FY 2002

Audit Recommendations

The accounting

firm Mauldin & Jenkins made the following recommendation in the Audit

for the year ending September 30, 2002:

"During

our audit for the year ending September 30, 2002, we noted that key members

of management did not contain an adequate level of knowledge and control

over the accounting function. We encountered several examples of this

throughout the audit, including not being furnished with amounts owed

was complete. Management should take more of a role in the accounting

function of the Authority and obtain the knowledge necessary to make management

decisions."

Individual

Authority members have worked diligently with staff on this issue even

helping re-format the budget report; however, much of the information

received by the Authority is still vague and it is difficult for members

to have confidence in the financial picture as presented. (See Exhibit

B)

Cash flow

problems

The DAPC sent

approximately $130,000 more than it received from all revenue sources

in FY 2002. The Authority passed a balanced budget for FY 2003 based on

the expectation that the share of the Hotel-Motel tax would be reduced.

Conservative revenue estimates from the two event facilities were also

used in the development of the budget. The city did not reduce the DAPC

share of the Hotel-Motel tax. This fact combined with increased ticket

prices at the Amphitheater, led me to believe the DAPC would operate within

the FY2003 budget. We received highly optimistic financial reports throughout

the year and I was stunned to learn on September 15, two weeks before

the end of the fiscal year, of serious cash flow problems. It was clear

from the information provided that the DAPC would have difficulty meeting

the final payroll ($36,000) and paying the band ($50,000) for the last

performance of the concert series on September 26 and 27. Three Authority

members have been placed in the untenable position of meeting with staff

to resolve this problem. The best action seems to be to defer payments

to vendors, which in some cases are past due, and "hold" checks

that are already written but have not been mailed. Borrowing is not an

option because of our commitment to City Council not to borrow funds.

Unfortunately, the necessary deferrals of major financial obligations

will contribute to even more severe cash flow problems in the new budget

year.

This needs

attention and is being resolved immediately.

Conversion

to In-House Accounting

Prior to this

year, the DAPC utilized the services of an outside accountant to maintain

the Authority's financial records and to prepare checks. This responsibility

was assigned to Tennis Center staff under the direction of the Executive

Director as a cost cutting measure. The services of an outside accountant

established checks and balances which helped identify potential cash-flow

problems more quickly. This major change was made without the vote of

the Authority. The Authority should give serious consideration to immediately

engaging the services of an outside accountant.

Hiring Freeze

The DAPC voted

and approved a hiring freeze several months ago to insure that it stayed

within budget in FY 2003. The Executive Director has subsequently replaced

two full-time and two part-time employees in clear violation of the mandate.

There was never a vote by the Authority to make an exception or waive

the hiring freeze. I believe the workload of the departing employees could

have been absorbed by existing staff at considerable savings to the DAPC.

The hiring

freeze should be followed or action taken to rescind it.

Capital

Projects

There has been

no consolidated final report to the DAPC or to the public detailing the

exact expenditures and final cost related to the Amphitheater administrative

office/SCT building renovation (Approximately $200,000) or the Tennis

Center expansion project (Approximately $2,000,000). Members of the Authority

have been provided with a variety of somewhat disconnected change orders,

contracts, and partial lists of unpaid suppliers and sub-contractors.

It is very difficult for anyone to clearly understand the total financial

picture related to these capital expenditures.

This issue

is particularly important because of the controversy related to the cost

over-runs and the Authority's present inability to pay very large amounts

of money owed to Group VI and other companies. Some Authority members

were unaware of most of the cost over-runs until the project was complete

and the Mayor was quoted in the newspaper about cost over-runs.

The circumstances

that permitted these cost over-runs without vote of the Authority should

be better clarified and corrected.

Executive

Director's Compensation

The Executive

Director has been paid $30,000 annually. He is also paid a dollar amount

for each tennis lesson taught at the Tennis Center. He effectively determines

his compensation by controlling the number of tennis pros on staff and

promoting the teaching of lessons (e.g. Every ALTA team playing is required

as local facility policy to take lessons as a condition of playing at

the Tennis Center). Emphasis on instruction is good but it should no longer

be directly tied to the Executive Director's compensation. His annual

compensation in FY 2001 was $136,000, in FY 2002 was $139,000 and is projected

to be $130,000 in FY 2003.

A much more

appropriate compensation package and contract for employment has been

prepared and should be implemented as soon as possible if the Authority

elects to maintain the present management structure.

Co-mingling

of funds

Concern has

been expressed by some Authority members about the procedure for separating

revenue for court fees and other DAPC income from money due the Trading

Post (Tennis Pro Shop) from the sale of products such as balls, clothing

and rackets. There has been no accounting report, or other verifiable

indication that these transactions have been completely separated as requested.

I have no reason to believe there is wrong doing in connection with these

transactions; however, an improved reporting system is imperative to document

this needed separation of financial records between the Development Authority

and a private corporation, such as the Trading Post.

Rent for

the Trading Post (Tennis Pro Shop)

The Trading

Post, a privately owned corporation, is open seven days per week utilizing

DAPC employees to sell its products without paying rent for the space

or making contributions to pay for utilities. It is easy for critics to

draw the conclusion that the DAPC, which is partially funded with hotel-motel

tax is subsidizing the overhead of a privately owned company. This potential

problem could be solved by requiring the Trading Post to pay rent for

use of the facility. Also some degree of control and accountability should

be implemented in the utilization of DAPC employees as customer service

representatives to sell products on behalf of the Trading Post.

