Revenue Generating Lease Audit: OC ANA OINT ARBOR ANA OINT

Professional Excellence, Quality, and Outreach

2009 Association of Certified Fraud Examiners’ Hubbard Award For the Most Outstanding Article of the Year

2008 Association of Local Government Auditors’ Bronze Website Award

2005 Institute of Internal Auditors’ Award for Recognition of Commitment to Professional Excellence, Quality, and Outreach

3333

RRIISSKK BBAASSEEDD AAUUDDIITTIINNGG

GAO & IIA Peer Review Compliant – 2001, 2004, 2007, 2010

American Institute of Certified Public Accountants Award to Dr. Peter Hughes as 2010 Outstanding CPA of the Year for Local Government

GRC (Government, Risk & Compliance) Group 2010 Award to IAD as MVP in Risk Management

Inte

rnal

Aud

it D

epar

tmen

t Revenue Generating Lease Audit:

OC DANA POINT HARBOR/DANA POINT SHIPYARD

For the PeriodNovember 1, 2011 through July 31, 2012

AUDIT NO: 1232REPORT DATE: JUNE 10, 2013

Director: Dr. Peter Hughes, CPA Senior Audit Manager: Alan Marcum, CPA, CIA

Senior Internal Auditor: Susan Nestor, CPA, CIA

Dana Point Shipyard (DPS) maintains and operates a complete marine-oriented boat repair yard, ship’s chandlery and do-it-yourself boat repair facility at Dana Point Harbor. Rent is paid based on a percentage of gross receipts. We audit the underlying books and records to ensure gross receipts are complete and rent is properly paid as defined by the lease agreement. During the nine-month audit period from November 1, 2011 through July 31, 2012, DPS reported approximately $1.5 million in gross receipts, including receipts of its sublessee Dana Point Jet Ski, and paid about $356,000 in rent to the County. Over its 35-year term, the lease and sublease agreements are estimated to generate approximately $16.6 million in rent to the County. The Internal Audit Department found that DPS’s records adequately supported reported gross receipts and rent owed was properly paid to the County, except we identified four (4) Control Findings related to the incomplete reporting of sublessee rent and fees; unreported contractor gross receipts; and the Statement of Profit and Loss was not reconciled to the Monthly Sales Report.

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Tab

ReveOC DAudi For tNove

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enue GeneDana Pointit No. 1232

he Period ember 1, 20

Transmitta

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OBJEC

RESUL

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ACKNO

Detailed Fi

Finding NoSublessee

Finding No

Finding NoMonthly Sa

ATTACHM ATTACHM

Conten

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2

11 through

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GROUND

E

OWLEDGEM

indings, Re

os. 1 and 2 –(Two Cont

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o. 4 – Statemales Report

ENT A: Re

ENT B: OC

nts

ase Audit:ana Point

July 31, 20

Report

MENT

ecommenda

– Unreporterol Findings

actor Gross

ment of Prot (Control Fi

port Item C

C Dana Poin

Shipyard

012

ations and M

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s Rceipts N

ofit and Lossinding)

Classificatio

nt Harbor Re

Managemen

nt and Fees

ot Reported

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Audi We haudit and dPoint ensurcomppropeby the Grossfrom tthe niperiodappromilliothe C$356,term to requpgrathe leagreeestimappromillioCoun The IDepaDPS’sadequreporand repropeCounidentiContto thereporand fecontraand tProfitreconSales

RevenuOC DanAudit N

OC

it Highlight

ave performedof certain reco

documents of DShipyard (DPS

re gross receipplete and rent iserly paid as defe lease agreem

s receipts genethe leases duriine-month audd were oximately $1.5 on and rent pai

County was abo,000. The leasis 35 years, su

quired lease ades. Over thisease and subleements are

mated to generaoximately $16.6on in rent to thety.

nternal Audit artment found ths records uately supporterted gross receent owed was erly paid to the ty, except we ified four (4) rol Findings re

e incomplete rting of subleasees; unreporteactor gross recthe Statement t and Loss wasnciled to the Mos Report.

