Loading...
HomeMy WebLinkAboutReview - Transient Occupancy Tax - 2009 and 2010 Calendar Year Reimbursement to OperatorsCITY OF PALM DESERT FINANCE DEPARTMENT STAFF REPORT Request: Receive and file the Limited Procedures Review of various Palm Desert Operators for compliance with the City of Palm Desert's Transient Occupancy Tax Ordinance for the 2009 and 2010 calendar year, approve reimbursement to operators for overpayment of Transient Occupancy Tax totaling $3,027.00. Submitted By: Paul S. Gibson, Finance Director Date: January 26, 2012 Contents: Limited Procedures Review of Various Palm Desert Operators for Compliance with the City of Palm Desert's Transient Occupancy Tax Ordinance for the 2009 and 2010 Calendar Year Recommendation That the City Council: 1. Receive and file the Limited Procedures Review of various Palm Desert operators for compliance with the City of Palm Desert's Transient Occupancy Tax ordinance for the 2009 and 2010 calendar year; and 2. Approve reimbursement to operators for overpayment of Transient Occupancy Tax totaling $3,027.00. Committee Recommendation The Audit, Investment and Finance Committee received the report at their January 24, 2012 meeting, and it was recommended that it be received and filed by the City Council. Staff Report Limited Procedures Review & Transient Occupancy Tax Collection and Reimbursement January 26, 2012 Page 2 of 2 Discussion The City of Palm Desert hired the CPA firm of Diehl, Evans & Company, LLP to conduct audits on Transient Occupancy Tax. This year, five operators were audited; one operator had an overpayment, and four had an underpayment during the 2009 and 2010 calendar year. Attached are the five reports and a summary of the auditor's findings. Electronic copies have been provided to the City Attorney's office. On November 1st, 2011 operators received a copy of their respective audits and were asked to respond with any concerns within a thirty day period. In the interest of maintaining confidentiality among those operators who may wish to respond, it is suggested that instead of speaking during the public Council meeting, a separate meeting be established between the operator and the Finance Director, City Manager, Mayor and Mayor Pro-Tempore, all of whom serve on the Audit, Investment and Finance Committee. Fiscal Analysis Approval of staff's request will allow staff to reimburse taxes overpaid to the City. Payment of underpaid tax has been received in full in the amount of $18,082 from the appropriate operators. Submitted by: Approval: Paul S. Gibson, Finance Director n Wohlmuth, City Manager nmo CITY COUNCILACTION APPROVED_ k;:::L DENIF'D RECEIVED Ric OTEIER MEETING DATE > -<-qO _ AYES: r tl_i c e NOES: Nonce_ ABSENT: IW o n e- ABSTAIN: JL S, n C VERIFIED BY: - 0K kI CA -_ Original on File with City Clerk's Office C:\Users\nortega\HppData\Local\Microsoft\Windows\Temporary Internet Files\Content.Outlook\VF496YYN\Council report audit 2009 2010 TOT.doc T.O.T AUDIT FINDINGS Period January 1, 2009 — December 31, 2009 January 1, 2010 - December 31, 2010 Operator #1 = This company owes the City of Palm Desert $196.00 for underpayment of Transient Occupancy Tax. Operator #2 = This company owes the City of Palm Desert $2,861.00 for underpayment of Transient Occupancy Tax. Operator #3 = The City of Palm Desert owes this company $90.00 for overpayment of Transient Occupancy Tax. Operator #4 = This company owes the City of Palm Desert $8,408.00 for underpayment of Transient Occupancy Tax. Operator #5 = This company owes the City of Palm Desert $6,617.00 for underpayment of Transient Occupancy Tax. DIEHL, EVANS & COMPANY, LLP CERTIFIED PUBLIC ACCOUNTANTS & CONSULTANTS NICHAEL R. LUDIN, CPA A PARTNERSHIP INCLUDING ACCOUNTANCY CORPORATIONS CRAIG W. SPRAKER, CPA NMN P. PATEL, CPA ROBERTI.CALLANAN,CPA 5 CORPORATE PARK, SUITE 100 •PH LM H. HOLTKANP, CPA 'THOMAS M PERLOWSK; CPA IRVINE, CALIFORNIA 92606-5165 •HARVEY I. SCHROEDER. CPA (949) 399-0600 • FAX (949) 399-0610 KENNETH R. AN L% CPA www.dichleyms.com •A PROFMIONN. CO"OPLArrox INDEPENDENT ACCOUNTANTS' REPORT ON APPLYING AGREED -UPON PROCEDURES City Council City of Palm Desert Palm Desert, California We have performed the procedures enumerated below, which were agreed to by the management of the City of Palm Desert (the City), solely to assist the City in verifying the accuracy of the transient occupancy tax returns submitted by Operator #1 , Palm Desert, California 92211, (the Hotel), to the City for the period from January 3, 2009 to January 1, 2010. The Hotel's management is responsible for the preparation and filing of the transient occupancy returns. This agreed -upon procedures engagement was performed in accordance with attestation standards established by the American Institute of Certified Public Accountants. The sufficiency of these procedures is solely the responsibility of the management of the City of Palm Desert. Consequently, we make no representations regarding the sufficiency of the procedures described below, either for the purpose for which this report has been requested or for any other purpose. We reviewed the City Municipal Code and related ordinances and resolutions related to transient occupancy tax. No exceptions were noted as a result of this testing. 2. We verified the mathematical accuracy and the timeliness of the transient occupancy reports filed with the City for the calendar year 2009. No exceptions were noted as a result of this testing. 