2008-02-26
CITY OF ENCINITAS
ENCINITAS RANCH GOLF AUTHORITY
MINUTES OF SPECIAL MEETING
Lilac Room, Civic Center
505 South Vulcan Avenue
TUESDAY, FEBRUARY 26, 2008 at 4:00 p.m.
CALL TO ORDER/ROLL CALL
Chairman Dean called the meeting to order at 4:00 p.m.
DIRECTORS PRESENT:
Peter Cota-Robles, Phil Cotton, Bill Dean, Chris Hazeltine, and
Cindy Jacob.
DIRECTORS ABSENT:
None.
ALSO PRESENT:
John McNair, Rod Linville, John Fuller, Kent Graff, JC Resorts;
Chris Calkins, Carltas Co. (until 5:10 p.m.); Member of the Public
Ed Kaiser, City Staff Jennifer Smith, Jay Lembach, Nancy Sullivan,
and Board Secretary Joan Woods.
ORAL COMMUNICATION
None.
REGULAR AGENDA
1. Approve Minutes of Special Me.eting of January 22, 2008.
ACTION:
Cotton moved, Hazeltine seconded to approve the January 22, 2008 Regular Meeting
minutes. Motion carried: Ayes: Cotton, Dean, Hazeltine and Jacob. Nays: None.
Abstain: Cota-Robles.
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2. Review Summary of Revenues and Expenditures/Financial Statement/update on Capital
Reserves for January 2008. (Rod Linville/John McNair)
Mr. Lembach presented a revised Encinitas Ranch Golf Course Budget Income Statement.
This adjustment was a result of the 6/30/07 audit, which moved a lease payment from June
of fiscal year 06/07 to July of fiscal year 07/08 and redistributed the labor allocations. A
copy of the corrected budget is attached and referred to as Attachment A.
Mr. Linville reviewed the summary of the January financial report as follows:
Revenues for the month were $291,036 at 81% of budget; Expenditures were $227,983 at
83% of budget; Income for the month was $63,053 at 74% of budget. Total rounds were
4,189 at 83% of budget. Year to date net income was $603,130 at 100% of budget. Year to
date total rounds were 38,692 at 95% of budget. Mr. Linville stated current revenues were
down from budget due to the wet month of January.
Mr. McNair reviewed the summary of Capital Reserve and Expenditures for January as
follows:
Capital Reserves reflected at total of $103,925.75 and Long Term Capital Reserve balance
of $23,484.42 for a total of all reserves of$127,410.17.
Mr. McNair stated the Board requested a copy of the 20 year Capital Project and Deferred
MaintenancelReplacement Project Budget. Mr. McNair recapped the long term identified
capital projects as well as the current deferred maintenance/replacement projects. Mr.
McNair requested the Board review the budget to insure that the JC Resorts identified
priorities in capital projects were in concurrence with the Board's direction. Mr. McNair
suggested at the March meeting to visit the property and agendize the identified Deferred
MaintenancelReplacement Projects for review and approval from the Board. Mr. McNair
suggested this item be agendized on a semi-annual basis.
3.
Encinitas Ranch Golf Authority financial administrative updates.
(Jay Lembach)
Mr. Lembach presented the following items to the Board for discussion and direction:
(1) Accept the revised Management Letter from the Authority's independent auditor,
Diehl Evans & Company, including the responses from JC Resorts management.
The requested revisions to the final Management Letter was made (see Attachment B).
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ACTION:
Hazeltine moved, Cotton seconded to accept the revised Management Letter. Motion carried:
Ayes: Cota-Robles, Cotton, Dean, Hazeltine and Jacob. Nays: None.
(2) Direct that the Plan of Corrective Action be brought back to the Board for adoption at
the next Board Meeting.
A Plan of Corrective Action was to identify current and potential future issues that could
impact performance and the application of financial policies and procedures. ERGA
Management conferred with JC Resorts Financial Management and discussed the
development of a Plan.
Mr. Jay Lembach, ERGA Management, stated this item would be agendized for the
March meeting.