ue Generating Leana Point Harbor No. 1232

C Intern

d an ords Dana S) to pts are s fined

ment.

erated ing it

id to out se bject

s term, ase

ate 6 e

hat

ed ipts

elated

se rent d

ceipts; of

s not onthly

ase Audit of Dana

nal Au

OBJECTIVWe have Point Shipunder a l(County) aAgreemenlocated at with Danaprovide saof related

(1) The precordCounty

(2) The scompli

In additionweakness RESULTSObjective receipts refour (4) rents/fees contractorreconciled

Objective provisions

Audit No.

TO: FROM: SUBJECT

Point Shipyard

ditor’s

VE performed

pyard for theease agree

and Dana Pnt is primaril

Dana Point a Point Jet Sales, serviceparts and ac

primary objes adequately.

secondary oies with certa

n, while pees for which

S #1: We fo

eported andControl Fireceived fro

r gross reced to the Mont

#2: We fos of the Agre

1232

Brad GroOC Dana

Dr. PeterInternal A

T: RevenueOC DanaHA78H-2

s Repo

an audit of period from

ement (AgrePoint Shipya

y for the opHarbor. In

Ski for the oe, rentals anccessories.

ective of ouy support th

objective of ain other fin

erforming theh we will iden

und that DPd rent owed ndings relaom its subleeipts; and ththly Sales R

ound that Deement.

oss, Directora Point Harb

r Hughes, CPAudit Depart

e Generatinga Point Harb24-2.02

ort

certain recom November eement) betrd (DPS), d

peration of thaddition, DP

operation of nd storage o

Our audit ob

ur audit is heir monthly

our audit isancial provis

e audit we ntify suggest

PS’s recordswas proper

ated to thessee, Dana

he StatemenReport.

DPS complie

or

PA, Directortment

g Lease Audor/Dana Poi

ords and do1, 2011 thro

tween the Cated Novemhe DPS fac

PS has entera jet ski an

of personal wbjectives we

to determingross recei

s to determsions of the

may identitions for imp

s adequatelrly paid, exce incomplete

Point Jet Sknt of Profit

ed with cert

r

it: int Shipyard

ocuments oough July 31County of O

mber 1, 2011ilities and sered into a sund kayak cewatercraft anere:

ne whether pts reported

mine whetheAgreement.

ify internal provement.

y supportedcept we indee reporting ki; non-repoand Loss w

tain other fi

June 1

,

Page 1

f Dana 1, 2012 Orange 1. The ervices

ublease enter to nd sale

DPS’s d to the

er DPS

control

d gross entified

of all rting of

was not

nancial

0, 2013

F

RevenuOC DanAudit N

OC

The recomRecoa des

inding No.

ClaSee

1.

Con

2. Con

3. Con

4. Con

BACThe Coperaorigininto asubleski aand sand is


C Intern

following Smmendationommendationscription of R

Finding assification - Attachment A

ntrol Finding

ntrol Finding

ntrol Finding

ntrol Finding

KGROUND County enteation of shipnal agreemea new leaseease agreemnd kayak cesale of relates currently o

ase Audit of Dana

nal Au

Summary os for this ns and ManReport Item C

A Findin

g DPS did ngross rece$47,673 tbase rent Dana Pointhe nine-mperiod.

g DPS did ngross rece$26,146 tadministrareceived fJet Ski dumonth au

g DPS doescompensacontractorperformedcustomerspremises to the Cou

g DPS doestheir monto the gen

ered into a 3pyard facilityent between e agreemen

ment with Daenter by proed parts andon a month-t

Point Shipyard

ditor’s

of Findings audit. Se

agement ReClassificatio

ng Description

not report as eipts totaling o the County freceived from

nt Jet Ski durimonth audit

not report as eipts totaling o the County fation fees from Dana Pouring the nine-dit period.

s not report ation receivedrs for work d for do-it-yous on the shipyas gross rece

unty. s not reconcilethly sales repo

neral Ledger.

