Loading...
HomeMy WebLinkAboutS2-City Administrator CITY OF SAN BERNARDINO - REQUEST FOR COUNCIL ACTION Date: February 27, 2003 I V... , . .. ',L Subject: Independent Accountants' Report evaluating San Bernardino Stampede compliance with the Stadium Lease Agreement for the year ended September 30, 2002 From: Fred Wilson, City Administrator Dept: City Administrator's Office Synopsis of Previous Council Action: Recommended motion: That this matter be referred to the Ways and Means Committee. Contact person: Lori Sassoon Phone: 384-5122 Supporting data attached: Staff report, auditor's report Ward: 2 FUNDING REQUIREMENTS: Amount: None Source: (Accl. No.) (Accl. Description) Finance: Council Notes: Agenda Item No. ~ ~ 3/3/D3 STAFF REPORT Subiect: Independent Accountants' Report evaluating San Bernardino Stampede compliance with the Stadium Lease Agreement for the year ended September 30, 2002 Backl!round: When the San Bernardino Stadium was constructed in 1996, the City entered into a Lease Agreement with the San Bernardino Stampede, Inc., for their use of the stadium. Among other provisions, the Agreement established rent provisions that include: -.J Payment of base rent of $10,000 per month for the five (5) months of the baseball season; -.J Payment of additional rent based on the Stampede's gross revenues, minus certain adjustments. Additional rent begins at 6% of gross revenues exceeding $1 million, with the percentage increasing as revenues are higher; -.J Payment of 20% of gross non-baseball concession revenues; -.J Payment of 50% of the costs of two (2) groundskeepers on a year-round basis; -.J Payment of 50% of net parking revenues The base rent amounts are paid to the City during the baseball season; all additional payments are due by December 31 of each year. In addition, the Lease Amendment approved by the Mayor and Council in January 2002 allows the team to manage and market the Stadium for non-baseball events on a year-round basis. That amendment allows the Team to retain all non-baseball revenues, and requires the Team to be responsible for all Stadium electricity costs. The City is then required to annually reimburse the team for 50% of net electricity costs, after applying a formula that factors in non-baseball revenue and a $40,000 marketing credit. The Amendment requires that these calculations be made annually following the end of the team's fiscal year on September 30. The City contracted with our auditor, Conrad and Associates, to evaluate the Stampede's compliance with the Lease Agreement. Similar reviews have been conducted in prior years by our auditors (including the previous auditing firm, RAMS) in reports dated May 3,1998; January 14,2000; and March 14,2001. This review raises certain issues for discussion and review with the Stampede. The review concludes that the Stampede underca1culated the additional rent to the City by approximately $141,800. Also, the auditor's report raises issues regarding the Stampede's internal cash controls; these same issues were raised in previous reports. A copy ofthe report is attached for your review. In addition to the auditor's report, there remain several outstanding issues for resolution with the team. One key issue is the payment of the electricity bill, which the City has continued to pay since the January 2002 lease amendment. Although, the team has acknowledged their responsibility to pay this bill, they have recently solicited proposals to add a new meter which they indicate will save on electricity. They have approached the City about cost sharing the upgrade. The City has also incurred costs for non-baseball events that should have been paid for by the team in accordance with the amendment. From the team's perspective, there is an issue concerning the sharing of security costs that needs to be resolved. Staff has begun discussions with team representatives regarding these issues. Given the Council's concerns regarding this matter, staff is recommending that this matter be referred to the Ways and Means Committee. Recommendation: It is recommended that the Mayor and Council refer this matter to the Ways and Means Committee. CONRAD AND ASSOCIATES, L.L.P. CERTIFIED PUBLIC ACCOUNTANTS 1100 MAIN STREET, SUITE C IRVINE, CALIFORNIA 92614 (949) 474.2020 Fax (949) 263.5520 February 7,2003 Ten Baker, Administration City of San Bernardino 300 North "D" Street San Bernardino, CA 92418 Dear Ten: Enclosed please find one (1) copy of the draft Independent Accountant's Report on Applying Agreed- Upon Procedures in regard to a Lease Agreement with the San Bernardino Stampede. These procedures were performed for the fiscal year ended September 30, 2002. This is a draft report and is subject to change. We can incorporate any changes or modifications that you may have, There are some issues for which we are waiting for clarification from the City and Stampede. The resolution of those items may change the report. We will finalize the report upon receiving the City's approval. Should you have any questions please give me a call 949.474.2020, ext. 277. Very truly yours, CONRAD AND ASSOCIATES, L.L.P. ~U~ Dean A. Votava, C.P.A. Senior Manager Enclosure \ MEMBERS OF AICPA ANO CALIFORNIA SOCIElY OF CERTIFIED PUBLIC ACCOUNTANTS MEMBER OF AMERICAN INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS PRIVATE COMPANIES PRACTICE SECTION CONRAD AND ASSOCIATES, L.L.P. CERTIFIED PUBLIC ACCOUNTANTS 1100 MAIN STREET, SUITE C IRVINE, CALIFORNIA 92614 (949) 474-2020 Fax (949) 263-5520 Mr. Fred Wilson, City Administrator City of San Bernardino San Bernardino, CA 92418 INDEPENDENT ACCOUNTANTS' REPORT ON APPLYING AGREED-UPON PROCEDURES We have performed the procedures enumerated below, which were agreed to by the City of San Bernardino (City), solely to assist City management in evaluating San Bernardino Stampede compliance with Section 4 of the Lease Agreement (dated June 18, 1996) between the City of San Bernardino and San Bernardino Stampede, Inc. for the year ended September 30, 2002. This engagement to apply agreed-upon procedures was performed in accordance with the standards established by the American Institute of Certified Public Accountants. The sufficiency of the procedures is solely the responsibility of the specified users of this report. Consequently, we make no representation regarding the sufficiency of the procedures described below either for the purpose for which this report has been requested or for any other purpose. SUMMARY OF RESULTS The procedures performed and the results of those procedures are identified below in detail. The following is a summary of the more significant items noted as a result of those procedures. a) In Stampede's calculation of gross revenue, net of deductions, there were $203, I 02 in deductions that did not appear to be deductible as outlined in the lease agreement. These items were for advertising costs, printing programs, promotional event expenses and certain deferred revenue items. b) In the lease payment calculation, Stampede included a deduction of $86,307.49 for security costs. This amount included security costs from 1996 through 2002. Of that amount only 11,728.18 pertained to the 2002 fiscal year. As a result, we lowered the deduction by $74,579.31. c) There is a clause in the lease agreement for the sharing of concession revenues for non-baseball events. It was determined that the City's share of this amount was $3,449.81, which had not been remitted to the City as of January 17, 2003. d) Stampede included an amount owed to the City for groundskeeper costs. The City and Stampede are to share in these costs. The actual groundskeeper costs paid by the City during the period under review was $90,908. As a result, half of that amount, $45,454, should have been reported as owed to the City for?'/3!/);) groundskeeper costs instead of $28,000. '-" L(..) I!.fpld Cel7J:2-/'J-r- /-rEfl? .5 -rJ - MEMBERS OF AICPA AND CALIFORNIA SOCIETY OF CERTIFIED PUBLIC Ar:r:nlll\JTA.MT<: Fred Wilson, City Administrator City of San Bernardino Page 2 of 12 e) In certain years, Stampede will include a deduction for "Prior Year Outstanding Receivables". However, this application is not consistent from year to year. A decision should be made regarding calculating gross revenues under the cash basis or according to GAAP. f) Testing of internal controls disclosed numerous issues regarding missing documents, reconciliation variances and incomplete records. Internal control issues have also been noted in prior years. g) The additional amount owed to the City as a result of performing these agreed upon procedures is summarized on Exhibit 2. Our procedures and findings are as follows: TESTING OF THE LEASE PAYMENT CALCULATION 1. We obtained a copy of the Lease Agreement, dated June 18, 1996 between the City of San Bernardino and San Bernardino Stampede, Inc. We read the agreement to determine those revenue categories to be included and excluded in the calculation of additional rent. We prepared a summary of the significant items within the lease agreement. As documented on the Lease Payment Calculation Form (Exhibit I), the total rent calculation is derived from various types of revenues and is composed of several sections. We specifically tested each section of the calculation for compliance with the lease agreement. We segregated the lease payment calculation into the following sections: . Gross Revenues, . Gross Revenue Rent Calculations, . Parking Payment, . Groundskeeper, . Naming Rights Sponsorship, and . Payments made to City During Year. Results: We found that the format used by San Bernardino Stampede, Inc. in preparing the lease payment calculation for the fiscal year ended September 30, 2002 was in accordance with the terms identified in the Lease Agreement. Gross