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HomeMy WebLinkAboutInd Accnts Rprts - TOT Compliance Reviews L CITY OF PALM DESERT FINANCE DEPARTMENT STAFF REPORT REQUEST: RECEIVE AND FILE THE INDEPENDENT ACCOUNTANTS' AGREED-UPON PROCEDURES REPORTS FOR VARIOUS PALM DESERT HOTEL OPERATORS' TRANSIENT OCCUPANCY TAX COMPLIANCE REVIEWS SUBMITTED BY: Janet M. Moore, Director of Finance DATE: April 13, 2017 CONTENTS: Independent Accountants' Agreed-Upon Procedures Reports for Various Palm Desert Hotel Operators: Operator#1 covering Calendar Years 2014-2015 Operator#2-6 covering Calendar Year 2015 Recommendation By Minute Motion, that the City Council receive and file the Independent Accountants' Agreed-Upon Procedures Reports for various Palm Desert hotel operators' transient occupancy tax compliance reviews. Strategic Plan Objective Not applicable. Committee Recommendation The Audit, Investment and Finance Committee received the report at their March 28, 2017 meeting, and it was recommended that the reports be forwarded to the City Council to be received and filed. Discussion 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, White Nelson Diehl Evans 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. Staff Report Agreed-upon Procedures - Transient Occupancy Tax Collection April 13, 2017 Page 2 of 2 The City has approximately 17 hotel operators within its boundaries, not including locations operating as short-term rentals. Generally, five or six of the hotel operators are selected each year for review. In some cases the same operator may be selected for consecutive annual reviews based on the results of a previous review. Attached is the summary for the reviews conducted as well as the reports of the auditor's findings. In the attached review reports, based on the rentals tested, the mathematical calculations of the TOT fee were done correctly, however in three of the reports the review indicates that exemptions to the TOT fee are not properly documented. 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. In January 2017 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. Fiscal Analysis The aggregate amount of underpaid TOT totals $4,693 not including any penalties and interest that may be due. Finance is in the process of collecting these funds. Submitted by: Approval: AMA ► �.�1_ J.' . Moore auri Aylaian Director of Finance City Manager nmo G:\Finance\Niamh Ortega\Staff Reports\Audit staff reports\Audit Staff Reports 2016\SR-Council audit 2014-15 TOT.docx City of Palm Desert Agreed-Upon Procedures-Transient Occupancy Tax Summary of Findings Gross Rent Occupancy Taxes Calendar (Understatement) (Underpayment) Year Overstatement Overpayment Operator#1 2014 & 2015 $ (14,610) $ (1,314) Operator#2 2015 (3,678) (331) Operator#3 2015 - - Operator#4 2015 - - Operator#5 2015 (33,875) (3,048) Operator#6 2015 - - $ (52,163) $ (4,693) WHITE NELSON DIEHL EVANS LLP (;c rtilirtl I'ul,li� Ai,�uunt;t;it� S; (:ntt,ultatn� INDEPENDENT ACCOUNTANTS' REPORT ON APPLYING AGREED-UPON PROCEDURES City Council City of Palm Desert Palm Desert, California We have performed the procedures enumerated below, which were agreed to by the management of the City of Palm Desert (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 from January 1, 2014 to December 31, 2015. The Hotel's management is responsible for the preparation and filing of the transient occupancy returns. This agreed-upon procedures engagement was performed in accordance with attestation standards established by the American Institute of Certified Public Accountants. The sufficiency of these 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. 1. We reviewed the City Municipal Code and related ordinances and resolutions related to transient occupancy tax. No exceptions were noted as a result of this testing. 2. We verified the mathematical accuracy and the timeliness of the transient occupancy reports filed with the City for the calendar years 2014 and 2015. No exceptions were noted as a result of this testing. 3. We traced 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 verified that these were in accordance with the City's ordinance. No exceptions were noted as a result of this testing. 4. We selected a sample of fifty individual rental transactions during the review period (twenty-five from each year) and for each transaction selected, we verified the tax computations and traced the amounts of rental revenues and transient occupancy taxes collected to the books and records of the Ilotel. Per City's request, the months of July, August and September were excluded from this procedure. After several attempts, the Hotel was not able to provide the documents necessary for us to perform this procedure. As a result, we were not able to perform this procedure. - 1 - .28 c, Suitc 300, 11vinc, (;:\ ')26OG •'1cl: -14.Q-8.I300 • l•ax• ()/12.cs it „Ind.l,n; 1)icco C,o;ntticr 5. We reviewed the internal control procedures of the Hotel and determined: (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 and (c) how exemptions, including complimentary rooms, were documented and reported to the City. No exceptions were noted as a result of this testing. 