30-year leasy and other

the Countynt with DPSana Point Jeoviding salesd accessorieto-month ter

s Repo

and Recoee further esponses seons.

n

for m ng

OC DPrents rgross rpay apon thesrecommDPS pCountyfrom Dperiod

for

int

OC DPfees regross rpay apon thesrecommDPS pCountyDPJS

d by

rself yard eipts

OC DPcompecontracfor do-the shireceipt

e ort

OC DPShipyaStatemthe Moreport receipt

se agreemenrelated serv

y and DPS w, dated Novet Ski dated s, service, rees. The sublem.

ort

ommendationdiscussion

ection of this

Recommend

PH require DPeceived from sreceipts to the

ppropriate percse receipts. Wmend that OCay rent of $9,5y on base rent

DPJS during th.

PH require DPeceived from sreceipts to the

ppropriate percse receipts. Wmend that OCay rent of $5,2y on fees receduring the aud

PH require DPensation receivctors for work it-yourself cusipyard premisets to the Coun

PH require Daard to reconcilement of Profit aonthly Sales Rthe appropriatts to the Coun

nt with DPSvices, locatewas terminavember 1, 2March 10,

entals and sease agreem

ns shows in the D

s report. See

dation

PS report all sublessee as

e County and centage rent We further C DPH require 535 to the t received

he audit

PS report all sublessee as e County and centage rent We further C DPH require 229 to the

eived from dit period.

PS report ved by performed

stomers on es as gross ty.

na Point e the and Loss to

Report and te gross ty.

, dated Juneed at Dana Pated when th2011. In ad1990 for thestorage of pment expired

our findingDetailed Fine Attachmen

AgreementManageme

Yes

Yes

Yes

Yes

e 29, 1982, Point Harbohe County eddition DPSe operation oersonal wat

d on June 30

Page 2

gs and ndings, nt A for

t by ent?

Page No. in Audit

Reportp.4

p.5

p. 5-6

p.6

for the r. The

entered has a of a jet tercraft, 0, 2012

t

RevenuOC DanAudit N

OC DurinDanareceiv SCOOur agrossaudit obsecomp We pprese ACKWe aShipyregarAlan AttacAttac Distri M M M P

Jo M

RH

B Je F S V


C Intern

ng the nine-ma Point Jet Sved approxim

PE audit was lims receipts reperiod from

rvation, andpleteness of

performed a ented in a se

NOWLEDGappreciate thyard, OC Darding our reMarcum, Se

chment A:chment B:

ibution Pursu

Members, BoMembers, AuMichael B. GPaul Lawrenconathon Bor

Mary FitzgeraRandi DunlapHoward ThomBetsy Estradaeanette Tyleoreperson, G

Susan NovakVavrinek, Trin

ase Audit of Dana

nal Au

month audit Ski generatemately $356

mited to cerported by D

m November d limited test

reported gro

separate leeparate repo

EMENT he courtesy ana Point Havenue gene

enior Audit M

Repo OC Da

uant to Audi

oard of Supeudit Oversighiancola, Couce, Managerrdeaux, Reaald, Directorp, Manager, mas, Senior a, Manager/er, Senior AcGrand Jury k, Clerk of thne, Day & C

Point Shipyard

ditor’s

period fromed approxim

6,000 in rent

rtain recordsana Point S1, 2011 throting for asseoss receipts

ease audit oort (Audit No

and cooperarbor and OCerating leaseManager at (

rt Item Claana Point

t Oversight

ervisors ht Committeeunty Executir, OC DPH/Lal Property O, OCPW/AdOCPW/AdmManager, O

/OCPW Accoccountant/O

he Board of So., LLP, Cou

s Repo

m Novembermately $1.5 .

s and documhipyard and

ough July 31essing the a.

of Dana Poin. 1233).

ration extendCPW Accoue audit, plea714) 834-41

assificationHarbor Re

Committee P

e ve Officer

Leasing & ReOfficer, OC Dministration

ministrative SOCPW/Accouounting CPW/Dana

Supervisorsunty Externa

ort

r 1, 2011 thrmillion in gr

ments that sd remitted to

, 2012. Ouradequacy of

nt Jet Ski an

ded to us byunting Servicase call me119.

