HomeMy WebLinkAboutAudited Financial Rprts - PDRFC - FYE 06-30-2012 CITY OF PALM DESERT �
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FINANCE DEPARTMENT
Staff Report
REQUEST: RECEIVE AND FILE THE PALM DESERT RECREATIONAL
FACILITIES CORPORATION AUDITED FINANCIAL REPORTS
` FOR THE FISCAL YEAR ENDED JUNE 30, 2012
DATE: January 24, 2013
SUBMITTED BY: Paul S. Gibson, Finance Director
CONTENTS: 1. Palm Desert Recreational Facilities Corporation Audited
Financial Report for Fiscal Year Ended June 30, 2012
� 2. Independent Auditors' Report on Internal Control over Financial
Reporting and on Compliance and Other Matters based on an
Audit of Financial Statements Performed in Accordance with
Government AuditincLStandards
Recommendation
By Minute Motion, that the City Council receive and file the audited financial
statements of the Patm Desert Recreational Facilities Corporation for the
fiscal year ended June 30, 2012.
Committee Recommendation
The Audit, Investment and Finance Committee received the audited financial statements
for the PDRFC at their January 22, 2013 meeting, and it was recommended that the
statements for the fiscal year ended June 30, 2012 be received and filed by the City
Council.
Backuround
The Palm Desert Recreational Facilities Corporation (PDRFC) is a corporation that
provides food and beverage services exclusively to the Desert Willow Golf Resort.
White Nelson Diehl Evans LLP performed and completed the annual independent audit
for the fiscal year ended June 30, 2012, for the PDRFC in accordance with generally
accepted auditing standards. In the auditor's opinion, the basic financial statements
present fairly, in all material respects, the financial position of the PDRFC as of June 30,
2012, and the results of its operations of the year then ended are in conformity with
accounting principles generally accepted in the United States of America.
G:\Finance\Niamh Ortega\Staff ReportsWudit staff reportsWudit Staff Reports 2012\SR-Council audit 2012 PDRFC.docx
Staff Report
Receive and file PDRFC reports for Fiscal Year ended June 30, 2012
January 24, 2013
Page 2 of 2
In conducting the audit, the auditors are also required to test the PDRFC's internal
controls. Attached is the report issued by the auditors for the year ended June 30, 2012.
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, 2012.
Fiscal Impact
There is no fiscal impact associated with this action.
Submitte by:
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Paul S. Gibson, Finance Director/City Treasurer ohn M.. Wohlmuth, City Manager
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CITY COUNCILACTiON
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Original on File with City Clerk's )d'�cc
G:1Finance\Niamh Ortega\Staff ReportsWudit staff reportsWudit Staff Reports 2012\SR-Council audit 2012 PDRFC.docx
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PALM DESERT RECREATIONAL
FACILITIES CORPORATION
ANNUAL FINANCIAL REPORT
WITH REPORT ON AUDIT
BY INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS
FOR THE YEAR ENDED JUNE 30,2012
. • �
PALM DESERT RECREATIONAL FACILITIES CORPORATION
TABLE OF CONTENTS
June 30, 2012
Page
Number
Independent Auditors'Report 1
Management's Discussion and Analysis 3
Basic Financial Statements:
Exhibit A- Statement of Net Assets q
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
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.
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, 2012, 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 Auditin�
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 Palm Desert Recreational
Facilities 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, that is the
City of Palm Desert, 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, 2012 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.
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2875 Michelle Drive,Suite 300,Irvine,CA 92606 •Tel: 714.978.1300• Fax: 714978.7893
Office.r located itz OrrinAe and Sun llie�o Corrntie�
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In accordance with Government Auditing Standards, we have also issued our report dated
December 19, 2012 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.
Accounting principles generally accepted in the United States of America require that the
management's discussion and analysis, as identified in the accompanying table of contents, be
presented to supplement the basic financial statements. Such information, although not a part of the
basic financial statements, is required by the Governmental Accounting Standards Board, who
considers it to be an essential part of financial reporting for placing the basic financial statements in an
appropriate operational, economic, or historical context. We have applied certain limited procedures to
the required supplementary information in accordance with auditing standards generally accepted in
the United States of America, which consisted of inquiries of management about the methods of
preparing the information and comparing the information for consistency with management's
responses to our inquiries, the basic financial statements, and other knowledge we obtained during the
audit of the basic financial statements. We do not express an opinion or provide any assurance on the
information because the limited procedures do not provide us with sufficient evidence to express an
opinion or provide any assurance.
