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HomeMy WebLinkAbout36 - PH-1 - Attachment 2 - 6/2/2015Attachment 2 COSTA MESA CONFERENCE & VISITOR BUREAU FINANCIAL STATEMENTS For The Years Ended June 30, 2014 and 2013 with INDEPENDENT AUDITORS' REPORT THEREON KMJCorbin & Company Business Advisors Tax and Audit INDEPENDENT AUDITORS' REPORT To the Board of Directors of Costa Mesa Conference & Visitor Bureau We have audited the accompanying financial statements of Costa Mesa Conference & Visitor Bureau (the "Organization"), which comprise the statement of assets, liabilities and net assets — cash basis as of June 30, 2014, and the related statement of revenue and expenses — cash basis for the year then ended, and the related notes to the financial statements. Management's Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with the cash basis of accounting described in Note 1; this includes determining that the cash basis of accounting is an acceptable basis for the preparation of the financial statements in the circumstances. Management is also responsible for the design, implementation and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditors' Responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditors' judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the Organization's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Organization's internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. p 714 380 6565 f 714 380 6566 555 Anton Blvd Suite 1000 Costa Mesa CA 92626 kmjpartnerscpa.conn p 818 999 5885 f 818 704 4668 20720 Ventura Blvd Suite 160 Woodland Hills CA 91364 p 760 431 5465 f 760 431 5466 2768 Loker Avenue West Suite 101 Carlsbad CA 92010 Opinion In our opinion, the financial statements referred to above present fairly, in all material respects, the assets, liabilities and net assets of Costa Mesa Conference & Visitor Bureau as of June 30, 2014, and its revenues and expenses for the year then ended in accordance with the cash basis of accounting described in Note 1. Basis of Accounting We draw attention to Note 1 of the financial statements, which describes the basis of accounting. The financial statements are prepared on the cash basis of accounting, which is a basis of accounting other than accounting principles generally accepted in the United States of America. Our opinion is not modified with respect to this matter. Other Matter The financial statements of Costa Mesa Conference & Visitor Bureau for the year ended June 30, 2013, were audited by another auditor whose report dated November 30, 2013, expressed an unmodified opinion on those statements. lU�nr LLP KMJ Corbin & Company LLP Costa Mesa, California December 29, 2014 COSTA MESA CONFERENCE & VISITOR BUREAU STATEMENTS OF ASSETS, LIABILITIES AND NET ASSETS - CASH BASIS ASSETS Cash Total assets LIABILITIES Current liabilities Total liabilities NET ASSETS Unrestricted June 30, 2014 2013 $ 1,079,582 $ 1,317,294 $ 1.079.582 $ 1.317.294 $ - $ 462 - 462 1,079,582 1,316,832 Total liabilities and net assets S 1,079,582 1,317,294 See accompanying notes to financial statements 3 COSTA MESA CONFERENCE & VISITOR BUREAU STATEMENTS OF REVENUE AND EXPENSES - CASH BASIS June 30, 2014 2013 CHANGE IN UNRESTRICTED NET ASSETS Revenues: Business improvement area assessment, net of handling fees $ 2,316,282 $ 2,175,200 Interest income 2.660 3.666 Net revenues 2,318,942 2,178,866 Expenses: Hotel marketing funds 356,293 321,237 Marketing 1,286,108 1,254,165 Salaries and benefits 372,452 343,153 General and administrative 541,339 232,222 Total expenses 2,556,192 2,150,777 Increase (decrease) in unrestricted net assets (237,250) 28,089 Unrestricted net assets, beginning of year 1,316,832 1,288,743 Unrestricted net assets, end of year $ 1.079.582 $ 1.316.832 See accompanying notes to financial statements 4 COSTA MESA CONFERENCE & VISITOR BUREAU NOTES TO FINANCIAL STATEMENTS For The Years Ended June 30, 2014 and 2013 NOTE 1 — NATURE OF ACTIVITIES AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Nature of Activities The Costa Mesa Conference & Visitor Bureau (the "Organization") is a California non-profit corporation formed in 1995 to market the City of Costa Mesa (the "City") as a leisure and group meeting travel destination. The vision of the Organization is to be a destination -marketing leader by supporting and selling the City's distinct visitor brand experiences and advocating community tourism benefits. The Organization's mission is to enhance and promote the City's brand experience, thus increasing visitor spending for industry and community economic viability, sustainability and quality of life. The Organization is funded by the ten member hotels that comprise the Business Improvement Area ("BIA") established by the City. The member hotels are Costa Mesa Marriott, Hilton Costa Mesa, Holiday Inn Express & Suites, Residence Inn by Marriott, Avenue of the Arts Wyndham Hotel, Ayres Hotel & Suites, The Westin South Coast Plaza, Ramada Inn and Suites Costa Mesa, Best Western Plus Newport Mesa Inn and Crowne Plaza. California state law provides that BIA assessments are to be used for the purposes specified in the authorizing resolution that established the assessment. The City's resolution that established the BIA stated that its purpose is to promote tourism to the City and to fund programs and activities that benefit the hotel and motel business within the City. Basis of Presentation The accompanying financial statements have been prepared on the cash basis of accounting, which is a comprehensive basis of accounting other than accounting principles generally accepted in the United States of America. Consequently, revenues are recognized when received rather than when earned, and expenses are recognized when disbursed rather than when the obligation is incurred. Net assets and revenues, expenses, gains, and losses are classified based on the existence or absence of donor -imposed restrictions. As of and for the year ended June 30, 2014, the Organization had no temporarily or permanently restricted net assets. The Organization incurred expenses related to program activities of approximately $1,976,000 for the year ended June 30, 2014. 