ns sponses

Procedure N

evitalizationDPH/Real Es

Services unting

Point Accou

al Auditor

rough July 3ross receipt

support Danthe County

r audit includf documenta

nd the resu

y the personces. If you h

directly at

No. 1:

state

unting

31, 2012, DPts, and the

a Point Shipfor the nine

ded inquiry, ation and en

lts of the au

nnel at Danahave any que(714) 834-5

Page 3

PS and County

pyard’s -month auditor nsuring

udit are

a Point estions

5475 or

Revenue GOC Dana PAudit No.

DetailManag

FS

DthpsuaaDoare Lgod

LcoT Pa

F

reww

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Crepthpthve

Generating Lease Point Harbor 1232

ed Fingemen

Finding NoSublessee (

Dana Point She operationersonal watublease agrnd pays perpplies the C

DPS a monthn all percedministrationent.

ease Clauseross receiptperated by To-it-yourself

ease Clausonducting C

TENANT.”

Percentage rccordance w

Finding Noemitted base

which was nowas not paid

Recommendeceived froment on these9,535 (20% , 2011 throu

OC Dana PoConcur. Theeceived fromercentage re

he County $eriod, Novem

his letter anderify complia

Audit of Dana Po

ndingsnt Resp

os. 1 and (Two Contr

Shipyard (DPn of a jet ski tercraft, andeement, DPrcentage renCounty perchly base renntage rent n fees are n

e 12(G): Dets to includeTENANT or fers.

e 1: DefinitCOUNTY a

ent paid by with the leas

o. 1: We foe rent of $47ot reported bto the Coun

dation No. 1m sublesseese receipts. W

X $47,673) ugh July 31,

int Harbor Re attached lem their subent on these$9,535 (20%mber 1, 201d shall followance.

oint Shipyard

, Recoponses

2 - Unrerol Findings

PS) has a suand kayak c sale of rela

PJS reports int to DPS. Dentage to dnt and an adcategoriesot reported

efinition of Ge Gross Rec

TENANT P

tions defineapproved bu

DPJS for wae and suble

ound that fo7,673 to Daby DPS to t

nty.

1: We recos as gross reWe further re

for base ren2012.

Response:etter from Olessees as

e receipts. F% X $47,671 through J

w up with DP

ommens

ported Bas)

ublease agrecenter to proated parts ats monthly gDPS reportsetermine thdditional perper the subto the Coun

Gross Receiceipts of TENParties, on o

“Tenant Pausiness from

ater craft anase agreem

or the nine-na Point Shhe County a

ommend thaeceipts to thecommend tnt received f

OC Dana Pogross rece

Furthermore73) for baseuly 31, 2012PS within thi

ndation

ase Rent a

eement with ovide sales, and accessogross receipts the combine percentagrcentage renblease term

nty as gross

pts to be reNANT from

or from the P

arties” to inm the Prem

nd other rentments.

-month audiipyard, in acas gross rec

at OC DPH he County anthat OC DPHfrom DPJS f

int Harbor reeipts to the , OC Dana P

e rent receiv2. OC Danairty (30) day

ns and

and Fees

Dana Pointservice, renories. In acts from its b

ned receipts ge rent due.nt of 4.0% (

ms. The breceipts sub

eported [to thall operation

Premises wit

nclude “…anmises unde

tals is 20% o

it period, Daccordance wceipts. Rent

requires DPnd pay approH require DPfor the audit

equires DPSCounty an

Point Harborved from Da Point Harbys from the d

d

Received

Jet Ski (DPtals and sto

ccordance wusiness opeto the Coun

. DPJS alsadministratio

base rent abject to perc

he County] dns and busith the excep

ny party other or throug

of gross rece

ana Point Jwith their subt on these re

PS report aopriate percPS pay the t period, Nov

S to report ad pay apprr requires DPPJS, for theor will hand

date of this l

Page 4

from

PJS) for rage of

with the erations nty and o pays on fee)

