Internal Audit Report #2015-08 St. Louis County – Parks and Recreation Department Eagle Springs Golf Course Final Audit Report December 10, 2015 Distribution: Audit Performed by: The Honorable Pat Dolan, Chairperson – County Council The Honorable Steven V. Stenger, County Executive St. Louis County Council Members David C. Makarewicz, CISA, County Auditor Gary Bess, Director of Parks and Recreation Department Tom Ott, Assistant Director of Parks and Recreation Department Bob Mainieri, Special Projects Manager – Parks and Recreation Department Bonnie Diaz, Contract/Funding Administrator – Parks and Recreation Department Tom Arras, Public Administrator John Bales, Director of Aviation – Spirit of St. Louis Airport David Barney, Director – Emergency Communications Network Mark Barry, Fiscal Director – Department of Public Health Jon Belmar, Chief of Police Herbert Bernsen, Director – Justice Services Ben Burkemper, Court Administrator – Family Court Michael Chapman, Chief Operating Officer Marshall Day, Director – Judicial Administration – Family Court Andrew Durket, Assistant Treasurer Paul Fox, Director – Department of Judicial Administration Eric Fey, Director – Board of Elections Genevieve M. Frank, Administrative Director – County Council Gary Fuhr, Director – Board of Elections Nichalos Gardner, Director – Department of Transportation Joan Gilmer, Circuit Clerk Renee Hines-Tyce, Administrator – Department of Municipal Court Faisal Khan, MBBS, MPH, Director – Department of Public Health Peter Krane, County Counselor Andrea Jackson, Director – Human Services Stephanie Leon Streeter, P.E. Deputy Director – Department of Transportation Bob McCulloch, Prosecuting Attorney Kirk McCarley – Personnel Director Patrick Mulcahy, Administrative Assistant Torey Parker, Director of Procurement Glen Powers, Director of Planning Greg Quinn, Director of Revenue Pam Reitz – Director of Administration Don Rode, Chief Accounting Officer Don Rode, Chief Accounting Officer Jon Shostrand, Deputy Chief Accounting Officer Inessa Spring, Audit Manager Jake Zimmerman, Assessor County Auditor: David C. Makarewicz, CISA, County Auditor Field Work: Start Date: August 24, 2015 Fieldwork Completion: October 15, 2015 Closing Date: October 22, 2015 Kerber, Eck and Braeckel, LLP Audit Report Number: 2015-08 Auditor’s Office TO: The Honorable Pat Dolan – Chairperson - County Council The Honorable Steven V. Stenger, County Executive Gary Bess, Director – Administration – Parks and Recreation Department FROM: David Makarewicz, CISA, St. Louis County Auditor SUBJECT: Final Audit Report St. Louis County – Parks and Recreation Department – Eagle Springs Golf Course Audit# 2015-08 DATE: December 10, 2015 EXECUTIVE SUMMARY A request was made of the St. Louis County Auditor’s Office, by the Director of the St. Louis County Parks and Recreation Department to independently review and assess the operation of two golf courses. These golf courses are on land that is leased from the County. They are managed and operated by third parties, under contract with St. Louis County. These golf courses are both on large tracts of land that adjoin other park properties. Both adjoin recreation complexes. One of these recreation complexes has undergone significant renovation and improvement. The other is currently being renovated. Contracts with the firms that operate these golf courses include “right to audit clauses” which enabled the Auditor’s Office to review financial statements, and documentation such as permits, inspections and certificates of insurance. This clause and a few other key contract clauses are included in the Background section of this report. The St. Louis County Auditor’s Office performed an audit of the operation of the Eagle Springs Golf Course. This golf course is owned and managed under contract to St. Louis County, by St. Andrews Golf Club, Inc. This golf course is located in north St. Louis County at 2575 Redman Road. It adjoins the North County Recreation Complex which is located at 2577 Redman Road within Veterans Memorial Park. An agreement was reached in 1988 between St. Louis County and St. Andrews Golf Club, Inc., to lease a portion of Veterans Memorial Park, then build and develop a golf course facility on this leased property. St. Andrews Golf Club built, developed and began operating the Eagle Springs Golf Course on the leased property. This report summarizes our audit and review of the Eagle Springs Golf Course. This audit was started on August 24, 2015. Fieldwork for the review was completed on October 20, 2015. Findings and audit results were summarized on October 209, 2015. Both golf courses were reviewed concurrently. Results from each review were compared. Several informal meetings were held during the audit to provide updates on our work. The objectives of the review were to evaluate internal controls, evaluate operations and record-keeping against requirements stated within a contract between St. Louis County and St. Andrews Golf Club, Inc. for the management of the golf course. We evaluated the operation to verify compliance with key provisions stated within the contract. It was our objective to document the current conditions at each golf course and make a