hiloh Springs, the golf course owned by county taxpayers and operated by the Platte County Parks and Recreation Department, presented two issues of note during a routine annual audit of county finances.
One of the issues of interest is that the course lost $333,000 in operating income in 2012.
In addition, the outside audit, conducted by McGladrey, L.L.C., reported “significant deficiencies” in internal control related to the segregation of cash receipts duties at Shiloh Springs.
“There is no independent reconciliation performed between cash received by the treasury department from the golf course and sales recorded in the point of sale system at the golf course,” wrote the external auditors in the Schedule of Findings and Questioned Costs, which is available from the Platte County auditor’s web site at www.co.platte.mo.us/county_offices_departments/auditor.html.
The report goes on to state that “The same employees collecting cash receipts at the golf course provide a summary of the sales transactions to the treasury department in order to record revenue transactions in the general ledger. This summary is not a report generated from the golf course’s sales system, but instead manually prepared” and that “potential material misstatements in the financial statements, as well as misappropriation of assets, could occur.”
How concerning are these “significant deficiencies”?
The report provided by McGladrey provides definitions regarding internal control over financial reporting. A “deficiency in internal control” occurs when “the design or operation of a control doesn’t allow management or employees… to prevent, or detect and correct, misstatements on a timely basis.”
A “material weakness” can be one or several of these deficiencies “such that there is a reasonable possibility that a material misstatement of the entity’s financial statements will not be prevented, or detected and corrected, on a timely basis.”
Finally a “significant deficiency,” in this case, the concerns about the golf course, “is a deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness yet important enough to merit attention by those charged with governance.”
The Comprehensive Annual Financial Report produced by McGladrey L.L.C. also showed that Shiloh Springs has operated at a loss in all of the last three fiscal years. This loss in operating income increased from $260,000 in 2010 to $333,000 in 2012.
Cash flows used in operations increased from $81,000 in 2010 to $134,000 in 2012 and expenditures for Shiloh Springs increased by five percent ($43,600) in 2012 according to the report.
At a public information meeting in March, 2011, Brian Nowotny, county parks and recreation director, said that the golf course is mostly supported by the county’s voter-approved half-cent sales tax. A bond note the county owes on the property won’t be paid off until 2018. That’s when the county is scheduled to make the last of its $450,000 annual bond payments.
Nowotny said at the time that the course had not been breaking even financially in the previous few years and that an $80,000 subsidy helped cover the gap in 2010. The outside audit pointed out as well that “the total overall decrease in net position of $71,886 is attributable to the reduced transfer of funds from governmental activities.”
“It is certainly not a unique situation to Shiloh Springs to be in a negative financial situation and be challenged with grounds and cost recovery,” Nowotny said of the current circumstances.
“It really has been a trend unfortunately across Kansas City and the Midwest for the last decade or so with golf grounds being flattened down and so when you run into a rough patch like we did last year with the temperature and droughts, it really makes it a challenge. We’re working hard to have a great golf course that the taxpayers can see is operating well and is in good condition and well-maintained.”
Nowotny said the parks department has been working to implement changes concerning the separation of duties, the software updates and the surprise audits recommended by the external auditors and that a book-keeping position has also been eliminated.
“That is probably a benefit of the comments from the outside auditor,” said Nowotny. “That was a budget cut. We are trying to run as lean and efficient as we can, being able to consolidate duties within staff. We do believe that we are putting forth accurate results for the audit every year.”
To the independent auditor’s “significant deficiencies in internal control” report related to Shiloh Springs, then, the county’s “response and corrective action” lists the implementation of unannounced cash audits, which began in 2011, and a 2012 upgrade to the golf course’s point of sale system as efforts toward resolution.
In 2013, the auditor’s office also began conducting monthly reconciliation of the point of sale system reports with those of the treasurer’s office reports.
“The summary report of daily sales activities and the turning over of the cash deposit receipts to the treasurer’s office is done by the course manager,” reads the county’s “response and corrective action” section of the report. “While on occasion, the manager does collect monies associated with a transaction, practical segregation of duties exists. Realignment of duties is not economically feasible with only one manager and limited staffing on a daily basis.”
The county was also found to be out of compliance regarding some certified financial statements that were published in March, 2012 and March, 2013. In the “response and corrective action,” the county response reads, “In order to ensure that the county meets its statutory obligations, the commission has retained the outside auditor to review the accuracy and completeness of the information collected and provided by the county clerk before the commission publishes a revised and corrected county financial statement.”
The bigger picture for the county, however, was a positive one that closed 2012 with a $1.7 million increase in the general fund with a balance of just over $10 million and a total net position of $114.5 million, largely consisting of capital assets investments. Revenues for the county increased by $3.9 million, with about $2.5 million of that stemming from capital or grant funds and $1.6 million a result of increases in sales tax revenue. County expenditures decreased by $728,000. The general fund budget underwent several revisions throughout the year and closed with a $1 million increase in appropriations (roughly a five percent increase from the original 2012 budget) while actual budget revenues closed the year at $19.1 million.