and the centage

defines nesses ption of

herwise gh the

eipts in

Jet Ski, blease, eceipts

ll rents centage County vember

all rents ropriate PS pay e audit deliver etter to


DetailManag

FreDR

Rrere W$2

O

Crere$Nleve F Dwreth Tarea

Wofsh

Rgth


ed Fingemen

Finding Noemitted adm

Dana Point SRent on these

Recommendeceived froment on these

We further r26,146) for 011 through

OC Dana PoConcur. Theeceived froment on these5,229 (20%

November 1,etter and sherify complia

Finding No

DPS offers cuwith the custoepair. Somehemselves.

The contractogreements weceipts. Asmount of the

We found thaf contractorhipyard prem

Recommendross receipt

he shipyard

Audit of Dana Po

ndingsnt Resp

o. 2: We foministration feShipyard. De receipts w

dation No. m sublesseese receipts.

recommend administrati

h July 31, 20

int Harbor Re attached l

m sublesseese receipts. F

X $26,146) 2011 throuall follow upance.

. 3 - Contra

ustomers theomer payinge customers

ors receive with these c

s the receiptese receipts

at the lease r gross recemises as rep

dation No. 3ts received bpremises as

oint Shipyard

, Recoponses

ound that foees of $26,1

DPS did not was not paid

2: We recs as gross re

that OC Dion fees rec12.

Response: etter from Os as gross re

Furthermore,) for adminisugh July 31,p with DPS

actor Gros

e option for g rent baseds hire contra

compensaticontractors nts were not for our audi

agreement eipts receiveportable gros

3: We recoby contractos gross recei

ommens

or the nine-146, in accoreport this

to the Count

commend theceipts to th

DPH requireceived from

OC Dana Poeceipts to th, OC Dana Pstration fees 2012. OCwithin thirty

ss Receipts

use of the s upon the nuactors to pe

ion directly nor do they reported to

it period.

does not exed for repass receipts b

ommend OCors for work ipts to the C

ndation

-month audiordance withrevenue to ty.

hat OC DPHhe County an

e DPS pay DPJS for t

oint Harbor rhe County anPoint Harborreceived fro

C Dana Poiny (30) days

s Not Repo

site as “a doumber of da

erform the re

from the curequire con

o DPS, we w

xplicitly addrir work perf

by DPS.

C Dana Poiperformed founty.

ns and

it period, Dah their sublethe County

H require Dnd pay appro

the Countyhe audit pe

requires DPSnd pay appror requires Dom DPJS, fo

nt Harbor wifrom the da

orted (Cont

o-it-yourself bays the boat epair work ra

ustomers. Dntractors to were unable

ress the incrformed for

nt Harbor rfor do-it-you

d

ana Point Jease agreem

as gross re

PS report aopriate perc

y $5,229 (2eriod, Novem

S to report aopriate percPS pay the or the audit ll hand delivate of this le

trol Finding

boat repair fis at the facather than d

PS does noreport thesee to determ

lusion or excustomers

equire DPSrself custom

Page 5

Jet Ski, ment, to eceipts.

all fees centage

20% X mber 1,

all fees centage County period,

ver this etter to

g)

facility,” cility for doing it

ot have e gross ine the

clusion on the

S report mers on


DetailManag

O

Ccothdle FM

DLfr FthFgpC

Rrea O

CSreu


ed Fingemen

OC Dana PoConcur. Thompensationhe shipyard eliver this le

etter to verify

Finding NoMonthly Sa

DPS reports oss generat

rom their fina

For our samphe Statemen

For the montreater by $resent sales

County.

