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Home My WebLink AboutLmtd Procedures Rvw - TOT Years 2011 and 2012 � � '. CITY 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 2011 and 2012 calendar year. Submitted By: Paul S. Gibson, Finance Director Date: March 27, 2014 Contents: Limited Procedures Review of Various Palm Desert Operators for Compliance with the City of Palm Desert's Transient Occupancy Tax Ordinance for the 2011 and 2012 Calendar Year Recommendation By Minute Motion, that the City Council 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 2011 and 2012 calendar year Committee Recommendation The Audit, Investment and Finance Committee received the report at their March 25, 2014 meeting, and it was recommended that it be received and filed by the City Council. Discussion The City of Palm Desert hired the CPA firm of Diehl, Evans & Company, LLP to conduct audits on Transient Occupancy Tax. Five operators were audited; two operators had no findings, and three had an underpayment during the 2011 and 2012 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 January 13, 2014 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 wished to respond, it was 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. Staff Report Limited Procedures Review & Transient Oceupancy Tax Collection March 27, 2014 Page 2 of 2 Fiscal Analysis Underpaid tax totals $18,355. All funds have been duly paid to the City and no outstanding monies remain. Submitted by: Approval: r Paul S. Gibson, Finance Director o n Wohlmuth, City Manager nmo CiTY COUNCILACTION APl'ROVF.D Di+'N1ED - j2I:CC[VFD `�`" �� OTHGR 1lZ�f;TING DATF �- � 7� �/ �v�;5: �e �s r � �G�� c� r�� N()i:�: /J�i��- AE��;�;tiT: '� � A[3S'T�[;�d: � ' �'�'� Of<��%1 �'��;i:��`�C t) �3�':_----��-- Oreninal o�s [�i1c wit9� Citl� �:��s��s Oft��°e G:\Finance\Niamh Ortega\Staff ReportsWudit staff reports�Audit Staff Reports 2013\SR-Council audit 2011-12 TOT.docx T. O.T. HOTEL AUDIT FINDINGS Period January 1, 2011 — December 31, 2011 Operator#1 —This company paid the City of Palm Desert$15,023.00 for underpayrnent of Transient Occupancy Tax Operator#2—This company paid the City of Palm Desert $1,132.00 for underpayment of Transient Occupancy Tax Operator#3 —This company paid the City of Palm Desert$2,200.00 for underpayment of Transient Occupancy Tax Periods January 1, 2011 — December 31, 2011 & January 1, 2012 - December 31, 2012 Operator#4—There were no findings for this two year audit Period January 1, 2012 - December 31, 2012 Operator#5 —There were no findings for this audit II��DEPENDENT ACCC?UNTA�ITS' REPORT ON APPLYING AG�REED-UP'ON�PROCEDURES Cit�Council City of Palm Desert Palm Desert, Ca(ifornia 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 verifyirtg the accuracy of the transient occupancy tax returns submitted by Operator#1 (the Hotel), to the City for the period from January 1, 2011 ta December 31,2011. Tlie Hotel's management is responsible for the preparation and filing of the transient occupancy re#urns. This agreed-upon procedures engagement was performed in accordance with attestation standards established by the American Institute of Certified Public Accountants. The su�ciency of these procedures is solely the responsibility of the management of the City of Falm Desert. Consequently, we make no representations regat�ding the suffciency 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 Munieipal Code and related ordinances and resotutions related to transient occupancy tax. No eYceptions 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 ca(endar year 2Q1 I. 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 tf�ese were in accordance with the�'ity's ordinance. Revenues reparted on the #ransient occupancy tax return for periods January 29, 2Q 11 to February 25, 2011, May 21, 201 I to lune 17, 201 I and June 18, �411 to JuIy 15, 201 l were understated by $]19,b40, $5,901 and $965, respectively. This resulted to underpayment of $1'1,386 in transient occupancy tax. See Attachment I for detailed schedule. 