3. We traced the gross revenues reported on the transient occupancy tax returns prepared by the Hotel to gross revenues recorded in the Hotel's accounting records and verified that these were in accordance with the City's ordinance. No exceptions were noted as a result of this testing. OTHER OFFICES AT. 2965 ROOSEVELT STREET 613 W. VALLEY PARKWAY, SUITE 330 CARLSBAD, CALIFORNIA 92008-2389 ESCONDID0, CALIFORNIA 92025-2598 (760) 729-2343 . FAX (760) 729-2234 (760) 741-3141 • FAX (760) 741-9990 5 4. We selected a sample of rental transactions during the review period and for each transaction selected, we verified the tax computations and traced the amounts of rental revenues and transient occupancy taxes collected to the books and records of the Hotel. As agreed upon by the City, the months of July, August and September were excluded from this procedure. The Hotel's accounting system keeps information for twelve months only. It was represented to us that anything beyond twelve months are purged from the system and are no longer available. Therefore, we were not able to trace the individual amounts of rental revenues and occupancy taxes collected to the books and records of the Hotel. 5. We reviewed the internal control procedures of the Hotel and determined: (a) how "gross rents" and "uncollected rents" were accounted for and reported to the City, (b) what procedures were in place to identify transient and non -transient guests and (c) how exemptions, including complimentary rooms, were documented and reported to the City. No exceptions were noted as a result of this testing. 6. We reviewed the supporting documentation for exemptions claimed on three of the transient occupancy tax returns in the period under review. The selected reporting period end dates were: April 24, 2009, July 17, 2009 and December 4, 2009. For the three tax returns selected, there were 18 exemptions totaling $4,811. The results of our testing are as follows: Exemption claims supported by proper forms and documentation (A) Exemption claims with improper, incomplete or not supported by documentation Under (Over) Number of Payment of Exemption Amount of Occupancy Claims Exemptions Taxes 14 $ 2,624 $ 4 2,187 196 18 $ 4,811 $ 196 During our review we noted that for federal government employees, the hotel requires the guest to compete and sign the "City of Palm Desert Transient Occupancy Tax Government Employee Exemption Claim" form. It is the hotel's policy to check the federal government identification information. However, due to privacy issues, the hotel does not keep copies of the identification information as a support for the form. (A) The Hotel does not retain documentation that the room was paid for directly by the federal government. Therefore, we were not able to verify that the room was paid for directly by the federal government as required by Section 3.28.040A2 of the City's ordinance. 7. We performed additional procedures that we considered necessary to verify the reasonableness of reported revenues of the Hotel operator. There were no additional procedures considered necessary. -2- 8. We inquired how the Hotel handles reservations and payments made on line through a third parry such as Expedia.com and how the transient occupancy tax was collected and reported to the City on these transactions. Per our discussion with Hotel management reservations made through online third party such as Expedia.com are handled as follows: • Guests will book the hotel room through the intermediary e-channels (Expedia, etc) • Intermediary charges the guest's credit card for the entire stay at the time of purchase. The Hotel has no knowledge of the rate the guest is charged, or whether the Intermediary is charging or disclosing a tax amount to the guest. • Intermediary sends the reservation to the Hotel's corporate office. The Corporate office will then enter the reservation to the Hotel's system. • Upon the guest's arrival, the Hotel sets up an incidental folio for the guest. • Upon check out, the guests is billed for the total in the folio for incidentals. Then the Hotel bills the intermediary for room and tax based on agreed upon rates between the Hotel and the Intermediary. • Revenue and related tax are recorded on the Hotel's books every night during the entire stay. We were not engaged to, and did not conduct an audit, the objective of which would be the expression of an opinion on the transient occupancy tax returns. Accordingly, we do not express such an opinion. Had we performed additional procedures, other matters might have come to our attention that would have been reported to you. This report is intended solely for the information and use of City Council, management, and others within the City and is not intended to be, and should not be, used by anyone other than these specified parties. August 15, 2011 Irvine, California -3- in Operator #1 SUMMARY OF FINDINGS FOR PERIOD JANUARY 3, 2009 TO JANUARY 1, 2010 Gross Rent Occupancy Taxes Procedure Finding (Understatement) (Underpayment) Number Reference Overstatement Overpayment' 6 - $ (2,187) $ (196) * - Amounts do not include penalties of up to 50% and interest of up to 12% of tax due per City Ordinance 3.28.080(b). DIEHL, EVANS & COMPANY, LLP CERTIFIED PUBLIC ACCOUNTANTS 6T CONSULTANTS MICHAEL R. LUDIN, CPA A PARTNERSHIP INCLUDING ACCOUNTANCY CORPORATIONS CRAIG W. SPRAKER. CPA NITIN P. PATEL, CPA ROBERT I CALLANAN, CPA 5 CORPORATE PARK, SUITE 100 'PfMJP H. HOLTI AMP, CPA IRVINB CALIFORNIA 92606-5165 r THOMAS M. PER CPA 'HARVEY I. SCifftO®FlaOEDM , CPA (949) 399-0600 • FAX (949) 399-0610 KENO R. AMES, CPA W W w dichleyans,mm 'A PROFESSIONAL CORPORATION INDEPENDENT ACCOUNTANTS' REPORT ON APPLYING AGREED -UPON