HomeMy WebLinkAboutAudited Financl Reports Palm Desert Recreational Facilities Corporation (PDRFC) FYE 06/30/2014CITY OF PALM DESERT
FINANCE DEPARTMENT
Staff Report
REQUEST: RECEIVE AND FILE THE PALM DESERT RECREATIONAL
FACILITIES CORPORATION AUDITED FINANCIAL REPORTS
FOR THE FISCAL YEAR ENDED JUNE 30, 2014
DATE: February 12, 2015
SUBMITTED BY: Paul S. Gibson, Finance Director
CONTENTS: 1. Palm Desert Recreational Facilities Corporation Audited
Financial Report for Fiscal Year Ended June 30, 2014
2. 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
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, 2014.
Committee Recommendation
The Audit, Investment and Finance Committee received the audited financial statements
for the PDRFC at their January 27, 2015 meeting, and it was recommended that the
statements for the fiscal year ended June 30, 2014 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, 2014, 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,
2014, 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:\Finance\Niamh Ortega\Staff Reports\Audit staff reports\Audit Staff Reports 2014\SR - Council audit 2014 PDRFC.docx
Staff Report
Receive and file PDRFC reports for Fiscal Year ended June 30, 2014
February 12, 2015
Page 2 of 2
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, 2014.
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, 2014.
Fiscal Impact
There is no fiscal impact associated with this action.
Submitted by:
aul S. Gibson, Finance Director/City Treasurer
Approved by:
hn M. Wohlmuth, City Manager
PSG:JLE:nmo
G:\Finance\Niamh Ortega\Staff Reports\Audit staff reports\Audit Staff Reports 2014\SR - Council audit 2014 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, 2014
PALM DESERT RECREATIONAL FACILITIES CORPORATION
TABLE OF CONTENTS
June 30, 2014
,. Page
Number
Independent Auditors' Report 1
Management's Discussion and Analysis
(Required Supplementary Information) 3
Basic Financial Statements:
Exhibit A - Statement of Net Position q
Exhibit B - Statement of Revenues, Expenses and Changes in Net Position 10
Exhibit C - Statement of Cash Flows
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, 2014, 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 AuditinJ; 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.
-I-
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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, 2014 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, as identified 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 management's discussion and analysis 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
information 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
November 17, 2014, 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.
Irvine, California
November 17, 2014
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PALM DESERT RECREATIONAL FACILITIES CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
June 30, 2014
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, 2014. 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 $31,834
from $1,547,785 to $1,515,951.
• Palm Desert Recreational Facilities Corporation's gross income of $2,450,213 increased by
$106,480 (5%) from the previous year.
• Palm Desert Recreational Facilities Corporation's gross profit increased by $54,663 (3%) from
last year. The gross profit margin was held constant at 69%.
• Palm Desert Recreational Facilities Corporation's cost of goods sold increased by $51,817
(7%).
• Palm Desert Recreational Facilities Corporation's Selling and Administrative Expense
Percentage' decreased from 73% to 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.
See independent auditors' report.
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PALM DESERT RECREATIONAL FACILITIES CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
(CONTINUED)
June 30, 2014
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 $31,834 from
$ l ,547,785 to $1,515,95 1. The restaurant operations recognized a 5% increase in gross revenues while
reducing overall expenditures minimally. 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.
See independent auditors' report.
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PALM DESERT RECREATIONAL FACILITIES CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
(CONTINUED)
June 30, 2014
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.
Table 1
Condensed Statements of Net Position
Fiscal Fiscal
Year Year
2014 2013
Assets:
Current and restricted assets $ 143,794 $ 189,265
Total Assets 143,794 189,265
Liabilities:
Other liabilities 1,659,745 1,737,050
Total Liabilities 1,659,745 1,737,050
Net Position:
Unrestricted (1,515,951) (1,547,785)
Total Net Position $ (1,515,951) (1.547.785)
Current assets decreased by $45,471, which is mostly related to reducing the related party liabilities.
During the 2013-2014 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 $106.480 (5%). 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 2013-2014 fiscal year was efficiency in labor and
other expenditures. As a result expenditures decreased by less than 1%. The total liabilities decreased
by $77,305. Tile change in the overall liabilities was a decrease for advances from related parties.
See independent auditors' report.
