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I I I I I I I I I I I I I I I I I I I SECTION 11- FINANCIAL STATEMENT FINDINGS AND RECOMMENDATIONS (CONTINUED) B. STATUS OF PRIOR YEAR FINDINGS (CONTINUED) Reportable Conditions No. 2005-2 - Cash Management CONDITION: 1) During 2005, the City implemented a new point of sale system at the golf course. With the implementation of the new system, the City was able to discover a fee arrangement with a Canadian company to bring Canadian golf players to play for $24 per round. The cashiers were instructed to charge a round fee of $18.69 plus a 7% sales tax totaling $20 and the remaining $4 were placed in an envelope for the Canadian company as a commission, The City found that this arrangement had been in place for three to four years and there were no records of the contract with the Canadian company being presented to the City's management or City Council for approval. (See finding 2005- 1). Therefore, the City never reported the $4 commission to the I RS, and the related transaction was never properly accounted for, 2) During 2005, the golf course's management company notified the City that it would deduct $2 from all tournament fees to be paid as gratuity to the staff working the tournament. This fee arrangement was not approved by City Council and since the City's finance department was not aware of this arrangement, the gratuities were never reported in the receiving employees W-2 statements. CAUSE: 1) A lack of internal control over the recording of revenues at the golf course. 2) A breach in communication between the actions of the golf course management company with the City's management and Council. EFFECT: The golf course management company violated the City's internal controls over cash management. The City is exposed to a potential tax liability because of the improper reporting of these transactions. RECOMMENDATION: We recommend that the City implement policies and procedures over all golf course operations to ensure compliance with all City, State, and federal requirements and ordinances. CURRENT YEAR STATUS/MANAGEMENT RESPONSE: The management company was terminated on February 28, 2006. The golf course operation became a City department and a new department head was hired to oversee the operation. All financial activities are performed and controlled by the City's finance department using the same policies, procedures, and controls in place for all City operations. A new point of sale computer system was installed to improve revenue collections and controls. This comment will not be repeated.