HomeMy WebLinkAboutAudited Financial Reports - Palm Desert Recreational Facilities Corporation (PDRFC) FYE June 30, 2010CITY 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, 2010
DATE: April 14, 2011
SUBMITTED BY: Paul S. Gibson, Finance Director
CONTENTS: 1. Palm Desert Recreational Facilities Corporation Audited
Financial Report for Fiscal Year Ended June 30, 2010
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, 2010.
Committee Recommendation
The Audit, Investment and Finance Committee received the audited financial statements
for the PDRFC at their January 25, 2011 meeting, and it was recommended that the
statements for the fiscal year ended June 30, 2010 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.
Diehl, Evans & Associates, LLP, performed and completed the annual independent audit
for the fiscal year ended June 30, 2010, for the PDRFC in October 2010, 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, 2010, 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, 2010.
GAFinanceWiamh Ortega\Staff Reports\Audit staff reports\Nudit Staff Reports 2010\SR - Council audit PDRFC 2010.docx
Staff Report
Receive and file PDRFC reports for Fiscal Year ended June 30, 2010
April 14, 2011
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, 2010.
Fiscal Impact
There is no fiscal impact associated with this action.
Submitted by:
Paul S. Gibson, Finance Director/City Treasurer ohn M. Wohlmuth, City Manager
PSG:JLE:nmo
CITY COUNCIL ACTION
APPROVED
RECEIVED L
MEETING DATE
AYES: E ;e zse
NOES: -X e.__
ABSENT: 140ae- _
ABSTAIN: K._.�
VERIFIED BY: R D K L r1l
Original on File with City Clerk's Office
GAFinanceWiamh Ortega\Staff Reports\Audit staff reports\Audit Staff Reports 2010\SR - Council audit PDRFC 2010.docx
PALM DESERT RECREATIONAL
FACILITIES CORPORATION
ANNUAL FINANCIAL REPORT
WITH REPORT ON AUDIT
BY INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS
FOR THE YEAR ENDED JUKE 30, 2010
PALM DESERT RECREATIONAL FACILITIES CORPORATION
TABLE OF CONTENTS
June 30, 2010
Independent Auditors' Report
Page
Number
Management's Discussion and Analysis
(Required Supplementary Information) 3
Basic Financial Statements:
Exhibit 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 & COMPANY, UP
CERTIFIED PUBLIC ACCOUNTANTS 6T CONSULTANTS
APARTNERSHEPIN( MINGACCOUNTANCYCORPORATIONS
5 CORPORATE PARK, SUITE 100
IRVINF, CALIFORNIA 92606-5165
(949) 399-0600 • FAX (949) 399-0610
www.dieWevans.com
MICHAEL R LUDIK CPA
CRAIO W. SPRAIMR CPA
N=P. PAM CPA
ROBERT I. CAU ANAN, CPA
•Plitt H. HOLTXAMP, CPA
•THOMAS M. PBRLOWSA CPA
-HARVEY L SCHROEDFI, CPA
KM4N=R AME% CPA
WR * IAM C. PENTT, CPA
November 29, 2010 'A PROWSYMAL OORPORATMN
INDEPENDENT AUDITORS' REPORT
Board of Directors
Palm Desert Recreational 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, 2010, 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 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 component unit financial
statements are free of material misstatement. An audit includes consideration of internal control over
financial reporting as a basis for designing 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 over financial reporting. Accordingly, we express no such opinion. 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 accounting 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
Corporation. 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 financial position of Palm Desert Recreational Facilities Corporation as of
June 30, 2010 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 of America.
-1-
O= OFFICES AT: 2965 ROOSEVELT STREET 613 W. VALLEY PARKWAY, SUITE 330
CARLSBAD, CALIFORNIA 92008-2389 ESCONDIDO, CALIFORNIA 92023-2598
(760) 729-2343 • FAX (760) 729-2234 (760) 741-3141 • FAX (760) 741-9990
In accordance with Government Auditing Standards, we have also issued our report dated
November 29, 2010 on our consideration of the Corporation's internal control over financial reporting
and 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 the internal control over financial reporting or on compliance. That report is an
integral part of an audit performed in accordance with Government Auditing Standards and should be
considered in assessing the results of our audit.