(3) Allocation of indirect payroll costs
The Attachment II to the Agenda Report was withdrawn by ERGA Management and JC
Resorts.
(4) ERGA Management- Discuss and provide guidance on the appointment of officers
Auditor/Treasurer to represent the Encinitas Ranch Golf Authority.
The roles for ERGA Management were defined in 2003 as part of the reorganization of
the City of Encinitas Finance Department. It was staff's belief the original intention was
to make a separate appointment for each position. Staff did not believe there was any
inherent conflict with having a dual appointment. Staff was seeking Board direction to
determine if the current appointments were appropriate.
ACTION:
Hazeltine moved, Cotton seconded to approve the current appointment of the City of
Encinitas Treasurer and Finance Manager/Investment Officer as the Treasurer and
Auditor of ERGA, respectively, which represents a dual appointment (one person holding
both appointed positions). Motion carried: Ayes: Cota-Robles, Cotton, Dean, Hazeltine
and Jacob. Nays: None.
(5) Request for Additional Audit Fees - from Diehl Evans & Company for fiscal year
audit of 200612007.
ERGA Management had received a written request from Diehl Evans and Company for
additional professional fees related to the 2006-2007 audit engagement. After a review,
ERGA Management, in conjunction with JC Resorts, determined there were legitimate
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grounds to support paying additional fees. JC Resorts agreed to reimburse ERGA for the
additional amounts paid to Diehl Evans & Company for the 2006-2007 audit.
(6)Proposed Distribution of Surplus Golf Course Net Revenues - recommend
authorization of an appropriation of $41.892 to pay the minimum payment due to the
City of Encinitas on June 15, 2008 for repayment of the sales tax advances to the
Carltas Company.
It was reported that there was $165,475 Surplus Golf Course Net Revenues available for
potential distribution as of June 30, 2007 for the 2007/2008 fiscal year and were available
to repay the Carltas Company's sales tax obligation to the City of Encinitas. A scheduled
minimum payment would be due to the City of Encinitas on June 15, 2008 of
approximately $40,000. The consensus of representatives' of ERGA and the Carltas
Company was the scheduled $42,000 payment would be made by ERGA to the City of
Encinitas out of the surplus golf course net revenues.
ACTION:
Cotton moved, Hazeltine seconded to authorize an appropriation of $41,892 from
undesignated fund balance to pay the scheduled minimum payment to the City of Encinitas
on June 15, 2008 for repayment of sales tax advances to the Carltas Company. Motion
carried: Ayes: Cota-Robles, Cotton, Dean, Hazeltine and Jacob. Nays: None.
4.
Discussions on Golf Cart Leases and review of golf cart rental fees.
(Rod Linville)
Mr. Linville stated the current E-Z Go golf cart lease was up in August 2008. Mr. Linville
provided the Board with a breakdown ofthe proposals:
Club Car proposal:
92 Carts*
Monthly
$8,456
Annual
$101,471
4-Years
$405,886
(*included in the Carts charge were: 2 Player Assistant Vehic1es, 1 Range Vehic1e and a
Watering System)
Battery Warranty: 1,000 rounds, estimated warranty period = less than 2 years.
E-Z Go proposal:
92 Carts
(*included in Carts charge were:
Watering System).
Battery Warranty: 1, 200 rounds or 21,500 amp hours, whichever occurs first, estimated
warranty period = approximately 2+ years.
Monthly Annual 4- Years
$8,076 $96,910 $387,642
2 Player Assistant Vehicles, 1 Range V ehic1e ~d a
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E-Z Go current lease:
Monthly Annual 4- Years
92 Carts $6,602 $79,223 $316,892
(*included in Carts charge were: 2 Marshal Carts, 1 Range Vehicle, 1 Beverage Cart, and 1
Four-Person Shuttle).
