Date: March 26, 2013 To: L. John Van Norden, Deputy Corporation Counsel From: H. Patrick Campbell, Chief Auditor Tele: 860.757.9951
 
HP
City of Hartford Keney and Goodwin Golf Course Management and Operations Audit Report 1313
 
I. Executive Summary
At the request of management, we completed an audit in February 2013 of the City of Hartford Keney and Goodwin Park Golf Course Accounts and Operations. The purpose of the examination was to evaluate and test internal accounting and operating controls, the accuracy and propriety of transactions processed, the degree of compliance with established operating policy and procedures, and to recommended improvements where required. The results of our examination were reviewed with
L. John Van Norden, Deputy Corporation Counsel, Corporation Counsel’s Office
; J. Molleda, Director, Finance Department; K. Burnham, Director, Department of Public Works; and, other responsible members of operating management. The summary which follows includes only exceptions disclosed and recommended operating improvements. Included are management
’s
 actions taken or  planned, including timeframes, to resolve each finding and/or recommendation in this report. We thank the Corporation Counse
l’s Office and Finance
Department management and staff for their cooperation and courtesies extended to us during our audit. Background In April 2009, the City entered into a Lease Agreement with MDM Golf of Hartford, LLC (MDM) to operate and maintain its two golf courses, located in Goodwin and Keney parks. The Lease Agreement (the Lease) calls for MDM to pay the City of Hartford (the City) an annual base rent of $100,000 for the five year initial term and $125,000 and $150,000 for the first and second five year renewal option periods, respectively. MDM is also required to  pay the City a percentage rent equal to 10% of Gross Revenue for any Lease Year in excess of the applicable Sales Breakpoint. The City also entered into agreements with the towns of Wethersfield and Windsor for payments in lieu of property taxes (PILOT) for the golf course property located in
those towns. The PILOT’s are equal to a percentage of the rent received by the City from
MDM. In addition, MDM is required to make and pay for
certain capital improvements to the courses as set forth in MDM’s bid.
 Scope The scope of our audit included various reviews and tests of transactions recorded primarily during the two calendar years ended December 31, 2012. The audit procedures performed included, but were not limited to, the following
:
 
Reviews of related City policies, procedures and operating controls; Reviews of applicable Lease Agreements and Amendments;
 
City of Hartford Keney and Goodwin Golf Course Accounts and Operations Audit
2
Tests of golf course revenue and rental payments to the City: Reviews and tests, as available, of Capital Improvements and related costs; and Tests of MDM
’s
 compliance with other Lease Agreement and Amendment terms and conditions. General In general we found that MDM was not in compliance with various terms and conditions of the Lease Agreement.
In addition, we noted that the City’s
management and oversight of MDM, the Lease Agreement and Amendment could be improved.
II. Audit Results
Payment of Base and Percentage Rent Various tests and reviews of the Lease Agreement regarding
the terms and conditions for MDM’s payment of rent to the City
 and tests of rent payments received and processed by the City disclosed that, in general, MDM was paying the base rent in full and in a timely manner. We did note, however, some issues relating to MDM financial reporting requirements and how certain capital improvement projects were accounted for and paid. Shortly after the execution of the Lease Agreement, MDM complained about the condition of certain aspects of the property at both the Goodwin and Keney golf courses. Based on a subsequent arrangement b
etween MDM and the Corporation Counsel’s Office
specified in a letter dated February 3, 2011, the City agreed to
authorize MDM to “go forward with the remaining repairs in accordance with the
two estimates attached as Exhibit B hereto and to withhold
the cost of such repairs from rent due pursuant to the terms of the Lease Agreement.”
The cost of these repairs according to the exhibits totaled $121,849.85. We verified that MDM reduced their monthly rent payments due the City in an amount equal to the $121,849.85. We were unable to confirm, however, that the actual costs associated with these repairs were equal to or no less than the $121,849.85 reduction in rent payments because MDM informed us that they did not maintain detailed records or a separate accounting of the costs that were incurred for the repairs. As a result, there is no way to confirm that MDM did not inappropriately benefit if the $121,849.85 in unpaid rent exceeded that actual costs of the repairs. It should also  be noted that this is not an appropriate method of accounting for capital improvement costs as both revenue and expenses ultimately end up understated. We obtained documentation to support that the Revenue Manager expressed his concern regarding and tried to stop the revenue offset arrangement, but was informed that it had already been finalized. In addition, the Revenue Manager informed us that he had made numerous requests to MDM for, but was never provided, invoices and other documentation including canceled checks to support the capital improvement projects that were reportedly completed by MDM. We recommend that Finance Department management ensure that the practice of allowing MDM or any other entity to forgo rent payments to pay for capital improvements or any other expenses be discontinued so that revenue and capital improvement costs and expenses are properly accounted for in the future.
 
City of Hartford Keney and Goodwin Golf Course Accounts and Operations Audit
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Management Action Plan
Completion Date: April 30, 2013 Responsible Person: Julio Molleda, Director, Finance Department W
e will work with the Corporation Counsel’s Office to ensure that the practice of allowing MDM or any other entity to forgo re
nt payments to pay for capital improvements or any other expenses be discontinued so that revenue and capital improvement costs and expenses are properly accounted for in the future. Letter of Credit
Contrary to Section 2.04 of the Lease Agreement, after numerous requests by the Corporation Counsel’s Office, MDM did not “de
liver to the Landlord
(the City), for the benefit of Landlord, an unconditional, clean, irrevocable letter of credit (the “LOC”) in the amount of T
wo Hundred Fifty Thousand and 00/100 Dollars ($250,000), issued by a bank reasonably acceptable to Landlord that accepts deposits, maintains accounts, has a local Hartford,
Connecticut office, and negotiates letters of credit, and whose deposits are insured by the FDIC.”
Finance Department management informed us that a valid LOC was received from MDM for the first year of the lease term, however, LOCs had not been received from MDM for any of the subsequent years of the initial term of the lease. Finance Department management provided us with a copy of an email sent to MDM in July 2012 requesting a copy of the LOC and informed us that they also requested a copy of the LOC from MDM on a number of other occasions by phone. We were informed by
the Corporation Counsel’s Office that if they have not received a valid LOC from MDM by an established deadline
, they will be proceeding with appropriate action in accordance with the terms and conditions of the Lease Agreement. We recommend that action be taken to ensure that LOCs and other contractually mandated documentation are obtained, as required, by any future lease holders. It is our understanding that this and other work required to ensure that MDM is in compliance with all of the terms and conditions of the Lease Agreement have in the past been the responsibility of the Finance Department Asset Manager. It should be noted that this position is currently vacant.
Management Action Plan
Completion Date: April 30, 2013 Responsible Person: L. John Van Norden, Deputy Corporation Counsel As noted above, if the City does not receive a valid LOC from MDM by an established deadline, the
Corporation Counsel’s Office
will be proceeding with appropriate action in accordance with the terms and conditions of the Lease Agreement. In addition, action will be taken to ensure that LOCs and other contractually mandated documentation are obtained, as required, by any future golf course lease holders.
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