Professional Course Management Agreement (City Golf Courses)/V\iA~J\1 BE H
BUDGET AND PERFORMANCE IMPROVEMENT
Internal Audit Division INTERNAL AUDIT REPORT
TO:
VIA:
FROM:
DATE:
AUDIT:
PERIOD:
Q Jorg~ M. Gonzalez, City Manager . #(f')
Kathie G. Brooks, Budget an~ Perfo · ancE? Improvement Director~~-# .
James J. Sutter, Internal Audito ~ :iJiiJr ~
October 15, 2010 .
Professional Course Management II, Ltd. Management and Concession Agreements Audit
(Miami Beach and Normandy Shores Golf Clubs)
October 1, 2007 through February 28, 2010 (Miami Beach Golf Club)
December 23, 2008-March 31, 2010 (Normandy Shores Golf Club)
This report is the result of a regularly scheduled audit of the separate but similar agreements
between the City and Professional Course Management II, Ltd. (PCM) for the operation and
management of the Miami Beach and Normandy Shores Golf Clubs. Additionally, each golf club
has a concession agreement addressing the food and beverage and pro shop merchandise sales
which were also audited. These two golf club audits were combined under one report since PCM
operates both using the same computer system, accounting, recordkeeping processes, and
administrative personnel, resulting in similar findings and recommendations.
INTRODUCTION
The Miami Beach Golf Club, formerly known as Bayshore Golf Club, is located at 2301 Alton Road
The facility went through a $10 million redesign and renovation in 2002 as paspalum grass was
planted, the course was elevated to provide better drainage, the irrigation system was replaced, a
new clubhouse was built, etc. The renovated 6,903 yard par 72 golf course opened in December
2002.
Meanwhile in 2008, the Normandy Shores Golf Club located at 2401 Biarritz was renovated by the
City spending over $9 million for new Normandy Shores Golf Club under the direction of renowned
golf architect, Arthur Hills. The restored 6,805 yard par 71 golf course opened on December 23,
2008 and is open to the public throughout the year.
In accordance with their response to Request for Proposal No. 125-99/00, Professional Course
Management II, Ltd. (PCM) was initially selected through Resolution No. 2000-24188 to provide for
the comprehensive management and operation of the Miami Beach Golf Club (including the par 3
golf course) and the Normandy Shores Golf Club and all related facilities through September 30,
2003. PCM subsequently retained the contract to manage and operate these same facilities with
the City Commission's passage of Resolution No. 2003-25383 covering the three year period ending
September 30, 2006 with the City having the sole discretion to extend the agreement for two
additional one year terms.
However, PCM's corresponding management of the Normandy Shores Golf Club was delayed due
to construction of the golf course. Its projected opening was scheduled to coincide with the
conclusion of the last renewal year but the City had concerns that changing management
companies at the Miami Beach Golf Club during this same period could have a negative impact.
We o1e commilled to p1oviding excellent public se1vice one/ sofety to oil who live, wo1k, oncl ploy in our vibront, liopicol, historic communi/)!.
Internal Audit Report
Professional Course Management II, Ltd. Management and Concession Agreements Audit
(Miami Beach and Normandy Shores Golf Clubs)
October 15, 2010
Therefore, the City Administration recommended, which was subsequently approved by the
Finance/Citywide Projects Committee at its 06/29/07 meeting, to execute a new management and
operation agreement with PCM allowing for a waiver of competitive bidding. The City Commission
approved the ratification of Resolution No. 2007-26616 extending PCM's Miami Beach Golf Club
and Normandy Shores Golf Club combined agreement under substantially the same terms and
conditions as the prior management agreement for the three year period ending 09/30/10 with the
City again having the sole discretion to execute two additional one year renewal terms. Also
included in Resolution No. 2007-26616 were separate concession agreements covering the food
and beverage and pro shop merchandise sales at the Miami Beach and Normandy Shores Golf
Clubs for the same time period.
Among many other items, the aforementioned three audited agreements state that the City is
entitled to receive 1 00% of golf revenues and 5% of pro shop and food/beverage revenues; while
PCM receives a predetermined monthly management fee plus an annual incentive fee based on
their performance in meeting specified financial goals. The following table lists the revenues by
major category remitted to the City, excluding state sales and resort taxes, for the two golf clubs
during the designated audit periods:
Miami Beach Golf Club 10/07-09/08 1 0/08 -09/09 1 0/09 -02/1 0 Total
Golf
Greens Fees $2,375,022 $1,797,415 $934,423 $5,106,860
Cart Fees $817,759 $987,401 $357,834 $2,162,994
Range Fees $155,379 $173,281 $63,570 $392,230
Membership $719,369 $739,473 $199,105 $1,657,947
Lessons $75,039 $64,586 $27,033 $166,658
Total Golf Revenues $4,142,568 $3,762,156 $1,581,965 $9,486,689
Total Pro Shop Revenues $40,713 $36,054 $15,660 $94,427
Food & Beverage Revenues $39,680 $37,908 $14,985 $92,573
Total City Revenues $4,222,961 $3,836,118 $1,612,610 $9,671,689
Normandy Shores Golf Club 12/08 -09/09 1 0/09 -03/1 0 Total
Golf
Greens Fees $477,154 $514,201 $991,355
Cart Fees $466,171 $229,885 $696,056
Range Fees $30,823 $12,426 $43,249
Membership $94,667 $38,636 $133,303
Lessons $6,744 $5,804 $12,548
Total Golf Revenues $1,075,559 $800,952 $1,876,511
Total Pro Shop Revenues $4,580 $4,074 $8,654
Food & Beverage Revenues $8,900 $5,161 $14,061
Total City Revenue $1,089,039 $810,187 $1,899,226
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Internal Audit Report
Professional Course Management II, Ltd. Management and Concession Agreements Audit
(Miami Beach and Normandy Shores Golf Clubs)
October 15,2010
For each club, PCM receives an annual management fee of $125,000 (approximately $10,417
monthly) plus an annual incentive fee equaling ten percent of all gross revenues over $1,875,000.