1 2£�',5 lfichelie IUrne,Suite 30(), Ir��ine,C:1 9260G•"I'eL•714.978.3300•Fax:71=#:9?8.7$93 C)�«.r I�e�1rd in Oratt�e and.San Diego Gounties 4. We selected a sample af fifty individual rental transac#ions during the review periad and for each transaction selected, we verified the tax cornputations and traced the amounts of rentat revenues and transient occu:pancy taxes collected to the books and records of th� Hotel. Per City�'s request, the months of July,August and September were excluded from this procedure. Np exc��ptions were noted as a result of this testing. 5. We revieuJed the internal control procedures af the Hotel and determined: (a) how "gross rents" and "uncollec#ed rents" z�vere accounted for and reported to the City, (b)what procedures were in plaee to identify transient and nan-transient guests and (c)how exernptions, including complimentary rooms,were documented and reported t�the City. No exceptions were noted as a result of this testing. 6. We reviewed the supporting documentatian for exemptions claimed �n the transient occupancy tax returns in the period under review. The total exemptians claimed by the Hotel for the entire year was $46,Q4&. We requested for the supporting documentation for these exemptions. The Hotel was able to produce only the documentation for the exemptian ciaimed for peric�d 7anuary 29, 2011 to February 25, 2011 totaling$5,632. The Hotei cannot locate the supparting documentatian far fhe remaining $40,416 of exemptions claimed. The related transient occupancy tax for this amount was$3,637. 7. We perforrned additional procedures that we considered necessary ta verify the reasonableness af reported revenues of the Hotel operator. There v+rere na additional pracedures considered necessar,y. 8. We inquired how the Hotel handles reservations and payments made ontine through a third party such as Expedia.com and how the transient occupancy taxes were collected and reported to the City on these transa.ctions. Per our discussion with Hatel managemeitt reservations made online through a third party such as Expedia.com are handled as follows: • Guests will book the hotel room through the intermediary e-channets(expedia,etc). • Intermediary charges the guest's credit card for the entire stay at the time af purchase. The Hotei has no knowledge of the rate the guest is cl�arged, or t�7hether the Intermediary is char�ing ar disclasing a tax amount to the gues#. • Intermeciiary sends the reservatic�n t� the Hotet's front desk. The frc�tlt desk will then enter the reservation to the F-Iotei's system. t Upan the guest's arrival,the Hotel sets up an incidentat folia for the guest. • Upon check out, ihe guest is billed for the total in the folio for incidentats. Thet1 Che Hotel bitls ' the intertnediary for raom and tax based on agreed upon rates between the Hotel and the Intermediary. • Revenue and related taY are recorded an the Hotel's books at the time af departure. 2 We were not engaged to, and did not conduct an audit, the objective of which would be the expres5ion of an opi.uuon on the transient occupancy tax returns. Accordingly, we do not express such an opinion. Had we perf�rnned additional procedures, other matters might have come to our attention fhat wouid have been reparted to you. This report is intended solel}� for the informafion and use of City Gauncil, management, and others ��ithin the City= and is not intended to be, and should not be, used by anyone other than these specified parties. �.