l.Ifi %11 Edmund F. Sotelo

High Tide and Green Grass, Inc. filed for incorporation with the Secretary of Stateof California November 24, 1993. on Concur Attachmentz

The Original Agreement between the City and High Tide states at subparagraph 2.a that "City hereby grants to Operator exclusive contract to an operate, maintain and manage the Golf Course for a period of five (5) years, beginning December 1, 1993." Concur Attachment2 PagelParagraph 2/2a I

Under Article 2.a. of that Agreement the full term of the contract stated was to be for five (5) years with the "opportunity to request renewal..." of the i Agreement for two additional terms often (10) years each. Concur Aftachment2 Page/Paragraph 2/2a F4. The Second Agreement was agreed upon and came into effect on December 15, 1998. Concur Aftachment1 F=5. Article 3.a. of the Second Agreement grants Operator the exciusive right to operate, manage and maintain the Golf Course for ten (10) years and seven (7) months ending June 30, 2009. Concur Aftachment1 Page/Paragraph 2/3a

The Second Agreement was agreed upon and came into effect on December 15, 1998. Concur Aftachment1 F=5. Article 3.a. of the Second Agreement grants Operator the exciusive right to operate, manage and maintain the Golf Course for ten (10) years and seven (7) months ending June 30, 2009. Concur Aftachment1 Page/Paragraph 2/3a F-6. Article 3.b. gives the Operator "an opportunity to request [within a stipulated time periodl extension of this Agreement for an additional ten years. " until June 30, 2019. Concur Aftachment1 Page/Paragraph 2/3b 1 F-7. Article 3.C. excluded the "opportunity to request an extension of this Agreement...under three circumstances outlined in subparagraphs d., e., and f. See, Attachment A. ConcurWith Comments F-7 Paragraph 3C. does state that the Operator shall not have the opportunRy to request extension under three circumstances. Those exceptions contained an are in paragraphs 3d, 3e and 3f of the Second Agreement. However, the Grand Jury "Summary of Excluded OpportunUies to Extend the Second Agreement" adds the words, "on the low probability incident that" on the second line of paragraphs 1 and 2 of the summary. These additions are conclusions, and not factual findings. While these conclusions valid today, they real possibilities at the time the Second are were Agreement executed. Further documentation of this contained the City was is in Council agenda report that accompanied the Second Agreement. Affachment1 Page/Paragraph 2/3c Aftachmentl -3 F-8. In fact, the second and third exceptions the except that the are same in second, if a third party pys the entire cost of constructing the additional 18 holes, that party has the first right to negotiate with the City of the operation, maintenance and management of the GolfCourse. Disagree F-8 Paragraphs 3d, and fof the Second Agreement outline three different e circumstances. Grand Jury finding 8 (F-8) states, "ln fact, the second and third exception (paragraphs 3e and 3$ the except What the finding should are same " state is that if private enterprise paid for the construction of the holes and desired a new to operate all 36 holes, the agreement terminates (paragraph 3d). The second circumstance states that if private enterprise paid for the construction of the holes a new and does not desire to operate all 36 holes, the agreement will be renegotiated (paragraph 3e). AttachmentIPage/Paragraph 2 3/3d f e F-9. The Original Agreement and the Second Agreement characterize the Agreements as unique personal service agreements and stipulate that if during the term of the Agreement three named individuals "individually collectively," or are no longer involved "in the operation, maintenance and management..., the City may terminate..." the Agreement upon ninety days wriffen notice. Concur Aftachment2 Page/Paragraph 22/59b Attachment1 Page/Paragraph 14/54b 2 F-10. A "Termination Without Cause" article was included in the Originai Agreement but omitted from the Second Agreement. was I Concur Affachment 2 Page/Paragraph 18/49 F-11. According to City management the "Termination Without Cause" article omitted because "The Gity is sufficiently protected..." by the Termination for was Cause Article and the unique personal services termination article. Concur Attachment2 I Accountinq Records Recording and Statements F-12. The Second Agreement states that "Operator shall maintain method of a accounting accordance with generally accepted accounting principles [GAAP] in which accurately refiects the gross receipts and disbursements of Operator in connection with Golf Course Operations..." Artrcie 20. Accountina Records and Renortinn. Concur Anachment1 Page/Paragraph 7/20 F-13. It further states that "Operator shall submit...a financial statement for the fiscal year then ended..." Article 21. Financial Statements. i Concurwith Comments F-13 Operator submits a Onancial statementfor the fiscal year then ended within 60 days of the completion of the fiscal year. Aftachment1 Page/Paragraph 7/21 F-14. The Original Agreement required that "annual indicated the revenues as on financial statement shall be certified by independent auditor and shall include an a statement that the financial statements are in compliance with generally accepted accounting principles." Article 22. Financial Statements Concur with Comments F-14 However, the Original Agreement has been superceded by the Second Agreement. I Aftachment2 Page/Paragraph 9f22 3 F-15. The Second Agreement states that "The financial statement shall be audited by independent auditor and shall include statement that the financial an a statements prepared compliance with generally accepted accounting were in principles." Article 21. Financial Statements. ConcurWUh Comments F-15 With the knowledge and of the City, Operator has performed concurrence only revenue audUs per the terms of the Original Agreement. The City and Operator intendto amend the Second Agreementto reflect this practice by January 1,2004. Attachment1 Page/Paragraph 7/21 F-16. The independent audit submitted to the City for the year ending June 30, 2002 in accordance with Article 21 included, among other things, the statement "SELECTED INFORMATION SUBSTANTIALLY ALL DISCLOSURES REQUIRED BY GENERALLY ACCEPTED- ACCOUNTING PRINCIPLES ARE NOT INCLUDED FOR THE YEAR ENDED JUNE30, 2000." (Emphasis supplied). Disagree F-16 This statement is a standard accounting statement for a "revenue only" audit and indicates that all (expenditures) disclosures not reviewed being were as outside the scope of the audit. The Independent Auditor, Pyne, Waltrip, Lippert, & Olson, LLP for Operator audited the schedule of base of Operator defined the Second Agreement for the revenues as in year ended June 30, 2002. The schedule of base revenues referred to in the independent auditor's report present fairly, all material respects, the base of in revenues Operator for the year ended June 30, 2002, in conformity with accounting principles generally accepted Jn the United States ofAmerica. According to the Grand Jury findings, all disclosures required by generally accepted accounting principles are not included for the year ended June 30, 20DO. In fact, the independent auditor's report for Operator for the year ended June 30, 2000, included the schedule of base and the notes/disclosures refer to the schedule revenues of base revenues, similar to the disclosures included for the year ended June 30, 2002 (Nature of Business; Basis of Accounting and Tournament Sales), other disclosures required by generally accepted accounting principles not included because the are report only the required base covers revenues. Attachmentg -4 4 1 F=17. The independent audit for the year ending June 30, 2002 was merely an I audit of the "the accompanying schedule of base of High Tide..." and revenues stated that the referenced schedule the responsibility of High Tide's was management and limited the auditor's responsibility to "express[ing] an opinion this schedule based audit." on on our ConcurWith Comments F-17 Defined the Second Agreement. The terminology used in the audit, in I including the auditor's responsibility, standard terminology used in audits, is revenue and not "merely." Aftachment1 Page g I F=18. "Subject to City Manager approval Operator agrees to develop, install and maintain necessary accounting, operating and administrative controls governing the financiai affairs ofthe Golf Course..." Article 22. Internal Control. I Concurwith Comments F-18 Internal controls established by Operator after consultation with were independent audhor beginning in January 1994 and updated March 1999. These in I controls ivere delivered to the City's Project Manager and to the independent auditor that audits the revenue. AUachment1 PagelParagraph 8J22 II Attachment2 -2 Auachmenti -5 F-19. There indication that the Operator drafted and submitted the is no ever necessary accounting, operating and administrative controls governing the financial affairs of the Golf Course to the