The following management fees were paid to PCM during the audit period:
Club Fee 10/07-09/08 1 0/08-09/09 1 0/09-03/1 0 Total
Miami Beach Management fee $125,000 $125,000 $62,502 $312,502
Incentive fee 234,796 196,112 n/a $430,908
Subtotal $349,796 $321,112 $62,502 $670,908
Normandy Shores Management fee $0 $103,749 $62,502 $166,251
(opened in 12/08) Incentive fee 0 0 n/a 0
Subtotal $0 $103,749 $62,502 $166,251
Total both clubs $349,796 $424,861 $125,004 $837,159
The Parks & Recreation Department's Golf Division is responsible for effectively coordinating,
directing and evaluating both the Miami Beach and Normandy Shores Golf Clubs. Meanwhile the
Finance Department performs monthly bank reconciliations, reviews expenditures and prepares any
needed journal entries in the City's Financial System.
Finally, the Miami Beach and Normandy Shores Golf Clubs use the FORE! Reservation point-of-sale
system which has such features as the ability to track the pace of play; to flag reservations for
concierge payments, rental clubs, etc.; and to create demographics and utilization reports. The
Parks & Recreation Department's management has access to this system at any given time to
perform various desired inquiries and analyses.
OVERALL OPINION
The Parks & Recreation Department's management stated that they are pleased with the
Professional Course Management II, Ltd.'s (PCM) overall performance in operating and managing
the Miami Beach (MBGC) and Normandy Shores Golf Clubs (NSGC). PCM has exceeded desired
financial benchmarks despite difficult economic times and customer satisfaction is purported to be
high based on Parks & Recreation Department's garnered verbal customer feedback and PCM's
received customer evaluation forms.
Internal Audit's testing showed that reported gross receipts and lease payments were deemed
correct based on the documents provided; required reports are submitted timely to the City; valid
insurance coverage is maintained; the resort tax filings were current as of March 201 0; the proper
entries were made into the City's Eden System to record tested transactions; etc. However, the
following items in need of improvement were noted during our audit:
• Noted internal control deficiencies are listed which could lead to misappropriated assets,
unreported revenues, etc.
• MBGC's annual business tax receipts have been under billed for at least the past four fiscal
years. Once all the necessary approvals are received, the Finance Department's Licensing
Section will back bill the concessionaire a total of $11 ,238.14.
Five PCM golf professionals that give customers' lessons did not obtain their annual
business tax receipt that currently costs $200 per fiscal year. Similarly, the golf instructors at
the Ray Boone Academy and Jose Hernandez also did not obtain their annual business tax
receipts.
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Internal Audit Report
Professional Course Management II, Ltd. Management and Concession Agreements Audit
(Miami Beach and Normandy Shores Golf Clubs)
October 15, 201 0
• PCM has no known current means to verify the amount of lesson revenues reported by their
hired subcontractors, Ray Boone Academy and Jose Hernandez. Internal Audit's review of
the subcontractors' provided documents found that they were occasionally incomplete and
may have inadvertently omitted some collected customer payments of which the City is
entitled to receive 20%.
• The internal controls and documentation surrounding the issuance, receipt and processing
of gift certificates were found to be lacking thereby increasing the possibility that monies
could be successfully misappropriated.
• Until February 2010, concierge payments were not properly documented to facilitate
verification that all monies are accounted for.
• Assets stored at MBGC's maintenance facility located next to the 23rd Street stash site were
not adequately protected from misappropriation during Internal Audit's March 25, 2010 site
visit.
• Monies secured in MBGC's safe could be better protected to help prevent possible thefts.
• The City's reimbursement of MBGC's Superintendent truck and insurance payments are
questioned.
• Golf course evaluation reports are not prepared listing any deficiencies noted after physical
inspections by the Parks & Recreation Department in accordance with the signed
management agreement. Instead, all noted maintenance deficiencies were verbally
communicated to PCM and the Parks and Recreation Department management stated that
all had been corrected.
• Although the signed management agreement is detailed and comprehensive, several
confusing or omitted terms are identified which need clarification.
• Membership resident rates are provided to individuals who own property in the City but do
not reside within the City.
• MBGC's SunTrust bank account continues to grow monthly and now has in excess of $13
million but is presently only earning an annual percentage yield of 0.25%. Other investment
options that comply with the City's investment strategy should be explored to try and earn a
higher rate of return on these monies.
PURPOSE
The purpose of this audit was to determine whether the concessionaire remitted the correct monthly
payments based upon review of their supporting records, was otherwise in compliance with selected
terms listed in the management and concession agreements; and whether the City timely received
and correctly recorded all revenues and effectively monitored the agreements.
SCOPE
1. Confirm that tested monthly payments to the City are correctly calculated based on verified
gross revenues and are properly entered into the City's Financial System.
2. Confirm that tested documentation is complete, well organized and sufficient; and that
internal controls (bank reconciliations, segregation of duties, etc.) are performed and are
adequate.
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Internal Audit Report
Professional Course Management II, Ltd. Management and Concession Agreements Audit
(Miami Beach and Normandy Shores Golf Clubs)
October 15,2010
3. Confirm that required payments are submitted timely to the City. If not, were late charges
levied or the vendor notified of the omission.
4. Confirm that sampled expenditures were properly approved, paid timely and for legitimate
business purposes.
5. Confirm that designated concessionaire employees obtained business tax receipts and that
all staff members are paid at least equal to the City's designated living wage requirements (if
applicable).
6. Confirm that the City's Parks & Recreation Department periodically inspects, evaluates and
documents the golf clubs' maintenance.
7. Confirm that the concessionaire is current on all taxes, permits, licenses, etc.
8. Confirm that the appropriate insurance coverage is maintained.
9. Confirm that the concessionaire complied with selected provisions in the submitted Request
for Proposal that are either not covered or are more stringent than in the signed
management and concession agreements.
