBRUARY 2018 Member Moore stated that billings for police were lagging behind, which is standard, as the County is slow to bill for services. She indicated that staff had just processed two monthly invoices recently received, which would be reflected on the next report to the Committee. Member Moore informed the Committee that she is watching sales tax reports very closely. She explained that the composition of retail sales has changed and the process of collecting sales tax for internet purchases is still evolving. The sales tax received to date is in line with budget; however, the prior year-to-date actuals are down approximately $15,000. The reported sales tax revenue is approximately three months delayed because the detail from the State is behind. A clear picture of the City's received sales tax will not be evident until late summer when the State issues its final detailed reports, which is after the City's fiscal year ends. Mayor Jonathan asked if there was any data demonstrating a breakdown of sales tax received from "brick and mortar" locations versus online sales. 2 INVESTMENT & FINANCE COMMITTEE MINUTES MARCH 27, 2018 Member Moore responded that there is a breakdown available. Mayor Jonathan asked staff to provide a three-year breakdown on brick and mortar sales tax. There was discussion regarding which purchases result in sales tax being remitted to the City. Mayor Pro-Tern Weber and Mayor Jonathan referred to a presentation they both attended wherein the speaker indicated that even if a buyer purchases elsewhere, it is where it is delivered that matters. The topic of auto purchases was also discussed at length. Member Moore will bring back to the Committee any information that might be available on these issues. Mayor Jonathan indicated he would like to see the breakdown for brick and mortar stores since retail purchases are handled differently than automobile purchases. MOTION was made by Member Jonathan to receive and file the financial report for the City of Palm Desert through February 2018. Motion was seconded by Member Hargreaves and carried by a 7-0 vote, with Aylaian, Hargreaves, Jonathan, Moore, Sperling, Weber and Leo voting AYE. Campbell and Holcombe ABSENT. D. FINANCIAL REPORT ON PARKVIEW PROFESSIONAL OFFICE BUILDINGS THROUGH FEBRUARY 2018 Mr. Hernandez summarized the month's activity. MOTION was made by Member Moore to receive and file the financial report on Parkview Professional Office Buildings through February 2018 as presented. Motion was seconded by Member Sperling and carried by a 7-0 vote, with Aylaian, Hargreaves, Jonathan, Moore, Sperling, Weber and Leo voting AYE. Campbell and Holcombe ABSENT. E. FINANCIAL REPORT ON DESERT WILLOW GOLF RESORT THROUGH FEBRUARY 2018 Mr. White reported that it was yet another successful month for Desert Willow. He provided an overview of the report, and indicated that they are currently working on some deferred maintenance items. Food and beverage has been itemized as its own component on the report to provide a better understanding from an operational and cash flow perspective. Mr. White was asked why he thought the course was performing so well. He responded that all courses in the area were doing well, citing the improved Canadian exchange rate and the upcoming Masters event as reasons for success. The 2018 Masters Golf Tournament is one of the more anticipated events of the year and has sparked a great interest in the game. Additionally, the weather was phenomenal in December and January with little to no frost 3 INVESTMENT & FINANCE COMMITTEE MINUTES MARCH 27, 2018 in the mornings, so more people were able to take advantage of early morning play than in previous years. MOTION was made by Member Sperling to receive and file the Palm Desert Golf Course Facilities Corporation financial reports through February 2018 as presented. Motion was seconded by Member Hargreaves and carried by a 7-0 vote, with Aylaian, Hargreaves, Jonathan, Moore, Sperling, Weber and Leo voting AYE. Campbell and Holcombe ABSENT. F. DISCUSSION RELATIVE TO ADDITIONAL AUDIT PROCEDURES PRICING AND SAMPLES Mr. Espinoza reminded the Committee that at the last meeting they had requested additional information on various audits that may address areas outside the scope of the regular audit, or delve deeper into information than a general audit does. He summarized the auditing levels proposed by the auditor, which were provided to the Committee for review as part of the agenda packet. Mr. Espinoza's recommendation is that the Committee determine which areas they would like the auditor to review(i.e. fixed assets, Accounts Payable, etc.) and at the next meeting make the request of the auditor. It would be more cost-efficient if the audit were focused on a specific area. Chairman Leo asked Mayor Jonathan if this is what he had in mind when he raised the topic at the last meeting. Mayor Jonathan responded that what he was actually looking for is for the auditors to identify specific areas where a city such as Palm Desert would be particularly vulnerable and dig deeper into that area. His thoughts were that the auditor would make a random selection of payments and go through from start to finish, make sure it has the correct signatures, check if the company has a contract, and that it is a genuine company, among other things. He is not looking for formal fraud audit, but rather a limited procedures type of audit, similar to the sample scope provided. Member Weber asked Mr. Espinoza if the auditors already conduct this type of review as part of the audit. Mr. Espinoza responded that a typical audit reviews the City's procedures, and it seemed that Mayor Jonathan is looking for a deeper review at the company level, verifying the status of the company. He informed the Committee that in his experience as an auditor, the purpose is to ensure that the City is following the rules, not necessarily the companies that are receiving payment. Nonetheless, there are certain checks in place so that the City does its due diligence on any company receiving payment. For example, a Taxpayer ID is required to issue payment, and staff checks these against the IRS website to ensure the ID is registered to the company the City is paying. 