Elimination

of management committees

Management

Committees for the Amphitheater and the Tennis Center, each consisting

of two or more members of the Authority were created to oversee the operation

of the respective facilities in 2001. This organizational structure permitted

individual Authority members to narrow their focus with respect to direct

oversight while retaining their individual responsibilities on the seven

member board for economic development and broader overall supervision

of both venues. This structure was abandoned after one year and replaced

with a structure which in my view has not proven to be effective from

the standpoint of communication, financial management or oversight. The

need for change is obvious to those who have knowledge of the operation

of both facilities.

cc: City Council

Members

The Adidas contract

Exhibit "A"

Let this serve

as a five-year partnership agreement for Peachtree City Tennis Center/Development

Authority of Peachtree City ("PCTC") (February 18, 2002 - February

18, 2007). Please refer to the following outline:

The following

is what Adidas will receive from the PCTC:

· Designation

as official footwear and apparel sponsor of the PCTC.

· All

teaching staff shall wear exclusively Adidas apparel and footwear.

· Adidas

presence/branding on indoor center roof.

· A "black

diamond" signifying Adidas' corporate sponsorship.

· Official

apparel and footwear sponsor of the Goody's Products USTA Women's Championships

and title sponsorship of the Peach State Junior Tournament.

· One

Main Draw Challenger wildcard for singles in the Goody's Products USTA

Women's Championships to be mutually agreed upon by Peachtree City and

Adidas.

· One

qualifying singles wildcard in the Goody's Products USTA Women's Championships

to be mutually agreed upon by Peachtree City and Adidas.

· The

ability/option for Adidas to host at least one event each year at the

Peachtree City Tennis Center. This includes, but is not limited to:

- A professional

player exhibition featuring Adidas players.

­ Adidas

Invitational Collegiate Championships (every other year, begins in '02

then every other year after).

­ Adidas

Junior Team or Pro "aTTaCk" camps.

- Adidas Advisory

Staff meetings.

· 10 complimentary

rooms nights per year at a local hotel property.

· Official

apparel and footwear of the Peachtree City Junior Academy and USA Southern

Crescent Junior Team Tennis program.

· Adidas

will be profiled and have a logo/link on PCTC official website www.tenniscenter.net.

· Title

sponsorship of the fall junior tournament, here known as "Adidas

Fall Classic," held Oct./Nov. 2002-2007, for as long as the tournament

is held.

· PCTC

will guarantee Adidas sales of $60K the first year (once Pro Shop completed)

and increase this number by 10 percent each contract year as stated above.

[The following

section is handwritten.]

DAPC guarantees

sales to Adidas as follows:

2002 $60,000

+ 0 = $60,000

2003 60,000

+ 6,000 = 66,000

2004 66,000

+ 6,600 = 72,600

2005 72,600

+ 7,260 = 79,860

2006 79,869

+ 7986 = 87,846

Total Guaranteed

Sales $366,306 (per 5 year contract)

[The remainder

is typewritten.]

The following

is what Adidas will provide the Peachtree City Tennis Center:

· Adidas

Retail fixturing in new PCTC Pro Shop, best efforts for an Adidas "concept

shop." All fixturing shall be coordinated with PCTC architects.

· Best

efforts by Adidas to have Peachtree City host national Adidas Sales Meeting.

· Product

sponsorship for the Peachtree National Bank Women's Challenger valued

at $5000 (wholesale).

· Exclusive

outfitting of PCTC teaching staff for a total of (11), spots on the Adidas

Professional Advisory Staff, including Virgil Christian and two others

at level 1.

· The

ability for PCTC to buy product for the Junior Academy at twenty-five

(25) percent below wholesale.

· Adidas

shall purchase a corporate Membership at $10K/year which will be done

in product - this product will be used for ushers and staff at the Frederick

Brown Jr. Amphitheater, Adidas Fall Classic staff shirts, Peach State

Junior Tennis Classic or other NCAA/College events.

· Adidas

to provide T-shirts for each participant in the Peach State Junior Tennis

Classic and Adidas fall classic (Adidas to provide blanks and screen).

· Opportunity

to make an at-once 20 percent below wholesale apparel and footwear order

for the Challenger Event.

· Adidas

to provide mutually agreeable amount of travel bags for Junior Academy

(PCTC to embroider)

This serves

as the entire agreement between Peachtree City Tennis Center (PCTC) and

Adidas America. This agreement may be voided by Adidas if the Development

Authority of Peachtree City does not manage the PCTC. Should Adidas exercise

this option, thirty-day notice is required to be given by Adidas to PCTC.

[The document

is signed by two Adidas representatives, including the "Tennis Promotions

Manager," and by Virgil Christian as executive director, in addition

to a head professional.

Exhibit "B"

Development

Authority of Peachtree City

Audit Agenda

For the Year

Ended September 30, 2002

Accounting

and Related Matters (Continued)

5) Deferred

Revenue The Authority collects membership revenues in advance for quarterly

and annual paying members. These advance payments for memberships are

being recognized in revenue as the receipts of cash are collected. These

advance payments should be recognized as deferred revenue until the period

in which the revenue has been earned.

6) Recording

of Transactions

We noted during

our procedures that the Authority included transfers received from the

City and transfers to the City as net transactions within the Authority's

general ledger. These amounts should be shown in separate accounts for

financial reporting purposes.

7) Accounting

Policies

Overall, it

appears that the Authority still maintains its books on the cash basis

of accounting. To be in conformity with accounting principles generally

accepted in the United States of America, it is required that the Authority

maintain its general ledger on an accrual basis of accounting. This means

that revenue is recognized when it is earned and expenses are recognized

when a liability is incurred.

8) Knowledge

of Accounting

During or audit

for the year ended September 30, 2002 we noted that key members of management

did not contain an adequate level of knowledge and control over the accounting

function. We encountered several examples of this throughout the audit,

including not being furnished with amounts owed by the Authority as of

September 30, 2002 until after our audit fieldwork was complete. Management

should take more of a role in the accounting function of the Authority

and obtain the knowledge necessary to make management decisions.