The management's discussion and analysis, identified as required supplementary information in the
table of contents, is not a required part of the basic financial statements but is supplementary
information required by the accounting principles generally accepted in the United States of America.
This information is 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
management's discussion and analysis because the limited procedures do not provide us with sufficient
evidence to express an opinion or provide any assurance.
L t P
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PALM DESERT RECREATIONAL FACILITIES CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
June 30, 2010
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, 2010. Please read it in
conjunction with the Palm Desert Recreation Facilities Corporation's financial statements.
FINANCIAL HIGHLIGHTS
• Palm Desert Recreational Facilities Corporation's net assets deficit increased by $269,273 from
$697,383 to $966,656.
• Palm Desert Recreational Facilities Corporation's gross income of $2,005,700 increased by
$2,890 (0.144%) from the previous year.
• Palm Desert Recreational Facilities Corporation's gross profit decreased by $22,911 (1%) from
last year. The gross profit margin] of 65% fell 1% percent from the previous year.
• Palm. Desert Recreational Facilities Corporation's cost of goods sold increased by $25,801,
which represents a 4 percent increase from the previous year.
• Palm Desert Recreational Facilities Corporation's Selling and Administrative Expense
Percentage remained constant at 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 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 8
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, 2010
REPORTING THE COMPONENT UNIT AS A WHOLE
The Statement of Net Assets and the Statement of Revenues, Expenses and Changes in Net
Assets:
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
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. 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 assets and
changes in net assets. Net assets are the difference between assets and liabilities, which is one way to
measure the Corporation's financial health, or financial 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 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 combined net assets deficit increased by
$269,273 from $697,383 to $966,656. The weak 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. Even though the Corporation has continued to mostly recognize a deficit net
asset, it is expected that the corporation will have an upturn in operations and an eventual turnaround.
Our analysis below focuses on the net assets (Table 1) and changes in net assets (Table 2) of the
Corporation.
See independent auditors' report.
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PALM DESERT RECREATIONAL FACILITIES CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
(CONTINUED)
June 30, 2010
THE COMPONENT UNIT AS A WHOLE (CONTINUED)
Table 1
Condensed Statements of Net Assets
Fiscal Fiscal
Year Year
2010 2009
Assets:
Current and restricted assets $ 264,754 $ 150,177
Total Assets 264,754 150,177
Liabilities:
Other liabilities 1,231,410 847,560
Total Liabilities 1,231,410 847,560
Net Assets:
Unrestricted (966.656) (697.383)
Total Net Assets (966,656) (697,383)
The major change in the current assets is an increase in cash of $95,496 from the prior year. The
increase in cash was directly related to the increase in advances from related parties. The golf resort
absorbed some of the costs for the restaurant and delayed reimbursement for those costs. 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.
The restaurant continued to struggle as in the previous year as a result of the faltering tourism and
retail market. Cost of goods sold recognized a $25,801 increase from the prior year. All other costs
were similar to the previous year. 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 positive net assets. Nonetheless, the restaurant is a necessary ingredient in the
overall golf resort experience and will continue to operate.
See independent auditors' report.
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PALM DESERT RECREATIONAL FACILITIES CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
(CONTINUED)
June 30, 2010
THE COMPONENT UNIT AS A WHOLE (CONTINUED)
Table 2
Condensed Statements of Revenues, Expenses
and Changes in Net Assets
Fiscal Fiscal
Year Year
2010 2009
Operating Revenues:
Food and beverage sales $ 2,005,700 $ 2,002,810
Total Revenues 2,005,700 2,002,810
Operating Expenses:
Cost of goods sold
687,284
661,483
Maintenance and operations
1,318,806
1,354,637
General and administrative
268,883
232,026
Total Expenses
2,274,973
2.248.146
Change in Net Assets
Component Activities
Total revenue increased by less than 1% from $2,002,810 to $2,005,700. The restaurant sustained the
operation at a level equivalent to prior years. Given the economy and its impact on retail, the restaurant
met the expectation of the budget. During the fiscal year the corporate events and banquets markets
remained flat. This fiscal year was the tenth full 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 economic downturn, 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 1.1 % increase from $2,248,146 to
$2,274,973. The increase was a direct result of the increased administrative cost associated with the
overall operations of the restaurant, such as laundry linens, uniforms and supplies.