� �� ,��%�`�� cP Irvine, California January 24, 2014 3 A#tachment 1 Operator#1 REVENUE RECONGILiATON F4R PERIAD JANUARY 1, 2091 TO DECEMBER 31, 2011 Gross Ren#s Gross Rents Over(Under} Over(Under) per 1`ax per Hotet Reparted Payrnen# of Reporf Period Return Records Revenues `Caxes 01/01/1i-01/28/11 $ 815,235 $ 815,235 $ - $ - 01/29J11-(}2/25/11 1,436,7Z8 1,556,368 (119,644) (10,768} 02/26/11-03/25/11 1,832,986 1,832,986 - - 03/26/11-04J22j11 2,338,BU4 2,338,504 - - 04/23/11-OS/2d/11 1,487,790 1,487,790 - - 05/21/11-Q6/17/11 1,034,207 1,040,108 {5,901} (531) d6j18/11-Q7/15/li 1,10i,601 1,102,566 (965) {87j 07/16/11-08/12/11 940,333 940,333 - - 08/13/11-09/09/11 748,970 748,97Q - - Q9/10/11-10/07J11 602,416 602,416 - - lOJO$/11-11/04j11 911,755 911,755 - - 11/05/11-12/Q2/11 1,115,831 1,115,811 - - 12/03/11-12/30/11 1,148,303 1,148,303 - - Total $ 15,514,739 $ 15,641,245 $ (126,50&) $ {11,386} Operator#1 SUMMARY OF FINDINGS FOR PER{OD JANUARY 1,2011 TQ DECEMBER 31, 2011 Gross Rent Occupancy Taxes Procedure (Understatement) (Unde�payment) Number Overstatement Overpayment* 3 $ (126,506} $ {11,386) b (40,416) �3,637) Net Tatal $ {156,922} $ (15,023} *- 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). � INDEPENDE�'I` :AC��UNTANTS' REF�RT DN APPLYIN��I�.EED-UPON FR(�C�DURES City CQuncil City af Pa1m Des�rt Pa1m Desert, Calif�rnia We have perfarm�d the proceduz�es enum�rat�d below,which��uer� agre�d to by the management of the Gity of Falan I��:ert �the City), sQlel� ta �ssist #he City in verify�in.� the accuracy of th� firar�,sient occupancy tax ret�.u-ns �ubmitted by C?p�rat�r�2 {th� Hotel), tt� the Git�f�r the period from Jar�uar�r 1, 2011 tQ Decem�er 3I,2011. The Hatel's rnanagem�nt is respon�.t�l� f�r #he preparafian and filing of the transient c��cu�ancy retums. This� agr��d-upon procedures �n�agement was perft�rm�d in accordance wi�h. att�station standaxds estaibli�h�d by the American Institute flf Certified Public 1�.ccountants. The sufficiency of these prqcedur�s i� salei� the respcan�ii�ilit�r of the management of the City of Falm Desert. Consequently, u�� make no represent��ion� r�garding the sufficiency of the procedures described belo�v, either f�r th�purpose for whi�h this r�port h:as been r�quest�d or for any other purp�e. 1. We revie�ed the �City Municipal Cod� and related ardinan.ces and resolutions r�lated tc� transient occupancy t�. No ex�ep�or�s u�er�noted as a resu.lt�fthis tes�ing. 2. We verified the mathematical accurac�and the timeliness of the transient occupancy reparts �iled with the City f�ar the calendar year�f�l 1. No exceptiQr�s were noted as a result flf'this testing: 3. We traced th�grt�ss revenues reparte�an�the transient occupanc��tax returns prepared b�r the Hotel to grass revenu�� recorded in the Hc�t�l's accounting rec�ard� and ;�erified that fihese were in accardan�e c�ith,the City's ortlinance. We cletermined that the Hotel was ncat ineluding on the transient caccu�ancy tax rehuns the revertue received from gu�sts that did nQt shr��£up but were still char�ed th� room rate and cc�nespQnding tr'ari,sient occup�ncy tax. The Hatel r�c�iv�d $12,578 c�f revenue from guests that did n�t show up in the periad und�r reviet�v, resulting in �1,132 of transient occupancy tax that shaulc� have been remitted tr�tl��ity. 1 2��,".� ��-.i�,.11. L:>.razr<�,�iaatc:.3Q(3; �.v�..�::,;i_Mf: `:2��()�i•'I:'c�1: �t1�,{�€r.�:�f�(�� 1�,��. 73. �.:c�J�.,'�3;=:; 4. t�je selected a sainple of twenty-five indi�jidual rental transactions during the review period and for each transaction selected, we v�rifi�d the taY coinpirtatiotls and traced tlle aniounts of retital revenues and transient occupanctir taxes coll�cted to the bool�s and reeords of the Hot�L V�'e determined that one (transient) c�f the tvc�enty-five tran.sac:tions that ��as szl�cted for testing should have bzen considered a"non-transient" sitice the guest stayed over 30 days. The Hotel did i�ot properly exempt the gu�st from paying transiznt occupaz�cy taxes. The total transient occupanc}j tax that�uas improperly charged to the guest wvas �528. The Hotel remitted this amount to the City. 5. We revie�ed the internal control procedures of t}i� Hot�l and deterniined: (aj ho�v "gross rents" and "uncollected rents" were accounted for and re�arted to the City, (h}what procedures were in place to idantify transient and norl-transient guests and (c)ho�� exeniptions, including complimentary rooms, were documented and reported to the City. No exceptions were�zoted as a result of tliis testing. 