6. We reviewed the supporting documentation for exemptions claimed on three of the transient occupancy tax returns for each year under review. For calendar year 2014, the selected reporting periods were: January, February and March. For calendar year 2015, the selected reporting periods were February. October and December. For the six tax returns selected, there were 175 exemptions claimed totaling $276,927. The results of our testing are as follows: Under(Over) Number of Payment of Exemption Amount of Occupancy Claims Exemptions Taxes Exemption claims supported by proper forms and documentation 160 $ 262,317 $ - Exemption claims not supported by proper forms and documentation. 15 19,247 1,731 Footing error (A). (4,637) (417) 175 _ $ 276,927 $ 1,314 (A)The schedules used by the hotel for the months of February 2014 and March 2014 were not footing correctly. This resulted to amounts claimed on transient occupancy tax returns for these months to be understated by $4,637. 7. We performed additional procedures that we considered necessary to verify the reasonableness of reported revenues of the Hotel operator. "There were no additional procedures considered necessary. 8. We inquired how the hotel handles reservations and payments made online through a third party such as Expedia.com and how the transient occupancy taxes were collected and reported to the City on these transactions. Per our discussion with Hotel management reservations made online through a third party such as Expedia.com are handled as follows: • Guests will book the hotel room through the intermediary e-channels (expedia, etc). • Intermediary charges the guest's credit card for the entire stay at the time of purchase. The Hotel has no knowledge of the rate the guest is charged, or whether the intermediary is charging or disclosing a tax amount to the guest. • Intermediary sends the reservation to the Motel's corporate office. The corporate office will then enter the reservation to the Hotel's system. • Upon the guest's arrival, the Hotel sets up two folios for the guest. One for incidentals and one for room and tax. The room rate in the folio is the agreed-upon rate between the Hotel and the intermediary. • Upon check out, the guest is billed for the total in the folio for incidentals. Then the Ilotel invoices or charges the intermediary's credit card on file, depending on the payment arrangement between the Hotel and intermediary, for the total in the folio for room and tax. • Revenue and related tax are recorded on the Hotel's books every night during the entire stay. - 2 - We were not engaged to, and did not conduct an audit, the objective of which would be the expression of an opinion on the transient occupancy tax returns. Accordingly, we do not express such an opinion. I-lad we performed additional procedures, other matters might have come to our attention that would have been reported to you. This report is intended solely for the information and use of City Council, management, and others within the City and is not intended to be, and should not be, used by anyone other than these specified parties. Irvine, California February 2, 2017 - 3 - OPERATOR #1 SUMMARY OF FINDINGS FOR PERIOD JANUARY 1, 2014 TO DECEMBER 31, 2015 Gross Rent Occupancy Taxes Procedure (Understatement) (Underpayment) Number Overstatement Overpayment * 6 $ (19,247) $ (1,731) 6 4,637 417 Net Total $ (14,610) $ (1,314) * - Amounts do not include penalties of up to 50% and interest of up to 12% of tax due per City Ordinance 3.28.080(b). WHITE NELSON DIEHL EVANS LLP Puhh, Cott,ultatn, INDEPENDENT ACCOUNTANTS' REPORT ON APPLYING AGREED-UPON PROCEDURES City Council City of Palm Desert Palm Desert, California We have performed the procedures enumerated below, which were agreed to by the management of the City of Palm Desert (the City), solely to assist the City in verifying the accuracy of the transient occupancy tax returns submitted by Operator #2, (the Hotel), for the period from January 1, 2015 to December 31, 2015. The Hotel's management is responsible for the preparation and filing of the transient occupancy returns. This agreed-upon procedures engagement was performed in accordance with attestation standards established by the American Institute of Certified Public Accountants. The sufficiency of these 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. 1. We reviewed the City Municipal Code and related ordinances and resolutions related to transient occupancy tax. No exceptions were noted as a result of this testing. 2. We verified the mathematical accuracy and the timeliness of the transient occupancy reports filed with the City for the calendar year 2015. No exceptions were noted as a result of this testing. 3. We traced 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 verified that these were in accordance with the City's ordinance. No exceptions were noted as a result of this testing. 