Holyfield & Thomas, LLC

from TDC Board Book May 11, 2023

by Tourist Development Council PBC

Event Fact Sheet

Public Accountants & Advisors

125 Butler Street  West Palm Beach, FL 33407

(561)689-6000  Fax (561) 689-6001  www.holyfieldandthomas.com

To Management and the Audit Committee of Discover Palm Beach County, Inc.

West Palm Beach, Florida

Ladies and Gentlemen:

In planning and performing our audit of the financial statements of Discover Palm Beach County, Inc. (the “Organization”) as of and for the year ended September 30, 2022, in accordance with auditing standards generally accepted in the United States of America (U.S GAAP), we considered the Organization’s internal control over financial reporting (internal control) as a basis for designing audit procedures that are appropriate in the circumstances for the purpose of expressing our opinion on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the Organization’s internal control. Accordingly, we do not express an opinion on the effectiveness of the Organization’s internal control.

Definitions Related to Internal Control Deficiencies

A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, misstatements on a timely basis. A material weakness is a deficiency or a combination of deficiencies in internal control, such that there is a reasonable possibility that a material misstatement of the Organization’s financial statements will not be prevented, or detected and corrected, on a timely basis. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance.

Our Responsibilities

Our consideration of internal control was for the limited purpose described in the first paragraph and was not designed to identify all deficiencies in internal control that might be significant deficiencies or material weaknesses. Given these limitations, during our audit we did not identify material weaknesses in internal control, although material weaknesses may exist. However, we do provide a current status remark concerning deficienciesin internal control arising from the prior engagement that we considered to be a significant deficiency, an internal control matter that is of a lesser magnitude, or a comment for your consideration in addressing best practices in internal control.

Prior Year Comments

We considered the following comments to represent either a significant deficiency or a matter less than a significant deficiency in internal control:

21-01 – Cash Account – Significant Deficiency

During our prior audit, we became aware that in April 2021 the Organization opened a new cash account with a different bank for the purpose of facilitating the loan proceeds obtained under the Paycheck Protection Program (“PPP”). We understand that the TDC and Board of Directors were fully aware of the PPP loan, however given the unique circumstances and singular purpose surrounding this arrangement, the account balance and activity was not reflected in the Organization’s general ledger. At fiscal year-end there was $197.00 balance in the account. Our audit work included creating an adjusting journal entry to record the bank balance and activities since the account was opened. We understand the unprecedented and unique financial assistance made by the CARES Act, and the urgent steps taken by Organizations to obtain this valuable funding. Nonetheless, to avoid the risk of possible misstatements and unreported transactions, we recommended that Management record all cash activities and reconcile all bank accounts on a timely basis.

Management response: The opening of this bank account was disclosed to both the TDC and our board in multiple meetings and periodic updates were given on the progress of the loan and subsequent forgiveness. We have provided examples of this disclosure under separate cover. Both the CEO and SVP of finance signed the paperwork opening the account. The intent was to open the account, utilize the funds, close the account, and apply for forgiveness all in the series of a few months. In our haste to secure these funds and apply for forgiveness on behalf of the County we omitted recording the individual bank transactions monthly. However, each month the bank statement activity was reviewed by the SVP finance and Sr Director, to ensure the amount being wired to the County account matched the amount of our payroll. We acknowledge the net balance remaining in the account at the end of the year was $197.00 and this account was subsequently closed in October. While we believe this was a one-off issue given the unique circumstances of securing the PPP funding, we understand the need for recording all cash transactions on a timely basis and will ensure that any future bank accounts that are opened will be properly reflected on the balance sheet.

Current status: Our audit procedures did not find any further discrepancies in this area

21-02 – Paycheck Protection Program and Employee Retention Credit

During our prior audit, we noticed that the Organization recorded the proceeds from the PPP loan and Employee Retention credit (ERC) as a reduction of payroll and payroll taxes for the amount received during the fiscal year In addition, the Organization was able to amend its 2020 forms 941 in order to request additional credit under the ERC program, but this amount was not recorded as receivable and grant income or negative expense in the year claimed This is another transaction unique to pandemic relief provisions, and we recommended that attention be given to all activities pertaining to the ERC to ensure proper income recognition.