6. We reviewed the supp�rting documei�tation for all exetnptions claiined Qn all ttivelve of the transient occupan�y ta�returns in the period underrevie��=. F�r all tw�l�r� of the tax returns subn�itted in the period under review, tliere cuere 10 exemptioi�s claimed totalitlg $2,242. The results af otir testing are as follo��-s: Under(ChTer) 1�Tuinber of Payment of E�emptioti Amount of Occupancy Claims Exemptions Taxes Exemptioti claims supp�rted b3j proper forms��nd do�umentation 14 $ 2,-2�2 $ - (a) Section 3.2$.040 of the transie�it occupancy ta� ordinance provides a list of guests that are exempt from paying transient oceupancy tax. The list does not include eniplo,yees �f nonprofit organizatiQns. Included in the tei� exemptions c.laimed bv the Hotel is an exeinption for o�le guest who is a iionprotit etnploye�. The employzee provided a "Consuin�r's Certificate of Exemption" issued by Florida Department of Revenue certifying th� nonprofit organization as exempt from payme�lt of certaiti Florida taxes it�cluding t�•ansient rental propei�y rented. Per inquiry ��=itla Hot�l manageinent, if the ilonprofit emp�o}ee provides a certifiLate of exemption or an equi��alei�t form,they consider lhat guest as exempt from paying trai�siznt occupancy ta�. {bj During our reZ7iei� we noted that for federal goti7ernmeut �mployees, the H�tel requires the guest to compete aiid sign tlie "City of Palm Des�rt Transient �ccupancy: Ta� Government Employee E�emption Claim" fann or provide an equi�=aleilt fonn provided by�the govertunent agenc�j. It is the Hotel's poIic�} to clieck the fedzral �overnment ideiitifieation infonnation. However, due to privacy issues,the Hotel does not keep copies of the id�ntification inforniatiou as a support for fhe form. 7. V4�� performed additional procedures that ��e consider�d necessary to verify the reasonableness of reported revenues of tlie Hotel operator. There were no additioraal proc�dures cot�sidered necessar_y. 2 8. We inquired how the Hotel handles reservations and payments made online 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 manageinent reservations made online through a 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 through the Hotel's reservation system. • Upon the guest's arrival, the Hotel sets up an incidental folio for the guest. • Upon check out, the guest is billed for the total in the folio for incidentals. Folio does not indicate rate guest paid to Intermediary. • Hotel invoices the Intermediary for room and tax based on agreed upon rates between the Hotel and the Intermediary. • Hotel records revenue billed to Intermediary as room revenue, and tax collected to appropriate tax accrual account. We were not engaged to, and did not conduct an audit, the objective of which would 6e 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. �.�� `;Y�n� �.� ��J LL� Irvine, California December 3, 2013 3 aPERATOR#2 SUi��iI��ARY�F FINDII��GS FOR PERIOD JANUARY 1, 2011 T�DECE�IBER 31, 201 I Gross`Rent Occupancy Ta�es Proceduz•e (Understatement) (LTnderpaymeiit) Number Overstateniei�t O��erpaytnent * 3 $ (i2,578) $' (1,132} ItiTet Total $ (12,578) $ (1,132) '� �nUunts do not include penalties of up to 50°'"o and interest of up to 12%of tax due per City(�rdinance 328.080(b). INDEPENDEhtT�CC�UNTANTS' REPORT�N APPLYII�IG��GR:EED-UPON PRC}CEDL�RE� Cl�C�11TiGl� City of Pa1m Desert Palm Desert,Calif�rnia We have perform�d the procedures enum�r�t�d below,which�ver� agr��l to'by the management of the City of Pa1m D��rt �the City), sc�lely� tr� assist the City in verif�=ing the accuracy of the t�ansient occupancy ta�;r�turns submitted by Qpera�te►r�3 (the Resc�rt�, ta the Gity fc�r th� p�riod fiom Januar� I, 2�11 to December 31,?