HomeMy WebLinkAboutPalm Desert Recreational Facilities Corporation (PDRFC) Audited Financial Stmnts FYE 06-30-2015Gi
CITY OF PALM DESERT -4_
FINANCE DEPARTMENT
Staff Report
REQUEST: RECEIVE AND FILE THE PALM DESERT RECREATIONAL
FACILITIES CORPORATION AUDITED FINANCIAL REPORTS
FOR THE FISCAL YEAR ENDED JUNE 30, 2015
DATE: March 10, 2016
SUBMITTED BY: Paul S. Gibson, Finance Director
CONTENTS: Palm Desert Recreational Facilities Corporation Audited Financial
Report for Fiscal Year Ended June 30, 2015, and the 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 Auditinq
Standards
Recommendation
By Minute Motion, that the City Council receive and file the audited financial
statements of the Palm Desert Recreational Facilities Corporation for the
fiscal year ended June 30, 2015.
Committee Recommendation
The Audit, Investment and Finance Committee received the audited financial statements
for the PDRFC at their February 23, 2016 meeting, and it was recommended that the
statements for the fiscal year ended June 30, 2015 be received and filed by the City
Council.
Background
The Palm Desert Recreational Facilities Corporation (PDRFC) is a corporation that
provides food and beverage services exclusively to the Desert Willow Golf Resort.
White Nelson Diehl Evans LLP performed and completed the annual independent audit
for the fiscal year ended June 30, 2015, for the PDRFC in accordance with generally
accepted auditing standards. 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,
2015, 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.
G:Tinanceftamh Ortega\Staff ReportsWudit staff reporMAudit Staff Reports 20151SR - Council audit 2015 PDRFC.docx
Staff Report
Receive and file PDRFC reports for Fiscal Year ended June 30, 2015
March 10, 2016
Page 2of2
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, 2015.
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, 2015.
Fiscal Impact
There is no fiscal impact associated with this action.
Submitted by:
Paul S. Gibson
Finance Director/City Treasurer
PSG:JLE:nmo
Approved by:
Jo . Wohlmuth
y Panager
G:\Finance\Niamh Ortega\Staff Reports\Audit staff reports\Audit Staff Reports 2015\SR - Council audit 2015 PDRFC.docx
PALM DESERT RECREATIONAL
FACILITIES CORPORATION
ANNUAL FINANCIAL REPORT
WITH REPORT ON AUDIT
BY INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS
FOR THE YEAR ENDED JUNE 30, 2015
PALM DESERT RECREATIONAL FACILITIES CORPORATION
TABLE OF CONTENTS
June 30, 2015
Independent Auditors' Report
Management's Discussion and Analysis
(Required Supplementary Information)
Basic Financial Statements:
Exhibit A - Statement of Net Position
Page
Number
6
Exhibit B - Statement of Revenues, Expenses and Changes in Net Position 10
Exhibit C - Statement of Cash Flows 1 1
Notes to Basic Financial Statements 12
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 18
INDEPENDENT AUDITORS' REPORT
Board of Directors
Palm Desert Recreational Facilities Corporation
Palm Desert, California
Report on the Financial Statements
We have audited the accompanying component unit 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, 2015, and the related notes to the 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 this component unit 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.
Auditors' Responsibility
Our responsibility is to express an opinion 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 Government Auditing 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 auditors' 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 auditors consider internal control relevant to the
Corporation'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 Corporation'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 opinion.
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2873 nlichelle Drive, Suite 300, Imne, CA 92606 • Tel: 714.9 78.1300 • Fax: 714.978.7893
n(%i�rs located in Orange and San Oigo Goan ies
Opinion
In our opinion, the component unit financial statements referred to above present fairly, in all material
respects, the financial position of the Palm Desert Recreational Facilities Corporation as of
June 30, 2015 and the respective changes in financial position and cash flows thereof for the year then
ended in accordance with accounting principles generally accepted in the United States of America.