5 COSTA MESA CONFERENCE & VISITOR BUREAU NOTES TO FINANCIAL STATEMENTS For The Years Ended June 30, 2014 and 2013 NOTE 1 — NATURE OF ACTIVITIES AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued Tax Status The Organization qualifies as a tax-exempt organization for Federal income taxes under Section 501(c)(6) of the United States Internal Revenue Code and for California state income taxes under Section 23701(d) of the California Revenue and Taxation Code; therefore, the Organization has no provision for federal or state income taxes. During the year ended June 30, 2014, the Organization had no unrelated business income. The Organization annually evaluates tax positions as part of the preparation of its exempt tax return. This process includes an analysis of whether tax positions the Organization takes with regard to a particular item of income or deduction would meet the definition of an uncertain tax position under current accounting guidance. The Organization believes its tax positions are appropriate based on current facts and circumstances. The Organization's policy is to recognize interest accrued related to unrecognized tax benefits in interest expense and penalties in operating expenses. At June 30, 2014, the Organization did not have any unrecognized tax benefits. The Organization is no longer subject to U.S. Federal and state income tax examinations by tax authorities for tax years before 2010. Use of Estimates The preparation of financial statements in conformity with the cash basis of accounting requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Significant estimates made by the Organization's management include, but are not limited to the allocation of expenses to program expenses. Actual results could differ from those estimates. Revenue The City levies a special assessment on the ten member hotels in the BIA based on the sale of overnight guest room stays. For the fiscal years ended June 30, 2014 and 2013, the levy was three percent (3%). The levy is transmitted by the hotels to the City and is remitted to the Organization, net of a one percent (1%) handling fee. The levy is 99.9% and 99.8% of the net revenues of the Organization for fiscal years ended June 30, 2014 and 2013, respectively. COSTA MESA CONFERENCE & VISITOR BUREAU NOTES TO FINANCIAL STATEMENTS For The Years Ended June 30, 2014 and 2013 NOTE 1 — NATURE OF ACTIVITIES AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued Reclassifications Certain amounts in the 2013 financial statements have been reclassified to conform to the 2014 presentation with no effect on previously reported increase in unrestricted net assets. NOTE 2 — CASH Cash consists of demand deposits at the following institutions as of June 30: 2014 2013 American Securities Bank $ 361,996 $ 731,325 Pacific Premier Bank 717,586 368,476 Beach Business Bank - 217,493 $ 1,079.582 $ 1,317.294 The Organization maintains cash deposits at institutions which are insured by the Federal Deposit Insurance Corporation ("FDIC") up to $250,000. At various times during 2014 and 2013, the Organization maintained balances in excess of FDIC limits. The Organization periodically reviews the quality of the financial institutions it has deposits with to minimize risk of loss. NOTE 3 — HOTEL MARKETING FUNDS EXPENSE During the fiscal years ended June 30, 2014 and 2013, the Organization allocated $150 per room to each BIA member hotel for hotel -specific marketing purposes. The allocation subsidizes hotel -specific advertising and marketing efforts that also include the Organization's logo. Vendor invoices are either paid by the hotel or paid directly by the Organization. Samples of advertising and marketing material must be submitted showing the Organization's logo for reimbursement. Hotel marketing funds expense totaled $356,293 and $321,237 for fiscal years ended June 30, 2014 and 2013, respectively. If the hotels do not use all their allocated funds, the funds revert back to the Organization. VA COSTA MESA CONFERENCE & VISITOR BUREAU NOTES TO FINANCIAL STATEMENTS For The Years Ended June 30, 2014 and 2013 NOTE 3 — HOTEL MARKETING FUNDS EXPENSE, continued It is the opinion of the Organization that reimbursing the hotels for advertising costs provides a public benefit to the City by promoting tourism and increasing retail sales. NOTE 4 — MARKETING EXPENSE The Organization incurs marketing expenses related to its mission of promoting the City as a tourist destination. For the fiscal years ended June 30, 2014 and 2013, marketing expenses totaled $1,286,108 and $1,254,165, respectively. Marketing