determination whether the properties were being maintained according to requirements stated within legal agreements. Management at the companies that manage these golf courses were briefed in advance of our objectives. They assisted with the audit field work. i We had four major objectives: - Audit work was performed to ensure that payments made to the County, agreed with requirements of the contract and were supported by financial statements such as income statements and general ledgers. These annual payments were reviewed to ensure the amounts were computed properly, were timely and were supportable. - Audit work was performed to determine if the properties were being maintained to standards stated within agreements. Photographs were taken of the properties to document the condition of the property. These images were provided to the firms that manage the golf courses and to management and staff within the Parks Department. A set of these images were placed within the audit workpapers. This documented the condition of the courses as of a particular date. - Audit work was performed to determine if licenses, permits and inspections have been obtained. We reviewed licenses, permits and inspection certificates. They were photographed. Results were documented within the audit workpapers. - Insurance certificates were obtained, reviewed and filed both by Audit and within the Parks Department, to prove that required insurance coverage was in place. We tested for compliance with key contract clauses. A detailed description of the audit work performed is included within this report. The auditors worked with golf course staff and management to review financial statements. The auditors worked with golf course staff and management to document the condition of the course, buildings and property at a particular time by taking digital photographs of the property. We performed an inspection of the courses and photographed tees, fairways and tees. We photographed the interior and exterior of the buildings on the properties. We checked the condition of the properties for health and safety concerns. We checked for compliance with key contract provisions. The reviews of these two golf courses were conducted at the same time, to allow the comparison of the two, similar eighteen-hole golf course properties operated under contract with St. Louis County. Our review was conducted independently from reviews conducted by Parks and Recreation Department personnel. They also had inspected and photographed the properties. The reviews of these two golf courses were conducted at the same time, to allow the comparison of the two, similar eighteen-hole golf course properties operated under contract with St. Louis County. Management of the golf courses were present during our audit work and were advised of our findings. A closing meeting was held with management within the Parks and Recreation Department on October 23, 2015. Management within the Parks and Recreation Department and the firms that operate these courses were provided results of our review and were able to respond to suggestions and proposed audit recommendations. This is the final audit report on the results of our review of the Eagle Springs Golf Course. OPINION: In our opinion, the Eagle Springs Golf Course has been well-maintained with a few minor exceptions as noted below. We noted the following: Financial statements are kept. Insurance coverage has been obtained for the proper coverages and in the proper amounts. Tees, fairways and greens were in good condition. The interior and exterior of the club house were well-maintained, clean and in good condition. The interior and exterior of the cart house was clean and in good condition. We have noted concerns with these areas: Specific sections of the golf cart paths are in need of repair. We have suggested that preservative be applied to decking surrounding the club house to prevent damage to this flooring. The deck is in good condition. A portion of this decking at the entrance had been repaired previously. ii KEY FINDINGS: We interviewed management at the Golf Course, and observed the operation on several different times in September of 2015. We inspected the golf course and all building with management of the golf facility. We also reviewed documentation such as financial statements and permits. We also interviewed Parks and Recreation personnel. We noted these areas on the course which may need improvement. There may be additional areas that need repair. A list and photographs of a representative sample of these areas are included as an attachment to this report. We focused on areas that represented a health or safety hazard. We are reporting those areas of concern that were noted during our audit field work: - Several sections of the golf cart paths are in need of repair to correct for broken or buckled asphalt. We are most concerned with those specific sections of the golf cart paths where paths merge, there is a blind curve or there is a significant change in elevation. We have identified and listed those sections of the golf cart paths which we believe are most in need of repair. - We noted that the condition of the cart paths and turf on the lower numbered tees