4. We selected a sample of twenty-five individual rental transactions during the review period and for each transaction selected, we verified the tax computations and traced the amounts of rental revenues and transient occupancy taxes collected to the books and records of the Hotel. Per City's request, the months of July, August and September were excluded from this procedure. No exceptions were noted as a result of this testing. 1 '8-5 1liclullc Drive, Suttc 30H1, Irvine, (;:A 92606 • Ic1: -1.1.9-8.1301 • lax: -14.9-8.-89 O,:ic:;e,u,d.S,n; I)it:(;() (.nni Ii 5. We reviewed the internal control procedures of the Hotel and determined: (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, and (c) how exemptions, including complimentary rooms, were documented and reported to the City. No exceptions were noted as a result of this testing. 6. We reviewed the supporting documentation for exemptions claimed on three of the transient occupancy tax returns in the period under review. The selected reporting periods were April, August and October 2015. For the three tax returns selected, there were a total of 229 exemptions claimed totaling $40,560. "I'he results of our testing are as follows: Under (Over) Number of Payment of Exemption Amount of Occupancy Claims Exemptions Taxes Exemption claims supported by proper forms and documentation 228 $ 36,882 $ - Exemption claims with improper, incomplete or not supported by documentation 1 3,678 331 229 $ 40,56Q $ 331 7. We performed additional procedures that we considered necessary to verify the reasonableness of reported revenues of the Hotel operator. (here were no additional procedures considered necessary. 8. We inquired how the Hotel handles reservations and payments made online through a third party such as Expedia.com and how the transient occupancy taxes were collected and reported to the City on these transactions. Per our discussion with Hotel management reservations made online through a third party such as Expedia.com are handled as follows: • Guests will book the hotel room through the intermediary e-channels (Expedia, etc.). • Intermediary charges the guest's credit card for the entire stay at the time of purchase. The Hotel has no knowledge of the rate the guest is charged, or whether the Intermediary is charging or disclosing a tax amount to the guest. • Intermediary sends the reservation to the Hotel through the I lotel's reservation system. • Upon the guest's arrival, the Hotel sets up an incidental folio for the guest. • Upon check out, the guest is billed for the total in the folio for incidentals. Folio does not indicate rate guest paid to Intermediary. • I hotel invoices the Intermediary for room and tax based on agreed upon rates between the Hotel and the Intermediary. • Hotel records revenue billed to Intermediary as room revenue, and tax collected to appropriate tax accrual account. 2 We were not engaged to, and did not conduct an audit, the objective of which would be the expression of an opinion on the transient occupancy tax returns. 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 you. This report is intended solely for the information and use of City Council, management, and others within the City and is not intended to be, and should not be, used by anyone other than these specified parties. egd.xQ) LLP Irvine, California October 18. 2016 3 OPERATOR #2 SUMMARY OF FINDINGS FOR PERIOD JANUARY 1, 2015 TO DECEMBER 31, 2015 Gross Rent Occupancy Taxes Procedure (Understatement) (Underpayment) Number Overstatement Overpayment * 6 $ (3,678) $ (331) Net Total $ (3,678) $ (331) * - Amounts do not include penalties of up to 50%and interest of up to 12% of tax due per City Ordinance 3.28.080(b). WHITE NELSON DIEHL EVANS LLP (;�rtific�l PuElk Atkount,tnt., S: Loi lt,tnI INDEPENDENT ACCOUNTANTS' REPORT ON APPLYING AGREED-UPON PROCEDURES City Council City of Palm Desert Palm Desert, California We have performed the procedures enumerated below, which were agreed to by the management of the City of Palm Desert (the City), solely to assist the City in verifying the accuracy of the transient occupancy tax returns submitted by Operator #3, (the Motel), to the City for the period from January 1, 2015 to December 31, 2015. The Ilotel's management is responsible for the preparation and filing of the transient occupancy returns. This agreed-upon procedures engagement was conducted in accordance with attestation standards established by the American Institute of Certified Public Accountants. The sufficiency of these 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. 1. We reviewed the City Municipal Code and related ordinances and resolutions related to transient occupancy tax. No exceptions were noted as a result of this testing. 2. We verified the mathematical accuracy and the timeliness of the transient occupancy reports filed with the City for the calendar year 2015. No exceptions were noted as a result of this testing. 3. We traced 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 verified that these were in accordance with the City's ordinance. No exceptions were noted as a result of this testing. 