�l 1. The Resort's manag�m�nt is responsibl� fc�r th� preparati.Qn and filing of the transient o�cupanc�r xeturns. This agreed-up�n groeedtu-es engagem�nt �Tas performed in accordance with attestation standards established by the .r�rnerican Institute c�f Certified Public Accountants. The sufficiency c�f thh�s� procedw�es is s�lely� the responsibility af the management of fihe Cit� c�f Falm Desert. Consequ�ntly, we make no repr��nta�ions regarcling th� sufficiency of the �racedures described belc��, �ither for the pu�pc��e f�r t�vhich this report h�s be�n requested Qr f�r any other purpase. l. We revie��d the �ity Mwv.cipal C�d� and related Qrclinances ant� r�solu�ions related tt� transient occupanc��a:,�,. N c�exceptic�n��uere noted as a result�f this testing. 2. We verifi�d th� mathematical accu��acy a.nd th� �irneliness t�f th� transient occupancy reparts filed withthe Cit��fc�r the calendar year 2�11. NQ�xcegtit�n�c�}er�noted as a re�ult c�fthis testing. 3. We traced th� grass revenues repc�rte�3 �n #he tras�sient c�cu�ancy tax returns prepare�i by the Resort to grc�c�revenues recorded in th�Resort's accoun�.ng records and verified that these u7ere in accorclance i��ith the �ity's ordinan�e. Per inquir�� i� the Resort's a�c�untant, guest informatian is recorded in the Resflrt's RMS system. C�n a ��ily basis, the RM S s��a��m produces a daily ca�h repc�rt. This repc�rt summarizes' the types af r�t�renues for the,day and th� tc�tal transient accup�nc}T tax cQl�ected. The acc�untant uses tlus fe��rt t� record the informatican to Quickbc�ks, the R��rt's accounting �r�ram. At month end,th��c�ountant looks at the balance of t��e transient occupancy ta�c collected and remits this amount tc� the City. To determina the gross rents report�d on line l of the ta� ret�urn, the Resort's ac�csuntant will divide the balance t�f the t:tansient accupancy tax collected by 9°f�. 1 ��;�, ��ic:li.!1 ]:�.r_7ara�, ,�.>iait.r 3t��;?, � ,�.r,,.�; +...,f: `�'!.`.i(7�•`I'c.l. f'1�,f;'�;.a�3�J� ).j'�xx. 71�.�:)"r� l�s��:'� 3, (Continued): To verify rzasonablerless of the re�jeintes reported, we suinmarized tlie montlily� cash reports and added all revenue t}Fpes that are subject ta transient occupancy tax. I'er t�ur calculation, t�ie revenues reported oi� the transi�nt oc;cupancy tax returus for the calendar year 2d 11 were $8,485 less compared to tlte Resort's records, resulting to underpa��nent Qf$764 in transient occupancti= tax. See Attacliment 1 for a detailed sehedule. 4. We selected a sanlpl� of twentyj five individual xental tra.i�sactions during the r�tTieti�• period and for each transaction selected, we verifed the tax computations and traced Lhe amounts of rental revenues and transient occupanc�t taaes collected to the bc�oks and records of the Resort. Per City's rec�uest; the nionths of July, August arid September were zxcluded from thisprocedure. No exceptiotls`�ere noted as a resl�lt of this testing. 