appear to be receiving more wear and may require more attention that the tees and greens at the end of the course. There is more usage of the earlier parts of the course as some customers only play nine holes of golf. - A small portion of the wooden decking that surrounds the club house was replaced and repaired. The decking and the repair are in good condition. However we noted that the decking does not appear to have been treated or painted recently. We also noted the following: Financial statements including income statement are kept. Financial statements, including balance sheets are kept. Amounts that were last remitted to St. Louis County (annual fees) were in the proper amount, based on gross receipts. Gross receipt and payments submitted were in the proper amount, based on a sampling of months from within the prior year. Insurance certificates were provided indicating that insurance coverage has been obtained, for the proper coverage types and in the proper amounts. The golf course’s club house was found to be in very good condition. The interior and exterior of the building were found to be in very good condition. Required licenses, permits and inspection certificates have been obtained and were on display. These permits were copied during the audit. Our findings regarding the condition of the course are supported by photographs taken of these properties. A representative sample of these are included within this report. We noted areas where there may be a safety concern. There may be additional areas in need of corrective action. We also interviewed management at the Golf Course, and observed the operation on several different times in September of 2015. We interviewed Parks and Recreation personnel. We also reviewed documentation such as financial statements and permits CONCLUSIONS: We have recommended that Parks and Recreation management work with the management of Eagle Springs Golf Course to address the specific conditions noted. It may be necessary to develop a multi-year plan to ensure that the course, cart paths and buildings are kept in good condition. Our findings and recommendation were provided to and discussed with: Gary Bess, Director – Parks and Recreation Department, Tom Ott, Assistant Director – Parks and Recreation Department, Bob Mainieri, Special Projects Manager – Parks and Recreation Department, Bonnie Diaz, Contract/Funding Administrator – Parks and Recreation Department, Don Rode, Chief Accounting Officer – Parks and Recreation Department. iii We advise Don Rode – Chief Accounting Officer of audit findings within every audit. At the Eagle Springs Golf Course, the audit required assistance and cooperation from management and staff. Assistance was provided by Tim Davenport, General Manager. We appreciate his assistance and cooperation and the assistance provided by other staff. This audit required assistance and cooperation from Management and Staff with the Parks and Recreation Department including: - Gary Bess, Director – Administration – Parks and Recreation Department, Tom Ott, Assistant Director – Administration – Parks and Recreation Department, Bob Mainieri, Special Projects Manager – Parks and Recreation Department, Bonnie Diaz, Funding/Contract Administrator – Parks and Recreation Department. We are appreciative of the assistance provided during the audit. The audit was conducted according to governmental auditing standards and the internal audit standards issued by the Institute of Internal Auditors (IIA). iv TABLE OF CONTENTS Background and Introduction 1 Parks and Recreation Department Budget Staffing Golf Courses Eagle Springs Golf Course 1 1 1 1 1 Objectives and Scope of Audit 2 Key Contract Clauses 3 Detail of Audit Findings I. Condition of Golf Cart Paths II. Decking Surrounding the Golf Course Club House 4 4 5 Post Audit Assessment of Controls 6 Appendix – Eagle Springs Golf Course (Photographs) 7 v Background and Introduction Parks and Recreation Department The St. Louis County Department of Parks and Recreation manages 12,719 acres of developed and undeveloped land. The department provides and manages recreation facilities, programs and events. They manage and operate: parks, nature trails, recreation complexes, gymnasiums, athletic fields, aquatic centers, playgrounds, lakes, shelters, and, meeting facilities. Various cultural and historic sites are located within St. Louis County parks such as the Museum of Transportation, the Butterfly House (Faust Park), the Laumeier Sculpture Park. Budget The Department of Parks and Recreation received and appropriation of $28,852,000 for the budget year beginning January 1, 2015 with expected program revenues of $4,676.900 for the year. Staffing The St. Louis County Department of Parks and Recreation is authorized for 523 staff (329 full time equivalents). Staffing levels are higher in summer months than winter months due to increases in programs and activities in the parks. Golf Courses Two eighteen-hole golf courses are located within County park properties. Both golf courses are managed by third parties, under contract to St. Louis County. The properties are similar. Both golf courses also adjoin recreation centers operated by the Department of Parks and