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 RISK BASED AUDITING 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 Internal Audit Department Revenue Generating Lease Audit: OC DANA POINT HARBOR/ DANA POINT SHIPYARD For the Period November 1, 2011 through July 31, 2012 AUDIT NO: 1232 REPORT 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. OC Board of Supervisors’ 1 st District – Janet Nguyen 2 nd District - John M.W. Moorlach 3 rd District – Todd Spitzer 4 th District – Shawn Nelson, Chairman 5 th District - Patricia C. Bates, Vice Chair O R A N G E C O U N T Y 6 t h Largest County in the USA $1.5M GROSS RECEIPTS FOR NINE-MONTH AUDIT PERIOD $356K RENT TO THE COUNTY
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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
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
ble of C
enue GeneDana Pointit No. 1232
he Period ember 1, 20
Transmitta
OC Interna
OBJEC
RESUL
BACKG
SCOPE
ACKNO
Detailed Fi
Finding NoSublessee
Finding No
Finding NoMonthly Sa
ATTACHM ATTACHM
Conten
erating Leat Harbor/D
2
11 through
al Letter
al Auditor’s
CTIVE
LTS
GROUND
E
OWLEDGEM
indings, Re
os. 1 and 2 –(Two Cont
o. 3 – Contra
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
ed Base Res)
s Rceipts N
ofit and Lossinding)
Classificatio
nt Harbor Re
Managemen
nt and Fees
ot Reported
s Was Not R
ns
esponses
nt Response
s Received
d (Control F
Reconciled
es
from
Finding)
to the
i
1
1
1
2
3
3
4
5
6
7
8
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
ue Generating Leana Point Harbor No. 1232
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
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
ue Generating Leana Point Harbor No. 1232
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
Rrere$1
O
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
Revenue GOC Dana PAudit No.
DetailManag
FreDR
Rrere W$2
O
Crere$Nleve F Dwreth Tarea
Wofsh
Rgth
Generating Lease Point Harbor 1232
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
Revenue GOC Dana PAudit No.
DetailManag
O
Ccothdle FM
DLfr FthFgpC
Rrea O
CSreu
Generating Lease Point Harbor 1232
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
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to the
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als from agree. rt were
oes not d to the
yard to port the
cile the e gross l follow
Revenue GOC Dana PAudit No.
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rposes of rento three dis
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gnificant Codit findings o design or o
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