Revenues 2. For the Gross Revenue section, we obtained a copy of Stampede's "Profit and Loss YTD" Schedule for the period October 2001 through September 2002 and compared the total gross revenue per the schedule to the actual gross revenue of $1,684,252 reported on the Lease Payment Calculation Form (Exhibit 1). For each of the additions and deductions reflected in the gross revenue section, we obtained support. The revenue and expense items were compared to the Profit and Loss YTD schedule and the deferred revenue additions and deductions to prior year's lease payment calculations. We also reviewed each item to ensure that it was being accounted for in accordance with the Lease Agreement. We then recalculated the Fred Wilson, City Administrator City of San Bernardino Page 3 of 12 section to determine if the reported "Gross Revenues per Lease" amount of $1,048,424 was mathematically correct. Results: We found that reported total gross revenue of $1,684,253 agreed to Stampede's "Profit and Loss YTD" Schedule for the period October 2001 through September 2002. The format used by San Bernardino Stampede, Inc. in preparing the lease payment calculation for the fiscal year ended September 30, 2002 was in accordance with the terms identified in the Lease Agreement. During our review of the deductions made to gross revenues on Exhibit I, we determined that the following deductions should not have been made: Advertising Costs Printing PrograrnlPocket Schedules Promo Item Production Promo Events 1999 Season Ticket Deferred Revenue 2000 Season Ticket Deferred Revenue Total $37,252 10,957 44,055 71,965 19,260 19.613 $203.102 All other items were properly recorded. As a result, the reported "Gross Revenues per Lease" is understated by $203, I 02 and should have been reported as $1,251,527. Our restated amount is summarized as follows: Gross revenues Less: Non-baseball events Less: Ticket back advertising Less: Advertising costs Less: Parking Less: Scoreboard advertising Less: Skybox revenue Less: 2002 outstanding receivables Less: RadiolMedia Advertising Less: Printing program/pocket schedules Less: Promo item production Less: Promo events Add: 200 I revenue paid in 2002 Add: 2002 season ticket deferred revenue Less: 1999 season ticket deferred revenue Less: 2000 season ticket deferred revenue Less: 2001 season ticket deferred revenue Gross revenue per lease agreement $1,684,253 (57,660) (6,500) o (68,005) (96,659) (117,812) (46,655) (40,100) o o o 14,801 13,793 o o (27.929) $1.251 527 Per the lease agreement, additional rent is to be paid if "net" gross revenues exceed $1,000,000. The effect of this adjustment does result in an increase to additional rent. This additional amount is calculated below in the Gross Revenue Rent Calculations section. We also noted that Stampede reduced reported gross revenue for outstanding receivables, whereby converting gross revenues to the cash basis. This has not Fred Wilson, City Administrator City of San Bernardino Page 4 of 12 been consistently over the years. It was reported as a deduction in the 2000 and 2002 calculations but not the 1999 or 2001 calculations. It appears that it is reflected as a deduction when gross revenue per lease is over $1,000,000. Stampede needs to be consistent in applying this deduction. We recommend that Stampede discontinue the practice of having a reduction for outstanding receivables and calculate gross revenues in accordance with generally accepted accounting principles. Gross Revenue Rent Calculation 3. We recalculated the information contained in the gross revenue rent calculation section of the Lease Payment Calculation Form. We compared the amounts reported for "6 Luxury Skyboxes" and "$10,000 per month April-Aug Rent" to the applicable sections of the lease agreement. Based upon the gross revenue percentages reflected in the lease agreement, we generated a revised gross revenue rent calculation from the adjustments noted during our gross revenue testing. Results: We found that the calculation performed on the original lease payment calculation was mathematically correct. The amounts reported for "6 Luxury Skyboxes" and "$10,000 per month April-Aug Rent" were in accordance with the applicable sections of the lease agreement. Our revised calculation for gross revenue rent is as follows: 6 Luxury Boxes (City Share) $10,000 per month April-Aug rent 6% gross revenues ($lm-$1.2m) 8% gross revenues ($1.2-$1.5m) Total $40,000 50,000 12,000 4.122 $106.122 Parking Payment 4. Per Section 4.04 of the Lease Agreement, parking revenue is not included in the definition of "gross revenues". Net parking revenues from baseball events is to be split equally between the City and San Bernardino Stampede, Inc. after deduction for San Bernardino Stampede, Inc.'s actual parking lot related expenses, including parking lot attendants and security. We recalculated the information contained in the Parking Payment section of the Lease Payment Calculation Form. We compared the amounts reported for "Gross revenue parking lot" and "Parking expenses" to the amounts reflected in the "Profit and Loss YTD" Schedule for the period October 2001 through September 2002. We also verified that the calculation (1/2 of net parking revenue) was in accordance with the applicable sections of the lease agreement. Results: No exceptions were noted as a result of our procedures. Groundskeeper 5. According to Section 5.04 of the agreement, "City and Tenant agree to equally provide funding for two groundskeepers, approved by both the City and Tenant, on a Fred Wilson, City Administrator City of San Bernardino Page 5 of12 full-time equivalent, year-round basis". Stampede determined that amount to be $28,000, which is owed to the City since the City covered the full cost of the groundskeepers. The $28,000 was calculated as follows: One groundskeeper for eight months 8 months x $3,500 x Yz Two groundskeepers for four months (May-Aug) 4 months x $7,000 x Y. $14,000 14,000 Total $28.000 Results: We found that the actual cost of groundskeepers for the year ended September 30, 2002 was $90,908. According to the agreement, the City and Stampede are to share in the costs of the groundskeepers. As a result, we have made an adjustment to increase the amount owed to the City for groundskeeper costs to $45,454, one-half of $90,908. Naming Rights Sponsorship 6. Stampede calculated the amount owed to the City as the result of an ACU (Arrowhead Credit Union) Naming Rights Sponsorship. Based on a contract with the City, Stampede determined that the amount owed to the City as a result of this sponsorship was $18,750. The annual contract amount is $25,000 and Stampede reflected 9/12ths of the calendar year amount. Results: No exceptions were noted as a result of our procedures. Amount Paid to City During Year/Security 7. The Amount Paid To City section of the lease calculation had two separate amounts' reducing the amount owed to the City; $50,000 for Amount Paid to the City During the Year and $83,307 for Security. We inquired about the basis for each reduction and obtained support for the two amounts. The support provided for the $83,307 in Security costs is included as Exhibit 3. Section 4.03 of the agreement states, in part, "In addition to any other sums payable by Tenant to City hereunder, Tenant shall pay to City by December 31 of each calendar year the ... Additional Rent". Based on the adjusted amounts per our review, we determined if the additional rent balance had been paid be December 31, 2002. Results: The $50,000 balance reported as Amount Paid to City was paid to the City in $10,000 installments between June 1,2002 and September 18,2002. The $83,307 reduction for Security was the City's portion of security costs from 1996 through 2002. Stampede provided a summary of these security costs which totaled $172,612.96. Stampede determined the City's share of these costs to be 50% ofthat number or $86,306.48. Only $11,728.18 of the City's share related to the 2002 fiscal year. As a result, we have made an adjustment to lower the Fred Wilson, City Administrator City of San Bernardino Page 6 ofl2 Security reduction from $86,306.48 to $11,728.18. The effect of this revision is summarized on Exhibit 2. We also noted that Stampede submitted a check to the City for Additional Rent by December 31, 2002, as required in the agreement. Total Due City of San Bernardino 8. We recalculated the amount owed to the City of San Bernardino as a result of the adjustments noted above. We reduced the amount of additional rent by the amount of rent paid during the fiscal year under review. Results: For a summary of the revised amount owed to the City of San Bernardino see Exhibit 2. USE OF EXTERNAL REPORTS AND TAX RETURNS 9. We requested a copy of San Bernardino Stampede Inc.' s tax return to compare to the revenue amounts reflected on the financial statements. Results: We were informed that the tax returns were not available at the time of our reVIew. 