5. Z�ije reviewed the uitzrnal co�itrol procedures of the Rzsort �z�d determined: (a)ho«T `'gross rents" and "uncollected re�lts" were accounted for and report�d to tl�e City, (U}v4=hat procedures were in place to identify traiisient and non-transient gu�sts and (c) ho�T exemptions, including complimentary rooms, ti��ere documented and reported to fliz City. (a) Per inyuiry «�itl�the Resort's accountant, guest itifonnation is recorded in the Resort's RMS system. �i a daily basis, tl�� RMS system prQduces a daily cash rep�rt. This report sumtnarizes tlie t_ypes of revenues for tlie day atid the total trallsient occupaucy tax collect�d. T'he accounta�lt uses this report to record the ,i�ifonnation to Q«ickt�ooks, the Resori's accounting gro�-ain. At manth end, the accountant lool:s at the balance of the transi�nt occupancy tax collected aird remits this amount to the Ci#y. To determine the gross reitts reported on line 1 of the tax retu;�rl, the Resort's accountant will divide the balance of tlle traiisient occupa.ncy tax collected b��9°%0. (b) For cancellatians and guests that did not sho� up, the Resort charges a flat cancellation fee. The Resort daes nat charg� tra�lsient occupancy ta� on carzcellatiori fe�s. For 2011 the total canc�llation fees were $15,95� �uhieh resulted in an underpayment of transient occupancy tax of$1,43b. 6. On a sample basis ��e reviewed tlie supporting documentation for twent_y-five e�emptions clairned throughout 2f�11. Under((aver) Numb�r of Paytnent of E��mptiot� Amount of Occupancy Claims Exemptions Taxes Exemption clain�s supported by prop+�r fornis and docunientation 2� $ 66.405 $ For calendar year 201 l,the Resort liad approximately $708,�00 iil revenues that were exenipt fi•oin transient accttpancy tax. All of the exemptions are for non-trai�sient guests. t�Ve notzd that these exemptions ar� not reported in th�transient occupanc_y tax returns filed b�l the Resort. Gross rents reported on line one of the tax returns a�-e net revenues for uon-transient resident�s, 2 7. We performed additional procedures that we considered necessary to verify the reasonableness of reported revenues of the Resort operator. There were no additional procedures considered necessary. 8. We inquired how the Resort handles reservations and payments made online 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 Resort management reservations made online do not go through a third party such as Expedia.com. 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. �!�� Y�� J �� Irvine, California December 3, 2013 3 OPERATOR#3 SUI��l��ARY'OF FP�TDINGS FOR PERIOD JAI�'UAR�' 1, 2011 TO DECE�ViBER 31, 2011 Gross Rent Occupancy Ta�es Procedure (Understatement) {Underpayme��t) Number �erstatemeilt Overpaytnent '� 3� $ (g,485) �$� (76�} 5(b) (15,956) (1,�36) 1tiTet Total � (24,4�1) $ (2,244j * rl�notxnts do nat include penalties of up ta Sd°'o and interest af up to 12°�0 of tax due per City�rdinance 3.28.080(b). �TTACHMENT 1 OPERATOR#3 RE�+EI�€L;E RECONCII,I�TIQN FOR PERIOD J.�NUAR�' l, 2011 TO DECEItRBER 31, 2Q 11 Gross Rents per Resort's Gross Rents C)��er(Urlder} Over(Under) Accout�ti�ig per Resort Reported Payrnent of Period Records TOT Returns Revenues Taxes 12/Ol/11-1�i�31r`11 $ 126,6�9 $ 123,�36 $ (3,173} � (286) 11/O1/11�-11t3f��'11 12�,725 1�9,413 (15,312} � (1,378) 10/O lll 1-10:�131I11 102,b7� 86,002 (l b,672) (1,500) 09/O lll 1-a9130i l l 3�2,I50 22,1 b 1 ,(9,989) (899) 08/011l 1-a81`31;11 2�,225 15;3'73 (8,852) (797) �7/01111-b713�1,f 11 1�'7;�0$ 12,11� �(5;�93) (476) 06/01f 11-0613�-11 3�a592 �28,�29 (5;363) (483) 45/01111-�513 i,�'X l 48,�57 �47,8$9 (668) (b0) f�4l��1�'�1��1-04�'3(1111 9'�,738 119,�77 21,739 1,957 03/O1/11-43131111 2Q3,U��- �33,3f10 30,296 2,727 (?�/O 1�11-02I�8111 1 b5,&86 178,132 12,446 1,12(? 01��1/11-C11131111 185,434 177,795 (7,6�) (688) Total $ 1,161,847 $ 1,153,�22 $ (8,�$5) � (764) . INDEPENDEI�T�,�CL�UNTANTS' REP4RT ON APPLYING�GREED-UPON PR��EDURES CityCauncil City of Fa1m D�s�rt Palm Desert,Ca€1if�rnia We have perfarm�d the procedures enum�r�t�d below,which wer� a�reed to by the mar�gement of the City of i'a1m D��rt �the City), sc�lel}i to �.ssist the City in verify�i�g the accuracy of the fir�nsient occupancy tax refiuns submitted by Qp�r�tar#4 (the Hotel}, tt� the �ity frar the period from Janua�-�� 1, 241� to DecemY�er 31,20 T2. The Hotel's m�;��ment is resperosible f�r the preparatit�n and filing of the tran.sient acc�ancy retunts. This agre�d-upon procedures en�agemerit was p�rfarm�d in aceardance wi�h. attestatioti standaxds establish�d by the American Institut� of Certified'P�blic Ac�ountants. The suf�iciency of these pracedu.