expenses include video and photography production, community sponsorships, brochures, print advertising, various promotions, and tradeshow costs. All of these endeavors promote tourism in the City. NOTE 5 — COMMITMENTS AND CONTINGENCIES Guarantees and Indemnities The Organization has made certain indemnities and guarantees, under which it may be required to make payments to a guaranteed or indemnified party, in relation to certain actions or transactions. The Organization indemnifies its directors, officers, employees and agents, as permitted under the laws of the State of California. In connection with its facility lease, the Company has indemnified its lessor for certain claims arising from the use of the facilities. The duration of the guarantees and indemnities varies, and is generally tied to the life of the agreement. These guarantees and indemnities do not provide for any limitation of the maximum potential future payments the Organization could be obligated to make. Historically, the Organization has not been obligated nor incurred any payments for these obligations and, therefore, no liabilities have been recorded for these indemnities and guarantees in the accompanying statements of assets, liabilities and net assets — cash basis. Operating Lease The Organization has a lease for office space through June 30, 2015. There is an option to renew the lease for an additional five years at the end of the lease period. The Organization also has a lease for a color copier through September 29, 2015. Total rent expense for fiscal years ended June 30, 2014 and 2013 totaled $35,547 and $34,389, respectively. Ri COSTA MESA CONFERENCE & VISITOR BUREAU NOTES TO FINANCIAL STATEMENTS For The Years Ended June 30, 2014 and 2013 NOTE 5 — COMMITMENTS AND CONTINGENCIES, continued Future minimum lease obligations as of June 30, 2014 consist of the following: Years Ended June 30, 2015 $ 37,116 2016 501 $ 37.617 Litifzation In the ordinary course of business, the Organization may face various claims brought by third parties and they may, from time to time, make claims or take legal actions to assert their rights. Any of these claims could subject the Organization to costly litigation and, while the Organization generally believes that it has adequate insurance to cover many different types of potential liabilities, its insurance carriers may deny coverage or its policy limits may be inadequate to fully satisfy any damage awards or settlements. If this were to happen, the payment of any such awards could have a material adverse effect on the Organization's operations, cash flows, and financial position. Additionally, any such claims, whether or not successful, could damage the Organization's reputation and business. The Organization had previously initiated a lawsuit against a former vendor during the fiscal year ended June 30, 2013. The Organization believed the vendor had breached a contract with the Organization by not performing services as requested. On October 3, 2013, the lawsuit concluded, resulting in the Organization losing the lawsuit against the vendor. No settlement payments were required from the Organization other than to reimburse the vendor for trial fees of approximately $29,000 which is included in general and administrative expenses in the accompanying statement of revenue and expenses — cash basis for the year ended June 30, 2014. NOTE 6 — EMPLOYEE BENEFIT PLAN The Organization sponsors a defined contribution salary deferral plan (the "Plan") covering all employees. Beginning in April 2012, the Board of Directors has agreed to match Plan contributions dollar for dollar up to 3% of the eligible employee's salary. During the fiscal years ended June 30, 2014 and 2013, matching contributions amounted to $8,536 and $9,522, respectively, which are recorded in salaries and benefits in the accompanying statements of revenue and expenses — cash basis. 0 COSTA MESA CONFERENCE & VISITOR BUREAU NOTES TO FINANCIAL STATEMENTS For The Years Ended June 30, 2014 and 2013 NOTE 7 — RISKS AND UNCERTAINTIES Due to the nature of the Organization's business, the Organization's revenue is entirely dependent on the City, which established the BIA and collects the BIA levy from the ten hotels in Costa Mesa (see Note 1). A cancellation of the BIA would adversely and severely impact the Organization's financial position. NOTE 8 — SUBSEQUENT EVENTS Management has evaluated subsequent events through December 29, 2014, the date that the financial statements were available to be issued. The following event has been identified for disclosure in these financial statements. On July 22, 2014, the vendor that won the lawsuit against the Organization (see Note 5) filed a complaint citing (1) malicious prosecution, (2) abuse of process, (3) defamation, (4) breach of the covenant of good faith and fair dealing, and (5) violation of Business and Professions Code 17200. On November 25, 2014, pursuant to a tentative ruling by the Superior Court of the State of California, County of Orange, the malicious prosecution claim is still being evaluated, but the remaining four claims were dismissed. Management believes it might have to incur substantial legal expenses in its defense if the litigation process continues; however, litigation is inherently uncertain and, as such, the ultimate outcome of this matter is not presently determinable. 10