1 O. We inquired as to whether San Bernardino Stampede, Inc. has any externally prepared or reviewed financial statements, and if so, we would compare the revenue amounts on those financial statements to those reflected in the general ledger. Results: We were informed that were not any independently prepared financial statements. ADDENDUM - FALL BASEBALL LEAGUE 11. We obtained a copy of the Addendum to the Lease Agreement, dated August 2,1999, and summarized significant terms. The Addendum relates to the Fall Baseball League, which was conducted between September 15, 2001 and November 10,2001. San Bernardino Stampede, Inc. is to pay rent to the City the sum of $700 per game or a sum equal to 6% of gross revenues, excluding concession revenues, whichever is greater. We reviewed general ledger amounts to ensure that the Stampede was in compliance with the addendum. We recalculated the amount owed as rent under the Addendum. Results: We found that, per San Bernardino Stampede, Inc.'s general ledger, gross revenue under the Addendum period was approximately $15,000. During the term of the Addendum, there were 14 game days, per the general ledger, and San Bernardino Stampede, Inc. made three payments to the City totaling $10,500, which is in accordance with the addendum. Fred Wilson, City Administrator City of San Bernardino Page 7 of 12 GROSS CONCESSION REVENUES FOR NON-BASEBALL EVENTS 12. Section 4.05 of the lease agreement states that, "As to gross concession revenues paid to Tenant for non-baseball events, City shall be entitled to twenty (20%) thereof." Stampede contracts with Diamond Concessions, Inc. to provide concessions. Stampede maintains the books for Diamond Concessions, Inc., which is maintained separately from Stampede's general ledger. We obtained the "Transaction Detail by Account" for the "Non-Stampede Outside Events" revenue accounts reflected in Diamond's Concession's general ledger. This account detail was obtained for the 2001 and 2002 calendar years. From that information we summarized the non-baseball event concession revenue from October 1,2001. We then multiplied that sum by 20%, which is the City's share as outlined in the agreement. That amount was compared to any remittances made during the fiscal year. Results: We determined that the amount owed to the City under Section 4.05 of the agreement is $3,449.81. This was calculated as follows: Non-Stampede Outside Event Revenue: October 2001 - December 2001 January 2002 - September 2002 Total outside event revenue $ 6,700.96 10.548.11 $17,249.07 City's Percentage per agreement (20%) City's Share of Outside Event Revenue Amount Remitted to City Amount Owed to City for Outside Event Rev. 20% $3,449.81 0.00 $3.449.81 The amount that should have been remitted to the City totaled $3,449.81. No documentation was provided to substantiate that this amount was paid to the city. REVIEW OF INTERNAL CONTROLS 13. Since Lease rental payments are calculated from "gross revenues" of San Bernardino Stampede, Inc., we gained an understanding ofthe flow of transactions and collection procedures over revenue sources to determine if controls appear adequate to ensure that revenue transactions are properly recorded. Through meetings with appropriate personnel and review of San Bernardino Stampede, Inc.'s written revenue procedures, we ascertained the flow of information for the following revenue areas: Fred Wilson, City Administrator City of San Bernardino Page 8 of 12 Ticket Sales (approx. $512,000) Concessions Sales (approx. $239,000) Paraphernalia Sales (approx. $71,000) Advertising Sales (approx. $383,000) Parking Income (approx. $68,000) Other Income/Revenue (approx. $161,000) After we had documented our understanding of the controls in place over the above areas, we selected various days and requested the documentation supporting that day's receipts to determine if the controls in place were working as described. Results: From our review, we found that San Bernardino Stampede, Inc. generally has written procedures that if followed would help ensure that revenue transactions are properly recorded. However, we noted instances where the prescribed procedures were not being followed and supporting documents were not being prepared that should have explained certain variances noted between amounts recorded in the general ledger and that days cash receipt documents. Below we have identified the specific areas where the deficiencies were noted: Ticket Sales - We selected one day to test for Bonus Books (8/31) and two days to test for: Buy - Out Night Tickets (5/31, 7/31); Daily Gate Fees (7/31, 8/31); Group Sales (5/31, 8/31); Merchant Nights (6/28, 7/23); Partial Year Plan Season Ticket (5/31, 7/31); Picnic Area (6/30,8/31); and Season Ticket Revenue (7/31, 8/31). We requested copies of the documents supporting the samples selected and compared that support to the amounts recorded in the general ledger. We did not receive any support for the selected day(s) for: Bonus Books (8/31), Merchant Nights (6/28,7/23), Partial Year Plan Season Ticket (5/31, 7/31), Season Ticket Revenue (7/31, 8/31) It was noted that the ticket allocations for July and August 2002 for daily gate fees (7/31, 8/31) did not tie to the Monthly Ticket Allocation spreadsheets for July and August 2002. According to the general ledger, the July 2002 ticket allocation (7/31) was $71,779.85 and the August 2002 ticket allocation (8/31) was $44,029.99. The amounts shown of the Monthly Ticket Allocation spreadsheets for July and August 2002 were, $67,706.32 and $42,709, respectively. It was noted that the selected days for Group Sales (5/31, 8/31) and Picnic Area (6/30,8/31) did not tie to the San Bernardino Stampede, Inc. generated spreadsheet showing all the revenue generated from group sales for fiscal year ended September 30, 2002. Concessions Sales - Concession sales are paid to San Bernardino Stampede, Inc. from Diamond Concessions, based on revenues eamed and expenses incurred on game days. San Bernardino Stampede, Inc. actually compiles the financial information on behalf of Diamond Concessions, using QuickBooks. We selected five days to test the recording of Concession revenue (Concession Management Fees) (4/30, 5/31, 6/30, 7/31, 8/31). We requested copies of the documents supporting the samples selected and compared that support to the amounts recorded in the general ledger. Fred Wilson, City Administrator City of San Bernardino Page 9 ofl2 We did not receive any support for the selected days; therefore, testing of Concession revenue could not be performed. We recommend that San Bernardino Stampede, Inc. consider maintaining copies of the documents used to compile the Diamond Concessions monthly income statements. Maintaining these records, including original game day reports, will help substantiate concession sales applied under the terms in the Lease Agreement. Paraphernalia Sales - We selected six days to test the recording of Souvenir revenue (3/28, 4/19, 4/30, 5/3, 5/24, 7/3). We requested copies of the documents supporting the samples selected and compared that support to the amounts recorded in the general ledger. We obtained the deposit summary for each of the selected days and ensured the amount on the deposit summary tied to the deposit ticket for the day. We then traced the souvenir revenue stated on the deposit summary to the Stampede Baseball Summary Sheet, and then to the Merchandise Summary Sheet prepared that day. For one of the selected days (4/19), souvenir revenue consisted of souvenir revenue and miscellaneous revenue. The souvenir and miscellaneous revenue stated on the Stampede Baseball Summary Sheet tied to their corresponding Summary Sheets prepared for that day. It was noted that two of the selected days (3/28, 5/3), miscellaneous revenue was classified as souvenir revenue as well, on the Deposit Summary. It was noted that one of the selected days (5/24), the beginning bank amount was $300; however, the amount subtracted (less beginning bank) to derive the total sales, was $400. For one of the selected days (7/3), were missing deposit tickets and the beginning bank amount on the Merchandise Summary Sheet prepared for that day was left blank. The following selected days (4/30, 5/3, 5/24), had deposit summaries that showed they were short, $4.24, $50, and $21.90, respectively. We recommend that the San Bernardino Stampede, Inc. ensure that daily cash receipt entries are supported by source documentation and that the source documentation supports the amounts recorded in the general ledger. We also recommend that reconciliations be prepared and retained to explain variances noted between the source documents and the amounts actually collected. Advertising Sales - We selected five days to test the recording of Advertising revenue in the following categories: Fence Sign Advertising (4/30, 5/31, 6/30, 7/31,8/31); Program Advertising (4/30,5/31,6/30,7/31,8/31); Ticket Back Advertising (4/30, 5/31, 6/30, 7/31, 8/31); and Scoreboard Signage (4/30, 5/31, 6/30, 7/31, 8/31). We requested copies of the documents supporting those sales and compared that support to the amounts recorded in the general ledger. We noted that the San Bernardino Stampede, Inc. entered into Advertising contracts throughout the year prior to the beginning of the season. This Fred Wilson, City Administrator City of San Bernardino Page 10 of12 revenue is recorded as deferred revenue and allocated evenly over the five months of the regular season. The selected days (to test) pertain to the monthly-deferred revenue allocations (April through August) for the four advertising revenue centers. We tested the monthly-deferred revenue allocations that corresponded to the days we selected to test, by tracing the amounts to the 2002 Corporate Advertising Allocation spreadsheet, which is prepared by San Bernardino Stampede, Inc. We noted that the five days to test for Fence Sign Advertising (4/30, 5/31, 6/30, 7/31, 8/31) did not tie to the 2002 Corporate Advertising Allocation spreadsheet. According to the general ledger, Fence Sign Advertising monthly-deferred revenue allocations were $46,852; however, the 2002 Corporate Advertising Allocation spreadsheet shows the allocations were $48,452. This is not considered a significant variance. Parking Income - We selected twelve days to test the recording of Parking revenue (4/19, 4/30, 5/3, 5/4, 5/17, 5/18, 6/21, 6/22, 7/3, 8/9, 8/11, 917). We requested copies of the documents supporting those days' receipts and compared that support to the amounts recorded in the general