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Irvine, California
December 19, 2012
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PALM DESERT RECREATIONAL FACILITIES CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
June 30, 2012
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, 2012. 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 $92,360 from
$1,373,855 to $1,466,215.
• Palm Desert Recreational Facilities Corporation's gross income of $2,314,665 increased by
$331,032 (17%) from the previous year.
• Palm Desert Recreational Facilities Corporation's gross profit increased by $324,812 (25%)
from last year. The gross profit margin� increased to 69%from 65%.
• Palm Desert Recreational Facilities Corporation's cost of goods sold increased minimally by
$6,220, which represents a less than 1 percent change from the previous year.
• Palm Desert Recreational Facilities Corporation's Selling and Administrative Expense
Percentage2 decreased to 74%from the previous year of 86%.
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
pertorming when compared to expectations and the industry. The corporation expected an industry gross profit margin of approximately
68%.
Z The selling and administrative expense percentage is calculated by dividing the sum of the Maintenance&Operations and the General&
Administrative costs by the gross sales. This percentage indicates how well the corporation's overhead is maintained in relation to sales.
The goal is to arrive at overhead cost of approximately 64%or lower.
See independent auditors' report.
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PALM DESERT RECREATIONAL FACILITIES CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
(CONTINUED)
June 30, 2012
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 improying or
deteriorating. To determine the profitability of the Corporation, consideration should also be given to
other non-financial factors such as the changes in consumer spending as a direct result of the overall
economic indicators, as well as changes in the significant industry factors such as price per golf round
and level of tourism.
THE COMPONENT UNIT AS A WHOLE
The Palm Desert Recreational Facilities Corporation's net assets deficit increased by $92,360 from
$1,373,855 to $1,466,215. The restaurant operations recognized a 17% increase in gross revenues
while keeping overall expenditure increases to less than 1%. 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. Although there was an increase to the net deficit the
magnitude of the loss has been greatly reduced which was anticipated given the expanded facility and
better opportunity to generate revenues through banquets and special events.
See independent auditors' report. �
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PALM DESERT RECREATIONAL FACILITIES CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
(CONTINUED)
June 30, 2012
THE COMPONENT UNIT AS A WHOLE (CONTINUED)
An integral component that will bolster the restaurant operations to generate enough gross revenues to
provide net assets will be a comeback of the corporate and group outing business.
Our analysis below focuses on the net assets (Table 1) and changes in net assets (Table 2) of the
Corporation.
Table 1
Condensed Statements of Net Assets
Fiscal Fiscal
Year Year
2012 2011
Assets:
Current and restricted assets $ 182,105 $ 250,815
Total Assets 182,105 250,815
Liabilities:
Other liabilities 1,648,320 1,624,670
Total Liabilities � 1,648,320 � 1,624,670
Net Assets:
Unrestricted (1,466,215) (,1,373,855)
Total Net Assets (1.466.215) (1.373.855)
The major change in the current assets is a decrease of cash balance at June 30, 2012 of$70,154 from
the prior year. Fiscal year 2011-2012 was the first full fiscal year of restaurant operations in the
expanded facilities. Minor increases in expenditures directly impacted the overall ending cash balance.
The total liabilities increased by $23,650. The change in the overall liabilities was an increase for
accounts payable and the accrued liabilities.
See independent auditors' report.
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PALM DESERT RECREATIONAL FACILITIES CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
(CONTINUED)
June 30, 2012
THE COMPONENT UNIT AS A WHOLE (CONTINUED)
Table 2
Condensed Statements of Revenues, Expenses
and Changes in Net Assets
Fiscal Fiscal
Year Year
2012 20ll
Operating Revenues:
Food and beverage sales $ 2,314.665 $ 1,983,633
Total Revenues 2.314,665 1,983,633
Operating Expenses:
Cost of goods sold 694,760 688,540
Maintenance and operations 1,491,207 1,386,634
General and administrative 221,058 315.658
Total Expenses 2,407,025 2,390,832
Change in Net Assets $ (92.360) (407.1991
Component Activities
Total revenue increased by $331,032 (17%) from $1,983,633 to $2,314,665. This was the first full
year the restaurant operated in the expanded facility. As expected the restaurant recognized an increase
in banquet and special events which was the major factor for the increase in gross revenues.
This fiscal year was the twelfth 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, and maximize the newer larger facilities with the focus on:
• Attracting new and repeat business.
• Continued patronage of customers and corporate groups.
• Increased banquet and outing operations.
• Marketing to golfers on the golf course.