City. Disaoree F-19 See response to F-18. F-20. There is indication that the City Manager his designated Project no or Manager received written internal control plan approved ever a or ever one. Disaoree F-20 Written internal controls prepared and provided to the Project were Manager and independent auditor by Operator for each Agreement. These internal control plans accepted and utilized by the Project Manager in the oversight and were management ofthe Agreements. Attachment -2 Aftachment -5 5 F-21. A cursory examination on site revealed a serious lack of internal controls at River Ridge. Disaoree F-21 The City's depth examination, fact, determined internal controls in in were established writing by Operator after consultation with independent auditor beginning in in January 1994 and updated March 1999 (Attachment 5). These controls in are maintained daily basis and reviewed with each aud0. The checks and on a are revenue balances outlined in the controls protect the assets of the golf Operator and the course, Citya Attachment -2 Attachmenti -5 F-22. "City its authorized auditors and representatives shall have to or access and the right to audit and reproduce any of Operator's records related to gross receipts and expenses, to the extent the City deems necessary to ensure City is receiving all monies to which City is entitled...or for other purposes relating to this Agreement." Article 24.a. Insoection of Records. Concur Aftachment1 Page/Paragraph 8/24a F-23. The City has audited had audited the Operator's records related to never or gross receipts and expenses to ensure that the City is receiving all monies to . which it is entitled. Disagree F-23 The City's requirement for independent audit of has been an revenue satisfied annually, and the City is satisfied that that all monies to which it is entitled are received as required. Operator has performed only revenue audits per the Original Agreement. The City and Operator intend to amend the Second Agreement to reflect this practice by January 1, 2004. Attachmentg -4 Attachment2 F-24. A partial examination of High Tide financial records, relative to Golf Course operations, disclosed that from formal accounting standpoint, certain practices a can be characterized as inaccurate and undisciplined bookkeeping. Disagree F-24 The Grand Jury did not provide factual data to substantiate their finding of the practices it considered inaccurate undisciplined based their "partial" or on examination. Therefore, the City cannot comment detail this finding. However, the in on 6 1 CRy has determined that Operator maintains accurate records and bookkeeping practices utilizing modern accounting software and procedures. These practices have been audited and accepted by independent certified public accountants, the State Boardof Equalization and the Internal Revenue Service. Attachmentg -4 I The "Joint Account" Bankino Provisions I F-25. Both the Original Agreement and Second Agreement state that Operator is an Independent Contractor and not an agent of the City (except as the City may specify writing). in i Concur Attachment2 Page/Paragraph 21/57 Aftachment1 Page/Paragraph 14/52 F=26. Under both the Original Agreement and the Second Agreement the Operator was required to "establish in the name of the City and the Operator, (ointly) such bank accaunts required for the operation, maintenance and as management of the Golf Course." Concur Attachment2 PagefParagraph 9/24 i Attachment1 Page/Paragraph 8/23 F=27. When it recognized by the City that the Agreement's "joint accounts" was arrangement improper, between municipality and private corporation, was as a a the City entered into letter agreement appointing High Tide the agent andlor a partner of the City for management of the GolfCourse and its operations. Disagree F-27 There joint account. See F-32. Conversely, both was never a agreements provided that the collection of funds the responsibility of the Operator. was Operator established bank account its October 1, 1993 with Ventura a in own name on County National Bank, known CRy National Bank. now as The agreements provided that Operator did not act the City's agent, "except as as City may specify in writing" (Original Agreement section 57; Second Agreement section 52). By lefter dated February 7, 1994, the City Treasurer notified the Ventura County National Bank, where Operator maintained golf bank account, that the a course City conveyed to Operator "the right to act agent for the River Ridge Golf Club which as is owned by the City" and to accept checks in the name of the golf course; and that the title of the account should be the name of Operator "as agent for River Ridge Golf Club River Ridge Golf Course." or Attachment 19 7 F-28. By letter dated November 30, 1993, High Tide and Green Grass, Inc. (soon to be the Operator) informed its bank that it was in "a partnership with the City of Oxnard to manage...the River Ridge Golf Club..." and agreed to "provide [the cityl complete access to any and all activity involving litsl corporate accounts." Concur Attachment 13 Aftachment 12 F-29. In the November 30, 1993 letter High Tide also stated "this letter serves as notice that our company authorizes MS. Belcher [then City Treasurer] to suspend financial activity in accounts." our Concur A0achment 13 Aftachment 12 F-30. By lefter dated February 7, 1994 the City Treasurer informed Operator's bank that the City had "conveyed to [Operator] the right to act the City's agent as for the River Ridge Golf Club..." and that the City agreed that the title of the account would be "High Tide & Green Grass, Inc. agent for River Ridge Golf as Club and River Ridge Golf Course." Concurwith Comments F-30 Operator was appointed agent for the limited purpose of accepting checks as River Ridge Golf Club and River Ridge Golf Course. No other agency was authorized this letter. in Attachment 11 Attachment 12 F.31. By its letter dated February 7, 1994 the CJty Treasurer aiso provided that the lefter gave Operator "the ability to accept checks as River Ridge Golf Club or River Ridge GolfCourse." Concurwith Comments F-31 See response to F-30. Aftachment 11 Attachment 12 F-32. Article 10 of the Second Agreement provides for deposit of all Golf Course revenues in "thejoint accountestablished for the City and Operator." ConcurWith Comments F-32 Language from the Original Agreement changed from "established was jointly" to "joint accounts". The City and Operator intend to amend the Second Agreeraent to reOect this practice by January 1,2004. There was never a joint account 8 between the City and Operator. The distinction between "account established jointly" an and "joint account" significant. A "joint account", by bank definUion, is account I a is an with rnultiple owners, each owner as signer, and each owner with the ability to transact the account. An "account established jointly" intended to be account with on was an pararneters meeting the needs of the City and Operator. The account established jointlywas designed to: A. Provide transattion capabilityto Operator (and designees). Operator (designees) is signer the account. an B. Provide the City the authority to receive information on the account from the bank. C. Provide the City the authority to terminate activity on the account. Aftachment1 Page/Paragraph 5/1Oa i Attachment 19 Page1 F-33. The City piays role reconciling the "joint accounts." no in Disaaree F-33 There was never a joint account. See response to F-32. F-34. The City has written check the "joint accounts." never a on I Concurwith Comments F-34 There was never a joint account. See response to F-32. F-35. There is no evidence that a true "joint account" exists or has ever existed. Concurwith Comments F-35 There was never a joint account. See response to F-32. F-36. High Tide maintains t~,o River Ridge accounts; one for Golf Ccurse revenue and one for restaurant and restaurant related revenue. Concur Aftachmentg F-37. High Tide has stated that all Golf Caurse except golf lesson fees, revenue, deposited Operator's River Ridge "joint accounts." is in Disagree F-37 Operator does not recall making that statement. A~achment1 Page/Paragraph sflOa 9 F-38. High Tide controls the River Ridge "joint accounts." revenue Disagree F-38 There was never a joint account. See response to F-32. Revenue Manaaement F-39. Under the Second Agreement High Tide to collect "all from the is revenues operation of the GolfCourse and deposit such into the joint account." revenues Concurwith Comments F-39 There was never a joint account. See response to F-32. Operator collects all revenue from the operation of the goK club and deposits such revenue into the Operator's account. F-40. The Second Agreement requires High Tide to submit an Annual Business Plan that includes Facilities Maintenance Plan and Marketing Plan. a a Concurwith Comments F-40 Operator submits Annual Business Plan includina Facilities an Isrofa Maintenance and Marketing Plan to the City's Project Manager by April each year. Aftachment1 PagelParagraph 4f4b