Mr. Linville stated both proposals were an increase from the current lease. The E-Z Go
proposal would replace carts now, versus the Club Car carts would be replaced at the end of
the lease in August. Mr. Linville stated E-Z Go had provided a demo of the new cart at the
course this month. The new E-Z Go cart was better than the older models with a new more
efficient braking/recharging system. Mr. Linville recommended to the Board to accept the
E-Z Go proposal.
Mr. Linville provided an increase cart fee analysis based on a $2.00 Cart increase:
Carts Rented *
Cart Rental Increase
Monthly
$4,858
$2.00
$9,716
Annual
$58,293
$2.00
$116;586
4- Years
$233,172
$2.00
$466,344
* Average annual carts rented over 3-year period.
The Board requested the cart rate fee increase be agendized for the March meeting to allow
time to compare other properties' golf cart fee structures.
ACTION:
Cotton moved, Cota-Robles seconded to execute the letter of intent for the E-Z Go Golf Cart
proposal and agendize the Cart rate fee increase for March. Motion carried: Ayes: Cota-
Robles, Cotton, Dean, Hazeltine and Jacob. Nays: None.
5.
Encinitas Ranch Golf Course Marketing Plan.
(John McNair)
This item was taken out of order and heard after item #6.
6.
Report on Course Enhancements
(Kent Graff)
Mr. Graff stated the course had completed the aerification of the second half of the greens. He
stated they were resuming normal maintenance ofthe course. Mr. Graff stated the main concerns of
the course were drainage in the bunkers and the bunkers sand. Mr. Graff stated the course had
imported 100 tons of sand in the last nine months, but were still short of goal and would focus
primarily on the green side of bunkers.
5.
Encinitas Ranch Golf Course Marketing Plan.
(John McNair)
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Mr. McNair stated there was nothing new to report on the marketing plan. Mr. McNair stated
Saturday, March 1 st was the lOth anniversary of the Encinitas Ranch Golf course. The course had
some special events planned with a vendor demo day and a $10.00 discount for residents only on
Saturday's green fees.
7.
Update on Cell Tower Discussion
(John McNair)
Mr. McNair stated ERGA Counsel and Risk Management had reviewed the contract for the
Verizon cell tower and he would be forwarding the contract to Verizon for execution.
8.
Incidents and Accidents.
(Rod Linville)
Mr. Linville stated there two incidents and accidents for January. Both incidents were a "smash and
grab" theft of items left in vehicles. Mr. Linville stated a police report was filed for both incidents.
9. Directors and/or Manager Reports
There were no reports.
10. Next Meeting - Tuesday, March 25,2008 at 4:00 p.m.
11. Adiournment
Chairman Dean adjourned the meeting at 5:45 p.m.
Respectfully submitted,
{t;)
....,
~
L" ~f< tJH~~
Jt9an Woods, Board Secretary
Bill Dean, Chairman of the Board
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FIXED CHARGES:
Property Taxes
Property Taxes Personal Property
Leases 241,072 183,865 (A) 424,937
Insurance 37,200 37,200
Insurance Deductable 6,000 6,000
Interest Expense
Operational Improvements 24,000 24,000
ERGA Salary Allocations
LLMD Assessment 6,318 6,318
Admin Fees-U S Bank-Bond Fees 2,600 2,600
City Overhead Allocation 40,770 40,770
Total Fixed Charges 357,960 183,865 541,825
INCOME (LOSS) BEFORE
ADJUSTMENTS 1,408,001 (183,865) 1,224,136
~otes:
This adjustment is a result of the 6/30/07 audit, which moved a lease
A) payment made
in June 07 to July 07; the June check was voided in
early July.
These labor allocations were in the original budget;
B) there is no change to the
budgeted net income because of these entries.
These adjustments were made to
specifically identify the individual line items.