PROCEDURES City Council City of Palm Desert Palm Desert, California We have performed the procedures enumerated below, which were agreed to by the management of the City of Palm Desert (the City), solely to assist the City in verifying the accuracy of the transient occupancy tax returns submitted by Operator #2 , Palm Desert, California 92211, (the Hotel), to the City for the period from January 3, 2009 to January 1, 2010. The Hotel's management is responsible for the preparation and filing of the transient occupancy returns. This agreed -upon procedures engagement was performed in accordance with attestation standards established by the American Institute of Certified Public Accountants. The sufficiency of these procedures is solely the responsibility of the management of the City of Palm Desert. Consequently, we make no representations regarding the sufficiency of the procedures described below, either for the purpose for which this report has been requested or for any other purpose. We reviewed the City Municipal Code and related ordinances and resolutions related to transient occupancy tax. No exceptions were noted as a result of this testing. 2. We verified the mathematical accuracy and the timeliness of the transient occupancy reports filed with the City for the calendar year 2009. No exceptions were noted as a result of this testing. 3. We traced the gross revenues reported on the transient occupancy tax returns prepared by the Hotel to gross revenues recorded in the Hotel's accounting records and verified that these were in accordance with the City's ordinance. No exceptions were noted as a result of this testing. OTHER OFFICES AT: 2965 ROOSEVELT STREET 613 W. VALLEY PARKWAY, SUITE 330 CARLSBAD, CALIFORNIA 92009-2389 ESCONDIDO, CALIFORNIA 92025-2598 (760) 729-2343 • FAX (760) 729-2234 (760) 741-3141 • FAX (760) 741-9890 4. We selected a sample of rental transactions during the review period and for each transaction selected, we verified the tax computations and traced the amounts of rental revenues and transient occupancy taxes collected to the books and records of the Hotel. As agreed upon by the City, the months of July, August and September were excluded from this procedure. The Hotel's accounting system keeps information for twelve months only. It was represented to us that anything beyond twelve months are purged from the system and are no longer available. Therefore, we were not able to trace the individual amounts of rental revenues and occupancy tax collected to the books and records of the Hotel. We reviewed the internal control procedures of the Hotel and determined: (a) how "gross rents" and "uncollected rents" were accounted for and reported to the City, (b) what procedures were in place to identify transient and non -transient guests and (c) how exemptions, including complimentary rooms, were documented and reported to the City. No exceptions were noted as a result of this testing. 6. We reviewed the supporting documentation for exemptions claimed on three of the transient occupancy tax returns in the period under review. The selected reporting period end dates were: February 27, 2009, April 24, 2009 and October 9, 2009. For the three tax returns selected, there were 57 exemptions totaling $105,243. The results of our testing are as follows: Exemption claims supported by proper forms and documentation (A) Exemption claims with improper, incomplete or not supported by documentation Under (Over) Number of Payment of Exemption Amount of Occupancy Claims Exemptions Taxes 31 $ 73,455 $ - 26 31,788 2,861 57 102.861 During our review we noted that for federal government employees, the hotel requires the guest to compete and sign the "City of Palm Desert Transient Occupancy Tax Government Employee Exemption Claim" form. It is the hotel's policy to check the federal government identification information. However, due to privacy issues, the hotel does not keep copies of the identification information as a support for the form. (A) The Hotel does not retain documentation that the room was paid for directly by the federal government. Therefore, we were not able to verify that the room was paid for directly by the federal government as required by Section 3.28.040A2 of the City's ordinance. 7. We performed additional procedures that we considered necessary to verify the reasonableness of reported revenues of the Hotel operator. There were no additional procedures considered necessary. -2- 8. We inquired how the Hotel handles reservations and payments made on line through a third party such as Expedia com and how the transient occupancy tax was collected and reported to the City on these transactions. Per our discussion with Hotel management reservations made through online third party such as Expedia.com are handled as follows: • Guests will book the hotel room through the intermediary e-channels (Expedia, etc) • Intermediary charges the guest's credit card for the entire stay at the time of purchase. The Hotel has no knowledge of the rate the guest is charged, or whether the Intermediary is charging or disclosing a tax amount to the guest. • Intermediary sends the reservation to the Hotel's corporate office. The Corporate office will then enter the reservation to the Hotel's system. • Upon the guest's arrival, the Hotel sets up an incidental folio for the guest. • Upon check out, the guests is billed for the total in the folio for incidentals. Then the Hotel bills the intermediary for room and tax based on agreed upon rates between the Hotel and the Intermediary. • Revenue and related tax are