Management response: Per the requirements of our contract, we are required to submit expenses to the County net of any private funds received as an offset. As a result, we applied the PPP funds to each payroll as a reduction of the expense, which eliminated the need to bill the County for any payroll expenses during this time. In doing so, we inadvertently recorded our payroll expenses at this reduced amount instead of recording the grant income and payable. Regarding the ERC credits, we received the credits for our FY21 application over the course of the year in 2021 and provided all the monies back to the county. We did not receive any correspondence from our Payroll provider or the IRS regarding our FY20 amended application so we were unsure if our application would be approved. Upon review by our auditors, we reached out to the IRS and confirmed that our application was still under review 8 months after submission and that they were significantly behind on processing these refunds. As a result, we realized a receivable needed to be added to our financials While we believe this was a one-off issue given the unique circumstances of securing these credits, we acknowledge the need for a more timely follow-up on the status of these items.

Current status: Our audit procedures did not find any further discrepancies in this area.

21-03 – Control over the Payroll Process

During our prior audit, we became aware that starting in April 2021 (concurrent with the PPP activity) payroll expenseswere recorded based on the amounts paid, which were net of employee withholdings. Generally Accepted Accounting Principles requires employee salaries to be recorded gross and related payable for payroll taxes and withholdings We recommended that Management review and ensure the proper recording of payroll.

Management response:We acknowledge this error began during the application of the PPP funds against the payroll expense obligation to the County. Per the requirements of our contract, we are to submit expenses to the County net of any private funds received as an offset. As a result, we applied the PPP funds to each payroll as a reduction of the expense which eliminated the need to bill the county for any payroll expenses during this time. In doing so, we recorded our payroll expenses at this reduced amount instead of recording the gross payroll expense. We brought this issue up to the TDC in November to recover the funds that were underbilled to the County and were granted an opportunity to resubmit them against our FY22 budget.

The entire payroll process has been revamped as of January14th by using the GL reporting module offered by the payroll provider to assist with automating the expensing of the amount paid each cycle. This eliminates the manual process of summarizing the payroll data by department and pay type and automatically creates accurate invoice totals that need to be billed to the County. As a result of this automation, we have significantly reduced the amount of time we need to process each payroll, create the invoice and expense in the Financial System. This new process has been documented and vetted with the auditors and will eliminate this issue from occurring in the future. Lastly, we will complete a year end reconciliation to act as a secondary confirmation that no amounts have been missed on the General Ledger or on the billing to the County.

Current status: Our audit procedures did not find any further discrepancies in this area

Identified Deficiencies in Internal Control

20-02– Pre-audit review

It is our observation that the Organization would benefit by reducing time invested by management in the audit process if a more in-depth review of the information and schedules are done in advance of the audit field work commencement date. Additionally, we recommended that the total contract income from Palm Beach County be reconciled on a monthly basis with the total contract expense. This would reduce many year-end adjustments and time to research variances.

Management’s response: Management acknowledges the need to enhance our year end process to include a more in-depth review of the open transactions outstanding with the clerk More effort also needs to be placed into proactively addressing non-contract related expense and revenue items, including Credit Memos to ensure they are properly accounted for This year was complicated by the unprocessed FY20 transactions that were outstanding with the Clerk for 90 days and were eventually returned to us unpaid and unapplied. These included the $570k Stimulus related invoices and a $200k Credit memo that were still unprocessed with the clerk as of January 31, 2021. In addition, we have revised our process for handling billings to the TDC to ensure that transactions outside of our budget are not recorded twice (By DTPB and TDC). This is our single biggest area of focus and we are fully committing to eliminating this control deficiency in FY21 and we have already created a new Process and Procedures document to address these items.

Current status: During our current audit we noticed a significant improvement in reconciling the County Contract. This resulted in far fewer adjusting entries than were necessary during the prior engagement.

20-03– Proper Cut-off at Year End (See below 16-02)

16-02 – Proper Cut-off at Year End

During this year and prior year audits, several journal entries were recorded to achieve proper cut-off at year-end. Generally Accepted Accounting Principles require transactions to be recorded in the correct period. We recommended that attention be given to transaction dates to ensure the proper period is posted.

Management’s response: The processing of transactions at year-end continues to be a challenge due to the managing of expenses between the contract reimbursement process, which is in a cash basis and the financial reporting time frame, which is on an accrual basis As a result of the in-depth review of the Fiscal Year End process, we have now created a comprehensive Year-end checklist for FY20 that we are confident will significantly reduce the volume of adjusting entries required in order to reconcile back to the county funding report.

Current status: We noted during our current audit that Management continues to make significant improvement in this area

Discover Palm Beach County, Inc.

April 7, 2023

Page 5

The Organization’s written response to the comments mentioned above have not been subjected to the audit procedures applied in the audit of the financial statements and, accordingly, we express no opinion on them.

This communication is intended solely for the information and use of Management, the Audit Committee, and others within the Organization, and is not intended to be, and should not be, used by anyone other than these specified parties.