Article 3.b. gives the Operator "an opportunity to request [within a stipulated time periodl extension of this Agreement for an additional ten years. " until June 30, 2019. Concur Aftachment1 Page/Paragraph 2/3b 1

Article 3.C. excluded the "opportunity to request an extension of this Agreement...under three circumstances outlined in subparagraphs d., e., and f. See, Attachment A. ConcurWith Comments

In fact, the second and third exceptions the except that the are same in second, if a third party pys the entire cost of constructing the additional 18 holes, that party has the first right to negotiate with the City of the operation, maintenance and management of the GolfCourse. Disagree

The Original Agreement and the Second Agreement characterize the Agreements as unique personal service agreements and stipulate that if during the term of the Agreement three named individuals "individually collectively," or are no longer involved "in the operation, maintenance and management..., the City may terminate..." the Agreement upon ninety days wriffen notice. Concur Aftachment2 Page/Paragraph 22/59b Attachment1 Page/Paragraph 14/54b 2

A "Termination Without Cause" article was included in the Originai Agreement but omitted from the Second Agreement. was I Concur Affachment 2 Page/Paragraph 18/49

According to City management the "Termination Without Cause" article omitted because "The Gity is sufficiently protected..." by the Termination for was Cause Article and the unique personal services termination article. Concur Attachment2 I Accountinq Records Recording and Statements

The Second Agreement states that "Operator shall maintain method of a accounting accordance with generally accepted accounting principles [GAAP] in which accurately refiects the gross receipts and disbursements of Operator in connection with Golf Course Operations..." Artrcie 20. Accountina Records and Renortinn. Concur Anachment1 Page/Paragraph 7/20

It further states that "Operator shall submit...a financial statement for the fiscal year then ended..." Article 21. Financial Statements. i Concurwith Comments

The Original Agreement required that "annual indicated the revenues as on financial statement shall be certified by independent auditor and shall include an a statement that the financial statements are in compliance with generally accepted accounting principles." Article 22. Financial Statements Concur with Comments

The Second Agreement states that "The financial statement shall be audited by independent auditor and shall include statement that the financial an a statements prepared compliance with generally accepted accounting were in principles." Article 21. Financial Statements. ConcurWUh Comments

The independent audit submitted to the City for the year ending June 30, 2002 in accordance with Article 21 included, among other things, the statement "SELECTED INFORMATION SUBSTANTIALLY ALL DISCLOSURES REQUIRED BY GENERALLY ACCEPTED- ACCOUNTING PRINCIPLES ARE NOT INCLUDED FOR THE YEAR ENDED JUNE30, 2000." (Emphasis supplied). Disagree

Defined the Second Agreement. The terminology used in the audit, in I including the auditor's responsibility, standard terminology used in audits, is revenue and not "merely." Aftachment1 Page g I F=18. "Subject to City Manager approval Operator agrees to develop, install and maintain necessary accounting, operating and administrative controls governing the financiai affairs ofthe Golf Course..." Article 22. Internal Control. I Concurwith Comments

Internal controls established by Operator after consultation with were independent audhor beginning in January 1994 and updated March 1999. These in I controls ivere delivered to the City's Project Manager and to the independent auditor that audits the revenue. AUachment1 PagelParagraph 8J22 II Attachment2 -2 Auachmenti -5

There indication that the Operator drafted and submitted the is no ever necessary accounting, operating and administrative controls governing the financial affairs of the Golf Course to the City. Disaoree

There is indication that the City Manager his designated Project no or Manager received written internal control plan approved ever a or ever one. Disaoree

A cursory examination on site revealed a serious lack of internal controls at River Ridge. Disaoree

"City its authorized auditors and representatives shall have to or access and the right to audit and reproduce any of Operator's records related to gross receipts and expenses, to the extent the City deems necessary to ensure City is receiving all monies to which City is entitled...or for other purposes relating to this Agreement." Article 24.a. Insoection of Records. Concur Aftachment1 Page/Paragraph 8/24a

The City has audited had audited the Operator's records related to never or gross receipts and expenses to ensure that the City is receiving all monies to . which it is entitled. Disagree

A partial examination of High Tide financial records, relative to Golf Course operations, disclosed that from formal accounting standpoint, certain practices a can be characterized as inaccurate and undisciplined bookkeeping. Disagree

There joint account. See F-32. Conversely, both was never a agreements provided that the collection of funds the responsibility of the Operator. was Operator established bank account its October 1, 1993 with Ventura a in own name on County National Bank, known CRy National Bank. now as The agreements provided that Operator did not act the City's agent, "except as as City may specify in writing" (Original Agreement section 57; Second Agreement section 52). By lefter dated February 7, 1994, the City Treasurer notified the Ventura County National Bank, where Operator maintained golf bank account, that the a course City conveyed to Operator "the right to act agent for the River Ridge Golf Club which as is owned by the City" and to accept checks in the name of the golf course; and that the title of the account should be the name of Operator "as agent for River Ridge Golf Club River Ridge Golf Course." or Attachment 19 7

By letter dated November 30, 1993, High Tide and Green Grass, Inc. (soon to be the Operator) informed its bank that it was in "a partnership with the City of Oxnard to manage...the River Ridge Golf Club..." and agreed to "provide [the cityl complete access to any and all activity involving litsl corporate accounts." Concur Attachment 13 Aftachment 12

In the November 30, 1993 letter High Tide also stated "this letter serves as notice that our company authorizes MS. Belcher [then City Treasurer] to suspend financial activity in accounts." our Concur A0achment 13 Aftachment 12

By lefter dated February 7, 1994 the City Treasurer informed Operator's bank that the City had "conveyed to [Operator] the right to act the City's agent as for the River Ridge Golf Club..." and that the City agreed that the title of the account would be "High Tide & Green Grass, Inc. agent for River Ridge Golf as Club and River Ridge Golf Course." Concurwith Comments

By its letter dated February 7, 1994 the CJty Treasurer aiso provided that the lefter gave Operator "the ability to accept checks as River Ridge Golf Club or River Ridge GolfCourse." Concurwith Comments

Article 10 of the Second Agreement provides for deposit of all Golf Course revenues in "thejoint accountestablished for the City and Operator." ConcurWith Comments

The City piays role reconciling the "joint accounts." no in Disaaree

The City has written check the "joint accounts." never a on I Concurwith Comments

There is no evidence that a true "joint account" exists or has ever existed. Concurwith Comments

High Tide maintains t~,o River Ridge accounts; one for Golf Ccurse revenue and one for restaurant and restaurant related revenue. Concur Aftachmentg

High Tide has stated that all Golf Caurse except golf lesson fees, revenue, deposited Operator's River Ridge "joint accounts." is in Disagree

High Tide controls the River Ridge "joint accounts." revenue Disagree

Under the Second Agreement High Tide to collect "all from the is revenues operation of the GolfCourse and deposit such into the joint account." revenues Concurwith Comments

The Second Agreement requires High Tide to submit an Annual Business Plan that includes Facilities Maintenance Plan and Marketing Plan. a a Concurwith Comments