Recreation. Significant improvements were made to the North County Recreation Center in 2014. It adjoins the Eagle Springs Golf Course. The North County Recreation Center and the Eagle Springs Golf course are located within Veterans Memorial Park on Redman Road in North St. Louis County. Significant improvements are currently being made the W. C. Kennedy Recreation Center. It adjoins the Quail Creek Golf Course. The W. C. Kennedy Recreation Center and the Quail Creek Golf Course are located on Wells Road in South St. Louis County. Third party firms operate the golf courses, snack bars, meeting facilities and pro shops. They host special events such as golf lessons, tournaments, group golf outings, banquets and meetings. The Quail Creek Golf Course is operated, under contract, by Quail Creek Golf Course LLC. The Eagle Springs Golf Course is operated, under contract, by St. Andrews Golf Club Inc. . Eagle Springs Golf Course The Eagle Springs Golf Course is located at 2575 Redman Road within St. Louis County. The golf course is located within Veterans Memorial Park and adjoins the North County Recreation Complex which is at 2577 Redman Road. The golf club hosts a web site located at: http://www.eaglesprings.com/ . 1 Objectives and Scope of Audit At the start of the audit, we met with management and developed objectives for the audit. The list below describes controls that we expected to find at the start of the audit. At the end this audit report is our post-audit assessment of controls based on the same criteria. Balance Sheet A balance sheet should be used to record assets, liabilities and retained earnings. The balance sheet should properly reflect valuations at a given time. Income Statements An income statement should be used to record gross revenue, expenses and net revenue. Income statements should be current. Income statements should properly reflect income and expenses for a particular time period. Property The property/concession should be operated to its full potential. The operation should be open during expected or normal business hours. There should be no impairments to the regular operation of the facility. Condition of Property The property should have been maintained to standards established within the contract. There should be no damage to the property, inclusive of buildings, parking lots, greens, fairways, cart paths. Adherence to Contract Provisions The property should be managed under contract. The contract should be current. The contract should be written, executed and in effect as of the date of the audit. The contract should contain key provisions. There should be compliance with key provisions contained within the contract. Permits Proper permits and inspection should have been obtained, inclusive of occupancy permits, building permits, health department inspections, fire department inspections, business licenses and liquor licenses. Permits should be displayed. Insurance Coverage Insurance policies should be in force with coverage types and amounts that conform to requirements stated within the contract. Other Areas Signage at park entrances should note the location of the golf course. Appropriate controls should be in place to limit health or safety hazards to employees and visitors on the property. 2 Key Contract Clauses Several contract clauses were central to our review: Section C-3. “Gross Revenues” Defined. “Gross revenues” shall be accounted for annually on a calendar year basis and shall consist of all fees collected by St. Andrews during the lease term for all rounds of golf played at the Golfing Facility (without any deduction for expenses related to the operation of the Golfing Facility) and all receipts collected by St. Andrews during the Lease term from (1) the instructional program/driving range, (ii) sales of food, beverages and merchandise at the Golfing Facility, and (iii) rental of golf cars at the Golfing Facility. “Gross revenues” shall not include (i) the amount of any sales use, gross receipts or similar tax imposed by an federal, state, municipal or other governmental authority directly on sales and collected from customers, provided that the amounts thereof are added to the sales price, or absorbed, therein, and paid b St. Andrews to such governmental authority; or (ii) percentage gratuities added to customer billings as additional compensation for St. Andrews’s employees; or (iii) proceeds paid as the result of an insurable loss, unless paid for the loss or interruption of business; or (iv) fees paid by customers to professionals for lessons(v) all credits and refunds made to customers for merchandise returned, or (vi) the exchange of merchandise between other golf clubs of St. Andrews, where such exchanges are made solely for the convenient operations of St. Andrews’s business and not for the purpose of depriving County of the benefit of a sale Section C-3. Rent. As consideration for the use of the Premises during the term of this lease, in addition to the surrender to the County of all fixed improvements as herein provided, St. Andrews shall: (a) pay to the County rent as set forth on Exhibit C attached hereto: (b) perform turf maintenance for all areas within the park and yet not within the premises