FINDINGS, RECOMMENDATIONS AND MANAGEMENT RESPONSES
1. Finding: Internal Control Deficiencies Over Revenues and Cash Handling
Professional Course Management II, Ltd.'s or PCM's internal controls over revenues and
cash handling were reviewed and the following deficiencies were noted that could lead to
misappropriated assets, unreported revenues, etc.:
a. The customer pays the monies designated in the pro shop where he/she receives a
ticket to be given to the starter indicating proof of payment before being permitted to
play golf. The starter is to maintain a daily log sheet indicating such information as
the names of those playing, the invoice number sequentially assigned by the FORE!
Reservation point of sale system (FORE!) listed on each customer's ticket, the time
that the golfers started their round, the number of sets of golf clubs rented, the
number of guest golf cart riders who are not actually playing, etc.
These log sheets provide an effective internal control to confirm that all golfers'
payments are recorded when reconciled to the FORE! system's Sales Detail by
Inventory Department report. Yet, inquiries with PCM management found that this
practice is not being completed as part of the normal daily reconciliation process.
Internal Audit's subsequent reconciliation of May 01, 2009's Miami Beach Golf Club
or MBGC entries found that the starter's log sheets exceeded the number of paying
customers in the FORE! system by 21 which could indicate that not all collected
monies were reported. PCM management claimed that this difference was due to
the confusion surrounding a several hour electrical outage occurring on the busiest
day of the year thereby rendering the FORE! system inoperable during this time.
They continued to state that these outages rarely take place but they are disruptive.
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Internal Audit Report
Professional Course Management II, Ltd. Management and Concession Agreements Audit
(Miami Beach and Normandy Shores Golf Clubs)
October 15, 2010
An additional ten days were tested during the five randomly sampled months of
March 2008, July 2008, May 2009, September 2009 and October 2009. It was
subsequently found that starter log sheets were not provided for 03/09/08 and
05/20/09, five dates reviewed (05/01/09, 05/24/09, 09/03/09, 09/21/09 and 1 0/13/09)
did not contain the FORE! system's assigned invoice numbers to facilitate
reconciliation, the FORE! system contained more golfers for five dates ranging from
a low of 2 to a high of 15, and 1 0/13/09's starter log sheets contained 3 more golfers
than listed in the FORE! system.
PCM launched an internal review afterwards of 109 different dates during the five
months randomly sampled and found 37 dates where the starter's sheets were not
present, 57 where the starter's log sheets reported fewer golfers than in the FORE!
system's reports and conversely 15 where the starter's log sheets listed more
golfers.
Internal Audit performed a similar analysis for the Normandy Shores Golf Club or
NSGC where eight randomly sampled days occurring during the four randomly
sampled months of February 2009, March 2009, December 2009 and February 2010
(two dates were chosen from each month). Testing found that the starter log sheets
were not present for 02/03/10 but all eight dates reviewed properly contained the
FORE! system's assigned invoice numbers to facilitate reconciliation, and that the
FORE! system's reports contained more golfers for the remaining seven dates
compared ranging from a low of 2 to a high of 39.
b. A MBGC golf professional was observed processing their own lesson transaction in
which monies were removed from the cash drawer as they are permitted to retain
80% of any remitted proceeds.
c. PCM's pro shop employees enter customer transactions into the FORE! system at
the golf clubs. Subsequently, PCM's Controller manually enters the revenue data
totals reported in the FORE! system into QuickBooks, which is used to prepare their
accounting records, as the two systems are not linked. As a result, the likelihood of
inadvertent input errors increases and it is an inefficient usage of time.
d. A majority of the golf clubs' customers make their purchases via credit cards. Pro
shop staff currently has to manually enter the customer's information into the credit
card machine and then enter much of the same information again into the FORE!
system thereby increasing the possibility of an input error. Additionally, the
customers' entire credit card number is retained in the credit card machine for
viewing. Although the credit card's expiration date is not present which is needed to
complete a fraudulent purchase, this omitted information can be much easier
determined.
Recommendation(s):
The implementation of the following internal controls should help further ensure that
revenues are accurately and completely reported:
a. The starter's daily log sheets should be complete listing each golfer's applicable
information and the FORE! system's assigned invoice number. A designated
independent PCM employee should then perform a daily reconciliation of the
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Internal Audit Report
Professional Course Management II, Ltd. Management and Concession Agreements Audit
(Miami Beach and Normandy Shores Golf Clubs)
October 15, 2010
starter's log sheets and the number of golfers reported in the FORE! system with any
variances further investigated. Additionally, the Parks & Recreation Department
should research the feasibility of purchasing hand held devices to automate the
starter's daily log sheets which should also help expedite the reconciliation process.
b. A different pro shop employee than the one giving the golf lesson should process the
customer's transaction in the FORE! system.
c. It should be researched as to whether the information entered into the FORE!
system can be downloaded directly into QuickBooks to help save time and prevent
the possibility of input errors from occurring.
d. The purchase of computer keyboards with credit card readers should be explored to
help improve the expediency and accuracy of the credit card payment process. Also,
the credit card machine vendor should be contacted to determine if the customers'
credit card numbers can be blocked out except for the last four digits for security
purposes.
Management Response:
a. Effective Immediately, PCM Management and the on-site accounting staff will
perform daily reconciliations and audit the prior day's data. This reconciliation will be
performed early in the morning in order to capture any prior day deficiencies early
enough to contact relevant staff. Any and all discrepancies will be noted down, with
their corresponding resolution. Staff will be explained of the importance of the
reconciliation and any employee that continues to create variances will be disciplined
accordingly.
b. Effective Immediately, Pro Shop employees will be the only ones permitted to
process a customer's transaction as the Golf Pro is not allowed to enter the cash
register.
c. Parks and Recreation contacted the City's Information Technology (I.T.) Department
to determine their time availability to extract and download the FORE data into
QuickBooks and then into Eden. Subsequently, a meeting was held between the I.T.