The Agreement also requires the annual submission of an Operations Budget and Capital Improvements Budget conjunction with the Annual a in Business Plan. Concurwith Comments F-41 The Annual Business Plan includes Operations and Capital Improvements budgets. Aftachment1 PagelParagraph 6/16a

Under the Second Agreement the City is to pay High Tide a "minimum yearly amount" from which High Tide is to receive "minimum monthly payments" out ofwhich it must pay all expenses incurred to operate the Golf Course. Concurwith Comments F-42 In practice, Operator subm0s annual budget to City Council for an approval. Once approved, the Ciy pays Operator the minimum yearly amount contained in the budget. In practice, Operator pays expenses incurred frcm revenues received and provides monthly statement to the City's Project Manager and Finance a Director reflecting these expenditures. Aftachment1 Page/Paragraph 5/1Oa 10 F-43. The "minimum yearly amount" is to be called out in the Annual Business Plan submitted by High Tide to the City Manager and approved by the City Council. Concurwith Comments F-43 See response to F-42. Aftachment1 Page/Paragraph 5/1Ob I F-44. In practice the Operations Budget submitted part of the annual budget is as of the Parks and Facilities Division of Public Works for approval by City Council. Concurwith Comments

The "minimum yearly amount" is to be called out in the Annual Business Plan submitted by High Tide to the City Manager and approved by the City Council. Concurwith Comments

See response to F-42. For example, most recently, the budget was approved and adopted July 8, 2003. on F-45. In practice a "minimum yearly amount" is not called out in the Annual Business Plan. The Operations Budget submitted by High Tide treated the is as "minimum yearly amount." Concurwith Comments F-45 See response to F-42. F-46. In practice the City does not pay High Tide the "yearly minimum amount" all City Golf Course except golf lesson fees, kept the High since revenue, is in I Tide corporate "joint accounts." Concurwith Comments F-46 There was never a joint account. See response to F-32 and F-42. F-47. The Second Agreement provides that High Tide pay itself the "minimum monthly amount" from the "joint account" into which the City, presumably, would have paid the "minimum yearly amount." Concurwith Comments F-47 There was never a joint account. See response to F-32 and F-42. F-48. In practice High Tide pays its operating expenses as they arise and as are necessary directly from the "joint accounts." Concurwith Comments F-48 There was never a joint account. See response to F-32 and F-42. F-49. Under the wording of the Second Agreement these budgets merely are intended reasonable estimates. as Concurwith Comments F-49 The City takes exception to the word "merely". Under the wording of the Second Agreement these budgets (as all budgets prepared government the in in or private sector) represent, the best judgment of the Operat4r (preparer) and City in (reviewer), a reasonable and considered estimate of expenses and revenues for the futu re. Aftachment1 Page/Paragraph 7/19a b F-50. The Second Agreement further provides that High Tide make "no guarantee, warranty representation whatsoever in connection with the or budgets..." and may reallocate money within the budgets. Concur Affachment1 Page/Paragraph 7/19b F-51. There have been under-runs oO the Operating Budget. Concur F-52. The City states that budget amounts resulting from under-runs remain as City the River Ridge "joint accounts" under oral agreement revenue in an between the parties. Concurwith Comments F-52 There was never a joint account. See response to F-32. F-53. High Tide states that though the budget amounts resulting from under-runs remained City under the Original Agreement, under the Second as revenue Agreement such money is taken as profit by High Tide. Concurwith Comments F-53 Operator recalls stating to the Grand Kury that Operator agreed that under-runs would be treated the same as revenue over the minimum base revenue; that is, the under-runs would become part oO the profit share behNeen the City and Operator. The City Finance Director stated to the negotiating team that the approved budget was what would be paid to Operator and that under-runs were Operator's money under the Original Agreement. While not obligated to do so, Operator included under-runs in the profit sharing calculations during the term of the Original Agreement. With the implementation ofthe Second Agreement, Operator retains the under-runs. Attachment1 -40 12 Citv Treasurer Manaaement Re: River Ridae Revenue s F-54. By its letter of February 7, 1994 the then City Treasurer, apparently in accordance with Article 52 of the Second Agreement, appointed High Tide an agentforthe City forthe limited purpose of operating River Ridge. Disaqree F-54 The lefter of February 7, 1994 precedes the Second Agreement by more than four years and therefore was not in accordance with Article 52 of the Second Agreement, which executed 1998. Operator appointed agent for the limited was in was purpose of accepting checks as River Ridge Golf Club and River Ridge Golf Course. No other agency was authorized in this letter. Affachment1 Page/Paragraph 14/52 Aftachment 11 F-55. The Treasurer's lefter of February 7, 1994 specifically extended the agency appointment to the collection of money for the City in connection with River Ridge operations. Concur Aftachment 11 Aftachment 12 F-56. High Tide and Green Grass collected money at River Ridge as the agent of the City. Disaoree F-56 Operator not agent of the City. Operator agent for the River is an is an Ridge Golf Club, which owned by the City. is A~achment1 PagelParagraph 14/52 Attachment 11 Aachment 12 Aftachment 19 F-57. It appears to the Grand Jury that under California law- local agencies may not delegate the power to controf or supervise municipal corporation money to a private person or body. See, Attachment B. Disagree F-57 The Grand Jury erred citing this Government Code. Section 11 ofArticle in 11 of the California Constitution concerns the powers of the State Legislature, not the powers of local agencies. Affachment 15 13 F-58. Under California law local agencies may deposit money in specified classes of banking, lending and investment businesses but only accordance in with stringent controls set forth the Government and Finance Codes. See, in Attachment C. Concurwith Comment F-58 Aftachment C does not refer to the Finance Code. AddUionally, California Government Code for local agencies does not apply to the account held by Operator. Attachment 16 F-59. The Government Code requires that "Any officer or employee collecting or receiving any money belonging to,..., the city shall deposit it immediately in the treasury the prescribed by the ordinance for the benefit of the funds to in manner which it belongs..." See, Aftachment D. Concurwith Comments F-59 The City complies with California Government Code all respects with in regard to its collection of City revenues. In reference to Operator, see response to F- 56. Attachment 17 F-60. The Government Code provides that i,The city treasurer shall receive and safely keep all money coming into his hands as treasurer " Concurwith Comments F-60 See response to F-59. F-61. The Government Code provides that "He [the treasurer] shall comply with all laws governing the deposit and securing of public funds... in his possession." Concurwith Comments F-61 See response to F-59. F-62. The California Government Code provides that "He [the treasurerl shall pay out money only on warrants signed by legally designated persons." Concurwith Comments F-62 See response to F-59. F-63. Sections of the Government Code referred to above are internal controls mandated by State law to protect the assets of the State and Iocal agencies. Concurwith Comments F-63 See response to F-58. F-64. California law provides that "An officer or employee of a local agency who deposits money belonging to, or in the custody of the local agency in any other manner than prescribed in this article is subject, to forfeiture of his office or employment." Government Code 53681. Concurwith Comments F-64 See response to F-58. Payment of Percentaae of Gross Receipts" " F-65. In addition to the "yearly minimum amount" to be paid to High Tide, the City is obligated to pay High Tide a percentage of the "annual gross receipts...as described in Exhibit C,..." to the Second Agreement. Concur Attachment1 PagefParagraph sf10G Affachment1 F-66. Exhibit C defines "gross receipts" and establishes "Minimum Base Revenues" for ten years beginning July 1, 1999. Concur Attachment1 I F-67. `fGross receipts" defined Exhibit C different than "all from as in is revenues the operation of the golf course.. " Concurwith Comments F-67 The Grand Jury makes no reference to "all revenues from the operation of the golfcourse," the City cannot evaluate this finding. However, both Gross Receipts so and Base Revenue defined in Exhibit C. are Aftachment2 -40 F-68. "Base Revenue" defined Exhibit C "the Gross Receipts derived is in as from all Golf Course operations except receipts from goif lessons." Concur Aftachment1 -40 F-69. The amount ofthe Gross Receipts to be paid to High Tide, addition to the in "minimum yearly amount," determined by percentage to the extent to which is a "Base Revenue" exceeds that stated "Minimum Base Revenue" for the year in which the payment is to be made. Concur Aftachment1 -40 15 F=70. In practce, rather than the City paying High Tide Jts Exhibit C "profit share" as required under the Agreement, High Tide pays the City's share of Exhibit C money to the City out of the High Tide corporate "joint accounts" in a highly publicized ceremony. Disagree F-70 The respective compensation of Operator and City calculated at the end is of each fiscal year after completion of the independent audit pursuant to Exhibit C of the Second Agreement. The City does not publicize Operator's annual comprehensive of goff operations to City Council except part of the City Council review course as a agenda. There was never a joint account. See response to F-32. Attachment1 Page/Paragraph 5/1Oa Aftachment1 -40 F-71. The percentage af "Base Revenue" to be paid inversely scaled excess is starting at ary percent (50%) of any excess between $1 and $300,000 and ending at twenty-five percent (25%) for such $400,000. excess over Concur Aftachment1 -40 F-72. The "profit sharing" provisions of Exhibit C are apparently calculated at times other than provided for the Agreement (end of the "Period," the Fiscal in year) and recorded "Salaries, Wages and Benefits" the City's books. are as on Disagree F-72 The profit sharing calculations completed after the completion of the are fiscal year independent audit to verify the actual revenue. Attachment1 -40 F-73. Under Exhibit C payment to High Tide under Gross Receipts percentage provisions shall not exceed the "minimum yearly amount," apparently referred to Exhibit C "the period amount provided for the Business Plan." in as minimum in Concur Attachment1 -40 River Ridoe Bond Financing & Debt F-74. In 1984 the City issued $11,890,000.00 Leasehold Mortgage Revenue in Bonds for construction oO River Ridge for which the Golf Course was posted as collateral. Concur 16 1 F-75. In 1988 the debt created in 1984 to build the GoIf Course was refinanced at cost of $16,422,541.34 used to refund bondholders of the original debt issuance a in order to reduce interest on the debt and change the call date. The Golf Course remained coilateral for the debt. as Concurwith Comments I F-75 The cost of the refinancing $14,920,000. Total of funds and was sources total offunds each totaled $16,422,541.34. uses F-76. For at the time of the issuance of the i'Refunding Bonds" various reasons, I 1988 only nominal amount of the principal had been paid ($65,000.00). in a Concur I F-77. In 1993 the River Ridge debt, along with other outstanding bond issues of the City, again refinanced with Lease Revenue Refunding Bonds in the was amount of $31,565,000.00, of which $15,795,000.00 related to Refunding was I Bonds. Concur F-78. Under the second refunding debt issue in 1993 the Golf Course was no longer pledged collateral. The collateral for the 1993 refinancing the City as was Hall and other City assets. Concur F-79. As of October 2002 there remains $11,870,000.00 in debt remaining related to River Ridge. This obligation of the general fund of the City and not the is an Golf Course. Concur F-80. The original projections of the City for of repayment of the Goif sources Course construction debt excessively optimistic and realized. were never Disaoree F-80 The City did not anticipate that golf alone would be course revenues sufficient to pay the golf course construction debt. At the time of development of the golf course, other sources of revenue to offset the debt were addressed as outlined in the City Council agenda report of October27, 1987 (Aftachment 18). Aftachment 18 6 17 F-81. The City considers River Ridge recreational and part of the a resource City's open space and as such is not expected to repay the bonds with River Ridge revenue. Disaaree F-81 While River Ridge Go10 Club is considered to be a recreational resource and part of the City's open space, its revenues exceed operational cost. Any net received from the operation of the golf contribute to but not revenues course are expected to completely repay the construction debt. There is nothing which prohibits this action. Referto response to F-80. Attachment 18 6 F-82. The City's general fund has contributed toward the debt originally service incurred for construction of the Golf Course though Golf Course operation's revenues contribute approximately$400,000.00 annuallyto the general fund. Concurwith Comments