4. We selected a sample of twenty-five individual rental transactions during the review period and for each transaction selected, we verified the tax computations and traced the amounts of rental revenues and transient occupancy taxes collected to the books and records of the Hotel. Per City's request. the months of July, August and September were excluded from this procedure. No exceptions were noted as a result of this testing. 1 _'S D Mtcticllc 1)ri%c, Suitc 1t10, It tnc.C.\ 92606 • '1 c1: 149-8.I iUI) • l.ax: 1.1.9 $S'); Offi o lo;ar:I rr, S'an I)ie.', (.wi li,'r 5. We reviewed the internal control procedures of the Hotel and determined: (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, and (c) how exemptions, including complimentary rooms, were documented and reported to the City. No exceptions were noted as a result of this testing. 6. We reviewed the supporting documentation for exemptions claimed on three of the transient occupancy tax returns in the period under review. The selected reporting periods were February, April and May 2015. For the three tax returns selected, there were a total of 141 exemptions claimed totaling $259,987. The results of our testing are as follows: Under(Over) Number of Payment of Exemption Amount of Occupancy Claims Exemptions Taxes Exemption claims supported by proper forms and documentation 141 $ 259,987 $ 7. We performed additional procedures that we considered necessary to verify the reasonableness of reported revenues of the Hotel operator. There were no additional procedures considered necessary. 8. We inquired how the Hotel handles reservations and payments made online through a third party such as Expedia.com and how the transient occupancy taxes were collected and reported to the City on these transactions. Per our discussion with Hotel management reservations made online through a third party such as Expedia.com arc handled as follows: • Guests will book the hotel room through the intermediary e-channels (Expedia, etc.). • Intermediary charges the guest's credit card for the entire stay at the time of purchase. The Hotel has no knowledge of the rate the guest is charged, or whether the Intermediary is charging or disclosing a tax amount to the guest. • Intermediary sends the reservation to the I lotel through the I lotel's reservation system. • Upon the guest's arrival, the Hotel sets up an incidental folio for the guest. • Upon check out, the guest is billed for the total in the folio for incidentals. Folio does not indicate rate guest paid to Intermediary. • Hotel invoices the Intermediary for room and tax based on agreed upon rates between the Hotel and the Intermediary. • I-lotel records revenue billed to Intermediary as room revenue, and tax collected to appropriate tax accrual account. 2 We were not engaged to, and did not conduct an audit, the objective of which would be the expression of an opinion on the transient occupancy tax returns. Accordingly, we do not express such an opinion. I-fad we performed additional procedures, other matters might have come to our attention that would have been reported to you. This report is intended solely for the information and use of City Council, management, and others within the City and is not intended to be, and should not be, used by anyone other than these specified parties. G4 ZL" Irvine, California October 18. 2016 3 WHITE NELSON IDIEHL EVANS LLP (:crti(ied Pumik (it))i.ul),iiu. INDEPENDENT ACCOUNTANTS' REPORT ON APPLYING AGREED-UPON PROCEDURES City Council City of Palm Desert Palm Desert, California We have performed the procedures enumerated below, which were agreed to by the management of the City of Palm Desert (the City), solely to assist the City in verifying the accuracy of the transient occupancy tax returns submitted by Operator #4, (the Hotel), for the period from January 1, 2015 to December 31, 2015. The Hotel's management is responsible for the preparation and filing of the transient occupancy returns. This agreed-upon procedures engagement was conducted in accordance with attestation standards established by the American Institute of Certified Public Accountants. The sufficiency of these 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. I. We reviewed the City Municipal Code and related ordinances and resolutions related to transient occupancy tax. No exceptions were noted as a result of this testing. 2. We verified the mathematical accuracy and the timeliness of the transient occupancy reports filed with the City for the calendar year 2015. No exceptions were noted as a result of this testing. 3. We traced the gross revenues reported on the transient occupancy tax returns prepared by the Hotel to gross revenues recorded in the Motel's accounting records and verified that these were in accordance with the City's ordinance. No exceptions were noted as a result of this testing. 4. We selected a sample of twenty-five individual rental transactions during the review period and for each transaction selected, we verified the tax computations and traced the amounts of rental revenues and transient occupancy taxes collected to the books and records of the Hotel. Per City's request, the months of July, August and September were excluded from this procedure. No exceptions were noted as a result of this testing. 