recorded on the Hotel's books every night during the entire stay. We were not engaged to, and did not conduct an audit, the objective of which would be the expression of an opinion on the transient occupancy tax returns. Accordingly, we do not express such an opinion. Had we performed additional procedures, other matters might have come to our attention that would have been reported to you. This report is intended solely for the information and use of City Council, management, and others within the City and is not intended to be, and should not be, used by anyone other than these specified parties. August 15, 2011 Irvine, California D '".4a �a.wA , LL P -3- Operator #2 SUMMARY OF FINDINGS FOR PERIOD JANUARY 3, 2009 TO JANUARY 1, 2010 Gross Rent Occupancy Taxes Procedure Finding (Understatement) (Underpayment) Number Reference Overstatement Overpayment * 6 - $ (31,788) $ (2,861) * - Amounts do not include penalties of up to 50% and interest of up to 12% of tax due per City Ordinance 3.28.080(b). DIEHL, EVANS & COMPANY, LLP CERTIFIED PUBLIC ACCOUNTANTS 6T CONSULTANTS MICHAE, R LUDIN, CPA A PARTNERSHIP INCLUDING ACCOUNTANCY CORPORATIONS CRAIG W. SPRAKEI, CPA NITIN P. PATEL, CPA ROBERT J. CALLANAN, CPA 5 CORPORATE PARK, SUITE 100 `PHOMILIPAS H M. PERL MP, CPA KI, CPA IRVINE, CALIFORNIA 92606-5165-HARRVEY J SCCIROEDE3R CPA (949) 399-0600 • FAX (949) 399-0610 KENNETH R. AMES, CPA www. diehlevans. corn •A PROFESSIONAL CORPORATION INDEPENDENT ACCOUNTANTS' REPORT ON APPLYING AGREED -UPON PROCEDURES City Council City of Palm Desert Palm Desert, California We have performed the procedures enumerated below, which were agreed to by the management of the City of Palm Desert (the City), solely to assist the City in verifying the accuracy of the transient occupancy tax returns submitted by Operator #3 Palm Desert, California 92211, (the Hotel), to the City for the period from January 1, 2009 to December 31, 2009. The Hotel's management is responsible for the preparation and filing of the transient occupancy returns. This agreed -upon procedures engagement was performed in accordance with attestation standards established by the American Institute of Certified Public Accountants. The sufficiency of these procedures is solely the responsibility of the management of the City of Palm Desert. Consequently, we make no representations regarding the sufficiency of the procedures described below, either for the purpose for which this report has been requested or for any other purpose. 1. We reviewed the City Municipal Code and related ordinances and resolutions related to transient occupancy tax. No exceptions were noted as a result of this testing. 2. We verified the mathematical accuracy and the timeliness -of the transient occupancy reports filed with the City for the calendar year 2009. For the month of October 2009, we noted that the exemption listing form attached to the return did not foot correctly. The correct total was $3,723 instead of $2,723 reported as exempt during that month. This resulted in an overpayment of $90 in taxes. 3. We traced the gross revenues reported on the transient occupancy tax returns prepared by the Hotel to gross revenues recorded in the Hotel's accounting records and verified that these were in accordance with the City's ordinance. No exceptions were noted as a result of this testing. -1- OTHER OFFICES AT: 2965 ROOSEVELT STREET 613 W. VALLEY PARKWAY, SUITE 330 CARLSBAD, CALIFORNIA 92008-2389 ESCONDIDO, CALIFORNIA 92025-2598 (760) 729-2343 • FAX (760) 729-2234 (760) 741-3141 • FAX (760) 741-9890 4. We selected a sample of rental transactions during the review period and for each transaction selected, we verified the tax computations and traced the amounts of rental revenues and transient occupancy taxes collected to the books and records of the Hotel. As agreed upon, the months of July, August and September were excluded from this procedure. No exceptions were noted as a result of this testing. 5. We reviewed the internal control procedures of the Hotel and determined: (a) how "gross rents" and "uncollected rents" were accounted for and reported to the City, (b) what procedures were in place to identify transient and non -transient guests and (c) how exemptions, including complimentary rooms, were documented and reported to the City. No exceptions were noted as a result of this testing. 6. We reviewed the supporting documentation for exemptions claimed on three of the transient occupancy tax returns in the period under review. The selected reporting period end dates were: March 2009; May 2009; and September 2009. For the three tax returns selected, there were 11 exemptions totaling $14,323. The results of our testing are as follows: Under (Over) Number of Payment of Exemption Amount of Occupancy Claims Exemptions Taxes Exemption claims supported by proper forms and documentation (A) 11 $ 14,323 - During our review we noted that for federal government employees, the hotel requires the guest to compete and sign the "City of Palm Desert Transient Occupancy Tax Government Employee Exemption Claim" form. It is the hotel's policy to check the federal government identification information. However, due to privacy issues, the hotel does not keep copies of the identification information as a support for the form. (A) The Hotel does not retain documentation that the room was paid for directly by the federal government. Therefore, we were not able to verify that the room was paid for directly by the federal government as required by Section 3.28.040A2 of the City's ordinance. 