In practice a "minimum yearly amount" is not called out in the Annual Business Plan. The Operations Budget submitted by High Tide treated the is as "minimum yearly amount." Concurwith Comments

In practice the City does not pay High Tide the "yearly minimum amount" all City Golf Course except golf lesson fees, kept the High since revenue, is in I Tide corporate "joint accounts." Concurwith Comments

The Second Agreement provides that High Tide pay itself the "minimum monthly amount" from the "joint account" into which the City, presumably, would have paid the "minimum yearly amount." Concurwith Comments

In practice High Tide pays its operating expenses as they arise and as are necessary directly from the "joint accounts." Concurwith Comments

Under the wording of the Second Agreement these budgets merely are intended reasonable estimates. as Concurwith Comments

The Second Agreement further provides that High Tide make "no guarantee, warranty representation whatsoever in connection with the or budgets..." and may reallocate money within the budgets. Concur Affachment1 Page/Paragraph 7/19b

There have been under-runs oO the Operating Budget. Concur

The City states that budget amounts resulting from under-runs remain as City the River Ridge "joint accounts" under oral agreement revenue in an between the parties. Concurwith Comments

High Tide states that though the budget amounts resulting from under-runs remained City under the Original Agreement, under the Second as revenue Agreement such money is taken as profit by High Tide. Concurwith Comments

By its letter of February 7, 1994 the then City Treasurer, apparently in accordance with Article 52 of the Second Agreement, appointed High Tide an agentforthe City forthe limited purpose of operating River Ridge. Disaqree

The Treasurer's lefter of February 7, 1994 specifically extended the agency appointment to the collection of money for the City in connection with River Ridge operations. Concur Aftachment 11 Aftachment 12

High Tide and Green Grass collected money at River Ridge as the agent of the City. Disaoree

It appears to the Grand Jury that under California law- local agencies may not delegate the power to controf or supervise municipal corporation money to a private person or body. See, Attachment B. Disagree

Under California law local agencies may deposit money in specified classes of banking, lending and investment businesses but only accordance in with stringent controls set forth the Government and Finance Codes. See, in Attachment C. Concurwith Comment

The Government Code requires that "Any officer or employee collecting or receiving any money belonging to,..., the city shall deposit it immediately in the treasury the prescribed by the ordinance for the benefit of the funds to in manner which it belongs..." See, Aftachment D. Concurwith Comments

The Government Code provides that i,The city treasurer shall receive and safely keep all money coming into his hands as treasurer " Concurwith Comments

The Government Code provides that "He [the treasurer] shall comply with all laws governing the deposit and securing of public funds... in his possession." Concurwith Comments

The California Government Code provides that "He [the treasurerl shall pay out money only on warrants signed by legally designated persons." Concurwith Comments

Sections of the Government Code referred to above are internal controls mandated by State law to protect the assets of the State and Iocal agencies. Concurwith Comments

California law provides that "An officer or employee of a local agency who deposits money belonging to, or in the custody of the local agency in any other manner than prescribed in this article is subject, to forfeiture of his office or employment." Government Code 53681. Concurwith Comments

In addition to the "yearly minimum amount" to be paid to High Tide, the City is obligated to pay High Tide a percentage of the "annual gross receipts...as described in Exhibit C,..." to the Second Agreement. Concur Attachment1 PagefParagraph sf10G Affachment1