Department, Parks and Recreation and PCM to assess the current capabilities and
system constraints that challenge the linkage ability. I.T. Department is continuing to
work with Parks and Recreation and PCM to determine if any redundancy of the
current process can be eliminated.
d. The Parks and Recreation Department has been seeking the assistance of the
Finance Department to address this challenge. The issue at hand is the City's golf
courses' point of sales system (FORE! Reservations) supports two credit card
processors (ETS and Mercury) however the City uses a third processor which is not
supported by FORE! Reservations making the proposed integration at this time not
possible.
2. Finding: MBGC Annual Business Tax Receipts Under Billed
Article 19.01 of MBGC's signed management agreement states "Manager {PCM} shall
obtain and maintain in full force and effect throughout the term of this Agreement any and all
applicable permits and business licenses which may be required by any law, including
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Internal Audit Report
Professional Course Management II, Ltd. Management and Concession Agreements Audit
(Miami Beach and Normandy Shores Golf Clubs)
October 15, 2010
administrative regulations and local ordinances, for the conduct of Manager's operations,
hereunder." PCM temporarily operated out of a nine seat trailer while the current MBGC
clubhouse was being built in 2005. During this time, PCM was billed and paid annual
business tax receipts (formerly known as an occupational license) of approximately $69.88
per year which equals the certificate of use fee.
Per inquiries with Parks & Recreation Department personnel, the temporary certificate of
occupancy for the new MBGC clubhouse was received in May 2005 with the final certificate
of occupancy issued in November 2006 with the 11 0 seat clubhouse becoming operational
some time in between. However, the golf club's business tax receipt was not adjusted and
continued to be billed at the lesser rate through the current fiscal year. Additionally, the
City's Code Compliance Division did not issue any citations in the interim as inquiries found
that the number of seats is only confirmed by officers upon request.
Internal Audit became aware that the City's Eden System listed an incorrect number of seats
and that the annual business tax payments were understated so the Finance Department's
Licensing Section and Code Compliance Division were contacted to further investigate. It
was subsequently determined that an oversight occurred and that once all the associated
approvals are received for the new facility, PCM was back billed a total of $11 ,238.14 for the
past four fiscal years that the City incorrectly charged their business tax receipt fee and
subsequently paid the outstanding balance in full. To date, all approvals have been received
except for DERM which still has to approve the restaurant's grease trap.
Recommendation(s):
The Eden System has recently been found to contain an incorrect number of rooms or seats
(as listed above for MBGC). Any difference from the actual figure can affect the business
tax receipt calculation as various fees are based on these reported figures.
Internal Audit recommends that the process governing the reported number of rooms, seats,
etc. be reviewed to determine how the City can periodically confirm their listed accuracy.
Meanwhile, the needed approvals for the facility should be promptly obtained so that the
business tax receipt can be issued to PCM.
Management Response:
Parks and Recreation along with PCM will annually review the golf courses' business tax
receipts for compliance and report any changes to rooms and seats to the City prior to the
issuing of, or payment of the following year's license. Additionally, the Park and Recreation
Department will use the City's Eden System's Contract Management module to help perform
these tasks and to track PCM's compliance levels.
3. Finding: Golf Professionals Not Obtaining Annual Business Tax Receipts
Golf professionals are required under City Ordinance No. 2003-3420 to obtain a business
tax receipt at a current annual fee of $200 (excluding late charges). Testing found that the
three MBGC and two NSGC employees who give lessons did so without obtaining their
business tax receipts. Additionally, subcontractors like the Ray Boone Golf Academy's
instructors and Jose Hernandez give daily lessons on the premises yet also have not
obtained their annual business tax receipts.
Recommendation(s):
All Miami Beach golf professionals should obtain their annual business tax receipts in
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Internal Audit Report
Professional Course Management II, Ltd. Management and Concession Agreements Audit
(Miami Beach and Normandy Shores Golf Clubs)
October 15, 201 0
accordance with City Ordinance No. 2003-3420 with the City's Code Compliance Division
citing anyone that does not promptly comply. Additionally, the Parks Department, acting as
the contract manager for these agreements, should use the Eden System's Contract
Management module to help ensure that compliance is achieved for the required Business
Tax Receipts and other contract requirements.
Management Response:
The Parks and Recreation Department and PCM will monitor, on a yearly basis, compliance
of the business tax receipts by the current list of golf professionals. Additionally, any new
professional that may come on board will not be permitted to begin his services without
showing proof to PCM of such compliance. A copy of the business tax receipt will be
retained for the files. Additionally, the Park and Recreation Department will use the City's
Eden System's Contract Management module to help perform these tasks and to track
PCM's compliance levels.
4. Finding: Subcontractor's Golf Lesson Revenues May Not Be Completely Reported
The Ray Boone Academy or RBA provides golf lessons from the southern end of MBGC's
driving range. RBA's last authorized contract with PCM was entered into on 12/23/02 and
has been extended since on a month-to-month basis. Customers desiring golf lessons pay
directly to RBA rather than through MBGC's pro shop as the subcontractor is equipped with
their own change and credit card machine.
As a result, RBA submits lesson revenue sheets to PCM's Controller listing the names of
any customers receiving golf lessons, the number lesson in relation to the number
purchased (1 of 5, 4 of 10, etc.) and any monies collected. These sheets are accompanied
by a RBA check equaling 20% of reported earnings in accordance with their contract. Under
the current scenario, PCM has no known easy means to verify the number of lessons given
and the corresponding amount of revenues reported.
Testing performed on twenty arbitrarily sampled RBA golf lesson customers found the
following:
a. Two of the twenty sampled customers or 10% had signed up for golf lessons and
paid again despite the fact that all the previous lessons had not yet been used
according to the submitted lesson revenue sheets. Consequently, Internal Audit
concluded that the lesson revenue sheets were not necessarily complete.
b. Two of the twenty customers sampled or 10% did not have amounts paid next to any
of the group of lessons reviewed. Therefore, Internal Audit had no means to confirm
whether the customers had previously paid, the amounts were inadvertently omitted,
the lessons were provided free of charge, etc.