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Attachment B
~ DIEHL, EVANS & COMPANY, LLP
~ CERTIFIED PUBLIC ACCOUNTANTS &: CONSULTANTS
APARTNERSlllP INCLUDING ACCOUNTANCY CORPORATIONS
*J:>HILIP H. HOLTKAMP, CPA
.rnOMASM. PERIDWSKI,CPA
"'HARVEY J. SCHROEDER, CPA
MlCHAEL R l,.UDIN, cpA
CRAIG W. SPRAKER, crA
NlTIN P. PATEL, CPA
ROBERT 1. CALLANAN, CPA
KENNEfHR.AMES, CPA
2965 ROOSEVELT STREET
CARLSBAD, CALIFORNIA 92008-2389
(760) 729.2343. FAX (760) 729-2334
www.diehlevans.com
.. A PROFESSIONAL CORPORA'noN
December 19, 2007
The Board of Directors
of the Encinitas Ranch Golf Authority
Encinitas, California
In planning and perfonning our audit of the basic financial statements of the Encinitas Ranch Golf Authority (ERGA) for
the year ended June 30, 2007, we considered its internal control structure in order to determine our auditing procedures for
purposes of expressing our opinion on the financial statements and not to provide assurance on the internal control
structure. Our study and evaluation was more limited than would be necessary)o express an opinion on the system of
internal accounting control taken as a whole and we do not express suchan opinion.
The management of ERGA is responsible for establishing and maintaining a system of internal accounting control. In
fulfilling this responsibility, estimates and judgments by management are required to assess the expected benefits and
related costs of control procedures: The objectives of a system are to provide management with reasonable, but not
absolute, assurance that assets are safeguarded against loss from unauthorized use or disposition and that transactions are .
executed in accordance with management's authorization and recorded properly.
During our audit, we noted certain matters involving the internal control stmcture and its operation that we wish to call to
your attention. These matters are set forth below, together with our recommendation for improvement as well as a
response to each matteL The responses were provided by management onc Resorts.
Supportin!!: Documentation for Transactions
In the course of testing internal control over cash receipts, cash disbursements and payroll processing, we had three areas
offindings all relating to maintaining supporting documentation.
A) During our testing of internal control over cash receipts, JC Resorts staff was unable to provide supporting
documentation for individual cash transactions entered into the general ledger for the two days tested.
B) During our testing of internal control over cash disbursements, JC Resorts staff was unable to provide
supporting documentation for lout of 5 randomly selected checks. Other supporting documentation requests
took an extended period of time for Je Resorts staff to locate. In another instance, an expense reimbursement
form was used to support an expenditure balance, but JC Resorts staff was unable to locate the supporting
documentation for the reimbursement request.
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OTHER OFFICES AT:
613 W. VALLEY PARKWAY, SUITE 330
ESCONDIDO, CALIFORNIA 92025.2598
(760) 741-3141. 'FAX (760)741-9890
2121 ALTON PKWY, SUITE ]00
IRVINE, CALIFORNIA92606-4906
(949)-399-0600. FAX (949)399-0610
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C) Duringollr te~ting ofinWlllal col1trolove(payrollpmcessing weraudorrtly selected4 paycheCl<~. Of the
4 paychecks, one employee was found to be paid an amount different from what was authorized in their
personnel file. Anadditionaltest found that an employee of the cafe was being charged to ERGA
payroll.
Recommendation:
For cash receipts, we recommend that supporting documentation for all types of transactions, including
cash, be maintained by JC Resorts for each day's daily trans.actions.For cash disbursements, we
recoIttiIlelld that supporting documentation for all cash disbursements. be .fuaintained by Je ReSOrts in
such a, mannei' that they call. be re.called in a timely manner, and in a fashiOn that is easily tracea,ble to
the general ledger. Fouayrallprocessing werecorrtmend th'lt lC ResortKst;dIcolnpare pay rates theY
arePa,ying employees taautharizedpay rates in personnel files far a.1l emplOyees on a periodic basis,
and review each payroll to ensure that orily ERGAemployees are being paid and charged toERGA 's
payroll.
JCl?esorf$ Managements Response:
. JC ResOlts agrees. with the recommendation that suppolting documentation be provided for all
types of cash or non-ca,sh transactions. We are able to generate and. print cash receipts for each
transaction through ourpoint-of-sale system at any time.
