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HomeMy WebLinkAboutAudited Fncl Rprts - PDRFC - FYE 06/30/2009 CITY 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, 2009 DATE: February 11, 2010 SUBMITTED BY: Paul S. Gibson, Finance Director CONTENTS: 1. Palm Desert Recreational Facilities Corporation Audited Financial Report for Fiscal Year Ended June 30, 2009 2. Report on Internal Control and Compliance 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, 2009. Committee Recommendation The Audit, Investment and Finance Committee received the audited financial statements for the PDRFC at their January 26, 2010 meeting, and it was recommended that the statements for the fiscal year ended June 30, 2009 be received and filed by the City Council. Backqround The Palm Desert Recreational Facilities Corporation (PDRFC) is a corporation that provides food and beverage services exclusively to the Desert Willow Golf Resort. Diehl, Evans & Associates, LLP, performed and completed the annual independent audit for the fiscal year ended June 30, 2009, for the PDRFC in October 2009, 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, 2009, 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. 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, 2009. G:\Finance\Niamh Ortega\Staff ReportsWudit staff reportsWudit Staff Reports 2009\SR-Council audit PDRFC 2009.docx Staff Report Receive and file CAFR for Fiscal Year ended June 30, 2009 February 11, 2010 Page 2 of 2 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, 2009. Fiscal Impact There is no fiscal impact associated with this action. Submitted by: , Paul S. Gibson, Finance Director/City Treasurer /J n M. Wohlmuth, City Manager � ► PSG:JLE:nmo C1TY COUNCIL ACTiON APPROVED DT�'NI�D RECENED E� OTHF,R MF,I;T(NG DATE -lf�o?L%/C} AYF.S: ; P� Lcs�n � ` e� NOES: .t1_r�1nr°, A�35f:NT: 1�'2/1�. A13�;'TA(N: ' �- — V[?RIrt4�.D BY: Ori�;inal on File with City Clerk's� ftice G:\Finance\Niamh Ortega\Staff ReportsWudit staff reports�,4udit Staff Reports 2009\SR-Council audit PDRFC 2009.docx � ' DIEHL, EVANS S� COMPANY, LLP CERTIFIED PUBllC ACCOUNTANTS 6r CONSULTANTS AUCHAII,R U1DRJ.CPA A PARTNERSFflP INCLUDING ACCOUNTANGY CORPORATIONS CRAIG W.SPRAKER.CPA NTI1N P.PATEL CPA ROBERTJ.CALLANAN.CPA •PHIIIP H.HOLTKAI�.CPA 5 CORPORATE PARK,SUITE]00 'THOMAS M.PERLOWSK/.CPA IRViNE,CALffORN1A 92606-5165 'HARVEY).SC}fltOID81L CPA (949)399-0600•FA}C(949)399-0610 KENNETH R MffS.CPA •WlLLlAM C.PEM'Z,CPA W W W.(IiCfi�CVSIIS.COI� October 16�ZOO9 •���sia�ui.cavoiunoN 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 Board of Directors Pa1m Desert Recrearional Facilities Corporation Palm Desert, California We have audited the component unit basic 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, 2009, and have issued our report thereon dated October 16, 2009. We conducted our audit in accordance with auditing standazds generally accepted in the United States of America and the standards applicable to financial audits contained in Goveminent Auditing Standazds, issued by the Comptroller General of the United States. Internal Control Over Financial Renortin� In planning and performing our audit, we considered the Corporation's internal control over financial reporting as a basis for designing our auditing procedures for the purpose of expressing our opinions on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the Corporation's internal control over financial reporting. Accordingly, we do not express an opinion on the effectiveness of the Corporation's internal control over financial reporting. A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the 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. - 1 - OTHFR OFFICES AT: 3965 ROOSEVELT STREET 613 W.VALLEY PARKWAY.SUITE 330 CARISBAD.CALIFORNIA 92008-2369 ESCONDiDO.CAUFORNIA 92025-2598 (760)729-2343•FAX(760)729-2234 (760)741-3141•FAX(760)741-9690 � n , Internal Control Over Financial Reportin;�(Continued) Our consideration of intemal control over financial reporting was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control over financial reporting that might be deficiencies, significant deficiencies or material weaknesses. We did not identify any deficiencies in internal control over financial reporting that we consider to be material weaknesses, as defined above. Com�liance and Other Matters As part of obtaining reasonable assurance about whether the Palm Desert Recreational Facilities Corporation's financial statements are free of 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 ei�ect 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 and other matters that are required to be reported under