A similar analysis was performed with subcontractor, Jose Hernandez, who gives lessons at
NSGC's driving range. Any customers remitting cash can pay him directly but those wishing
to pay by credit card must pay inside at the golf club's pro shop. Testing performed on
fifteen sampled Jose Hernandez submitted lesson revenue sheets found the following:
a. Seven of the fifteen sampled golf lesson recipients or 46.66% were missing at least
one of the paid lessons causing Internal Audit concern that the submitted documents
were not complete.
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Internal Audit Report
Professional Course Management II, Ltd. Management and Concession Agreements Audit
(Miami Beach and Normandy Shores Golf Clubs)
October 15, 2010
b. Three of the fifteen customers sampled or 20% did not have any amounts paid next
to any of the group of lessons reviewed thereby causing concern that the City may
not have received the 20% of revenues it is entitled to.
Recommendation( s):
The existing contract between PCM and RBA should be reviewed to determine if any of the
existing 2002 terms need to be revised. For example, should the City's percentage of golf
lesson revenues change from the current 20%, should all subcontractor golf lesson
recipients pay at the MBGC and NSGC pro shops to help ensure that all transactions are
entered in the FORE! system, etc.
Furthermore, a column should be added to the submitted lesson revenue sheets informing
the reader as to the date that the payment was made for the lesson(s) received. This
practice will enable one to review the referenced date to ensure that the payment was
reported and the City received its required 20%.
Management's Response:
A thorough review of industry practice shows that the City is obtaining fair and reasonable
remuneration from its golf professionals. In some instances, other golf facilities are not
compensated for lessons, and in no case was the amount greater than 20% based on a
recent survey taken of percentages paid by golf professionals at other comparable golf clubs
in the area.
Effective Immediately, PCM will modify its Golf Professional revenue forms to include a
column that shows when the payment for the series of lessons was actually made in order to
track and confirm payment. Additionally, PCM Management and their accounting
department will occasionally audit such payments and confirmations of the 20% to the City.
5. Finding: Gift Certificates Internal Control and Documentation Weaknesses
Testing conducted on the internal controls surrounding the issuance, receipt and processing
of gift certificates discovered the following:
a. Thirty-six blank pre-numbered sequential MBGC gift certificates were stored
underneath the cash drawer (1314 through 1350) where they could be improperly
accessed by any pro shop employee. Similarly, an unannounced NSGC site visit
found eight blank gift certificates numbered 41, 42, 124, 125, 126, 130, 131 and 132
present.
In addition, approximately ten unclaimed customer credit cards or drivers' licenses
were found underneath MBGC's cash drawer. Inquiries found that these unclaimed
items have been retained for an extended period of time as PCM has been unable to
locate the owners but staff said that there were no apparent plans to properly
dispose of them. Consequently, the risks are greater that a dishonest person could
misappropriate these items and use them for personal gain.
b. The manually prepared gift certificate log used to record their assigned number,
purchaser's name, date sold, amount and the employee's name selling the item was
frequently not fully completed as numerous omissions were noted.
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Internal Audit Report
Professional Course Management II, Ltd. Management and Concession Agreements Audit
(Miami Beach and Normandy Shores Golf Clubs)
October 15, 2010
c. MBGC gift certificates were not issued in sequence as number 1351 was issued
although 1314 through 1350 remained available inside the cash drawer. Similarly,
an unannounced NSGC site visit found that gift certificates numbered 278 through
284 were issued on 05/05/10 when the highest numbered blank gift certificate in the
cash drawer was 132.
d. The FORE! system does not cross reference the gift certificate's redeemed amount
with the issued amount. Therefore, gift certificates could be inappropriately
processed by a pro shop employee for any amount up to the $5,000 maximum even
though it was never initially entered into the FORE! system or was for a lesser
amount. In addition, a customer could inappropriately manually change the amount
of the gift certificate with a similar colored pen (ex. alter a $100 gift certificate to
equal $700 or some other amount) and not be noticed.
e. Issued gift certificates are valid for one year before they expire with the expiration
date to be manually recorded on the document at the time of sale. However, the
FORE! system does not currently track the elapsed time since the gift certificate was
issued to alert the PCM employee that the year has expired and it is no longer valid.
f. The PCM employees reconciling the monies to the FORE! system do not ensure that
all gift certificates are accounted for at night's end. These gift certificates basically
represent cash and as stated previously do not have to be entered into the FORE!
system to be redeemed.
Recommendation(s):
The implementation of the following recommendations should help strengthen the internal
controls surrounding the issuance, receipt and processing of gift certificates:
a. All blank unused gift certificates should be better safeguarded to help prevent
possible misuse. Available options to consider include storing unused gift
certificates in the safe, requiring a supervisor's signature before they can be issued,
converting to a debit card processed through the FORE! system at the time of
purchase, etc.
b. The gift certificate log should be accurately completed by PCM personnel with
periodic reconciliations performed by a designated independent supervisor to help
ensure that all are present and accounted for.
c. Gift certificates should be issued sequentially to facilitate accountability and
reconciliation.
d. If possible, the FORE! system should be programmed to prevent any gift certificates
from being redeemed for more than the amount initially sold. Additionally, the gift
certificate maximum threshold should be lowered to a more reasonable figure like
$500.
e. If possible, the FORE! system should be programmed to reject the submittal of any
expired gift certificates by tracking the time elapsed since issuance.
f. The pro shop employee completing the nightly reconciliation should confirm that all
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Internal Audit Report
Professional Course Management II, Ltd. Management and Concession Agreements Audit
(Miami Beach and Normandy Shores Golf Clubs)
October 15, 2010
blank unused gift certificates stored in the cash drawer are present and attest to this
fact on the Daily Closing Report. A PCM supervisor should then periodically confirm
that the listed gift certificate numbers are present.
Management Response:
Effective immediately, all gift certificates will be kept in a more secure area, and not be kept
under the cash register or any place that is not considered locked. All certificates that are
paid for will be properly filled out if such information is available, and entered into the
computer system to include reporting the date of payment and who it was paid by. If the
certificate is not available to be entered, as is the case on raffles, etc., once the certificate is
presented, the golf staff will enter the name if it is not already entered.