Other Matter:
Required Supplementary Information
Accounting principles generally accepted in the United States of America require that the
management's discussion and analysis, identified as Required Supplementary Information (RSI) in the
accompanying table of contents, 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 RSI 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 the
audit of the basic financial statements. We do not express an opinion or provide any assurance on the
RSI because the limited procedures do not provide us with sufficient evidence to express an opinion or
provide any assurance on it.
Other Reporting Required by Government Auditing Standards
In accordance with Government Auditing Standards, we have also issued our report dated
December 9, 2015, 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 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 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.
4�� /A�dalxa) &P
Irvine, California
December 9, 2015
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PALM DESERT RECREATIONAL FACILITIES CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
June 30, 2015
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, 2015. 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 decreased by $19,965
from $1,515,951 to $1,495,986.
• Palm Desert Recreational Facilities Corporation's gross income of $2,671,630 increased by
$221,417 (9%) from the previous year.
• Palm Desert Recreational Facilities Corporation's gross profit increased by $155,498 (9%)
from last year. The gross profit margin' was held constant at 69%.
• Palm Desert Recreational Facilities Corporation's cost of goods sold increased by $65,919
(8%).
• Palm Desert Recreational Facilities Corporation's Selling and Administrative Expense
Percentage did not change and was held constant at 68%.
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%.
2 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.
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PALM DESERT RECREATIONAL FACILITIES CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
(CONTINUED)
June 30, 2015
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 a 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 main function is
providing 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 golf. 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, deferred outflows of resources,
liabilities and deferred inflows of resources, which is one way to measure the Corporation's financial
health, or financial position. Over time, increases or decreases in the Corporation's net position are 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 decreased by $19,965 from
$1,515,951 to $1,495,986. The restaurant operations recognized a 9% increase in gross revenues with
most of the increase consumed by the increased overall costs of 9%. The lagging economy continues
to impact the tourism and retail market which in turn continues to directly affect the utilization of the
restaurant for corporate outings, weddings and banquets.
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PALM DESERT RECREATIONAL FACILITIES CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
(CONTINUED)
June 30, 2015
THE COMPONENT UNIT AS A WHOLE (CONTINUED)
An integral component that will bolster the restaurant operations to generate enough gross revenues to
provide net position will be a comeback of the corporate and group outing business.
Our analysis below focuses on the net position (Table 1) and changes in net position (Table 2) of the
Corporation.
Assets:
Current and restricted assets
Total Assets
Liabilities:
Other liabilities
Total Liabilities
Net Position:
Unrestricted
Total Net Position
Table 1
Condensed Statements of Net Position
Fiscal
Fiscal
Year
Year
2015
2014
$ 168,874
$ 143,794
168,874
143,794
1,664.860
1,659,745
1,664,860
1.659,745
(1,495.986)
(1,515,951)
$ (1-495.986)
$ (1-515.951)
Current assets increased by $25,080, which is related directly to the increase in accounts receivable.
During the 2014-2015 fiscal year, management continued to focus on retaining repeat business and
continued patronage, given the non-existent corporate and group market. As a result gross revenues
increased by $221,417 (9%). There was no major change in the mix of business and no real major
impact to revenues.
Another main focus of the restaurant during the 2014-2015 fiscal year was efficiency in labor and
other expenditures, however, the rising costs of inventory and labor overshadowed any significant
recognition of these efforts operationally. As a result expenditures increased by $233,286 (9%). The
total liabilities increased by $5,115; less than 1%.
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PALM DESERT RECREATIONAL FACILITIES CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
(CONTINUED)
June 30, 2015
THE COMPONENT UNIT AS A WHOLE (CONTINUED)
Table 2
Condensed Statements of Revenues, Expenses
and Changes in Net Position
Fiscal Fiscal
Year Year
2015 2014
Operating Revenues:
Food and beverage sales $ 2,671,630 $ 2.450,213
Total Revenues 2,671,630 2,450,213
Operating Expenses:
Cost of goods sold
828,995
763,076
Maintenance and operations
1,614,115
1,463,612
General and administrative
208,555
191,691
Total Expenses
2,651,665
2.418,379
Change in Net Position
$ 19.965
$ 31.834
Component Activities
Total revenue increased by $221,417 (9%) from $2,450,213 to $2,617,630. Continued patronage in
regular dining and banquet business allowed the restaurant to recognize a minimal increase in gross
revenues.