Govemment Auditing Standards. This report is intended solely for the information and use of the Board of Directors, management of the Palm Desert Recreadonal Facilities Corporation and others within the Corporation, and is not intended to be and should not be used by anyone other than these specified parties. I�'s-a.,+,�-� �',,�,,�v, u,r,,d , �L� - 2 - PALM DESERT RECREATIONAL FACILITIES CORPORATION ANNUAL FINANCIAL REPORT WITH REPORT ON AUDIT BY INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS FOR THE YEAR ENDED JUNE 30,2009 PALM DESERT RECREATIONAL FACILITIES CORPORATION TABLE OF CONTENTS June 30,2009 Page Number Independent Auditors'Report i Management's Discussion and Analysis 3 Basic Financial Statements: Elchibit A- Statement of Net Assets 9 Exhibit B - Statement of Revenues, Expenses and Changes in Net Assets 10 Exhibit C- Statement of Cash Flows 11 Notes to Basic Financial Statements 12 DIEHL, EVANS S1 COMPANY, LLP CERrIFIED PUBLIC AGCOUNTANTS dT CONSULTANTS � MICNAEL R L(JDIN,CPA A PARTNERSHR MCLUDQdO ACCOl1PRANCY OORPORATIONS (7tA14 N'.S►1tAKFR.CtA N�TTP!P.PATII,CPA ROBERT J.CAI,LANAN,QA 7ML�H.HOLTIUMI�.CPA S CORPORATE PARK,SUTI'E 100 rrrtonus M.rFRLowsin,crw 1RVINE,CALiFORNU 92606-5165 •tuRv�•i.scru�oEnex,crw (949)399-0600•FAX(949)399-0610 KENNETH R AMES,CPA 'W7 W wM C.PFNTZ,QA W W W.dIC�dV8d9.COID October 16, 2009 '"'"°'�°"""°�'°`""°" INDEPENDENT AUDITORS'REPORT Board of Directors ' Palm Desert Recreational Facilities Corporation Pa1m Desert,California We have audited the component unit basic financial statements of the Pa1m 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, 2009, as listed in the table of contents. These component unit basic financial statements are the responsibility of the Corporation's management. Our responsibility is to express an opinion on these component unit basic financial statements based on our audit. We conducted our audit in accordance with auditing standazds generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditins 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 component unit financial statements aze free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the component unit financial statements. An audit also includes assessing the accounring principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. The component unit financial statements referred to above include only the financial activities of the Corporadon. Financial activities of other component units that form the reporting entity are not included. In our opinion, the component unit basic financial statements referred to above present fairly, in all material respects, the financia] position of Palm Desert Recreational Facilities Corporation as of June 30, 2009 and the results of its operations and cash flows for the year then ended in conformity with accounting principles generally accepted in the United States ofAmerica. - 1 - OTHE7t OFFICFS AT: 2%S ROOSEVELT STREET 613 W.VALLEY PARKWAY.SU[TB 330 CARLSBAD.CALIfORN[A 92008-2389 E4CONDlDO.C.IUFORNIA 92025-2598 (760)729-2343•FAX(760)729•2234 1760)741-31�1•FAX(7601741-9890 In accordance with Government Auditing Standards, we have also issued our report dated October 16, 2009 on our consideration of the Corporation's intemal control over financial reporting and aur 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 the internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Audiring Standards and should be considered in assessing thc results of our audit. Thc management's discussion and analysis identified in the accompanying table of contents is not a required part of the basic financial statements but is supplementary information require�by accounting principles generally accepted in the United States of America We have applied certain limited procedures to the management's discussion and analysis, which consisted principally of inquiries of management regarding the methods of ineasurement and presentation of this required supplementary information. However, we did not audit the raanagement's discussion and analysis and express no opinion on i� I���.