1 >S 11ic1ullc Dri\c. Sulu: 3(10, ►r\inc.(:.\ 926iK) • l cl: 14.9-R.131)U• Fax: -1 4.9-8.-89.3 ( ( .S.111 1)!c;;r C,oimtic 5. We reviewed the internal control procedures of the Hotel and determined: (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, and (c) how exemptions, including complimentary rooms, were documented and reported to the City. No exceptions were noted as a result of this testing. 6. We reviewed the supporting documentation for exemptions claimed on three of the transient occupancy tax returns in the period under review. The selected reporting periods were August, October and December 2015. For the three tax returns selected, there were a total of 12 exemptions claimed totaling $8,464. The results of our testing are as follows: Under(Over) Number of Payment of Exemption Amount of Occupancy Claims Exemptions Taxes Exemption claims supported by proper forms and documentation 12 $ 8,464 $_ 7. We performed additional procedures that we considered necessary to verify the reasonableness of reported revenues of the Hotel operator. There were no additional procedures considered necessary. 8. We inquired how the Hotel handles reservations and payments made online through a third party such as Expedia.com and how the transient occupancy taxes were collected and reported to the City on these transactions. Per our discussion with Hotel management reservations made online through a third party such as Expedia.com are handled as follows: • Guests will book the hotel room through the intermediary e-channels (Expedia, etc.). • Intermediary charges the guest's credit card for the entire stay at the time of purchase. The Hotel has no knowledge of the rate the guest is charged, or whether the Intermediary is charging or disclosing a tax amount to the guest. • Intermediary sends the reservation to the Hotel through the Hotel's reservation system. • Upon the guest's arrival, the Hotel sets up an incidental folio for the guest. • Upon check out, the guest is billed for the total in the folio for incidentals. Folio does not indicate rate guest paid to Intermediary. • Hotel invoices the Intermediary for room and tax based on agreed upon rates between the Hotel and the Intermediary. • I lotel records revenue billed to Intermediary as room revenue, and tax collected to appropriate tax accrual account. 2 We were not engaged to, and did not conduct an audit, the objective of which would be the expression of'an opinion on the transient occupancy tax returns. 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 you. This report is intended solely for the information and use of City Council, management, and others within the City and is not intended to be, and should not be, used by anyone other than these specified parties. a �stjiz�) /L' Irvine, California October 18, 2016 3 WHITE NELSON DIEHL EVANS LLP certified Puhlk Aiuluntant, & INDEPENDENT ACCOUNTANTS' REPORT ON APPLYING AGREED-UPON PROCEDURES City Council City of Palm Desert Palm Desert, California We have performed the procedures enumerated below, which were agreed to by the management of the City of Palm Desert (the City), solely to assist the City in verifying the accuracy of the transient occupancy tax returns submitted by Operator #5, (the Hotels), to the City for the period from January 1, 2015 to December 31, 2015. The Hotels' management is responsible for the preparation and filing of the transient occupancy returns. This agreed-upon procedures engagement was performed in accordance with attestation standards established by the American Institute of Certified Public Accountants. The sufficiency of these 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. 1. We reviewed the City Municipal Code and related ordinances and resolutions related to transient occupancy tax. No exceptions were noted as a result of this testing. 2. We verified the mathematical accuracy and the timeliness of the transient occupancy reports filed with the City for the calendar year 2015. No exceptions were noted as a result of this testing. 3. We traced the gross revenues reported on the transient occupancy tax returns prepared by the I lotels to gross revenues recorded in the Hotels' accounting records and verified that these were in accordance with the City's ordinance. No exceptions were noted as a result of this testing. 1 28_5 \lichcllc 1)rnc, Suite ;tl, In C.\ 02606 • Iel: I4.9-8.1300 • lax: -1 1.9'h. 8r)3 O/ji;a r Jo,•erh'a in (mace and 1)ic:, (.omitze 4. We selected a sample of twenty-five individual rental transactions for each I-Iotel during the review period and for each transaction selected, we verified the tax computations and traced the amounts of rental revenues and transient occupancy taxes collected to the books and records of each Hotel. Per City's request, the months of July, August, and September were excluded from this procedure. One of the sample items that we selected included a $25 "customer experience" fee that is not being taxed. Per I lotel management, this is not a resort fee. The guests are paying as a guarantee to spend money on the resort for food, drink, or golf at the resort that they must spend. Guest on these packages are paying sales tax on this portion once they make the purchase and put on their room charge account in one of outlets. In addition, we were not able to trace the posting of total daily revenue to the general ledger for two of the dates selected for sample testing. 