�-�s� 'is solely the respc�nsihili�yr' of the managem�nt �f the City of Falm Desert. Consequentl�, �� make no representati�ns r�garding the suffi�i�ncy of the procedures described below, either f�r th�purpose for whi�h this r�port has been requ�st�d c�r for any other pur�c�e. 1. We reviev��d th� City Municigal �c�d� arn�l related ardinances and resolutions relatec� tc► transient Qccupancy t�. No exceptic�ns uF�re noted as a result afthis testing. 2. We verified th� mathema�ical accuracy and the timeliness af th� tr�nsient occupancy rep�rts filed with the Cityr far the calendaz years 2{}11 and 2012. No exceptit�ns w�re noted as aresult c�fthis testing. 3. We traced ihe gr�ss revenues reparted c�n'the transient�cupancy t�r�turns prepared by the Hotel t4 grc�ss ret�enui�s recorded in the H�tel's' accoun�ing re�ard� an�l verified that these ��re in accordance x�i�i,the City's orclinance. Na exceptic�n��c3er�noted as a result c�ftlu�testing. 4. We sel�cted � sample of fifly indi�idual r�nt�1 transacticins during th� review periad and far each transaction select�d, we verified the tax computations and traced th� amounts Qf rental revenues and transient accupancy taxes callect�d tr�the boc�ks and rec�rd� +af the Hotel. Per City's request, the mc�nths of Juiy,August and Segt�mb�r were excluded frQm tlus procedure: No e�eeptic�n��er�noted as a result c�f ttus testing. 1 ��t'�,t�i fu'�1:C,�1?�1"'�_..�L11/ ,�.�>t:I1.tE:..�3�1�$ �T';�3�"9..r'y�,.f:.�i!')�S)�°P�.��.E.,.�. i �„�;, ��".�,�i�1 r f t"�.. � C .' � { ).�d3;. �. �..��'�i � !:� 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 the transient occupancy tax returns in the period under review. There were no exemptions claimed in the period under review. 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 online 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 online through a 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 front desk. The front desk 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 guest is billed for the total in the folio far 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 at the time of departure. 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. /,�'� `��J � ��J �� Irvine, California December 3, 2013 2 � INDEPENDENT �;CCOUl`�iTANTS' REP�RT ON APPLYING A�R.EED-UPQN PRt�CEDL�RES City Cr�uncil City of Pa.1tn Des�rt Palrn Desert, Calif�rnia We have perfc�rm�d the procedures enumerated below,which were agreed to by the mariagemerzt of the City of Pa1m D��t �the City), sc�lely tt� assist the City in verify�ing the accuracy of the tran�ient occupancy tax r�turns �ubmitted<b}r C3��rar�t,�r #5 (the Hotel),tQ the Czt��i�r th�period from Jan�a�-y l, 201 Z to December 31 t �{}12. The Hotel's mana�ement is responsible f�r th� preparation and filing of the transient o�cupancy re�ns. This agreed-up�n grocedures engagemen# uras perfoimed in accc�rdance with attestation stan�ards established by the r'�rnerican Institute �f�ertified Public Accc�untants. The sufficiency c�f th�se procediu�es is solei}r th� r�sponsibility c�f the management of the City �f Palm Desert. Cons�qu�ntly, we make no r�pr�s�nl:ations regarding th� sufficiency af t�ie pracedures described belo��a, either far the purpase f�r u�hich t�is repart har� b�en requested c�r fr�r any other purpase. 1. We revieuFed t�ae City Municipal C�d� an�l related Qrdinances and resolutions related ta transient occupancy ta.x. No excegtiflr�c��er�nQted as a result c�fthis testing. 