on a weekly minimum basis. This maintenance is limited to off premises areas safely accessible to a 72” wide cut riding lawn mower. All hand trimming and mowing will be performed by County. Section C-7. Maintenance of Golfing Facility. The Golfing Facility shall be maintained in keeping with other well-run golf courses which are open to the public in St. Louis County. County may advise St. Andrews in writing of any deficiency in maintenance on the Premises, which deficiency shall be cured within thirty (30) days or within an appropriate period as may be otherwise agreed by the parties. In the event St. Andrews feels that the claim is unwarranted, St. Andrews may present their position to Golf Board for resolution and all parties shall abide by their decision. In the event the decision of the Golf Board calls for curing of a deficiency, St. Andres shall promptly pay all expenses for such work. Section C-8. Records of Gross Revenues. St. Andrews agrees to maintain at its principle office accurate records of the Gross Revenues as defined in Section C-3 above. In accordance with generally accepted accounting practices and procedures. Section C-9. County Auditor to Have Access to Records of Gross Revenues. The County Auditor, the Director of the St. Louis County Department of Parks and Recreation , and others designated b the County Auditor or the Director of the St. Lois County Department of Parks and Recreation or the St. Louis County shall be entitled to have access to the books and records described in the preceding section, during normal business hours, for the purpose of inspection and examination. The information contained in the books and records referenced in this section shall be and remain confidential, and shall not be divulged or distributed to any person who is not specifically designated by the County Auditor or the Director of the St. Louis County Department of Parks and Recreation unless such action is necessary for enforcement of this Agreement or ordered by a court of competent jurisdiction. 3 Detail of Audit Findings I. Condition of Golf Cart Paths We reviewed the condition of golf cart paths with management of the facility. We photographed specific sections of the golf cart path that we believe are in need of repair both to comply with this contract provisions and to lessen the risk of injury to customers and employees. We have provided a separate document as an Appendix, with photographs to support the findings below. We noted the following: Section “C-7 - Maintenance of Golfing Facility” of the contract states, in part, “The Golfing Facility shall be maintained in keeping with other well-run golf courses which are open to the public in St. Louis County.” 2nd Hole After the 2nd tee, there is a section of the path that needs repair. After the 2nd tee, there is a section of the path with a rough surface. 3rd Hole After the 3rd tee, there is a section of the path that needs repair. 12th Hole After the 12th tee, there is a section of the path that needs repair. The view from the path is partly obstructed by landscaping. The path curves significantly at this point. There is a section of rough surface on the path on the 12th hole. 13th Hole There is a rough surface on the path on the 13th hole. On the way to the 14th tee, the golf cart path parallels the main road entering the park. Carts travel on one side of his curb. Vehicles travel on the other side of this curb. There is a hole in the pavement at about the midpoint. On the way to the 14th tee, the golf cart path parallels the main road entering the park. The gap between the cart path and street has a large rut. 17th Hole After the 17th tee, there is a portion of the path that has been repaired. The right side has been repaired. The left side (while travelling in the direction of play) is in need of repair. Recommendation 1. We recommend that the Director of Parks and Recreation and his staff work with management of the Eagle Springs Golf Course to develop a long term plan to repair sections of the golf course cart paths. Management Response 1. I agree with your recommendation. Parks engineering and construction personnel inspected the paths and developed a specific list of problems. Given the scope and condition of the path we will develop a plan to address any of the safety related defects first followed be repair or replacement of other sections of the path system. 4 II. Decking Surrounding the Golf Course Club House We reviewed buildings on the Eagle Springs Golf Course. There is a club house. There is also a shed used for storage of golf carts. Both buildings were reviewed in September of 2015 and found to be in good condition. We noted that the deck material that surrounds the club house does not appear to have been treated recently with preservative, stain or paint. A portion of the deck by the front door of the club house was previously damaged and repaired. The repair is in good condition. We have suggested that this decking be treated with stain, preservative or paint to lessen damage to the flooring and to prolong the life of the materials. Recommendation 2. We recommend that Director of Parks and Recreation ensure that Eagle Springs Management maintain the deck surrounding the club house. Management Response 2. I agree with your recommendation. 