5. We reviewed the internal control procedures of the Hotels and determined: (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 and (c) how exemptions, including complimentary rooms, were documented and reported to the City. No exceptions were noted as a result of this testing. 6. We reviewed the supporting documentation for exemptions claimed on the transient occupancy tax returns in the period under review. The selected reporting periods were February, March, and November 2015. For the three periods selected, there were 26 exemptions claimed totaling $33,533. The results of our testing are as follows: Under (Over) Number of Payment of Exemption Amount of Occupancy Claims Exemptions Taxes Government exemption claims supported by proper forms and documentation 22 $ 6,346 $ - Government exemption claims not supported by proper forms and documentation 1 3,758 338 Non-transient exemption claims for guests who did not qualify as non-transient (A) 1 8,227 740 Non-transient exemption claims not supported by proper forms and documentation (B) 2 15,202 1,369 26 $ 33,533 $ __ _2,447 (A) An exemption was claimed for a guest that stayed for the whole month of February and was charged different daily rates. The guest stayed for only twenty-seven nights and therefore did not qualify as non-transient. (B) The Hotels provided the folios for non-transient exemptions during the three periods selected. We were able to verify that these guests stayed for more than 31 days. However, the Hotels did not obtain a signed "Transient Occupancy Tax Over 31 Days Exemption Form" from non-transient guests. Per discussion with Hotels' management, they were not aware of this requirement. "Total reported exemptions claimed for non-transients for the year was $21,890, which would be an underpayment of$1,969 for the year, which includes $1,369 noted above. 2 7. We performed additional procedures that we considered necessary to verify the reasonableness of reported revenues of the Hotels operator. There were no additional procedures considered necessary. 8. We inquired how the Hotels handle reservations and payments made online through a third party such as Fxpedia.com and how the transient occupancy taxes were collected and reported to the City on these transactions. Per our discussion with I fotels' management reservations made online through a third party such as Fxpedia.com are handled as follows: • Guests will book the hotel room through the intermediary e-channels (Expedia, etc.). • Intermediary charges the guest's credit card for the entire stay at the time of purchase. The Hotels have no knowledge of the rate the guest is charged or whether the Intermediary is charging or disclosing a tax amount to the guest. • Intermediary sends the reservation to the Hotels' front desk. The front desk will then enter the reservation to the Hotels' system. • Upon the guest's arrival, the Hotels set up an incidental folio for the guest. • Upon check out, the guest is billed for the total in the folio for incidentals. Then the Hotels bill the intermediary for room and tax based on agreed upon rates between the I-lotels and the Intermediary. • Revenue and related tax are recorded on the Hotels' books at the time of departure. We were not engaged to, and did not conduct an audit, the objective of which would be the expression of an opinion on the transient occupancy tax returns. 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 you. This report is intended solely for the information and use of City Council, management, and others within the City and is not intended to be, and should not be, used by anyone other than these specified parties. Gc,A.2e • � j ai' LL, Irvine, California February 6. 2017 3 OPERATOR #5 SUMMARY OF FINDINGS FOR PERIOD JANUARY 1, 2015 TO DECEMBER 31, 2015 Gross Rent Occupancy Taxes Procedure (Understatement) (Underpayment) Number Overstatement Overpayment * 6 $ (3,758) $ (338) 6 (8,227) (740) 6 (21,890) (1,969) ** Net Total $ (33,875) $ (3,048) * - Amounts do not include penalties of up to 50% and interest of up to 12% of tax due per City Ordinance 3.28.080(b). ** - Sec note (B) on page 8, this amount includes $1,369 noted in finding on page 2. WHITE NELSON DIEHL EVANS LLP c<:rti(ied Put li< A t)1Int tnt., ,S: Cwt�ultatu, INDEPENDENT ACCOUNTANTS' REPORT ON APPLYING AGREED-UPON PROCEDURES City Council City of Palm Desert Palm Desert, California We have performed the procedures enumerated below, which were agreed to by the management of the City of Palm Desert (the City), solely to assist the City in verifying the accuracy of the transient occupancy tax returns submitted by Operator #6, (the Hotel), to the City for the calendar year January 1, 2015 to December 31, 2015. The Hotel's management is responsible for the preparation and filing of the transient occupancy returns. This agreed-upon procedures engagement was performed in accordance with attestation standards established by the American Institute of Certified Public Accountants. The sufficiency of these 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. 