This fiscal year was the fifteenth year of operation at the Desert Willow Clubhouse. During this fiscal
year 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 minimize the
impact of the sluggish tourism economy, and maximize the newer 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 significant increase of $233,286 from
$2,418,379 to $2,651,665. The increased labor costs of $153,259 (12%) represented 65% of the
overall total increase in costs. Cost of Goods sold represented $65,919 (9%) of the increase in costs.
mom
PALM DESERT RECREATIONAL FACILITIES CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
(CONTINUED)
June 30, 2015
THE COMPONENT UNIT AS A WHOLE (CONTINUED)
The Gross Profit Margin remained constant at 69%. The Selling and Administrative Expense
Percentage also remained constant at 68%.
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
detail is presented in the notes to the Financial Statements.
ECONOMIC FACTORS AND NEXT YEAR'S BUDGETS
• 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 held prices
constant and implemented better cost control measures to eliminate wastage. In
addition, the Palm Desert Recreational Facilities Corporation 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 the consumer to reduce their consumption of
leisure activities. The state of the current economy was taken into consideration when
budgeting for the 2015-2016 fiscal year.
• Labor cost: The State of California has mandated increased minimum wage rates which is
scheduled to increase from $9 per hour to $10 per hour effective January I, 2016. 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 2015-2016 financial plan can be obtained by contacting the Palm
Desert Recreational Facilities Corporation (see below).
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PALM DESERT RECREATIONAL FACILITIES CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
(CONTINUED)
June 30, 2015
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 Palm Desert
Recreational Facilities Corporation at 38-995 Desert Willow Drive, Palm Desert, California 92260.
-8-
PALM DESERT RECREATIONAL FACILITIES CORPORATION
STATEMENT OF NET POSITION
June 30, 2015
ASSETS:
Cash and investments
Accounts receivable
Inventories
Prepaid costs
TOTAL ASSETS
LIABILITIES:
Accounts payable
Accrued liabilities
Advances from related party
Unearned revenues
TOTAL LIABILITIES
NET POSITION:
Unrestricted (deficit)
TOTAL NET POSITION
See accompanying notes to basic financial statements.
Exhibit A
72,236
41,314
45,860
9,464
168,874
49,334
53,126
1,470,970
91,430
1,664,860
(1,495,986)
$ (1,495,986)
Exhibit B
PALM DESERT RECREATIONAL FACILITIES CORPORATION
STATEMENT OF REVENUES, EXPENSES AND CHANGES IN NET POSITION
For the year ended June 30, 2015
OPERATING REVENUES:
Food and beverage sales
TOTAL OPERATING REVENUES
OPERATING EXPENSES:
Cost of goods sold
Maintenance and operations
General and administrative
TOTAL OPERATING EXPENSES
OPERATING INCOME/CHANGE IN NET POSITION
NET POSITION - BEGINNING OF YEAR
NET POSITION - END OF YEAR
See accompanying notes to basic financial statements.