7. We performed additional procedures that we considered necessary to verify the reasonableness of reported revenues of the Hotel operator. There were no additional procedures considered necessary. -2- 8. We inquired how the Hotel handles reservations and payments made on line through a third party such as Expedia com and how the transient occupancy tax was collected and reported to the City on these transactions. Per our discussion with Hotel management reservations made through online third party such as Expedia.com are handled as follows: • Guests will book the hotel room through the intermediary e-channels (Expedia, etc) • Intermediary charges the guest's credit card for the entire stay at the time of purchase. The Hotel has no knowledge of the rate the guest is charged, or whether the Intermediary is charging or disclosing a tax amount to the guest. • Intermediary sends the reservation to the Hotel's corporate office. The Corporate office will then enter the reservation to the Hotel's system. • Upon the guest's arrival, the Hotel sets up two folios for the guest. One for incidentals and one for room and tax. The room rate in the folio is the agreed -upon rate between the Hotel and the intermediary. • Upon check out, the guests is billed for the total in the folio for incidentals. Then the Hotel invoices or charges the intermediary's credit card on file, depending on the payment arrangement between the Hotel and intermediary, for the total in the folio for room and tax. • Revenue and related tax are recorded on the Hotel's books every night during the entire stay. We were not engaged to, and did not conduct an audit, the objective of which would be the expression of an opinion on the transient occupancy tax returns. Accordingly, we do not express such an opinion. Had we performed additional procedures, other matters might have come to our attention that would have been reported to you. This report is intended solely for the information and use of City Council, management, and others within the City and is not intended to be, and should not be, used by anyone other than these specified parties. August 15, 2011 Irvine, California ALP -3- Operator #3 SUMMARY OF FINDINGS FOR PERIOD JANUARY 1, 2009 TO DECEMBER 31, 2009 Gross Rent Occupancy Taxes Procedure (Understatement) (Underpayment) Number Overstatement Overpayment * 2 $ 1,000 $ 90 * - Amounts do not include penalties of up to 50% and interest of up to 12% of tax due per City Ordinance 3.28.080(b). DIEHL, EVANS b2 COMPANY, LLP CERTIFIED PUBLIC ACCOUNTANTS & CONSULTANTS A PARTNERSHIP INCLUDING ACCOUNTANCY CORPORATIONS 5 CORPORATE PARK, SUITE 100 1RVINE, CALIFORNIA 92606-5165 (949) 399-0600 • FAX (949) 399-0610 www.dichlevans.com INDEPENDENT ACCOUNTANTS' REPORT ON APPLYING AGREED -UPON PROCEDURES City Council City of Palm Desert Palm Desert, California MICHAEL R. LUDW. CPA CRAIG W. SPRAKER, CPA NITIN P. PATEL, CPA ROBERT J. CALLANAN, CPA 'PHILIP H. HOLTKAMP, CPA *THOMAS M. PERLOWSKI. CPA 'HARVEY I. SCHROEDER. CPA KENNETH R. AMES, CPA 'A PROFESSIONAL CORPORATION We have performed the procedures enumerated below, which were agreed to by the management of the City of Palm Desert (the City), solely to assist the City in verifying the accuracy of the transient occupancy tax returns submitted by Operator #4 , Palm Desert, California 92211, (the Hotel), to the City for the period from August 28, 2009 to December 31, 2010. The Hotel's management is responsible for the preparation and filing of the transient occupancy returns. This agreed -upon procedures engagement was performed in accordance with attestation standards established by the American Institute of Certified Public Accountants. The sufficiency of these procedures is solely the responsibility of the management of the City of Palm Desert. Consequently, we make no representations regarding the sufficiency of the procedures described below, either for the purpose for which this report has been requested or for any other purpose. We reviewed the City Municipal Code and related ordinances and resolutions related to transient occupancy tax. No exceptions were noted as a result of this testing. 2. We verified the mathematical accuracy and the timeliness of the transient occupancy reports filed with the City for the period August 28, 2009 to December 31, 2010. No exceptions were noted as a result of this testing. 3. We traced the gross revenues reported on the transient occupancy tax returns prepared by the Hotel to gross revenues recorded in the Hotel's accounting records and verified that these were in accordance with the City's ordinance. a. During our review, we noted that the revenues reported on the transient occupancy tax return except for the month of May 2010, excluded pet fees. Per Hotel management, these charges should have been included in the revenues subject to transient occupancy tax. Total pet fees not reported were $5,390, resulting in an underpayment of transient occupancy taxes of $485. -1- OTHER OFFICES AT 2965 ROOSEVELT STREET 613 W. VALLEY PARKWAY, SUITE 330 C'ARL.SBAD, CALIFORNIA 92009-2389 ESCONDIDO, CALIFORNIA 92025-2598 (760) 729-2343 • FAX (760) 729-2234 (760) 741-3141 • FAX (760) 741.9890 3. (Continued) b. The Hotel's accounting records for the month of January 2010 is $874 higher than what was reported in the transient occupancy tax return. Hotel's management cannot explain the cause of the difference. The underpayment of taxes on the $874 is $79. 