See independent auditors' report.
PALM DESERT RECREATIONAL FACILITIES CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
(CONTINUED)
June 30, 2010
THE COMPONENT UNIT AS A WHOLE (CONTINUED)
The Gross Profit Margin was consistent with previous years, indicating that the decrease in overall
expenses correlates with the decrease in business. The Selling and Administrative Expense Percentage
remained consistent with the prior year rate of 79% which correlates with the cost of the additional
marketing and advertising of the facility.
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
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 collapse of the financial market and 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 2010-2011 fiscal year. During the 2010-2011 fiscal year, the clubhouse restaurant will
undergo some major improvements to the outside terrace dining area as well as the kitchen. The
expansion will allow for various banquet functions to be held simultaneously.
See independent auditors' report.
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PALM DESERT RECREATIONAL FACILITIES CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
(CONTINUED)
June 30, 2010
ECONOMIC FACTORS AND NEXT YEAR'S BUDGETS (CONTINUED)
Energy and fuel cost: Although the erratic changes in energy and fuel costs have been
controlled, some uncertainty lingers regarding the cost of fuel and energy in California and the
repercussions of increased energy and fuel costs remain. 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.
A copy of the Corporation's 2010-2011 financial plan can be obtained by contacting the Palm Desert
Recreational Facilities Corporation (see below).
CONTACTING TBE 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. -
-8-
PALM DESERT RECREATIONAL FACILITIES CORPORATION
STATEMENT OF NET ASSETS
June 30, 2010
ASSETS:
Cash and cash equivalents
Accounts receivable
Inventories
Prepaid expenses
TOTAL ASSETS
LIABILITIES:
Accounts payable
Accrued liabilities
Advances from related party
Unearned revenues
TOTAL LIABILITIES
NET ASSETS (DEFICIT):
Unrestricted (deficit)
TOTAL NET ASSETS (DEFICIT)
See independent auditors' report and notes to basic financial statements.
J
Exhibit A
186,272
18,593
55,428
4,461
264,754
74,578
20,790
1,103,323
32,719
1,231,410
(966,656)
$ (966,656)
Exhibit B
PALM DESERT RECREATIONAL FACILITIES CORPORATION
STATEMENT OF REVENUES, EXPENSES AND CHANGES IN NET ASSETS
For the year ended June 30, 2010
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 LOSS
CHANGE IN NET ASSETS
NET ASSETS (DEFICIT) - BEGINNING OF YEAR
NET ASSETS (DEFICIT) - END OF YEAR
See independent auditors' report and notes to basic financial statements.
mulls
$ 2,005,700
2,005,700
687,284
1,318,806
268,883
2,274,973
(269,273)
(269,273)
(697,383)
$ (966,656)
Exhibit C
PALM DESERT RECREATIONAL FACILITIES CORPORATION
STATEMENT OF CASH FLOWS
For the year ended June 30, 2010
CASH FLOWS FROM OPERATING ACTIVITIES:
Receipts from customers $ 2,009,939
Payments to suppliers (2,290,968)
NET CASH USED BY OPERATING ACTIVITIES (281,029)
CASH FLOWS FROM NON -CAPITAL AND
RELATED FINANCING ACTIVITIES
Cash received from other funds 376,525
NET CASH PROVIDED BY NON -CAPITAL
AND RELATED FINANCING ACTIVITIES 376,525
NET INCREASE IN CASH AND CASH EQUIVALENTS 95,496
CASH AND CASH EQUIVALENTS - BEGINNING OF YEAR 90,776
CASH AND CASH EQUIVALENTS - END OF YEAR $ 186,272
RECONCILIATION OF OPERATING LOSS TO
NET CASH USED BY OPERATING ACTIVITIES:
Operating loss
$ (269,273)
Adjustments to reconcile operating loss
to net cash used by operating activities:
Changes in assets and liabilities:
(Increase) decrease in accounts receivables
(14,703)
(Increase) decrease in inventory
(1,214)
(Increase) decrease in prepaid expenses
(3,163)
Increase (decrease) in accounts payable and accrued liabilities
(11,618)
Increase (decrease) in unearned revenues
18,942
NET CASH USED BY OPERATING ACTIVITIES $ (281,029)
See independent auditors' report and notes to basic financial statements.