PCM has already worked out the details with the FORE system to assure that the program
does not allow the certificate number to be redeemed for more than what was actually paid.
Although the certificate may have actually expired, as shown on the system and on the
certificate itself, Management has certain discretion to allow the remaining balance in order
to keep goodwill with the customer.
PCM Management and Accounting staff will reconcile any purchased certificate accounting
on a daily basis.
6. Finding: Hotel Concierge Payments Not Previously Properly Controlled
Local hotel concierges receive $15 in cash during the season (October 1st through April 301h)
or $10 otherwise for each hotel guest that they refer to play golf at either MBGC or NSGC
that pays the rack or highest rate possible. These monies are removed from the day's
proceeds by pro shop personnel and are secured in sealed envelopes labeled with the
applicable hotel and concierge's name. The envelopes are then stored in a safe until being
retrieved and distributed personally to the applicable concierge by PCM's Director of
Marketing.
Until February 2010, accurate detailed records (signed receipts, reconciliation to the FORE!
system, etc.) were not maintained to indicate which concierge monies were distributed,
which were retained, which were returned, etc. These newly created records prepared by
PCM's Director of Marketing were found to be complete and sufficient as all tested February
2010 concierge monies were accounted for.
The one noted incomplete component occurred when concierges left the hotel's employment
and could not be located. Although the monies were supposedly returned to the pro shop
and entered into the FORE! system's daily green fees, there was no documentation
maintained to substantiate this claim.
Recommendation(s):
Going forward, the detailed records currently maintained by PCM's Marketing Director for
February 201O's concierge disbursements should be continued. However, pro shop
personnel should sign the receipt initially prepared for the concierge documenting the return
of any designated monies that could not be delivered for whatever reason.
Management Response:
Effective immediately all current records and reporting forms will continue to be used and
PCM staff will sign the receipt prepared if monies are returned.
Page 12 of 18
Internal Audit Report
Professional Course Management II, Ltd. Management and Concession Agreements Audit
(Miami Beach and Normandy Shores Golf Clubs)
October 15, 2010
7. Finding: Maintenance Facilities Not Properly Safeguarded to Prevent Unauthorized Access
A 03/25/10 field visit of MBGC's maintenance facility located off 23rd Street next to the stash
site found the following:
a. The door to the outside storage unit located next to the northern perimeter fence was
left open but no one was present. There were danger stickers affixed on the door
warning outsiders that powerful fertilizers and other items which could be harmful to
people were stored inside.
b. Gasoline tanks were positioned on the eastern side of the building near the facility's
entrance to fuel equipment as needed. The corresponding gas pumps were also
found unlocked and unattended so that anyone could access the gasoline. Inquiries
found that employees are on the honor system to accurately record any gasoline
taken on a daily report housed nearby in a metal container. A quick reconciliation
was done of the day's usage and it was found that there was a% gallon discrepancy
between the fuel dispensed to date (less than 10 gallons) and the pump's reading.
The Assistant Superintendent speculated that someone had filled out the sheet
incorrectly as the reason for the difference. Another concern is that either an
employee or an outsider could fill up their personal vehicle with gasoline and go
undetected.
Recommendation( s):
The storage units' doors and gasoline pumps should be locked when not in use to prevent
unauthorized access.
Management Response:
The auditors' findings represent a clear violation of our policies. The door to the chemical
storage room and the fuel pumps are to be locked at all times unless in use. The golf
course superintendent and his assistants are the only personnel with keys to those facilities
and it is their responsibility to keep them secured. These policies were reviewed with the
superintendent and assistants. Future violations of this policy will result in disciplinary action
leading up to termination.
8. Finding: Collected MBGC Monies In Need of Better Safeguarding
PCM currently uses two safes in MBGC's clubhouse located side-by-side in a small room off
the northwestern corner of the pro shop. This room's door remains propped open when a
contractual employee is present cleaning and shining shoes inside thereby making the safes
visible to all passersby which may entice a potential robber.
Although a majority of purchases are currently made by credit card, the amount of daily cash
received routinely exceeds $1,000. These two safe's cash balances are also increased by
the registers' change banks, other change kept on hand and the petty cash stored inside.
These safes are not protected with a time delay feature as they currently require only the
entry of a valid combination to gain immediate access. Finally, these monies are removed
and deposited into the applicable bank account by Trans Value guards twice a week thereby
increasing the amount of monies on hand.
Page 13 of 18
Internal Audit Report
Professional Course Management II, Ltd. Management and Concession Agreements Audit
(Miami Beach and Normandy Shores Golf Clubs)
October 15, 2010
Recommendation(s):
Although Internal Audit believes that PCM should be held liable to the City for full
reimbursement of any misappropriated monies, additional safeguards should be considered.
Possible options to consider include having Trans Value schedule additional weekly pick-
ups, relocating the contracted employee's shoe shine operation away from the safes, etc.
Management Response:
Parks and Recreation will evaluate whether additional Armored Guard trips are necessary by
monitoring the cash on hand on a frequent basis. PCM will also consider securing the room
and locking it when other uses for the room are not required.
9. Finding: Superintendent Vehicle and Insurance Expenditures Questioned
PCM submits a monthly packet to the City's Parks & Recreation and Finance Departments,
which among other things contains the Payments Made on Behalf of Miami Beach report
accompanied by copies of the corresponding supporting invoices. Upon reviewing these
reports and supporting documentation, the following two reoccurring PCM payments
reimbursed by City funds are questionable:
• $464.61 monthly payments were made on a 2008 GMC Canyon truck used by
MBGC's Superintendent to transport supplies and/or equipment. Inquiries found that
he also drove this vehicle daily to and from his Sunrise residence and the golf club.
A balance of $19,373.73 was owed as of 08/24/09 on this truck for which the
Superintendent is listed as the owner.