4. We selected a sample of rental transactions during the review period and for each transaction selected, we verified the tax computations and traced the amounts of rental revenues and transient occupancy taxes collected to the books and records of the Hotel. Per City's request, the months of July, August and September were excluded from this procedure. No exceptions were noted as a result of this testing. 5. We reviewed the internal control procedures of the Hotel and determined: (a) how "gross rents" and "uncollected rents" were accounted for and reported to the City, (b) what procedures were in place to identify transient and non -transient guests and (c) how exemptions, including complimentary rooms, were documented and reported to the City. We noted that the Hotel has several agreements in which in exchange for services provided to the Hotel, the Hotel provided free accommodations to the vendor. Per Section 3.28.030 of the City's ordinance, the Hotel is liable for the amount of tax determined on the basis of nine percent of the current rental value of the accommodations furnished in exchange for services of any kind. The Hotel has not remitted the taxes related to these agreements: DCTV FORE Magazine (a) Golf Vacation Magazine KEZN 103.1 FM Koolfog According to the Hotel management, the entered into during the period under review information. Number of Nights Provided 5 38 60 48 13 164 Rental Value $ Not available 6,067 7,500 4,800 600 $ 18,967 Occupancy Taxes $ Not available 546 675 432 54 1.707 above are the only barter agreements that the Hotel . However, we cannot verify the completeness of the (a) Hotel management cannot provide the rental value of the number of nights provided. The rental value shown in this schedule is based on the value of the services received by the Hotel. -2- 6. We reviewed the supporting documentation for exemptions claimed on seven of the transient occupancy tax returns in the period under review. The selected reporting periods were: September to December 2009 and January, February and March 2010. For the seven tax returns selected, there were 123 exemptions claimed totaling $127,146. The results of our testing are as follows: Exemption claims supported by proper forms and documentation (A) Exemption claims for nontransient with incomplete documentation (B) Exemption claims for federal government employees with improper, incomplete or not supported by documentation Number of Exemption Claims 14 Amount of Exemptions $ 58,965 35,553 Under (Over) Payment of Occupancy Taxes 3,200 33 32.628 2,937 123 $ 127,146 6.1 During our review we noted that for federal government employees, the hotel requires the guest to compete and sign the "City of Palm Desert Transient Occupancy Tax Government Employee Exemption Claim" form. It is the hotel's policy to check the federal government identification information. However, due to privacy issues, the hotel does not keep copies of the identification information as a support for the form. (A) The Hotel does not retain documentation that the room was paid for directly by the federal government. Therefore, we were not able to verify that the room was paid for directly by the federal government as required by Section 3.28.040 A2 of the City's ordinance. (B) The Hotel's management was not aware that they were required to complete and have the guest sign the "Transient Occupancy Tax Over 31 Days Exemption" form. Therefore, the Hotel did not have the required documentation for all exemptions claimed for guests staying over 31 days. 7. We performed additional procedures that we considered necessary to verify the reasonableness of reported revenues of the Hotel operator. There were no additional procedures considered necessary. -3- 8. We inquired how the Hotel handles reservations and payments made on line through a third parry such as Expedia.com and how the transient occupancy tax was collected and reported to the City on these transactions. Per our discussion with Hotel management reservations made through online third party such as Expedia.com are handled as follows: • Guests will book the hotel room through the intermediary e-channels (Expedia, etc) • Intermediary charges the guest's credit card for the entire stay at the time of purchase. The Hotel has no knowledge of the rate the guest is charged, or whether the Intermediary is charging or disclosing a tax amount to the guest. • Intermediary sends the reservation to the Hotel's corporate office. The Corporate office will then enter the reservation to the Hotel's system. • Upon the guest's arrival, the Hotel sets up two folios for the guest. One for incidentals and one for room and tax. The room rate in the folio is the agreed -upon rate between the Hotel and the intermediary. • Upon check out, the guest is billed for the total in the folio for incidentals. Then the Hotel invoices or charges the intermediary's credit card on file, depending on the payment arrangement between the Hotel and intermediary, for the total in the folio for room and tax. • Revenue and related tax are recorded on the Hotel's books every night during the entire stay. We were not engaged to, and did not conduct an audit, the objective of which would be the expression of an opinion on the transient occupancy tax returns. Accordingly, we do not express such an opinion. Had we performed additional procedures, other matters might have come to our attention that would have been reported to you. This report is intended solely for the information and use of City Council, management, and others within the City and is not intended to be, and should not be, used by anyone other than these specified parties. August 15, 2011 Irvine, California ID'"'t'f E",-,,,i, a, -.a Gavw, js , ALP -4- Operator #4 SUMMARY OF FINDINGS FOR PERIOD AUGUST 28, 2009 TO DECEMBER 31, 2010 Gross Rent Occupancy Taxes Procedure Finding (Understatement) (Underpayment) Number Reference Overstatement Overpayment * 3 a $ (5,390) $ (485) 3 b (874) (79) 5 - (18,967) (1,707) 6 - (68,181) (6,137) Net Total $ (93,412) $ (8,408) * - Amounts do not include penalties of up to 50% and interest of up to 12% of tax due per City Ordinance 3.28.080(b). DIEHL, EVANS & COMPANY, LLP CERTIFIED PUBLIC ACCOUNTANTS & CONSULTANTS A PARTNERSHIP INCLUDING ACCOUNTANCY CORPORATIONS 5 CORPORATE PARK, SUITE 100 IRVINE, CALIFORNIA 92606-5165 (949) 399-0600 • FAX (949) 399-0610 www.diehlevans.aom INDEPENDENT ACCOUNTANTS' REPORT ON APPLYING AGREED -UPON PROCEDURES City Council City of Palm Desert Palm Desert, California MICHAEL R. LUDIN, CPA CRAIG W. SPRAKER, CPA NTTIN P. PATEL, CPA ROBERT 7. CALLANAN, CPA -PHILIP H. HOLTKAMP, CPA 'MOMAS K PERLOWSKT, CPA •HARVEY1.SCHROEDER,CPA KENNETH R AMES, CPA •A PROFESSIONAL CORPORATION We have performed the procedures enumerated below, which were agreed to by the management of the City of Palm Desert (the City), solely to assist the City in verifying the accuracy of the transient occupancy tax returns submitted by Operator #5 Palm Desert, California 92260, (the Hotel), to the City for the period from January 1, 2009 to December 31, 2010. The Hotel's management is responsible for the preparation and filing of the transient occupancy returns. This agreed -upon procedures engagement was performed in accordance with attestation standards established by the American Institute of Certified Public Accountants. The sufficiency of these procedures is solely the responsibility of the management of the City of Palm Desert. Consequently, we make no representations regarding the sufficiency of the procedures described below, either for the purpose for which this report has been requested or for any other purpose. 1. We reviewed the City Municipal Code and related ordinances and resolutions related to transient occupancy tax. No exceptions were noted as a result of this testing. 2. We verified the mathematical accuracy and the timeliness of the transient occupancy reports filed with the City for the calendar years 2009 and 2010. No exceptions were noted as a result of this testing. 3. We traced the gross revenues reported on the transient occupancy tax returns prepared by the Hotel to gross revenues recorded in the Hotel's accounting records and verified that these were in accordance with the City's ordinance. a. Revenue reported on the transient occupancy tax return for period February 28, 2009 to March 27, 2009 was overstated by $6,811. Per inquiry with Hotel's management, they erroneously added the exemption for this period to the revenue amount. The exemption amount was not claimed on the return. This resulted to an overpayment of transient occupancy taxes of $1,226. -1- OTHER OFFICES AT: 2965 ROOSEVELT STREET 613 W. VALLEY PARKWAY, SUITE 330 CARLSBAD, CALIFORNIA 92008-2389 ESCONDIDO, CALIFORNIA 92025.2599 (760) 729-2343 • FAX (760) 729-2234 (766) 741-3141 • FAX (760) 741-9990 3. (Continued) b. The Hotel's accounting records are maintained on 28-day cycles. The transient occupancy tax returns were completed using this cycle until June 19, 2009. Effective June 20, 2009, the Hotel converted their reporting period for transient occupancy tax returns from 28 days to monthly. However, the Hotel's accounting records remained on the 28-day cycle. Per inquiry, with Hotel's management, they run a query of the revenue posted to the general ledger for rooms and resort facility charges for the month. This query is downloaded to excel and information is summarized. Based on this summarized information, management prepares the transient occupancy tax returns. To verify the accuracy of the query reports, we combined all query reports used to prepare the transient occupancy tax returns for period June 20, 2009 to December 31, 2010 and recalculated revenues using the Hotel's 28-day periods. Then we compared the total per each 28-day reporting period to the Hotel's accounting records. Per our reconciliation, total revenue reported for the period June 30, 2009 to December 31, 2010 was understated by $72,952 resulting in an underpayment of transient occupancy taxes of $6,565. See Attachment 1 for a detailed schedule. 4. We selected a sample of rental transactions during the review period and for each transaction selected, we verified the tax computations and traced the amounts of rental revenues and transient occupancy taxes collected to the books and records of the Hotel. Per City's request, the months of July, August and September were excluded from this procedure. Daily reports for two dates (January 15, 2009 and March 1, 2009) selected for testing have been purged from the Hotel's system and were no longer available for review. As an alternative, we selected substitutes for these dates. There were no exceptions noted on rental transactions selected for testing. 5. We reviewed the internal control procedures of the Hotel and determined: (a) how "gross rents" and "uncollected rents" were accounted for and reported to the City, (b) what procedures were in place to identify transient and non -transient guests and (c) how exemptions, including complimentary rooms, were documented and reported to the City. The reports generated by the Hotel to prepare the transient occupancy tax returns are based on preliminary numbers. Any adjustments, if any, made in the accounting records subsequent to filing of the tax returns are not reported as adjustments to subsequent tax returns filed. 