As Table 2 above indicates,total expenses recognized an increase from $2,390,832 to $2,407,025. The
increase was a direct result of the higher maintenance, operation, and administrative costs associated
with the larger facilities and increase in operations of the restaurant.
See independent auditors' report.
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PALM DESERT RECREATIONAL FACILITIES CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
(CONTINUED)
June 30, 2012
THE COMPONENT UNIT AS A WHOLE (CONTINUED)
The Gross Profit Margin increased approximately 5%, indicating that changes in menu items and
increase in business directly contributed to the increase. The Selling and Administrative Expense
Percentage decreased by16% from 86%to 74% from the prior year. The decrease is directly related to
better labor management and increase in overall gross revenues related to the larger 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 2012-13, management looked at the following economic factors:
• Prices: The prices for goods and services in the golf industry continue to experience downward
pressure resulting from the lagging economy. In an effort to maintain the integrity of the
products served at the restaurant, The Palm Desert Recreational Facility held prices constant
and implemented better cost control measures to eliminate wastage. In addition, the Palm
Desert Recreational Facilities Corporation will continue to aggressively market and advertise to
secure their market share in the local and regional golf industry.
• National Economy: The golf and hospitality industries rely heavily on a strong national and
local economy. With a strong national economy, the market demand for leisure activities such
as golf and dining is increased; however, in an economic downturn or a slowing of the
economy, the typical trend is for the consumer to reduce their consumption of leisure activities.
The state of the current economy was taken into consideration when budgeting for the
2012-2013 fiscal year. During the 2011-2012 fiscal year, the clubhouse restaurant utilized the
expanded outside terrace dining area as well as the kitchen, and inside bar areas to solicit and
secure banquet and special events.
See independent auditors' report.
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PALM DESERT RECREATIONAL FACILITIES CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
(CONTINUED)
June 30, 2012
ECONOMIC FACTORS AND NEXT YEAR'S BUDGETS (CONTINUED)
• Energy and fuel cost: 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 2012-2013 financial plan can be obtained by Eontacting the Palm Desert
Recreational Facilities Corporation(see below).
CONTACTING THE CORPORATION'S FINANCIAL MANAGEMENT
This financial report is designed to provide the users with a general overview of the Palm Desert
Recreational Facilities Corporation, a component unit of the City of Palm Desert. If you have questions
about this report or need additional financial information, contact the Controller at Palm Desert
Recreational Facilities Corporation at 38-995 Desert Willow Drive, Palm Desert, California 92260.
See independent auditors' report.
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Exhibit A
PALM DESERT RECREATIONAL FACILITIES CORPORATION
STATEMENT OF NET ASSETS
June 30, 2012
ASSETS:
Cash and cash equivalents $ 117,455
Accounts receivable 11,436
Inventories 45,563
Prepaid expenses 7,651
TOTAL ASSETS 182,105
LIABILITIES:
Accounts payable 73,140
Accrued liabilities 33,903
Advances from related party 1,496,899
Unearned revenues 44,378
TOTAL LIABILITIE� 1,648,320
NET ASSETS (DEFICIT):
Unrestricted(deficit) (1,466,215)
TOTAL NET ASSETS (DEFICIT) $ (1,466,215)
See independent auditors'report and notes to basic financial statements.
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Exhibit B
PALM DESERT RECREATIONAL FACILITIES CORPORATION
STATEMENT OF REVENUES, EXPENSES AND CHANGES IN NET ASSETS
For the year ended June 30, 2012
OPERATING REVENUES:
Food and beverage sales $ 2,314,665
TOTAL OPERATING REVENUES 2,314,665
OPERATING EXPENSES:
Cost of goods sold 694,760
Maintenance and operations 1,491,207
General and administrative 221,058
TOTAL OPERATING EXPENSES 2,407,025
OPERATING LOSS (92,360)
CHANGE IN NET ASSETS (92,360)
NET ASSETS (DEFICIT)-BEGINNING OF YEAR (1,373,855)
NET ASSETS (DEFICIT) - END OF YEAR $ (1,466,215)
See independent auditors'report and notes to basic financial statements.