• MBGC Superintendent's insurance covering the above truck of $212.39 bi-monthly
was also reimbursed by the City.
Internal Audit had the following concerns with this arrangement which we were told also
existed for the previous MBGC Superintendents:
• PCM and/or the MBGC Superintendent do not purchase vehicles in the same
volume as the City so they most likely paid more than if the City had procured the
truck. Furthermore, the payments continue for several more years and include
interest thereby increasing the vehicle's total purchase price.
• The fact that the superintendent drives the vehicle to and from his home in Sunrise
each day increases the truck's mileage and the likelihood that an accident may
occur. Parks & Recreation Department management stated that this practice is
permitted because many of the maintenance vendors operate in North Dade and
Southwestern Broward so that he can purchase and transport any needed items
during his daily commute.
• Who maintains ownership of the vehicle when the Superintendent's employment with
PCM is terminated as it is currently registered in his name?
• The City's Risk Manager does not review the auto insurance maintained to
determine if it is sufficient in the event of an accident, theft, etc.
Recommendation(s)
Internal Audit believes that the City's reimbursement of these monthly payments for the
MBGC Superintendent's truck and auto insurance should be closer scrutinized to determine
if it is the most advantageous way to proceed.
Page 14 of 18
Internal Audit Report
Professional Course Management II, Ltd. Management and Concession Agreements Audit
(Miami Beach and Normandy Shores Golf Clubs)
October 15,2010
Management's Response
When this issue was identified by the Auditor the process was discontinued and any
remuneration for these expenses to the corresponding PCM staff has been included in their
normal taxable salary. This practice will hold true for any and all positions.
10. Finding: Golf Course Evaluation Reports Not Done In Adherence to the Management
Agreement
Article 8 and Exhibit B of the signed management agreements detail the maintenance
responsibilities of the concessionaire. Inquiries with Parks & Recreation Department
personnel found that they routinely tour the perimeter of the golf clubs and physically visit the
facilities to perform visual inspections and to obtain verbal feedback from golfers as a means
to gain insight into PCM's performance. Additional feedback has been obtained from
distributed customer evaluation forms which have frequently been retained with high scores.
Furthermore, they claim that any noted maintenance shortcomings are addressed verbally
with PCM and have been quickly resolved.
However, Article 22 of the management agreement calls for the completion of Golf Course
Evaluation Reports after inspections performed on a regular basis. This report's objective is
to document PCM's performance pursuant to the aforementioned maintenance standards.
Inquiries found that these reports have not been completed to date as the Parks &
Recreation Department instead relies primarily on the means mentioned above to gauge
PCM's performance.
Recommendation(s):
Although the Parks & Recreation Department stated that they are pleased with PCM's
maintenance of the two golf clubs, Internal Audit believes that they should prepare the
required Golf Course Evaluation Reports following their regular inspections in accordance
with the signed agreements.
Management Response:
The Director of Parks and Recreation, the Assistant Directors of the Department and other
team members as needed as well as members of the PCM staff conduct visual inspections
of both the golf courses on a regular basis. At the time of these site inspections comments
and observations are shared with PCM staff and the matters are addressed promptly and
most times immediately. However these inspections are not documented to any degree.
Effective immediately, the Parks and Recreation Director or his designee will inspect the site,
and document these inspections. The Department has prepared an inspection form to report
any deficiencies and the finding of such report to PCM for compliance. All inspection forms
will be kept by the Department and PCM.
It should also be noted that, as a standing practice, a verbal report of golf courses
conditions, major maintenance actions/practices such as aerification, fertilization, top
dressing, planting, trimming or removal of trees etc, is provided to the Golf Advisory
Committee at their regularly scheduled monthly meetings.
11. Finding: Needed Signed Agreement Revisions
Although the signed management and concession agreements are well written and
comprehensive, Internal Audit believes that the following items need to be clarified:
a. As it relates to the concession agreement, PCM is not presently required to obtain
Page 15 of 18
Internal Audit Report
Professional Course Management II, Ltd. Management and Concession Agreements Audit
(Miami Beach and Normandy Shores Golf Clubs)
October 15, 2010
and submit an annual audit by an independent accounting firm for the concession
revenues. This language is found in most City contracts/agreements, especially
where payments are based on revenues received as it gives the City greater
assurance that remittances are correct.
b. PCM's golf professionals that give customers lessons currently keep 80% of the
proceeds with the remaining 20% remitted to the City but it is not addressed in any of
the reviewed agreements. Parks & Recreation Department management will
perform an analysis with other comparable golf clubs to determine the most
equitable percentage to share.
c. PCM and their subcontractor provide all the merchandise available for sale except
for rental clubs at the two golf clubs' pro shops. The City pays the salaries of these
PCM pro shop employees that sell this merchandise as well as provide golf lessons,
answer customer inquiries, schedule tee times, etc. In return, the City is reimbursed
$2,000 per month for the labor costs incurred in selling his merchandise at MBGC.
Inquiries revealed that this $2,000 amount has remained unchanged for a number of
years but the topic is not addressed in any of the signed golf club agreements.
Conversely, the City does not currently receive any similar reimbursements for labor
costs associated with selling merchandise at NSGC which occurs on a much lesser
scale. Inquiries with Parks & Recreation Department management found that this
option is currently being explored due to the recent completion of the new clubhouse
and corresponding increased merchandise sales.
d. The City Commission set the rates to charge golfers desiring to play at either MBGC
or NSGC. However, it was determined that designated PCM employees working
more than 20 hours per week are not charged either greens or cart fees to play in
contradiction to the rates established by the City Commission. All others tested were
charged to play in accordance to the rates established. Inquiries with Parks &
Recreation Department management stated that this practice is common in the
golfing industry and their play is primarily limited to non-peak times at the discretion
of PCM's Director of Golf.
Recommendation(s):
Amendments to the management and concession agreements clarifying the above items
and any others noted should be considered as soon as possible.