6. We reviewed the supporting documentation for exemptions claimed on five of the transient occupancy tax returns in the period under review. The selected reporting periods were: June 20, 2009 to June 30, 2009 and October 2009 and April, June and November 2010. For the five tax returns selected, there were 703 exemptions claimed totaling $288,363. The results of our testing are as follows: Exemption claims supported by proper forms and documentation (A) Exemption claims with improper, incomplete or not supported by documentation Under (Over) Number of Payment of Exemption Amount of Occupancy Claims Exemptions Taxes -2- 684 274,160 $ 19 14,203 1,278 703 $ 288,363 5 _____ 1,278 6. (Continued) During our review we noted that for federal government employees, the hotel requires the guest to compete and sign the "City of Palm Desert Transient Occupancy Tax Government Employee Exemption Claim" form. It is the hotel's policy to check the federal government identification information. However, due to privacy issues, the hotel does not keep copies of the identification information as a support for the form. (A) The Hotel does not retain documentation that the room was paid for directly by the federal government. Therefore, we were not able to verify that the room was paid for directly by the federal government as required by Section 3.28.040 A2 of the City's ordinance. 7. We performed additional procedures that we considered necessary to verify the reasonableness of reported revenues of the Hotel operator. There were no additional procedures considered necessary. 8. We inquired how the Hotel handles reservations and payments made on line through a third party such as Expedia.com and how the transient occupancy taxes were collected and reported to the City on these transactions. Per our discussion with Hotel management reservations made through online third party such as Expedia.com are handled as follows: • Guests will book the hotel room through the intermediary e-channels (expedia, etc) • Intermediary charges the guest's credit card for the entire stay at the time of purchase. The Hotel has no knowledge of the rate the guest is charged, or whether the Intermediary is charging or disclosing a tax amount to the guest. • Intermediary sends the reservation to the Hotel's corporate office. The Corporate office will then enter the reservation to the Hotel's system. • Upon the guest's arrival, the Hotel sets up an incidental folio for the guest. • Upon check out, the guests is billed for the total in the folio for incidentals. Then the Hotel bills the intermediary for room and tax based on agreed upon rates between the Hotel and the Intermediary. • Revenue and related tax are recorded on the Hotel's books every night during the entire stay. We were not engaged to, and did not conduct an audit, the objective of which would be the expression of an opinion on the transient occupancy tax returns. Accordingly, we do not express such an opinion. Had we performed additional procedures, other matters might have come to our attention that would have been reported to you. This report is intended solely for the information and use of City Council, management, and others within the City and is not intended to be, and should not be, used by anyone other than these specified parties. August 15, 2011 Irvine, California D'`&,J-,k/ CM«,, mod. Ccn- - , ALP -3- Attachment 1 Operator #5 REVENUE RECONCILIATON FOR PERIOD JUNE 20, 2009 TO DECEMBER 31, 2010 Gross Rents per Facility Charges Gross Rents Over (Under) Over (Under) Hotel's Accounting Hotel's Accounting Total per Query Reported Payment of Report Period Records Records Revenues Reports Revenues Taxes 06/20/09-07/17109 $ 1,638,835 $ 113,312 $ 1,752,147 $ 1,756,120 $ 3,973 $ 358 07/18/09-08/14/09 1,535,118 97,366 1,632,484 1,599,179 (33,305) (2,997) 08/15/09-09/11/09 1,034,411 80,793 1,115,204 1,111,803 (3,401) (306) 09/12/09-10/09/09 1,956,582 73,164 2,029,746 2,034,072 4,326 389 10/10/09-11/06/09 2,979,455 109,668 3,089,123 3,096,790 7,667 690 11/07/09-12/04/09 2,690,999 119,254 2,810,253 2,812,493 2,240 202 12/05/09-01/01/10 1,554,754 115,335 1,670,089 1,661,549 (8,540) (769) 01/02/10-01/29/10 2,018,807 145,621 2,164,428 2,159,483 (4,945) (445) 01/30/10-02/26/10 2,193,055 147,639 2,340,694 2,339,524 (1,170) (105) 02/27/10-03/26/10 3,563,326 201,509 3,764,835 3,767,910 3,075 277 03/27/10-04/23/10 3,882,504 260,500 4,143,004 4,124,253 (18,751) (1,688) 04/24/10-05/21/10 2,551,220 95,825 2,647,045 2,653,047 6,002 540 05/22/10-06/18/10 2,039,243 123,825 2,163,068 2,151,131 (11,937) (1,074) 06/19/10-07/16/10 1,711,492 156,003 1,867,495 1,868,891 1,396 126 07/17/10-08/13/10 1,699,638 124,410 1,824,048 1,827,422 3,374 304 08/14/10-09/10/10 1,160,818 123,437 1,284,255 1,279,992 (4,263) (384) 09/11/10-10/08/10 1,292,741 75,041 1,367,782 1,364,390 (3,392) (305) 10/09/10-11/05/10 2,742,993 101,972 2,844,965 2,844,488 (477) (43) 11/06/10-12/03/10 2,033,050 97,381 2,130,431 2,130,014 (417) (38) 12/04/10-12/31/10 1,895,918 92,272 1,988,190 1,973,782 (14,408) (1,297) Total $ 42,174,959 $ 2,454,326 $ 44,629,285 $ 44,556,333 $ (72,952) $ (6,565) Operator #5 SUMMARY OF FINDINGS FOR PERIOD JANUARY 1, 2009 TO DECEMBER 31, 2010 Procedure Finding Number Reference 3 a 3 b 4 - Gross Rent Occupancy Taxes (Understatement) (Underpayment) Overstatement Overpayment * $ 13,622 $ 1,226 (72,952) (6,565) (14,203) (1,278) Net Total $ (73,533) $ (6,617) * - Amounts do not include penalties of up to 50% and interest of up to 12% of tax due per City Ordinance 3.28.080(b).