Exhibit C defines "gross receipts" and establishes "Minimum Base Revenues" for ten years beginning July 1, 1999. Concur Attachment1 I

`fGross receipts" defined Exhibit C different than "all from as in is revenues the operation of the golf course.. " Concurwith Comments

"Base Revenue" defined Exhibit C "the Gross Receipts derived is in as from all Golf Course operations except receipts from goif lessons." Concur Aftachment1 -40

The amount ofthe Gross Receipts to be paid to High Tide, addition to the in "minimum yearly amount," determined by percentage to the extent to which is a "Base Revenue" exceeds that stated "Minimum Base Revenue" for the year in which the payment is to be made. Concur Aftachment1 -40 15 F=70. In practce, rather than the City paying High Tide Jts Exhibit C "profit share" as required under the Agreement, High Tide pays the City's share of Exhibit C money to the City out of the High Tide corporate "joint accounts" in a highly publicized ceremony. Disagree

The respective compensation of Operator and City calculated at the end is of each fiscal year after completion of the independent audit pursuant to Exhibit C of the Second Agreement. The City does not publicize Operator's annual comprehensive of goff operations to City Council except part of the City Council review course as a agenda. There was never a joint account. See response to F-32. Attachment1 Page/Paragraph 5/1Oa Aftachment1 -40

The percentage af "Base Revenue" to be paid inversely scaled excess is starting at ary percent (50%) of any excess between $1 and $300,000 and ending at twenty-five percent (25%) for such $400,000. excess over Concur Aftachment1 -40

The "profit sharing" provisions of Exhibit C are apparently calculated at times other than provided for the Agreement (end of the "Period," the Fiscal in year) and recorded "Salaries, Wages and Benefits" the City's books. are as on Disagree

Under Exhibit C payment to High Tide under Gross Receipts percentage provisions shall not exceed the "minimum yearly amount," apparently referred to Exhibit C "the period amount provided for the Business Plan." in as minimum in Concur Attachment1 -40 River Ridoe Bond Financing & Debt

In 1984 the City issued $11,890,000.00 Leasehold Mortgage Revenue in Bonds for construction oO River Ridge for which the Golf Course was posted as collateral. Concur 16 1

In 1988 the debt created in 1984 to build the GoIf Course was refinanced at cost of $16,422,541.34 used to refund bondholders of the original debt issuance a in order to reduce interest on the debt and change the call date. The Golf Course remained coilateral for the debt. as Concurwith Comments I

For at the time of the issuance of the i'Refunding Bonds" various reasons, I 1988 only nominal amount of the principal had been paid ($65,000.00). in a Concur I

In 1993 the River Ridge debt, along with other outstanding bond issues of the City, again refinanced with Lease Revenue Refunding Bonds in the was amount of $31,565,000.00, of which $15,795,000.00 related to Refunding was I Bonds. Concur

Under the second refunding debt issue in 1993 the Golf Course was no longer pledged collateral. The collateral for the 1993 refinancing the City as was Hall and other City assets. Concur

As of October 2002 there remains $11,870,000.00 in debt remaining related to River Ridge. This obligation of the general fund of the City and not the is an Golf Course. Concur

The original projections of the City for of repayment of the Goif sources Course construction debt excessively optimistic and realized. were never Disaoree

The City considers River Ridge recreational and part of the a resource City's open space and as such is not expected to repay the bonds with River Ridge revenue. Disaaree

The Ciy's general fund contributes toward the debt originally service incurred for the construction of the golf The go10 operation's net course. course perating provided to the City have been approximately $400,000 annually. revenues F-83. The interest on the debt remaining attributable to River Ridge construction approximately $500,000.00 annually. is Disagree