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PALM DESERT RECREATIONAL FACILITIES CORPORATION
NOTES TO BASIC FINANCIAL STATEMENTS
June 30, 2010
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 an Enterprise Fund 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 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 Assets, the Statement 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 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.
Private -sector standards 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 Board. 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.
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PALM DESERT RECREATIONAL FACILITIES CORPORATION
NOTES TO BASIC FINANCIAL STATEMENTS
(CONTINUED)
June 30, 2010
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. 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 all 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 Board's discretion.
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 are those in
which each party receives and gives up essentially equal values.
f. Cash and Cash Equivalents:
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 $186,272 and the deposit value was $183,656. The difference is represented
by $3,081 of deposits in transit and checks outstanding totaling $465, for a net total of $2,616.
See independent auditors' report.
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PALM DESERT RECREATIONAL FACILITIES CORPORATION
NOTES TO BASIC FINANCIAL STATEMENTS
(CONTINUED)
June 30, 2010
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 Statement No. 40 related to authorized investments, credit risk,
etc., is available in the annual report of the City.
g. 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, 2010, inventory consisted of $55,428 in merchandise for sales of food and beverages.
h. 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, 2010, the Corporation owed the following amounts to related parties:
Desert Willow Golf Course $ 818,323
City of Palm Desert 285,000
The Corporation has an operating lease 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, 2010
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, 2010 was $96,000. In addition, at June 30, 2010, 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 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
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 asset deficit of $966,656, 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 will undergo an expansion project. The expansion project will
increase the restaurant and kitchen area by 5,000 square feet and the outside terrace will increase
the outside seating capacity by an additional 200 seats. The expanded kitchen and terrace will
allow for larger banquets and normal dining to be served simultaneously.
See independent auditors' report.
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DIEHL, EVANS & COMPANY, LLP
CERTIFIED PUBLIC ACCOUNTANTS & CONSULTANTS
A PARTNERSHIP INCLUDING ACCOUNTANCY CORPORATIONS MICHAEL R LUDIN, CPA
CRAIG W. SPRAXIM CPA
NrrIN P. PAM CPA
5 CORPORATE P ROMMT r. CALLANAN, CPA
ARK, SUITE ! 00 -PHW IL HOLT[MII•, CPA
IRVINE, CALIFORNIA 92606-5165 •THOMAS X PSRLOWsiq CPA
(949) 399-0600 • FAX (949) 399.0610-HARVEY L SCHROEDER, CPA
IOWNETH R AMES CPA
wwwAiehleywA cam q,IIyIAM C. PWaZ CPA
November 29, 2010 •APROFnMNALCORPOUTM
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
Palm Desert Recreational 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, 2010, and have issued our report thereon dated November 29, 2010.
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.
Internal Control Over Financial Reporting
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.
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OTHER OFFICES AT: 2%5 ROOSEVELT STREET 613 W. VALLEY PARKWAY, SMITE 330
CARLSBAD, CALIFORNIA 92008-23n ESCONDIDO, CALIFORNIA 92025-2598
(760) 729-2343 0 FAX (760) 729-2234 (760) 741-3141 • FAX (760) 741-9890
Internal Control Over Financial Reporting (Continued)
Our consideration of internal 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.
Compliance 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 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 and other matters that are required to be reported under
Government Auditing Standards.
This report is intended solely for the information and use of the Board of Directors, management of the
Palm Desert Recreational 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.
LLP
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