ledger. We obtained the deposit summary for each of the selected days and ensured the amount on the deposit summary tied to the deposit ticket for the day. We then traced the parking revenue stated on the deposit summary to the Stampede Baseball Summary Sheet, and then to the Parking Summary Sheet prepared for that day. We did not receive any support for the VIP Parking Allocation for the month of April (4/30). It was noted that the selected days (6/21, 6/22, 7/3, 917), were missing deposit tickets. It was noted that the selected days (4/19, 4/30,5/17, 6/21, 6/22, 7/3, 8/9, 8/11, 917) had parking revenue amounts that were not evenly divisible by $2, which is the cost of a parking ticket. Two of the selected days (5/3, 6/22), had deposit summaries that showed they were short $50 and $27, respectively. We recommend that the San Bernardino Stampede, Inc. ensure that daily cash receipt entries are supported by source documentation and that the source documentation supports the amounts recorded in the general ledger. We also recommend that reconciliations be prepared and retained to explain variances noted between the source documents and the amounts actually collected. OTHER PROCEDURES 14. In order to ensure that amounts of revenue are not being recorded in other accounts of San Bernardino Stampede, Inc. (general ledger assets, liabilities and equity), procedures were performed to review accounting documents for unusual transactions In association with the testing discussed above, we reviewed the revenue accounts detail for unusual debit entries. We also obtained and reviewed the General Ledger summary and detail for certain asset accounts for unusual credit entries in search of any unrecognized revenue amounts. We obtained explanations for unusual items noted. Fred Wilson, City Administrator City of San Bernardino Page 11 of 12 Results: We noted one accounts receivable account on the balance sheet with a substantial credit balance as of September 30, 2002. This account receivable is classified as an AIR-PMT Clearing, and is used to record contract receivables not due in the current month. This is done so that accounts classified as AIR- Customers only reflects receivables due within 30 days. When the contract is signed, the full value of the contract is booked as Deferred Revenue and AIR- PMT Clearing, while a portion is reclassified to AIR-Customers as it comes due. The balance sheet as of September 30, 2002, shows that the AIR-PMT Clearing account has a credit balance of$55,813.38. We recommend that San Bernardino Stampede, Inc. review its accounting for these types of transactions. 15. We obtained a copy of the prior Agreed Upon Procedures Report, dated March 14, 2001. That report contained various recommendations regarding internal control issues and reconciliation deficiencies. Those previously reported findings are summarized as follows: Internal Controls: Ticket Sales - We recommend that San Bernardino Stampede, Inc. ensure that daily cash receipt entries are supported by source documentation and that the source documentation supports the amounts recorded in the general ledger. Reconciliations may need to be prepared and retained to explain variances noted between the source documents and the amounts actually collected. Paraphernalia Sales - We recommend that San Bernardino Stampede, Inc. conduct (and retain) beginning and ending inventory counts in accordance with its written policy. We also recommend that San Bernardino Stampede, Inc. ensure that daily cash receipt entries are supported by source documentation and that the source documentation supports the amounts recorded in the general ledgc:;r. Reconciliations may need to be prepared and retained to explain variances noted between the source documents and the amounts actually collected. Parking Income - We recommend parking slips be completed by a manager specifying the exact number of tickets sold per attendant. These parking slips need to be reconciled to the cash received on a daily basis, in accordance with written procedures. Advertising and Skybox Rental Contracts - We recommend that the Stampede clearly specify revenue amounts by line item on the contracts prior to them being signed, and also maintain copies of the signed contracts. Diamond Concessions Recordkeeping - We recommend that San Bernardino Stampede, Inc. consider maintaining copies of the documents used to compile the Diamond Concessions monthly income statements. Maintaining these records, including original game day reports, will help substantiate concession sales applied under the terms in the Lease Agreement. Other Procedures: Fred Wilson, City Administrator City of San Bernardino Page 12 of 12 Entries to the AIR-Pmt Clearing Account - When a contract is signed, the full value of the contract is booked as "Deferred Revenue" and "AIR-Pmt Clearing", and a portion is reclassified to AIR-Customers as it becomes due. From this explanation, we believe that this account receivable account should not have a credit balance as of September 30, 2000. We recommend that San Bernardino Stampede, Inc. review its accounting for these types of transactions. We inquired with Stampede as to the current status of the comments identified in the Agreed-Upon Procedures Letter Dated March 14, 2001 and also compared those comments to the findings noted during the current year. Results: We found that the internal comments noted in the Agreed Upon Procedures Letter dated March 14, 2001 had not been adequately resolved. Similar conditions were noted while performing agreed upon procedures for the year ended September 30, 2002. * * * * * , We were not engaged to, and did not, perform an audit, the objective of which would be the expression of an opinion on the specified elements, accounts, or items. 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 use of the City of San Bernardino and should not be used by those who have not agreed to the procedures and taken responsibility for the sufficiency of the procedures for their purposes. However, this limitation is not meant to limit the distribution of this report which is a matter of public record. to"11/lA.J bd As~~,,;/i;/ LI.~ January 17, 2003 Exhibit 1 Stampede Professional Baseball City of San Bernardino Lease FYE: 9-30-02 Gross Revenue: $ 1,684,252.57 Less: Taxes Collected $ Less: Non Baseball Events $ (57,660.45) Less: Ticket Back Advertising $ (6,500.00) Less: Advertising Costs $ (37,252.61 ) Less: Trade outs $ - Less: Parking $ (68,003.97) Less: Program Sales $ Less: Scoreboard Advertising $ (96,659.00) Less: Sky Box Revenue $ (117,812.50) Less: 2002 Outstanding Receivables $ (46,654.07) Less: Radiol Media Advertising $ (40,100.00) Less: Printing Programl Pocket Schedules $ (10,956.56) Less: Promo Item Production $ (44,054.93) Less: Promo Events $ (71,965.41 ) Add: 2001 Revenue Paid in 2002 $ 14,800.92 Add: 2002 Season Ticket Deferred Revenue $ 13,792.50 Less: 1999 Season Ticket Deferred Revenue $ (19,259.99) Less: 2000 Season Ticket Deferred Revenue $ (19,613.48) Less: 2001 Season Ticket Deferred Revenue $ (27,929.00) Gross Revenues per lease $ 1,048,424.02 Gross Revenue Rent Calculations: 6 Luxury Skyboxes (City Share) $ 40,000.00 $10,000 per month April-Aug rent $ 50,000.00 6% Gross Revenues $1 m-$1.2m $ 2,905.44 8% Gross Revenues $1.2m-$1.5m $ 10% Gross Revenues $1.5m++ $ Rent Due City for FYE 9-30-02 $ 92,905.44 Parking Payment Gross Revenue Parking Lot $ 68,003.97. Less: Parking Expenses $ (8,461.25) Net Parking Revenue per Lease $ 59,542.72 Parking Payment due City (1/2 net) $ 29,771.36 Groundskeeper Per Agreement $ 28,000.00 ACU Naming Rights Sponsorship Contract Based on Calander Year (9/12th) $ 18,750.00 . 2002 Lease Payment, Cost and Revenue Sharing $ 169,426.80 Less: Amount paid to the City during Year $ (50,000.00) Less: Security $ (86,307.49) Total Due City of San Bernardino $ 33,119.31 'Funds placed In an Atloumey/Cllent Trust Account on 0110812003 Exhibit 2 Stampede Professional Baseball City of San Bernardino Lease Fiscal year ended September 30, 2002 Submitted by Per Stampede Review Gross Revenue: $ 1,684,252.57 $ 1,684,252.57 Less: Taxes collected Less: Non baseball events (57,660.45) (57,660.45) Less: Ticket back advertising (6,500.00) (6,500.00) Less: Advertising costs (37,252.61) Less: Trade outs Less: Parking (68,003.87) (68,003.87) Less: Program sales Less: Scoreboard advertising (96,659.00) (96,659.00) Less: Sky box revenue (117,812.50) (117,812.50) Less: 2002 outstanding receivables (46,654.07) (46,654.07) Less: Radio/media advertising (40,100.00) (40,100.00) Less: Printing program/pocket schedules (10,956.56) Less: Promo item production (44,054.93) Less: Promo events (71,965.41) Add: 2001 revenue paid in 2002 14,800.92 14,800.92 Add: 2002 season ticket deferred revenue 13,792.50 13,792.50 Less: 1999 season ticket deferred revenue (19,259.99) Less: 2000 season ticket deferred revenue (19,613.48) Less: 2001 season ticket deferred revenue (27,929.00) (27,929.00) Gross revenues per lease $ 1,048,424.12 1,251,527.10 Gross Revenue Rent Calculations: 6 luxury skyboxes (City share) $ 40,000.00 40,000.00 $10,000 per month April- Aug. rent 50,000.00 50,000.00 6% gross revenues Slm-SI.2m 48,424 2,905.44 200,000 12,000.00 8% gross revenues $1.2m-Sl.5m 51,527 4,122.00 10% gross revenues $1.5m Rent due City from FYE 9-30-02 92,905.44 ] 06,122.00 Parking Payment Gross revenue parking lot 68,003.97 68,003.97 Less: Parking expenses (8,461.25) (8,461.25) Net parking revenue per lease 59,542.72 59,542.72 Parking payment due City (]/2 net) 29,771.36 29,77].36 Groundskeeper Per agreement 28,000.00 45,454.00 ACU naming rights sponsorship Contract based on calendar year (9/12th) ]8,750.00 ]8,750.00 2002 lease payment, cost and revenue sharing $ ]69,426.80 $ 200,097.36 Less: Amount paid to the City during year (50,000.00) (50,000.00) Less: Security (86,307.49) (1I,728.18) Total due City of San Bernardino $ 33,119.31 $ ]38,369.]8 Concession Revenues for Non-Baseball Events Gross revenues ~ non-event concessions $ 17,249.07 Percentage to be remitted to City (20%) 20% City Share $ 3,449.81 Grand Total due City of San Beruardino $ ]41,818.99 "" .., '.... .0 '.... .0 ~ <IJ ill <IJ Z ill 0- X ill >- >- ~ :::J U ill <IJ ill o ill 0- ::;; <( >- <IJ o Z o ~ <( z ~ ill (!] Z <( <IJ -' f:! o I- lr...lrl'-OCllJ)M\ON\D\OCO-':: ~ ~ ~ lrl ~ rl \0 ~ ~ m ~ ~ ~ ~ 00 ~ ro ~ . N N rl ~ ~ ~ ~ m ~ ~ 0 \0 ~ a ~ ~ 3 ~ 00 ~ ~ ~ ~ NO........ .-, '" NO, .. 0'1' N W N r>) ..... ~ N ~ ~ " co " ... <I> '" <I> <I> N o o " "- '" "- '" co '" vlf'l IDO\D co cq ...... co Ll1 M .-t g cO ~ ~ ui cO ~~~~~~ rl N ":t M...t N N'" . <II <II ill- c '" ~ '" ... o o N a- ~ o N ... V o 0 III M .; r.: " III M ... o C N ... <II <II o ... 0 l.t'l ~ \D v 0\ ~ "- " " "- v M d" N 0 N <II o o o N v a- '" ... ... '" '" ex) II) ~ en 0 ~ ri N ~ Ll'I CO lI'l M o:i ~ LIi N 0\ f',. 'It ::i to O'l N 1Il... C'I en ~N..o~aiai ~ N .-I , ~ .fA- * '" '" '" '" ... '" ,. '" a- '" .... N C '" C III cO '" .., III '" '" ... ~ O'l .-l C ro N .... ":' ...... l"'! M ~ ~ Q'l N I.!i 0 N R .... ci f"') v CX) M en 1.0 M ~V..\DLn ...\DO') OM...... ... Pi' N ~ ~ ~ '1""1 ill- ill- ill- III '" '" ... III '" co co ~ ~ a- "1. N ... '" 0 1.D M N ,.. \0 1.0 0 N \0 III T"I U'I c::i r-.. I' . 0 ....: ..c: co 0 en M \D ~ " '" 0 ~ 0 ~ ~ l\j' N v ... v ai .; -':"'/ ~ ~ N 1"1 ill- ill- ill- " '" '" ... o C III '" III cO III co '" co N ,,' ... M O'l MOM \0 ~ M C! L/1 in "! \0 0 '" ~ N ... ~ fg ro ~ ~ ~ U1 V .. v ri ..0 _~ ~ = M 9"t ill- ill- ill- '- III '" '" ... o C III '" V ... o " o N N 1'\1' ... o l.Il U1 0 U\ co LI'! O'l ~ ~ 0\ 'It " loci 0 ...... cO 0\ ~ ~ co ~ M ..t M"N"\ON''ltM ,:;. ~=~C\ ill- ill- ill- Z,~,f,f~.t~ o I... l..; ~ L.; a..:: ::J I-( 0 :1 :l :) :) u t- ~ ~ ~ ,~ I~ cv 0- 0 VI VI v, v, Vl 5~.~,L~,~~ tn I... ~ ~ ~ ~ :g ~ ~ ~ ~ ~ ~ V) liJ ~ !!l ~ ~ ~ fl: '" ~ t:; ffi ::> -' irl ~ f.O ~ ~ o III U <: " :::J cl UJ UJ <: 0 > !:; ~ VI <.!l 0 II.. ~ z I:: .... C:: ~ u.. 0. 0 ::> f5 :::J f5 0 ::E~LJcoO:::~~ o - ~ tti ~ ~ co U~UjVlVla.(f o Z ... fa 0 G ~ ::> Z fa ffi Cl III ). Z Cl < ~ III 5 II.. <( 0 ~ ~ ..I '" U g ~ ~ ~ I- " < Q to II) b 'I ;;;) if) ... 0 III -J III " I', ii. .\ 11-' ...J L. ......_ " 1" \\ .., '" 2l \~1 it.,;. ~ 0> ro "- :;; '" ~ ~ ro .c c: <( ro >- ro G./,,, / If ( ,) , '}>? -.-/ CONRAD AND ASSOCIATES, L.L.P. Mr. Fred Wilson, City Administrator City of San Bernardino San Bernardino, CA 92418 CERTI F1HTPUBLlC ACCOUNTANTS (,"'';1' ",I;lllvOevCms Mtg: .3 3 1100 MAIN STREET; SUITEC . CALIFORNIA 92614 C. L /I, . .~ (949) 474.2020 bi._. ~ -.., ~ A Fax (949) 263.5520 re A4",,~a Item .> u ~d (!f,,~ City Clerk/COC Secy City of Sail Bernardino INDEPENDENT ACCOUNTANTS' REPORT ON APPLYING AGREED-UPON PROCEDURES We have performed the procedures enumerated below, which were agreed to by the City of San Bernardino (City), solely to assist City management in evaluating San Bernardino Stampede compliance with Section 4 of the Lease Agreement (dated June 18, 1996) between the City of San Bernardino and San Bernardino Stampede, Inc. for the year ended September 30, 2002. This engagement to apply agreed-upon procedures was performed in accordance with the standards established by the American Institute of Certified Public Accountants. The sufficiency of the procedures is solely the responsibility of the specified users of this report. Consequently, we make no representation regarding the sufficiency of the procedures described below either for the purpose for which this report has been requested or for any other purpose. SUMMARY OF RESULTS The procedures performed and the results of those procedures are identified below in detail. The following is a summary of the more significant items noted as a result of those procedures. a) In Stampede's calculation of gross revenue, net of deductions, there were $203,102 in deductions that did not appear to be deductible as outlined in the lease agreement. These items were for advertising costs, printing programs, promotional event expenses and certain deferred revenue items. b) In the lease payment calculation, Stampede included a deduction of $86,307.49 for security costs. This amount included security costs from 1996 through 2002. Of that amount only 11,728.18 pertained to the 2002 fiscal year. As a result, we lowered the deduction by $74,579.31. c) There is a clause in the lease agreement for the sharing of concession revenues for non-baseball events. It was determined that the City's share of this amount was $3,449.81, which had not been remitted to the City as of January 17, 2003. d) Stampede included an amount owed to the City for groundskeeper costs. The City and Stampede are to share in these costs. The actual groundskeeper costs paid by the City during the period under review was $90,908. As a result, half of that amount, $45,454, should have been reported as owed to the City for groundskeeper costs instead of $28,000. \ \ MEMBERS Of AICPA AND CALIfORNIA SOCIETY OF CERTIfiED PUBLIC ACCOUNTANTS MEMBER OF AMERICAN INSTITUTE Of CERTIFIED PUBLIC ACCOUNTANTS PRIVATE COMPANIES PRACTICE SECTION Fred Wilson, City Administrator City of San Bernardino Page 2 of 12 e) In certain years, Stampede will include a deduction for "Prior Year Outstanding Receivables". However, this application is not consistent from year to year. A decision should be made regarding calculating gross revenues under the cash basis or according to GAAP. f) Testing of internal controls disclosed numerous issues regarding missing documents, reconciliation variances and incomplete records. Internal control issues have also been noted in prior years. g) The additional amount owed to the City as a result of performing these agreed upon procedures is summarized on Exhibit 2. Our procedures and findings are as follows: TESTING OF THE LEASE PAYMENT CALCULATION I. We obtained a copy of the Lease Agreement, dated June 18, 1996 between the City of San Bernardino and San Bernardino Stampede, Inc. We read the agreement to determine those revenue categories to be included and excluded in the calculation of additional rent. We prepared a summary of the significant items within the lease agreement. As documented on the Lease Payment Calculation Form (Exhibit I), the total rent calculation is derived from various types of revenues and is composed of several sections. We specifically tested each section of the calculation for compliance with the lease agreement. We segregated the lease payment calculation into the following sections: . Gross Revenues, . Gross Revenue Rent Calculations, . Parking Payment, . Groundskeeper, . Naming Rights Sponsorship, and . Payments made to City During Year. Results: We found that the format used by San Bernardino Stampede, Inc. in preparing the lease payment calculation for the fiscal year ended September 30, 2002 was in accordance with the terms identified in the Lease Agreement. Gross Revenues 2. For the Gross Revenue section, we obtained a copy of Stampede's "Profit and Loss YTD" Schedule for the period October 2001 through September 2002 and compared the total gross revenue per the schedule to the actual gross revenue of $1,684,252 reported on the Lease Payment Calculation Form (Exhibit 1). For each of the additions and deductions reflected in the gross revenue section, we obtained support. The revenue and expense items were compared to the Profit and Loss YTD schedule and the deferred revenue additions and deductions to prior year's lease payment calculations. We also reviewed each item to ensure that it was being accounted for in accordance with the Lease Agreement. We then recalculated the Fred Wilson, City Administrator City of San Bernardino Page 3 ofl2 section to detennine if the reported "Gross Revenues per Lease" amount of $1,048,424 was mathematically correct. Results: We found that reported total gross revenue of $1,684,253 agreed to Stampede's "Profit and Loss YTD" Schedule for the period October 2001 through September 2002. The fonnat used by San Bernardino Stampede, Inc. in preparing the lease payment calculation for the fiscal year ended September 30, 2002 was in accordance with the tenns identified in the Lease Agreement. During our review of the deductions made to gross revenues on Exhibit 1, we determined that the following deductions should not have been made: Advertising Costs Printing Program/Pocket Schedules Promo Item Production Promo Events 1999 Season Ticket Deferred Revenue 2000 Season Ticket Deferred Revenue Total $37,252 10,957 44,055 71,965 19,260 19.613 $203.102 All other items were properly recorded. As a result, the reported "Gross Revenues per Lease" is understated by $203,102 and should have been reported as $1,251,527. Our restated amount is summarized as follows: Gross revenues Less: Non-baseball events Less: Ticket back advertising Less: Advertising costs Less: Parking Less: Scoreboard advertising Less: Skybox revenue Less: 2002 outstanding receivables Less: RadiolMedia Advertising Less: Printing program/pocket schedules Less: Promo item production Less: Promo events Add: 200 I revenue paid in 2002 Add: 2002 season ticket deferred revenue Less: 1999 season ticket deferred revenue Less: 2000 season ticket deferred revenue Less: 200 I season ticket deferred revenue Gross revenue per lease agreement $1,684,253 (57,660) (6,500) o (68,005) (96,659) (117,812) (46,655) (40,100) o o o 14,801 13,793 o o (27.929) $1.25\ 527 Per the lease agreement, additional rent is to be paid if "net" gross revenues exceed $1,000,000. The effect of this adjustment does result in an increase to additional rent. This