Interest and principal are fully amortized ove'r the life of the bonds, meaning that the annual payment generally the but the interest portion and is same principal portion vary each year. Selected Contract Deficiencies F-84. Yhe provisions for the maintenance of and for the conduct of operations from the "Joint Account" appear to the Grand Jury to be contrary to State law. Disaoree F-84 There was never a joint account. See response to F-32. F-85. There is no contractual provisian that establishes ownership of the money resulting from under-runs of the Operating and Capital Investment Budgets. Concurwith Comments F-85 See response to F-53. F-86. Operator contractually absolved of accountability for the budgets it is presents to the City but takes the under=runs from those budgets as profit. Disagree F-86 Operator not contractually absolved from responsibility for the budget. is Operator submis budget yearly basis, which budget is examined and approved a on a by City Council. Thereafter, if previously unanticipated expenses arise, Operator may request adjustments from the City Manager, who may, but is not required to, increase the budget by up to three percent. On a monthly basis, Operator submis to the City Manager statement showing budgeted and actual expenditures. a I There is provision in the Second Agreement which requires the City to pay to no Operatar amounts greater than set forth in the budget the Annual Business Plan, I in except to the extent that revenue exceeds the Minimum Base Revenue set forth in Exhibit C. I Operator is required to operate a first class golf course facility as provided in paragraph 9& City has the right to terminate the agreement if the budget is not reasonable and ithe golf course is not operated as a first class facility, as provided in the Second Agreement, see, e.g. paragraphs 43-45. AffachmentlPage4 12 39 40 F-87. Unlike the Original Agreement, there is Termination for the Convenience no of the City the Second Agreement. in Concur Affachment2 F-88. The Dispute Resolution Procedure Article provides that the city and High Tide will "request the Presiding Judge...to provide list of names..." the initial a as act for the process of selection of an arbitrator for an unresolved dispute and does not delineate governing procedure or restrict venue. Concur A~achment1 Page/Paragraph 12/44 F-89. Though the Second Agreement requires the Operator to maintain appropriate books and records and to set up internal controls, the agreement does not specifically provide the City with the right to access, examine and copy those books and records in such detail that the City could, if moved to do so, appropriatelyaudit those books and records. Disagree F-89 Paragraph 24a provides the City with the ability to and access, examine copy any of Operator's records. Attachment1 Page/Paragraph 8/24a 19 F-90. There is no provision for excluding golf lesson fees from Golf Course to be deposited the so-called "JointAccount." revenue in Disagree F-90 River Ridge GoW Club is defined "Base Revenue," which "shall revenue as the Gross Receipts derived from all golf operations except receipts from mean course golf lessons." There was never a joint account. See response to F-32. Aftachment1 -40 F-91. There are no provisions for the exceptional administration and accounting practices presently utilized under oral agreement for special events, tournaments and the like. Disagree F-91 Provisions contained the lefter dated January 29, 1996 from are in Operator to the City's Project Manager. These provisions are reconfirmed in wr0ing each year by the Project Manager as a part of the independent audit. AffachmentIPage/Paragraph 10 7/33b 20 Affachment 9 AUachment 10 20 Conclusions I C-1. The Agreement's extension provisions shield the venture from competition. (F-2, 3, 5, 6, 8, 10) Second- c-l The intent of the Agreement was to establish a long-term relationship. Both the City and Operator underitood that the development of the River potentil Ridge Golf Club to achieve its as a top quality facility was a lengthy process. In order to develop relationships with the community and the facility users, that process required continuity the River Ridge Golf Club operation. At the end of the ten-year in period the City has the option, if the City satisfied with Operator's performance, to is enter into negotiations with Operator (if Operator desires to do so) for another ten-year period. C-2. Under current "lock-in" provisions, there is only one very unlikely possibility that the Operator will not have the absolute right, subject only to good faith negotiation, to become the manager of the Golf Course should it be expanded and that is if a third party pays for the entire construction of the added 18 holes and claims the rightto operate, maintain and manage the compteted Golf Cou (F-5-8) FSe. C-2 The City disagrees with Grand Jury Finding F-8. The City also disagrees that there are any "lock-in" provisions in the Second Agreement, which is a performance-based contract. The City agrees that the intent was to retain Operator to manage any expansion of the River Ridge Golf Club should 0 materialize within the ten year time frame outlined by the Second Agreement "subject to good faith negotiation" See response to F-8. C-3. Independent Auditor's Reports accepted by the City not accordance are in with Article 21 of the Agreement, cited above, in that they do not constitute an audit of the financial statements of High Tide and do not include statement that a "the financial statements prepared compliance with generaily accepted were in accounting principles." (F-15-17) C-3 The City with comments F-15 and F-17 of the Grand Jury- The concurs independent auditor's reports reported accordance with generally ensure revenue is in accepted accounting principles. The the only portion of the financial revenue is statement that of to the City. Operator's planned expenditures examined is concern are in publicly noticed meetings during the budget process. See response to F-15 and F- 17. Cq4. The recording of "profit sharing" the City's records "Salaries, Wages on as and Benefits" is improper in that it does not with reasonable accuracy reflect the underlying transaction. (F-12, 13, 15) C-4 The City disagrees with the Grand Jury's conclusion. The City records golf course profit sharing under golf course revenue account number 651-6401-615- 7751. C-S. The absence of independent audit required by the Agreement has an as potentially permitted undisciplined accounting practices and procedures. (F-16, 17, 23) C-S The City disagrees wRh the Grand Jury's conclusion. There are independent auditor's reports that reported accordance with ensure revenue is in generally accepted accounting principles. The independent auditor's reports and findings the financial reports meet professional standards. ensure C=6. There are no written internal controls, approved or otherwise, for High Tide Golf Course operations that would permit and facilitate efficient audit of those an operations. (F-18-21) C-6 The City disagrees with the Grand Jury's conclusion. Internal controls prepared by Operator and the independent auditor with each agreement. These were controls facilitate an efficient audit of revenue on an annual basis. See response to F- 21. C-7. Lack of City approved written internal financial control required by the a as Agreement has exposed the system to potential manipulation and would inhibit the performance of any compliance audit. (F-18-21,23) C-7 The City disagrees with the Grand Jury's conclusion. See response to c-s and C-6. C-8. The Agreement's financial accounting processes are unduly vague and (F-1417, 22, 23) arcane. C-8 The City disagrees with Grand Jury's conclusion. The Second Agreement's financial accounting procedures are open and automated, and employ modern accounting sofvare. The independent auditor had problems no concerns or with the accounting processes, nor did the independent auditor arrive at the same conclusion the Grand Jury. as 22 C-9. The City has not retained or assured adequate audit rights. (F-19-21, 23, 57, i 62) C-9 The City disagrees with the conclusion of the Grand Jury. The CUy disagreeswith F19-21 and F-23, which the basis for conclusion C-9. are C-10. The City has not adequately exercised such audit rights as it possesses. I (F-22, 23, 33, 34, 38) I C-10 The City disagrees with the conclusion of the Grand Jury. The City has already commented its disagreement wih Grand Jury's finding F-23, which is on apparently the basis of the Grand Jury's conclusion. The City has adequately protected I its financial interest by receiving an annual revenue audit as previously stated. C-11. Revenue from Golf Course operations is the City's money. (F-25-32, 37, 45, 46, 51-55, 67-70) The City disagrees with the conclusions of the Grand Jury contained in Conclusions C-11 through C-20. Because those conclusions the concern same issues, City comments following C-20- pertain to all those conclusions. C-12. It appears to the Grand Jury that the Agreement to deposit the City's from the operation of River Ridge Golf Course into the corporate revenue accounts of High Tide is improper under California Law. (F-25-32, 38, 53, 54, 57- 60, 62, 63) The City disagrees with the conclusions of the Grand Jury contained in Conclusions C-11 through C-20. Because those conclusions the Jssues, concern same City comments following C-20 pertaiR to all those conclusions. C-13. The Agreement's provision for "joint accounts" has been revised a never and, though improper, is not followed. (F27-30, 34, 37, 47, 48) The City disagrees wRh the conclusions of the Grand Jury contained in Conclusions C-11 through C-20. Because those conclusions the concern same issues, City comments following C-20 pertain to all those conclusions. WRh regard to C-13, the City disagrees with the conclusion of the Grand Jury for the reasons stated in the City's comments to F-27 and F-32. C-14. Money in the hands of the City's agent for collection of money is in the hands ofthe City. (F-26-32, 38, 47, 53-56, 69) The City disagrees with the conclusions of the Grand Jury contained Jn Conclusions C-11 through C-20. Because those conclusions the concern same issues, City comments following C-20 pertain to all those conclusions. C-15. Permitting High Tides to operate its financial business with City money deposited in its corporate accounts appears to the Grand Jury to be imprcper under California law, contrary to the provisions of the Agreement and avoids reasonable and mandated internal controls over City money. (F-28-33, 45, 47-49, 54, 56-58, 60, 63) The City disagrees with the conclusions of the Grand Jury contained in Conclusions C-11 through C-20. Because those conciusions the concern same issues, City comments following C-20 pertain to all those conclusions. C-16. Permitting High Tide to pay itself and its creditors City money in its operation of River Ridge appears to the Grand Jury to be contrary to the internal controls for the deposit and disbursement of CJty funds mandated by California law. (F-12, 23, 26, 29, 31,54-63) The City disagrees with the conclusions of the Grand Jury contained in Conclusions C-11 through C-20. Because those conclusions the concern same issues, Cay comments following C-20 pertain to all those conclusions. C-17. With respect to the deposit of City funds by the City's agent it appears to the Grand Jury that the City Treasurer has