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PALM DESERT RECREATIONAL FACILITIES CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
(CONTINUED)
June 30, 2014
THE COMPONENT UNIT AS A WHOLE (CONTINUED)
Table 2
Condensed Statements of Revenues, Expenses
and Changes in Net Position
Fiscal Fiscal
Year Year
2014 2013
Operating Revenues:
Food and beverage sales $ 2,450,213 $ 2,343,733
Total Revenues 2,450,213 2,343,733
Operating Expenses:
Cost of goods sold
763,076
711,259
Maintenance and operations
1,463,612
1,535,027
General and administrative
191,691
179,017
Total Expenses
2,418,379
2,425,303
Change in Net Position
$ 31,834
$ (81.570)
Component Activities
Total revenue increased by $106.480 (5%) from $2,343,733 to $2,450,213. Continued patronage
in regular dining and banquet business allowed the restaurant to recognize a minimal increase in
gross revenues.
This fiscal year was the fourteenth 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 minor decrease of $6,924 from $2,425,303 to
$2,418,379. The decrease was a direct result of the overall efficiency in operations which recognized
a $58,741 in operation expenditures saving; however, the higher food costs recognized an increase
in cost of goods sold of' $51,817. which resulted in a net overall expenditure reduction of $6,924.
See independent auditors' report.
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PALM DESERT RECREATIONAL FACILITIES CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
(CONTINUED)
June 30, 2014
THE COMPONENT UNIT AS A WHOLE (CONTINUED)
The Gross Profit ,1/argin remained constant at 69%. The Selling and Administrative Expense
Percentage decreased by 5% from 73% to 68% from the prior year. The decrease is directly related to
improved labor management and expenditure controls.
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 2014-2015 fiscal year.
• Energy and fuel cost: Although the uncertainty regarding the cost of fuel and energy in
California and the repercussions of increased energy and fuel costs seems to have been
abated, The Palm Desert Recreational Facilities Corporation has taken measures to reduce
energy usage in the high peak period without impacting the quantity or quality of service.
See independent auditors' report.
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PALM DESERT RECREATIONAL FACILITIES CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
(CONTINUED)
June 30, 2014
ECONOMIC FACTORS AND NEXT YEAR'S BUDGETS (CONTINUED)
A copy of the Corporation's 2014-2015 financial plan can be obtained by contacting the Palm
Desert Recreational Facilities Corporation (see below).
CONTACTING THE CORPORATION'S FINANCIAL MANAGEMENT
This financial report is designed to provide the users with a general overview of the Palm Desert
Recreational Facilities Corporation, a component unit of the City of Palm Desert. If you have questions
about this report or need additional financial information, contact the Controller at Palm Desert
Recreational Facilities Corporation at 38-995 Desert Willow Drive, Palm Desert, California 92260.
See independent auditors' report.
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PALM DESERT RECREATIONAL FACILITIES CORPORATION
STATEMENT OF NET POSITION
June 30, 2014
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
Sec independent auditors' report and notes to basic financial statements.
Exhibit A
$ 76,434
14,193
44,639
8,528
143,794
43,831
1,639
1,517,275
97,000
1,659,745
(1,515,951)
$ (1,515,951)
Exhibit B
PALM DESERT RECREATIONAL FACILITIES CORPORATION
STATEMENT OF REVENUES, EXPENSES AND CHANGES IN NET POSITION
For the year ended June 30, 2014
OPERATING REVENUES:
Food and beverage sales
$ 2,450,213
TOTAL OPERATING REVENUES 2,450,213
OPERATING EXPENSES:
Cost of goods sold 763,076
Maintenance and operations 1,463,612
General and administrative 191,691
TOTAL OPERATING EXPENSES 2,418,379
OPERATING INCOME/CHANGE IN NET POSITION 31,834
NET POSITION - BEGINNING OF YEAR (1,547,785)
NET POSITION - END OF YEAR $ (1,515,951)
See independent auditors' report and notes to basic financial statements.
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PALM DESERT RECREATIONAL FACILITIES CORPORATION
STATEMENT OF CASH FLOWS
For the year ended June 30, 2014
CASH FLOWS FROM OPERATING ACTIVITIES:
Receipts from customers
Payments to suppliers
Exhibit C
$ 2,497,748
(2,436,768)
NET CASH PROVIDED BY OPERATING ACTIVITIES 60,980
CASH FLOWS FROM NON -CAPITAL AND RELATED
FINANCING ACTIVITIES
Cash paid to related party (112,288)
NET CASH USED BY NON -CAPITAL AND
RELATED FINANCING ACTIVITIES (112,288)
NET DECREASE IN CASH AND CASH EQUIVALENTS (51,308)
CASH AND CASH EQUIVALENTS - BEGINNING OF YEAR
127,742
CASH AND CASH EQUIVALENTS - END OF YEAR
$ 76,434
RECONCILIATION OF OPERATING INCOME TO
NET CASH PROVIDED BY OPERATING ACTIVITIES:
Operating income
$ 31,834
Adjustments to reconcile operating income
to net cash provided by operating activities:
Changes in assets and liabilities:
(Increase) decrease in accounts receivables
(1,619)
(Increase) decrease in inventories
(3,568)
(Increase) decrease in prepaid costs
(650)
Increase (decrease) in accounts payable and accrued liabilities
(14,171)
Increase (decrease) in unearned revenues
49.154
NET CASH PROVIDED BY OPERATING ACTIVITIES
S 60,980
See independent auditors' report and notes to basic financial statements.