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$ 2,671,630
2,671,630
828,995
1,614,115
208,555
2,651,665
19,965
(1,515,951)
$ (1,495,986)
Exhibit C
PALM DESERT RECREATIONAL FACILITIES CORPORATION
STATEMENT OF CASH FLOWS
For the year ended June 30, 2015
CASH FLOWS FROM OPERATING ACTIVITIES:
Receipts from customers $ 2,638,939
Payments to suppliers (2,596,832)
NET CASH PROVIDED BY OPERATING ACTIVITIES 42,107
CASH FLOWS FROM NON -CAPITAL AND RELATED
FINANCING ACTIVITIES
Cash paid to related party (46,305)
NET CASH USED BY NON -CAPITAL AND
RELATED FINANCING ACTIVITIES (46,305)
NET DECREASE IN CASH AND CASH EQUIVALENTS
(4,198)
CASH AND CASH EQUIVALENTS - BEGINNING OF YEAR
76,434
CASH AND CASH EQUIVALENTS - END OF YEAR
$ 72,236
RECONCILIATION OF OPERATING INCOME TO
NET CASII PROVIDED BY OPERATING ACTIVITIES:
Operating income
$ 19,965
Adjustments to reconcile operating income
to net cash provided by operating activities:
Changes in assets and liabilities:
(Increase) decrease in accounts receivables
(27,121)
(Increase) decrease in inventories
(1,221)
(Increase) decrease in prepaid costs
(936)
Increase (decrease) in accounts payable and accrued liabilities
56,990
Increase (decrease) in unearned revenues
(5,570)
NET CASI I PROVIDED BY OPERATING ACTIVITIES
$ 42,107
See accompanying notes to basic financial statements.
PALM DESERT RECREATIONAL FACILITIES CORPORATION
NOTES TO BASIC FINANCIAL STATEMENTS
June 30, 2015
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 Corporation is a component unit of the City of Palm Desert (the City) and is reported
as a discrete component unit 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 is held on 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 generally accepted 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.
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PALM DESERT RECREATIONAL FACILITIES CORPORATION
NOTES TO BASIC FINANCIAL STATEMENTS
(CONTINUED)
June 30, 2015
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. New GASB Accounting Pronouncements:
Current Year Standards:
• GASB 68 - "Accounting and Financial Reporting for Pensions, an amendment of GASB
Statement No. 27", required to be implemented in the current fiscal year did not impact the
Corporation.
• GASB 69 - "Government Combinations and Disposals of Government Operations
required to be implemented in the current fiscal year did not impact the Corporation.
• GASB 71 - "Pension Transition for Contributions Made Subsequent to the Measurement
Date, an Amendment of GASB Statement No. 68", required to be implemented in the
current fiscal year did not impact the Corporation.
Pending Accounting Standards:
GASB has issued the following statements which may impact the Corporation's financial
reporting requirements in the future:
• GASB 72 - "Fair Value Measurement and Application", effective for periods beginning
after June 15, 2015.
• GASB 73 - "Accounting and Financial Reporting.for Pensions and Related Assets That Are
Not within the Scope of GASB Statement 68, and Amendments to Certain Provisions of'
GASB Statements 67 and 68 ", effective for periods beginning after June 15, 2015 - except
for those provisions that address employers and governmental nonemployer contributing
entities for pensions that are not within the scope of Statement 68, which are effective for
periods beginning after June 15, 2016.
• GASB 74 - "Financial Reporting for Postemployment Benefit Plans Other Than Pension
Plans ", effective for periods beginning after June 15, 2016.
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PALM DESERT RECREATIONAL FACILITIES CORPORATION
NOTES TO BASIC FINANCIAL STATEMENTS
(CONTINUED)
June 30, 2015
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
d. New GASB Accounting Pronouncements (Continued):
Pending Accounting Standards (Continued):
• GASB 75 - "Accounting and Financial Reporting for Postemployment Benefits Other Than
Pensions", effective for periods beginning after June 15, 2017.
• GASB 76 - "The Hierarchy of Generally Accepted Accounting Principles for State and
Local Governments ", effective for periods beginning after June 15, 2015.
e. Deferred Outflows/Inflows of Resources:
In addition to assets, the statement of net position will sometimes report a separate section for
deferred outflows of resources. This separate financial statement element, deferred ou�flows of
resources, represents a consumption of net position that applies to future periods and so will
not be recognized as an outflow of resources (expense/expenditure) until that time. The
Corporation does not have any applicable deferred outflows of resources.