Recommendeconcile theppropriate g

OC Dana PoConcur. TheStatement of eceipts to thp with DPS

Audit of Dana Po

ndingsnt Resp

int Harbor Rhe attachedn received bpremises as

etter and shay compliance

o. 4 - Statles Report

to the Counted from theancial system

ple months ont of Profit ths of May a

$1,570 and s by categor

dation No. e Statement gross receipt

int Harbor Re attached lProfit and Le County. Owithin thirty

oint Shipyard

, Recoponses

Response: d letter fromby contractos gross receall follow upe.

ement of t (Control F

ty gross receir financial m.

of May and Jto the Monthand June 201

$1,788, resry, we were

4: We recof Profit an

ts to the Cou

Response:letter from O

Loss to the MOC Dana Po(30) days fro

ommens

m OC Danaors for work eipts to the with DPS w

Profit andinding)

ceipts using system. A

June 2012, whly Sales Re12, sales amspectively. unable to de

commend Ond Loss to tunty.

OC Dana PoMonthly Saleoint Harbor wom the date

ndation

a Point Haperformed fCounty. OC

within thirty (

d Loss Wa

the totals froA Monthly Sa

we compareeports and f

mounts per tAs the mo

etermine the

OC DPH reqthe Monthly

oint Harbor es Report anwill hand de of this lette

ns and

arbor requirefor do-it-youC Dana poin(30) days fro

as Not Re

om the Stateales Report

ed the grossfound that the monthly

onthly Salese impact on t

quire Dana y Sales Rep

requires DPnd report theeliver this lettr to verify co

d

es DPS to rself customnt Harbor wiom the date

econciled t

ement of Prois also gen

receipt totahey did not Sales Repo

s Report dothe rent paid

Point Shipyport and rep

PS to reconce appropriateter and shal

ompliance.

Page 6

report mers on ill hand

e of this

to the

ofit and nerated

als from agree. rt were

oes not d to the

yard to port the

cile the e gross l follow


DetailManag

ATTAC For puritems in Cri

Audexcadd

SigAudthe cor

Co

Audissuintepro


ed Fingemen

CHMENT A

rposes of rento three dis

tical Controdit findings ceptions to tdress Critica

gnificant Codit findings o design or o

rrective actio

ntrol Findindit findings ues that reqernal controocess of six m

Audit of Dana Po

ndingsnt Resp

A: Report

eporting our stinct catego

ol Weaknesor a combinthe audit ob

al Control We

ontrol Weakor a combinaoperation of ons.

ngs: concerning uire managels. Contromonths.

oint Shipyard

, Recoponses

Item Class

audit findingories:

ses: nation of Sigbjective(s) aeaknesses b

knesses: ation of Coninternal con

internal conement’s corrl Findings a

ommens

sifications

gs and reco

gnificant Coand/or businbrought to th

ntrol Findingtrols. Signif

ntrols, comprective actioare expecte

ndation

mmendation

ontrol Weaknness goals. heir attention

gs that repreficant Contro

pliance issun to implem

ed to be ad

ns and

ns, we will c

nesses that Manageme

n immediatel

esent a signiol Weakness

es, or efficient or enhanddressed wi

d

classify audit

represent sent is expecy.

ficant deficieses require

iency/effectivnce processithin our fo

Page 7

t report

serious cted to

ency in prompt

veness ses and llow-up

RevenuOC DanAudit N

DetaMana

ATTA


iled Fiageme

ACHMENT

ase Audit of Dana

ndingsent Res

T B: OC Da

Point Shipyard

s, Recosponse

ana Point H

ommees

Harbor Res

ndatio

sponses

ons andd

Page 8

RevenuOC DanAudit N

DetaMana

ATTA


iled Fiageme

ACHMENT

ase Audit of Dana

ndingsent Res

T B: OC Da

Point Shipyard

s, Recosponse

ana Point H

ommees

Harbor Res

ndatio

sponses

ons andd

Page 9

RevenuOC DanAudit N

DetaMana

ATTA


iled Fiageme

ACHMENT

ase Audit of Dana

ndingsent Res

T B: OC Da

Point Shipyard

s, Recosponse

ana Point H

ommees

Harbor Res

ndatio

sponses

ons andd

Page 10

Documents

Revenue Generating Lease Audit: OC ANA OINT ARBOR ANA OINT