4 INVESTMENT & FINANCE COMMITTEE MINUTES MARCH 27, 2018 Mr. Espinoza stated that the annual audit the City obtains does not look further than the first few layers. Mayor Jonathan replied that he would like to look deeper than surface level but he is not looking for an audit that would take any more than 25 to 30 hours, or would cost more than $5,000. He furthered that if there was going to be fraud, it typically would not be in cash as the City does not handle many cash transactions. It would more likely be in the form of a scheme similar to those seen recently in neighboring cities; i.e., a shell company working with a particular employee to receive payment for services not provided. He concluded that the City would be remiss not to ensure that its current procedures are sufficient to prevent fraud occurrence. Chairman Leo suggested that this item be placed on the next agenda for follow-up. MOTION was made by Member Jonathan to recommend that staff reach out to the auditors to obtain information on a deeper level audit and present the information to the Committee at the next regular meeting for review and discussion. Motion was seconded by Member Sperling and carried by a 7-0 vote, with Aylaian, Hargreaves, Jonathan, Moore, Sperling, Weber and Leo voting AYE. Campbell and Holcombe ABSENT. VI. CONTINUED BUSINESS — None. VII. OLD BUSINESS — None. VIII. INFORMATIONAL ITEMS A. UPDATE RELATIVE TO SHORT-TERM RENTALS AND TOT (Ryan Stendell, Director of Community Development) Mr. Ryan Stendell, Director of Community Development, presented the Committee with an overview of Short-Term Rentals (STRs) in the City of Palm Desert. The City first began issuing permits and collecting Transient Occupancy Tax (TOT) in 2012. He reviewed the types of residential zones and the number of permits in each zone. Currently, there are approximately 36,000 total housing units in Palm Desert. Approximately 68% of the housing units are zoned as planned residential (PR) properties, which are gated and planned communities located, for the most part, north of Fred Waring Drive. 11% are zoned R1, which are larger single-family residences and estate- type properties, the majority of which are found south of Highway 111. The remaining percentage is comprised of increasing higher density properties and apartment buildings, zoned R2 and R3. 5 INVESTMENT & FINANCE COMMITTEE MINUTES MARCH 27, 2018 Mr. Stendell continued that an ad hoc committee comprised of a cross- section of the community was established to review the guidelines, benefits and risk of STRs in Palm Desert. The committee demonstrated a fair representation of individuals on both sides of the issue, and the majority of their communication involved thoughtful, spirited and respectful discussion. A moratorium was in place for several months while the committee was created, members were selected and meetings convened, and following much discussion, Council elected to discontinue STR permitting in the areas zoned R1 and R2. Density was important to the committee and the Council, and it was determined that these should be the most protected areas. STRs within these zones have until Dec 31, 2019 to phase out. R1 and R2 represent 22% of total STRs, or 276 permits. Many of these are larger homes and properties, and while staff knows there will be a decrease in TOT collection, it is unknown what that decrease will be at this time. Mr. Stendell reported that from 2013 to 2017 TOT tripled on STRs, and with that, the complaints also increased significantly. There were not as many complaints in PR zones, and this is attributed to the fact that they are usually gated and provide their own security. Additionally, these communities typically have a Homeowners' Association (HOA). HOAs can determine whether they wish to allow STRs within their communities, and can impose additional CC&Rs with respect to their operation. CC&Rs supersede the City's ordinance, and STRs are not permitted within a number of communities. Mr. Stendell reported that the fine for operating an STR without a permit is $5,000, and there has been an increase in enforcement with the City retaining a swing shift compliance officer. To date, this officer has issued over $50,000 in fines. The City is also working to secure compliance monitoring services from a third party operator that would scour websites for unpermitted units, operate a 24-hour hotline, and enforce a 30-minute resolution period. Approximately 140 new permits have been issued within the PR zoning district. Member Aylaian asked Member Moore to provide an update on TOT collection. Member Moore informed the Committee that collection statistics are based on the fiscal year, and the City's year ends on June 30. As an example of how volatile TOT can be, she stated that Desert Trip had an effect in the hundreds of thousands for just one event. Member Moore said that between 40 and 50 permit applications were submitted during the moratorium. Since the City only began requiring STR permits and documenting the associated TOT in 2012, it is difficult to know just how much it increased year over year because many people just rented their homes without contacting the City for a permit. Additionally, TOT is 6 INVESTMENT & FINANCE COMMITTEE MINUTES MARCH 27, 2018 disproportionate since many large homes rented out during the festivals could rent for around $10,000 a night. Based on their information available, Member Moore estimated the impact from the revised STR ordinance could be about$500,000, but at this point there are too many variables to consider. Staff is now collecting more useful and relevant information, and it will be more reliable for trends going forward. Member Moore also shared that several years ago staff began working with Airbnb to classify them as an operator, where they can rent properties and remit TOT to the City on behalf of the renter. They have since executed an agreement that allows for the recovery of TOT but the City had to make a number of concessions in order to move the agreement forward. As such, Airbnb is not required to provide detailed information such as how many nights a property is rented or the property addresses for the TOT remitted. Still, it is an improvement over how they operated before, and other platforms have not been as cooperative. B. COMMITTEE MEMBER COMMENTS - None. C. REQUEST TO ADD POTENTIAL ITEMS TO UPCOMING AGENDA Chairman Leo stated that he had reviewed the General Plan in its entirety over the last few weeks. He requested that the Committee review the General Plan and explore how much the various projects will cost. He suggested that the Committee look at one project and report on it. Mr. Espinoza will provide on update on the information requested from the auditors. IX. ADJOURNMENT By Minute Motion, duly made, seconded and approved, Chairman Leo adjourned to the next regular meeting of May 22, 2018 at 10:56 a.m. Respectfully submitted, Niamh Ortega, Recordi '"t.ecretary 7