. JC Resorts has effective filing and retentiOn processesandprocedurcs in place. However, the
loss of senior accounting staff and the additiOn of recent hires who \Verenot as familiar witlt the
filing system significantly contributed to the lack oftimelinesstothe requestforinvoices.
. The one item on the expense report that was missing was a small UPS cash receipt in the
amount of $37. We beli.eve thatthe receipt was separated from the expense report.in tbe. filing
process. We will confirm that all receipts are attached to the expense report priortofiling,
. JC Resorts agrees that there was an employee who was paid$7.75/hr in January 2007 who
should have been paid $9.00Ihrand a Cafe employee that was charged to the golf course in
June. However, JC Resorts internal payroll audit identified and corrected these mistakes within
30 days of the payroll transaction and prior to the external audit Ctwomonti1s prior to the audit
for the first incident; and two weeks prior to the audit for the second inddel1.t). In the first
incident, a check was cutin Febmary correcting the January payroll; in the second incident, our
Paymaster identifie.d and corrected the problem in Julybyreclassif)ring the elnplQyee to the
correct entity and promptly reimbursing ERGA, . Existing il1.ternalcontrol protocdlscaught both
errors and corrections were made in a timely manner.
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Pavroll Allocation Being. Charged to ERGA
During our testing of ERG A 2006/2007 salary expense, we found that JC Resorts was charging ERGA a payroll
allocation of approximately $91,000. JC Resorts Was unable to provide supporting documentation to
substantiate the amoulltof the alloCation. We did firtd that a similar item had been specifically budgeted forin
the pdor jiSqal year (2005/2006hi1dget) aSa separate line item, but was llQt specifically budgeted for as a
separate line item on the 2006/2007 fiScal yea'buclget.
Recommendation:
We recommend that IC Resorts corporate office provide the ERGA Board of Directors with a
calculation supporting any future payroll allocations charged to ERGA, and that the ERGA Board
reflect the allocation as a separate line item 011 future budgets. lfnecessary, JCResortsshould conduct
a costalloqation studYwsupport future paYrollallQcationcharges.
JC Resorts Managements Response:
JC Resprts agrees with this cOmment and will provide further substantiation for this nllmher in the
2008f2009operating budget and to support the 2007/2008illlocation.
Bank ReCOIlcHiationsllotPreoaredProoerlv
DuringOl:lr testing of cash balances at June 30, 2007, WI} found that approx1niately20 trartsaqtiorts totaling
approxilMtely $23,OOOhadappearedonbartk statt:ments as. far back as seven monthS earlier, buthadllot been
posted toERGA's genera.! ledger as ofJune 30, 2007.
Recommendation:
We recommend that bank reconciliations should be completed (and reviewed) monthly and that no
transactiorts appeadng on the; bartkStatement should remained unposted.
JC Resorts Managements Response:
JCResolts agrees that at the time of the audit, bank account reconqiliations were not being completed in
a timely miU1Iler. CUll"ently,all bartkaccount reconciliations ate prepared and rwiewed each month
with reconciling items posted to the general ledger.
Fixed Assets and Associated Debt not ProneflvRecoi'ded on the Books
We had four fil1dirtgspertaining to the reconting offixed assets:
1) Approximately $108,000 ofcos~associated withthe c1uhhollSe expansion Pilidsuhseqllentto the
end of the fiscal year for work perfonned pdor to the end ofthe fiscal year was not properly accrued
on the general ledger at June 30, 2007.
2) A $36,000 overpayment made by JC Resorts staff on costs associated with the .clubhouse expansion
was not shown as a receivable on the general ledger at June 30, 2007.
3) Several leases were utilized to pay for capital costs. The assets purchased with theSe leases were. not
capitalized on the generaUedger at June 30,2007, flbr was the a,Ssociateddebt.
4) Sales taxon certain assets purchased throughleases were not recorded on the general ledger at June
30,2007.