In addition to liabilities, the statement of net position will sometimes report a separate section
for deferred inflows of resources. This separate financial statement element, deferred inflows
of resources, represents an acquisition of net position that applies to future periods and will not
be recognized as an inflow of resources (revenue) until that time. The Corporation does not
have any applicable deferred inflows of resources.
f. 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 attributed 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 does 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.
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PALM DESERT RECREATIONAL FACILITIES CORPORATION
NOTES TO BASIC FINANCIAL_ STATEMENTS
(CONTINUED)
June 30, 2015
2. SUMMARY OF SIGN IFICANTACCOUNTING POLICIES (CONTINUED):
g. 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.
h. 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 $72,236 and the bank balance was $68,846. The difference is represented
by $9,815 of deposits in transit and checks outstanding totaling $6,425, f'or a net total of
$3,390.
The City has implemented GASB Statement No. 40, "Deposit and Investment Risk
Disclosures". This pronouncement is an amendment to GASB Statement No. 3. GASB 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.
i. Inventories:
Inventories are stated at the lower of cost or market (no adjustments were made to reduce
inventory below cost) with cost determined using the Weighted Average Cost Method. At
June 30, 2015, inventories consisted of $45,860 in merchandise for sales of food and
beverages.
j. 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 and
alterations which 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 each year.
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PALM DESERT RECREATIONAL FACILITIES CORPORATION
NOTES TO BASIC FINANCIAL STATEMENTS
(CONTINUED)
June 30, 2015
3. RELATED PARTY TRANSACTIONS:
Advances from Related Party:
As of June 30, 2015, the Corporation owed the following amounts to related parties:
Desert Willow Golf Course $ 1,185,970
City of Palm Desert 285,000
$ 1470,970
The Corporation has an operating lease with the City for use of the facilities (see Note 4).
4. COMMITMENTS AND CONTINGENCIES:
Operating Leases:
The Corporation has an operating lease with the City for use of the facilities that has been amended
several times. 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 to
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, 2015 was $96,000. In addition, at June 30, 2015, the Corporation owed $285,000 in
rent 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 November 15, 2012 a new three-year management
agreement was executed to commence on July 1, 2013 and expires on July 1, 2016. There are two
I -year options to extend the contract which expire on July 1, 2017 and July 1, 2018. The
extensions are not guaranteed and must be approved by all parties to the agreement.
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.
PALM DESERT RECREATIONAL, FACILITIF',S CORPORATION
NOTES TO BASIC FINANCIAL STATEMENTS
(CONTINUED)
June 30, 2015
6. OTHER DISCLOSURES:
The Corporation has a net deficit of $1,495,986, which will be eliminated by increasing revenues
through banquet and dining reservations. During the 2010-2011 fiscal year the kitchen and the
outside dining terrace was renovated to increase the size of the kitchen and banquet space. The
expansion project increased the restaurant and kitchen area by 5,000 square feet and the outside
terrace seating capacity by and additional 200 seats. The expanded kitchen and terrace allows for
larger banquets and normal dining to be served simultaneously.
7. SUBSEQUENT EVENTS:
Events occurring after June 30, 2015 have been evaluated for possible adjustments to the financial
statements or disclosure as of December 9, 2015, which is the date these financial statements were
available to be issued.
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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 GOVERNMENTAUDITING STANDARDS
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 component unit financial statements of
Palm Desert Recreational Facilities Corporation (the Corporation) as of and for the year ended
June 30, 2015, and the related notes to the financial statements, which collectively comprise the
Corporation's basic financial statements, and have issued our report thereon dated December 9, 2015.
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) to determine the audit procedures that are
appropriate in the circumstances for the purpose of expressing our opinion 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 control 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 Corporation'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.
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2873 N ichelle Drive, Suite 300, Irvine, CA 92606 - Tel: 714.978.1300 - Fax: 714.978.7893
Ogices located in Orange and San Diego Counties
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 the determination of financial statement amounts. 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.
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.
Irvine, California
December 9, 2015