5 Post-Audit Evaluation of Controls At the conclusion of the audit, we documented our assessment of controls we found and the results of our audit testing. This is a summary of the results of the audit: Balance Sheet A balance sheet is used to record assets, liabilities and retained earnings at particular points in time. The balance sheet has been properly updated to reflect valuations at a given time. Income Statements Income statements are used to record gross revenue, expenses and net revenue. Income statements are current. Income statements properly reflect income and expenses for a particular time period. Gross revenues were compared to another golf course for reasonableness. Property The property and /concession appear to be operated to its full potential. No problems were noted with respect to unplanned closures or interruptions. The operation is open normal during expected/normal business hours. We noted no impairments to the regular operation of the facility. We noted that management is using creative ways to increase utilization of the course. Condition of Property The property has been maintained to standards established within the contract, with exceptions. There has been no significant damage to the property, inclusive of buildings, parking lots, greens, fairways, cart paths, with exceptions. We noted concerns with the condition of specific sections of the golf cart paths that may be in need of repair. We would also recommend applying preservative, stain or paint to the decking on the porch and entrance that surrounds the clubhouse building. Adherence to Contract Provisions The property is managed under contract. The contract is current. The contract is written, executed and was in effect as of the date of the audit. The contract contains key provisions such as clauses requiring insurance coverages. We noted compliance with key provisions contained within the contract such as the computation of fees remitted to the County and requirements to obtain specific insurance coverages. Permits Proper permits and inspection were obtained inclusive of occupancy permits, building permits, health department inspections, fire department inspections, business licenses and liquor licenses. Permits were on display. These include business licenses, liquor licenses, and occupancy permits. We observed an inspection of the ventilation and hood by the fire department, in the kitchen area, during the audit. Other Areas There is signage for the park at the entrance to the park. There is signage for the golf course at the entrance to the park. We have suggested that Park Management expand usage of an existing video surveillance system that was installed at the recreation center to provide better security for parking lot areas used by visitors to both the recreation center and the golf course. Insurance Coverage Insurance policies are in force with coverage types and amounts that conform to requirements stated within the contract. Other Areas Appropriate controls were observed to be in place to limit health or safety hazards to employees and visitors on the property with the exceptions of a small number of specific sections of the golf cart paths. 6 Appendix – Eagle Springs Golf Course (Photographs) 1. After the 2nd tee, there is a section of the path that needs repair: V-D-1-08 Hole 2 2 A Path 2. Rough surface. After the 2nd tee, there is a section of the path that needs repair: V-D-1-09 Hole 2 3 Path 7 3. After the 3rd tee, there is a section of the path that needs repair: V-D-1-12 Hole 3 2 Path 4. After the 12th tee, there is a section of the path that needs repair. The view from the path is partly obstructed by landscaping. The path curves significantly at this point. V-D-1-42 Hole 12 4 Path 8 5. There is a rough surface on the path on the 12th hole. V-D-1-42A Hole 12 5 Path T box 12 to Green 9 6. There is a rough surface on the path on the 13th hole. V-D-1-46 Hole 13 4 Path 10 7. On the way to the 14th tee, the golf cart path parallels the main road entering the park. Golf carts travel on one side of his curb. Vehicles travel on the other side of this curb. There is a hole in the pavement at about the midpoint. V-D-1-47 Hole 13 5 Path 8. On the way to the 14th tee, the golf cart path parallels the main road entering the park. The gap between cart path and street has large rut. V-D-1-48 Hole 13 6 Path 11 9. On the way to the 14th tee, the golf cart path parallels the main road entering the park. The gap between the cart path and street has a large rut. V-D-1-49 Hole 13 7 Path 10. After the 17th tee, there is a portion of the path that has been repaired. The right side has been repaired. The left side (while travelling in the direction of play) may be in need of repair. V-D-1-60 Hole 17 2 Path Rough surface on left side. 12 11. Deck The club house was in good condition. There is decking around the club house. It did not appear to have been treated recently with preservative, stain or paint. The section near the front door had been replaced. It would be prudent to try to avoid having to patch or repair this decking. We would suggest that golf course management apply a preservative. 13