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Fixed Assets andAssodated Debt notProlJedvRecordeddn theBMks (contitiued)
During our testing. of 10ng"tePn <ie bt it was deterthined thatcapitllllellses and. cllpitllllease payments were. not
being recorded propli;rlyonERGA's general ledger. When an asset is purchased through a capital lease, the
Authority's records should reflect the ownership aftheasset and the obligation for the debt. As capital lease
payments are made on a periodic basis, the principal portion of the payment should reduce the debt outstanding
and the interestportion afthe Pllymetitshould be a C.I1ITentperiod expett$e. In.the cllse 6ftw6leas.esenteredinto
during the fisclll year, neither the awnership6f the asset nor the obligation for the debt was recorded on the
generalledgel". Qn both leases, as wellas aleaseeItferedintoin a prior Yellr, the entire leasepllYmetit (including
principal portions) were recorded as .CUlTent year expense.
Recommendation:
We recommend that on a. periodic basis (but not less than annually) that all capital assets, and any
related debt be recorded on ERGA's. general ledger and all appropriate depreciation be calculated and
recorded. Additionally, we recom1nend that all debt accounts and interest expense/kasepayment
expenseaccotjnts be atialyzed to ensure that assets, debtobligations,andpd.l1cipal and interest PllYments
are recorded properly on the. general ledger.
JCResorts M anagement'sResponse:
Je Resorts has implemented a policy in which all capital assets will be reviewed quarterly to verifY that
the asset and depreciation is properly recorded. In addition, ail debtac.countsand interest expense/lease
NYmettts will also be reviewed to verifY aCeurate postingtolhe generalledger.
Incident Report Form notApproved
During our testing of expenditures, we tested a t'eunl:mrsement fora repair to an automobile as a result of an
accident in the Encinitas Ranch Golf Course parkingJot. We noted that the incident reportform attached to the
supporting docume.l1tation fpr the expenditure did not have writtenevideticethat the ittcident hlld been reviewed
and approved by a supervisor. In this situation, the incident involved the employee who normallyreviews and
approves incident reportfolJns. We did o~serve that the checkreqtjesthad prpper approvlIls;however there Was
no writtenevidenc.e thafthe incident itself had been reviewed.
Recommendation:
All incident reports should contain written evidence. of haying been reviewed. If the incident inyolves
the person who tiOrtnally approves iMidentrepOlts, thlltperson's supervisor sh6uldreview the incident
and document their review in writing.
JCResort,S Management'sResponse:
Although the request for payment relating to the incident report was approved by two managers not
involved in the incldentwho.indellendetitly reviewed the incident rep6rtatidsigned.off on the request
for payment, JC Resorts. will document such review by including with the written approval of the
paymentrequestacopy of theincidentrep()rt signed pfflW .theLoss I'revention!\ilanllger (or Ditectorof
Human Resources) and Head. G6lf I'rofessional(or Director of ConStruction}. Review and written
approval will be provided by individuals notinvolved with the incident
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ERGA Mana!!ementResoonsetoAII Comments and ResnonsesAbove
ERGA Management is aware of all of the concerns raised by Diehl Evans in relation to the Encinitas Ranch
Golf Authority fiscal year 2006-2007 annual audit. The focus of those concerns relates to the internal control
systems and processes utilized by the contract operator of the Golf Course, IC Resorts. We have discussed the
issues with both the auditors and representatives of IC Resorts, and are satisfied with the responsespnNided in
this letter. We are recommending that Ie Resorts prepare a formal written Plan of Corrective Action that
addresses the deficiencies identified and provides solutions satisfactory to ERGA Management and the Board of
Directors.
****
These conditions were considered indetetmirting the natUre, timirtgand extent of the audiUests to be applied in
our audit of the Encitritas Ranch Golf Authority 'sbasic financial statements and this letter does not affect our
report on these financial statements dated December 19, 2007.
This letter is. intended. solely for the inforrnationand use of the ERGA BOard of Directors and management and
is not intended to be, and should not be, used by anyone other than these specified parties.
u~e~~~JLLr
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