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Exhibit C
PALM DESERT RECREATIONAL FACILITIES CORPORATION
STATEMENT OF CASH FLOWS
For the year ended June 30, 2012
CASH FLOWS FROM OPERATING ACTIVITIES:
Receipts from customers $ 2,302,644
Payments to suppliers (2,389,400)
NET CASH USED BY OPERATING ACTIVITIES (86,756)
CASH FLOWS FROM NON-CAPITAL AND RELATED
FINANCING ACTIVITIES
Cash received from related party 16,602
NET CASH PROVIDED BY NON-CAPITAL AND
RELATED FINANCING ACTIVITIES 16,602
NET DECREASE IN CASH AND CASH EQUIVALENTS (70,154)
CASH AND CASH EQUNALENTS - BEGINNING OF YEAR 187,609
CASH AND CASH EQUIVALENTS - END OF YEAR $ 117,455
RECONCILIATION OF OPERATING LOSS TO
NET CASH USED BY OPERATING ACTIVITIES:
Operating loss $ (92,360)
Adjustments to reconcile operating loss
to net cash used by operating activities:
Changes in assets and liabilities:
(Increase) decrease in accounts receivables (2,201)
(Increase) decrease in inventory (214)
(Increase)decrease in prepaid expenses 971
Increase (decrease) in accounts payable and accrued liabilities 16,868
Increase (decrease) in unearned revenues (9,820)
NET CASH USED BY OPERATING ACTIVITIES $ (86,756)
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, 2012
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 basic financial statements of the Palm Desert Recreational Facilities Corporation have
been prepared in conformity with generally accepted accounting principles as applicable to
government units. The Governmental Accounting Standards Board is the accepted
standard-setting body for establishing governmental accounting and financial reporting
principles.
The accounts of the Corporation are an enterprise fund. An enterprise fund is a Proprietary
type fund used to account for operations (a) that are financed and operated in a manner similar
to private business enterprises - where the intent of the governing body is that the costs
(expenses, including depreciation) of providing goods or services to the general public on a
continuing basis be financed or recovered primarily through user charges; or (b) where the
governing body has decided that periodic determination of revenues earned, expenses incurred,
and/or net income is appropriate for capital maintenance, public policy, management control,
accountability or other purposes.
See independent auditors' report.
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PALM DESERT RECREATIONAL FACILITIES CORPORATION
NOTES TO BASIC FINANCIAL STATEMENTS
(CONTINUED)
June 30,2012
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 $117,455 and the deposit value was $205,547. The difference is represented
by $7,566 of deposits in transit and checks outstanding totaling $95,658, for a net total of
$88,092.
See independent auditors' report. •
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PALM DESERT RECREATIONAL FACILITIES CORPORATION
NOTES TO BASIC FINANCIAL STATEMENTS
(CONTINUED)
June 30, 2012
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 reyuirements 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, 2012, inventories consisted of $45,563 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, 2012,the Corporation owed the following amounts to related parties:
Desert Willow Golf Course $ 1,211,899
City of Palm Desert 285.000
1.496.899
The Corporation has an operating lease with the City for use of the facilities (see Note 4).
See independent auditors' report.
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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 Auditin� 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.
Gc��e� �72�� � ��� LGO
Irvine, California
December 19, 2012
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PALM DESERT RECREATIONAL FACILITIES CORPORATION
NOTES TO BASIC FINANCIAL STATEMENTS
(CONTINUED)
June 30, 2012
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, 2012 was $96,000. In addition, at June 30, 2012, the Corporation owed $285,000 in
rent to the City of Palm Desert.
Management Agreement:
The Corporation is managed by Kemper Sports Management, Inc., under an agreement to manage
and operate Desert Willow Golf Course. On May 13, 2008, the Palm Desert Recreational Facilities
Corporation renewed their management agreement with Kemper Sports Management, Inc. This
agreement expired on June 30, 2011. The management agreement also includes two one-year
options to extend at the City of Palm Desert's discretion. Subsequently, on May 22,2008, the City
of Palm Desert renewed their agreement with Kemper Sports Management, Inc. for three years
commencing on July l, 2008 and ended on June 30, 2011. The second option to extend the
agreement was approved for the 2012-2013 fiscal year.
5. RISK MANAGEMENT:
The Golf Resort is covered by insurance purchased by Kemper Sports Management Inc., which
includes commercial liability, automobile, workers' compensation and overall umbrella excess
liability insurance through Aon Risk Services, Inc. of Illinois. The Corporation is named as
additional insured.
6. OTHER DISCLOSURES:
The Corporation has a net deficit of$1,466,215, which will be eliminated by increasing revenues
through banquet and dining reservations. During the 2010-2011 fiscal year the kitchen and the
outside dining terrace was renovated to increase the size of the kitchen and banquet space. The
expansion project increased the restaurant and kitchen area by 5,000 square feet and the outside
terrace seating capacity by and additional 200 seats. The expanded kitchen and terrace allows for
larger banquets and normal dining to be served simultaneously.
See independent auditors' report.
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