2. We verifi�d th� mathematical accurac�and the �imeliness c�f the transient occupancy regrnts filed with the City�f�r the calendar year�012. For calendar }��ar 2012, the Hc�tel had $6�,374 in revenu�s that v�ere exempt frc��n transient Qccupaticy ta�x. U��e noted, that except for the exemplic�n �f $13,810 for th.e m�nth of October 20I�, tl�s� exemptic�ns ��ere n�t r�ported in t�ie transi�nt o�cupancy tax retums filed by ttle HoteL Cirass rents reported on li�e flne of the tax rett�ns ar�n�t of revenues exempt�rom t�. 3. We traced the grvss revenues reported�n fih� �ransient c�ccu�anc}�ta�returns prepared by the Hotel to grc3ss re��enues recQrdec� in the Hc�t�l's accounting recards and �erified that the� u�ere in accorclanee u�ith th� Gity's Qrdinance. No excepli�n�v��er�noted as a result afihistesting. 1 �'�`s�'_� �.�Iic-:1� ll. ]_::>.r�rr�.>�>i�at,c:.:3C��J; E a s�x��:, +..fy `�i��C�+�•'l'el: �71�;�f��' ?,�P,(� w )�,�x. ?1��;c?"�r�.t�`.��; 4. t�Te selected a sainple of twenty-five indi�idual rental transactions during the review period and for each transactioii seleeted, we verifi�d the #aY computatiorls and traced fl�e amounts of rental revenues and tra.nsient occupanc}-tax�s �ollected ta the bool:� and records af the HoteL Per City's request, the�nc�ntlis of July, August and Septeinber u�ere ex�.luded from this proced�ire. No exceptions�vere noted as a result of tl�is testirig. >, We reviewed the internal control prc�cedures of the Hotel and determined: {a)ho�� "gross rents" and "uncollected rents" were accounted for and reported to tlle City, (l�}what proczdures were in place to identif�F transient and noii-transient gtiests and (c)how e�einptioiLs, includii�g complimentar_y roanis, were docunm�t�ted ai�d reported to the City. Tlle reparts generated by the Hotet ta prepare the transient occupanc}I tax returns are based oii prelitninary nurnbers. Any adjust�nents, if any, madz in tl�e accounting recc�rds subseqt�ent to filing c�f the tax retttrns are not rep�rted as adjust�nents to subs�r�ue�rt ta�returns fil�d. b. We reviewed th� s��pporting docunientatioil for exetnptions claimed on three of the transient occupaney tax retun�s in the p�riod unde�- review. The selected reporting p�riods vcrere: January=, October and Deee�nber 2012. For the three taa returns selected,th�re «Tere 61 exemptiotLs claimed totaling $�3,870. The xesults of our testing are as follows: Under(Qver) Nu2nUer of Payment of Ex�mptiotl Amount of C�ccupancy� Claims Exemptions Taxes Exemption c.taims supported b}�proper , forms and doeLinlzntation(A) 61 $ �3.870 $ - During our revie��t•u�e noted that for federal govenunent etnployees,the Hotel requires the guest to compete and sign th� "City of Palm Desert Transietit Oceupancy Ta� Government Employee Eaemption Claiin" form. It is the Hotel's policy to check the f�deral go�renm�ent identification information. However, due to privacy issues, the Hotel does not keep copies of tlie identification information as a support for the fonn. (A) The Hotel do�s ilot retain docunientation that the rooni was paid for di�•ectly by the federal government. Therefore, we were not able to verify that the room was paid far directly by the federal go�=enun�nt as required by Section 3.28.044 A2 of tlle City's ordinance. 7. Vt�'e perfornled additional pr�cedures fhat u�e considered necessaryr to verif_y the reasonableness of reporled revetiues of the Hotel operator. There were n�additiUnal procedures considered necessary. 2 8. We inquired how the Hotel handles reservations and payments made online 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 online through a 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 guest 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, rnanagement, and others within the City and is not intended to be, and should not be, used by anyone other than these specified parties. G4�J �,�� 2c�x�J LG� Irvine, California December 3, 2013 3