� ��� �. � `L� - 2- PALM DESERT RECREATIONAL FACILITIES CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS June 30,2009 Our discussion and analysis of the financial perfoimance 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, 2009. Please read it in conjunction with the Palm Desert Recreation Facilities Corporation's financial statements. FINANCIAL ffiGHLIGHTS . • Palm Desert Recreational Facilities Corporation's net assets deficit increased by$245,336 fi-om $452,047 to$697,383. • Palm Desert Recreational Facilities Corporation's gross incorne of$2,002,810 was a decrease of$639,694 (24%)over last year. • Palm Desert Recrearional Facilities Corporation's gross profit decreased by $465,653 (26%) from last year. The gross profit marginl of 67%remained constant with the industry average of 68%. • Palm Desert Recreational Facilities Corporation's overhead (Maintenance & Operations and General &Administrative) decreased by$219,855 (12%). • Palm Desert Recreational Facilities Corporation's cost of goods sold decreased by $174,041, which represents a 21% decrease from the previous year. • Palm Desert Recreational Facilities Corporation's Selling and Administrative Expense Percentage2 increased from 68%to 79%. USING THIS ANNUAL REPORT This annual report consists of a series of financial statements. The Statement of Net Assets and Statement of Revenues, Expenses and Changes in Net Assets (on pages 9 and ]U) provide information about the activities of the Palm Desert Recreationa! Facilities Coiporation as a whole, and present a long-term view of the Corporation's operarions. ' The gross profit margin ia calcutatad by dividing g�ss proHt by gross salea. The gross prolit margfn indicates how well sales are perfortning when compared to expectations and the industry. The Corporatlon expected an industry gross profit marg6�►of approxlmately 689�6. �The seliing and administrative expense percentage Is catcutated by dividing the sum of the AAaintenance&Operatlona and the General 8 Adminisuative costs by the gross sales.This percentage indicates how well the Corporatbn's overhead is maintsined In relatlon to sales. The goal is to derive an overhead cost of approximately 8496 or lower. See independent auditors' report. - 3 - PALM DESERT RECREATIONAL FACILITIES CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS � (CONTINUED) June 30, 2009 REPORTING TAE COMPONENT UNIT AS A WHOLE The Statement of Net Assets and the Statement of Revenues, Expenses and Changes in Net Assets: Our anatysis of the Palm Desert Recreational Facilities Corporation as a w6ole 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 Pa1m Desert Recreational Facilities Corporation's operations is the profitability of the food and beverage activities and tailoring the restaurant to meet the expectation of all golf enthusiasts alike. What is the outcome for the food & beverage operations for this fiscal yeaz? The Statement of Net Assets and the Statement of Revenues, and the Expenses and Changes in Net Assets report information • about the Component Unit as a whole and about its activities. Tlus report along with the financial , highlights, noted above, illustrates the operations and the profitability of the food and beverage activiries. 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 aze recorded when incurred instead of when paid. These two statements report the Palm Desert Recreational Facilities Corporation's net assets and changes in net assets. Net assets are the difference between assets and liabilides, which is one way to measure the Corporation's financial health, or,�nancial position. Over time, increases or decreases in the Corporation's net assets are an indication of whether its financial health is improving or deteriorating. To determine the prafitability of the Corporarion, 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 indushy factors such as price per golf round and level of tourism. THE COMPONENT UNIT AS A WHOLE The Palm Desert Recreational Facilities Corporation's combined net assets (deficit) increased by $245,336 from $452,047 to $697,383. The decline of the financial mazkets and subsequent economic decline has played a vital role in impacting the tourism and retail market which in turn has directly affected the utilization of the restaurant for corporate outings, weddings and banquets. Even though the Corporation has continued to mostly recognize a deficit net asset, manage�ment is optimistic that the Corporation will have an upturn in operarions and an eventual turnaround is optimistic. Our analysis below focuses on the net assets (Table 1) and changes in net assets(Table 2)of the Corporation. See independent auditors' report. -4 - PALM DESERT RECREATIONAL FACILITIES CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED) June 30,2009 THE COMPONENT UNTT AS A WHOLE(CONTINUED) Table 1 Condensed Statements of Net Assets Fiscal Fiscal � Year Year 2009 2008 Assets: Curreat and restricted assets $ 150.177 $ 497.626 Total Assets 150,177 497.626 Liabilities: Other liabilities 847,560 949,673 Total Liabilities 847.560 949,673 Net Assets (Deficit): Unrestricted �697.3831 (452.047) Total Net Assets (Deficit) $ (697.383) (452.0471 The major change in the current assets is a