Management Response:
a. The concession agreement grants the City full access to any and all records related
to this agreement upon 24 hours notice. Additionally, the City conducts periodic
audits of the resort tax returns and thus audits all revenues.
b. Our survey of comparable golf clubs shows that the 20% currently charged to
instructors is on the upper end of the spectrum, with some clubs not charging
instructors at all.
c. In addition to the $2,000 reimbursement, PCM employs a full time merchandise
manager who also assists in Pro Shop operations, answering phones, scheduling
tee times, registering golfers etc. As of September 1st, PCM will begin to reimburse
Page 16 of 18
Internal Audit Report
Professional Course Management II, Ltd. Management and Concession Agreements Audit
(Miami Beach and Normandy Shores Golf Clubs)
October 15, 2010
the City for labor costs at Normandy Shores at an amount equal to the percentage of
sales it reimburses for labor at MBGC.
d. Playing privileges is one of the benefits offered to all club employees. This is a
standard industry practice, as it is in the operations' best interest to employ staff who
play, know and understand the game and thus can better relate and service the
customer. In fact, for the golf professionals, playing golf with members is part of their
job description. PCM's policy in this regard, is indeed more restrictive than that of
the industry at large.
12. Finding: Resident rates are provided to individuals who own property in the City but do not
reside within the City
Golf club members were offered the lesser City residents' rate if they showed proof that they
either resided, owned property or operated a business in Miami Beach. Inquiries with Parks
& Recreation Department management found that they authorized PCM to allow these other
individuals to pay the reduced rates based on City Code Section 2-22(4) which specifies
general requirements for Agencies Boards and Committees to include residents or
individuals with business established in the City to be members of agencies, boards and
committees. However, this similar interpretation is not consistent to criteria applied at such
other Parks & Recreation Department facilities as Flamingo Park Pool, Normandy Shores
Tennis Center, etc.
Recommendation(s):
The intent of the City Commission in creating the resident rate and exactly to whom it applies
should be discovered. Once learned it should be consistently and uniformly enforced at all
City owned facilities.
Management Response:
In the next fiscal year, the Parks and Recreation Department will pursue a clearer
interpretation and intent from the City Commission regarding resident rates, not just as it
relates to Golf fees, but also as it may relate to all other Recreational activities. This may
further impact any other City fees in which Residents get preferential rates.
13. Finding: Large Balances Maintained in the Golf Courses Bank Accounts
MBGC's Sun Trust checking account numbered 1000000859073 had a February 2010
reconciled balance of $13,078,109.05. This account's monthly balance has been continually
increasing as MBGC's annual debt service contribution of approximately $810,000 is paid
from another City bank account and annual golf course revenues have been exceeding
PCM's expenditures. Similarly, NSGC's February 2010 bank account balance also has been
increasing monthly and equaled $753,700.92.
The Finance Department's Expenditure/Treasury Manager stated that overnight sweeps are
no longer performed of the City's bank accounts to try and earn higher interest rates.
Instead, these monies have remained in MBGC's general depository account currently
earning an annual percentage yield of 0.25% which is the same as the City's pooled cash
account. Meanwhile, NSGC's February 2010 bank balance earns interest at a .04% annual
percentage yield. The City's Expenditures/Treasury Manager lowered MBGC and NSGC's
accounts on June 8, 2010 by transferring $10,837,405.95 and $549,188.59 respectively into
the City's general depository account.
Page 17 of 18
Internal Audit Report
Professional Course Management II, Ltd. Management and Concession Agreements Audit
(Miami Beach and Normandy Shores Golf Clubs)
October 15, 2010
Recommendation(s):
Internal Audit believes that MBGC's annual debt service payments should be paid through
the above Sun Trust checking account to consolidate all golf course monetary transactions.
However, NSGC's relatively small balance and current unprofitable status prevents it from
following suit. Going forward, the Finance Department should periodically monitor the golf
courses' bank balances to determine if they exceed pre-determined thresholds necessary to
fund operations. If excess monies are deemed available, they should be promptly
transferred to the City's general depository account.
Management Response:
Parks & Recreation Department
Effective immediately, the Parks and Recreation Department will occasionally confirm with
the City's Finance Department that any and all balances are moved out of this account to
any account the Finance Department deems appropriate. By doing so, the City will always
maintain a minimum balance in this account in order to operate and efficiently pay for
monthly expenses as needed.
Finance Department
Both Golf Courses' bank accounts are interest bearing accounts held as part of the group of
accounts the City has at Sun Trust. Periodically, the Finance Department verifies the cash
balances in these two Golf Courses' bank accounts and transfers any excess cash over to
the City's General Depository Account. Currently, the City leaves $500,000 in the Miami
Beach Golf Course bank account and $200,000 in the Normandy Shores Bank account for
monthly operating purposes. In the future, these threshold amounts may be adjusted up or
down based on the golf courses monthly operating needs. Since the City will only leave in
these accounts a certain amount of cash for their monthly operations, the debt service
payments for the Golf Courses will be paid from the excess funds transferred over to the
City's General Depository account.
EXIT CONFERENCE
An exit conference was held on August 12, 2010 in the Office of Budget and Performance
Improvement between Kevin Smith (Parks & Recreation Director), Julio Magrisso (Assistant
Director-Parks & Recreation), Carlos Da Cruz (Office Associate V), Alberto Pozzi (PCM General
Manager), Steven Farrell (PCM Director of Golf), James Sutter (Internal Auditor) and Mark Coolidge
(Senior Auditor). Management responses were prepared by the Parks & Recreation in conjunction
with PCM and included above. All parties were in agreement as to the contents of this report.
JJS:MC:mc
Audit performed by Mark Coolidge
cc: Hilda Fernandez, Assistant City Manager
Kevin Smith, Parks & Recreation Director
Patricia Walker, Chief Financial Officer
Gregory Tindle, Code Compliance Division Director
Alberto Pozzi, General Manager, Professional Course Management
F:\obpii$AUD\INTERNAL AUDIT FILESIDOC09-10\REPORTS-FINALIGOLF CLUBS MGmt Agreements.doc
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