additional amount is calculated below in the Gross Revenue Rent Calculations section. We also noted that Stampede reduced reported gross revenue for outstanding receivables, whereby converting gross revenues to the cash basis. This has not Fred Wilson, City Administrator City of San Bernardino Page 4 of 12 been consistently over the years. It was reported as a deduction in the 2000 and 2002 calculations but not the 1999 or 2001 calculations. It appears that it is reflected as a deduction when gross revenue per lease is over $1,000,000. Stampede needs to be consistent in applying this deduction. We recommend that Stampede discontinue the practice of having a reduction for outstanding receivables and calculate gross revenues in accordance with generally accepted accounting principles. Gross Revenue Rent Calculation 3. We recalculated the information contained in the gross revenue rent calculation section of the Lease Payment Calculation Form. We compared the amounts reported for "6 Luxury Skyboxes" and "$10,000 per month April-Aug Rent" to the applicable sections of the lease agreement. Based upon the gross revenue percentages reflected in the lease agreement, we generated a revised gross revenue rent calculation from the adjustments noted during our gross revenue testing. Results: We found that the calculation performed on the original lease payment calculation was mathematically correct. The amounts reported for "6 Luxury Skyboxes" and "$10,000 per month April-Aug Rent" were in accordance with the applicable sections of the lease agreement. Our revised calculation for gross revenue rent is as follows: 6 Luxury Boxes (City Share) $10,000 per month April-Aug rent 6% gross revenues ($lm-$1.2m) 8% gross revenues ($1.2-$1.5m) Total $40,000 50,000 12,000 4.122 $106.122 Parking Payment 4. Per Section 4.04 of the Lease Agreement, parking revenue is not included in the definition of "gross revenues". Net parking revenues from baseball events is to be split equally between the City and San Bernardino Stampede, Inc. after deduction for San Bernardino Stampede, Inc.'s actual parking lot related expenses, including parking lot attendants and security. We recalculated the information contained in the Parking Payment section of the Lease Payment Calculation Form. We compared the amounts reported for "Gross revenue parking lot" and "Parking expenses" to the amounts reflected in the "Profit and Loss YTD" Schedule for the period October 2001 through September 2002. We also verified that the calculation (1/2 of net parking revenue) was in accordance with the applicable sections of the lease agreement. Results: No exceptions were noted as a result of our procedures. Groundskeeper 5. According to Section 5.04 of the agreement, "City and Tenant agree to equally provide funding for two groundskeepers, approved by both the City and Tenant, on a Fred Wilson, City Administrator City of San Bernardino Page 5 of 12 full-time equivalent, year-round basis". Stampede determined that amount to be $28,000, which is owed to the City since the City covered the full cost of the groundskeepers. The $28,000 was calculated as follows: One groundskeeper for eight months 8 months x $3,500 x y, Two groundskeepers for four months (May-Aug) 4 months x $7,000 x Y2 $14,000 14.000 Total $28.000 Results: We found that the actual cost of groundskeepers for the year ended September 30, 2002 was $90,908. According to the agreement, the City and Stampede are to share in the costs of the groundskeepers. As a result, we have made an adjustment to increase the amount owed to the City for groundskeeper costs to $45,454, one-half of $90,908. Naming Rights Sponsorship 6. Stampede calculated the amount owed to the City as the result of an ACU (Arrowhead Credit Union) Naming Rights Sponsorship. Based on a contract with the City, Stampede determined that the amount owed to the City as a result of this sponsorship was $18,750. The annual contract amount is $25,000 and Stampede reflected 9/l2ths ofthe calendar year amount. Results: No exceptions were noted as a result of our procedures. Amount Paid to City During Year/Security 7. The Amount Paid To City section of the lease calculation had two separate amounts reducing the amount owed to the City; $50,000 for Amount Paid to the City During the Year and $83,307 for Security. We inquired about the basis for each reduction and obtained support for the two amounts. The support provided for the $83,307 in Security costs is included as Exhibit 3. Section 4.03 of the agreement states, in part, "In addition to any other sums payable by Tenant to City hereunder, Tenant shall pay to City by December 31 of each calendar year the ... Additional Rent". Based on the adjusted amounts per our review, we determined if the additional rent balance had been paid be December 31, 2002. Results: The $50,000 balance reported as Amount Paid to City was paid to the City in $10,000 installments between June 1,2002 and September 18, 2002. The $83,307 reduction for Security was the City's portion of security costs from 1996 through 2002. Stampede provided a summary of these security costs which totaled $172,612.96. Stampede determined the City's share of these costs to be 50% ofthat number or $86,306.48. Only $11,728.18 ofthe City's share related to the 2002 fiscal year. As a result, we have made an adjustment to lower the Fred Wilson, City Administrator City of San Bernardino Page 6 of 12 Security reduction from $86,306.48 to $11,728.18. The effect of this revision is summarized on Exhibit 2. We also noted that Stampede submitted a check to the City for Additional Rent by December 31, 2002, as required in the agreement. Total Due City of San Bernardino 8. We recalculated the amount owed to the City of San Bernardino as a result of the adjustments noted above. We reduced the amount of additional rent by the amount of rent paid during the fiscal year under review. Results: For a summary of the revised amount owed to the City of San Bernardino see Exhibit 2. USE OF EXTERNAL REPORTS AND TAX RETURNS 9 . We requested a copy of San Bernardino Stampede Inc.' s tax return to compare to the revenue amounts reflected on the financial statements. Results: We were informed that the tax returns were not available at the time of our review. 10. We inquired as to whether San Bernardino Stampede, Inc. has any externally prepared or reviewed financial statements, and if so, we would compare the revenue amounts on those financial statements to those reflected in the general ledger. Results: We were informed that were not any independently prepared fmancial statements. ADDENDUM - FALL BASEBALL LEAGUE II. We obtained a copy of the Addendum to the Lease Agreement, dated August 2,1999, and summarized significant terms. The Addendum relates to the Fall Baseball League, which was conducted between September 15, 2001 and November 10, 2001. San Bernardino Stampede, Inc. is to pay rent to the City the sum of $700 per game or a sum equal to 6% of gross revenues, excluding concession revenues, whichever is greater. We reviewed general ledger amounts to ensure that the Stampede was in compliance with the addendum. We recalculated the amount owed as rent under the Addendum. Results: We found that, per San Bernardino Stampede, Inc.'s general ledger, gross revenue under the Addendum period was approximately $15,000. During the term of the Addendum, there were 14 game days, per the general ledger, and San Bernardino Stampede, Inc. made three payments to the City totaling $10,500, which is in accordance with the addendum. Fred Wilson, City Administrator City of San Bernardino Page 7 of 12 GROSS CONCESSION REVENUES FOR NON-BASEBALL EVENTS 12. Section 4.05 of the lease agreement states that, "As to gross concession revenues paid to Tenant for non-baseball events, City shall be entitled to twenty (20%) thereof." Stampede contracts with Diamond Concessions, Inc. to provide concessions. Stampede maintains the books for Diamond Concessions, Inc., which is maintained separately from Stampede's general ledger. We obtained the "Transaction Detail by Account" for the "Non-Stampede Outside Events" revenue accounts reflected in Diamond's Concession's general ledger. This account detail was obtained for the 2001 and 2002 calendar years. From that information we summarized the non-baseball event concession revenue from October 1,2001. We then multiplied that sum by 20%, which is the City's share as outlined in the agreement. That amount was compared to any remittances made during the fiscal year. Results: We determined that the amount owed to the City under Section 4.05 of the agreement is $3,449.81. This was calculated as follows: Non-Stampede Outside Event Revenue: October 2001 - December 2001 January 2002 - September 2002 Total outside event revenue $ 6,700.96 10.548.11 $17,249.07 City's Percentage per agreement (20%) 20% City's Share of Outside Event Revenue $3,449.81 0.00 $3.449.81 Amount Remitted to City Amount Owed to City for Outside Event Rev. The amount that should have been remitted to the City totaled $3,449.81. No documentation was provided to substantiate that this amount was paid to the city. REVIEW OF INTERNAL CONTROLS 13. Since Lease rental payments are calculated from "gross revenues" of San Bernardino Stampede, Inc., we gained an understanding of the flow of transactions and collection procedures over revenue sources to determine if controls appear adequate to ensure that revenue transactions are properly recorded. Through meetings with appropriate personnel and review of San Bernardino Stampede, Inc.' s written revenue procedures, we ascertained the flow of information for the following revenue areas: Fred Wilson, City Administrator City of San Bernardino Page 8 of 12 Ticket Sales (approx. $512,000) Concessions Sales (approx. $239,000) Paraphernalia Sales (approx. $71,000) Advertising Sales (approx. $383,000) Parking Income (approx. $68,000) Other Income/Revenue (approx. $161,000) After we had documented our understanding of the controls in place over the above areas, we selected various days and requested the documentation supporting that day's receipts to determine if the controls in place were working as described. Results: From our review, we found that San Bernardino Stampede, Inc. generally has written procedures that if followed would help ensure that revenue transactions are properly recorded. However, we noted instances where the prescribed procedures were not being followed and supporting documents were not being prepared that should have explained certain variances noted between amounts recorded in the general ledger and that days cash receipt documents. Below we have identified the specific areas where the deficiencies were noted: Ticket Sales - We selected one day to test for Bonus Books (8/31) and two days to test for: Buy - Out Night Tickets (5/31, 7/31); Daily Gate Fees (7/31, 8/31); Group Sales (5/31, 8/31); Merchant Nights (6/28, 7/23); Partial Year Plan Season Ticket (5/31,7/31); Picnic Area (6/30,8/31); and Season Ticket Revenue (7/31, 8/31). We requested copies of the documents supporting the samples selected and compared that support to the amounts recorded in the general ledger. We did not receive any support for the selected day(s) for: Bonus Books (8/31), Merchant Nights (6/28,7/23), Partial Year Plan Season Ticket (5/31, 7/31), Season Ticket Revenue (7/31, 8/31) It was noted that the ticket allocations for July and August 2002 for daily gate fees (7/31, 8/31) did not tie to the Monthly Ticket Allocation spreadsheets for July and August 2002. According to the general ledger, the July 2002 ticket allocation (7/31) was $71,779.85 and the August 2002 ticket allocation (8/31) was $44,029.99. The amounts shown of the Monthly Ticket Allocation spreadsheets for July and August 2002 were, $67,706.32 and $42,709, respectively. It was noted that the selected days for Group Sales (5/31, 8/31) and Picnic Area (6/30,8/31) did not tie to the San Bernardino Stampede, Inc. generated spreadsheet showing all the revenue generated from group sales for fiscal year ended September 30, 2002. Concessions Sales - Concession sales are paid to San Bernardino Stampede, Inc. from Diamond Concessions, based on revenues earned and expenses incurred on game days. San Bernardino Stampede, Inc. actually compiles the financial information on behalf of Diamond Concessions, using QuickBooks. We selected five days to test the recording of Concession revenue (Concession Management Fees) (4/30, 5/31, 6/30, 7/31, 8/31). We requested copies of the documents supporting the samples selected and compared that support to t~e amounts recorded in the general ledger. Fred Wilson, City Administrator City of San Bernardino Page 9 of 12 We did not receive any support for the selected days; therefore, testing of Concession revenue could not be performed. We recommend that San Bernardino Stampede, Inc. consider maintaining copies of the documents used to compile the Diamond Concessions monthly income statements. Maintaining these records, including original game day reports, will help substantiate concession sales applied under the terms in the Lease Agreement. Paraphernalia Sales - We selected six days to test the recording of Souvenir revenue (3/28, 4/19, 4/30, 5/3, 5/24, 7/3). We requested copies of the documents supporting the samples selected and compared that support to the amounts recorded in the general ledger. We obtained the deposit summary for each of the selected days and ensured the amount on the deposit summary tied to the deposit ticket for the day. We then traced the souvenir revenue stated on the deposit summary to the Stampede Baseball Summary Sheet, and then to the Merchandise Summary Sheet prepared that day. For one of the selected days (4/19), souvenir revenue consisted of souvenir revenue and miscellaneous revenue. The souvenir and miscellaneous revenue stated on the Stampede Baseball Summary Sheet tied to their corresponding Summary Sheets prepared for that day. It was noted that two of the selected days (3/28, 5/3), miscellaneous revenue was classified as souvenir revenue as well, on the Deposit Summary. It was noted that one of the selected days (5/24), the beginning bank amount was $300; however, the amount subtracted (less beginning bank) to derive the total sales, was $400. For one ofthe selected days (7/3), were missing deposit tickets and the beginning bank amount on the Merchandise Summary Sheet prepared for that day was left blank. The following selected days (4/30, 5/3, 5/24), had deposit summaries that showed they were short, $4.24, $50, and $21.90, respectively. We recommend that the San Bernardino Stampede, Inc. ensure that daily cash receipt entries are supported by source documentation and that the source documentation supports the amounts recorded in the general ledger. We also recommend that reconciliations be prepared and retained to explain variances noted between the source documents and the amounts actually collected. Advertising Sales - We selected five days to test the recording of Advertising revenue in the following categories: Fence Sign Advertising (4/30,5/31,6/30, 7/31,8/31); Program Advertising (4/30,5/31,6/30,7/31,8/31); Ticket Back Advertising (4/30, 5/31, 6/30, 7/31, 8/31); and Scoreboard Signage (4/30, 5/31, 6/30, 7/31, 8/31). We requested copies of the documents supporting those sales and compared that support to the amounts recorded in the general ledger. We noted that the San Bernardino Stampede, Inc. entered into Advertising contracts throughout the year prior to the beginning of the season. This Fred Wilson, City Administrator City of San Bernardino Page 10 of 12 revenue is recorded as deferred revenue and allocated evenly over the five months of the regular season. The selected days (to test) pertain to the monthly-deferred revenue allocations (April through August) for the four advertising revenue centers. We tested the monthly-deferred revenue allocations that corresponded to the days we selected to test, by tracing the amounts to the 2002 Corporate Advertising Allocation spreadsheet, which is prepared by San Bernardino Stampede, Inc. We noted that the five days to test for Fence Sign Advertising (4/30, 5/31, 6/30, 7/31, 8/31) did not tie to the 2002 Corporate Advertising Allocation spreadsheet. According to the general ledger, Fence Sign Advertising monthly-deferred revenue allocations were $46,852; however, the 2002 Corporate Advertising Allocation spreadsheet shows the allocations were $48,452. This is not considered a significant variance. Parking Income - We selected twelve days to test the recording of Parking revenue (4/19, 4/30, 5/3, 5/4, 5/17, 5/18, 6/21, 6/22, 7/3, 8/9, 8/11, 9/7). We requested copies of the documents supporting those days' receipts and compared that support to the amounts recorded in the general ledger. We obtained the deposit summary for each of the selected days and ensured the amount on the deposit summary tied to the deposit ticket for the day. We then traced the parking revenue stated on the deposit summary to the Stampede Baseball Summary Sheet, and then to the Parking Summary Sheet prepared for that day. We did not receive any support for the VIP Parking Allocation for the month of April (4/30). It was noted that the selected days (6/21, 6/22, 7/3, 9/7), were missing deposit tickets. It was noted that the selected days (4/19, 4/30, 5/17, 6/21, 6/22, 7/3, 8/9, 8/11, 9/7) had parking revenue amounts that were not evenly divisible by $2, which is the cost of a parking ticket. Two of the selected days (5/3, 6/22), had deposit summaries that showed they were short $50 and $27, respectively. We recommend that the San Bernardino Stampede, Inc. ensure that daily cash receipt entries are supported by source documentation and that the source documentation supports the amounts recorded in the general ledger. We also recommend that reconciliations be prepared and retained to explain variances noted between the source documents and the amounts actually collected. OTHER PROCEDURES 14. In order to ensure that amounts of revenue are not being recorded in other accounts of San Bernardino Stampede, Inc. (general ledger assets, liabilities and equity), procedures were performed to review accounting documents for unusual transactions In association with the testing discussed above, we reviewed the revenue accounts detail for unusual debit entries. We also obtained and reviewed the General Ledger summary and detail for certain asset accounts for unusual credit entries in search of any unrecognized revenue amounts. We obtained explanations for unusual items noted. Fred Wilson, City Administrator City of San Bernardino Page 11 of 12 Results: We noted one accounts receivable account on the balance sheet with a substantial credit balance as of September 30, 2002. This account receivable is classified as an A/R-PMT Clearing, and is used to record contract receivables not due in the current month. This is done so that accounts classified as A/R- Customers only reflects receivables due within 30 days. When the contract is signed, the full value of the contract is booked as Deferred Revenue and A/R- PMT Clearing, while a portion is reclassified to A/R-Customers as it comes due. The balance sheet as of September 30, 2002, shows that the A/R-PMT Clearing account has a credit balance of$55,813.38. We recommend that San Bernardino Stampede, Inc. review its accounting for these types of transactions. 