reduction of cash from the prior yeaz of$313,253. This reduction was directly related to the unaaticipated financial market decline and subsequent reduction in the tourism and retail markets, which eroded the anticipated gross revenues. All other changes in the assets remained consistent with the prior years. Changes in liabilities were directly related to management's response in the economic downturn. In response to the faltering tourism and retail market the Palm Desert Recreational Faciliries Corporation was able to implement cost saving measures which resulted in decreased expenditures for the fiscal yeaz. Overall costs were reduced by $393,896 from the previous year. Co�t of Goods Sold was reduced relative to demand. Additionally, labor was reduced in response to the decline in corporate events and weddings. Although the Corporation continues to experience a deficit in net assets, we expect the Corporation will began to recognize net profit and eventually eliminate the deficit; resulting in a positive net assets. Nonetheless, the Restaurant is a necessary ingredient in the overa.11 golf resort experience and will continue to operate. See independent auditors' report. - 5 - PALM DESERT RECREATIONAL FACILITIES CORPOR.ATION MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED} June 30, 2009 THE COMPONENT UNIT AS A WHOLE(CONTINUED) Table 2 Condensed Staternents of Revenues, Expenses and Changes in Net Assets Fiscai Fiscal Year Year �009 2008 Operating Revenues: Food and beverage sales $ 2,002.810 � 2,642.504 Total Revenues 2.002,810 2,642,504 Operating Expenses: Cost of goods sold 6b1,483 835,524 Maintenance and operations 1,354,637 1,560,339 General and administrative 232,026 246.179 Total Expenses 2,248,146 _ 2.642,042 Change in Net Assets $ (2453361 � 462 Component Activities Total revenues decreased from $2,642,504 to $2,002,810, a 24% decrease. The main factor involved with this decrease was the impact of the economy on corporate events and banquets. During the fiscal yeaz the Palm Desert Recreation Faciliries Corporadon corporate event and banquets recognized a dramatic deciine in revenues from the previous year. In 2008-2009 Corporate events and Banquets accounted for $559,590 of the total revenue whereas in fiscal year 2007-2008 it accounted for $869,104, a 36% decrease. Uuring this fiscal year the Palm Desert Recreation Faciliries Corporadon continued to mazket their banquets and ontings based on the previous years' history, and they implemented an aggressive narional, regional and local marketing and advertising campaigu to minimize the impact of the economic downturn, with the focus on: • Attracting new and repeat business. • Continued patronage of customers and corporate groups. • Increased Banquet and outing operarions. • Consistency in golf rounds played. • Marketing to golfers on the golf course. See independent auditors' report. - 6 - PALM DESERT RECREATIONAL FACILITIES CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED) June 30, 2009 THE COMPONENT UI�TIT AS A WHOLE (CONTINUED) As Table 2 above indicates, total expenses decreased from $2,642,042 to $2,248,146, a 15% decrease. The major factors attributing to the decrease were S 174,041 (21%) decrease in cost of goods sold and a �201,750(13%)decrease in maintenance and operations. The cost of labor was reduced by 7 Full time equivalent (FTE's) which contributed to the majority of reduction in the maintenance and operarions expenses. The remaining decreases were a normal response to the downtum in business acrivities � reco�nized during the fiscal year. The Gross Profit Margin was consistent with previous years, indicating that the decrease in overall expenses correlates with the decrease in busiaess. The Selling and Administrative Expense Percentage increased by 11% which correlates with the cost of the additional marketing and advertising of the facility. CAPITAL ASSET AND DEBT ADMINISTRATION Capital Assets/Debt Administradon The Palm Desert Recreational Faciliries Corporation does not own or lease any capital assets; subsequently,there is no debt related to capital assets presented on their financial statement. ECONOMIC FACTORS AND NEXT YEAR'S BUDGETS In preparing the budget for 2010,management looked at the following economic factors: • Prices: The prices for goods and services in the golf industry have had downward pressure resulting from the downturn of the financial market and economy. In an effort to maintain the integrity of the products served at the restaurant, The Pa1m 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. See independent auditors' report. - ? - PALM DESERT RECREATIONAL FACILITIES CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED) June 30,2009 ECONOMIC FACTORS AND NEXT YEAR'S BUDGETS (CONTINUED) • National Economy: The golf and hospitality industries rely heavily an a strong national and local economy. With a strong national economy, the mazket 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 roduce their consumption of leisure activities. The state of the current economy was taken into consideration when budgeting for the 2009-2010 fiscal year. Therefore, some improvements to the facility will be done that will enhance the ambiance and increase the service potential which should help the restaurant to recover some of the lost corporate events,banquets and weddings. A copy of the Corporation's 2009-2010 financial plan can be obtained by contacting the Pa1m Desert Recreational Fa.cilities Corporation(see below). CONTACTING THE CORP4RATION'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 questians about this report ar 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. - 8 - Exhibit A PALM DESERT RECREATIONAL FACILITIES CORPORATION STATEMENT OF NET ASSETS June 30,2009 ASSETS: Cash and cash equivalents $ 90,776 Accounts receivable 3,890 Inventories 54,214 Prepaid expenses 1,297 TOTAL ASSETS 150,177 LIABILI'TIES: Accounts payable 83,182 Accrued liabilities 23,803 Advances from related party 726,798 Unearned revenues 13,777 TOTAL LIABILITIES 847,560 NET ASSETS (DEFICIT): Unrestricted(deficit) (697,383) TOTAL NET ASSETS (DEFICIT) $ (697,383) See independent auditors'report and notes to basic financial statements. - 9- Exhibit B PALM DESERT RECREATIONAL FACILTTIES CORPORATION STATEMENT OF REVENUES, EXPENSES AND CHANGES IN NET ASSETS For the yeaz ended June 30, 2009 OPERA'TII�iG REVENUES: Food and beverage sales $ 2,002,810 TOTAL OPER.ATING REVENUES 2,002,810 OPERATING EXPENSES: Cast af goods sold 661,483 Maintenaace and operations 1,354,637 ' General and administrative 232,026 TOTAL OPERAT�iG EXPENSES 2,248,146 OPERATING LOSS (245,336) CHANGE IN NET ASSETS (245,336} NET ASSETS (DEFICIT) -BEGINNING OF YEAR (452,047} NET ASSETS (DEFICIT� - END OF YEAR $ (697,383) See independent auditors'report and notes to basic financial statements. - 10 - Exhibit C PALM DESERT RECREATTONAL FACILITIES CORPOR.ATION STATEMENT OF CASH FLOWS For the year ended June 30, 2009 CASH FLOWS FROM OPERATING ACTNITIES: Receipts from customers $ 2,011,522 Payments to suppliers (2,324,775) NET CASH USED BY OPERATING ACTIVITIES (313,253) NET DECREASE IN CASH AND CASH EQUNALENTS (313,253) CASH AND CASH EQUIVALENTS -BEGINNING OF YEAR 404,029 CASH AND CASH EQUIVALENTS -END OF YEAR $ 90,776 RECONCILIATION OF OPERATING LOSS TO NET CASH USED BY OPERATING ACTMTIES: Operating loss $ (245,336} Adjustrnents to reconcile operating loss to net cash used by operating activities: Changes in assets and liabilities: (Increase)decrease in accounts receivables 36,595 (Increase)decrease in inventory (3,297) (�ncrease)decrease in prepaid expenses 898 Increase(decrease) in accounts payable and accrued liabilities 54,400 Increase(decrease) in advance from related party (128,630) Increase(decrease) in unearned revenues (27,gg3) NET CASH USED BY OPERATING ACTIVITIES $ (313,253) See independent auditors'report and notes to basic financial statements. - 11 - PALM DESERT RECREATIONAL FACILITIES CORP4RATION NOTES TO BASIC FINANCIAL STATEMENTS June 30, 2009 1. ORGANIZATION AND DESCRIPTION OF THE REPORTING ENTITY: The Palm Desert Recreational Facilides Corporation (the Corporation) is a Corporation that provides food and beverage setvices exclusively to the Desert Willow Golf Resort (the Golf Resort). The Corporarion is a component unit of the City of Palm Desert(the City) and is reported as an Enterprise Fund in the Ciry's basic financial statements. The Corporation was incorporated on February 25, 1997. The Board of Dire�tors of the Corporation consists of two members of the City Council and two members of the public at large. The annuat Board of Director's meetings is held the second Manday 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 Assets, the Sta.tement of Revenues, Expenses and Changes in Net Assets, the Statement of Cash Flows and the notes to the basic financial statements. b. Basis of Presentation: 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 goveming 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. Private-sector standazds of accounting and financial reporting issued prior to December 1989, generally are followed by the Corporation to the extent that those standards do not conflict with or contradict guidance of the Governmental Accounting Standards Boazd. Governments also have the option of following subsequent