PALM DESERT RECREATIONAL FACILITIES CORPORATION
NOTES TO BASIC FINANCIAL STATEMENTS
June 30, 2014
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 1 1:00 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.
See independent auditors' report.
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PALM DESERT RECREATIONAL FACILITIES CORPORATION
NOTES TO BASIC FINANCIAL STATEMENTS
(CONTINUED)
June 30, 2014
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 66 - "Technical Corrections, an amendment of GASB Statement No. 10 and Statement
No. 62 ", required to be implemented in the current fiscal year did not impact the Corporation.
GASB 70 - "Accounting and Financial Reporting for Nonexchange Financial Guarantees ",
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 68 - "Accounting and Financial Reporting.for Pensions, an amendment of GASB
.Statement No. 27", effective for the fiscal years beginning after June 15, 2014.
• GASB 69 - "Government Combinations and Disposals of' Government Operations",
effective for periods beginning after December 15. 2013.
• GASB 71 - "Pension Transition for Contributions ,Vade Subsequent to the Aeasurement
Date, ern Amendment of'GASB Statement AV 68", effective for the periods beginning after
June 15, 2014.
See independent auditors' report.
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PALM DESERT RECREATIONAL FACILITIES CORPORATION
NOTES TO BASIC FINANCIAL STATEMENTS
(CONTINUED)
June 30, 2014
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
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 outflows 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 then. 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.
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.
See independent auditors' report.
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PALM DESERT RECREATIONAL FACILITIES CORPORATION
NOTES TO BASIC FINANCIAL STATEMENTS
(CONTINUED)
June 30, 2014
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
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 $76,434 and the deposit value was $73,967. The difference is represented
by $12,550 of deposits in transit and checks outstanding totaling $10,083, for a net total of
$2,467.
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, 2014, inventories consisted of $44,639 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.
3. RELATED PARTY TRANSACTIONS:
Advances from Related Party:
As of June 30, 2014, the Corporation owed the following amounts to related parties:
Desert Willow Golf Course
City of Palm Desert
$ 1,232,275
285,000
1,5 l7,275
The Corporation has an operating lease with the City for use of the facilities (see Note 4).
See independent auditors' report.
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PALM DESERT RECREATIONAL FACILITIES CORPORATION
NOTES TO BASIC FINANCIAL STATEMENTS
(CONTINUED)
June 30, 2014
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, 2014 was $96,000. In addition, at June 30, 2014, 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 May 13, 2008, the Palm Desert Recreational Facilities
Corporation renewed their management agreement with Kemper Sports Management, Inc. This
agreement expired on June 30, 2011. The management agreement also includes two one-year
options to extend at the City of Palm Desert's discretion. Subsequently, on May 22, 2008, the City
of Palm Desert renewed their agreement with Kemper Sports Management, Inc. for three years
commencing on July 1, 2008 and ended on June 30, 2011. The second option to extend the
agreement was approved for the 2012-2013 fiscal year. On November 15, 2012 a new three-year
management agreement was executed to commence on July 1, 2013.
5. RISK MANAGEMENT:
The Golf Resort is covered by insurance purchased by Kemper Sports Management Inc., which
includes commercial liability, automobile, workers' compensation and overall umbrella excess
liability insurance through Aon Risk Services, Inc. of Illinois. The Corporation is named as
additional insured.
6. OTHER DISCLOSURES:
The Corporation has a net deficit of $1,515,951, 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.
See independent auditors' report.
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PALM DESERT RECREATIONAL FACILITIES CORPORATION
NOTES TO BASIC FINANCIAL STATEMENTS
(CONTINUED)
June 30, 2014
7. SUBSEQUENT EVENTS:
Events occurring after June 30, 2014 have been evaluated for possible adjustments to the financial
statements or disclosure as of November 17, 2014, which is the date these financial statements
were available to be issued.
See independent auditors' report.
-17-
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 GOVE&VWF_NTAUDITLVG 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, 2014, and the related notes to the financial statements, which collectively comprise the
Corporation's basic financial statements, and have issued our report thereon dated November 17, 2014.
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.
-18-
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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
November 17, 2014
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