not complied with the requirements of California law described above. (F-26, 30, 31, 38, 47, 57, 58-60, 62) as The City disagrees with the conclusions of the Grand Jury contained in Conclusions C-11 through C-20. Because those conclusions the issues, concern same City comments following C-20 pertain to all those conclusions. C-18. In the case of the bank deposit of City funds by the City's agent it appears to the Grand Jury that the City may not now and may never have been in compliance with California law with respect to the collection and deposit of its money relative to the operation of River Ridge. (F-25-27, 29, 30, 32, 37, 38, 45, 47, 56-60, 62) The CRy disagrees with the conclusions of the Grand Jury contaJned in Conclusions C-11 through C-20. Because those conclusions the concern same issues, City comments following C-20 pertain to all those conclusions. C-19. In the opinion of the Grand Jury the City has circumvented the internal controls mandated by the Government and Finance Codes. (F-20, 23, 25-27, 29n34J 37, 38, 45-47, 54, 55, 57-60, 62) The City disagrees with the conclusions of the Grand Jury contained in Conclusions C-11 through C-20. Because those conclusions the issues, concern same CRy comments following C-20 pertain to all those conclusions. C-20. In the opinion of the Grand Jury, responsible officials with the City have not properly carried out their fiduciary duties with respect to their financial management and the accountability of the River Ridge Golf Course. (F-10, 16, 20, 21,23, 26, 27, 29-32, 44, 50, 52, 53, 54-56, 57-63) C-11 through C-20 The City disagrees wih the conclusions of the Grand Jury contained in Conclusions C-11 through C-20. Because those conclusions concern the same issues, City ccmments following C-20 pertain to all those conclusions. As stated in the City's comments concerning some other items in the Grand Jury's report (e.g., F-27 and F-32), the "joini account" referred to the Second in Agreement opened. The only bank accounts into which from the was never revenues operation of the golf course were depos0ed and expenses for operation of the golf paid Operator's alone. See Affachment 19. course were were in name Both agreements required Operator "to manage the day-to-day financial affairs of the Golf Course" (Original Agreement and Second Agreement section 15); to establish "bank accounts required forthe operation, maintenance and management ofthe Goff as Course" (Original Agreement section 24; Second Agreement section 23); and to exercise certain "management prerogatives," including "the collection of proceeds, the incurring of trade debts, the approval and payment of checks and the negotiating and signing of licenses and contracts" (Original Agreement section 35; Second Agreement section 33). The agreements provided that Operator did not act the City's agent, "except as as City may specify in wriing" (Original Agreement section 57; Second Agreement section 52). By leuer dated February 7, 1994, the City Treasurer notified the Ventura County National Bank, where Operator maintained golf bank account, that the a course Cay conveyed to Operator "the right to act agent for the River Ridge Golf Club which as is owned by the City" and to accept checks in the name of the golf course; and that the title of the account should be the name of Operator "as agent for River Ridge Golf Club River Ridge Golf Course." or Money derived from the operation of the golf collected by Operator and COUFSej deposited in Operator's goff course bank accounts was not at that point money to which the City was entitled. Section 10 of the agreements required the City to pay Operatorfor Operalor's services. As the Grand Jury noted (e.g., F-46, F-47 and F-70), Operator deducted payments for Operator's services from money that Operator collected from golf course operations and deposited in Operator's golf course bank accounts. Annually, Operator paid the City as called for in the agreements, by writing a check to the City on Operator's golf course bank accounts. The City Treasurer deposited that check in City bank accounts, to which Operator was not a party. Based the foregoing background, the City disagrees with statements C-11, on in C-12, C-15, C-16, C-17 and C-18 that characterize money in Operator's golf course bank accounts "City money" "City funds" and from goif operations as or revenue course "Cy revenue." For the the City disagrees with the statement in C-14 as same reasons, (see also the City's response to F56). Further, based the foregoing background, the City disagrees with statements on and implications C-12, C-15, C-16, C-17, C-18, C-19 and C-20 that the City violated in sections of the Government Code set out Attachments C and D to the Grand Jury in report and sections of the Financial Code that the Grand Jury did not identify. The Government Code sections concern money collected, received, possessed, in the hands of deposited by officers employees of the City, including the City Treasurer. or or With rega,rd to the agreements in question, such statutes do not app)y to money derived from golf course operations while such money is in the hands of Operator, which is not a CUy officer or employee. When Operator makes the annual payment to the City pursuant to the agreements, that payment into the hands of the City Treasurer comes and is subject to the statutes in question. If the conclusions under discussion also rely on the provision of the California ConstUution set out Aftachment B to the Grand Jury report, the City has previously in commented (see response to F-57) that such provision is a restriction on the powers of the State Legislature, not on the powers of local agencies, and does not prohibit the financial arrangements between the City and Operator contained the Agreements. in C-21. Public bond financing of River Ridge, though not improper, has been presented to the public in such a way as to obscure the true cost of River Ridge. (F-69, 77-80) C-21 The City disagrees with the Grand Jury's conclusion. The bonds have been refunded and refinanced on occasion to take advantage of favorable interest rates and markets and have been considered and approved by the City Council during duly noticed public meetings. C-22. Profit accounting processes and the City's presentation of them to the public mislead the public with respect to the "profitability" of River Ridge. (F-69, 77=80) C-22 The City disagrees wUh the Grand Jury's conclusion. The primary purpose of the River Ridge Golf Club to communUy recreational asset, not to make is serve as a a profit. Operator's annual presentation to the City Council is a status report on the River Ridge Golf Club and includes an account of the net operating revenues from the River Ridge Golf Club. In addition, information regarding the financial operations and bonded indebtedness related to the golf course are available in the annual budgets for the City and the Comprehensive Annual Financial Report (CAFR). C-23. The City's and High Tide's divergent statements with respect to the disposition of amounts resulting from budget under-runs further indicates that neither the City nor High Tide understands or adequately controls the revenue stream. (F-23, 52, 53) C-23 The City disagrees with the conclusion of the Grand Jury. The City believes that through the independent audi, option to review bank statements, approval of the River Ridge Golf Club budget, Operator's books and records, and the City's procedural controls, the City's interest in the revenue stream is adequately protected. The divergent statements derive from the reference to the Original Agreement and the Second Agreement. Under the Original Agreement, Operator agreed to add budget under-runs to the profit share formula even though Operator was not obliged to do so. This practice discussed during negotiation of the Second Agreement and both was parties understood that Operator would longer add budget under-runs to the profit no share. C-24. The Agreement to manage River Ridge is severely contractually deficient in many respects. (F-84=91) C-24 The City disagre-es with the Grand Jury conclusion for previously reasons stated. C-25. The Agreement to manage River Ridge lacks a Termination for Convenience Article. (F-10, 87) C-25 The City agrees with the Grand Jury's conclusion. The City decided during the development of the Second Agreement to eliminate the Termination for Convenience provision. in the City's and Operator's judgment, termination for a convenience provision was unnecessary. Further, the City has several ather provisions in the Second Agreement that would allow the City to terminate the Agreement with Operator for cause. Those provisions protect the City should the City desire to remove Operatorfor poor performance. C-26. The Dispute Resolution Procedure Article is deficient that the method set in forth may not be effective because there is no explicit authority for the Superior Court to appoint an arbitrator or arbitrators except on petition under certain defined statutory circumstances and then accordance with procedural rules set in forth at Code Civ. Proc., Section 1281.6. (F-88) C-26 The City disagrees wUh the Grand Jury's conclusion. The dispute resolution procedure conforms to standard and customary practice in agreements of this kind and adequately protects the City. C-27. The Dispute Resolution Procedure Article also deficient that contrary is in to good contracting practice it does not provide guidance with respect to what procedural rules will be used in any arbitration nor does it prescribe the for resolution ofthe dispute. (F-88) venue C-27 The City disagrees with the Grand Jury's conclusion. The dispute resolution procedure article conforms to standard and customary practice agreements of this in ktnd and adequately protects the City.

Yhe provisions for the maintenance of and for the conduct of operations from the "Joint Account" appear to the Grand Jury to be contrary to State law. Disaoree

There is no contractual provisian that establishes ownership of the money resulting from under-runs of the Operating and Capital Investment Budgets. Concurwith Comments

Operator contractually absolved of accountability for the budgets it is presents to the City but takes the under=runs from those budgets as profit. Disagree

Unlike the Original Agreement, there is Termination for the Convenience no of the City the Second Agreement. in Concur Affachment2

The Dispute Resolution Procedure Article provides that the city and High Tide will "request the Presiding Judge...to provide list of names..." the initial a as act for the process of selection of an arbitrator for an unresolved dispute and does not delineate governing procedure or restrict venue. Concur A~achment1 Page/Paragraph 12/44

Though the Second Agreement requires the Operator to maintain appropriate books and records and to set up internal controls, the agreement does not specifically provide the City with the right to access, examine and copy those books and records in such detail that the City could, if moved to do so, appropriatelyaudit those books and records. Disagree

There is no provision for excluding golf lesson fees from Golf Course to be deposited the so-called "JointAccount." revenue in Disagree

There are no provisions for the exceptional administration and accounting practices presently utilized under oral agreement for special events, tournaments and the like. Disagree