15. We obtained a copy of the prior Agreed Upon Procedures Report, dated March 14, 2001. That report contained various recommendations regarding internal control issues and reconciliation deficiencies. Those previously reported findings are summarized as follows: Internal Controls: Ticket Sales - We recommend that San Bernardino Stampede, Inc. ensure that daily cash receipt entries are supported by source documentation and that the source documentation supports the amounts recorded in the general ledger. Reconciliations may need to be prepared and retained to explain variances noted between the source documents and the amounts actually collected. Paraphernalia Sales - We recommend that San Bernardino Stampede, Inc. conduct (and retain) beginning and ending inventory counts in accordance with its written policy. We also recommend that San Bernardino Stampede, Inc. ensure that daily cash receipt entries are supported by source documentation and that the source documentation supports the amounts recorded in the general ledger. Reconciliations may need to be prepared and retained to explain variances noted between the source documents and the amounts actually collected. Parking Income - We recommend parking slips be completed by a manager specifYing the exact number of tickets sold per attendant. These parking slips need to be reconciled to the cash received on a daily basis, in accordance with written procedures. Advertising and Skybox Rental Contracts - We recommend that the Stampede clearly specify revenue amounts by line item on the contracts prior to them being signed, and also maintain copies of the signed contracts. Diamond Concessions Recordkeeping - We recommend that San Bernardino Stampede, Inc. consider maintaining copies of the documents used to compile the Diamond Concessions monthly income statements. Maintaining these records, including original game day reports, will help substantiate concession sales applied under the terms in the Lease Agreement. Other Procedures: Fred Wilson, City Administrator City of San Bernardino Page 12 of 12 Entries to the AIR-Pmt Clearing Account - When a contract is signed, the full value of the contract is booked as "Deferred Revenue" and "AIR-Pmt Clearing", and a portion is reclassified to AIR-Customers as it becomes due. From this explanation, we believe that this account receivable account should not have a credit balance as of September 30, 2000. We recommend that San Bernardino Stampede, Inc. review its accounting for these types of transactions. We inquired with Stampede as to the current status of the comments identified in the Agreed-Upon Procedures Letter Dated March 14, 2001 and also compared those comments to the findings noted during the current year. Results: We found that the internal comments noted in the Agreed Upon Procedures Letter dated March 14, 2001 had not been adequately resolved. Similar conditions were noted while performing agreed upon procedures for the year ended September 30, 2002. * * * * * \ We were not engaged to, and did not, perform an audit, the objective of which would be the expression of an opinion on the specified elements, accounts, or items. 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 use of the City of San Bernardino and should not be used by those who have not agreed to the procedures and taken responsibility for the sufficiency of the procedures for their purposes. However, this limitation is not meant to limit the distribution of this report which is a matter of public record. toM-4 / bid' As-;~.i1L;/ L/.,p. January 17, 2003 Exhibit 1 Stampede Professional Baseball City of San Bernardino Lease FYE: 9-30-02 Gross Revenue: $ 1,684,252.57 Less: Taxes Collected $ Less: Non Baseball Events $ (57,660.45) Less: Ticket Back Advertising $ (6,500.00) Less: Advertising Costs $ (37,252.61 ) Less: Trade outs $ Less: Parking $ (68,003.97) Less: Program Sales $ Less: Scoreboard Advertising $ (96,659.00) Less: Sky Box Revenue $ (117,812.50) Less: 2002 Outstanding Receivables $ (46,654.07) Less: Radiol Media Advertising $ (40,100.00) Less: Printing Programl Pocket Schedules $ (10,956.56) Less: Promo Item Production $ (44,054.93) Less: Promo Events $ (71,965.41 ) Add: 2001 Revenue Paid in 2002 $ 14,800.92 Add: 2002 Season Ticket Deferred Revenue $ 13,792.50 Less: 1999 Season Ticket Deferred Revenue $ (19,259.99) Less: 2000 Season Ticket Deferred Revenue $ (19,613.48) Less: 2001 Season Ticket Deferred Revenue $ (27,929.00) Gross Revenues per lease $ 1,048,424.02 Gross Revenue Rent Calculations: 6 Luxury Skyboxes (City Share) $ 40,000.00 $10,000 per month April-Aug rent $ 50,000.00 6% Gross Revenues $1m-$1.2m $ 2,905.44 8% Gross Revenues $1.2m-$1.5m $ 10% Gross Revenues $1.5m++ $ Rent Due City for FYE 9-30-02 $ 92,905.44 Parking Payment Gross Revenue Parking Lot $ 68,003.97. Less: Parking Expenses $ (8,461.25) Net Parking Revenue per Lease $ 59,542.72 Parking Payment due City (1/2 net) $ 29,771.36 Groundskeeper Per Agreement $ 28,000.00 ACU Naming Rights Sponsorship Contract Based on Calander Year (9/12th) $ 18,750.00 . 2002 Lease Payment, Cost and Revenue Sharing $ 169,426.80 Less: Amount paid to the City during Year $ (50,000.00) Less: Security $ (86,307.49) Total Due City of San Bernardino $ 33,119.31 'Funds placed In an Atloumey/Cllent Trust Account on 01/0812003 Exhibit 2 Stampede Professional Baseball City of San Bernardino Lease Fiscal year ended September 30, 2002 Submitted by Per Stampede Review Gross Revenue: $ 1,684,252.57 $ 1,684,252.57 Less: Taxes collected Less: Non baseball events (57,660.45) (57,660.45) Less: Ticket back advertising (6,500.00) (6,500.00) Less: Advertising costs (37,252.61) Less: Trade outs Less: Parking (68,003.87) (68,003.87) Less: Program sales Less: Scoreboard advertising (96,659.00) (96,659.00) Less: Sky box revenue (117,812.50) (117,812.50) Less: 2002 outstanding receivables (46,654.07) (46,654.07) Less: Radio/media advertising (40,\ 00.00) (40,100.00) Less: Printing program/pocket schedules (10,956.56) Less: Promo item production (44,054.93) Less: Promo events (71,965.41) Add: 2001 revenue paid in 2002 14,800.92 14,800.92 Add: 2002 season ticket deferred revenue 13,792.50 13,792.50 Less: 1999 season ticket deferred revenue (19,259.99) Less: 2000 season ticket deferred revenue (19,613.48) Less: 2001 season ticket deferred revenue (27,929.00) (27,929.00) Gross revenues per lease $ 1,048,424.12 1,251,527.10 Gross Revenue Rent Calculations: 6 luxury skyboxes (City share) $ 40,000.00 40,000.00 $10,000 per month April- Aug. rent 50,000.00 50,000.00 6% gross revenues $lm-SI.2m 48,424 2,905.44 200,000 12,000.00 8% gross revenues $1.2m-S 105m 51,527 4,122.00 10% gross revenues $1.5m Rent due City from FYE 9-30-02 92,905.44 106,122.00 Parking Payment Gross revenue parking lot 68,003.97 68,003.9'( Less: Parking expenses (8,461.25) (8,461.25) Net parking revenue per lease 59,542.72 59,542.72 Parking payment due City (1/2 net) 29,771.36 29,771.36 Groundskeeper Per agreement 28,000.00 45,454.00 ACU naming rights sponsorship Contract based on calendar year (9112th) 18,750.00 18,750.00 2002 lease payment, cost and revenue sharing $ 169,426.80 $ 200,097.36 Less: Amount paid to the City during year (50,000.00) (50,000.00) Less: Security (86,307.49) (11,728.18) Total due City of San Bernardino $ 33,119.31 $ 138,369.18 Concession Revenues for Non-Baseball Events Gross revenues - non-event concessions $ 17,249.07 Percentage to be remitted to City (20%) 20% City Share $ 3,449.81 '1 Grand Total due City of San Bernardino $ 141,818,99 ,/ "" .., ..... l> ..... .<:l ~ (/) w (/) z w "- x w >- >- 1i' :J U W (/) W o w "- ~ <l: >- (/) o z o '" <l: Z '" W ce Z <l: (/) " '" '" '" '" M '" N U; 10 ., ~ " '" '" .... ~ .o III "1 Cl\ ": en cO ri ~ oi cO In " ri -' ~ ". .o .... en en III 0 10 <l: '" '" .... 10 '" ~ '" ... en ... 0 I- N' C ",' oi' r..: N' III ",- \0 M 0 N N' .D l- N M .... N N :: ~ N .... ., N ... if> '" '" '" " '" V In \0 0 10 ., M '" '" ~ ., "1 M ... " , , ~ , 0 cO >i '" .,; ..; N .o 0 '" " 0 '" .o .o en M :e III N 0 M .o- N .... ... .... N ~ V ,.; ... ; N N ... .' '" '" '" en 0 ~ 0 0 0 "! , , , , "1 ": 10 , \0 M ... 0 v en >i >i r..: N " " 0 ~ " ... .... , .... ., 0 "" M- N M M ... N - Q Q Q N N ... '" '" '" .. ... \0 " '" III u; Cl\ 0 en \0 ... ~ N 10 III Cl) .,; , ri , , ui M ..; N iii ri 0 ~ \0 en " ... '" Cl) Cl\ 0 ~ .... N In - 0 M '" v' N ... ~ Ql Cl\ N ~ .D Ql at N ... :- '" '" ... ,. N '" ., en ~ 0 ., N ... M C ". ~ "1 M ": Cl) Cl\ '" cO , , ri .,; 0 N 0 ..i .,; Cl\ M '" '" V '" M " 10 M Cl\ In '" " V 10 IX? Cl\ 0 M III 10 Cl) ... M .... at ~ ,; M N N N ... '" ... ... '" '" "- 0 .o M N ... 10 '" ., \0 ~ "! 10 In ... III '" '" , , ci " " M 0 .,; ., ~ "- ~ 0 '" .o M Cl\ en '" " 0 .... 0 ... III Cl\ N ..;- '" N "" .... v- .... Cl) ... .... N ,.; ~ at .; '.f: ... N ... , ... .. '" 0 '" M en N 0 N \0 In '" .o M 0 In III N cO , , , .,; 0 ..i '" N ..i .... In In ., ... '" .... '" Cl) Cl\ Cl\ en ., ... In ., Cl\ N ".' In- ...- ., ...- Cl\ ... ... .... N ,; ~ N .D ..~ ... M ... ~ ... '" ... 0 '" 0 In III 0 III Cl) In en In en ., ~ Cl\ ... , , , " .,; .,; ~ ..; .,; ... .... 10 0 ". N 0 ., v M ... Cl\ ~ " '" In 10 N ... N Cl\ '" M N N ... N 0 ., at .... - ~ ,.: M ... , ... '" ... z g .~ c ~ ~ i:; 0 ;:: 0 ;:: " 'S " :J Z 0 a a a u H ~ H I- '" u ClJ a Q " " " " Vl 0- 0 Vl Vl Vl Vl ~ ~ H ::E g g g g E < 0: U E :J ::, Z III ~ :g ~ :g ~ '0 @ ~ w '" '" w Q <1 ~ ~ ~ ~ ~ a III Vl ~ >- z Cl < ~ i!! ~ iii III ~ g: 5 ... '" 0 ffi ::, <( ~ .J ~ I-' ~ ~ ~ H 0 Vl u ffi :J oJ U >- c<: ~ llJ <: 0 ~ !:; Vl (!) ~ w z u. ~ ~ ;) z i::: I- 5 u. 0 < 0 fJi fJi 0 I- < Q 0- ::> :r Vl ~ fJi '" 0 , Vl I- ~ ...... l!l "- III ill 0 . 0 - ::; ;:J 0 Vl fD llJ l- ce ... U 0- Vl Vl 0.. fJ III ..J III , r,) ..:: L. r,- ~~.:, " i.l '" t', e , 0 i", \'1 ~ ',,\ , '" , i ,;.;. " 0> '" "- :;; <I> ~ " '" '" c <l: '" >- '" t9./''' / I) C1:Y