private-sector guidance for their business-type activities and enterprise funds, subject to this same limitation. The Corporation has elected not to follow subsequent private-sector guidance. See independent auditors' report. - 12 - PALM DESERT RECREATIONAL FACILITIES CORPORATION NOTES TO BASIC FiNANCIAL STATEMENTS (CONTINUED) June 3Q,2009 2. SUMMARY OF SIGNIFICANT ACCOU:�ITING POLICIES (CONTINUED): a Measurement Focus and Basis of Accounting: Measurement focus is a term used to descn`be "which" transactions are recorded within the various financial statements. Basis of accounting refers to "when" transactions are recorded regardIess of the measurement focus applied. The accompanying financial statements aze 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. Net Assets: In the Statement of Net Assets,net assets are classified in the following categories` • Invested in capital assets, net of related debt - 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 assets - This amount is restricted by external creditors, grantors, contributors, or laws or regulations of other governments. • Unrestricted net assets - This amount is a11 net assets that do not meet the definition of "invested in capital assets,net of related debt"or"restricted net assets". When both restricted and unrestricted resources are available for use, the Corporation may use restricted resources or unrestricted resources based on the Boazd's discredon. e. Operating Revenues: Operating revenues, such as food and beverage sales, resulting from exchange transactions associated with the principal activity of the Corporation. Exchange transactions aze those in which each party receives and gives up essentially equal values. f. Cash and Cash Equivaleats: For purposes of the Statement of Cash Flows, the Corporation considers all unrestricted highiy liquid investments with an initial maturity of three months or less to be cash equivalents. The carrying value was $90,776 and the deposit value was $100,584. See independent auditors' report. - 13 - PALM DESERT RECREATIONAL FACILITIES CORPORATION NOTES TO BASIC FINANCIAL STATEMENTS (CONTINUED) June 30,2009 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED): f. Cash and Cash Equivalents(Continued): 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 Staiement No. 40 related to authorized investments, credit risk, etc., is available in the annual report of the City. g. Inventories: Inventories aze stated at the lower of cost or market (no adjustments were made to reduce inventory below cost) with cost detenmined using the Weighted Average Cost Method. At June 30, 2009, inventory consisted of$54,214 in merchandise for sales of food and beverages. h. Budgetary Policies: Ke�mper 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 expendiYures for. (a) property opera.tion 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 Ju1y 1 each year. 3. RELATED PARTY TRANSACTIONS: Advances from Related Party: As of June 30, 2009, the Corporation owed the following amounts to related parties: Desert Willow Golf Course $ 441,798 City of Palm Desert 285.000 $� The Corporation has an operating Iease with the City for use of the facilities (see Note 4). See independent auditors' report. - 14 - PALM DESERT RECREATIONAL FACILITIES CORPORATION NOTES TO BASIC FINANCIAL STATEMENTS (CONTINUED) June 30, 2009 4. COMMTTMENTS AND CONTINGENCIES: Operating Leases: The Corporation has an operating lease with the City for use of the facilities. The terms of the lease are $8,000 per month beginning June 4, 1997. The lease is a month-to-month lease with no expiration date. On May 18,2004, the Corporation approved an increase in the lease payment to begin on Ju1y 1,2004. The new lease payment is $15,000 per month. Total rent expense incurred for the year ended June 30, 2009, under this lease was $l 80,OOQ. On May 12, 2009, the Board of Directors approved a decrease in the Iease payment from $I5,000 to $8,OOQ commencing on July 1,2009. At June 3p, 2009, the Corpora.tion 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 will expire 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 ending on June 30,2011. 5. RISK MANAGEMENT: The Golf Resort is covered by insurance purchased by Kemper Sports Management Inc., which inctudes commercial liability, automobile, workers' compensation and overall umbrella excess • liability insurance through Aon Risk Services, Inc. of IIlinois. The Corporation is named as additional insured. 6. OTHER DISCLOSURES: The Corporation has a net asset deficit of $697,383, which will be eliminated hy increasing revenues through banquet reservations. See independent auditors' report. - IS -