1. We reviewed the City Municipal Code and related ordinances and resolutions related to transient occupancy tax. No exceptions were noted as a result of this testing. 2. We verified the mathematical accuracy and the timeliness of the transient occupancy reports filed with the City for the calendar year 2015. No exceptions were noted as a result of this testing. 3. We traced 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 verified that these were in accordance with the City's ordinance. No exceptions were noted as a result of this testing. 4. We selected a sample of twenty-five individual rental transactions during the review period and for each transaction selected, we verified the tax computations and traced the amounts of rental revenues and transient occupancy taxes collected to the books and records of the Hotel. Per City's request, the months of July, August and September were excluded from this procedure. No exceptions were noted as a result of this testing. - 1 - 2ti-i Michelle 1)ri<c, Sufic 31h1, Irvine, (:.\ 926O6 • Icl: 1 1.9-8.131111 • 1•ax: 0,7) .S_1 I)2c0 (,oai///c. 5. We reviewed the internal control procedures of the Hotel and determined: (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 and (c) how exemptions, including complimentary rooms, were documented and reported to the City. No exceptions were noted as a result of this testing. 6. We reviewed the supporting documentation for exemptions claimed on three of the transient occupancy tax returns in the period under review. The selected reporting periods were: February, September and December 2015. For the three tax returns selected, there were 64 exemptions claimed totaling $55,033. The results of our testing are as follows: Under (Over) Number of Payment of Exemption Amount of Occupancy Claims Exemptions Taxes Exemption claims supported by proper forms and documentation 64 _ 55,033 $ - During our review we noted that for federal government employees, the Hotel requires the guest to compete and sign the "City of Palm Desert Transient Occupancy Tax Government Employee Exemption Claim" form. It is the Hotel's policy to check the federal government identification information. However, due to privacy issues, the I lotel does not keep copies of the identification information as a support for the form. 7. We performed additional procedures that we considered necessary to verify the reasonableness of reported revenues of the Hotel operator. There were no additional procedures considered necessary. 8. We inquired how the hotel handles reservations and payments made online through a third party such as Expedia.com and how the transient occupancy taxes were collected and reported to the City on these transactions. Per our discussion with Hotel management reservations made online through a third party such as Expedia.com are handled as follows: • Guests will book the hotel room through the intermediary e-channels (expedia, etc). • Intermediary charges the guest's credit card for the entire stay at the time of purchase. The Hotel has no knowledge of the rate the guest is charged, or whether the Intermediary is charging or disclosing a tax amount to the guest. • Intermediary sends the reservation to the Ilotel's corporate office. The corporate office will then enter the reservation to the Hotel's system. • Upon the guest's arrival, the Hotel sets up an incidental folio for the guest. • Upon check out, the guest is billed for the total in the folio for incidentals. Then the Hotel bills the intermediary for room and tax based on agreed upon rates between the Hotel and the Intermediary. • Revenue and related tax are recorded on the I lotel's books every night during the entire stay. - 2 - 9. We reviewed the internal control procedures of the Hotel to determine how food and beverage included in room rate is accounted for. We reviewed the allocation of room rate between rent revenue and food and beverage revenue. During calendar year 2014, the State audited the Hotel for sales tax and was told that the food and beverage portion should be subject to sales tax and not transient occupancy tax. Therefore, the food and beverage portion is not included in the revenues subject to transient occupancy tax. We were not engaged to, and did not conduct an audit, the objective of which would be the expression of an opinion on the transient occupancy tax returns. 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 you. This report is intended solely for the information and use of City Council, management, and others within the City and is not intended to be, and should not be, used by anyone other than these specified parties. leLELJ et ) /l Irvine, California January 30, 2017 - 3 -